DEPARTMENT OF HEALTH AND HUMAN SERVICES 45 CFR Parts 144, 147, 153, 155, and 156 [CMS-9954-P]
RIN 0938-AR89
Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment
Parameters for 2015 AGENCY: Centers for Medicare & Me dicaid Services (CMS), HHS.
ACTION: Proposed rule.
SUMMARY: This proposed rule sets forth payment parameters and oversigh t provisions related to the risk adjustment, reinsurance, and risk corridors programs; cost -sharing parameters and cost-sharing reductions; and user fees for Federa lly-facilitated Exchanges. It also proposes additional standards with respect to composite rating, privacy and security of personally identifiable information, the annual open en rollment period for 2015, the actuarial value calculator, the annual lim itation in cost sharing for stand-al one dental plans, the meaningful difference standard for qualified health plans offered through a Federally-facilitated Exchange, patient safety standards for issuers of qualifie d health plans, and the Small Business Health Options Program.
DATES: To be assured consideration, comments mu st be received at one of the addresses provided below, no later than 5 p.m. on [INSERT DATE 30 DAYS AFTER THE DATE OF FILING FOR PUBLIC INSPECTION AT OFR]
ADDRESSES: In commenting, please refer to file code CMS-9954-P. Because of staff and resource limitations, we ca nnot accept comments by facsimile (FAX) transmission. You may submit comments in one of four ways (please choose only one of the ways listed):CMS-9954-P 2
1. Electronically . You may submit electronic comments on this regulation to http://www.regulations.gov. Follow th e "Submit a comment" instructions. 2. By regular mail . You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9954-P, P.O. Box 8016, Baltimore, MD 21244-8016. Please allow sufficient time for mailed comments to be received before the close of the comment period. 3. By express or overnight mail . You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-9954-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850. 4. By hand or courier . Alternatively, you may delive r (by hand or courier) your written comments ONLY to the following addre sses prior to the close of the comment period: a. For delivery in Washington, DC-- Centers for Medicare & Medicaid Services, Department of Health and Human Services, Room 445-G, Hubert H. Humphrey Building,CMS-9954-P 3
200 Independence Avenue, SW., Washington, DC 20201 (Because access to the interior of the H ubert H. Humphrey Building is not readily available to persons without Federal government identification, commenters are encouraged to leave their comments in the CMS drop slots located in the main lobby of the building. A 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: For general information: Sharon Arnold, (301) 492-4286; Laurie McWright, (301) 492-4311; or Jeff Wu, (301) 492-4305. For matters related to student health insurance coverage and composite rating: Jacob Ackerman, (301) 492-4179.CMS-9954-P 4

For matters related to the ri sk adjustment program gene rally, the small group counting requirements, the risk adjustment met hodology, and the methodology for determining the reinsurance contribution rate and payment pa rameters: Kelly Horney, (410) 786-0558. For matters related to reinsurance generally, ove rsight of the premium stabilization programs, distributed data collection, and administrative appeals: Adrianne Glasgow, (410) 786-0686. For matters related to reinsurance co ntributions: Adam Shaw, (410) 786-1019. For matters related to risk corridors : Jaya Ghildiyal, (301) 492-5149. For matters related to cost-s haring reductions, the premium adjustment percentage, and Federally-facilitated Exchange user fees: Johanna Lauer, (301) 492-4397. For matters related to the annual limitation on cost sharing for stan d-alone dental plans, privacy and security of personally identifiable inform ation, the annual open enrollment period for the 2015 benefit year, and the meaningful differen ce standard: Leigha Basini, (301) 492-4380. For matters related to the Small Business Health Options Program: Scott Dafflitto, (301) 492-4198. For matters related to the act uarial value calculator: Allison Wiley at (410)786-1740. For matters related to patient safety standards fo r issuers of qualified hea lth plans: Nidhi Singh Shah, (301) 492-5110. For matters related to netting of payments and charges: Pat Meisol, (410) 786-1917.
SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments received before the close of the comment period are available for viewing by the public , including any persona lly identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the fo llowing Web site as soon as possible after theyCMS-9954-P 5
have been received: http://www.regulations.gov. Fo llow 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 the headquarters of the Centers for Medicare & Medicaid Services, 7500 Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view public comments, phone 1-800-743-3951.
Table of Contents
I. Executive Summary
II. Background
A. Legislative Authority
B. Stakeholder Consultation and Input
C. Structure of Proposed Rule III. Provisions of the Proposed HHS Notice of Benefit and Payment Parameters for 2015 A. Part 144 – Requirements Relatin g to Health Insurance Coverage B. Part 147 – Health Insurance Reform Requirements for the Group and Individual Health Insurance Markets 1. Composite Rating 2. Student Health Insurance Coverage C. Part 153 – Standards Related to Reinsura nce, Risk Corridors, and Risk Adjustment under the Affordable Care Act 1. Provisions and Parameters for the Pe rmanent Risk Adjustment Program a. Risk adjustment user fees b. HHS risk adjustment methodology considerationsCMS-9954-P 6
c. Small group determination for risk adjustment d. Risk adjustment data validation e. HHS audits of issuers of risk adjustment covered plans 2. Provisions and Parameters for the Transitional Reinsurance Program a. Major medical coverage b. Self-insured plans without third party administrators c. Uniform reinsuran ce contribution rate d. Uniform reinsurance payment parameters e. Adjustment options f. Deducting cost-sharing reduction am ounts from reinsurance payments g. Audits h. Same covered life i. Reinsurance contributions and enro llees residing in the territories j. Form 5500 counting method 3. Provisions for the Tempor ary Risk Corridors Program a. Definitions b. Compliance with risk corridors standards c. Participation in the risk corridors program e. Adjustment options for transitional policy 4. Distributed Data Collection for th e HHS-operated Risk Adjustment and Reinsurance Programs a. Discrepancy resolution process b. Default risk adjustment chargeCMS-9954-P 7
D. Part 155 – Exchange Establishment Sta ndards and Other Related Standards under the Affordable Care Act 1. Election to Operate an Exchange after 2014 2. Ability of States to Permit Agents and Brokers to Assist Qualified Individuals, Qualified Employers, or Qualified Employees Enrolling in Qualified Health Plans 3. Privacy and Security of Pers onally Identifiable Information 4. Annual Open Enrollment Period for 2015 5. Functions of a Small Business Health Options Program 6. Eligibility Determination Process for SHOP 7. Application Standards for SHOP E. Part 156 – Health Insurance Issuer Standards under the Affordable Care Act, Including Standards Related to Exchanges 1. Provisions Related to Cost Sharing a. Premium adjustment percentage b. Reduced maximum annual limitation on cost sharing c. Design of cost-sharing reduction plan variations d. Advance payments of cost-sharing reductions 2. Provisions on User Fees for a Federally-facilitated Exchange a. FFE user fee for the 2015 benefit year b. Adjustment of FFE user fee 3. Actuarial Value Calculation for Determining Level of Coverage 4. National Annual Limit on Cost Sharing for Stand-alone Dental Plans in an Exchange 5. Additional Standards Specific to SHOPCMS-9954-P 8
6. Meaningful Difference Standard for Qualified Health Plans in the FFEs 7. Quality Standards: Establishment of Patient Safety Standards for QHPs Issuers 8. Financial Programs a. Netting of payments and charges b. Confirmation of HHS paym ent and collections reports c. Administrative appeals IV. Collection of Information Requirements V. Response to Comments VI. Regulatory Impact Analysis
A. Statement of Need
B. Overall Impact
C. Impact Estimates of the Payment Notice Provisions
D. Regulatory Flexibility Act
E. Unfunded Mandates
F. Federalism
G. Congressional Review Act VII. Regulations Text Acronyms Affordable Care Act The collective term for th e Patient Protection and Affordable Care Act (Pub. L. 111–148) and the Health Care and Education Reconciliation Act of 2010 (Pub. L. 111–152) AV Actuarial Value CFR Code of Federal Regulations CMS Centers for Medicare & Medicaid ServicesCMS-9954-P 9

EHB Essential Health Benefits ERISA Employee Retirement Income Security Act of 1974 (Pub. L. 93-406) FFE Federally-facilitated Exchange FF-SHOP Federally-facilitated Sma ll Business Health Options Program FPL Federal poverty level HCC Hierarchical condition category HHS United States Department of Health and Human Services HIPAA Health Insurance Portabi lity and Accountability Act of 1996 (Pub. L. 104-191) IRS Internal Revenue Service MLR Medical Loss Ratio NAIC National Association of Insurance Commissioners OMB Office of Management and Budget OPM United States Office of Personnel Management PHS Act Public Health Service Act PII Personally identifiable information PSO Patient Safety Organization PRA Paperwork Reduction Act of 1985 PSES Patient safety evaluation system QHP Qualified health plan SHOP Small Business Health Options Program The Code Internal Revenue Code of 1986CMS-9954-P 10

I. Executive Summary Qualified individuals and qualif ied employers are now able to purchase private health insurance coverage that begins as early as January 1, 2014, through competitive marketplaces called Affordable Insurance Exchanges, or “Exchanges” (also calle d Health Insurance Marketplaces, or “Marketplaces”). 1 Individuals who enroll in qualified health plans (QHPs) through individual market Exchanges may receive pr emium tax credits to make health insurance more affordable and financial assistance to redu ce cost sharing for health care services. In 2014, HHS will also operationalize the premium stabili zation programs established by the Affordable Care Act – the risk adjustment, reinsurance, a nd risk corridors programs – which are intended to mitigate the impact of possible adverse selection a nd stabilize the price of health insurance in the individual and small group markets. We believe that these program s, together with other reforms of the Affordable Care Act, will make high-quality health insurance affordable and accessible to millions of Americans. HHS has previously outlined the major provisi ons and parameters related to the advance payments of the premium tax credit, cost-s haring reductions, and premium stabilization programs. This proposed rule proposes additiona l provisions related to the implementation of these programs. Specifically, we propose cer tain oversight provisions for the premium stabilization programs, as well as key paym ent parameters for the 2015 benefit year. The Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014 final rule (78 FR 15410) (2014 Payment Notice) finalized the risk adjustment methodology that HHS will use when it opera tes risk adjustment on behalf of a State.

1 The word “Exchanges” refers to both State Exchange s, also called State-based Exchanges, and Federallyfacilitated Exchanges (FFEs). In this proposed rule, we use the terms “State Exchange” or “FFE” when we are referring to a particular type of Exchange. When we re fer to “FFEs,” we are also referring to State Partnership Exchanges, which are a form of FFE.CMS-9954-P 11
This proposed rule proposes minor updates to this risk adjustment methodology for 2014 to account for certain private market Medicaid e xpansion plans, and seeks comment on how to adjust the geographic cost factor in the payment transfer form ula to account for less populous rating areas in future benefit years. In this pr oposed rule, we also propos e to clarify the counting methods for determining small group size for part icipation in the risk adjustment and risk corridors programs. Using the methodology set forth in the 2014 Pa yment Notice for determining the uniform reinsurance contribution rate and uniform reinsu rance payment parameters, we propose in this rule a 2015 uniform reinsurance contribution ra te of $44 annually per capita, and the 2015 uniform reinsurance payment parameters – a $70,000 attachment point, a $250,000 reinsurance cap, and a 50 percent coinsurance rate. We also propose to decrease th e attachment point for 2014 from $60,000 to $45,000. Additionally, in order to maximize the financial effect of the transitional reinsurance program, we propose that if reinsurance contributions collected for a benefit year exceed the requests for reinsurance pa yments for the benefit year, we would increase the coinsurance rate on our reinsurance payments, ensuring that all of the contributions collected for a benefit year are expended for claims for that benefit year. We also propose several provisions related to cost sharing. First, we propose a methodology for estimating average per capita premium and for calcu lating the premium adjustment percentage for 2015 which is used to set the rate of increase for several parameters detailed in the Affordable Ca re Act, including the maximum annual limitation on cost sharing and the maximum annual limitation on deductibles for health plans in the small group market for 2015. We also propose to set the same reduced maximum annual limitations on cost sharing for the 2015 benefit year as we establ ished for the 2014 benefit year for cost-sharing reduction plan variations. Additionally, we are proposing certain modifi cations to the methodology forCMS-9954-P 12
calculating advance payments for cost-sharing re ductions for the 2015 benefit year. We also propose standards for updating the ac tuarial value (AV) calculator. This proposed rule provides for a 2015 Federally- facilitated Exchange (FFE) user fee rate of 3.5 percent of premium. Additionally, we propose a user fee adjustment allowance for administrative costs in the 2015 benefit year to re imburse third party admini strators that provide payment for contraceptive services for enrollees in certain self-i nsured group health plans that receive an accommodation from the obliga tion to cover these services in 2014. On November 14, 2013, the Federal government announced a policy under which it will not consider certain non-grandfat hered health insurance coverage in the individual or small group market renewed between January 1, 2014, and October 1, 2014, under certain conditions to be out of compliance with specified 2014 mark et rules, and requested that States adopt a similar non-enforcement policy. 2 Issuers have set their 2014 premiums for individual and small group market plans by estimating the health risk of enrollees across a ll of their plans in the respective markets, in accordance with the single risk pool requirement at 45 CFR 156.80. These estimates assumed that individuals currently enrolled in the transi tional plans described a bove would participate in the single risk pools applicable to all non-gr andfathered individual and small group plans, respectively (or a merged risk pool, if required by the State). Individuals who elect to continue coverage in a transitional plan (forgoing premium tax credits a nd cost-sharing reductions that might be available through an Exchange plan, an d the essential health benefits package offered by plans compliant with the 2014 ma rket rules, and perhaps taking advantage of the underwritten

2 Letter to Insurance Commissioners, Center for Consumer Information and Insurance Oversight, November 14, 2013. See http://www.cms.gov/CCIIO/Resources/Letters/D ownloads/commissioner-letter-11-14-2013.PDF

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premiums offered by the transitiona l plan) may have lower health ri sk, on average, than enrollees in individual and small group plans s ubject to the 2014 market rules. If lower health risk individuals remain in a separate risk pool, the transitional policy could increase an issuer’s average expected cl aims cost for plans that comply with the 2014 market rules. Because issuers would have se t premiums for QHPs in accordance with 45 CFR 156.80 based on a risk pool assumed to include the pot entially lower health risk individuals that enroll in the transitional plans, an increase in expected claims costs could lead to unexpected losses. To help address the effects of this transitional policy on the risk pool, we are exploring modifications to a number of programs. We ha ve outlined various options under consideration throughout this proposed rule, in cluding adjustments to the re insurance and risk corridors programs. We are seeking comment on these pr oposals, as well as soliciting suggestions for alternate proposals. As the impact of the tran sitional policy becomes clear er, we will determine what, if any, adjustments are appropriate. The success of the premium stabilization programs depends on a robust oversight program. This proposed rule expands on provisi ons of the Premium Stabilization Rule (77 FR 17220), the 2014 Payment Notice (78 FR 15410), a nd the first and second final Program Integrity Rules (78 FR 54070 and 78 FR 65046). In this proposed rule, we propose that HHS may audit State-operated reinsurance programs, contributing entities, and issuers of risk adjustment covered plans and rein surance eligible-plans. We also clarify participation standards for the risk corridors program, and outline a proposed process for validating risk corridors data submissions and enforcing compliance with the provisions of the risk corridors program. We also propose several provisions regardi ng the HHS-operated risk adjustment data validation process. On June 22, 2013, we issued “The Affordable Care Act HHS-operated RiskCMS-9954-P 14
Adjustment Data Validation Process White Paper” 3 and on June 25, 2013, we held a public meeting to discuss how to best ensure the accuracy and consistency of the data we will use when operating the risk adjustment program on behalf of a State. In this proposed rule, we propose standards for risk adjustment data validati on, including a sampling methodology for the initial validation audit and detailed aud it standards. These proposed st andards would be tested for 2 years before they are used as a basis for payment adjustments. This propo sed rule also includes a proposal to implement, over time, the requirements related to patient safe ty standards that QHP issuers must meet, and proposes reducing the time period for which a State electing to operate an Exchange after 2014 must have in effect an approved, or conditionally approved, Exchange Blueprint and operational r eadiness assessment from at least 12 months to 6.5 months prior to the Exchange’s first effective date of coverage. We also propose pr ovisions related to the privacy and security of personally identifiable inform ation (PII), the annual open enrollment period for 2015, the annual limitation on cost sharing for sta nd-alone dental plans, and the meaningful difference standards for QHPs offered through an FFE. We also propose certain standards for the Small Business Health Options Program (SHO P) and for composite rating in the small group market.
II. Background A. Legislative and Regulatory Overview The Patient Protection and Affordable Ca re Act (Pub. L. 111–148) was enacted on March 23, 2010. The Health Care and Education R econciliation Act of 2010 (Pub. L. 111–152), which amended and revised several provi sions of the Patient Protection and Affordable Care Act, was

3 Available at: https://www.regtap.info/uploads/library/ACA_H HS_OperatedRADVWhitePaper_062213_5CR_062213.pdfCMS-9954-P 15
enacted on March 30, 2010. In this proposed rule, we refer to the two statutes collectively as the “Affordable Care Act.” Section 1302 of the Affordable Care Act di rects the Secretary of Health and Human Services (referred to th roughout this rule as the Secretary) to define EHBs and provides for costsharing limits and AV requirements. Sections 13 02(d)(1) and (d)(2) of the Affordable Care Act describe the determination of th e levels of coverage based on AV. Consistent with section 1302(d)(2)(A) of the Affordable Care Act, AV is calculated based on the provision of EHB to a standard population. Section 1302 (d)(3) of the Affordable Care Act directs the Secretary to develop guidelines that allow for de minimis variation in AV calculations. Section 1311(b)(1)(B) of the Affordable Care Act directs that the SHOP assist qualified small employers in facilitating the enrollment of their employees in QHPs offered in the small group market. Under section 1312(f)(2)(B) of th e Affordable Care Act, beginning in 2017, States will have the option to al low issuers to offer QHPs in th e large group ma rket through the
SHOP. Section 1311(c)(6)(B) of the Affordable Care Act states that the Secret ary is to require an Exchange to provide for annual open enrollment periods for calendar years after the initial enrollment period. Section 1311(h)(1) of the Affordable Care Ac t specifies that a QHP may contract with health care providers and hospitals with more th an 50 beds only if they meet certain patient safety standards, including use of a patient sa fety evaluation system, a comprehensive hospital discharge program, and implementation of health care quality improvement activities. Section 1311(h)(2) of the Affordable Care Act also pr ovides the Secretary flexibility to establish reasonable exceptions to these patient safety requirements and se ction 1311(h)(3) of theCMS-9954-P 16
Affordable Care Act allows the Secretary flexibility to issue regulations to modify the number of beds described in section 1311(h)(1)(A) of the Affordable Care Act. Section 1313 of the Affordable Care Act, co mbined with section 1321 of the Affordable Care Act, provides the Secretary with the author ity to oversee the financial integrity of State Exchanges, their compliance with HHS standard s, and the efficient and non-discriminatory administration of State Exchange activities. Section 1321(a) of the Affordable Care Act provides general authority for the Secretary to establis h standards and regulations to implement the statutory requirements related to Exchanges, QHPs, and other components of Title I of the Affordable Care Act. When operating an FFE under section 1321(c)(1) of the Affordable Care Act, HHS has the authority under sections 1321(c) (1) and 1311(d)(5)(A) of the Affo rdable Care Act to collect and spend user fees. In additi on, 31 U.S.C. 9701 permits a Federal agency to establish a charge for a service provided by the agency. Office of Management and Budget (OMB) Circular A-25 Revised establishes Federal policy regarding user fees and specifies that a user charge will be assessed against each identifiable recipient for sp ecial benefits derived from Federal activities beyond those received by the general public. Section 1341 of the Affordable Care Act re quires the establishment of a transitional reinsurance program in each State to help pay th e cost of treating high-cost enrollees in the individual market from 2014 th rough 2016. Section 1342 of the Affo rdable Care Act directs the Secretary to establish a temporary risk corridors program that provides for the sharing in gains or losses resulting from inaccurate rate sett ing from 2014 through 2016 between the Federal government and certain participating plans. Sect ion 1343 of the Affordable Care Act establishes a permanent risk adjustment program that is in tended to provide increased payments to health insurance issuers that attract hi gher-risk populations, such as thos e with chronic conditions, andCMS-9954-P 17
thereby reduce incentives for issu ers to avoid higher-risk enro llees. Sections 1402 and 1412 of the Affordable Care Act establish a program for reducing cost sharing for individuals with lower household income and Indians. Section 1411(g) of the Affordable Care Act provides that any person who receives information specified in secti on 1411(b) provided by an applican t or information specified in section 1411(c), (d), or (e) from a Federal agency must use th e information only for the purpose of and to the extent necessary to ensure the efficient operation of the Exchange, and may not disclose the information to any other person ex cept as provided in that section. Section 6103(l)(21)(C) of the Code additiona lly provides that return info rmation disclosed under section 6103(l)(21)(A) or (B) may be used only for the purpose of and to the extent necessary in establishing eligibility fo r participation in the Exchange, veri fying the appropriate amount of any premium tax credit or cost-sha ring reduction, or determining elig ibility for participation in a health insurance affordability prog ram as described in that section. 1. Premium Stabilization Programs In the July 15, 2011 Federal Register (76 FR 41930), we published a proposed rule outlining the premium stabilization programs. We implemented the premium stabilization programs in a final rule, pub lished in the March 23, 2012 Federal Register (77 FR 17220) (Premium Stabilization Rule ). In the December 7, 2012 Federal Register (77 FR 73118), we published a proposed rule outlining the benefit and payment parameters for 2014 to expand the provisions related to the premiu m stabilization programs and set forth payment parameters in those programs (proposed 2014 Payment Notice). We published the 2014 Payment Notice in the March 11, 2013 Federal Register (78 FR 153410). As discussed above, we published a white pa per on risk adjustment data validation on June 22, 2013, and hosted a public meeting on June 25, 2013, to discuss the white paper.CMS-9954-P 18
2. Program Integrity In the June 19, 2013 Federal Register (78 FR 37032), we publishe d a proposed rule that proposed certain program integrit y standards related to Exchange s and the premium stabilization programs (proposed Program Integrity Rule). The provisions of that proposed rule were finalized in two rules, the “f irst final Program Integrity Ru le” published in the August 30, 2013 Federal Register (78 FR 54070) and the “second final Pr ogram Integrity Rule” published in the October 30, 2013 Federal Register (78 FR 65046). 3. Exchanges, Essential Health Benefits, Actuarial Value A proposed rule relating to EHBs and AV was published in the November 26, 2012 Federal Register (77 FR 70644). We proposed standards related to the premium adjustment percentage in the Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation Final Rule, pub lished in the February 25, 2013 Federal Register (78 FR 12834) (EHB Rule). We established standards for the administration and payment of cost-sharing reductions and the SHOP in the 2014 Payment No tice and in the Amendments to the HHS Notice of Benefit and Payment Parameters for 2014 interim final rule, published in the March 11, 2013 Federal Register (78 FR 15541). The provisions establis hed in the interim final rule were finalized in the second final Program Integrity Rule. We set forth standards related to Exchange user fees in the 2014 Payment Notice. We also established an adjustment to the FFE user fee in the Coverage of Certain Preventive Services Under the Affordable Care Act final rule, published in the July 2, 2013 Federal Register (78 FR 39870) (Prevent ive Services Rule). A Request for Comment relating to Exch anges was published in the August 3, 2010 Federal Register (75 FR 45584). An Initial Guidance to States on Exchanges was issued on November 18, 2010. A proposed rule was published in the July 15, 2011 Federal Register (76CMS-9954-P 19
FR 41866) to implement components of the Exch ange. A proposed rule regarding Exchange functions in the individual market, eligibilit y determinations, and Exchange standards for employers was published in the August 17, 2011 Federal Register (76 FR 51202). A final rule implementing components of the Exchanges and setting forth standard s for eligibility for Exchanges was published in the March 27, 2012 Federal Register (77 FR 18310) (Exchange Establishment Rule). 4. Market Rules Provisions relating to the 2014 market reforms and rate review were published in Patient Protection and Affordable Care Act; Health Insu rance Market Rules; Rate Review proposed rule in the November 26, 2012 Federal Register (77 FR 70584). A final rule implementing these provisions was published in the February 27, 2013 Federal Register (78 FR 13406) (Market Reform Rule). 5. Medical Loss Ratio We published a request for comment on PH S Act section 2718 in the April 14, 2010 Federal Register (75 FR 19297), and published an interi m final rule with a 60-day comment period relating to the medical loss ratio (M LR) program on December 1, 2010 (75 FR 74864). A final rule with a 30-day comment peri od was published in the December 7, 2011 Federal Register (76 FR 76574). B. Stakeholder Consultation and Input In addition to seeking advice from the public on risk adjustment data validation, HHS has consulted with stakeholders on policies related to the operation of Exchanges, including the SHOP and the premium stabilization programs. HHS has held a number of listening sessions with consumers, providers, employers, health plans, the actuarial community, and State representatives to gather pub lic input. HHS consulted with stakeholders through regularCMS-9954-P 20
meetings with the National Association of Insurance Commissioners ( NAIC), regular contact with States through the Exchange Establishm ent grant and Exchange Blueprint approval processes, and meetings with Trib al leaders and representatives, health insurance issuers, trade groups, consumer advocates, employers, and other inte rested parties. We considered all of the public input as we developed the policies in this proposed rule. C. Structure of Proposed Rule The regulations outlined in this proposed rule would be codified in 45 CFR parts 144, 147, 153, 155 and 156. The proposed regulations in parts 144 and 147 propose amendments relating to student health insura nce coverage. The proposed regulations in part 147 also outline market-wide provisions regardi ng composite rating. The propos ed regulations in part 153 outline the 2015 uniform contribution rate and un iform reinsurance payment parameters for the 2015 benefit year and oversight prov isions related to the premium st abilization programs, such as provisions related to risk adjustment data valid ation, risk corridors data validation, and HHS’s authority to audit entitie s participating in these programs. The proposed regulations in part 153 propose that excess reinsurance contributions collect ed for a benefit year be used for claims for that benefit year. The proposed regulations in part 155 propose to reduce the time that States that elect to establish and operate an Exchange after 2014 must have in effect an approved or conditionally approved Exchange Blueprint and readiness assess ment from 12 months to 6.5 months prior to the Exchange’s first effective date of coverage. The proposed regulations also include a change to the annual open enrollment period for the 2015 benefit year and certain proposals related to the SHOP Exchanges, which we discuss in greate r detail below. We also propose in part 155 to amend §155.260 to allow the Secretary to determine th at additional uses or disclosures of PII not specifically permitted by §155.260 ensure the effici ent operation of the Exchange. In addition,CMS-9954-P 21
we propose to establish a process under which Ex changes may seek the Secretary’s approval for other uses of applicant PII not specifically permitted by §155.260. We also propose to amend §155.260 to more specifically define the term “non -Exchange entity” and to provide a baseline for the privacy and security standards to wh ich Exchanges must bind non-Exchange entities through written contracts or agreements. The proposed regulations in part 156 set forth provisions relate d to cost sharing, including the premium adjustment percentage, the maximum annual limitation on cost sharing, the maximum annual limitation on deductibles for health plans in the small group market, the reductions in the maximum annual limitation fo r cost sharing plan variations, and the methodology to calculate advance payments of cost-sharing reductions for 2015. They also outline the 2015 FFE user fee rate and propose a user fee adjustment to reimburse third party administrators that pay for contraceptive servi ces for enrollees in cer tain self-insured group health plans that receive an accommodation from the obligation to cover these services. They also include provisions related to parameters for making updates to the AV calculator in future plan years. The proposed 2015 AV Calcul ator and a proposed 2015 AV Calculator methodology, which would supersede the 2014 versi ons of these documents incorporated by reference in the EHB Rule, are bein g incorporated by reference in th is proposed rule. In part 156 we also propose a meaningful difference standa rd for QHPs offered through an FFE and patient safety standards for issuers of QHPs. Finall y, we propose an administrative appeals process applicable to the premium stabilization, co st-sharing reduction, advance payments of the premium tax credit, and FFE user fee programs. In parts 155 and 156, we also propose the follo wing provisions related to the SHOP:

● We propose to permit all SHOPs performing premium aggregation to establish one or more standard processes for premiu m calculation, payment, and collection.CMS-9954-P 22

● We propose that in the FF-SHOPs, for plan years when prem ium aggregation is available, employers be required to make prem ium payments to the FF-SHOP according to a timeline and process established by HHS. We fu rther propose that for plan years beginning on or after January 1, 2015, unless the QHP issuer receives a cancellation no tice from the FF-SHOP, the issuer would be required to effectuate coverage.

● We propose a standard premium pro-ra ting methodology for the FF-SHOPs, for plan years when premium aggregation is available, providing that groups will be charged for the portion of the month for whic h an enrollee is enrolled.

● We propose to make explicit our interpre tation of current regulations that no SHOPs would be permitted to collect information on a SHOP application unless that information is necessary to determine SHOP eligibility or effectuate enrollm ent through the SHOP.

● We propose that no SHOPs would be pe rmitted to perform individual market Exchange eligibility determinations or verifications.

● We propose that a qualified employer that becomes a large employer but continues to purchase coverage through a S HOP would continue to be rated as a small employer.

● We propose to limit the employer and em ployee eligibility adju stment periods to circumstances when the SHOP has an optional verification process, and collects information through that verification process that is inconsistent with the information provided by an employer or employee on a SHOP application.

● We propose for plan years beginning on or after January 1, 2015 to give SHOPs in States that permit this activity under State law, the option of permitting enrollment in a SHOP through the Internet Web site of an agent or broker.

● We propose to limit the availability of composite premiums in the FF-SHOPs after employee choice and premium aggr egation become available.CMS-9954-P 23

● We propose methods for employers in the FF-SHOPs to offer stand-alone dental coverage after employee choice beco mes available in those SHOPs.

● We propose for plan years beginning on or after January 1, 2015 to permit FF-SHOPs to give employers the flexibility to define di fferent premium percentage contributions for fulltime employees and non-full-time employees. We note that nothing in these proposed regulatio ns would limit the auth ority of the Office of the Inspector General (OIG) as set forth by the Inspector Genera l Act of 1978 or other applicable law. III. Provisions of the Proposed HHS Notice of Benefit and Payment Parameters for 2015 A. Part 144 – Requirements Relatin g to Health Insurance Coverage In §144.103, the term “policy year,” as amende d by the second final Program Integrity Rule, is defined as: (1) With respect to a gra ndfathered health plan offered in the individual health insurance market, the 12-month period that is designated as the poli cy year in the policy documents of the individual health insurance co verage. If there is no designation of a policy year in the policy document (or no such policy document is availabl e), then the policy year is the deductible or limit year used under the coverage. If deductibles or other limits are not imposed on a yearly basis, the po licy year is the calendar year; and (2 ) with respect to a non-grandfathered health plan offered in the individual health insu rance market, or in a market in which the State has merged the individual and small group risk p ools (merged market), for coverage issued or renewed beginning January 1, 2014, a calendar year for which health insurance coverage provides coverage for health benefits. Fu rther, §147.104, as amended by the second final Program Integrity Rule, establishes individua l market open enrollment periods based on a calendar policy year and provides that non-grandfathered coverage in the individual or mergedCMS-9954-P 24
markets must be offered on a calendar year basis, with a policy year beginning on January 1 and ending on December 31 of each year. Under regulations at §147.145(a), student hea lth insurance coverage is defined as individual health insurance coverage. Sec tion 147.145(b), however, exempts student health insurance coverage from certain PHS Act and Affordable Care Act requirements that apply to individual health insurance cove rage, including certain guaranteed availability provisions of section 2702 of the PHS Act, implemented at §147.104. As discussed below, because student health insurance coverage is traditionally offe red on a school year basis (for example, a policy year beginning on September 1 of each year and ending on August 30 of the following year), we are proposing to modify §147.145 to exempt stude nt health insurance coverage from the requirement under section 2702 to establish open enrollment periods and coverage effective dates that are based on a calenda r policy year, including the requi rement that non-grandfathered coverage in the individual and merged markets be offered on a calendar year basis. We are also proposing conforming amendments to the definition of “policy year” to reflec t that student health insurance coverage would not be required to be offered on a calendar year basis. We seek comment on this proposal. B. Part 147 – Health Insurance Reform Requi rements for the Group and Individual Health Insurance Markets 1. Composite Rating Section 2701 of the PHS Act, as added by section 1201 of the Affordable Care Act, establishes permissible rating factors that may be used to vary the premium rate charged by a health insurance issuer for non-gr andfathered health in surance coverage (including QHPs) in theCMS-9954-P 25
individual and small gr oup markets beginning in 2014. 4 The factors are: family size, rating area, age, and tobacco use (within limits). Secti on 2701(a)(4) of the PHS Act provides that with respect to family coverage under a group health plan or health insura nce coverage, any rating variation for age or tobacco use must be applied based on the pr oportion of the premium attributable to each family member covered under the plan or coverage. In the Market Reform Rule, we applied th e per-member rating requirement of PHS Act section 2701(a)(4) in both the individual a nd small group markets. Thus, at §147.102(c), we generally directed that issuers calculate a separate prem ium for each individual covered under the plan or coverage based on allowable rating factors including age and tobacco use, and sum the individual rates to determine the total premium charged by the issuer to a family or to a group health plan. 5 We recognized that in the small group market it is common industry billing practice to charge an employer a uniform premium for a given family composition by adding the permember rates and dividing by the total number of employees covered under the employer’s health insurance plan. We indi cated that nothing prevents an issuer from converting per-member rates into average enro llee premium amounts (calcu lated composite premiums), provided that the total group premium is the same total amount deri ved in accordance with the process established by the regulations. Because calculated composite premiums are average rates for a particular group, changes in employee census would typically cause a change in the average rate. For example, a new

4 Beginning in 2017, States will have the option to allow issuers to offer QHPs in the large group market through the SHOP. If a State elects this option, the rating rules in section 2701 and its implementing regulations will apply to all coverage offered in such State’s large group market (except for self-insured group health plans) under to section 2701(a)(5) of the PHS Act. 5 States that do not permit rating for age or tobacco use may require health insurance issuers in the individual and small group markets to use uniform family tiers and corresponding multipliers established by the State. §147.102(c)(2).CMS-9954-P 26
average rate per enrollee woul d typically result from employ ees adding or dropping coverage during the course of the plan year, causing employer and employee contributions to change as well. We have been asked about such mid-year changes in group composition and how issuers should address the resulting changes in the calculated composite premium for the group. In this proposed rule, we propose to add a pr ovision at §147.102(c)(3) cl arifying that if an issuer offers a composite premium calculated wh en the employer obtains or renews coverage, the issuer must ensure that such amount does not vary for any plan participant or beneficiary during the plan year with respect to the particular plan involved. Under this ap proach, an issuer would be required to accept the group’s composite prem ium, calculated based on applicable employee enrollment at the beginning of the plan year, as the applicable prem ium rate for any new individual who enrolls in th e plan during the plan year. 6 Terminations of coverage during the plan year also would not change the composite premium. At the time of renewal, the issuer would recalculate a group’s composite premium based on plan enrollment at that time for subsequent coverage. This will allow calcula ted composite premiums, and thus employer and employee contributions to coverage, to remain st able during the plan year, regardless of changes in the group’s composition. This proposed policy would generally apply to health insurance issuers offering nongrandfathered health insurance coverage in the small group mark et, through a SHOP or outside of a SHOP, for plan years beginning on or af ter January 1, 2015. However, we encourage issuers to voluntarily adopt this approach for plan years begi nning in 2014. As discussed in

6 In cases where the composite premium does not incorporat e the age or tobacco use rating factor, an issuer would be required to accept the group ’s composite premium, calculated based on applicable employee enrollment at the beginning of the plan year, multiplied by any applicable ag e or tobacco rating factor, as the applicable premium for any new individual who enrolls in the plan during the plan year. Under §147.1 02(a)(1)(iv), rating for tobacco use is subject to the nondiscrimination and wellness provisions under section 2705 of the PHS Act and its implementing regulations, regardless of whether the composite premium incorporates the tobacco use rating factor.CMS-9954-P 27
more detail below, we propose a limited excep tion to this policy in §155.705(b)(11)(ii)(D) and §156.285(a)(4)(ii) of this proposed rule, under whic h composite rating would not be available when an employer participating in a Federally-facilitated SHOP el ects to offer its employees all QHPs within a single level of c overage under §155.705(b)(3)(iv)(A). We are considering establishing a uniform tie red-composite rating structure that would apply market wide unless a State requires and HH S approves an alternate tiered-composite rating methodology. Under the approach we are consid ering, a small group market issuer offering composite rating would calculate the composite pr emium for different tiers of enrollees covered under the employer’s plan. For example, in a tw o-tier structure, one co mposite premium would be calculated for covered adults (employees and adult dependents) and another composite premium would be calculated for covered children. Alternatively, in a three-tier structure, there would be one composite premium for covere d employees, a second composite premium for covered adult dependents, and a third composite premium for c overed children. The premium for a given family composition would simply be determined by summing the applicable tieredcomposite rates. We believe a tiered-composite approach would promote simplicity for issuers and employers, and ensure that premiums for fa mily coverage appropri ately reflect the lower rates for children. We seek comments on all aspects of this appr oach to composite rating. We also seek comments on whether to establish a default uniform tiered-composite rating structure, including the appropriate number and types of enrollee tiers (for example, an employee-only tier, an adult dependent tier, and a child dependent tier). 2. Student Health Insurance Coverage As discussed above, under §147.145(a), student hea lth insurance coverage is defined as a type of individual health insu rance coverage. However, §147.145(b) provides that for purposesCMS-9954-P 28
of the guaranteed availab ility requirements of section 2702 of the PHS Act, a health insurance issuer that offers student health insurance covera ge is not required to accept individuals who are not students or dependents of student in such coverage. Because student health insurance coverage is traditionally offered on a school year basis that does not align with the calendar year, we do not believe student health insurance shou ld be required to establish open enrollment periods and coverage effectiv e dates under §147.104(b)(1 ) and (2) that are based on a calendar policy year, including th e requirement that non-grandfathered coverage in the individual and merged markets be offered on a calendar year ba sis. Accordingly, we are proposing to amend §147.145(b)(1)(ii) to exempt student health in surance coverage from these guaranteed availability requirements. We seek comments on this proposal and whether other modifications are necessary for student health insurance coverage. C. Part 153 – Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment under the Affordable Care Act 1. Provisions and Parameters for the Pe rmanent Risk Adjustment Program The risk adjustment program is a perman ent program created by section 1343 of the Affordable Care Act that transfers funds from lo wer risk, non-grandfathere d plans to higher risk, non-grandfathered plans in the individual and small group market s, inside and outside the Exchanges. In subparts D and G of the Premium Stabilization Rule , we established standards for the administration of the risk adjustment program . A State that is approved or conditionally approved by the Secretary to operate an Exchange may establish a risk adjustment program, or have HHS do so on its behalf. a. Risk adjustment user fees If a State is not approved to operate or chooses to forgo ope rating its own risk adjustment program, HHS will operate risk adjustment on th e State’s behalf. As described in the 2014CMS-9954-P 29
Payment Notice, HHS’s operation of risk adjustment on behalf of States is funded through a risk adjustment user fee. Section 153.61 0(f)(2) provides that an issuer of a risk adjustment covered plan must remit a user fee to HHS for each mont h equal to the product of its monthly enrollment in the plan and the per-enrollee-per-month risk adjustment user fee specified in the annual HHS notice of benefit and paymen t parameters for the applicable benefit year. OMB Circular No. A-25R establishes Federal policy regarding user fees, and specifies that a user charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public. The risk adjustment program will provide special benefits as defined in section 6(a)(1)(b) of Circular No. A-25R to an issuer of a risk adjustment covered plan because it will mitigate the financial instability associated with risk selection as other market reforms go into effect. The risk adjustment program also will contribute to consumer confid ence in the health insurance industry by helping to stabilize premiums across the individual and small group health insurance markets. In the 2014 Payment Notice, we estimated Fe deral administrative expenses of operating the risk adjustment program to be $0.96 per en rollee per year, based on our estimated contract costs for risk adjustment operations. For the 2015 benefit year, we pr opose to use the same methodology to estimate our administrative expens es to operate the program. These contracts cover development of the model and methodolog y, collections, payments, account management, data collection, data validation, program integrity and audit f unctions, operational and fraud analytics, stakeholder training, a nd operational support. We do not pr opose to set the user fee to cover costs associated with Federal personnel. To calculate the user fee, we would divide HHS’s projected total costs for administering the risk adjustment programs on behalf of States by the expected number of enrollees in risk adjustment covered plans (other than plans not subject to market reforms and student health plans, whic h are not subject to payments and charges underCMS-9954-P 30
the risk adjustment methodology HHS uses when it ope rates risk adjustment on behalf of a State) in HHS-operated risk adjustment programs for the benefit year. We estimate that the total cost for HHS to operate the risk adjustment program on behalf of States for 2015 will be approximately $27.3 milli on, and that the per capita risk adjustment user fee would be no more than $1.00 per enroll ee per year. We seek comment on this proposed assessment of user fees to support HHS-operated risk adjustment programs. b. HHS risk adjustment methodology considerations In the 2014 Payment Notice, we finalized the methodology that HHS will use when operating a risk adjustment program on behalf of a State in 2014. We propose to use the same methodology in 2015. In this proposed rule, we propose to clarify the treatment of premium assistance Medicaid alternative plans in this risk adjustment methodology, and seek comment on potential adjustments to the geographic cost factor in the HHS risk adjustment model for future
years. (i) Incorporation of Premium Assistance Me dicaid Alternative Plans in the HHS Risk Adjustment Methodology Section 1343(c) of the Affordable Care Act provides that risk adjustment applies to nongrandfathered health insurance coverage offered in the individual and small group markets. In some States, expansion of Medicaid benefits unde r section 2001(a) of th e Affordable Care Act may take the form of enrolling newly Medicaid-eli gible enrollees into indi vidual market plans. For example, these enrollees could be placed into silver plan variations – either the 94 percent silver plan variation or the zero cost sharing plan vari ation – with a portion of the premiums and cost sharing paid for by Medicaid on their be half. Because individua ls in these types of Medicaid expansion plans receive significant co st-sharing assistance, they may utilize medical services at a higher rate. To address this i nduced utilization in the context of cost-sharingCMS-9954-P 31
reduction plan variations in the HHS risk adjust ment methodology, we increase the risk score for individuals in plan variations by a certain factor. We propos e to use the same factor for individuals enrolled in the corr esponding Medicaid expansion plan variations. Table 1 shows the cost-sharing adjustments for both 94 percent silver plan variation enroll ees and zero cost-sharing plan variation enrollees for silver QHPs as fina lized in the 2014 Payment Notice. We propose to implement these adjustments for 2014. We plan to evaluate these adjustments in the future, after data from the initial years of risk adjustment is available. We seek comment on this approach. TABLE 1: Cost-Sharing Reduction Adjustments Plan Variation Induced Utilization Factor 94 percent Plan Variation 1.12 Zero Cost-Sharing Plan Variation of Silver QHP 1.12 (ii) Adjustment to the Geographic Cost Factor As finalized in the 2014 Payment Notice, the ge ographic cost factor is an adjustment in the payment transfer formula to account for pl an costs such as input prices that vary geographically and are likely to affect plan pr emiums. For the metal-level risk pool, it is calculated based on the observed average silver plan premium in a geographic area relative to the statewide average silver plan premium. It is separately ca lculated for catastrophic plans in a geographic area relative to the statewide catastrophic pool. Howe ver, several States have defined a large number of rating areas. Less populous rating areas rais e concerns about the accuracy and stability of the calculation of the geographic cost factor because in less populous rating areas the geographic cost factor might be calculated based on a small number of plans. Inaccurate or unstable geographic cost factors could distort premiums and the stability of the risk adjustment model. We seek comment on how to best adjust the geographic cost factor s or geographic rating areas in future years to address these potential premium distortions. We also seek comments onCMS-9954-P 32
how this adjustment should be implemented for a separately risk adju sted pool of catastrophic plans. We do not intend to make this adjustment for 2014. c. Small group determination for risk adjustment For a plan to be subject to risk adjustment , according to section 1343(c) of the Affordable Care Act and the definition of a “risk adjust ment covered plan” in §153.20, a plan must be offered in the “individual or small group market .” The definition of small group market in §153.20 references the definition at section 1304 (a)(3) of the Affordable Care Act. Section 1304(a)(3) of the A ffordable Care Act, in defining “small group market,” references the definition of a “small employer” in section 1304(b)(2) of the Affordable Care Act. That definition provides that an employer with an average of at least 1 but not more than 100 employees on business days during the preceding calendar year and who employs at least 1 employee on the first day of the plan year will be considered a “sma ll employer.” However, section 1304(b)(3) of the Affordable Care Act provides that, for plan years beginning before January 1, 2016, a State may elect to limit “small em ployer” to mean an employer with at least 1 but not more than 50 employees. In the 2014 Payment Notice, we stated that we believe that the Affordable Care Act requires the use of a counting method that accoun ts for part-time employees, and that the fulltime equivalent method described in section 4980H(c)(2)(E) of th e Code is a reasonable method to apply. Thus, we believe that the risk adju stment program must also use a counting method that takes employees that are not full-tim e into account when determining whether a group health plan must participate in that program. However, we also recognize that, because risk adjustment is intended to stabilize premiums by mitigating the effects of the rating rules, it is important that the program be available to plans that are s ubject to the rating rules, to the extent permissible under theCMS-9954-P 33

Affordable Care Act. We rec ognize that a number of States, which have primary enforcement jurisdiction over the market ru les, may use counting methods that do not take non-full-time employees into account. Thus, we propose to clarify that in determin ing which group health plans participate as small group plans in the risk adjustment program , we would apply the applicable State counting method, unless the State counting method does not ta ke into account employees that are not fulltime. In that circumstance, we would apply the full-time equivalent method described in section 4980H(c)(2)(E) of the Code. 7 We believe that th is approach defers to State counting methods and aligns with State enforcement of rating rules, within the bounds of wh at is permissible under the Affordable Care Act. We seek comment on our interpretation of the permissible counting rules for purposes of risk adjustment, the appr oach described above, and on alternate counting methods that may be preferable. We also seek comment on whether we should codify these risk adjustment counting rule s in regulation text. d. Risk adjustment data validation The 2014 Payment Notice established a risk ad justment data validation program that HHS will use when operating risk adjustment on be half of a State. In the 2014 Payment Notice, we specified a framework for this program that includes six stages: (1) sample selection; (2) initial validation audit; (3) sec ond validation audit; (4) error estimation; (5) appeals; and (6) payment adjustments. To develop the details of the program, we sought the input of issuers, consumer advocates, providers, and other stakeholders. We issued the “Affordable Care Act HHSOperated Risk Adjustment Data Validation Pr ocess White Paper” on June 22, 2013. That white

7 We note that the IRS has published a proposed regulation that contains further details that would apply to this calculation (54.4980H-2(c)).CMS-9954-P 34
paper discussed and sought comments on a num ber of potential considerations for the development of the risk adjustment data va lidation methodology. On June 25, 2013, we held a public meeting to discuss the topics considered in the white paper. We received submissions from 53 commenters, including issu ers, issuer trade groups, advocacy groups, and consultants. As we noted in the white paper, our overall goals are to promote consistency and a level playing field by establishing uniform audit requirements, and to protect private information by limiting data transfers during the data validation process. In this proposed rule, we propose provisions for the risk adjustment data validation process and methodology that reflect our anal ysis of the white paper comments and our discussions with stakeholders. We note that a St ate operating a risk adjustment program is not required to adopt these standards. These proposed rules are consistent with the white paper and lessons drawn from our experience with Medicare Advantage risk adjustment data validation and thus should be familiar to issuers. (i) Sample Selection The first stage in the HHS-operated risk adjustment data validation process is the selection of a sample of an issuer’s enrollees whos e risk adjustment data will be validated. In the proposed 2014 Payment Notice, we stated that HHS would choose a sample size of enrollees such that the estimated risk score errors would be statistically sound and the enrollee-level risk score distributions would reflect enrollee characteristics for each issuer. We stated that in determining the appropriate sample size for da ta validation, we recognized the importance of striking a balance between ensuring statistica l soundness of the sample and minimizing the operational burden on issuers, providers, and HH S. Additionally, we st ated that we would ensure that the sample would c over critical subpopulations of en rollees for each risk adjustment covered plan, such as enrollees with and without hierarchical condition categories (HCCs). ToCMS-9954-P 35
develop a proposed sample size for the first year of the HHS risk adjustment data validation program, we propose to use the methodology outli ned in the white pa per. Our goal in determining the enrollee sample size for the initial 2 years of risk adjustment data validation is to propose a statistically valid samp le large enough to inform us to the dynamics of the risk adjustment data validation process in operation and estimation of risk score accuracy. As we established in the 2014 Payment Notice, for HHS to observe and optimize the risk adjustment data validation process, no payment adjustments w ill be made based on the risk adjustment data validation process for the initial 2 year s of HHS-operated risk adjustment. In general, we propose to select the initial va lidation audit sample for a given benefit year by dividing the relevant population into a number of “strata,” repr esenting different demographic and risk score bands. We are proposing that, for th e initial 2 years of the risk adjustment data validation program, the initial va lidation audit sample will cons ist of 200 enrollees from each issuer. We stated in the 2014 Payment Noti ce that the overall sample will reflect a disproportionate selectio n of enrollees with HCCs. Here, we discuss in detail our proposed sampling methodology, including our proposal to group enrollees to account for age characteristics and health status. Some comment ers on the white paper s uggested that we also consider sampling based on plan types and other characteristics. We will consider other sampling strategies in the future, but believe th at we do not yet have e nough experience with the risk adjustment process to determine the most appropriate sampling groups at this time. Therefore, we are proposing a simple age and risk score stratification for at least the initial 2 years of the program. Following th e division of the relevant populat ion into strata, we propose to use the following formulas to calculate a proposed sample size for the in itial validation audit each year. In general, the proposed formula for the overall sample size for an issuer ( n ) is:CMS-9954-P 36

2 2 h H

1 h h 2 H

1 h h h



### value z Y Prec S N S N
n ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

− × + ⎟ ⎠ ⎞ ⎜ ⎝ ⎛

= 

# ∑ ∑

= =

Where:
H is the number of strata;
N

h is the population size of the h th stratum;
Y

is the average risk score of the population, adjusted based upon the estimated risk score

error; S

h represents the standard deviat ion of risk score error for the h th stratum;
Prec represents the desired precision level (for example, 10 percent, meaning a 10 percent margin of error in th e estimated risk score); and z-value is the z-value associated with the desired confidence level (for example, 1.96 for a two-sided 95 percen t confidence level). As noted above, we propose a sample size of 200 enrollees from each issuer for the initial 2 years of the program. The formula above would be used after this initial 2-year period to calculate a more precise, issuer-speci fic sample size for each issuer. The proposed formula for calculating th e sample size for each stratum is: 

# ∑

= × = H

h h h h h h S N

S N n n

1 Where:
N h is the population size of the h th stratum;

n is the overall sample size; and
S

h represents the standard deviat ion of risk score error for the h th stratum.CMS-9954-P 37
For the 2014 benefit year, the parameters lis ted above were developed using data from two principal sources: Medicare Advantage risk adjustment data validation net error rates and variances; and expenditures data from th e Truven Health Anal ytics 2010 MarketScan® Commercial Claims and Encount ers database (MarketScan®). We chose to use Medicare Advantage error rates because Medicare Advant age utilizes an HCC-based methodology similar to the one used for HHS risk adjustment, and be cause it uses a similar risk adjustment data validation process to determine payment error rates. We also chose to use the MarketScan® expenditure database because of the comprehensiveness of the database, which was the primary source for calibration for the HHS risk adjustment models. The database contains enrollee-specific claims utilization, expenditures, and enrollment across inpatient, outpatient, and pr escription drug services from a selection of large employers and health plans. The database includes de-identified data from approximately 100 payers, and contains more than 500 million claims from insured employees, spouses, and dependents. We used enrollee predicted expenditure results from our risk adjustment model calibration, which was based on th e MarketScan® data, to strati fy the population (by age group for enrollees with HCCs, and with in a single group for enrollees with no HCCs), then calculated risk scores for the predicted expe nditures to relate them to the average expenditures. To estimate a sample size for each issuer, an average issuer size was estimated based on the total expected insured population and the total expected numbe r of issuers. The average issuer population containing enrollees with and without HCCs was assumed to be split 20 percent with HCCs and 80 percent without HCCs, consiste nt with the Ma rketScan® data. We propose to group each issuer’s enrollee popul ation into 10 strata based on age group, risk level, and presence of HCCs, as follows:CMS-9954-P 38

● Strata 1-3 would include low, medium, and high risk adults with the presence of at least one HCC.

● Strata 4-6 would include low, medium, and high risk children with the presence of at least one HCC.

● Strata 7-9 would include low, medium, and high risk infants with the presence of at least one HCC.

● Stratum 10 will include the No-HCC population, which will not be further stratified by age or risk level, because we assume this stratum has a uniformly low error rate. We calculated a predicted risk score for each individual in each st ratum by dividing the predicted expenditures for that individual by the average predicted expenditures for the entire population. Using these individual predicted risk scores, we calcul ated the overall average risk score for all individuals in each risk-based stra tum. This calculation was performed nine times for the HCC population – once for each of the three risk-based strata within each of the three age groups. We set the minimum risk score for enro llees without HCCs in the tenth stratum. This method of stratification is similar to that used in the Medicare Advantage risk adjustment data validation program. That pr ogram divides enrollees into three strata, representing low, medium, and hi gh risk expenditures. Error ra tes and variances are calculated for each of these strata. In the initial year, befo re error rate and standard deviation data for the population subject to the HHS-operate d risk adjustment program are available, we propose to use the Medicare Advantage error rate s and variances to calculate sa mple sizes. After the initial year, we will evaluate whether sufficient HHS-ope rated risk adjustment error rate and standard deviation data are available to calculate sample sizes. We propose to use the lowest e rror rate across all HCC strata as the error rate for the stratum of enrollees without HCCs, and we propose to use the variance associ ated with that errorCMS-9954-P 39

rate to calculate the standard de viation of the error for the stratu m of enrollees without HCCs. If error rates and variances are smaller than a ssumed for this stratum, the resulting sampling precision may increase. Because the Medicare Advantage error rates a nd variances are not calculated for different age bands, and therefore are available only for thr ee risk-score differentia ted subgroups, we used the same risk score error rates and standard devi ation for the age bands for a risk category. Thus, we used the same risk score error rate and stan dard deviation assumptions for the adult, child, and infant strata associated with each risk scor e band. We do not anticipate the expected risk score error rate and variance to be uniform for all age groups; how ever, in the absence of data, we made this simplifying assumption. In general, we believe the Medicare Advantage error rates and variances likely overstate the corresponding e rror rates and assumptions for the HHS risk adjusted population, and theref ore, the estimated precision of our error estimates may be understated. The formulas identified above require data on error rates and standard deviations for the strata, and also a target confid ence interval and sampling precisi on level (or margin of error). For the initial year, we propose to use a 10 percen t relative sampling prec ision at a two-sided 95 percent confidence level. Th at is, we wish to obtain a sample size such that 1.96 8 multiplied by the standard error, divided by the estimated adjusted risk score, equals 10 percent or less. After actual data are collected from the initial year, we will test and evaluate the data for use in determining the sample size in future years. Once the proposed overall sample size is calculated, the enrollee count will be distributed among the population based on the second formula a bove for calculating the sample size of each

8 Critical value for the two-sided 95 percent confidence level.CMS-9954-P 40

stratum. Because strata with enrollees with HCCs have a higher standard deviation of risk score error, the overall sample will be disproportionately allocated to en rollees with HCCs (Strata 1-9), helping to ensure adequate coverage of the higher risk portion of the enrollee population. In the proposed rule for the 2014 Payment Notice, we suggested that an issuer’s initial validation audit sample for risk adjustment da ta validation would consist of approximately 300 enrollees. After conducting the calculations desc ribed above, we believe that we can achieve acceptable sampling precision with a sample size of 200 enrollees for the initial years of HHSoperated risk adjustment data validation. Ther efore, we are proposing a sample size of 200 enrollees in the initial 2 years of the program. As noted above, we may provide for different, or issuer-specific, sample sizes in future years. When data becomes available from the program ’s first year, we expect to examine our sampling assumptions using actual enrollee data. We anticipate that at least in the initial years of the risk adjustment data validation program, the st ratification design will remain consistent with the design outlined above – nine HCC strata and one No-HCC stratum. However, the specific size and allocation of the sample to each stratum may be refined based on average issuer enrollee risk score distributions. For example, in future years, we are considering using larger sample sizes for larger issuers or issuers with higher vari ability in their enrollee risk scores, and smaller sample sizes for smaller issuers or issuers with lower variability in their enrollee risk scores. The sampling design may also consist of a minimum and maximum sample size per stratum for each average issuer (large, medium, small) to follow when selecting the sample. We seek comments on this approach, includi ng our proposed sample size of 200 enrollees for the initial 2 years of HHS-operate d risk adjustment data validation. (ii) Initial Validation AuditCMS-9954-P 41
The second stage of the HHS-operated risk ad justment data validation process is the initial validation audit. In §153.630(b)(1), we require an issuer of a risk adjustment covered plan to engage one or more independent auditors to perform an initial validation audit of a sample of its risk adjustment data selected by HHS, which will include individually identifiable health information subject to HIPAA. 9 In this section of this pr oposed rule, we discuss proposed standards and guidelines regardi ng the qualifications of the initi al validation auditor, including conflict of interest standards, standards for the initial validation audit, rater consistency and reliability, and confirmation of ri sk adjustment errors. As disc ussed in the white paper, we considered existing best practices and standard s for independent auditors, such as those of Medicare Quality Improvement Organizati ons and the National Committee for Quality Assurance, when establishing our standa rds for initial valid ation auditors. (1) Initial validation auditor The 2014 Payment Notice established certain sta ndards for the initial validation auditor. In §153.630(b)(2) and (b)(3), we direct the issuer to ensure that th e initial valida tion auditor is reasonably capable of performing an initial validation audit, and is reasonably free of conflicts of interest, such that it is able to conduct the initial va lidation audit in an im partial manner with its impartiality not reasonably open to question. In the white paper, we elaborated on options for ensuring that an initial validation auditor meets these criteria, including standardized audi tor certification processes and promulgation of best practices. Many commenters sought additio nal information and guidance regarding initial

9 Whether any given organization is a HIPAA business associ ate is a fact-specific inquiry. We expect that most independent auditors operating on behalf of an issuer of a health plan would be performing activities that would render them a business associate of th e covered plan, and would be required to enter into and maintain a business associate agreement w ith the health plan.CMS-9954-P 42
validation auditor selection and requ ested that HHS define conflicts of interest between an issuer and the initial validation auditor. We propose certain guidance on these topics here. We are considering the following criteria for assessing conflicts of interest between the issuer and the initial validation auditor:

● Neither the issuer nor any member of its management team (or any member of the immediate family of such a member) may have a ny material financial or ownership interest in the initial validation auditor, such that the financ ial success of the initial validation auditor could be seen as materially affecting the financial su ccess of the issuer or management team member (or immediate family member) and the impartiality of the initial validation audit process could reasonably be called into question, or such that the issuer or management team member (or immediate family member) could be reasonably s een as having the ability to influence the decision-making of the initial validation auditor;

● Neither the initial validation auditor nor a ny member of its management team or data validation audit team (or any member of the imme diate family of such a member) may have any material financial or ownership in terest in the issuer, such that the financial success of the issuer could be reasonably seen as materially affecti ng the financial success of the initial validation auditor or management team or audit team member (or immediate family member) and the impartiality of the initial valid ation audit process c ould reasonably be ca lled into question, or such that the initial validation auditor or ma nagement or audit team member (or immediate family member) could be seen as having the ab ility to influence the decision-making of the issuer;

● Owners, directors and officers of the issuer may not be owne rs, directors or officers of the initial validation audi tor, and vice versa;CMS-9954-P 43

● Members of the data validation audit team of the initial validati on auditor may not be married to, in a domestic partnership with, or othe rwise be in the same immediate family as an owner, director, officer, or employee of the issuer; and

● The initial validation aud itor may not have had a role in establishing any relevant internal controls of the issuer related to the ri sk adjustment data validation process when HHS is operating risk adjustment on behalf of a State, or serve in any capacity as an advisor to the issuer regarding the initial validation audit. In addition, we are considering standards under which issuers would verify that no key individuals invo lved in supervising or performing the initial validation audit have been excluded from wo rking with either th e Medicare or Medicaid program, are on the Office of the Inspector General exclusion list, or are u nder investigation with respect to any HHS programs. We note that we intend to review the init ial validation auditor’s qualifications and relationship to the issuer to verify that the init ial validation auditor is qualified to perform the audit, and that the issuer and initial validation au ditor are free of actual or apparent conflicts of interest, including those stated above. We note that HHS c ould gather information through external reporting to support that review. A lthough we are confident that most issuers will exercise diligence in selecting an initial validati on auditor that will be able to comply with HHS audit standards, we intend to mon itor the performance of initial validation auditors to determine whether certification or additional safeguards are necessary. We propose to amend §153.630(b)(1) to specify that the issuer of a risk adjustment covered plan must provide HHS with the identity of the initial validation auditor, and must attest to the absence of conflicts of interest between the initial validation auditor (or the members of its audit team, owners, directors, officers, or empl oyees) and the issuer (or its owners, directors, officers, or employees). We propose to consider any individual with a significant ownershipCMS-9954-P 44
stake in an entity such that the individual coul d reasonably be seen to have the ability to influence the decision making of the entity to be an “owner,” and propose to consider any individual that serves on the governing board of an entity to be a director of the entity. We are contemplating beginning the initial validation process at the end of the first quarter of the year following the benefit year, with the issuer’s submi ssion of the initial validation auditor’s identity. We expect to identify the enrollee sample for the initial validation audit in the summer of the year following the benefit year. We are contemplat ing requiring delivery of the initial validation audit findings to HHS in the fourth quarter of th at year. We include a proposed schedule of the risk adjustment data validation pr ocess at the end of this section. Once the audit sample is selected by HHS, we e xpect issuers would ensu re that the initial validation audit is conducte d in the following manner:

● The issuer would provide the initial va lidation auditor with source enrollment and source medical record documentation to validate issuer-submitted risk adjustment data for each sampled enrollee;

● The issuer and initial validation audito r would determine a timeline and informationtransfer methodology that satisfies data securi ty and privacy requirements, including the applicable provisions of HIPAA, and enables the initial validation auditor to meet HHS established timelines;

● The initial validation audito r would analyze the enrollment and medical record data to validate the demographic information, plan or plan variation enrollment, and health status of each enrollee in the sample in accordance with the standards established by HHS; and

● The initial validation audito r would provide HHS with the fi nal results from the initial validation audit and all reque sted information for the s econd validation audit.CMS-9954-P 45
We note that §153.630(f)(2) is not changed by this proposal, and that the issuer would be required to ensure that its initial validation auditor comply with the security standards described at 45 CFR 164.308, 164.310, and 164.312 in connection with the initial validation audit. We seek comments on these proposals. (2) Standards for the Initial Validation Audit We propose to add a new paragraph (b)(5) to §153.630, in which we propose that an initial validation audit review of enrollee health status be conducted by me dical coders certified after examination by a nationally recognized accrediting agency fo r medical coding, such as the American Health Information Management Asso ciation (AHIMA) or the American Academy of Professional Coders (AAPC). We seek comm ent on other nationally recognized accrediting agencies that may be appropria te to certify medical coders who are performing the initial validation audit review of enrollee health status. (3) Validation of enrollees’ risk scores An enrollee’s risk score is derived from de mographic and health status factors, which requires the use of enrollee iden tifiable information. Thus, we propose to add paragraph (b)(6) to §153.630, to require an issuer to provide th e initial validation a uditor and the second validation auditor with all relevant informa tion on each sampled enrollee, including source enrollment documentation, claims and encount er data, and medical record documentation (defined below) from providers of services to enrollees in the app licable sample without unreasonable delay and in a manner that reasonably assures confidentiality and security of data in transmission (“data in transit”). We note that existing privacy and secur ity standards, such as standards under HIPAA and those detailed at §15 3.630(f)(2), would apply. This information will be used to validate the enrollment, demographic, and health status data of each enrollee. Only source documentation for encounters with dates of services within the applicable benefit yearCMS-9954-P 46

would be considered relevant. This would require issuers to co llect the appropriate enrollment and claims information from their own system s, as well as from all relevant providers (particularly with respect to medical record documentation). We note that only a very small percentage of an issuer’s reco rds containing personally identifi able information would be made available to auditors as part of the risk adju stment data validation pr ocess, and that similar transmissions are required today for data validati on for the Medicare Advantage program. As we describe in this section at (vii i), regarding data security stan dards, we are seeking comment on the applicability and effectiveness of current st andards, as well as what other standards HHS should promulgate to ensure data se curity and privacy protections. We also propose to add paragraph (b)(7) to §153.630 to describe the standards for validating each factor of an enrollee’s risk sc ore. In paragraph (b)(7 )(i), we propose that the initial validation auditor must validate dem ographic data and enrollment information by reviewing plan source en rollment documentation, such as the 834 transaction, 10 which is the HIPAA-standard form used for plan benefit en rollment and maintenance transactions. These enrollment transactions reflect th e data the issuer captured for an enrollee’s age, name, sex, plan of enrollment, and enrollment periods in the plan. We note that certain identifying information from these enrollment transactions, such as the en rollee’s name, would be us ed to ensure that the appropriate medical documentation has been provided. The sample audit pool will consist of enrollees with and without risk adjustment-eligible diagnoses within eligible dates of service. For each enrollee in the sample with risk adjustment HCC scores, the initial validati on auditor would validate diagnos es through a review of the

10 Issuers and State Exchanges use the ASC X12 Standards fo r Electronic Data Interchang e Technical Report Type 3 – Benefit Enrollment and Maintenance (834), August 2006, ASC X12N/005010X220, as referenced in §162.1502, or “834 form” to transmit and update enrollment and eligibility to HHS as often as daily but at least monthly. In Federal operations, HHS and the issuer exchange and update data via this same form.CMS-9954-P 47
relevant risk adjustment-eligible medical record s. We consider medical record documentation generated with respect to dates of service that occurred during th e benefit year at issue to be relevant for these purposes. For enrollees withou t risk adjustment HCCs for whom the issuer has submitted a risk adjustment-eligible claim or en counter, we would require the initial validation auditor to review all medical r ecord documentation for those risk adjustment-eligible claims or encounters, as provided by the issu er, to determine if HCC diagnoses should be assigned for risk score calculation, provided that the documentation meets th e requirements for the risk adjustment data validation audits. Documents used to validate all components of the risk score must reflect dates of service duri ng the applicable benefit year. In the initial years of the data validation program, we plan to accept certain supplemental documentation, such as health assessments, to support the risk adjustment diagnos is. We expect to provide additional details on acceptable supplemental documentation in future guidance. 11 Therefore, in §153.630(b)(7)(ii), we propose that the validation of en rollee health status (that is, the medical diagnoses) occur through me dical record review, that the validation of medical records include a check that the record s originate from the provider of the medical services, that they align with the dates of service for the medi cal diagnosis, and that they reflect permitted providers and services. In this pa ragraph, we also propose, for purposes of §153.630, that “medical record documenta tion” mean: “clinical documentat ion of hospital inpatient or outpatient treatment or professional medical trea tment from which enrollee health status is documented and related to accepted risk adjustme nt services that occurred during a specified period of time.” Medical record documentation must be generated in the course of a face-to-face

11 See “HHS-Operated Data Collection Policy FAQ” for a disc ussion of chart review as an acceptable source of supplemental diagnosis codes. Additional detail will be provided in future guidance. https://www.regtap.info/uploads/library/HHS _OperatedDataCollectionPolicyFAQs_062613CMS-9954-P 48

or telehealth visit documented and authenticated by a permitted pr ovider. We expect to provide additional guidance on telehealth services in future guidance. In §153.630(b)(7)(iii), we propose that medical record review and abstraction be performed in accordance with industry standa rds for coding and reporting. Current industry standards are set forth in the In ternational Classification of Di seases, Ninth Revision, Clinical Modification (ICD-9-CM), or the International Statistical Classification of Diseases and Related Health Problems, Tenth Revision, 4th Edition (ICD-10-CM) guidelines fo r coding and reporting. (4) Confirmation of ri sk adjustment errors We note that the data validation audit proce sses may identify various discrepancies, many of which will have no impact on an enrollee’s risk score. For example, if a medical diagnosis underlying an enrollee’s HCC was present on a cl aim but was not supported by medical record documentation, but the same HCC was supported by th e medical record for a different diagnosis, we propose that no risk adjustment error be asse ssed for the enrollee’s HCC. However, if none of the medical record documentation supports a particular HCC diagnosis for an enrollee, we propose that a risk adjustment error be assessed. We consider a risk adjustment error to occur when a discrepancy uncovered in the data validation audit process results in a change to the enrollee’s risk sc ore. A risk adjustment error may result from incorrect demographic data, an unsupported HCC diagnosis, or a new HCC diagnosis identified duri ng the medical record review. An unsupported HCC dia gnosis could be the result of missing medical reco rd documentation, medical record documentation that does not reflect the diagnosis, or invalid medical record documentation (suc h as an unauthenticated record or a record that does not meet ri sk adjustment data collection sta ndards for the applicable benefit year).CMS-9954-P 49
We propose in §153.630(b)(7)(iv) that a senior reviewer must confirm any finding of a risk adjustment error. We believe that a senior reviewer is a reviewer w ith substantial expertise in medical record coding such that the initia l validation auditor would consider the senior reviewer to be the standard against which to measure inter-rater reliability and coding consistency. As such, we propose to define a se nior reviewer as a medi cal coder certified by a nationally recognized accrediting ag ency who possesses at least 5 years of experience in medical coding. We seek comment on the credentials and expertise that should be required of a senior reviewer. (5) Review consiste ncy and reliability Validation audits typically include methods of evaluating review consistency and reliability. We believe such pro cesses help to ensure the integrity of the data validation process and strengthen the validity of audit results. In §153.630(b)(8), we pr opose that the initial validation auditor measure and repo rt to the issuer and HHS its in ter-rater reliability rates among its reviewers. Such processes measure the degree of agreement among reviewers. We propose to set the threshold for the acceptable level of consistency among reviewers at 95 percent for both demographic and enrollment data review, and health status data review outcome. Reviews should be performed using rater-to-standard procedures whereby reviews conducted by reviewers with extensive qualifications and credentia ls are used to establish testing thresholds or standards for consistency. (iii) Second Validation Audit The initial validation audit will be followe d by a second validation audit, which will be conducted by an auditor retained by HHS to veri fy the accuracy of the findings of the initial validation audit.CMS-9954-P 50
We propose to select a subsample of the in itial validation audit sample enrollees for review by the second validation auditor. The se cond validation auditor w ould perform the data validation audit of the enrollee s ubsample, adhering to the same a udit standards applicable to the initial validation audit describe d above, but would only review enrollee information that was originally presented during the in itial validation audit. In §15 3.630(c), we established standards for issuers of risk adjustment covered plans related to HHS’s second validation audit. In §153.630(b)(4), we established that issuers must s ubmit (or ensure that their initial validation auditor submits) data validation information, as specified by HHS, from their initial validation audit for each enrollee included in the initial validation sample. Issuers must transmit all information to HHS or its second validation audito r in a timeframe and manner to be determined by HHS. The second validation auditor would info rm the issuer of error findings based on its review of enrollees in the second validation audit subsample. We will provide additional guidance on the manner and timeframe of these submissions in the future. As discussed in the white paper, we are c onsidering selecting the second validation audit subsample using a sampling methodology that will al low for pair-wise means testing to establish statistical difference between the initial and second validation audit results. If the pair-wise means test results suggest that the difference in enrollee results between the initial validation audit and second validation audit is not statistically significant, the initia l validation audit error results would be used for error estimation and calculation of adju stments for plan average risk score. If the test results s uggest a statistical difference, th e second validati on auditor would perform another validation audit on a larger subsample of the enrollees previously subject to the initial validation audit. The results from the second validation audit of the larger subsample would again be compared to the results of the initial validation audit using the pair-wise means test. Again, if no statistical difference is f ound between the initial va lidation audit and theCMS-9954-P 51
second validation audit conducted on the larger subsample, HHS would apply the initial validation audit error results for error estimati on using all enrollees selected for the initial validation audit sample. However, if a stat istical difference is found based on the second validation audit on the larger subsample, HHS would apply the second validation audit error results to modify the risk scores of the issu er’s enrollees, as discussed below. We are considering using a 95 percent confidence interval, but seek comment on the appropriate confidence interval to use with respect to these pair-wise means tests. As discussed in the white paper, we are c onsidering a number of ways to expedite the second validation audit and the subsequent appeals processes. One possibility would be to begin the second validation audit on those enrollees for which the initial validation audit is complete, even if the entire initial validation audit has not been completed. For example, an issuer could allow its initial validation auditor to submit data validation documentation and results a number of months in advance of the HHS established de adline for submission of initial validation audit results. The second validation auditor would thus be able to begin its re view earlier, permitting more time to provide feedback to the issuer on th e results of that review and allowing for more opportunity for discussion prior to finalizing the second valida tion audit findings. Prior to finalizing the risk score adjustment based on the second validation audit findings, the second validation auditor may request discussions with the initial validation auditor to identify the source of the differences, or may review the initia l validation auditor’s processes. If the initial validation audits are substantiated, the second va lidation auditor may adjust its risk scores accordingly. This process would not allow for any additional documentation to be submitted on those enrollees for which the sec ond validation audit began early. The appeals decision from the expedited, concurrent process would be fina l and binding, but would provide issuers the opportunity to begin the process ea rlier. If HHS establishes a c oncurrent second validation auditCMS-9954-P 52
and appeals process, we would need to devel op intermediate timelines for initial validation auditor submission of audit documentation and data to the second validati on auditor. We seek comments on this approach for establishing a co ncurrent second validation audit and appeals
process. (iv) Error Estimation The fourth stage in the HHS risk adjustment data validation proce ss is error estimation. Upon completion of the initial and second validation audits, HHS will derive an issuer-level risk score adjustment and confidence interval. This ad justment would be used to adjust the average risk score for each risk adjustment eligible plan offered by the issuer. HHS intends to provide each issuer with enrollee-level audit results and the error estimates. We are proposing a two-phase procedure to a ccept or correct the results of the initial validation audit based on the resu lts of the second validation aud it. In phase one, as described above, we conduct a pair-wise stat istical test for consistency be tween the initial validation and second validation audit results (as described above for second valida tion audits). In phase two, if we determine that the results of the two audits are inconsistent, we would adjust the initial validation audit results based on the second validati on audit results. For phase two, we describe two options for using second validation audit results to derive an estimate of an overall corrected risk score for each issuer. Phase One: Consistency Test between Initial and Second Validation Audit In phase one, a pair-wise statis tical test would be performed to determine if the initial validation audit sample results should be adjusted using the results of the second validation audit. To illustrate the underlying statistical te st, consider the following notations: is the i th initial validation audit risk score observation in the second validation audit sample of n observations;CMS-9954-P 53

is the i th second validation audit risk score obs ervation in the second validation audit sample of n observations;

is the difference between and within the second validation audit sample;

is the mean of all observations within the second validation audit sample; and

is standard deviation of all observations within the sec ond validation audit sample.

Assume an issuer submits enrollment and clai ms data to its dedicated distributed data environment that are used to compute a set of “o riginal” risk scores. As required by the risk adjustment data validation process, the issuer engages an independent validation auditor, who reviews N enrollee records, as sampled by HHS, and va lidates the original enrollee risk scores. From the N enrollees in the initial validation audit sample, HHS selects a smaller second validation audit subsample of n enrollees. For each second valid ation audit selected record, HHS calculates the difference, . HHS then conducts a pair-wise means test to determine
whether the mean difference, , is statistically significant (t hat is, unlikely to be zero). Specifically, HHS would conduct a sta tistical test to dete rmine if zero (0) is contained within the

range, . If so, HHS would conclude that there is no statistically significant
difference between risk scores determined by th e initial and second vali dation audit processes, and would accept the results of th e initial validation audit. However, if zero (0) is not contained within this range (that is, the difference between and zero is statistically signifi cant), HHS would expand the second validation audit subsample to select a larger subset of N , have the second validation auditor re view the enrollee files, and again conduct a pair-wise means test using this larger subsample. If the statistical test shows noCMS-9954-P 54
statistically significant difference, HHS would accept the results of th e initial validati on audit. If the statistical test shows a statistically signi ficant difference between the initial and larger subsample second validation audit findings, HHS would conduct phase two to adjust the full initial validation audit sample based on the larger subsample second validation audit findings. Phase Two: Adjustment to the Initial Validation Audit Sample In phase two, we propose that if the differe nce between the initia l and second validation audits is found to be statistically significant, then HHS would u tilize the risk sc ore error rate calculated from the larger second validation audit subsample to adjust th e full initial validation audit sample, which could in turn be used to adju st the average risk scores for each plan. This approach would adjust the entire initial valida tion audit sample using a one-for-one replacement for the enrollees reviewed by the second validat ion audit, and a uniform adjustment for the enrollees that were not. We al so considered another option, as discussed in the white paper and below. Under this alternate approach, we w ould use the error rate from the larger second validation audit subsample directly in our determination of whethe r and by how much to adjust the risk scores of all enrollees in the issuer’s risk adjustment covered plans. This approach would disregard all enrollees in the initial validati on audit sample that were not reviewed as part of the larger second validation audit subsample. To illustrate these two options under the phase two adjustment process, consider the following notations:
M is the total number of enrollees in the risk adjustment covered plan;
N

is the initial validation audit sample size;

n is the size of the larger s econd validation audit subsample; is the mean of the initial validation audit-ad justed risk scores in the initial validation audit sample N ;CMS-9954-P 55

is the mean of the second validation audit- adjusted risk scores in the second validation audit sample n ; is the mean of the original risk scores in the initial validation audit sample N ; is the mean of the original risk scores in the second validation audit sample n ; is the original risk score total across all M records; is the projected correct risk score across all M records using the in itial validation error
rate; and

is the projected correct risk score across all M records using the error rate from the larger second validation audit subsample.

Under this proposed approach, we would undert ake the following steps to adjust the risk scores in the initial validation audit samples: (1) Replace the initial valida tion audit-adjusted risk scor es with the second validation audit-adjusted risk scores in the n records that were sampled from N (one-for-one risk score adjustment). (2) Apply a uniform adjustment factor, to the initial validati on audit-adjusted risk
scores in the ( N

- n ) records not reviewed by th e second validation audit.CMS-9954-P 56
Under the alternate approach, the second valid ation audit-adjusted risk scores in the n records in the larger second validation audit subsam ple would be used as the basis for adjustment of plan-level average risk scores. Considering the comments in response to the white paper, and in or der to estimate error using a narrower confidence interval, we are pro posing to use the larger second validation audit subsample to adjust the initial validation aud it sample (by direct replacement for enrollees reviewed by the second validati on audit, and by proportional adjustment for the other enrollees), whose adjusted error rate could be used as a basis to adjust plan average risk scores for all risk adjustment covered plans of the issuer. We seek comment on our proposed approach. Adjusted Risk Score Projections Based on the proposals described above, the resu lts of the initial or second validation audits could be used as the basis for projec ting a corrected risk sc ore for each issuer’s population. The projections desc ribed above would be performed on a stratum-by-stratum level and weighted accordingly to achieve an estimate of the corrected risk score for each issuer. As described in the white paper, a stratified separate ratio estimator 12 would be used to estimate the corrected average risk score for each issuer . To compute the stra tified separate ratio estimator, HHS would first extrapolate the total co rrect risk score within each stratum, then sum the stratum-specific projected correct risk scores for all strata, with the total sum divided by the total enrollee count to arrive at the corrected average risk score. The projected risk score error could then be calculated as the difference betw een the recorded average risk score across the entire population and the point estimate.

12 For a discussion of stratified separate ratio estimators, see Cochran, William G., Sampling Techniques , third edition, John Wiley & Sons, 1977, at 164.CMS-9954-P 57
The stratified separate ratio estimator of the to tal correct risk score is calculated using the following equation:

h H

h h h R 

### X x y Y 

# ∑

= 

### = 1 

### ˆ

Where:

R 

### Y ˆ is used to estimate the correct risk score;

h 

### y is the sample mean of the correct risk score in stratum h ;

h 

### x is the sample mean of the original risk score in stratum h ;
X

h is the total sum of the original risk score in stratum h ; and
H is the total number of strata.

R 

### Y ˆ would then be normalized by the enrollment count to derive a corrected average risk
score for the issuer. To estimate the variance of the point estimate, HHS will first estimate the variance within each stratum and then sum the stratum-specific vari ances for all strata. The estimated variance of the stratified separate ratio estimate for the correct risk score is calculated as follows:

Variance ( R 

### Y ˆ ) = 

### ( ) 

## ∑ ∑∑ ∑

= == = ⎥ ⎥ ⎥ ⎥ ⎥

⎦ ⎤

⎢ ⎢ ⎢ ⎢ ⎢

⎣ ⎡ ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

− +

− ⎟ ⎟ ⎠ ⎞ ⎜ ⎜ ⎝ ⎛

− H

h n

i n

i n

i ih ih h ih h ih h h h h h hh h x y R x R y n n N n N

1 11 1 2 2 2 2

ˆ 2 ˆ 1 1

Where:

n h is the number of enrollees sampled in stratum h ; N

h is the population frequency in stratum h ;
y ih is the corrected risk score for the i th sampled enrollee in stratum h ;

x ih is the original risk score for the i th sampled enrollee in stratum h ; andCMS-9954-P 58

h 

### R ˆ = 

## ∑ ∑

= = h h

n

i ih n

i ih

x y

1 1

The square root of the estimated va riance is the standard error (SE). We are proposing to use the issuer’s corre cted average risk score to compute an adjustment factor, based on the ratio between the corrected average risk score and the original average risk score that could be applied to adjust plan average risk for all risk adjustment eligible plans within the issuer. We are considering tw o options for applying th e adjustment factor. Under the first option, we are considering directly applying an adjustment factor to all of the issuer’s risk adjustment covered plans. U nder the second option, we are considering applying this adjustment only if the corr ected average risk score and the recorded average risk score are statistically different. Were we to implement the second option, a criti cal parameter of the statistical test would be the target confidence interval, which would dete rmine the stringency of the test. For example, we could perform the statistical test at the 90, 95, or 99 percent confiden ce interval. We note that the HHS Office of the Inspector General performs certain similar data validation tests using a 90 percent confidence interval, while the Medica re Advantage risk adjustment data validation program uses a 99 percent confidence interval. We also note that even if th e statistical test finds the two risk scores to be statis tically different, we c ould apply the adjustment factor to adjust plan average risk scores based upon using the point estimate of the adjusted average risk score, or some other value within an interval around the point estimate, such as the upper or lower bound of a 95 percent confidence inte rval around the point estimate. The choice among these options poses a tradeo ff between reducing issu ers’ incentives to aggressively report or code diagnoses, and increasi ng the variability of issuers’ risk adjustment payments. Under the first option, an issuer that re ports data that systematic ally overstate s its riskCMS-9954-P 59
score would, on average, assuming the corrected ri sk scores are unbiased estimates of the true risk scores, receive a downward adjustment to it s reported risk score equal in magnitude to the degree of overstatement. As a result, this option could eliminate an issuer’s incentive to overstate its risk score. On the other hand, due to sampling variation, the first option would routinely introduce significant variability in issuer s’ risk scores (both up and down), even if the issuer was making no attempt to manipulate its risk scores. While these adjustments would make such an issuer’s risk adjustment payments le ss predictable in any give n year, they would not introduce systematic bias in risk scores (a ssuming the corrected risk scores are unbiased estimates of the true risk scores). The second option, in contrast, w ould only adjust an issuer’s ri sk scores when it is very likely that the reported risk scores deviated from the true values, so issuers’ risk adjustment payments would be more predictable. However, particularly if the confidence level of the statistical test were set at a hi gh threshold, this approach would often fail to make adjustments when an issuer does in fact overstate its risk score. Based on commenters’ feedback on the white pa per, we are proposing to use the second approach described above – we w ould adjust the plan average risk scores of an issuer based upon the ratio between the correct aver age risk score estimate and recorded average risk score only if the difference between the estimated and recorded average risk scores were determined to be statistically significant. We are proposing to use a 95 percent conf idence interval to determine if the adjusted average risk score and the recorded average risk score are statistically different. Nevertheless, we welcome comments on both opti ons discussed above a nd on the appropriate tradeoff between reducing issuers’ incentive to aggressively report or code diagnoses and increasing the variability of i ssuers’ risk adjustment paymen ts. In addition, regarding the proposed approach in particular, we seek comm ents on the appropriate confidence interval toCMS-9954-P 60
apply when determining whether an adjustment to an issuer’s plan average risk score is
necessary. Error Estimation Example To illustrate the corrected average risk sc ore and error estimation process described above, assume that a sample of 200 enrollees is se lected for initial valida tion audit review for a particular issuer. From this sample, assume th at a subsample of 20 enrollees is selected for second validation audit review. A ssume the issuer’s av erage recorded populat ion risk score is 1.60 and the projected correct population risk scor e from the sample of 200 is 1.40, with a twosided 95 percent confidence interval of 1.30 to 1.50. The first step in the error estimation process will determine if the initial validation audit results should be corrected based on the sec ond validation audit review or accepted without adjustment. We would perform a pair-wise means test to compare the projected risk scores for the sample of 200 enrollees and the subsample of 20 enrollees. For this example, assume that the statistical test fails (that is, there is a statistically significant difference between the projected risk sc ores in the sample of 200 and the subsample of 20). 13 We would then select an expanded subs ample from the original sample of 200 enrollees. Assume that the larger sample is a sample of 100 enrollees. Following completion of the larger second validati on audit, we would perform the pair-w ise means test again. Assume the test fails again (that is, there is a statistically significant difference in th e projected risk scores between the sample of 200 and the larger subsam ple of 100). We would c onclude that the risk scores in the sample of 200 en rollees need to be adjusted.

13 If the test passes, then no adjustments would be made to the sample of 200 and the projected results from this sample would be used to adjust average plan liability risk scores.CMS-9954-P 61
In the second step of error estimation, HHS woul d adjust the risk scores in the sample of 200 using a one-for-one replacement for the risk scores of the enrollees reviewed by the second validation auditor, and a uniform adjustment for th e other enrollees in the initial validation audit sample. The one-for-one replacem ent will replace the risk scores calculated based on initial validation audit findings, with th e risk scores calculated base d on the second validation audit findings for the larger subsample of 100. The re maining 100 enrollees that were not included in the second validation audit subsample would be ad justed based on the rati o of two projections: (1) the projected correct population risk score us ing the second validation audit findings in the subsample of 100 (assume this projected risk score is 1.50, with a two-sided 95 percent confidence interval of 1.30 to 1.70); divided by (2 ) the projected correct population risk score using the initial validation audit findings in the sample of 200 (equal to 1.40 based on the assumption noted above). The adjustment ratio is equal to 1.07 = 1.50/1.40. Therefore, the risk scores of the remaining 100 enrollees not incl uded in the second validation audit subsample would be increased by 7 percent. The projected correct populat ion risk score from the revised sample of 200 would therefore be 1.45, with a two-sided 95 pe rcent confidence inte rval of 1.35 to 1.55. (v) Appeals We anticipate that the risk adjustment da ta validation appeals process would occur annually, beginning in the spring of th e year in which the error rate wi ll be applied to adjust risk scores and affect risk adjustment payments and ch arges. Because we are not applying error rates to adjust payments and charges for the initial 2 years of the risk adjustment program, the first year for which payments and charges would a pply would be 2016. Risk scores and initial payments and charges would be calculated in the spring of 2017 for that payment cycle. We anticipate the appeals process will begin in the spring of 2018, prior to the 2017 paymentCMS-9954-P 62
transfers. We will provide additional guidance on the appeals process and schedule in future rulemaking. (vi) Payment Transfer Adjustments Risk adjustment payment transfer amounts w ill be based on adjusted plan average risk scores. The data validation audits would be used to develop a risk score error adjustment for each issuer, as described above. Each issuer’s ri sk score adjustment would be applied to adjust the plan average risk score for each of the issu er’s risk adjustment covered plans. This adjustment would be applied on a prospective basi s beginning with the risk adjustment data for benefit year 2016 (that is, the ad justments would take effect in 2018, during payment transfers for 2017). Because an issuer’s adjusted plan averag e risk score is normalized as part of the risk adjustment payment calculation, the effect of an issuer’s risk score erro r adjustment will depend upon its magnitude and direction compared to th e average risk score error adjustment and direction for the entire market. We are considering reporting the following summary findings to issuers for the initial 2 years of the program:

● State- or market-wide error rates.

● Issuer error rates.

● Initial validation a udit or error rates.

● Projected financial impact of the proposed risk adjustments, as determined by the initial and second va lidation auditors.

● The 2-year interval before risk adjustme nt data validation adju stments are applied to risk scores and affect payments and charges will provide initial validation auditors and issuers the opportunity to reform exis ting processes prior to the im plementation of HHS payment transfer adjustments for the 2016 benefit year. We believe that the reports described above willCMS-9954-P 63
help issuers and initial valida tion auditors better understand th e likely effects of the risk adjustment data validation program in States where HHS operates risk adjustment. We seek comment on considerations for re porting error rates a nd any additional information that could improve transparency in the markets. (vii) Oversight The second final Program Integrit y Rule outlined selected over sight provisions related to the premium stabilization programs, such as main tenance of records, sanctions for failing to establish a dedicated distributed data environment, and the ap plication of a default risk adjustment charge to issuers in the individual and small group mark et that fail to provide data necessary for risk adjustment. We are proposin g to expand on these provisions to include oversight related to risk adjust ment data validation when HHS ope rates risk adjustment on behalf of a State. Section 153.620 provides that an issuer that offers risk adjustment covered plans must comply with any data validation requests by the St ate or HHS on behalf of the State, and that an issuer that offers risk adjust ment covered plans must also maintain documents and records, whether paper, electronic, or in other media, su fficient to enable the evaluation of the issuer’s compliance with applicable risk adjustment stan dards, and must make that evidence available upon request to HHS, OIG, the Comptroller General, or their designee, or in a State where the State is operating risk adjustment, the St ate or its designee to any such entity. Based on our authority under section 1321(c)(2 ) of the Affordable Care Act, we are proposing in §153.630(b)(9) that, when HHS operates risk adjustment on behalf of a State, an issuer of a risk adjustment covered plan that doe s not engage an initial validation auditor within the timeframe specified by HHS of the year followi ng the benefit year, or that otherwise does not arrange for a risk adjustment initial validation a udit that complies with applicable regulations,CMS-9954-P 64
may be subject to civil money penalties. We no te that we intend to apply the proposed sanction so that the level of the enfor cement action would be proportional to the level of the violation. While we would reserve the right to impose pe nalties up to the maximum amounts proposed in §156.805(c), as a general principle, we intend to work collaborative ly with issuers to address problems in conducting the risk adjustment data va lidation process. In our application of the proposed sanction, we would take into account th e totality of the issuer’s circumstances, including such factors as an i ssuer’s previous record (if any) , the frequency and level of the violation, and any aggravating or mitigating circumst ances. Our intent is to encourage issuers to address non-compliance and not to severely affect their business, especially where the issuer demonstrates good faith in monitoring complian ce with applicable standards, identifies any suspected occurrences of non-compliance, and attempts to remedy any non-compliance. We also note that HHS will not perform the initial validation audit for an issuer that does not hire an initial validation auditor or otherw ise does not submit initial validation audit results that comply with the regulations in subpart G an d subpart H of part 153. For these issuers, we propose in §153.630(b)(10) to assign a default ri sk adjustment charge. We are considering whether this charge should be the same charge as contemplat ed in §153.740(b), should be based on a default error rate, or should be calcul ated based on some other methodology. We will propose a methodology for computing the default error rate or default charge in future rulemaking. Issuers may request technical assistance from HHS at any stage of the risk adjustment data validation process. HHS may also offer su ch assistance directly if we become aware of technical issues arising at any ti me during the risk adjustment data validation process. We plan to provide further assistance and clarification around the risk adju stment data validation processCMS-9954-P 65
through a range of vehicles, includi ng additional guidance, training materials, webinars, and user group calls. We welcome co mment on these proposals. (viii) Data Security We recognize that the risk adjustment data validation process outlined here will require the transmission of sensitive data and documents between the issuer a nd the initial and second validation auditors. HHS takes seriously the importance of safeguarding protected health information and personally identifiable information. As outlined in the white paper, we believe that it will be necessary to specify standards for safeguarding this information through proper information storage and transmission methods. We note that §153.630(f)(2) requires issuers to ensure that it and its init ial validation auditor comply with the security standards described at 45 CFR 164.308, 164.310, and 164.312 in connection with the in itial validation audit, the second valid ation audit, and any appeal. In addition to these requirements, we are consider ing defining standards a nd expectations that would apply to issuers and initial and second vali dation auditors pertaini ng to data security, management, and transmission. These standards c ould require systems to safeguard and encrypt data “at rest” and “in transit,” and to authenticate identiti es of users. They could also prohibit the auditors from using or disclosing the informa tion they receive for any purpose other than the audit and oversight. Similar standards have been implemented under the Medicare Advantage risk adjustment data validation process. We inte nd to address these issues and the treatment of initial and second validation audi tors under HIPAA in future rule making or guidance, and seek comment on the applicability and effectiveness of current standards, as well as what other standards HHS should promulgate to ensure data security and privacy protections. (ix) Implementation TimelineCMS-9954-P 66
For the 2014 benefit year, we expect to implement risk adjustment data validation activities in early 2015. Implementation activi ties would begin with issuers submitting the identity of their initial valid ation auditor to HHS in accordance with §153.630(b)(1). In the spring of 2015, we would utilize th e data submitted by issuers for risk adjustment payments and charges and apply the sampling me thodology described above to sel ect the audit sample for each issuer for the initial validation audit. During the same timeframe, we would train issuers and initial validation auditors on the risk adjustme nt data validation process and the applicable standards for performing the initi al validation audit, which would begin in the summer of 2015. Once the initial validation aud it has concluded in the fall of 2015, HHS would begin the second validation audit process, which would continue into 2016. Risk adjustment data validation implementation activities for the 2014 benef it year data would conclude in 2016 after distribution of HHS findings to issuers, processing of appeals, and estimation and reporting of final risk scores. Since the 2014 benefit year is the first y ear of implementation of risk adjustment data validation, we expect to report on lessons learned from these activities, and to use this information to improve the risk adjustment data validation process. We expect that the risk adjustment data validation implementa tion activities would follow a similar schedule for each subsequent be nefit year. The 2016 benefit year would be the first year when payments and charges are adju sted. Those adjustments would occur after the conclusion of risk adjustment data validation ac tivities for the 2016 benefit year, in the summer of 2018. e. HHS audits of issuers of risk adjustment covered plans In order to safeguard Federal funds, we pr opose in §153.620(c) that HHS or its designee may audit an issuer of a risk adjustment cove red plan, when HHS operates risk adjustment on behalf of a State, to assess the issuer’s comp liance with the requirement s of subparts G and H ofCMS-9954-P 67
45 CFR part 153. The issuer must also ensure that its relevant contractor s, subcontractors, or agents cooperate with the audit. We anticipate conducting targeted audits of issuers of risk adjustment covered plans informed by, among othe r criteria and sources, th e data provided to HHS through the dedicated distributed data environment and any previous history of noncompliance with these standards. We will pr ovide further details on this audit program, including timelines, procedures, and substant ive requirements, in future rulemaking and guidance. This audit will focus on those aspect s of the risk adjustment program that are not validated through the risk adjustment data valida tion program, described above in this proposed rule. In particular, we anticipate that the au dit will focus on records documenting that the plan was a risk adjustment covered plan. For exam ple, the audit might seek to review records evidencing the type of plan at issue (for example, an individual market metal level plan versus a catastrophic plan), the plan rene wal date (to ensure the plan was subject to the market reform rules during the time periods for which data wa s submitted to the dedicated distributed data environment), and, in the case of an insured group health plan, the plan si ze (to ensure the plan was a small employer plan). We also propose that if an audit results in a fi nding of material wea kness or significant deficiency (as these terms are defined in GAAS issued by the Am erican Institute of Certified Public Accountants, and Government Aud iting Standards issued by the Government Accountability Office (GAO) 14 ) for compliance with any requirement of subpart G or H of 45 CFR part 153, the issuer: (i) within 30 calendar da ys of the issuance of the final audit report, must provide a written corrective action plan to HHS for approval; (ii) implement that corrective

14 See Government Auditing Standards (2011 Revision), available at: http://www.gao.gov/yellowbook . For public companies, the Public Company Accounting Oversight Board (PCAOB) sets audit standards. See http://pcaobus.org/Standards/Auditing/Pages/default.aspx . For non-public companies, the AICPA sets audit standards. See http://www.aicpa.org/Research/Stand ards/AuditAttest/Pages/SAS.aspx

.CMS-9954-P 68
action plan; and (iii) provide to HHS written doc umentation of the corrective actions once taken. If HHS determines as the result of an audit that the issuer of the risk adjustment covered plan was required to pay additional risk adjustment charges or has received risk adjustment payments to which it was not entitled, it may require the issuer to pay such amounts to the Federal government. To reduce the burden on issuers and HHS, to the extent practical, we intend to coordinate any audits of issuers of risk adjustment covered plans with related audits of Exchange financial programs and premium stabilization programs, such as reinsurance. We seek comment on this proposal, including the standards th at should govern these audits. 2. Provisions and Parameters for th e Transitional Reinsurance Program The Affordable Care Act directs that a transi tional reinsurance program be established in each State to help stabilize premiums for cove rage in the individual market from 2014 through 2016. In the 2014 Payment Notice, we expanded on the standards set forth in subparts C and E of the Premium Stabilization Rule and establis hed the reinsurance payment parameters and uniform reinsurance contribution rate for the 2014 benefit year. In this proposed rule, we propose the reinsurance payment parameters and uniform reinsurance cont ribution rate for the 2015 benefit year and certain overs ight provisions related to th e operation of the reinsurance
program. a. Major medical coverage Section 1341(b)(3)(B)(i) of the Affordable Care Act states that “the contribution amount for each issuer [must] proportionally reflect each issuer’s fully insured commercial book of business for all major medical products . . .” In the preamble to the 2014 Payment Notice (78 FR at 15456), we included a general description of major medical c overage for reinsurance purposes based on the comprehensiveness of the coverage provided (for example, a range of medical,CMS-9954-P 69
surgical, and preventive services) and the settin gs in which the coverage is provided (for example, inpatient and outpatient settings). Co mmenters requested that HHS codify a definition of major medical coverage for purposes of reinsurance contribu tions in regulation text. Codification in regulation text of a more sp ecific definition of ma jor medical coverage for reinsurance contributions purposes would provide additional clar ification for some contributing entities. Therefore, we propose to add a definition of major medical coverage in §153.20 to mean health coverage for a broad range of services and treatments provided in various settings that provides mi nimum value in accordance with §156.145. We believe that because minimum value is calculated on a broad set of services – comparable to the essential hea lth benefits applicable to indi vidual and small group coverage – it is a reasonable measure of comprehensiveness of coverage. Minimum essential coverage under an employer-sponsored plan generally will provide minimum value if the plan’s share of total allowed costs of benefits provided under the plan exceeds 60 percent of such costs (see section 36B(c)(2)(C)(II) of the Code). The minimum value standards established under §156.145 also deem coverage that meets any of the levels of coverage requirements described in §156.140 to satisfy this requirement. Because the calculation of minimum value is an objective process, we believe that the use of the concept of minimum va lue is a reasonable way to clarify the definition of major medical coverage and reduce uncertainty as to whethe r reinsurance contributions are required of certain unique plan arrangements. In addition, we believe that the concept of minimum value will be familiar to stake holders, and will not add undue burden to the determination of whether a plan offers major me dical coverage for reinsu rance purposes. It is important to note that this definition of majo r medical coverage only applies for determining reinsurance contributions under section 1341 of the Affordable Care Act. We seek comment on this proposed definition.CMS-9954-P 70
b. Self-insured plans without third party administrators Section 1341(b)(1)(A) of the Affordable Care Act provides that “health insurance issuers and third party administrators on behalf of group health plans” must make reinsurance contributions. We recognize that some self-i nsured group health plans self-administer the benefits and services provided under the plan, and do not use the servic es of a third party administrator. We believe that section 1341(b)(1 )(A) of the Affordable Ca re Act clearly applies to both issuers of insured plans as well as to self-insured plans that use third party administrators. However, our continued study of th is issue leads us to believe th at this provision may reasonably be interpreted in one of two wa ys – it may be interpreted to mean that self-insured, selfadministered plans must make reinsurance contribu tions, or it may be interpreted to mean that such plans are excluded from the obligation to ma ke reinsurance contribu tions. For the reasons discussed below, we propose to modify the defi nition of a “contributing entity” for the 2015 and 2016 benefit years to exclude se lf-insured group health plans that do not use a third party administrator in connection with claims processing or adjudicati on (including the management of appeals) or plan enrollment. Following consideration of the comments su bmitted with respect to the 2014 Payment Notice and the proposed Program Integrity Rule , we propose that for the 2015 and 2016 benefit years, the phrase “third party administrators on behalf of group health plans” not include selfinsured, self-administered group health plans. An insured plan and a self-insured plan administered by a third party administrator are similar in that each arrangement involves an employer and an outside commercial entity – an i ssuer or a third party ad ministrator (which is often an insurance company or an affiliate) – for the administration of the core health insurance functions of claims processing and plan enrollme nt. We note that under section 1341(b)(3)(B) of the Affordable Care Act and §153.400(a)(1)(ii), re insurance contribution amounts are to reflect aCMS-9954-P 71

“commercial book of business.” Our consideration of these comments leads us to believe that a group health plan administered by a third party ad ministrator would normally be viewed as part of the third party administrato r’s “commercial book of business,” but that a self-insured, selfadministered plan would not normally be viewed as part of any entity’s “commercial book of business.” Therefore, we propose that for the 2015 a nd 2016 benefit years, a “contributing entity” would mean: (a) a health insuranc e issuer; or (b) a self-insured group health plan (including a group health plan that is partia lly self-insured and partially in sured, where the health insurance coverage does not constitute major medical cove rage) that uses a third party administrator in connection with claims processing or adjudication (including the mana gement of appeals) or plan enrollment. The proposed modification for th e 2015 and 2016 benefit years would exclude from the obligation to make reinsuranc e contributions those self-insured plans that do not use a third party administrator for their co re administrative processing func tions – adjudicating, adjusting, and settling claims (including the management of appeals), and processing and communicating enrollment information to plan participants a nd beneficiaries. This proposed amendment would recognize that some self-insured group health pl ans, which we believe would generally not be considered to be using the core services of a th ird party administrator, may use third parties for ancillary administrative support, an d we would consider these plan s to be self-administered for purposes of the reinsurance program. For purposes of the definition of “contributi ng entity,” we propose to consider a third party administrator to be, with respect to a self-insured group health plan, an entity that is not under common ownership or control w ith the self-insured group health plan or its sponsor that provides administrative services to the self-insured group health pl an in connection with claims processing or adjudication (includi ng the management of appeals) or plan enrollment. We seekCMS-9954-P 72
comment on this definition, and whether certain type s of service providers, such as an attorney providing legal advice in connection with claims adjudication, or an issuer administering an insured component of a group health plan that is partially self-insured and partially insured should be considered a third party administrator for these purposes. In addition, we seek comment on whether the co re administrative functions that we have described above – claims processi ng or adjudication (including th e management of appeals) and plan enrollment – are the appropriate criteria for this revised defi nition, and what other administrative functions, such as medical manage ment services, provider network development, or other support tasks, should be considered in determining whet her a self-insured group health plan uses a third party administra tor. We also seek comment on wh ether a self-insured plan must perform these core administrative functions for a ll healthcare benefits and services provided to enrollees under the plan in order not to be considered to be using a third party administrator, or whether certain benefits or services, such as pharmaceutical benefits or behavioral health benefits, or a de minimis or small percentage of all benefits and services may be performed by an unaffiliated service provider. If so, we seek comment on which benefits or services should be excluded from this criterion, or how such a de minimis amount or small percentage should be measured. While, upon further consideration of the issu e, we believe the statutory language can reasonably be read to support th e proposition that self -insured group health plans that do not use third party administrators for the functions described above s hould not be obligated to make reinsurance contributions, we also recognize, as a public policy matter, that it would be disruptive to plans and issuers to modify the definition of “contributing ent ity” for the 2014 benefit year at this late date. Health insuran ce issuers have already se t premiums and developed operational processes based on the definition of “contributing entity” that was previouslyCMS-9954-P 73
finalized in the 2014 Payment Notice. To preven t lower reinsurance payments, the contribution rate would have to be raised fo r other contributing entities, many of whom have already set their 2014 premiums based on the contribution rate fi nalized in March 2013. Excluding self-insured, self-administered group health plans from the se t of entities that must provide reinsurance contributions for the 2014 benefit year, without ra ising the rate on other en tities, would decrease the funds available for reinsurance payments fo r that benefit year, a nd thus upset settled estimates with respect to expected reinsurance paym ents that were used to establish premiums. Therefore, we do not propose to change the definition of a “contributing entity” for the 2014 benefit year. That definition will remain as provided for in the second final Program Integrity Rule – a health insura nce issuer or a self-insured gr oup health plan (including a group health plan that is partially self-insured a nd partially insured, where the health insurance coverage does not constitute major medical c overage), regardless of whether the group health plan uses a third party administrator. The modi fication to the definition of “contributing entity” described above would be effective on ly for the 2015 and 2016 benefit years. Finally, we note that our proposed change to the definition of a contributing entity may have implications for our plan aggregation rules at §153.405(g), and seek comment on whether a plan sponsor that maintains two or more group health plans covering the same covered lives, where one or more group health plans are insure d and one or more are self-insured and do not use a third party administrator for core administ rative functions, should be required to treat the multiple plans as a single group health plan for purposes of calculating any reinsurance contribution amount due.CMS-9954-P 74

c. Uniform reinsuran ce contribution rate (i) Uniform reinsurance contribu tion rate for the 2015 benefit year Section 153.220(c) provides that HHS is to publish in the annual HHS notice of benefit and payment parameters the uniform reinsurance contribution rate for the upcoming benefit year. Section 1341(b)(3)(B)( iii) of the Affordable Care Act spec ifies that $10 billion for reinsurance contributions are to be collected from contri buting entities in 2014 (the reinsurance payment pool), $6 billion in 2015, and $4 billion in 2016. Additionally, sections 1341(b)(3)(B)(iv) and 1341(b)(4) of the Affordable Care Act direct that $2 billion in funds are to be collected for contribution to the U.S. Treasury in 2014, $2 b illion in 2015, and $1 billion in 2016. Finally, section 1341(b)(3)(B)(ii) of the Affordable Care Act allows for the collection of additional amounts for administrative expenses. Taken toge ther, these three components make up the total dollar amount to be collected from contributing entities for each of the 3 years of the reinsurance program under the uniform re insurance contribution rate. As discussed in the 2014 Payment Notice, each year, the un iform reinsurance contribution rate will be calcula ted by dividing the sum of the three amounts (the reinsurance payment pool, the U.S. Treasury contribution, and administrative costs) by the estimated number of enrollees in plans that must make reinsurance contributions:

As discussed in greater detail below, we are proposing to collect $25.4 million for administrative expenses for the 2015 benefit year (or 0.4 percent of the $6 billion to be dispersed). Therefore, the total amount to be collected would be a pproximately $8.025 billion. Our estimate of theCMS-9954-P 75
number of enrollees in plans that must make reinsurance contributions yields an annual per capita contribution rate of $44 for the 2015 benefit year. (ii) Timing of collection of reinsurance contributions As set forth in the 2014 Payment Notice, under §153.405(b), no late r than November 15 of the 2014, 2015, and 2016 benefit year s, as applicable, a contribu ting entity must submit an annual enrollment count of the number of covered lives of reinsurance co ntribution enrollees for the applicable benefit year to HHS. Under §153.405(c)(1), HHS is to notify the contributing entity of the reinsurance contribu tion amount to be paid for the a pplicable benefit year within 30 days of the submission of the annual enrollment count, or by December 15 of the applicable benefit year. Under §153.405(c)(2), a contributing entity is to rem it reinsurance contributions to HHS within 30 days after th e date of the notification. We recognize that the reinsura nce collections provided for in the Affordable Care Act – $12 billion for 2014, $8 billion for 2015, and $5 bill ion for 2016 – will result in substantial upfront payments from contributing entities for the reinsurance program. Therefore, we are proposing to modify our collection schedule for the program, so that we would collect the reinsurance contribution amounts for reinsuran ce payments and for administrative expenses earlier in the calendar year following the appli cable benefit year, appr oximately in accordance with the schedule currently described in §153.405( c), but collect the re insurance contribution amounts for payments to the U.S. Treasury in the last quarter of the calen dar year following the applicable benefit year. Ther efore, we propose to modify §1 53.405(c) so that a contributing entity would make reinsurance co ntributions in two installments to HHS – one at the beginning of the calendar year following th e applicable benefit y ear, and one at the end. As noted in the second final Program Integrity Ru le, the proposed policy is desi gned to alleviate the upfront burden of the reinsurance contri bution, allowing contributing entitie s additional time to make theCMS-9954-P 76
payment. We note that the proposed change in the collection schedule would not affect the amount of funds collected for re insurance payments. Addition ally, the amounts allocated to reinsurance payments and administrative expens es are needed to operate the reinsurance program, while the amounts allocated for payments to the U.S. Treasury are not needed for the operation of the transitional rein surance program. Therefore, co llecting the amounts allocated to payments to the U.S. Treasury later in the cale ndar year following the ap plicable benefit year will not affect the reinsurance program, and will a lleviate a contributing entity’s upfront financial burden. Under this proposal, the first of the two in stallments each year would include the reinsurance contribution amounts allocated to rein surance payments and administrative expenses. We propose in §153.405(c)(1) that following submission of the annual enrollment count, HHS would notify a contributing entity of the re insurance contribution amount allocated to reinsurance payments and administrative expenses to be paid for the appli cable benefit year. If the enrollment count is timely submitted, HHS intends to notify the contributing entity by December of benefit year 2014, 2015, or 2016, as applic able. We note that, due to our desire to align the notification of reinsura nce contributions due with our monthly paym ent and collections cycle, this schedule differs slightly from the schedule currently set forth in §153.405(c)(3), which provides for notification by the later of 30 days of the submis sion of the annual enrollment count or by December 15. We propose in §153.405(c)(3) that the contributing enti ty remit this amount within 30 days after the date of the firs t notification. The second installment would cover the porti on of the reinsurance contribution amount allocated to the payments for the U.S. Treasury to be paid for a benefit year. We propose in §153.405(c)(2), that in the fourth quarter of the calendar year following the applicable benefit year, HHS would notify the contributing entity of the portion of the reinsurance contributionCMS-9954-P 77
amount allocated for payments to the U.S. Treasur y for the applicable be nefit year. Again, under proposed §153.405(c)(3), a contributing entity woul d remit this amount within 30 days after the date of this second notification. We note that th e contributing entity would be required to submit an annual enrollment count only once for each benefit year under §153.405(b). For example, for the 2014 benefit year, of the $63.00 annual per capita contribution rate, $52.50 would be allocated towards reinsurance payments and administrative expenses, and $10.50 towards payments to the U.S. Treasury. T hus, we contemplate that if a contributing entity submits its enrollment count for the 2014 benefit year in a timely manner (by November 15, 2014), a reinsurance contribution payment of $52.50 per covered life would be invoiced in December 2014, and payable in January, 2015. A nother reinsurance cont ribution payment of $10.50 per covered life would be in voiced in the fourth quarter of 2015, and payable late in the fourth quarter of 2015. We propose that for the 2015 benefit y ear, the proposed $44 annual per capita contribution rate be allocated $33 towards reinsurance payments and administrative expenses, and $11 towards payments to the U.S. Treasury. These amounts would similarly be payable in January 2016 and late in the four th quarter of 2016, respectively. We plan to establish the uniform reinsurance contribution rate for th e 2016 benefit year in the HHS notice of benefit and payment parameters for 2016. We seek comment on this proposal. We note th at we are considering a variation of this proposal under which contributing entities would be provided th e option of paying the entire reinsurance contribution amount with the first installment, at the beginning of the calendar year following the applicable benefit year. We also cl arify that the two installment payments (or one, should a contributing entity be permitted and elect to make the entire payment with the first installment) would be reporte d with 2014 data for purposes of the risk corridors and MLRCMS-9954-P 78
calculations due July 31, 2015, despit e the fact that the later inst allment would not have been paid at that time. This has the effect of leaving the MLR and risk corridors calculations unchanged. (iii) Allocation of uniform reinsurance contribution rate Section 153.220(c) provides that HHS is to set in the annual HHS notice of benefit and payment parameters for the applicable benefit year the proportion of contributions collected under the uniform reinsurance contribution rate to be allocated to reinsurance payments, payments to the U.S. Treasury, and administra tive expenses. In the 2014 Payment Notice, we stated that reinsurance contributions collect ed for 2014 will be allocated pro rata to the reinsurance pool, administrativ e expenses, and the U.S. Tr easury, up to $12.02 billion. In Table 2, we specify these proporti ons (or amounts, as applicable): TABLE 2: Proportion of Reinsurance Co ntributions Collected under the Uniform Reinsurance Contribution Rate for the 2015 Benefit Year for Reinsurance Payments, Payments to the U.S. Treasury, and Administrative Expenses Proportion or amount for: If total contribution collections under the uniform reinsurance contribution rate are less than or equal to $8.025 billion If total contribution collections under the uniform reinsurance contribution rate are more than $8.025 billion Reinsurance payments 74.8 percent ($6 billion/$8.025 billion) The difference between total collections and those contributions allocated to the U.S. Treasury and administrative expenses Payments to the U.S. Treasury 24.9 percent ($2 billion/$8.025 billion) $2 billion Administrative expenses 0.3 percent ($25.4 million/$8.025 billion) $25.4 million

As shown in Table 2, if the total amount of c ontributions collected is less than or equal to $8.025 billion, we propose to allocate approxi mately 74.8 percent of the reinsurance contributions collected to reinsurance payments , 24.9 percent of the reinsurance contributionsCMS-9954-P 79
collected to the U.S. Treasury, and 0.3 percent of the reinsura nce contributions collected to administrative expenses. We note that the propo sed method of collection would not affect the allocation to reinsurance payments, administrative expenses, and payments to the U.S. Treasury. To provide that all reinsurance contributions collected for a benefit year are paid out for claims for that benefit year, we propose to am end §153.230(d) to provide that if HHS determines that the amount of all reinsurance payments requested under the national payment parameters from all reinsurance-eligible plan s in all States for a benefit year will not be equal to the amount of all reinsurance contributions collected for reinsurance payments under the national contribution rate in all States for an applicab le benefit year, HHS will determine a uniform pro rata adjustment (up or down) to be applied to all such requests for rein surance payments for all States. We propose that each applicable reinsura nce entity, or HHS on behalf of a State, must reduce or increase the reinsuranc e payment amounts for the app licable benefit year by any adjustment required under that paragraph. For example, for 2014, if HHS collects $9 billion for the reinsurance payments pool and $10 billion in reinsurance payments are requeste d, HHS and each applicable reinsurance entity would reduce all reinsurance payments by 10 pe rcent (effectively decr easing the coinsurance rate). If HHS collects $11 b illion for the reinsurance paym ents pool and $10 billion in reinsurance payments are requested, HHS and each applicable reinsurance entity would increase all reinsurance payments by 10 percent (effectively increasing the coinsurance rate). We seek comment on this payment proposal, including on whether any excess collections should be allocated to increasing coinsurance ra tes above 100 percent, or whether such funds should be used instead to change other reinsurance parameters or us ed for future benefit years. Because our proposal above would provide that all reinsurance contri butions collected for a benefit year are paid out for claims for that benefit year, we propose to delete and reserveCMS-9954-P 80
§153.235(b), which currently provides that any exce ss reinsurance contribu tions collected from contributing entities for any benefit year but unused for the applicab le benefit year must be used for reinsurance payments in subsequent benef it years. For years beyond the 2014 benefit year (for which we propose to pay out all reinsurance contributions collected, as described above), we seek comment on whether we should have the flexib ility to use excess cont ributions collected in the applicable benefit year for that benefit year or in a subsequent benefit year. (iv) Administrative expenses In the 2014 Payment Notice, we estimated that the Federal administrative expenses of operating the reinsurance program would be $20. 3 million, based on our estimated contract and operational costs. We propose to use the same methodology to estimate the administrative expenses for the 2015 benefit year. These esti mated costs would cover the costs related to contracts for developing the uniform reinsu rance payment parameters and the uniform reinsurance contribution rate, collecting re insurance contributions , making reinsurance payments, and conducting account management, da ta collection, program integrity and audit functions, operational and fraud analytics, training for entities involved in the reinsurance program, and general operationa l support. We propose to excl ude from these administrative expenses the costs associated with work perf ormed by Federal personnel. To calculate our proposed reinsurance administra tive expenses for 2015, we divide d HHS’s projected total costs for administering the reinsurance programs on be half of States by the expected number of enrollees in reinsurance-eligible plans for the benefit year. We estimate this amount to be approximately $25.4 million for the 2015 benefit year. This estimate has increased for the 2015 benefit year because we will be making reinsurance payments in the 2015 benefit year for the 2014 bene fit year, and as discussed below, will engage in program integrity and audit -related activity in 2015 to overs ee the reinsurance program. WeCMS-9954-P 81
believe that this figure reflects the Federal gov ernment’s significant economies of scale, which helps to decrease the costs asso ciated with operating the rein surance program. Based on our estimate of covered lives for which reinsurance contributions are to be made for 2015, we are proposing a uniform reinsurance contribution rate of $0.14 annually per capita for HHS administrative expenses. We provide details below on the methodology we used to develop the 2015 enrollment estimates. For the 2014 benefit year, we allocated the administrativ e expenses equally between contribution and payment-related ac tivities. Because we anticipate that our additional activities in the 2015 benefit year, including our program inte grity and audit activities, will also be divided approximately equally between contribution and pa yment-related activities, we again propose to allocate the total administrative expenses equall y between these two functions. Therefore, as shown in Table 3, we expect to apportion the annual per capita amount of $0.14 of administrative expenses as follows: (a) $0.07 of the total amount collected per capita for administrative expenses for the collection of contributions from health insurance issuers and group health plans; and (b) $0.07 of the total amount co llected per capita for administ rative expenses for reinsurance payment activities, supporting the administration of payments to i ssuers of reinsurance-eligible plans.
TABLE 3: Breakdown of Administra tive Expenses (annual, per capita) Activities Estimated Expenses Collecting reinsurance contribu tions from health insurance issuers and group health plans $0.07
Calculation and disbursement of reinsurance payments $0.07 Total annual per capita expens es for HHS to perform all reinsurance functions $0.14

If HHS operates the reinsurance program on be half of a State, HHS would retain the annual per capita fee to fund HHS ’s performance of all reinsura nce functions, which would be $0.14. If a State establishes its own reinsuran ce program, HHS would transfer $0.07 of the perCMS-9954-P 82
capita administrative fee to the State for purposes of administrative expe nses incurred in making reinsurance payments, and retain the remain ing $0.07 to offset the costs of collecting contributions. We note that the administrative expenses for reinsurance payments will be distributed to those States that operate their own reinsurance program in proportion to the Stateby-State total requests for reinsurance payments made under the uniform reinsurance payment parameters. d. Uniform reinsurance payment parameters Our goal in setting the reinsurance payment para meters is to achieve the greatest impact on rate setting, and therefore premiums, through reductions in plan risk, while complementing the current commercial reinsura nce market. Section 1341(b)(2)(B) of the Affordable Care Act directs the Secretary, in estab lishing standards for the transiti onal reinsurance program, to include a formula for determining the amount of re insurance payments to be made to issuers for high-risk individuals that prov ides for the equitable allocatio n of funds. In the Premium Stabilization Rule, we provided that reinsurance payments to eligible issuers will be made for a portion of an enrollee’s claims co sts paid by the issuer (the coin surance rate, meant to reimburse a proportion of claims while giving issuers an incentive to contain co sts) that exceeds an attachment point (when reinsu rance would begin), subject to a reinsurance cap (when the reinsurance program stops paying claims for a high-cost individual). The coinsurance rate, attachment point, and reinsurance cap together constitute the uniform reinsurance payment parameters. Given the smaller pool of reinsurance contri butions to be collect ed for the 2015 benefit year, we are proposing that th e uniform reinsurance payment parameters for the 2015 benefit year be established at an attachment point of $70,000, a reinsurance cap of $250,000, and a coinsurance rate of 50 percent. We estimate th at these uniform reinsurance payment parametersCMS-9954-P 83
will result in total requests for reinsurance pa yments of approximately $6 billion for the 2015 benefit year. We believe setti ng the coinsurance rate at 50 per cent and increasing the attachment point allows for the reinsurance program to he lp pay for nearly the same group of high-cost enrollees as was the case for the 2014 benefit year , while still encouraging issuers to contain costs. We believe that maintaining the reinsu rance cap for the 2015 benefit year while ensuring that the coinsurance rate sufficiently compensate s issuers for high risk individuals will make it easier for issuers to estimate the effects of reinsurance. We believe that these uniform reinsurance payment parameters will support th e reinsurance program’s goals of promoting nationwide premium stabilization and market st ability while providing issuers incentives to continue to effectively manage enrollee costs. We intend to continue to monitor individual market enrollment and claims patterns to a ppropriately disburse reinsurance payments throughout each of the benef it years of the transitional reinsurance program. As discussed in the 2014 Payment Notice, to assist with the development of the uniform reinsurance payment parameters and the premiu m adjustment percentage index, HHS developed the Affordable Care Act Health Insurance Mo del (ACAHIM). The ACAHIM estimates market enrollment, incorporating the effects of State a nd Federal policy choice s, and accounting for the behavior of individuals and employers. The out puts of the ACAHIM, especially the estimated enrollment and expenditure distributions, were used to analyze a number of policy choices relating to the uniform reinsu rance contribution ra te and uniform reinsurance payment parameters proposed in this rule. The ACAHIM generates a range of national and State-level output s for 2015, including the level and composition of enrollment across markets given the eligible population in each State. The ACAHIM is described below in tw o sections: (1) the ap proach for estimating 2015 enrollment; and (2) the approach for estimating 2015 expenditures. The ACAHIM uses recentCMS-9954-P 84
Current Population Survey (CPS) data adjusted fo r small populations at the State level, exclusion of undocumented immigrants, and p opulation growth in 2015 to assi gn individuals to the various coverage markets. Specifically, the ACAHIM assigns each individual to a single health insurance market as his or her baseline (pre-Affordabl e Care Act) insurance status. In addition to assuming that individuals currently in Medicare, TRICARE, or Medicaid will remain in such coverage, the ACAHIM takes into account the pr obability that a firm will offer employment-based coverage based on the CPS distribution of coverage offers for firms of a similar size and industry. Generally, to determine the predicte d insurance enrollment status fo r an individual or family (the “health insurance unit” or “HIU”), the ACAHIM calculates the probability that the firm will offer insurance, then models Medicaid eligibil ity, and finally models eligibility for advance payments of the premium tax credit and cost-s haring reductions under th e Exchange. Whenever a transition to another coverage market is possi ble, the ACAHIM takes into account the costs and benefits of the decision for the HIU and assigns a higher probability of tr ansition to those with the greatest benefit. The ACAHIM assumptions of the rate at which unins ured individuals will take up individual market coverage are based on current take-up rates of insurance across States, varied by demographics and incomes and adjusted for post-Affordable Care Act provisions, such as advance payments of the premium ta x credit and cost-sha ring reductions. Estimated expenditure distributions from the ACAHIM are used to set the uniform reinsurance payment parameters so that estimat ed contributions from all contributing entities equal estimated payments for all reinsurance-el igible plans. The ACAHIM uses the Health Intelligence Company, LLC (HIC) database from calendar year 2010, with the claims data trended to 2015 to estimate total medical expend itures per enrollee by age, gender, and area of residence. The expenditure dist ributions are further adjusted to take into account plan benefitCMS-9954-P 85
design, or “metal” level (that is, “level of coverage,” as defined in §156.20) and other characteristics of individual insurance coverage in an Exchange. To describe a State’s coverage market, the ACAHIM computes the pattern of enrollment using the model’s predicted number and composition of participants in a coverage ma rket. These estimated expenditure distributions were the basis for the uniform reinsurance payment parameters. e. Adjustment Options In the 2014 Payment Notice, we finalized th e following uniform reinsurance payment parameters for the 2014 benefit year – a $60,000 attachment point, a $250,000 reinsurance cap, and an 80 percent coinsurance rate. Howe ver, updated information, including the actual premiums for reinsurance-eligible plans, as well as recent policy cha nges, suggest th at our prior estimates of the payment parameters may overe stimate the total covered claims costs of individuals enrolled in reinsurance-eligible plans in 2014. To account for this, we propose to decrease the 2014 attachment point to $45,000. We seek comment on this proposal. f. Deducting cost-sharing reduction amounts from reinsurance payments Subpart H of 45 CFR part 153 governs the s ubmission of reinsurance claims to an issuer’s dedicated distributed data environmen t. Under §156.410, if an individual is determined eligible to enroll in a QHP in the individual market offered through an Exchange and elects to do so, the QHP issuer must assign the individual to a standard plan or cost-sharing plan variation based on the enrollment and eligibility information submitted by the Exchange. Issuers of QHPs offered in an individual market through an Exchange will receive cost-sharing reduction payments for enrollees in their plan variations. Therefore, in the 2014 Payment Notice (78 FR at 15499), we stated that the enrollee-level data su bmitted by an issuer of a reinsurance-eligible plan must include claims data and data relate d to determining cost-sha ring reductions provided through a cost-sharing plan variati on, to permit HHS to calculate an issuer’s plan paid amountsCMS-9954-P 86
on behalf of an enrollee. Here, we propos e to explain the methodology HHS would use to deduct the amount of cost-s haring reductions paid on behalf of an enrollee enrolled in a QHP in an individual market through an Exchange. In this section, we first set forth a methodology for policies that cover only one enroll ee, then policies with more than one enrollee, such as family plans, and finally, for po licies under a limited cost sh aring plan variation. As specified in §153.230, HHS will calculate reinsurance payments by applying the uniform reinsurance payment parameters for the app licable benefit year to the issuer’s plan paid amounts on behalf of each enrollee in a reinsurance- eligible plan for the benefit year. However, this calculation may not always account for the cost-sharing reduction payments the QHP issuer receives for an enrollee, resulti ng in an issuer receiving paymen ts twice for the same enrollee’s total costs. We believe that the cost-shari ng amounts provided by HHS to a QHP issuer for an enrollee in a plan variation should be deducted from the total plan paid amounts to avoid “double payment” 15 to the QHP issuer of the reinsurance-eligib le plan because the QHP issuer is already being reimbursed for the value of the cost-sharing reductions provided. Under the Secretary’s authority under secti on 1341(b)(2)(B) of the Affordable Care Act to establish a payment formula for the reinsu rance program, we propose a method through which HHS intends to account for cost-sharing reduc tion payments when calculating reinsurance payments for QHP issuers for reinsurance-eligible plans offered in an individual market. We seek to avoid requiring QHP issuer s to engage in a complicated re-adjudication of claims to determine cost-sharing reduction amounts multiple times throughout the year. We believe that

15 We note an increase in reinsurance claims spread evenly across the individual market may not necessarily result in higher reinsurance payments to all issu ers in aggregate. However, increased requests for reinsurance payments may result in a higher pro rata reduction to be applied to all reinsurance payments because total reinsurance payments for a benefit year cannot exceed the reinsurance cont ributions collected for re insurance payments (see 45 CFR 153.230(d)).CMS-9954-P 87
the proposed methodology set forth below will accu rately estimate those cost-sharing reduction payments while also alleviating the burden on both QHP issuers and HHS. We propose that for each enrollee enrolled in a QHP plan variation, we will subtract from the QHP issuer’s total plan paid amounts for th e enrollee in a reinsurance-eligible plan the difference between the annual limitation on cost sharing for the standard plan and the annual limitation on cost sharing for the plan variati on. Because reinsurance payments are made for enrollees only when the issuer ’s total plan paid amounts exce eds the attachment point (for example, $60,000 in the 2014 benefit year), we believe that it is highly unlikely that an enrollee for which a QHP issuer is eligible for reinsurance payments will not have reached the annual limitation on cost sharing. Therefore, the differe nce between the two annual limitations on cost sharing is likely to be an accurate estimate of cost-sharing reduction payments provided by HHS to the QHP issuer. 16 We propose to apply this approach to calculating the amounts of costsharing reductions provided for an enrollee in a silver plan varia tion or a zero cost sharing plan variation. For policies with multiple enrollees, such as family policies, we propose to allocate the difference in annual limitation in cost sharing ac ross all enrollees covered by the family policy in proportion to the enrollees’ QHP issuer total plan paid amounts. We believe that such an approach is intuitive and will be easy to operationalize. We cons idered an alternative approach that would allocate the differen ce in annual limitation in cost sh aring equally across all enrollees in a family policy, with any difference in annual li mitations on cost sharing that exceeds the total

16 We note that because the an nual limitation on cost sharing applies only to in-network services, it is possible that an enrollee could incur additional cost-sharing reductions on out-of-network services. However, except in the case of zero cost sharing plan variations, an issuer is not required to reduce cost sharing out-of-network, and we believe that an issuer will rarely choose to do so because the AV calculator does not recognize any change in AV due to a reduction in out-of-network cost sharing. Although it is possible that an enrollee in a zero cost sharing plan variation could incur significant out-of-network cost-sharing reductions beyond the standard plan’s annual limitation on cost sharing, we believe such a circumstance will be relatively rare because of the substantial out-of-pocket costs an enrollee would likely incur in the form of balance billing.CMS-9954-P 88
plan paid amounts for a particular enrollee to be reallocated equally acro ss the other enrollees. That approach would tend to re sult in a higher allocat ion of cost sharing on low-claims-cost individuals, which we believe is unrealistic. In contrast, we propose not to reduce the QHP issuer’s plan paid amounts for purposes of calculating reinsurance payments for an Indian in a limited cost sharing pl an variation. We note that such enrollees will have the same annual limita tion on cost sharing as individuals enrolled in standard plans, and thus, an appr oach that calculates the difference in annual limitations on cost sharing would yield estimated cost -sharing reductions of zero. We believe that this result is reasonable for individuals with plan paid amount s greater than the attachment point because those individuals are likely to have incurred si gnificant claims costs wi th providers for which cost sharing is not reduced – that is, providers other than the Indi an Health Service and facilities operated by an Indian Tribe, Tribal Organiza tion, or Urban Indian Or ganization. Thus, we believe that these individuals are likely to ha ve reached the full annual limitation on cost sharing for the standard plan. We also considered an alternative approach that would require issu ers to re-adjudicate claims periodically throughout the year to calc ulate cost-sharing reduction s provided to date for an Indian enrolled in a limited cost sharing pl an, but believe that such an approach would be burdensome to QHP issuers and only slightly im prove the accuracy of cost-sharing reduction estimates. Finally, we considered an appro ach under which QHP issuers would submit an estimate of the effective annual limitation on co st sharing for limited cost sharing plans. However, we believe that this will be difficult fo r a QHP issuer to estimate due to the lack of cost-sharing reduction data for the early years of the Exchanges. g. Audits (i) HHS audits of State-operated reinsurance programsCMS-9954-P 89
To safeguard the use of Federal funds in the transitional reinsurance program, we propose in §153.270(a) that HHS or its designee may cond uct a financial and programmatic audit of a State-operated reinsurance program to assess co mpliance with the requirements of subparts B and C of 45 CFR part 153. A State that establishes a reinsurance program must ensure that its applicable reinsurance entity and any relevant c ontractors, subcontractors, or agents cooperate with an audit of its reinsuran ce program by HHS or its designee. Under the proposed rule, HHS may conduct target ed audits of State-operated reinsurance programs based on the State summary report provided to HHS for each benefit year described in §153.260(b), the results of the independent extern al audit conducted for each benefit year under §153.260(c), and issuer input, among ot her factors. Such audits may, for example, examine the receipt and expenditure of re insurance funds, as well as funds received from HHS for administrative expenses. The audits may also examine the reinsurance program’s compliance with the requirements for the State and the pr ogram under subparts B and C of 45 CFR part 153. We will provide further details on our audit program, including timelines, procedures, and substantive requirements, in futu re rulemaking and guidance. We propose in §153.270(b) that if an audit by HHS results in a finding of material weakness or significant deficiency (as these terms are defined in GAAS issued by the American Institute of Certified Public Accountants, and Government A uditing Standards issued by the Government Accountability Office (GAO) 17 ) with respect to the State-operated reinsurance program’s compliance with any requirement of subparts B or C of 45 CFR part 153, the State must ensure that its applicable reinsurance enti ty provide a written corrective action plan to HHS

17 See Government Auditing Standards (2011 Revision), available at: http://www.gao.gov/yellowbook . For public companies, the Public Company Accounting Oversight Board (PCAOB) sets audit standards. See http://pcaobus.org/Standards/Auditing/Pages/default.aspx . For non-public companies, the AICPA sets audit standards. See http://www.aicpa.org/Research/Stand ards/AuditAttest/Pages/SAS.aspx

.CMS-9954-P 90
for approval within 60 calendar days of the issuan ce of the final audit report. The applicable reinsurance entity must implement the plan a nd provide to HHS written documentation of the corrective actions once taken. We seek comment on this proposal, including the standards that should govern these audits. (ii) HHS audits of contributing entities We propose in §153.405(i) that HHS or its desi gnee may audit a contributing entity to assess its compliance with the requirements of subpart E of 45 CFR part 153. We anticipate conducting targeted audits of contributing entit ies based on, among other cr iteria and sources, data provided to HHS through the annual enrollment count submitted under §153.405(b) and any previous history of noncompliance with these sta ndards. We will provide further details on this audit program, including timelines, procedures , and substantive requirements, in future rulemaking and guidance. We antic ipate that these audits will focus on records relating to the enrollment of the applicable self-insured or in sured plan, to confirm th at the number of covered lives was correctly counted and that the correct amount of reinsurance co ntributions was paid. Audits may also identify entities that were required to but did not make reinsurance contributions. If HHS determines as the result of an audit that a contri buting entity was required to pay additional reinsurance contributions, it ma y require the contributing entity to pay such amounts to the Federal government. If the contribu ting entity is an issuer subject to an audit for other Exchange financial programs or premium stab ilization programs, such as risk adjustment, we intend to coordinate these audits, to the ex tent practical, to redu ce the burden on both the contributing entity and HHS. We seek comment on this proposal, includi ng the standards that should govern these audits. (iii) HHS audits of issuers of reinsurance-eligible plansCMS-9954-P 91
We propose in §153.410(d) that HHS or its design ee may audit an issuer of a reinsuranceeligible plan to assess its compliance with the requirements of subparts E and H of 45 CFR part 153, and that if an audit results in a finding of material weakness or significant deficiency, the issuer must:

● Within 30 calendar days of the issuance of the final audit repor t, provide a written corrective action plan to HHS for approval;

● Implement that corrective action plan; and

● Provide to HHS written documentation of the corrective ac tions once taken. If HHS determines as the result of an audit th at the issuer of a rein surance-eligible plan has received reinsurance payments to which it wa s not entitled, it may require the issuer to pay such amounts back to the Federal government. We anticipate conducting targeted audits of issuers of reinsurance- eligible plans based on, among other criteria and sources , the data provided to HHS th rough the dedicated distributed data environment and any previous history of noncompliance with these standards. We will provide further details on this audit program, including timelines, procedures, and substantive requirements, in future rulemaking and guidance. We anticipate that this audit will focus on claims records validating the requests for reinsurance payments submitted to the dedicated distributed data environments, as well as record s indicating the plan was a reinsurance-eligible plan. To reduce the burden on issuers and HHS, to the extent practical, we intend to coordinate any audits of issuers of reinsu rance-eligible plans with related audits of Exchange financial programs and premium stabilization progr ams, such as risk adjustment. We seek comment on this proposal, includi ng the standards that should govern these audits. h. Same covered lifeCMS-9954-P 92
In the second final Program Integrity Rule (78 FR at 65057), we stated th at it is our intent not to require payment of reinsurance contributio ns more than once for the same covered life. We stated that we recognize th at certain complex group health pl an arrangements can lead to situations in which lives are covered by multiple arrangements, where it is unclear whether more than one health plan or issuer must make reinsurance contribu tions, and that we intended to provide clarity on the matter in future rulemaking. Therefore, we propose to make two cha nges to §153.400. In §153.400(a)(1), we propose to clarify the general principle that reinsuran ce contributions are requ ired for major medical coverage that is considered to be part of a commercial book of business, but are not required to be paid more than once with re spect to the same covered life. In addition, we propose to add paragraph (vi) to §153.400(a)(1), which would provide that no reinsurance contributions would be re quired in the case of employer-provided group health coverage where (A) such coverage app lies to individuals who are also enrolled in individual market health insura nce coverage for which reinsuran ce contributions are required; or (B) such coverage is supplemental or secondary to group health coverage for which reinsurance contributions must be made for the same covere d lives. This language wo uld address situations in which a person covered under a group health plan also obtains individual market coverage, and in which multiple group health plans cover the same lives, such as if a union offers a plan that supplements a group health plan offered by th e employer. It would al so address a situation in which two spouses are each covered as de pendents by the respective group health plans offered by their two independent employers. If it is not clear from the terms of the health plans which group health plan is supplemental, we propose, in keeping with §153.400(a )(3), that the group health plan that offers the greater portion of inpatient hospitalization bene fits be deemed the primary health plan. If itCMS-9954-P 93
is not clear from the terms of the health plans which group health plan is primary and which is secondary, we propose to defer to the arrangeme nts on primary and secondary liability worked out by the respective plan sponsors, in accordance with applicable State coordination of benefit laws and regulations. In such a situation, we would hold a plan sponsor harmless from noncompliance actions for failure to pay reinsurance c ontributions to the extent the sponsor relied in good faith upon a written representa tion by the other sponsor that the other sponsor’s coverage has primary liability for claims for particular covered lives. We seek comment on these proposals, includ ing which entity should be responsible for the reinsurance contributions, how that res ponsibility should be determined, and what arrangements should be required between the ent ities to assure effici ent coordination of the responsibility for the reinsurance contributions, and what other si tuations we should address in which reinsurance contributions might be required to achieve the goal of preventing more than one contribution per covered life. i. Reinsurance contributions and enrolle es residing in the territories Section 1323(a)(1) of the Affo rdable Care Act provides that a U.S. territory may establish an Exchange, and any territory that elects to esta blish an Exchange will be “treated as a State” for purposes of the Exchange standards in se ctions 1311 through 1313 of the Affordable Care Act. In a letter dated December 10, 2012 to the governors of the U.S. territories (Territories Letter), HHS stated that “if a territory establishe s an approved Exchange, it may elect to establish a transitional reinsurance program . . . consistent with the provisions in section 1341 . . . of the Affordable Care Act.” The Territories Letter furt her stated that if a terr itory does not establish a transitional reinsurance program, HH S would not do so on the territory ’s behalf, and that in order to operate a reinsurance program for the 2014 benefit year, the te rritory was required to notifyCMS-9954-P 94
HHS of its intention to do so by March 1, 2013. No territory has notified HHS of an intention to operate a reinsurance program. In this proposed rule, we propose that a c ontributing entity is not required to make reinsurance contributions on behalf of enrollees w ho reside in a territory that does not operate a reinsurance program. We propose to add in §153.400(a)(1)(v) an exception for when a contributing entity must make reinsurance contri butions for its self-insured group health plans and health insurance coverage. To the extent that the coverage applies to enrollees with primary residence in a territory when th at territory does not operate a re insurance program, a contributing entity would not be required to make reinsuran ce contributions for those enrollees. We believe that this proposal aligns w ith the goals of the reinsurance program because reinsurance contributions would only be required with respect to those jurisdictions that benefit from the premium stabilization effects of the reinsurance program. We propose that a contributing entity may use any reasonable method to determine the primary residence of an enrollee, including using the last-known mailing a ddress of the principal subscriber on the enrollee’s policy. We seek comment on ot her methods that would be acceptable for determining the primary residence of an enrollee, including the principal work location of the principal subscrib er on the enrollee’s policy. We note that a contributing entity is requi red to allocate its cove red lives by primary residence between the territori es, on the one hand, and the 50 States and the District of Columbia, on the other hand, only if it wishes to exclude covered lives from reinsurance contributions under proposed §153.400(a)(1)(v). j. Form 5500 counting method In the 2014 Payment Notice (78 FR at 15463) , we established counting methods for calculating the annual enrollment for determining reinsurance contributions for self-insuredCMS-9954-P 95
group health plans, fully insured health plans, and plans that ar e partially insured and partially self-insured. One of the allowable methods for a self-insured group health plan is the Form 5500 counting method in §153.405(e)(3). In this propo sed rule, we seek to clarify §153.405(e)(3), by changing the references from “benefit year” to “plan year” 18 to clarify that a self-insured group health plan may use the enrollment set forth in the Form 5500 even if th e group health plan is based on a plan year other than the benefit year, which is defined in §153.20 and §155.20 as a calendar year for which a health plan provides cove rage for health benefits. Therefore, a selfinsured group health plan that chooses to us e the Form 5500 counting method and offers selfonly coverage would calculate the number of liv es covered by adding th e total participants covered at the beginning and end of the most current plan year, as reported on the Form 5500, then dividing by two. A self-insured group health plan that offers both self-only coverage and coverage other than self-only coverage would cal culate the number of lives covered by adding the total participants covered at the beginning an d the end of the most current plan year, as reported on the Form 5500. 3. Provisions for the Tempor ary Risk Corridors Program a. Definitions In the first final Program Integrity Rule, we provided that, in 45 CF R part 153, subpart F, regarding risk corridors, any refe rence to a “qualified health pl an” or “QHP” includes plans that are the “same” as a QHP or “substantially the same” as a QHP. We noted that plans that are substantially the same as a QHP will continue to be considered substantially the same even if they differ in terms of benefits, premium, provi der network or cost-sha ring structure, provided that the differences are tied di rectly and exclusively to Fede ral or State requirements or

18 Plan year as defined in 45 CFR 155.20 as a consecutive 12 month period during which a health plan provides coverage for health benefits. A plan year may be a calendar year or otherwise.CMS-9954-P 96
prohibitions on the coverage of benefits that apply differently to plans depending on whether they are offered through an Exchange or outside of an Exchange. In the first final Program Integrity Rule, we recognized that OPM might issue additional standards for multi-State plan (MSP) issuers in the future (for example, standards related to provider networks) that could creat e situations analogous to the one s we discuss above. We are considering whether a plan that differs from a QHP (as defined at §155.20) based on these standards would be considered to be “substantially the same” as a QHP for the purposes of participating in the risk corridors program, a nd are considering amending the definition of a QHP at §153.500 in response. We seek comment on this approach. b. Compliance with risk corridors standards The risk corridors program requires the Fede ral government and participating plans to share in profits or losses resu lting from inaccurate rate setting for benefit years 2014 through 2016. A robust oversight process is critical for th is program because risk corridors payments are Federal funds. In this proposed rule, we outline our proposed process for validating risk corridors data submissions and enforcing complia nce with the risk corridors requirements in subpart F of 45 CFR part 153. Because the ML R program and the risk corridors program will require similar data, we propose to closely ali gn the data submission, data validation, audit provisions, and sanctions for the two programs. We note that the risk corridors oversight provisions will apply to all plans, including QHPs and plans that are substantially the same as QHPs (as defined in the first final Program Integrity Rule) that are subject to the risk corridors program, whether these plans are offered through the Exchange or outside of the Exchange. For the 2014 benefit year, we propose to collect risk corridors data th rough the same form used for MLR data collection, at the same time (July 31 of the year following the applicable benefit year). We note that we would modify the collection inst rument and adjust the operationalCMS-9954-P 97
aspects of data submission as necessary to ensure that the data collectio n process adheres to the requirements for both programs. We would leverage data validation procedures that are used by the MLR program to uncover data inconsistencies, and would add additional validation steps that would allow us to identify QHP issuers and verify QHP-specific premium information. In addition, we are considering conducting an internal qua lity check of risk corri dors data to ensure that the information submitted is consistent with information submitted for other programs (for example , premiums and claims reported in the dedicat ed distributed data environment). Similar to the MLR process, we anticipat e requiring issuers to resubmit corr ected data after risk corridors data errors are identified. We request comment on this approach. To ensure the integrity of risk corridor s data reporting, we propose in §153.540(a) to establish HHS authority to conduct post-payment audi ts of QHP issuers. Because similar data is used in the risk corridors and MLR calculations, we are considering conduc ting the risk corridors audits using the existing MLR auditing proce ss set forth at §158.402 to reduce the time and expense (for both HHS and issuers) of conductin g multiple audits on similar data. We are further contemplating conducting risk corridors a udits under an overall i ssuer audit program so that we may simultaneously obtain the financial information necessary to determine compliance with other programs, such as the risk adjustment and reinsurance programs. We believe that this may further reduce the overall a udit burden on issuers. Some St ates already review data and audit issuer information related to MLR reportin g and rebate obligations; HHS does not intend to review information that would be duplicative of a review that has been completed by a State. However, because States may not examine all data required to be examined for the risk corridors program, HHS could audit a QHP issuer’s risk corri dors data to the extent not examined by the State. We request comments on all aspects of th is approach, including a ppropriate criteria for identifying issuers for audit in any particular benefit year.CMS-9954-P 98
The second final Program Integr ity Rule provides that a QHP issuer on an FFE that fails to comply with the risk corridors provisions may be subject to decertif ication or civil money penalties (CMPs), but does not extend this remedy to a QHP issu er on a State Exchange. State Exchange issuers that fail to submit risk corr idors charges, and cons equently owe HHS money, would be subject to the Federal debt collection processes; howeve r, without risk corridors data, HHS will be unable to determine wh ether a debt is owed or the am ount of a debt. Therefore, in §153.540(b) we propose to extend our CMP authority under sections 1321(a)(1 ) and (c)(2) of the Affordable Care Act to all QHP issuers that fa il to provide timely, accurate, and complete data necessary for risk corridors calcu lations, or that otherwise do not comply with the standards in subpart F of 45 CFR part 153. We propose to as sess CMPs on QHP issuers in State Exchanges in accordance with the same enforcement and sa nction procedures that apply to QHP issuers on FFEs, under §156.805. For purposes of calcula ting the maximum CMP amount, we may consider using enrollment information acquired fr om other internal sources (for example, risk adjustment and reinsurance enrollm ent data from the dedicated distributed data environment). Under this approach, we would either use enroll ment information from all of an issuer’s nongrandfathered plans within a State market, or would limit calculation of the CMP amount to the number of enrollees in an issuer’s QHPs (incl uding enrollees in plans th at are substantially the same as a QHP). We note that, consistent with our general approach re lating to the application of sanctions, we would take va rious factors into account when determining the amount of a CMP, including an issuer’s reco rd of prior compliance with ri sk corridors requirements, the gravity and the frequency of the violation, and the issuer’s demonstrat ed success in correcting violations that HHS has identifie d (for example, errors identifi ed in corrective action plans). 19

19 We note that the good faith provision at §156 .800(c) will not be applicable in this contex t because risk corridors activities, such as data submission and payment, occur beginning in 2015.CMS-9954-P 99
We request comments on all aspects of this appr oach, particularly for the methodology that we should use to determine a CMP amount for a QHP issuer that does not comply with risk corridors data requirements. c. Participation in the risk corridors program Because the premium stabilization programs, including the risk corridors program, are intended to mitigate pricing uncerta inty associated with the 2014 market reforms, particularly the rating rules at section 2701 of the PHS Act and §147.102, we believe that the protections of these programs should be for plans that are subject to the premium rating rules. Therefore, in the 2014 Payment Notice, we clarified that unde r the methodology HHS will use when operating risk adjustment on behalf of a State, a plan th at is not subject to the market reform rules, including the premium rating rules, is not a risk adjustment cove red plan. In the second final Program Integrity Rule, we further clarified that stand-alone dental plans would not be subject to the risk corridors program because they are not s ubject to the premium rating rules, and therefore do not require the protections of the risk corr idors program. In this proposed rule, we are similarly proposing to amend the risk corridors rules to provide that a plan that is not subject to the market reform rules and premium rating rule s would not participate in the risk corridors program. We propose to add a paragraph (f) to §153.510 to provide that the risk corridors program would apply only to qualified health plans, as defined in §153.500, including all plans offered through the individual market Exchange or SHOP, regardless of employer size, that are subject to the following provisions within title 45 of the CFR:

● §147.102 (fair health insurance premiums).

● §147.104 (guaranteed availa bility of coverage).

● §147.106 (guaranteed renewability of coverage).

● §147.150 (essential he alth benefits).CMS-9954-P 100

● §156.80 (single risk pool) and subpart B of 45 CFR part 156 (essential health benefits package). We believe that this approach is consistent with how QHPs have determined their pricing for the 2014 benefit year. We note that a QHP that must adhere to the premium rating rules as a condition of participation on the SHOP is a plan that is “subject to the rating rules” for the purposes of this policy. We are also proposing that the employee c ounting method applicab le under State law would determine whether a plan is considered to be offered in the small group market for purposes of the risk corridors program even if the State definition does not take non-full-time employees into account, and thus could include some employers as small employers that would be large employers under the Fede ral definition. Given our broad authority to establish the risk corridors program, we believe that we have th e discretion to include such employers in the program even if they do not meet the Federal de finition of small employer that would apply for other purposes. We believe that the inclusion of such employers in the definition of small employers for purposes of the risk corridors pr ogram would maintain consistency between the risk corridors calculation a nd implementation of the single risk pool provision, which is generally enforced by the State. We furthe r believe that clearly specifying the employee counting method that is specific to the risk co rridors program would pr ovide clarity for QHP issuers with plans that could ei ther be excluded from or subject to the risk corridors program, depending on the employee counting method used. We note that permitting the use of a State employee counting method that is inconsistent with Federal law for purposes of the risk corridors program differs from the approach taken unde r the MLR program and the proposed counting method for the risk adjustment program that is de scribed elsewhere in this proposed rule. Under these programs, non-full-time employees must be counted. We note that the State’s employeeCMS-9954-P 101
counting method would also be used to determine wh ether a plan that is not a QHP is part of the non-grandfathered individual or sma ll group market within a State, and would, therefore, be part of a QHP issuer’s risk corrido rs data submission under §153.530. We also note that the State’s employee counting method would determine whether any plan offered outside of an Exchange that is the “same” as or “substa ntially similar” to an Exchange QHP (under the definition set forth in §153.500) would be part of the individual or small group market for purposes of the risk corridors program, and, therefore whether it is eligible to recei ve or make risk corridors payments. This proposed approach would serve to align the market-wid e rating rules with the protections of the premium stabiliz ation programs. However, the a pproach could likely lead to a more complex data submission for risk corridors and MLR, because we may not be able to align the market definitions between the two programs. We seek comment on our proposal that a QHP mu st be subject to the market reform rules in order to participate in the risk corridors program. We also seek comment on our proposal to use the State employee counting method to define plans in the small group market for purposes of determining which plans participate in the risk corridors program, even where that would include employers that would be large employe rs under the Federal definition, or whether we should instead use the counting method used for the MLR program and proposed for risk adjustment purposes. We also seek comment s on whether we should explicitly codify the applicable counting rules for eachprogram in regulations text. d. Adjustment options for transitional policy As discussed earlier, on November 14, 2013, the Federal government announced a policy under which it will not consider certain health in surance coverage in the individual or small group market between January 1, 2014, and Oct ober 1, 2014, under certain conditions to be out of compliance with specified 2014 market rules, and requested that States adopt a similar non-CMS-9954-P 102
enforcement policy. 20 CMS noted in a letter to the insu rance commissioners of the 50 States and the District of Columbia that while this tran sitional policy would not have been anticipated by issuers in setting rates for 2014, the risk corridor s program should ameliorate the effect of this policy. We also stated that we intended to expl ore ways to modify the ri sk corridors program to address any unanticipated effects of this policy. Therefore, for the 2014 benefit year, we ar e considering whether we should make an adjustment to the risk corridors formula that would help to further mitigate any unexpected losses for issuers of plans subject to risk corri dors that are attributable to the effects of the transition policy. One potential op tion we are considering would be to implement an adjustment to the risk corridors formula set forth in subpart F of part 153 for each of the individual and small group markets by increasing the profit margin floor (from 3 percent of afte r-tax profits) and the allowable administrative costs ce iling (from 20 percent of afte r-tax profits) in an amount sufficient to offset the effects of the transiti onal policy upon the claims costs of a model plan (that is, a plan with an 80 percent allowable co sts-to-premium ratio). This adjustment could serve to increase a QHP issuer’s risk corridors ratio and its risk corridors payment amount to help offset the loss in premium revenue and pr ofit that might occur unde r the transitional policy as a result of predicted increas ed claims costs that were not accounted for when setting 2014 premiums. We are considering a pplying this adjustment only to plans whose allowable costs (as defined at 45 CFR 153.500) are at least 80 percent of their afte r- tax premiums, because issuers under this threshold would generally be required to pay out rebates to consumers. We note that for plans whose ratio of allowable costs to afte r-tax premium are below 80 percent, the 3 percent

20 Letter to Insurance Commissioners, Center for Consumer Information and Insurance Oversight, November 14, 2013. See http://www.cms.gov/CCIIO/Resources/Letters/D ownloads/commissioner-letter-11-14-2013.PDF

.CMS-9954-P 103
risk corridors profit margin and 20 percent allowable administrativ e cost ceiling would continue to apply for these plans. The effect on the risk pool of plans comp liant with the 2014 market rules may vary significantly from State to State, depending upon the extent to which each State elects not to enforce the 2014 market rules, as recommended under the transition policy, and upon the market dynamics of the health insurance market within the State. We believe that the State-wide effect on this risk pool will increase with the increase in the percentage enrollment in transitional plans in the State, and so we are considering having the State-specific percentage adjustment to the risk corridors formula also vary with the percentage enrollment in these transitional plans in the
State. We are considering calculating the State-specif ic percentage adjust ment by analyzing the effects of the transitional policy upon a plan with specified characteristics. For example, our actuaries believe the following are reasonable plan assumptions: allowable costs (including claims) equal to 80 percent of premiums, federa l income taxes equal to 35 percent of pre-tax profits, other tax liability equal to 7.5 percent of premiums, and other administrative costs equal to 8 percent of premiums. We are considering calculating the State-spec ific percentage adjustment to the risk corridors profit margin floor and allowable administrative costs ceiling in a manner that would help to offset the effects of the transiti onal policy upon the model pl an’s claims costs. We propose to estimate the effect of the tran sitional policy upon the model plan’s claims costs by assuming that allowable costs (including claims) among the transitional plans are 80 percent of the allowable costs th at would have resulted from the broad risk pool, in the absence of the transitional policy. Afte r consulting our actuaries, we believe that this assumption is a reasonable reflection of the effects of underwriting on the transitional plans. To estimate thisCMS-9954-P 104
State-specific effect of the transitional policy on average claims costs, we propose to require all issuers participating in the individual and sma ll group markets in a State to submit to HHS a member-month enrollment count for transitiona l plans and non-transi tional plans in the individual and small group markets. This subm ission would occur in 201 5 prior to the risk corridors submission. HHS would analyze that data, and publish th e State-specific adjustments that issuers would use in the risk corridor s calculations for the 2014 benefit year. We have proposed a State-wide adjustment for reasons of administrative simplicity and due to the analytical difficulty in estimating this effect on an issu er-by-issuer basis. Although the adjustment that we are considering would a ffect each issuer differently, depending on its particular claims experience and administrative cost rate, we believe that, on average, the adjustment would suitably offset th e losses that a standard issuer mi ght experience as a result of the transitional policy. We also note that, becau se the risk corridors program applies only to certain plans defined to be qualified health plans at 45 CFR 153.500, the extent to which an issuer may receive the full effect of this adju stment would depend upon the portion of an issuer’s individual and small group enrollees in plans subject to risk corridors. Another option we are considering would be to make a similar modification to the medical loss ratio formula. We would use our authority under section 2718(c) of the Public Health Service Act to “take into account . . . special circumstances of different types of plans” to ensure that the proposed adjustment to th e risk corridor program does not distort the implementation of MLR requirements, so that the rebates that would be owed absent the transitional policy and this adjustment would not substantially change. We seek comment on the best way to make such a modification, a nd whether such a modi fication is required. We request comment on all aspects of these potential approaches to help mitigate any potential impact of the transitional policy. As we continue to analyze its potential impacts, weCMS-9954-P 105
will determine whether such approaches and modifications are warranted. We seek comment on alternate ways of implementing adjustments to current risk corridors and reinsurance program policy that would help offset i ssuers for any unexpected losses th at might be incurred as a result of the transitional policy. In particular, we seek comment on whethe r this risk corridors adjustment should depend upon State-wide market characteristics, as we have proposed, or whether it should be national, tailored to each issuer, or based upon different State-wide characteristics. We also seek comment on whether the charac teristics of the standard plan we have outlined above are the appropriate characteristics to use for our modeling. We seek comment on the data that we should collect to measure the ke y characteristics for this adjustment, and who we should collect that data from. We seek commen t on whether particular ceilings and floors should be placed upon the amount of the adjustment. We also seek comment on whether the adjustment should apply to QHP issuers with allowable co sts that are below 80 percent of after-tax premiums. 4. Distributed Data Collection for the HHS- operated Risk Adjustment and Reinsurance Programs a. Discrepancy resolution process (i) Confirmation of HHS dedicated di stributed data environment reports Because the accuracy of the data on an issuer’s dedicated distributed data environment is critical to the accuracy of the HHS-operated risk adjustment and reinsurance calculations, we are proposing an iterative discrepancy reporting proc ess that would allow an issuer of a risk adjustment covered plan or a rein surance-eligible plan to notify HHS in a timely fashion of data and calculation discrepancies related to the data the issuer uploaded to its dedicated distributed data environment. We anticipate that this pr ocess would allow HHS a nd issuers sufficient timeCMS-9954-P 106
to resolve discrepancies, prior to HHS notifying issuers of final risk adjustment payments and charges and reinsurance payments. This process would also enable HHS to identify and address issues that affect multiple issu ers throughout the benefit year. Interim dedicated distributed data environment reports : Beginning in 2014, HHS anticipates sending interim dedicat ed distributed data environmen t reports to issuers of risk adjustment covered plans and re insurance-eligible plans that have loaded data onto their dedicated distributed data environments. (We also intend to issue these interim reports to issuers of risk adjustment covered plans and reinsurance- eligible plans that do not load data, to verify this result.) We anticipate that issuers of ri sk adjustment covered plans would receive interim reports that include preliminary risk scores based on this data. We anticipate that issuers of reinsurance-eligible plans would receive interim re ports that include an estimate of the issuer’s aggregated total claims eligible for reinsuranc e payments based on this data. Therefore, we propose in §153.710(d) that within 30 calendar da ys of the receipt of an interim dedicated distributed data environment report from HHS, th e issuer must either co nfirm to HHS that the information in the interim report accurately refl ects the data to which the issuer has provided access to HHS through its dedicated distribut ed data environment in accordance with §153.700(a) for the timeframe specified in the re port, or else must describe to HHS any discrepancy it identifies in the interim report. Fo llowing the identification of a discrepancy in an interim dedicated distributed data environm ent report, HHS would review the evidence submitted by the issuer, along with any other re levant data, and would determine if the preliminary risk score or estimated payment am ount at issue was prope rly calculated using the applicable data. We believe that the 30-cal endar-day timeframe would provide sufficient opportunity for an issuer to verify the preliminar y risk scores and estimated reinsurance payment amounts, but note that an issuer may notify HHS of a newly discovered discrepancy inCMS-9954-P 107
connection with responses to late r interim or final dedicated dist ributed environment reports until 15 calendar days after the final dedicated distributed data envi ronment report is issued, as discussed below. We anticipate that the interi m dedicated distributed da ta environment reports would allow issuers to proactivel y address any data discrepancies regarding the data the issuer made accessible to HHS on the dedicated distribute d data environment and HHS’s analysis of the data. We note that under §153.700(a), an issuer of a risk adjustment covered plan or a reinsurance-eligible plan in a State where HHS operates the risk adjustment or reinsurance program on behalf of the State, must establis h a dedicated distributed data environment and provide data access to HHS, in a manner a nd timeframe specified by HHS, for any HHSoperated risk adjustment or reinsurance program. For the issuer and HHS to effectively address and resolve discrepancies through the proposed in terim reporting process, we propose that once an issuer’s dedicated distributed data environment is establishe d, the issuer would be required, on a quarterly basis, to make a complete and current enrollmen t file accessible to HHS through the dedicated distributed data environment, and would be required to make good faith efforts to make accurate and current claims files accessible to HHS through the dedicated distributed data environment. An issuer may later (up until April 30 of the year after the benefit year, as provided for in §153.730) adjust these files with the most current information to account for changing enrollments or more current adjudications of claims in later periods. However, we believe it is critical for issuers to provide quart erly uploads of enrollment and claims files to permit issuers and HHS to monitor data collection. We note that, as part of the process fo r making these files available to HHS on a dedicated distributed data environm ent, we anticipate providing an issuer a transactional process report that will identify data that has been attempted to be uploaded, but that has been rejected.CMS-9954-P 108
To fulfill its obligation to make these files ava ilable to HHS, an issuer would be required to either correct or accept the rej ection of this data for the subm ission process to be considered complete. Final dedicated distributed data environment report : We propose that HHS would provide issuers with a final dedicated dist ributed data environment report following the applicable benefit year, after the April 30 da ta submission deadline. The final dedicated distributed data environment repor t would include final risk scores and claims amounts eligible for reinsurance payments, each calculated from th e issuer’s data that was timely loaded onto the dedicated distributed data environment. As w ith the interim reports di scussed above, we propose in §153.710(e) that the issuer be required, within 15 calendar days of receipt of the final report, to either confirm to HHS that th e information in the final dedicated distributed data environment report accurately reflects the data to which th e issuer has provided access to HHS through its dedicated distributed data environment in ac cordance with §153.700(a) for the benefit year specified in the report, or to de scribe to HHS any discrepancy it identifies in the final dedicated distributed data environment report. The shor ter 15-calendar-day reporting timeframe for the final dedicated distributed data environment report is necessary so that HHS can notify issuers of their final risk adjustment payments and charge s and final reinsurance payments by June 30 of the year following the applicable bene fit year, as require d under §153.310(e) and §153.240(b)(1)(ii). We seek comment on these proposals. Notification of payments and charges : Last, as required under §153.310(e) and §153.240(b)(1)(ii), HHS will provide issuers a repor t detailing their final risk adjustment payments and charges and reinsura nce payments for the applicable benefit year by June 30 of the year following the applicable benefit year. We also anticipate providi ng a report on cost-sharing reduction reconciliation payments and charges for that benefit year in the same timeframe.CMS-9954-P 109
Although we anticipate that the interim and final dedicated distributed da ta environment reports would permit HHS and issuers to resolve most data and payment discrepancies for risk adjustment and reinsurance befo re the June 30 report is issu ed, we recognize that some discrepancies might remain unresolved. Ther efore, we propose in §153.710(f) that if a discrepancy that is first identified in an interi m or final dedicated distributed data environment report in accordance with proposed §153.710(d)(2 ) or §153.710(e)(2) remains unresolved after issuance of the June 30 report, an issuer of a risk adjustment covered plan or reinsurance-eligible plan may make a request for reconsideration using the pro cess proposed in §156.1220(a). To promote the goals of the premium stabilization programs and to ensu re that risk adjustment and reinsurance payments are provided to an issuer ofa risk adjustment covered plan or reinsuranceeligible plan in a timely fashion, HHS would assess charges and make payments based on the amounts listed in the June 30 report, whether or not the issuer had submitted a request for reconsideration under proposed §156.1220(a), and woul d later correct any charges or payments determined to be inaccurate under the reconsider ation or administrative appeals process. (ii) Reporting of payments a nd charges under reconsideration Because risk adjustment payment and char ge amounts and reinsurance payment amounts are factors in an issuer’s risk corridors and MLR calculations, a delay in resolving final risk adjustment payments and charges and reinsurance payments could make it difficult for issuers to comply with reporting requirements under the risk corridors and MLR programs. Therefore, to clarify how issuers are to comply with th ese reporting requirements, we propose in §153.710(g)(1) that, notwithstanding any disc repancy report made under paragraph §153.710(d)(2) or (e)(2), or any request for reconsideration unde r §156.1220(a), unless the dispute has been resolved, an issu er must report, as a pplicable, for purposes of the risk corridors and the MLR program, the risk adjustment or re insurance payment to be made to the FederalCMS-9954-P 110
government, or the risk adjustment charge assess ed by the Federal government, as reflected in the June 30 report. If the amount of cost-sharing re ductions a QHP issuer has provi ded is at issue because the issuer requested reconsideration of a cost-sha ring reduction reconciliation payment or charge under the process proposed in §156.1220(a), we pr opose that for the purposes of the risk corridors and the MLR program, a QHP issuer would be required to report a cost-sharing reduction amount equal to the amount of the advan ce payments of cost-sha ring reductions paid to the issuer by HHS for the benefit year as refl ected in the HHS report on cost-sharing reduction reconciliation payments and charge s. Additionally, if a QHP issu er requests reconsideration of risk corridors payments or charges unde r the process proposed in §156.1220(a), then for purposes of MLR reporting, the QHP issuer woul d be required to repor t the risk corridors payment to be made to the Federal government or charge assessed by the Federal government as reflected in the notificati on provided under §153.510(d). Finally, we propose in §153.710(g)(2) that an issuer must report any adjustment made following any discrepancy report made under paragr aph (d)(2) or (e)(2) , or any request for reconsideration under §156.1220(a) w ith respect to any risk adjustment payment or charge, including an assessment of risk adjustment us er fees, reinsurance payment, cost-sharing reconciliation payment or charge, or risk corridors payment or charge, or following any audit, where the adjustment has not been accounted for in a prior risk corridors or medical loss ratio report, in the next followi ng risk corridors and medi cal loss ratio report. We seek comment on these proposals. b. Default risk adjustment charge As described in the second final Program Integr ity Rule, if an issuer does not establish a dedicated distributed data environment or submits inadequate risk adju stment data, HHS wouldCMS-9954-P 111
not have the required risk adjustment data from the issuer to calculate risk scores or payment transfers for the issuer. As a re sult, HHS would not be able to pr operly calculate risk adjustment payments and charges for the en tire applicable market for th e State. Under §153.740(b), if an issuer of a risk adjustment covered plan fa ils to establish a dedicated distributed data environment or fails to provide HHS with access to risk adjustment data in such environment by April 30 of the year following the applicable benefit year in accordance with §§153.610(a), 153.700, 153,710, or 153.730, such that HHS cannot apply its Federally certified risk adjustment methodology to calculate the plan’s risk adjustment payment tran sfer amount in a timely fashion, HHS will assess a default risk adjustment charge. As described in the second final Program Integr ity Rule, the total risk adjustment default charge for a risk adjustment covered plan w ould equal a per member per month (PMPM) amount multiplied by the plan’s enrollment.

Where: = total default risk adjust ment charge for a plan n ; = the PMPM amount for plan n; and

E

n = the total enrollment (total billable member months) for plan n. In the second final Program Integrity Rule, we provided that could be calculated using an enrollment count provided by the issuer, usin g enrollment data from the issuer’s MLR and risk corridors filings for the appl icable benefit year, or using other reliable data sources. We are considering severa l methods to calculate – the PMPM amount for a plan. As discussed in the proposed Program Integrity Ru le, one method would be to set a PMPM amountCMS-9954-P 112
that is equal to the highest PMPM transfer char ge that HHS calculates based on risk adjustment data submitted by risk adjustment covered plans in the applicable risk pool in the applicable market in the State. Such a method could yi eld a PMPM amount that would reflect a PMPM charge that reflects the high end of the PMPM distribution in cer tain States. However, in a situation in which the risk adjustment covered pl ans that provide the necessary risk adjustment data have very similar risk scores, a PMPM amount calculated under this method may yield a relatively low risk adjustment charge, and fa il to provide adequate incentive for prompt establishment of a compliant distributed data system. A second option would be to assess a PMPM am ount based on the standard deviation of the PMPM charge among all risk adjustment cove red plans in the appli cable risk pool in the applicable market in the State. The PMPM amount used to calculate the default risk adjustment charge would be an amount equal to the mean PM PM amount plus two such standard deviations. Such an approach could also yield a PMPM amount that is high but reflects the PMPM distribution in certain situations , but, again, low in others. The amount might also be quite unpredictable ex ante

. A third option would be to assess a charge e qual to a fixed percenta ge of the State-wide weighted average premium, which would be calculated as the enrollment-weighted mean of all plan average premiums of risk adjustment cove red plans in the applicable risk pool in the applicable market in the State. This option might be relatively straightforward to implement, but would yield a charge that is not linked to the distribution of PM PM amounts within the relevant risk pool in the market in the State. We note the many possible variations of th ese methods. For example, instead of the highest PMPM amount in the risk pool in the market in the Stat e, the PMPM amount could be a fixed percentile along the distribution of PMPM ch arges for the risk pool in the market in theCMS-9954-P 113

State – thus, we could use the 75 th percentile or an amount equal to 10 percent above the 100 th percentile, for example. Instead of the amount based on the mean PMPM amount and two standard deviations, a different number of standard deviations could be used. Also, instead of using a fixed percentage of the State-wide weighted average prem ium, a fixed percentage of the plan’s premium, or a fixed percentage of the average premium of a subpopulation of risk adjustment covered plans in the State, such as those plans in the appli cable risk pool, or those plans paying risk adjustment charges, could be used. Commenters to the proposed Program Integrity Rule also suggested an approach under which the PMPM amount would be the highest amount calculated under each of the three methods described above. Finally, to ensure that a total default charge is not excessive for a particular plan, we are considering setting an up per limit on the total default charge for a plan based on a percentage of the plan’s own total pr emiums. We seek comment on these methods, or other appropriate methods for calculating a default risk adjustment charge. D. Part 155 – Exchange Establishment Sta ndards and Other Related Standards under the Affordable Care Act 1. Election to Operate an Exchange after 2014 HHS has learned through the process of appr oving or conditionally approving the first generation of State Exchanges that it is challeng ing to make an accurate assessment of a State’s progress and ability to complete an Exchange bui ld 10 months prior to open enrollment and a year prior to the first date that coverage would become effective. We are therefore proposing to reduce the time that the State must have in effect an approved or conditionally approved Exchange Blueprint and readiness assessment from 12 months to 6.5 months prior to the Exchange’s first effective date of coverage. We propose to amend §155.106(a)(2) by moving the deadline for the approval of the Exchange Bluepr int for States electing to establish and operateCMS-9954-P 114
an Exchange after 2014 to June 15 th of the previous plan ye ar rather than January 1 st of the previous plan year. We believe that this proposal will give States more time prior to approval of the Blueprint to prepare for the transition from an FFE or State Partnership Exchange to a State Exchange. It will also enable HHS to gauge the State’s actual technical, business and operational progress as more indicative milestones should be reached by June 15th. It should be noted that §155.106(a)(2) sets the date by which a State electing to operate an Exchange after 2014 must “[h]ave in effect” an “approved, or conditionally approved, Exchange Blueprint and operational readiness assessment” and that the rule is silent about the date by which such a State must submit the Exchange Blueprint. HHS, theref ore, proposes to extend the date by which a State must submit the Exchange Blueprint from November 15 th to June 1 st

. 2. Ability of States to Permit Agents and Brokers to Assist Qualified Individuals, Qualified Employers, or Qualified Empl oyees Enrolling in QHPs In §155.220, we propose to add new paragraph (i ) to provide that current paragraph (c)(3), which addresses enrollme nt through an Internet Web site of an agent or broker, and currently applies only to the individual market Exchanges, would apply to the SHOPs for plan years beginning on or after January 1, 2015. Ag ents and brokers have traditionally assisted employers in the small group market, and many of them use Internet Web sites to assist employers. Permitting an employer to complete QHP selection through the Internet Web site of an agent or broker would provide an additiona l potential SHOP enrollment option for small employers. Under this proposal, employers that have not traditionally worked with agents and brokers but have, in the past, ut ilized Internet Web sites of ag ents and brokers for purchasing insurance would have another op tion to learn about and particip ate in the SHOPs, in a manner similar to that already availabl e in the current market. We pr opose to allow SHOPs, in States that allow this activity under St ate law, to permit enrollment in a SHOP QHP through an InternetCMS-9954-P 115
Web site of an agent or broker under the standa rds outlined in §155.220(c)(3) if a State SHOP or the FF-SHOP has the technical capability to make this possible. We invite comment on this proposal. 3. Privacy and Security of Pers onally Identifiable Information Section 1411(g)(2)(A) of the Affordable Ca re Act provides that Exchanges may use information provided by an applicant “. . . only fo r the purposes of, and to the extent necessary in, ensuring the efficient operation of the Exch ange . . .” Section 155.260(a)(1) provides the specific circumstances under which an Exchange ma y use or disclose PII the Exchange creates or collects for the purposes of determining eligib ility for enrollment in a QHP; determining eligibility for other in surance affordability programs as defined at §155.20; or determining eligibility for exemptions from the individual responsibility pr ovisions in section 5000A of the Code (collectively referred to as “eligibility and enrollment PII”). We believe, based on considerations that have been brought to our attention by States as we work together to implement the Exchanges, that §155.260(a)(1) unduly limits the ability of an Exchange to ensure its efficient operation. We ther efore propose to amend §155.260(a)(1 ) to permit an Exchange to use or disclose eligibility and en rollment PII to ensure the effi cient operation of an Exchange through uses or disclosures that may not be directly connected to the Exchange minimum functions described at §155.200, subject to privacy and security standards. We anticipate that there may be uses or disclo sures of eligibility and enrollment PII that present additional opportunities to ensure the efficient operation of the Exchange, consistent with the strict protections of section 1411(g)(2)(A) of the Affordable Care Act. Therefore, we propose in §155.260(a)(1)(ii) that the Secretary may approve othe r uses and disclosures of eligibility and enrollment PII, provided that HHS determines that the information will be used only for the purposes of and to the extent neces sary in ensuring the efficient operation of theCMS-9954-P 116
Exchange consistent with secti on 1411(g)(2)(A) of the Affordable Care Act and determines that the use or disclosure is appropriate and permi ssible under relevant law and policy. In addition, prior to an Exchange using e ligibility and enrollment PII for such an approved function, the individual would need to provide consent before his or her eligibil ity and enrollment PII could be used or disclosed for this additional function. We anticipate providing additional information in future guidance about uses or disclosures determ ined by the Secretary that ensure the efficient operation of the Exchange while maintaining in formation privacy and security, and we seek comment on such uses and disclosures. Further, in §155.260(a)(1)(iii) we propose a process under which Exchanges may seek approval from the Secretary for uses or disclosures of eligibility and enroll ment PII not explicitly described in §155.260(a)(1)(i) or (ii) . Requestors must show that th e proposed use or disclosure will ensure the efficient operation of the Exchange s consistent with section 1411(g)(2)(A) of the Affordable Care Act and describe how the informa tion to be used or disclosed will be protected by privacy and security standards that are co mpliant with §155.260. In addition, any time an Exchange is using eligibility and enrollment P II for such an approved function, the individual would need to provide consent before his or her eligibility and enrollment PII could be used or disclosed. We anticipate providi ng additional information in futu re guidance about this process and about the facts and circumstances that will be considered in determining whether a proposed use or disclosure will ensure the efficien t operation of an Exchange while maintaining information privacy and security and is also an appropriate and permissi ble use or disclosure under relevant law and policy. We seek comment on this proposed process, as well as other factors or information that s hould be considered when determ ining whether a proposed use or disclosure should be approved pursuan t to this proposed process.CMS-9954-P 117
We further recognize the imperative to maintain safeguards for eligibility and enrollment PII when it is used or disclosed to suppor t functions beyond those described in §155.200. Exchanges would be required to lim it the disclosure of eligibility and enrollment PII to the extent necessary to accomplish the proposed function and obt ain an individual’s consent. The proposed use and disclosure would be subject to privacy and securi ty standards that §155.260 requires Exchanges to establish in rela tion to non-Exchange entities. In light of the proposed amendments to §155.260(a)(1), we further propose to amend §155.260(a)(2) to delete the specif ic reference to §155.200 minimum functions and to indicate that all permitted uses under §155.260(a)(1) must be consistent with §155.260. Section 155.260(a)(3) provides th at Exchanges must establis h and implement privacy and security standards consistent with the eight pr inciples in §155.260(a)(3)(i) through (a)(3)(viii). Section 155.260(b) addresses situations in wh ich Exchanges share PII with “non-Exchange entities,” including “. . . individua ls or entities, such as Navigators, agents, and brokers.” Through public comment to the Program Integrit y Proposed Rule, we received requests for clarification on the definition of “non-Exchange entities” and al so received questions asking if the regulatory language “individual s or entities, such as Naviga tors, agents, and brokers,” was meant to be an exhaustive list. In the preamble to the first final Program Integrity Rule (78 FR 54082), we stated that we would issue further gu idance on this topic. We now propose to amend the regulation text to ad dress these questions. In §155.260(b)(1), we propose that any individu al or entity that gains access to PII submitted to an Exchange or collects, uses or discloses PII gathered directly from applicants, qualified individuals, or enrollees while that individual or enti ty is performing the functions agreed to with the Exchange, be considered a non-Exchange entity, such that a non-Exchange entity is defined based on access to PII and not based on a representative or exhaustive list ofCMS-9954-P 118

entities. As clarification, we believe that entities that would qualify as “non-Exchange entities” based on this proposed definition include, but are not limited to, Medicaid agencies; CHIP agencies; Certified Application Counselors; in person assisters; agents and brokers, including Web-brokers; QHP issuers; Navigators; and other th ird party contractors. We feel very strongly about the importance of requiring privacy and secu rity standards and beli eve that this proposed definition of non-Exchange entity makes even mo re clear which entities are subject to these standards. At §155.260(b)(2), we propose to maintain th e existing requirement for Exchanges to enter into a contract or agreement with non-Ex change entities, while providing more details regarding the required elements of these contracts and agreements. We propose that the contract or agreement between an Exchange and a non-Ex change entity must include at least five elements. First, we believe it is important to de fine in this contract or agreement the functions that the non-Exchange entity will perform so that both parties ag ree to the circumstances and tasks during which the privacy and security standa rds will be applicable, and propose to include this requirement in §155.260(b)(2)(i). This requ irement already exists in §155.260(b)(2), where reference is made to a non-Exchange entity perf orming the functions outlined in the agreement with the Exchange. Second, we propose in §155.260( b)(2)(ii) that in the required contract or agreement, the Exchange must impose a requir ement for compliance with privacy and security standards and specifically list or incorporate by re ference the privacy and security standards and obligations with which the non-Exchange entity must comply. A similar requirement also already exists in the current text of §155.260(b), where an Excha nge must require the same or more stringent privacy and securi ty standards as a condition of c ontract or agreement with the non-Exchange entity. The nature of these standards will be discussed in great er detail in the next paragraph. Third, we propose in §155.260(b)(2)(iii) that in the contract or agreement, theCMS-9954-P 119
Exchange must require the non-Exchange entity to monitor, periodically assess, and update its security controls and related syst em risks to ensure th e continued effectivene ss of those controls in accordance with §155.260(a)(5). It is assumed that the Exchange would expect this type of assessment to occur any time the non-Exchange entity has a major change in the operational or technical environment employed to meet the duties outlined in their contracts or agreements with the Exchange, and at the time of renewal of the c ontract or agreement. Fourth, we propose in §155.260(b)(2)(iv) that in the cont ract or agreement, the Exchange must require the nonExchange entity to inform the Exchange of any change in its administrative, technical, or operational environment defined within the contr act that would require an alteration of the standards within the contract or agreement. Th e intent of this requirement is to provide an opportunity to assess and revise st andards to ensure that the standa rds remain relevant. We seek comment on other mechanisms that could be more effective in keeping standards aligned with operating environments. Fifth, we propose in §15 5.260(b)(2)(iv) that the c ontract or agreement include a requirement that the non-Exchange entit y, in a written contract or agreement, must require any downstream entities that also meet the definiti on established in §155.260(b)(1) to comply with the same privacy and security stan dards with which the non-Exchange entity agrees to comply under its contract or agreement with th e Exchange. We feel it is important that the privacy and security standards c ontinue to apply to PII as it moves to additional downstream entities. Currently, §155.260(b) states that an Exchange must require the same or more stringent privacy and security standards as a condition of contract or agreement with individuals or entities that gain access to PII submitted to an Ex change. In §155.260(b)(3), we maintain the specification for an Exchange to require privacy a nd security standards as a condition of contract or agreement with non-Exchange entities and we propose criteria for the establishment of theseCMS-9954-P 120
standards that allow Exchanges flexibility in set ting standards for non-Exchange entities that will provide equivalent or more stri ngent protection while aligning mo re closely to the functions the non-Exchange entity is performing and th e operating environment under which the nonExchange entity is performing. Because the defi nition for non-Exchange entities is broad and includes a variety of entities, we recognize that there can be variation between non-Exchange entities. Different non-Exchange entity functions can result in variation in both the amount and type of access to PII (as an exam ple, a Certified Application C ounselor’s access to consumer PII is different than the access a consumer’s ag ent or broker would ha ve) and the technical characteristics of the non-Exchange entity’s en vironment (as an example, some non-Exchange entities, such as Medicaid agencies, may have a connection to the Data Services Hub, whereas others, such as Navigators, do not). Additi onally, some non-Exchange entities already are required by law to meet other i ndustry-recognized security standards for the environment in which they will perform Exchange-related functions . Currently there is no mechanism within the regulation to take enviro nment variations or already existing security requirements into account, resulting in an operational burde n for non-Exchange entities that does not result in additional protections for applicants. As applied to non-Exchange entity privacy standa rds, the introduction of this flexibility is not anticipated to result in any weakening of Ex change privacy standards. Variation is not anticipated in the stringency of th e particular privacy standard but in how it is implemented. As an example, a written policy and procedure document as required by §155.260(d) regarding the collection, use, and disclosure of PII may take a different form based on a non-Exchange entity’s duties and operations. A non-Exchange entity that is a QHP issuer currently obligated to follow the HIPAA security rule might s eek to negotiate a contract with the Exchange under which it isCMS-9954-P 121
permitted to follow the HIPAA security rules in place of the specific security standards followed by the Exchange. It would then be incumbent upon the Exchange to evaluate whether this arrangement would meet all of th e criteria established for priv acy and security standards under §155.260(b)(3). We intend for these standards to provide the same le vel of protection and safeguards as the current §155.260(b) affords. Currently §155.280 establishes th e regulatory authority for ov ersight and monitoring of Exchanges and non-Exchange entities with regard to privacy and secur ity standards. We anticipate additional proposed rulemaking on oversight, monitoring and enforcement during 2014. We invite comment on alternative ways to address the challenge of implementing effective enforcement while allo wing the proposed flexibility. These proposed requirements in §155.260(b)(3) are intended to provide a foundation that Exchanges must use to define privacy and secu rity standards for non-Exchange entities that afford a level of protection equal to that pr ovided by the standards the Exchanges adopt for themselves. We have put forth three criteria that must be met by the privacy and security standards to which an Exchange must bind non- Exchange entities, and require that these standards take into specific cons ideration the environment in wh ich the non-Exchange entity is operating. The first criterion is set out in §155.260(b )(3)(i) and requires th at any privacy and security standards must be as protective as the standards that the Exchange sets for itself and must be consistent with all of the princi ples and requirements listed under §155.260(a). This includes the principles of (a)(3), as well as the requirements established by (a)(1) through (a)(6). The second criterion proposed in §155.260(b)(3)(ii) requires that any privacy and security standards must also comply w ith the requirements for workforce compliance, written policiesCMS-9954-P 122
and procedures, compliance with the IRS code, and the consequences of improper use and disclosure of information estab lished by §155.260(c), (d), (f) and (g). The third criterion proposed in §155.260(b)(3)(iii) requi res that the privacy and security standards to which non-Exchange entities are b ound take several factors into consideration. Section 155.260(b)(3)(iii )(A) requires that an Exchange take into considerati on the operational and technical environment in which the non-Excha nge entity is operating. These environments, and the standards themselves, should be assess ed in light of the requirement established by §155.260(a)(5) to monitor, periodically assess, a nd update the security controls and related system risks to ensure the continued effectiven ess of those controls. Should the environment change, the standards should change accordingl y as required by proposed §155.260(b)(2)(iii) and §155.260(b)(2)(iv). We would expect that an Ex change’s contracts and agreements with nonExchange entities provide an opportunity for such changes. Section 155.260(b)(3)(iii)(B ) requires standards be releva nt and applicable to the nonExchange entity’s duties and activities in relation to the Exchange. The introduction of the concept of ‘relevant and applicab le’ is intended to address the various responsibilities assumed by non-Exchange entities, and the associ ated technical infrastructures. Although the proposed approach affords greater fl exibility to Exchanges, this flexibility carries with it an Exchange’s responsibility to perform an assessment of the non-Exchange entity’s duties, activities, and environment and the standards to which it will bind non-Exchange entities to ensure that the standards satisfy §155.260 requirements. For example, assuming §155.260 is finalized as proposed, the FFE will incor porate privacy and security standards into non-Exchange entity contracts and agreements onl y after determining that the standards satisfy the criteria proposed under §155.260(b)(3 )(i), (ii) and (iii), and there by meet the requirements of §155.260 and the Affordable Care Act. We expect to publish guidance to provide additionalCMS-9954-P 123
details regarding the process the FFE will follow to evaluate privacy and security standards to which non-Exchange entities will be bound. We seek comments on the proposed amendments to §155.260 and on alternate ways to ensure protection for information while not im posing irrelevant or unnecessarily burdensome requirements on non-Exchange entities. 4. Annual Open Enrollment Period for 2015 In 45 CFR 155.410, as finalized in the Exch ange Establishment Rule, we set forth provisions for initial and annual open enro llment periods. We now propose amending §155.410(e) and (f), which pertain to the annual open enrollment pe riod and effective date for coverage after the annua l open enrollment period. In paragraph (e), we propose adding a pa ragraph that would change the annual open enrollment period for the 2015 benefit year. We propose that for all Exchanges, annual open enrollment would begin on November 15, 2014 and extend through January 15, 2015. This proposed change would give health insurance is suers an additional month in 2014 before they would need to begin accepting plan selections fo r the upcoming plan year. It also staggers the start of open enrollment for the Exchange from that for Medicare Advantage. It would give consumers the ability to have coverage starting January 1, 2015, or if they need more time, until January 15, 2015 to shop for, and select a QHP for the 2015 plan year. If finalized, all Exchanges would be expected to delay their QHP certification dates by at least one month. This would give health insurance issuers additional time to m onitor 2014 enrollments, prior to submitting their 2015 rates. First-year challenges in enrolling individual s may mean higher than expected enrollment toward the end of the initial open enrollment period which, under the current schedule, coincides with the first day in which applications for 2015 can be submitted to the FFE. This compressed schedule would a dd uncertainty to setting rates for 2015 andCMS-9954-P 124
potentially higher premiums without change. Th is proposed change is applicable for only the 2015 coverage year. We seek comments on this proposed amendment. In paragraph (f), we propose adding a paragra ph to address coverage effective dates for plan selections made during the annual open en rollment period for the 2015 benefit year. We propose that coverage must be effective Janua ry 1, 2015, for plan select ions received by the Exchange on or before December 15, 2014. We propose that coverage must be effective February 1, 2015, for plan selections received by the Exchange from December 16, 2014 through January 15, 2015. In accordance with 45 CFR 155.335( j), qualified individuals already enrolled in a QHP through the Exchange in 2014 who main tain the same eligibil ity would have their coverage continue into 2015, but they would ha ve the ability to change QHPs until January 15, 2015. We seek comments regarding whether issuers should accept payments up until the 31 st of a given month, in order to effectuate coverage by the first of the following month. We also seek comment on whether there should be retrospe ctive coverage to January 1, 2015, for any individual who signs up after December 15, 2014 in the open enrollment period to ensure continuity of coverage. 5. Functions of a SHOP For plan years beginning before January 1, 2015, qualified employers participating in a Federally-facilitated SHOP (“FF-SHOP”) are able to select a single QHP to offer to their employees. For plan years beginning on or afte r January 1, 2015, employers participating in the FF-SHOPs will also have the option to select a level of coverage as described in section 1302(d)(1) of the Affordable Care Act, and make all QHPs within that le vel available to their qualified employees (“employee choice”). A dditionally, the FF-SHOPs will begin performing premium aggregation services under §155.705(b)(4) fo r plan years beginning on or after January 1, 2015 – corresponding with the beginning of employ ee choice in the FF-SHOPs. Several of theCMS-9954-P 125
amendments proposed below would take effect when employee choice and premium aggregation become available, including a requirement that employers make premium payments to the FFSHOPs according to a timeline and process set by HHS, a standard premium pro-rating methodology in the FF-SHOPs providing that gr oups will be charged for the portion of the month for which an enrollee is enrolled, a prohibition on composite premiums in the FF-SHOPs when an employer utilizes employee choice, me thods for employers in the FF-SHOPs to offer stand-alone dental covera ge, and flexibility for employers in the FF-SHOPs to define different premium contributions for full-time em ployees and non-full-time employees. We propose revising §155.705(b)(1), which lists the rules regardi ng eligibility and enrollment to which the SHOP must adhere, to include mention of additional provisions regarding termination of covera ge in the SHOPs and SHOP employer and employee eligibility appeals that were finalized in the first fina l Program Integrity Rule. This provision would become effective when this proposed rule is finalized and becomes effective. We also propose adding a new paragraph §155.7 05(b)(3) to provide qualified employers with options to offer dental coverage after empl oyee choice becomes available in the FF-SHOPs. We propose that for plan years beginning on or after January 1, 2015, a qualified employer participating in an FF-SHOP would have two met hods by which to offer stand-alone dental plans (SADPs) to its employees and their dependents. This proposal would provide employers with options for offering SADPs while preserving the flex ibility not to contribute to SADP coverage. For example, an employer that elects to offer a single QHP that lacks the pediatric dental benefit may want to ensure that its employees with child dependents have th e option to enroll in pediatric dental coverage. We considered several options for methods by which a qualified employer participating in an FF-SHOP could offer SADPs to its employ ees and their dependents: the employer couldCMS-9954-P 126
offer a single SADP, the employer could offer al l SADPs at a given dental AV level (under 45 CFR 156.150(b)), the employer could offer all S ADPs in an FF-SHOP, or the employer could offer a subset of SADPs available in an FF- SHOP. All of these options would allow an employer flexibility to provide its employees a nd their dependents with standalone dental coverage. The single SADP option would enable an employer to choose the plan offered, and may be more administratively appealing to an em ployer already used to offering a single plan in the current market. This option would have th e benefit of administrative ease for an FF-SHOP and issuer, but it would limit the selecti on for employees more than other options. Allowing the option for qualified employers to offer all SADPs at a given dental AV level option would also enable an employer to make decisions about the type of plans offered to employees while retaining some administrative simplicity by only requiring a choice between the two dental AV levels (high and low) that were established for the 2014 benefit year. This option would also help advance the goal of increased ch oice and competition and is similar to employee choice of QHPs where an employer selects a me tal tier and employees may select any QHP within that tier. However, the proposed cha nges to §156.150 in this proposed rule would remove the AV standards for stand-alone dental plans; thus, this option would not be possible if §156.150 is finalized as proposed. Allowing qualified employers to offer all SADPs available in an FF-SHOP would provide an employer with maximu m flexibility to offer its empl oyees and their dependents the ability to choose an SADP that best fits their needs. Additionally, it wo uld allow an employer to make an offer of coverage without needing to compare and select among plans or tiers. This approach would most advance the goals of increased choice and competition within the small group market, but might create concerns among issu ers about potential adve rse selection arising from higher risk employees electi ng to enroll in certain SADPs.CMS-9954-P 127
Finally, we considered an option that would allow an employer to make an offer to its employees and their dependents from a defined subs et of SADPs in an FF-SHOP. In this option, an FF-SHOP would define a subset of SADPs from which an employer could choose. For example, an employer might be allowed to offer a ny two plans from the same issuer. This option would allow an employer additiona l flexibility in offering dental plans while maintaining some control over the particular plans offered to it s employees and their de pendents. Although less administratively simple, this option could provid e some increased level of choice for employers and their employees. After considering the options described above, we are proposing that a qualified employer in an FF-SHOP could offer its employees (and, if desired, their dependents) either a single SADP or a choice of all SADPs availabl e in an FF-SHOP after employee choice becomes available in the FF-SHOPs. We note that an employer could choose either option under this proposal regardless of whether it offers one QHP or all QHPs av ailable in an FF-SHOP to its employees and their dependents under §155.705(b)(3)(iv ). We believe this proposal provides the best balance of advancing the Affordable Care Act’s goals of increased choice and competition in the small group market, providing employers w ith an administratively simple way to offer stand-alone dental cove rage, providing employees with increa sed dental coverage options, and maintaining consistency with employee choice. We seek comment on these options, including on the option of offering all plans at a dental AV level if the proposal to eliminate dental AV levels is not finalized. We also propose to re-des ignate §155.705(b)(4)( ii) as (b)(4)(iii) and to add new paragraph (b)(4)(ii) to allow all SHOPs, both FF- SHOPs and State SHOPs, to establish one or more standard processes for premium calculation, payment, and collection after the SHOP makes premium aggregation available. Many States do not have standa rdized prorating, payment, andCMS-9954-P 128
collection practices, and within a given State, issuers may have varying practices. In this environment, a standard method of handling premiums may be necessary for a SHOP to successfully and efficiently implement and operate the premium aggregati on services described in §155.705(b)(4)(i). We also propose provisions related to th e processes FF-SHOPs would establish for premium calculation, payment, and collec tion under proposed new §155.705(b)(4)(ii). Consistent with §155.720(b), which establishes that all SHOPs must establish a uniform enrollment timeline and process, including es tablishment of effective dates of employee coverage, for all QHP issuers and qualified employers to follow, and consistent with §155.720(d), which establishes that all SHOPs mu st follow the requirements set forth at §155.705(b)(4), we are proposing at §155.705(b)(4)( ii)(A) that, after premium aggregation becomes available in the FF-SHOPs, employers in the FF-SHOPs would be required to make all premium payments – initial and subsequent – a ccording to a timeline and process that HHS will establish through guidance. We intend for this proposed timeline and process to include all premium payments and considered whether to incl ude “all” in the regulati on text, but we decided that including the word “all” would be unnecessa ry. In developing this timeline and process, HHS will consider its interest in operating and administering the FF-SHOPs efficiently, as well as issuers’ interests in ensu ring timely payment of premiums, and issuers’ and employers’ interests in establishing a fair and workable prem ium payment process. We anticipate that this payment timeline would require employers to make an initial premium payment at least two days prior to the employer’s desired coverage effect uation date, in order to provide a reasonable window of time for the relevant banks to process the payment transaction. However, we solicit comments about whether such a time frame would be reasonable for employers or issuers, about alternative time frames that might be more appropriate, and about the payment timeline andCMS-9954-P 129
process for the FF-SHOPs generally, including th e considerations HHS should factor into the development of the payment timeline and proc ess. We are also proposing a conforming amendment to §156.285(c)(7)(iii), discussed in great er detail below, to establish that an FFSHOP issuer would be required to effectuate co verage unless it has r eceived an enrollment cancellation from the FF-SHOP, and explain in th e preamble discussion related to that proposal that if the FF-SHOP has not received an employ er’s initial premium pa yment in accordance with the payment timeline and process establis hed under proposed §155.705( b)(4)(ii)(A), the FFSHOP will send the issuer an enrollment cancellation. At proposed §155.705(b)(4)(ii)(B), we also propose a methodology for prorating premiums in FF-SHOPs after premium aggregati on becomes available in those SHOPs in plan years beginning on or after January 1, 2015. Because it would be impractical for FF-SHOPs to accommodate the existing variation in premium methodologies that exists across States and issuers, we propose a standard methodology such that groups will be charged for the portion of the month for which the enrollee is enrolled. We considered several methods for prorating partial month payment in the FF-SHOPs, includi ng not charging for a partial month’s coverage, charging a full month’s premium if coverage is effective prior to the 15th of the month, or not charging any premium if coverage is effective af ter the 15th of the month. We propose that in the FF-SHOPs, premiums for coverage of less than 1 month will be prorated by multiplying the number of days of coverage in the partial month by the premium for 1 month divided by the number of days in the month. We believe this approach to be the fairest for both consumers and issuers because the issuer will charge for only the portion of coverage provided for a partial month. We invite comments a bout this methodology, as well as comments about whether a standardized methodology regarding prorating premiums for pa rtial month enrollment should be adopted across all individual market Exchanges as well.CMS-9954-P 130
In the proposed 2014 Payment Notice, we pr oposed at §155.705(b)(11 )(ii)(D) to permit a qualified employer participating in an FF-SHOP to establish, to the extent allowed by Federal and State law, different premium contribution percentages for diffe rent employee categories. In the 2014 Payment Notice, we did not finalize this proposal because we concluded that it would be inconsistent with the unifo rmity provisions established in Internal Revenue Service Notice 2010–82, which requires employers to contribut e a uniform percentage to all employee premiums in order to claim a small business ta x credit for health in surance premiums paid. 21 In this proposed rule, we propose at paragraph (b)(11)(ii )(C) to provide FF-SHOPs, in plan years beginning on or after January 1, 2015, with the option of permitting a qualified employer to define a different percentage contribution for full-time employees (as defined in §155.20 and section 4980H(c)(4) of the Code) fr om the percentage contribution it defines for employees that are not full-time employees under that definition, to the extent permitted by applicable law. This proposal would also allow a FF-SHOP to permit an employer to define different percentage contributions toward premiums for depende nt coverage for full-time and non-full-time employees. We note that, to the extent permitted by applicable law, the percentage contributions established for dependent coverage under this proposal could be diffe rent from the premium contribution percentages established for empl oyee-only coverage, consistent with current paragraph (b)(11)(ii)(C). Thus , an FF-SHOP under this proposal could allow an employer to define up to four different contribution levels: full-time employee-only, full-time employee dependent, non-full-time employee-only, and non-full-time employee dependent. We note that under this proposal, a decisi on by an employer to define different contribution levels for full-time and non-full- time employees offered coverage through the

21 See 78 FR at 15502. IRS recently proposed regulations addressing the uniform premium contribution requirement for 2014 at 78 FR 52719, 52721 (Aug. 26, 2013).CMS-9954-P 131
SHOP may potentially have small business tax cr edit implications. However, the IRS, not HHS administers the small business tax credit. Theref ore, if the proposal is finalized as proposed, employers considering taking this option should c onsider consulting with th e IRS and/or their tax advisors about the implications of such a decision. Even so, we believe that this proposal would provide employers with additional flexibility to choose whether offering different contribution levels would be in the best interest of the business and its employees. Further, this additional flexibility would bring the FF-SHOP more in line with current small gr oup market practices and provide an additional incentive for small employe rs to participate in the FF-SHOP. Finally, providing for different contribu tion levels based on full-time or non-full-time status may encourage some employers to offer coverage to employees who do not meet the Exchange definition of a “full-time employee.” We also propose amending §155.705(b)(11)(ii) (D). When an employer offering SHOP coverage elects to base prem ium contributions on a composite premium, that premium is calculated based on the average per-member premiu ms for the employees who initially enroll in coverage. Under §155.705(b)(6)(ii) , the average employee premium rate is locked in for the entire plan year, regardless of whether any employees enter or leave the group during the plan year. Additionally, as described above, we are proposing in this rulemaking to amend §147.102(c) to establish that if an issuer offe rs a composite premium, the premium amount would not be permitted to vary for any participant during the plan year with respect to a particular plan, even if the composition of the group changes. For example, if several older employees joined the group or several employees terminated their coverage, the composite premium would remain the same until renewal. Af ter employee choice becomes effective in the FF-SHOPs, if an employer partic ipating in an FF-SHOP elects to offer employees all plans at a single metal level of coverage, that employer might have employees enrolled in several differentCMS-9954-P 132
plans. In that circumstance, mid-year changes to the group’s composition without a corresponding change to the composite rate may a dversely affect issuers that gain a significant number of older employees once a plan year has started, without a resulti ng change in premiums to reflect the potentially higher risk. Because any risk related to a change in the group’s composition is divided among issuers in an employ ee choice environment, they would be taking on proportionately more risk than in a single plan environment where the issuer would be assuming the risk – good and bad – for the entire group. We believe this uncertainty may make issuers more hesitant to offer QHPs in FF-SHOPs after employee choice is available in them – which risks undermining the Affordable Care Act’ s goals of increased choice and competition in the small group market. Accordingly, we pr opose a limited scope prohibition on composite rating in the FF-SHOPs when an employer elects to select a le vel of coverage and make all QHPs within that level available to its employe es. We acknowledge that this proposal would create a limited exception to §147.102( c)(3) and that it would preem pt State laws requiring or permitting composite rating in the small group market , but we believe this proposal to be limited in scope and tailored to pr ovide for administrative effici ency and uniformity, system compatibility among the FF-SHOPs, and increased competition and choice in the small group market. Therefore, we propose amending §155.705(b )(11)(ii)(D) to not allow an employer or State to require that employer premium contribu tions in an FF-SHOP be based on a calculated composite premium if the employer elects to o ffer its employees all QHPs within the employer’s selected level of coverage under §155.705(b)(3)( iv)(A), that is, after employee choice is available in the FF-SHOPs and when an employe r elects that option. State-based SHOPs may set their own policies. We are considering extending the pr ohibition on composite rating to SADPs in the FF-SHOPs, and we invite comment on whether such a prohibition should be adopted, how this policy might affect current ma rket practices on composite rating of dentalCMS-9954-P 133
plans, whether a prohibition on composite rating should apply to all SADP offering methods or just when an employer chooses to offer more than a single SADP, and how such a prohibition would affect choice and competition in the sm all group dental market. Finally, we seek comment on whether the calculati on of user fees for the FF-S HOP should be calculated based upon composite premiums or premiums calculated on per-member buildup. 6. Eligibility Determination Process for SHOP We propose to amend paragraph (c)(4) to repl ace a reference to se ctions 1411(b)(2) and (c) of the Affordable Care Act with a referen ce to Subpart D of 45 CF R part 155, and to add a reference to eligibility verifica tions as well as to eligibility determinations. The proposed changes would prohibit a SHOP from perf orming any individual market eligibility determinations or verifications as described in Subpart D, wh ich, for example, includes making eligibility determinations for advance payments of the premium tax credit and cost sharing reductions in the individual market Exchange. HHS already interprets existing regulations at §155.715(c)(3) and (4) and §155.730 to prohibit SHOPs from pe rforming these types of determinations or verifications and from coll ecting through the SHOP ap plication process any information other than what is required to make SHOP eligibility determinations or effectuate enrollment through the SHOP. However, we wish to make the prohibitions explicit in regulation text. We propose this amendment because the S HOPs are designed to assist small employers and employees of small businesses in accessing heal th insurance coverage, whereas the individual market Exchanges are designed to assist individu al consumers. We believe that this proposal would create efficiencies for the SHOP and enab le it to focus solely on small businesses. Additionally, we believe the proh ibitions in this proposal, in conjunction with the proposed amendments to §155.730, would help to protect S HOP consumers’ privacy. This provision would become effective when this proposed rule is finalized and becomes effective.CMS-9954-P 134
We propose amending paragraph (d) to addr ess when SHOP eligibility adjustment periods would be triggered. Unde r current paragraph (d)(1), an e ligibility adjustment period for an employer would be triggered whenever the employer submits information on the SHOP single employer application that is inconsistent with the eligibility standa rds described in §155.710, which effectively means that the inconsistency pe riod is triggered whenever an employer would be determined ineligible. Unde r current paragraph (d)(2), an e ligibility adjustment period would be triggered for employees if the SHOP receive s information on the employee’s application that is inconsistent with the info rmation provided by the employer. We are proposing to provide instead for eligibility adjustment periods for both employers and employees only when there is an inconsistency between information provided by an applicant and information collected through optional verification me thods under §155.715(c)(2). A SHOP applicant who is determined ineligible could always resolve the reasons for that negative eligibility determination and re-file th e application to obtain a favorable eligibility determination. As written, the current eligibility adjustment periods could delay this process in ways that might complicate the enrollment of all employees being offered coverage by an employer, because they could delay the SHOP’s final eligibility determination for an employer or for individual employees, in order to give th e SHOP time to resolve issues that may be relatively straightforward for employers or employees to address without the SHOP’s intervention, in a newly f iled application. However, if the SHOP has opted, under §155.715(c)(2), to establish additiona l verification methods, and has, as part of that process, decided to verify SHOP applicant eligibility by checking applicant-provided information against information obtained from a truste d third-party data source (such as quarterly wage report data), the applicant might be denied eligibility because of an inconsistency between the information theCMS-9954-P 135
SHOP received from that applicant and information contained in a third-party data source. Such inconsistencies might be difficult for applican ts to identify and resolve on their own. Our proposed amendments to the eligibility adjustment periods would eliminate the potential for unnecessary delay created under the current regulation, while providing SHOP applicants with an opportunity to address inc onsistencies between a submitted application and trusted third-party data sources that a SHOP might utilize to ve rify eligibility under the optional verification process established in §155.715(c)(2). Under the proposal, the applicability of SHOP eligibility adjustment periods would be li mited to circumstances where such a discrepancy occurs, and the applicant would be provided an opportunity to submit documentation proving the information submitted on the application is correct without having to initiate a formal eligibility appeal. For example, if an employer provi ded its commonly used business name on the application but that name varies slightly fr om the registered business name listed in an unemployment insurance data source used by a SHOP to verify eligib ility under §155.715(c)(2), or if an employee provides a nick name on an application that differs from his or her formal name in quarterly wage report data source used by a SHOP to verify eligibility under §155.715(c)(2), the applicants would be able to use the adjustme nt period to address the inconsistencies between their applications and the third-party data s ources. If a SHOP does not collect information through optional verification methods under §15 5.715(c)(2), the employer and employee would not have to go through the eligibility adjustment period before re-filing their applications, but would still have the right to appeal an adverse eligibility de termination under §155.740. Accordingly, we propose to amend paragraphs (d)(1) and (d)(2) to pr ovide for eligibility adjustment periods when information submitted on an application is inconsistent with information collected through an optional ve rification process under §155.715(c)(2). This provision would become effective when this proposed rule is finalized and becomes effective.CMS-9954-P 136
We seek comments on this proposal, including comments on whether the current eligibility adjustment periods should remain in place. 7. Application Standards for SHOP HHS already interprets existing regula tions at §155.715(c)(3) and (c)(4) and §155.730 to prohibit SHOPs from collecting through the SHOP application process any information other than what is required to make SHOP eligibility determinations or effectuate enrollment through the SHOP. We propose amendments to §155.730 that would expressly state this prohibition in regulation text. Specifically, we propose to re-designate paragr aph (g) as paragraph (g)(1) and add new paragraph (g)(2) to provide that a SHOP is not permitted to collect information on the single employer or single employee application that is not necessary to determine SHOP eligibility or effectuate enro llment through the SHOP. In conjunction with the amendments we are proposing to §155.715(c)(4), which would prohib it a SHOP from performing any individual market eligibility determinations or verificatio ns as described in Subpart D of 45 CFR part 155, this proposal seeks to ensure that SHOPs are not collecting informati on on the single employer or single employee applications that is not pertin ent to a determination of SHOP eligibility or effectuation of enrollment. For example, a S HOP could not request through the single employee application the income information necessary for determining eligibility for advance payments of the premium tax credit in the individual market Exchange. Limiting the information required of an applicant helps to protect privacy and prom ote efficiency and streamlining of the SHOP application process. This provi sion would become effective when this proposed rule is finalized and becomes effective. E. Part 156 – Health Insurance Issuer Standa rds under the Affordable Care Act, Including Standards Related to Exchanges 1. Provisions Related to Cost SharingCMS-9954-P 137
In this section, we propose several provisions and parameters for the 2015 benefit year related to cost sharing. a. Premium adjustment percentage Section 1302(c)(4) of the A ffordable Care Act directs the Secretary to determine an annual premium adjustment percentage, which is used to set the rate of increase for four parameters detailed in the Affo rdable Care Act: the maximum annual limitation on cost sharing (defined at §156.130(a)), the maximum annual li mitation on deductibles for plans in the small group market (defined at §156.130(b)), and th e assessable payment amounts under section 4980H(a) and (b) of the Code (p roposed at 26 CFR 54.4980H in the “Shared Responsibility for Employers Regarding Health Coverage ,” published in th e January 2, 2013 Federal Register (78 FR 218)). Section 156.130(e) provides that the pr emium adjustment percentage is the percentage (if any) by which the average per capita premium for health insurance coverage for the preceding calendar year exceeds such average per capita premium for health insurance for 2013, and that this percentage will be published annually in th e HHS notice of benefit and payment parameters. We propose to establish a methodology for es timating average per capita premium for purposes of calculating the premium adjustment percentage. In selecting this methodology, we considered the following four criteria: 1) Comprehensiveness – the premium adjustme nt percentage should be calculated based on the average per capita premium for health insu rance coverage for the entire market, including the individual and group market s, and both fully insured and se lf-insured group health plans; 2) Availability

− the data underlying the calculation s hould be available by the summer of the year prior to the calendar year so that the premium adjustment percentage can be published in the annual HHS notice of benefit and payment para meters in time for i ssuers to develop their plan designs;CMS-9954-P 138

3) Transparency

− the methodology for estimating the average premium should be easily understandable and predictable; and 4) Accuracy

− the methodology should have a record of accurately estimating average premiums. Based on these criteria, we propose that the pr emium adjustment percentage be calculated based on the projections of aver age per enrollee private health insurance premiums from the National Health Expenditure Accounts (NHEA), wh ich is calculated by the CMS Office of the Actuary. We considered several other sour ces of premium data, including the Medical Expenditure Panel Survey (administered by the Agency for Healthcare Research and Quality), the Employer Health Benefits Survey (adminis tered by the Kaiser Family Foundation and the Health Research and Educationa l Trust), and the Federal Employ ees Health Benefits Program. However, we believe the NHEA projections, whic h are partially based on several of the other data sources that we considered, best meet the selection criteria descri bed above and will provide the most accurate estimate of the average per capita premium for the entire health insurance market. We welcome comment on the criter ia for selecting a methodology, any additional sources of premium data that we should consid er, and the choice of methodology. As additional data on health insurance premiums become ava ilable through the Exchan ges and other sources, we plan to review the accuracy of the NHEA pr ojections, and if necessa ry, propose any changes to the methodology for estimating the average premium through the annual Payment Notice. To calculate the premium adjustment percen tage for the 2015 calendar year, we propose to use the most recent NHEA projections of average per enrollee private health insuranceCMS-9954-P 139
spending for 2013 and 2014 ($5,128 and $5,435, respectively). 22 Therefore, we are proposing that the premium adjustment percentage for 2015 be (5,435-5,128)/5,128, and we propose to round the result of this formula to the nearest decimal point, which, in this case, would be 6.0 percent. We are also proposing the followi ng cost-sharing parameters for calendar year 2015, based on our proposed premium adjustment percentage for 2015. Maximum Annual Limitation on Cost Sharing for Calendar Year 2015 . Under §156.130(a)(2), for the 2015 calendar year, cost shar ing for self-only coverage may not exceed the product of the maximum annual limitation on cost sharing for calendar year 2014 and the premium adjustment percentage for 2015, and for othe r than self-only covera ge, the limit is twice the dollar limit for self-only coverage. U nder §156.130(d), these amounts must be rounded to the next lowest multiple of 50. Using the pr oposed premium adjustment percentage of 6.0 percent and the 2014 maximum annual limitati on on cost sharing of $6,350 for self-only coverage, which was published by the IRS on May 2, 2013, 23 we propose that the 2015 maximum annual limitation on cost sharing be $6,750 for self-only coverage and $13,500 for other than self-only coverage. Maximum Annual Limitation on Deductibles fo r Plans in the Small Group Market for Calendar Year 2015 . Under §156.130(b)(2), for the 2015 cal endar year, the annual deductible for a health plan in the small group market ma y not exceed, for self-only coverage, the product of the maximum annual limitation on deductib les for calendar year 2014 and the premium adjustment percentage for 2015, and for other th an self-only coverage, the limit is twice the dollar limit for self-only coverage. Under §156.1 30(d), these amounts must be rounded to the

22 See http://www.cms.gov/Research-Statistics-Da ta-and-Systems/Statistics-Trends-andReports/NationalHealthExpendData/Downloads/ProjectionsMethodology2012.pdf and Table 17 in http://www.cms.gov/Research-Statistics-Da ta-and-Systems/Statistics-Trends-andReports/NationalHealthExpendData/Downloads/Proj2012.pdf for additional information. 23 See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf

.CMS-9954-P 140
next lowest multiple of 50. Using the proposed premium adjustment percentage of 6.0 percent and the 2014 maximum annual limitation on dedu ctibles of $2,000 for self-only coverage, as specified in §156.130(b)(1)(i), we propose th at the 2015 maximum annual limitation on deductibles be $2,150 for self-only c overage and $4,300 for other than self-only coverage

. b. Reduced maximum annual limitation on cost sharing Sections 1402(a) through (c) of the Affordable Care Act di rect issuers to reduce cost sharing for EHBs for eligible individuals enroll ed in a silver level QHP. In the 2014 Payment Notice, we set forth standards related to the provision of these cost-sharing reductions. Specifically, in 45 CFR part 156 subpart E, we sp ecified that QHP issuers must provide costsharing reductions by developing pl an variations, which are separa te cost-sharing structures for each eligibility category that cha nge how the cost sharing required under the QHP is to be shared between the enrollee and the Federal government . At §156.420(a), we detailed the structure of these plan variations and specified that QHP issuer s must ensure that each silver plan variation has an annual limitation on cost sharing no great er than the applicable reduced maximum annual limitation on cost sharing specified in the annual HHS notice of benefit and payment parameters. Although the amount of the redu ction in the maximum annual limitation on cost sharing is specified in section 1402(c)(1)(A) of the Affordable Care Act, section 1402(c)(1)(B)(ii) of the statute states that the Secretary may adjust the cost-sharing limits to ensure that the resulting limits do not cause the AVs of the health plans to exceed the levels specified in 1402(c)(1)(B)(i) (that is, 73 percent, 87 percent or 94 percent, depending on the in come of the enrollee(s)). Accordingly, in the 2014 Payment Notice, we set forth a process for determining the appropriate reductions in the maximum annual limitation on cost sharing. First, we identified the maximum annual limitation on cost sharing applicable to a ll plans that will offer the EHB package. As noted above, we propose the 2015 maximum annual limitation on cost sharing be $6,750 for self-CMS-9954-P 141
only coverage and $13,500 for other than self-only c overage. Second, we analyzed the effect on AV of the reductions in the maximum annual limitati on on cost sharing described in the statute. Last, we adjusted the reductions in the maximu m annual limitation on cost sharing, if necessary, to ensure that the AV of a silver plan variati on will not exceed the AV specified in the statute. Below, we describe our analysis for the 2015 benef it year and our proposed results. Reduced Maximum Annual Limitation on Cost Sharing for Benefit Year 2015

. Consistent with our analysis in the 2014 Paymen t Notice, we developed three model silver level QHPs and analyzed the impact on their AVs of the reductions described in the Affordable Care Act to the estimated maximum annual limitation on cost sharing for self-only coverage ($6,750). However, using data collected for QHP cer tification for 2014, we updated the model plan designs to ensure that they contin ue to represent a range of plan designs that we expect issuers to offer at the silver level of c overage through an Exchange. Fo r 2015, the model silver level QHPs would include a PPO with a typical cost-sha ring structure ($6,750 annual limitation on cost sharing, $1,700 deductible, and 20 percent in-network coinsuran ce rate), a PPO with a lower annual limitation on cost sharing ($4,500 annua l limitation on cost sharing, $2,000 deductible, and 20 percent in-network coinsurance rate), and an HMO ($6,750 annual limitation on cost sharing, $2,100 deductible, 20 percen t in-network coinsu rance rate, and the following services with copays that are not subjec t to the deductible or coinsura nce: $500 inpatient stay per day, $350 emergency department visit, $25 primary care office visit, and $50 speci alist office visit). All three model QHPs meet the AV requirements for silver health plans. We then entered these model plans into the proposed 2015 AV calculator developed by HHS and observed how the reductions in th e maximum annual limitation on cost sharing specified in the Affordable Care Act affected th e AVs of the plans. We found that the reduction in the maximum annual limitation on cost sharin g specified in the Affordable Care Act forCMS-9954-P 142

enrollees with a household income between 100 and 150 percent of th e Federal poverty line (FPL) (2/3 reduction in the maximum annual limitation on cost sharing), and 150 and 200 percent of the FPL (2/3 reduction), would not cau se the AV of any of the model QHPs to exceed the statutorily specified AV level (94 and 87 percent, respectively). In co ntrast, the reduction in the maximum annual limitation on cost sharing specifi ed in the Affordable Care Act for enrollees with a household income between 200 and 250 per cent of FPL (1/2 reduc tion), would cause the AVs of two of the model QHPs to exceed the specif ied AV level of 73 percent. As a result, we propose that the maximum annual limitation on co st sharing for enroll ees in the 2015 benefit year with a household income between 200 and 250 percent of FPL be re duced by approximately 1/5, rather than 1/2. We further propose that the maximum annual limitation on cost sharing for enrollees with a household income between 100 and 200 percent of the FPL be reduced by 2/3, as specified in the statute, and as shown in Ta ble 4. These proposed reductions in the maximum annual limitation on cost sharing align with the 2014 reductions and should adequately account for unique plan designs that may not be capture d by our three model QHPs. Applying the same parameters as those specified for 2014 would reduce the administrative burd en for issuers related to designing new plans, and provi de greater continuity for enrollees. Furthermore, as noted in the preamble to the 2014 Payment Notice, se lecting a reduction for the maximum annual limitation on cost sharing that is less than the reduction specified in th e statute would not reduce the benefit afforded to enrollees in aggregate because QHP issuer s are required to further reduce their annual limitation on cost sharing, or reduce other types of cost sharing, if the required reduction does not cause the AV of the QHP to m eet the specified level. We welcome comment on this analysis and the proposed reductions in the maximum annual limitation on cost sharing for 2015. We note that for 2015, as described in §156.135(d), States are permitted to submit for approval by HHS State-specific data sets for use as the standard population to calculate AV. IfCMS-9954-P 143

States submit such data sets, we intend to an alyze their effects on the reductions we propose here, and we will adjust the reductions in th e maximum annual limitation on cost sharing if necessary in the final rule.
TABLE 4: Reductions in Maximum Annual Limitation on Cost Sharing for 2015

Eligibility Category Reduced Maximum Annual Limitation on Cost Sharing for Self-Only Coverage for 2015 Reduced Maximum Annual Limitation on Cost Sharing for Other Than Self-Only Coverage for 2015Individuals eligible for costsharing reductions under §155.305(g)(2)(i) (that is, 100- 150 percent of FPL) $2,250 $4,500

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

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

c. Design of cost-sharing reduction plan variations In the 2014 Payment Notice, we established st andards in §156.420(c)-(e) to ensure that each cost-sharing reduction plan variation would al ways provide the most cost savings for which an enrollee is eligible while providing the same benefits and provider network as a plan without cost-sharing reductions. In this proposed rule, we are proposing certain m odifications to clarify how these standards would apply to out-of-pocke t spending required of an enrollee for benefits other than essential health benefits (EHBs). Following our implementation of Exchange ope rations for 2014, we have learned that a number of issuers designed QHPs with cost-s haring parameters that apply to both EHB and benefits that are not EHB. For example, one issuer sought to esta blish a common deductible across all benefits. For the zero cost sharing plan variation of this QHP, this would result in aCMS-9954-P 144
substantial deductible being applied entirely to be nefits that are not EHB. We are proposing to remove the standards in §156.420(c) and (d) that require that a QHP and each of its plan variations have the same out-of-pocket spending for benefits other than EHB. Instead, we propose that the standard in §156.420(e)

− that cost sharing for an e ssential health benefit from a provider (including a provider outsid e the plan’s network) required of an enrollee in a silver plan variation may not exceed the corresponding cost shar ing required in the standard silver plan or any other silver plan variation of that plan with a lower AV

− would also apply to out-of-pocket spending required of enrollees in silver plan va riations for a benefit that is not an EHB. Similarly, we propose in §156.420(d) that the out-of- pocket spending required of enrollees in the zero cost sharing plan variati on of a QHP for a benefit that is not an EHB from a provider (including a provider outside the plan’s netw ork) may not exceed the corresponding out-ofpocket spending required in the limited cost shar ing plan variation of the QHP, which in turn may not exceed the corresponding out-of-pocket spending required in the QHP with no costsharing reductions. We believe these proposed modifications strike the appropriate balance between protecting consumers and providi ng QHP issuers with flexibilit y. Each cost-sharing reduction plan variation would continue to provide the most cost savings for which an enrollee is eligible; however, QHP issuers would be able to reduce out -of-pocket spending for benefits that are not EHB for enrollees in plan variations. We be lieve some issuers may want to provide such reductions so as to offer a simpler cost-sharing de sign that is consistent across EHB and benefits that are not EHBs. We note, however, that in accordance with sec tion 1402(d)(4) of the Affordable Care Act, any reductions in out-of-po cket spending for benefits that are not EHB would not be reimbursed by the Federal government because payments for cost-sharing reductions only apply to EHB.CMS-9954-P 145
We seek comment on this proposal, includi ng on whether our proposal should offer less flexibility. d. Advance payments of cost-sharing reductions Section 1402(c)(3) of the A ffordable Care Act directs a QHP issuer to notify the Secretary of cost-sharing reductions made under th e statute, and directs the Secretary to make periodic and timely payments to the QHP issuer equal to the value of those reductions. Section 1412(c)(3) of the Affordable Care Act permits advance payments of cost-sharing reduction amounts to QHP issuers based upon amounts specified by the Secretary. U nder these authorities, we established a payment approach in the 2014 Payment Notice under which monthly advance payments made to issuers to cover projected cost-sharing reduction am ounts are reconciled after the end of the benefit year to the act ual cost-sharing reduction amounts. To implement this approach, we specified in §156.430(a) that a QHP issuer must provide to the Exchange, for approval by HHS, an estim ate of the dollar value of the cost-sharing reductions to be provided over the benefit ye ar, calculated in accordance with the methodology specified by HHS in the annual HHS notice of benefit and payment parameters. In the 2014 Payment Notice, we specified that the estimates of the cost-sharing reductions must be calculated using data that issuers submit under §§ 156.420 and 156.470, including the AV of the standard plan and plan variation, and the EHB portion of e xpected allowed claims co sts. If an issuer seeks advance payments for the cost-sharing re ductions provided under the limited cost sharing plan variation of a health plan it offers, we sp ecified that the issuer must submit an estimate of the dollar value of the cost-sha ring reductions to be provided. As described in §156.430(b)(1), HHS uses these estimates to determine the monthly advance payments for cost-sharing reductions.CMS-9954-P 146
Based on our experience implementing this pr ocess for the 2014 bene fit year, we propose certain modifications to §§ 155.1030, 156.430, and 156.470. We believe these modifications will simplify the process and improve the accuracy of the calculations. Specifically, we are proposing to remove the requirement detailed in §156.430(a) that issuers develop estimates of the dollar value of the cost-sha ring reductions to be provided, and instead propose to modify §155.1030(b)(3) to specify that the Exchange must use the methodology specified in the annual HHS notice of benefit and payment parameters to calculate advance pa yment amounts for costsharing reductions, and must transmit the adva nce payment amounts to HHS, in accordance with §156.340(a). We anticipate that th is transmission would occu r using the 834 enrollment transaction. As proposed in §156.430(b)(1), HHS will provide periodic advance payments to QHP issuers based on the amounts transmitted by the Exchange. For the 2015 benefit year, we are proposing that the Exchanges use a methodology for calculating the advance payment amounts that will no t require QHP issuers to submit an estimate of the value of cost-sharing reductions to be pr ovided or the EHB portion of expected allowed claims costs, as previously required under §156.4 70(a), nor will it require Exchanges to transfer data on advance payment amounts to HHS prior to th e start of the benefit y ear. Specifically, we propose that Exchanges calculate the monthly advance payment am ount for a specific policy as the product of (x) the total m onthly premium for the specific policy, and (y) a cost-sharing reduction plan variation multiplier. The cost-s haring reduction plan variation multiplier would convert the monthly premium in to the appropriate monthly advance payment amount, based on the following formula: Cost-Sharing Reduction Plan Variation Multip lier = Factor to Remove Administrative Costs * Factor to Convert to Allowed Claims Cost * Induced Utili zation Factor * (Plan Variation AV – Standard Plan AV)CMS-9954-P 147

Where, Factor to Remove Admi nistrative Costs = 0.8 for all plan variations, because issuers in the individual market must have a medica l loss ratio of at least 80 percent, under §158.210(c); Factor to Convert to Allo wed Claims Costs = the quotient of 1 and the AV for the standard plan, not accounting for de minimis variation; Induced Utilization Factor = one of the following factors, depending on the plan variation:
TABLE 5: Induced Utilization Factors for Plan Variations Cost-Sharing Reduction Plan Vari ation Induced Utilization Factor 73 percent AV silver plan variation 1.00 87 percent AV silver plan variation 1.12 94 percent AV silver plan variation 1.12 Limited cost sharing plan variation of bronze QHP 1.15 Limited cost sharing plan variation of silver QHP 1.12 Limited cost sharing plan variation of gold QHP 1.07 Limited cost sharing plan variation of platinum QHP 1.00 Zero cost sharing plan variation of bronze QHP 1.15 Zero cost sharing plan variation of silver QHP 1.12 Zero cost sharing plan variation of gold QHP 1.07 Zero cost sharing plan variation of platinum QHP 1.00 Standard Plan AV = the AV specified for each level of coverage at §156.140(b), not accounting for de minimis variation (that is, 60, 70, 80, or 90 percent for a bronze, silver, gold, or platinum QHP, accordingly); and Plan Variation AV = one of the following actuarial values, depending on the plan variation, not accounting for de minimis variation:
TABLE 6: Actuarial Values for Plan Variations Cost-Sharing Reduction Plan Variation Plan Variation AV 73 percent AV silver plan variation 73 percent 87 percent AV silver plan variation 87 percent 94 percent AV silver plan variation 94 percentCMS-9954-P 148

Limited cost sharing plan vari ation of bronze QHP 87 percent Limited cost sharing plan variation of silver QHP 87 percent Limited cost sharing plan variation of gold QHP 94 percent Limited cost sharing plan varia tion of platinum QHP 94 percent Zero cost sharing plan vari ation of bronze QHP 100 percent Zero cost sharing plan varia tion of silver QHP 100 percent Zero cost sharing plan vari ation of gold QHP 100 percent Zero cost sharing plan varia tion of platinum QHP 100 percent The proposed induced utilization factors are consistent with those factors established in the 2014 Payment Notice. For the limited cost sh aring plan variations, we derived the induced utilization factors based on the ac tuarial values proposed above, and the same assumptions used to develop the induced utilization factors for th e other plan variations. We will propose updates to the induced utilizatio n factors for all plan variations in future rulemaking as more data becomes available, and at that time will consider applying them to the risk adjustment methodology that HHS will use when operating risk adjustment on behalf of a State. We welcome comment on these induc ed utilization factors. The proposed methodology also utilizes the act uarial values of the standard plans and plan variations, not accounting for de minimis va riation. Although this ma y slightly reduce the accuracy of the calculations, we believe it would have little overall impact, and would reduce administrative burden on Exchanges because Ex changes will not need to develop specific multipliers for each QHP and associated plan varia tions. However, this approach would require us to estimate an actuarial value for each type of limited cost sharing plan variation. We estimate that on average, the AV of the limited cost shar ing plan variations of bronze and silver QHPs will be 87 percent, and the AV of the limited cost sharing plan variations of gold and platinum QHPs will be 94 percent. We developed these estimates based on the data submitted by QHP issuers seeking advance payments for limited cost sh aring plan variations th at will be offered in benefit year 2014. We welcome co mment on these actuarial values.CMS-9954-P 149
Overall, we believe this proposed met hodology would improve th e accuracy of the advance payments because it is based on the tota l premium for each policy, which in accordance with the rating rules descri bed in §§ 147.102 and 156.80, is based on expected allowed claims costs, adjusted for the plan design and provide r network, the number of individuals covered by the policy, rating area, age, and tobacco use. Although we acknowledge that there may be some limitations to the multiplier (for example, the multiplier does not make a plan-specific adjustment for the cost of non-EHB, or accoun t precisely for costs for large families with children not accounted for in the premium), we belie ve that a very small number of QHPs would be affected by these limitations, and any inaccu racies in the advance payments would be corrected through the cost-sharing reduction reco nciliation process. We welcome comment on this proposed methodology for the 2015 benef it year, and suggesti ons for alternative methodologies, including whethe r the methodology for the 2014 be nefit year would be more appropriate. We are also proposing conforming modifi cations to §§ 155.1030(b)(1) and 156.470(a), to delete the obligation for QHP issuers to submit, and Exchanges to review, the EHB allocation of the expected allowed claims costs for the plans, because this data woul d not be used in the proposed 2015 methodology for calculating cost-s haring reduction advance payments. Lastly, we are proposing to modify §155.1030(b) (4) to clarify that in accordance with the proposed paragraph (b)(3), the Ex change would not be required to submit issuers’ advance payment estimates to HHS for approval prior to the start of the benefit year. We believe such an approval process would no longer be necessary because under the proposed approach, the advance payments will be calculated based on the cost-sharing reduction plan variation multiplier specified by HHS, and the premium for the policy, which is reviewed by the Exchange, in accordance with §155.1020. HHS would simply validate that the advance paymentCMS-9954-P 150
amounts were calculated in accordance with the methodology specified by HHS, prior to providing advance payments to QHP issuers. This process will ensure th e protection of Federal funds, while also limiting the administrative burden on QHP issuers and Exchanges. We welcome comment on these proposed modifications. In future years, as more data becomes available, we will review the methodology for calculating advance payments of cost-sharing reductions, and will propose additional modifications if necessary. 2. Provisions on FFE User Fees a. FFE user fee for the 2015 benefit year Section 1311(d)(5)(A) of the Affordable Care Act contemplates an Exchange charging assessments or user fees to participating health insurance issuers to ge nerate funding to support its operations. If a State does not elect to ope rate an Exchange or does not have an approved Exchange, section 1321(c)(1) of th e Affordable Care Act directs HHS to operate an Exchange within the State. In addition, 31 U.S.C. 9701 permits a Federal agency to establish a charge for a service provided by the agency. Accordingly, at §156.50(c), we specified that a participating issuer offering a plan through an FFE must remit a user fee to HHS each month that is equal to the product of the monthly user fee rate specified in the annu al HHS notice of benefit and payment parameters for the applicable benefit year and the monthly premium charged by the issuer for each policy under the plan wh ere enrollment is through an FFE. OMB Circular No. A-25R establishes Federal policy regarding user fees, and specifies that a user charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public. As in benefit year 2014, issuers seeking to participate in an FFE in benefit year 2015 will receive two special benefits not available to the general public: (1) the certification of their plans as QHPs; and (2) the ability to sell health insurance coverage th rough an FFE to individuals dete rmined eligible for enrollmentCMS-9954-P 151
in a QHP. These special benefits are provide d to participating issu ers through the following Federal activities in connecti on with the operation of FFEs:

● Provision of consumer assistance tools.

● Consumer outreach and education.

● Management of a Navigator program.

● Regulation of agents and brokers.

● Eligibility determinations.

● Administration of advance payments of the premium tax credit and cost-sharing reductions.

● Enrollment processes.

● Certification processe s for QHPs (including ongoing compliance verification, recertification a nd decertification).

● Administration of a SHOP Exchange. Activities performed by the Federa l government that do not provide issuers participating in an FFE with a special benefit will not be covered by this user fee. OMB Circular No. A-25R further states that user charges should generally be set at a level so that they are sufficient to recover th e full cost to the Federal government of providing the service when the government is acting in its capacity as sovereign (as is the case when HHS operates an FFE). Accordingly, we propose to se t the 2015 user fee rate for all participating issuers at 3.5 percent. This rate is the same as the 2014 user fee rate. 24 Because we expect enrollment to increase in 2015 as awareness of the Exchanges grows, and costs to decrease as

24 OMB granted HHS an exception to the policy in Circular No. A-25R, allowing HHS to set the user fee rate for 2014 at 3.5 percent, rather than a higher rate which woul d have allowed HHS to recover full costs. This rate was chosen because we wished to encourage issuers to offer plans on FFEs and to align with the administrative cost structure of State-based Exchanges.CMS-9954-P 152
operations become more efficient, we believe th is user fee rate may allow HHS to recover the full cost to the Federal government of providing the special benefits to issuers participating in an FFE in 2015. b. Adjustment of FFE user fee Section 2713(a)(4) of the PHS Act, as added by the Affordable Care Act and incorporated into the Employee Retirement Inco me Security Act (ERISA ) and the Code, requires that non-grandfathered group health plans and health insurance issuers offering nongrandfathered group or individua l health insurance coverage provide benefits for certain women’s preventive health serv ices without cost sharing. 25 The Preventive Services Rule (78 FR 39870, July 2, 2013) established accommodations with respect to the contraceptive coverage requirement for health coverage establishe d or maintained or arranged by eligible organizations. 26 Each organization seeking to be treated as an eligible organization under the Preventive Services Rule is required to self -certify that it meets the definition of an eligible organization. In the case of an eligible organization with a self -insured plan, the self-certification must be provided to the plan’s third party administrator. A third party ad ministrator that receives a copy of the self-certification must pr ovide or arrange for separate pa yments for certain contraceptive services for participants and beneficiaries in the pl an without cost sharing, premium, fee, or other charge to plan participants or be neficiaries, or to the eligible organization or its plan. The third

25 The women’s preventive health services referenced by PHS Act section 2713(a)(4) are provided for in comprehensive guidelines supported by the Health Resources and Services Administration (HRSA). On August 1, 2011, HRSA adopted and released guid elines for women’s preventive health services based on recommendations of the independent Institute of Medicine. 26 Under the Preventive Services Rule, an eligible organization is an organization that: (1) opposes providing coverage for some or all of the contraceptive services re quired to be covered under section 2713 of the PHS Act and the companion provisions of ERISA and the Code on account of religious objections; (2) is organized and operates as a nonprofit entity; (3) holds itself out as a religious orga nization; and (4) self-certifies that it satisfies the first three criteria.CMS-9954-P 153
party administrator can provide such payments on its own, or it can arrange for an issuer or other entity to provide such payments. In either case, the third party administrator can make arrangements with an issuer offering coverage through an FFE to obtain reimbursement for its costs (including an allowance for administrative co sts and margin) through an adjustment to the FFE user fee paid by the issuer. At §156.50(d), we established standards relate d to the administration of the user fee adjustment. Specifically, in §156.50(d)(3)(ii), we st ated that the user fee adjustment will include an allowance for administrative co sts and margin that is no less th an 10 percent of the total dollar amount of the payments for contraceptive servi ces, and that HHS would specify the allowance for a particular calendar year in the annual HHS notice of be nefit and payment parameters. For user fee adjustments sought in 2015 fo r the cost of payments for contraceptive services provided in 2014, we propose an allowan ce for administrative costs and margin that is equal to 15 percent of the total dollar amount of the payments for contraceptive services defined in §156.50(d)(3)(i). 27 We propose this allowance based on our analysis of the administrative costs that we expect each entity involved in the arrangement to incur. For example, the third party administrator will likely incur certain vari able administrative costs, including the cost of provider and medical management, and the cost of processing payments to providers of the contraceptive services. However, because paymen ts for contraceptive services are not a separate insurance product and because the third party administrator will have an existing arrangement with the self-insured group hea lth plan of the eligible organization, we do not expect any additional costs related to marke ting, broker fees, enrollment, or billing. We accounted for the cost of submitting data to HHS under §156.50(d)(2), and the cost of exchanging data between

27 We note that the submission of the dollar amount of the payments for contraceptive services is subject to the oversight standards detailed at 45 CFR 156.50(d)(7), as well as the False Claims Act, 31 USC 3729–3733.CMS-9954-P 154
entities involved in the arrangeme nt. We also added an allowan ce for margin in proportion to the total costs that we expect each entity to incur. We seek comment on the allowance for administrative costs and margin, including the ap propriate percentage and alternative methods for future determinations of the allowance. 3. AV Calculation for Determining Level of Coverage Section 2707(a) of the PHS Act and Section 1302 of the Affordable Care Act direct nongrandfathered health insurance coverage in the individual and small group markets, including QHPs, to ensure that plans meet a level of coverage specified in section 1302(d)(1) of the Affordable Care Act and codified at §156.140( b). On February 25, 2013, HHS published the EHB Rule implementing section 1302(d) of the Affordable Care Act, which sets forth the requirement that, to determine the level of coverage for a given metal tier le vel, the calculation of AV be based upon the provision of EHB to a standard population. Section 156.135(a) establishes that AV is to be cal culated using the AV Calculator developed and made available by
HHS. The AV Calculator uses national claims data to reflect plans of various levels of generosity as the underlying standard population. This standard population is represented in the calculator as tables of aggr egated data called continuance tables. The AV methodology document that was incorporated by reference in the EHB Rule provides an overview of the development of these continuance tabl es and the AV Calculator logic. As stated in the EHB Rule , HHS does not anticipate making annual changes to the AV Calculator logic or the underl ying standard population reflected in the continuance tables. However, HHS recognizes that certain routine ch anges will on occasion need to be made to facilitate the AV Calculator’s ongoing operation by ensuring that it can accommodate changes in the marketplace or product design over time and due to the changing cost of providing healthCMS-9954-P 155
care services. Here, we propose to provide for authority to update certain aspects of the AV Calculator on a regular basis, but no more frequently than annually, based on changes to applicable standards or the avai lability of new data that coul d make the AV Calculator more accurate. These types of changes include: (1) Updating the annual limit on cost sharing and related functions in the calculator : Section 1302(c) of the Affordable Care Act, codified at §156.130, imposes an annual limit on cost sharing on non-grandfathere d plans in the individual and small group markets. We note that, in accordance with secti on 1302(c)(4) of the Affordable Care Act and §156.130(e), starting in 2015, HHS will publish the premium adjustment percentage in the annual HHS notice of benefit and payment parameters for purposes of calculating the required indexing of the annual limit on cost sharing. Because this limit is includ ed in the AV Calculator and impacts the range of the AV Calculator, we propose to update the AV Calculator to include an estimated annual limit on cost sharing. In order to allow issuers the most time possible to develop plans, HHS may make available prior to th e annual HHS notice of benefit and payment parameters the AV Calculator that would project an estimated annual limit on cost sharing for the given plan year. Issuers would still be required to adhere to the annual limit on co st sharing that is published in the applicable HHS notice of benefit and paym ent parameters. The intention in using an estimated annual limit on cost sharing in the AV Calculator is to ensure flexibility of the AV Calculator for issuers. Since we may make the AV Calculator available prior to the finalization of the annual limit on cost sharing for a given pl an year, we are proposing to use an estimated annual limit on cost sharing in the AV Calculator, to ensure that the final AV Calculator does not contain an annual limit on cost sharing that is lo wer than the finalized one . Accordingly, in the proposed 2015 AV Calculator, we propose an es timated annual limit on cost sharing of $6,850, compared to the proposed annual limit for cost sharing for 2015, which is $6,750.CMS-9954-P 156
(2) Updating the continua nce tables to reflect more current enrollment data : Starting in 2016, HHS expects to have sets of actual en rollment data from 2014 and to receive the subsequent year’s data on an a nnual basis thereafter. These data could be used to reweight the standard population in the continuance tables that run the AV Calculator to more accurately reflect true enrollment trends and as a result project claims spe nding. We anticipate that during the first several years of operation, the demogra phic mix of the enrolled population will likely change and may need to be reweighted in the AV Calculator annually. After a few years, the population may stabilize and begin matching the clai ms data to the point where reweighing the AV Calculator may not be necessary on an annual basis. We propose to analyze the most recently ava ilable data on the enrolled population every year, starting in 2016, and in cases where we determine that the enrolled population has materially changed, we propose to reweight the continuance tabl es in the AV Calculator to continue to accurately reflect enrollment data. We are proposing to consider a material change in gender or age in the enrolled population as more than a 5 percent change. We propose to determine this change based on a combined measurem ent of the effects of sh ifts in gender or age statistics. We solicit comment on this 5 percen t standard and whether it should be a higher or lower percentage, as well as how this change should be determined. For the proposed 2015 AV Calculator, we did not have actual enrollment data to analyze and therefore, we are not proposing to reweight the calculator based on enrollment data at this time. (3) Updating the algorithms behind the AV Calc ulator to adapt to new industry practices and plan designs : As discussed in the EHB Rule, becau se the AV Calculator is intended to account for the vast majority of plan designs in the market, in order to ensure that the AV Calculator will be available to plans and issuers, it will likely need to be periodically adapted. To do this, we are proposing to make techni cal, non-substantive updates to the AV CalculatorCMS-9954-P 157
algorithms as industry practices change and as technology advances, includi ng adding features to the AV Calculator. For example, for the propos ed 2015 AV Calculator, we are able to make improvements to the algorithms to allow for additional functionality to apply the deductible first and then copayments. Adding this feature would allow the calculator to be applicable for more types of plans and would not substantively affect other plan designs us ing the AV calculator. Such an adaptation of the AV Calculator to al low more types of plan designs to use the calculator without adjustment and to accommodate new types of plan designs in the market would be the basis for making these non-substantiv e changes. The standard that we propose to apply in making such adaptations would be to have the minimum impact possible on the outcomes produced by the AV Calculator generally wh ile still allowing it to be adaptable to the new types of plan designs and allowing more type s of plan designs to use the AV Calculator. We propose to make such adaptations under th e provisions of this proposed rule if the adaptations can be based on actuarially sound prin ciples and these adaptions would only involve minor modifications to the AV Calc ulator that would result in onl y a limited or no impact on the majority of plan designs that use the AV Calcul ator. We invite public comment on suggestions for ways in which this standard could best be achieved. To identify new industry pr actices and technical advan ces, we propose to consult annually with the American Academy of Actuar ies to determine what new adaptations are needed in the AV Calculator as the basis for those changes. Under §156.135(b), the American Academy of Actuaries’ members pl ay a critical role in determini ng the AV of plan designs that are not compatible with the AV Calculator and would have insight into adjustments that are needed in the AV Calculator to meet the needs of the involving market an d to allow more plan designs to use the AV Calculator. We also propose taking into consideration stakeholder feedback on adjustments to the AV Calculator th at are submitted to the CMS Actuarial ValueCMS-9954-P 158
email address at actuarialvalue@cms.hhs.gov . To accomplish this goal, we propose aggregating this information annually and assessing which modi fications would benefit the most issuers, are feasible in the AV Calculator, and will not substant ively impact other functions of the calculator. If an algorithm change meets th ese criteria, and standards set forth above, we would consider incorporating it into the AV Calculator’s algorithm s. Changes that are made to the algorithms would be described in the AV Ca lculator Methodology that would be released with any updated AV Calculator. (4) Updating the continua nce tables to reflect more current claims data : HHS is proposing to update the claims data underlying the continuance tables, including refreshing the national claims database data with new data, as well as trending the AV Calc ulator to account for changes in the unit prices, utilization and intensity of services used. A tr ending factor could be a historical trend factor making use of actual pr emiums that reflect utilization and unit price increases, a factor based on emerging trends changing the demographic, or be based on the premiums of the new product designs with unique features. Data on these changes in insurance could be used to develop a tren ding factor that could be applied to the claims data to make adjustments in the continuance tabl es of the AV Calculator. For future plan years, we propose to use two sources of data, one to reflect the indi vidual market and one to reflect the small group market, to develop a single trend factor that could be applied to the AV Calculator. For the individual market, we propose to use the premium rate data and/or the standard population data compared from year to year, and for the small group market, we proposed to use similar premium rate data and/or the standard population da ta compared from year to year to develop a trending factor that we could apply to the clai ms data in the AV Calcul ator, adjusted for key changes, such as the reduction in transitio nal reinsurance that will occur from 2014 through 2016. In years when we are planning to update the claims data from the national claims databaseCMS-9954-P 159
system in the AV Calculator, we are proposing to trend the AV Calculator based on the new claims data with the dataset current ly being used in the calculator to ensure that the trend factor and claims data are reconciled. In considering the factors in adjusting the claims data and trending the calculator, we recognize the importance of market stability for both issuers and consumer s from year-to-year. At the same time, we recognize the importance of the AV Calculator reflecting the current market. By pursuing the approach of not updati ng the claims data every year, we would be providing greater stability in an emerging market . For these reasons, we are proposing to update the baseline claims data no more than every 3 an d no less than every 5 years. This proposal of no more than every 3 years reflects the duration of the transitional rein surance program and the temporary risk corridors program. We are also proposing to cons ider trending the AV calculato r every year and in cases, where the trend factor is cumulatively more than 5 percent different from the previous time the AV Calculator was updated, we would implement th e trend factor.. By considering whether to trend the AV Calculator every year , we would be helping to ensure that the AV Calculator more accurately reflects the current market and to av oid having any steep “cliff” changes in the AV Calculator every few years. Under the met hodology proposed above, we are proposing to trend the AV Calculator on premium da ta and/or the standard popula tion data in years when the underlying claims data are not be ing updated in the AV Calculator, and in years where the claims data are being updated, we are proposing to tren d the calculator based on the updated claims data. We seek comments on this proposed a pproach, including our proposed approach to updating the claims data. We are proposing to provide details of our consideration of the trending factor each year in the AV Methodolog y. For 2015, we do not propose to trend the AV Calculator since the necessary 2 years of data we re not available to make the adjustment per ourCMS-9954-P 160
proposed policy. (5) Updating the AV Calc ulator user interface : HHS is proposing to update the AV Calculator user interface as needed to improve the user’s experience. An example of this type of change, which we included in the proposed 2015 AV Calculator, is adding the ability for the user to save AV calculations. The 2014 AV Calculator did not incorporate this function, but based on comments received, we recognized the importance for us ers to have this feature. In the future, we anticipate that there will be other ways in wh ich we could continue to make improvements to the AV Calculator’s user interface to assist user s and we anticipate that we will continue to receive feedback from various stakeholders to inform future proposed improvements to the AV Calculator user experience. HHS may consider making changes when an improvement would be useful to a broad group of users of the AV Calc ulator, would not affect the function of the AV Calculator, and would be techni cally feasible. These changes would simplify the process for providing users with features that could he lp save time and improve processes. When making updates to the AV Ca lculator in accordance with this proposed rule, we propose to update the AV Calculator through guid ance that will be poste d on our CCIIO website. This guidance will include an updated AV Calculat or Methodology to explain the changes that were made to the AV Calculator, along with the updated AV Calculator. We also expect that we would make any updates that will affect the AV Ca lculator in advance of the benefit year for which issuers are using the AV Calculator, with the intention of making the AV Calculator available no later than the end of the first quarter of the prece ding the benefit year. We are soliciting comments on all of the above types of updates and the accompanying criteria that would be used to identify the need for and to implement th ese updates. Outside of the above types of updates, we are also solic iting comments on whether other types of updates should be considered routinely for the AV calcula tor. To clarify, we are proposing that, toCMS-9954-P 161
comply with §156.135(a), issuers would be requir ed to use the AV Calculator published by HHS for a given benefit year or, in cases where a State has obtained HHS approval to use State specific data in the AV Calculator, issuers would be required to use that AV Calculator HHS has published for the given benefit year, adjusted to use the State’s data (State AV Calculator). The purpose of requiring that the issuers use the AV Calc ulator of the given benefit year or the State AV Calculator is to ensure that the AV calcu lation is being more accurately calculated on the most recent data each year and that there is only one AV Calculator (or State AV Calculator) applicable for each benefit year. We are also soliciting comments on the proposed 2015 AV Calculator and AV Calculator methodology that would supersede the 2014 versions of these documents. In accordance with our proposed policy, we provide an explanation of the changes that were made in the proposed 2015 AV Ca lculator in the proposed 2015 AV Methodology. For the 2015 AV Calculator, HHS is only proposi ng to make minor changes to the design and inputs into the AV Calculator. While plans’ AV calculations may be impacted by the updated AV Calculator, our testing has show n that this impact will be limited for the vast majority of plans and that only in certain cases will plans se e a significant change in AV. We encourage stakeholders to test the proposed 2015 AV Ca lculator and submit technical comments on it during the comment period. In the preamble to the EHB Rule, we discus sed the calculation of AV for health plans with family cost-sharing feat ures. In addition we provided guidance in the “2014 Letter to Issuers on Federally-fac ilitated and State Partnership Exchanges” 28 on accounting for family plans for 2014. Since the AV Calculator claims da ta are based on individual claims data that did not include family cost-sharing information, HHS is seeking the necessary empirical data to

28 “Letter to Issuers on Federally-facilitated and State Partnership Exchanges,” April 5, 2013, available at: http://www.cms.gov/CCIIO/Res ources/Regulations-andGuidance/Downloads/2014_letter_to_issuers_04052013.pdf.CMS-9954-P 162
develop the code that can incorporate family plan s into future versions of the AV Calculator. We are now seeking comment on how to account for these family plan designs and we are particularly interested in information regarding potential data source options. 4. National Annual Limit on Cost Sharing for St and-alone Dental Plans in an Exchange The EHB Rule established an annual limit on cost sharing for the pediatric dental essential health benefit offered by stand-alone de ntal plans (SADPs) in the Exchanges that is separate from the annual limit on cost sharing that a pplies to QHPs that offer comprehensive medical benefits. The EHB Rule established th at Exchanges should se t a “reasonable” annual limit on cost sharing for SADPs. The CMS Letter to Issuers on Federally-facilitated and State Partnership Exchanges, published on April 5, 20 13, established that CMS’s interpretation of a reasonable SADP annual limit on cost sharing for the FFEs is $700 for an SADP with one child enrollee and $1,400 for an SADP with two or more children enrollees. We propose a revised policy for the 2015 be nefit year and beyond in response to significant public interest in establishing a polic y that is consistent acr oss Exchanges and that minimizes a consumer’s total annual limit on cost sharing. HHS also seeks to minimize the differences between a consumer’s total annual limit on cost sharing when purchasing essential health benefits through a QHP that includes covera ge of the pediatric dental essential health benefits or through a combination of a QHP and an SADP. Thus, we are proposing in this rule an amendment to §156.150 that would establish an a nnual limit on cost sharing for SADPs that would be applicable in all Ex changes. For the 2015 benefit y ear, the new proposed paragraph (a)(1) would impose an annual limit on cost sharin g for the pediatric dental EHB when offered through an SADP of $300 for one covered child and $400 for two or more covered children. We request comment on the proposed annual limits on cost sharing, and specifically whether a higher or lower limit would be appropriate for th e pediatric dental EHB. Further, due to theCMS-9954-P 163
limited variation in cost sharing with a decr eased annual limit on cost sharing, we propose removing the actuarial value requirement S ADPs offered through the Exchanges by deleting paragraph (b) of §156.150. We request comment on the removal of the AV standard as well. We understand that under the current rules, some State Exchanges have interpreted a reasonable annual limit on cost sharing to be higher than what is proposed in this proposed rule. For example, at least two State Exchanges have established an annual limit on cost sharing for SADPs of $1,000 for one covered child and $2,0 00 for two or more covered children. We therefore request comment on whet her the annual limit on cost sharing should be consistent nationally, which would be more straightforwar d for consumers and issuers, or set by each Exchange, which allows for State flexibility to ad just to specific market standards and whether the limits proposed here are appropriate. As stated above, we propose to establish the $300/$400 annual limit on cost-sharing as a national maximum annual limit on cost sharing applicable in all Exchanges. For those States that currentl y have annual limits on cost sharing of $1,000/$2,000, we request comment on whether th ere should be a more gradual decrease in the annual limit in cost sharing that would ultimately reach the nationa l level, but would result in a less significant one-time decrease. HHS considered several other alternatives to minimize a c onsumer’s total annual limit on cost sharing when purchasing the pediatric de ntal EHB through a SADP, including: requiring issuers of SADPs to consider the annual lim it on cost sharing to be met once the consumer reaches the annual limit on cost sharing for th e QHP; requiring issuers of QHPs without the pediatric dental EHB to reduce the annual limit on cost sharing by the amount of annual limit on cost sharing permitted for SADPs; and, requiring issuers of QHPs and SADPs to track out of pocket costs for a shared consumer and jointly co nsider a consumer’s out of pocket commitments to be met once a total number has been reached. We note that HHS is generally concerned withCMS-9954-P 164
the administrative costs of implementing a policy th at requires coordination of claims to a single annual limit on cost sharing. We seek comments on these alternatives. 5. Additional Standards Specific to SHOP We propose to add new paragraph (a)(4)(i) to §156.285 to provide that a qualified employer in the SHOP that becomes a large empl oyer would continue to be rated as a small employer. Under section 1304(b)(4)(D) of the Affordable Care Act, a small employer that ceases to be a small employer by reason of an incr ease in the number of employees continues to be treated as a small employer for purposes of Sub title D of Title I of the statute. Included within Subtitle D are the provi sions governing the SHOP and the premium stabilization rules. However, the fair health insurance premium prov isions at section 2701 are not contained in Title D. To assure consistency of pricing within the SHOP, 29 we propose to require a QHP offered through the SHOP to comply w ith the rating rules described in §147.102. We note that nothing in this proposal prevents such an employer fr om choosing to buy a guaranteed issue new policy (without small group rating rules) in the la rge group market outside of the SHOP. We believe that, when employee choice beco mes available in FF-SHOPs for plan years beginning on or after January 1, 2015, allowing co mposite rating when an employer chooses to offer all plans within a meta l tier under §155.705(b)(3)(iv)(A) c ould result in issuers becoming more hesitant to offer QHPs in an employee choice environment – undermining the ACA’s goals of increased choice and competition. As discussed in more detail above with regard to proposed §155.705(b)(11)(ii)(D), composite rating when an employer takes advantage of employee choice could result in an issuer taki ng on proportionately more risk from mid-year changes to the

29 In the 2014 Payment Notice (78 FR 15418), we provided that risk adjustment would not apply to a plan unless it was subject to certain market reform rules, including th e rating rules. Elsewhere in this proposed rule, at §153.510(f), we propose a similar approach with respect to risk corridors. Our proposed approach here for the SHOP would provide that a SHOP QHP th at grows into a large group plan woul d continue to receive the protections of the risk adjustment and risk corridors programs.CMS-9954-P 165
employer’s roster than in than in a single plan environment and, therefore, deny an issuer the premiums that would otherwise be due in a per-member premium calcula tion for the group. We proposed in §155.705(b)(11)(ii)(D) to prohibit co mposite rating in the FF-SHOPs when an employer chooses a level of coverage and make all QHPs within that level available to its employees, and we propose in §156.285(a)(4)(ii) to subject issuers to the same prohibition, to assure that issuers understand that composite billing is not allowed in the FF-SHOPs when employee choice becomes available and an employer selects a level of coverage and not a single plan. As with proposed §155.705(b)( 11)(ii)(D), we are consideri ng extending the prohibition on composite rating to SADPs in the FF-SHOPs, and we invite comment on whether such a prohibition should be adopted, how this policy might affect current market practices on composite rating of dental plans, whether a pr ohibition on composite rati ng should apply to all SADP offering methods or just when an employe r chooses to offer more than a single SADP, and how such a prohibition would affect choi ce and competition in the small group dental market. We acknowledge that this proposal provides a limited exception to §147.102(c)(3) and note that this proposal would preempt State law in th is context, but we believe this proposal to be limited in scope and tailored to provide for ad ministrative efficiency and uniformity, system compatibility among the FF-SHOPs, and increased competition and choice in the small group market. If the proposed amendments to §155.705(b )(4) summarized above are finalized as proposed, all SHOPs would be permitted to esta blish standard methods for premium payment under §155.705(b)(4), as part of carrying out the premium aggreg ation function, and HHS would establish through guidance a process and time line for employers to follow when remitting premium payments to the FF-SHOPs once premiu m aggregation becomes available in the FFSHOPs. We anticipate that after premium aggr egation becomes available in the FF-SHOPs, anCMS-9954-P 166
FF-SHOP would transmit premium payments – bot h initial and subsequent – to issuers on a regular schedule and anticipate th at this would be no more fre quently than once a week. We recognize that under this approach, an issuer mi ght not receive an employer’s initial premium payment from the FF-SHOP prior to the covera ge effective date even though the employer has remitted payment to the FF-SHOP consistent with the HHS-established timeline. We understand that issuers may be concerned about effectuating coverage prio r to receiving payment from a FFSHOP. To address this concern, if the FF-SHOP has not received the initial premium payment in accordance with the payment timeline and process established in accordance with proposed §155.705(b)(4)(ii)(A), the FF-SHOP will send an enrollment cancel lation transaction to the issuer to ensure that coverage is not effectuated. Accordingly, we propose that if the issuer does not receive an enrollment cancellation transaction, it should effectuate coverage. We considered whether an FF-SHOP could, alternatively, send an issuer a notice confirming that it should effectuate coverage when the FF-SHOP received an employer’s initial premium payment but the issuer would not receive that payment prior to th e coverage effective date. However, it would be simpler administratively and operatio nally for issuers to assume they should effectuate coverage and proceed to effectuate coverage unless an FF-SHOP cancels the enrollment. Therefore, we propose adding §156.285(c)(7)(iii) to establish that a QHP issuer offering a QHP through an FFSHOP would be required to en roll a qualified employee unless it receives a cancellation notice from the FF-SHOP. We note that this operational scenario would ar ise only in the case of an employer’s initial premium payment. For regular monthly payments from a participating SHOP employer, the requirements of the payment timelin e and process established in accordance with proposed §155.705(b)(4)(ii)(A) a nd the termination provisions of §155.735 would apply. We seek through this proposal to balance issuers’ concerns about receiving payment with the need for timely FF-SHOP enrollment and operational efficiency. We welcome comment on theCMS-9954-P 167
proposed approach, as well as on the alternative approach discussed above which we considered but rejected, and encourage commenters to suggest additional alternatives. 6. Meaningful Difference Standard for QHPs in the FFEs Section 1311(e)(1)(B) of the Affordable Care Act, codified at §155.1000(c)(2), sets forth the standard that the Exchange may certify a health plan as a QHP if it determines that making the plan available through the Exchange is in the interests of qualified individuals and qualified employers in the State or States in which such Exchange operates. Therefore, as a means of ensuring that all QHPs offered through an FFE are in the interest of qua lified individuals and qualified employers, we propose that, to be cer tified as a QHP in an FFE, a plan must be considered “meaningfully different” from all ot her plans offered by the same issuer through the same Exchange, and we propose a standard fo r what is meant by the term “meaningfully different.” Based on feedback from stakeholders a nd HHS’ experience from administering the Medicare program, HHS believes that it is in the interests of consumers to have an Exchange with meaningfully different plan choices, as m eaningful difference has important benefits to consumers, such as ensuring the ability to readil y differentiate and compare plan choices, leading to informed decisions. 30 A single issuer offering a number of plans that lack meaningful difference could take virtual “shelf space” from other competitors and stifle competition. Therefore, conducting a review for meaningful difference will ensure that consumers are able to make informed selections among an ample – but manageable – number of QHPs, while allowing for plan innovation. The approach outlined be low for a meaningful difference requirement would allow time for HHS to see how the market develops, assess the consumer need for a more

30 Research suggests that consumers may pr efer more limited arrays of choices. See Iyengar, S.; Lepper, M. Journal of Personality an d Social Psychology , Vol. 79(6), Dec 2000, 995-1006.CMS-9954-P 168
specific meaningful difference standard, and consid er options to meet this potential need. HHS does not intend to set numerical lim its on the number of QHPs that may be offered; rather, the proposed approach would serve to avoid having an issuer offering multiple QHPs that appear the same through an Exchange. In §156.298(a), we propose that the FFEs and FF-SHOPs will impose a meaningful difference requirement when approving a QHP application for certification of multiple QHPs within a service area and level of coverage in the Exchange from a single issuer. Due to the special characteristics of the stand-alone dent al plan market, HHS proposes not to require meaningful difference as a condition for certificati on among stand-alone dental plans at this time. HHS seeks comment on this approach. We propose, in §156.298(b), that a pl an within a service area and metal tier (bronze, silver, gold, or pl atinum, and catastrophic coverage) is considered meaningfully different from other plans if a r easonable consumer (the typical consumer buying health insurance coverage) would be able to identify at least two material differences among eight key characteristics between the plan and other plans to be offered by the same issuer. The key characteristics are proposed in paragraphs (b)(1) – (b)(7), and would include (1) cost sharing; (2) provider networks; (3) covered benef its (including prescription drugs); (4) plan type (for example, HMO or PPO); (5) premiums; (6) health savings account e ligibility; an d (7) selfonly, non-self-only, or child-only coverage offeri ngs. At a minimum, two or more of the characteristics proposed at §156.298(b) must be di fferent in order to pass the meaningful difference test. Therefore, within a service area and level of coverage in an Exchange, if two plans submitted by a single issuer seeking QHP certification vary among th eir cost sharing and covered benefits features but have the same pr emiums, the plans may be deemed as having met the meaningful difference test.CMS-9954-P 169

Furthermore, to ensure that consumers have an adequate number of plan options across all metal levels of coverage, we propose at §156. 298(c), that if HHS determines that the plan offerings at a particular meta l level (including catastrophic pl ans) within a county are limited, plans submitted for certification at that level w ithin that county will not be subject to the meaningful difference requirement. To provide flexibility for issuers that merge with or acquire another issuer that is a separate legal entity, HHS proposes in §156.298(d) , a 2-year meaningful difference transition period starting from the date on which a QHP issu er (acquiring entity) obtains or merges with another issuer. We propose in paragraph (d) that during the first 2 plan y ears after a merger or acquisition, the acquiring entity can offer plans th at were recently obtained or merged from another issuer that do not meet the meaningful difference standar d. After the 2-year transition period, HHS may approve a QHP application for certification that is being offered by the acquiring entity only if HHS finds that the plan’s benefit package or costs are meaningfully different from other QHPs offered by the acqui ring entity and the plan meets all other certification requirements. We be lieve that this transition timef rame provides ample time for issuers to ensure that benefit packages being o ffered are meaningfully di fferent without stifling market transactions. We seek comment on the proposed approach to reviewing meaningful difference for QHP certification and whether this st andard should be expanded to a ll Exchanges, including State Exchanges. We also seek comment on whether th is authority granted to the Exchange by section 1311(e)(1) of the Affordable Care Act, to act in the interests of qua lified individuals and qualified employers, should be used by the Secret ary, in conjunction with the authority granted by section 1311(e)(2) of the Affordable Care Act, to limit an issuer’s part icipation in the FFEs should there be significantly diffe rent rate increases for its QHPs and non-QHPs. While theCMS-9954-P 170
transitional policy regarding renewals of cer tain coverage announced in November 2013 and described earlier in this preambl e was intended to allow for con tinuity of coverage, it was not intended to promote advers e selection through significan tly higher rates for QHPs. 7. Quality Standards: Establishment of Patient Safety Standards for QHP Issuers Section 1311(h)(1)(A) of the Affordable Care Act specifies that, beginning on January 1, 2015, a QHP may contract with hosp itals with greater than 50 be ds only if the hospitals meet certain patient safety standards, including use of a patient safety evaluation system (PSES) as described in part C of Title IX of the PHS Act, and a comprehensive hospital discharge program. A PSES means the collection, management, or anal ysis of information for reporting to or by a patient safety organization (PSO). 31 Section 1311(h)(1)(B) of the Affordable Care Act specifies that a QHP may contract with health care pr oviders that implement health care quality mechanisms, if any are required by the Secretar y in regulations. Section 1311(h)(2) of the Affordable Care Act provides the Secretary with the authority and flexibility to establish reasonable exceptions to these requirements and section 1311(h)(3) of the Affordable Care Act allows the Secretary to issue regulations to m odify the number of beds described in section 1311(h)(1)(A). As discussed in the National Strategy for Qu ality Improvement in Health Care (National Quality Strategy), HHS seeks to improve the overal l quality of health care by making health care more patient-centered, reliabl e, accessible, and safe. 32 One of the main priorities of the National Quality Strategy is making care safer by reducing harm caused in the delivery of care. In addition, section 1311(h) of the Affo rdable Care Act aims to strengthen quality improvement and patient safety for consumers in Exchanges. To effectively balance the priorities for making

31 See http://www.pso.ahrq.gov/regulations/fnlrule01.pdf 32 See Report to Congress: National Strategy for Quality Improvement in Health Care available at http://www.healthcare.gov/law/resour ces/reports/quality03212011a.htmlCMS-9954-P 171
quality health care accessible and safe in the Ex changes, we propose to implement these patient safety standards for QHP issuers over time, under the Secretary’s author ity in section 1311(h)(2) of the Affordable Care Act. We believe that implementing all of the requirements described in section 1311(h) by January 1, 2015 coul d result in a shortage of qua lified hospitals and providers available for contracting with QHPs. Currently, there are 79 listed PSOs nationwide oper ating in 29 States and the District of Columbia. 33 PSOs carry out a variety of patient safety activities with the goal to improve patient safety and the quality of health care delivery. PSOs are able to collect, aggregate, and analyze patient safety events and information that is protected under privilege and confidentiality standards. However, it is not enti rely clear that there is sufficien t capacity to enable all hospitals subject to this provision to cont ract with a PSO at this time. HHS recognizes the continuouslygrowing capacity of the PSO program and the potential to accommoda te U.S. hospitals subject to §156.1110 within the proposed phase-in period. HHS recognizes the significant burden and time constraints for hospitals to enter into agreements with PSOs for appropriate services to improve patient safety, especially for particular hospita l settings and populations . HHS also recognizes the significant resources that QHP issuers would need to invest to track such initiatives, such as ensuring that the hospitals and health care providers the QHP issuer contracts with have appropriate agreements with PSOs and adequa te hospital discharge planning activities. Consequently, we believe that this proposed ru le would provide an opportunity for QHP issuers to meaningfully comply with section 1311(h) of the Affordable Care Act and consider how PSOs will work with their network hospitals and heal th care providers. This proposal would also provide time for hospitals and h ealthcare providers to demonstrate to a QHP issuer that they

33 See http://www.pso.ahrq.gov/listing/geolist.htmCMS-9954-P 172
meet the patient safety standards in accordance with section 1311(h). Moreover, we believe that this proposed approach to implementation of section 1311(h) would ensure that QHP issuers have sufficient hospitals and health care provid ers to contract with, while providing consumers with access to health care that meets ade quate safety and quality standards. In phase one, which would become effective for QHP issuer plan years beginning on or after January 1, 2015, the patient safety st andards proposed in §156.1110 would apply to hospitals, as defined in section 1861 (e) of the Social Security Act, 34 that are Medicare-certified, and to Medicaid-only hospitals which have been issued a Medicaid-only CMS Certification Number (CCN). These standards would apply to such hospitals that have been certified for greater than 50 beds. For th e reasons described above, HHS is not proposing requirements regarding the patient safety sta ndards described in section 1311(h )(1)(B) at this time. HHS is currently in the process of resear ching the establishment of appropr iate quality and patient safety standards for QHP issuers contra cting with health care provide rs as described in section 1311(h)(1)(B). In §156.1110(a), we propose that a QHP issuer may contract with hospitals that have more than 50 beds, only if they are Medicare-c ertified or have been issued a Medicaid-only CCN, both of which are subject to Medicare Hospital Conditions of Participation (CoPs) standards found in 42 CFR part 482. 35 Specifically, such hospitals must develop, implement, and maintain an effective, ongoing, hospital- wide, data-driven quality assessment and performance improvement (QAPI) program, as described in 42 CFR 482.21. In addition, a hospital that is Medicare-certified or participates in the Medicaid program must have in effect a discharge planning process that applies to a ll patients, as describe d in 42 CFR 482.43. HHS

34 Section 1861(e) of th e Social Security Act: http://www.ssa.gov/OP_Home/ssact/title18/1861.htm 35 Hospital Conditions of Participation: http://www.cms.gov/Regulations-andGuidance/Legislation/CFCsAndCoPs/Hospitals.htmlCMS-9954-P 173

believes that the standards of QAPI and disc harge planning in the Me dicare hospital CoPs represent the most efficient way to balance the need to have a sufficien t number of hospitals available for QHP issuers to contract with, and th e statutory intent of se ction 1311(h) to provide for adequate patient safety standards. In a ddition, based on our preliminary research, the vast majority of hospitals with greater than 50 be ds are Medicare-certifi ed or are Medicaid-only hospitals and must comply with the health and pa tient safety standards in the Medicare hospital CoPs. Hospitals may be deemed to meet the CoP standards if accredited per section 1865 of the Social Security Act. Therefore, the proposed approach would not significantly limit hospital participation in QHP networks and would provide consumers access to health care services from an adequate number of hospitals through QHPs in the Exchanges. In §156.1110(b), we propose to direct QHP issu ers to maintain documentation, including but not limited to the CCN for each hospital. Since both Medicare-cer tified hospitals and Medicaid-only hospitals are issued CCNs, such documentation would demonstrate that a QHP issuer’s contracted hospital is Medicare-certified or has a Medi caid-only CCN and are subject to the Medicare hospital CoP standards as required in paragraph (a). We believe that collecting and maintaining data such as the CCN would not be burdensome for QHP issuers. In §156.1110(c), we propose that a QHP issuer must make this documentation available to the Exchange, upon request by the Exchange, and in a time and ma nner specified by the Exchange. We intend to include all Exchange types when referring to the Exchange in §156.1110, including a State-based Exchange. We anticipate using the data collected as part of information used to evaluate and oversee QHP issuers in FFEs. We note that multi-State plans, as defined in §155.1000(a), are subject to these provisions. OPM would determin e the time and manner for multi-State plans to submit the documentation.CMS-9954-P 174
In §156.1110(d), we propose that a QHP issuer mu st ensure that each of its QHPs meets the patient safety standards in accordance with pa ragraph (a) of this sec tion for plan or policy years beginning on or after January 1, 2015. We anticipate that th is first phase of implementation of QHP-related quality standa rds would be for 2 years beginning January 1, 2015 or until we issue further re gulations based on a reassessme nt of the Exchange market, whichever is later. We seek comment regarding our proposal to apply Medicare hospital CoP standards for implementation of section 1311(h) of the Affordable Care Act. We also request comment on the proposed 2-year time period for the first phase of implementation. Additionally, we propose to maintain the statutory distinction between hospita ls with 50 or fewer beds and hospitals with more than 50 beds, but we request comment for phase one implementation on whether HHS should adjust the number of hospital beds to be greater or less than th e standard under section 1311(h)(3) of the Affordable Care Act. We al so seek comment regarding whether the proposed standards in §156.1110 should be applicable to ho spitals other than Medicare-certified and Medicaid-only hospitals. We further reque st comment on whether any other documentation would be reasonable to require QHP issuers to collect and maintain to meet the proposed standards described in §156.1110(c). For the next phase of implementation, we are considering requiring QHP issuers to ensure that their contracted hospitals have ag reements with PSOs and comprehensive hospital discharge programs, and that their health care providers implement health care quality activities. We recognize the various important patient sa fety initiatives, incl uding discharge planning activities, with which hospitals, he alth care providers, and issuers ar e already involved. In future rulemaking, we intend to consider whether and which reasonable ex ceptions under section 1311(h)(2) of the Affordable Care Act s hould be made. We seek comment on:CMS-9954-P 175

● What core aspects should be include d in hospital patient safety programs.

● What a comprehensive hospital discharg e planning program should require for each patient.

● What health care quality improvement ac tivities should be implemented by health care providers. Specifically, we request comme nt on how QHP issuers could effectively track patient safety information, such as hospital agreements w ith a PSO, related to thei r contracted hospitals and provider networks. We also seek comment regarding specif ic, comparable activities that may be included as reasonable exceptions to the patient safety standards, in accordance with section 1311(h)(2) of the Affordable Care Act. 8. Financial Programs a. Netting of payments and charges In the 2014 Payment Notice, HHS established a monthly payment and collections cycle for the advance payments of the premium tax cr edit, cost-sharing reductions, and FFE user fees, and an annual payment and collections cycl e for the premium stabilization programs and reconciliation of cost-s haring reductions. For 2014, to stream line our payments and collections process, we propose in §156.1215(a) that each mo nth we would determine amounts owed to or by a QHP issuer by netting amounts owed by the QHP issuer to the Federal government against payments due to the QHP issuer for advance payments of the premium tax credit, advance payments of cost-sharing reductions, and payment of FFE user fees. In a ddition to this netting across these programs, as further described below, the monthly calculation of amounts due would also reflect current information relate d to enrollment for past months, including information related to excess pa yments previously made. Fi nally, we propose that amounts owed to or by a QHP issuer would be netted across all entities operati ng under the same taxpayerCMS-9954-P 176
identification number (TIN). This process would permit HHS to calculate amounts owed each month, and pay or collect those amounts from is suers more efficiently. When netting occurs, HHS would demand amounts due only when there is a balance due to th e Federal government. In addition to the monthly payment flows under the programs described above, a number of annual payment flows will begin in 2015 for th e risk adjustment program, the reinsurance program, the risk corridors program, and cost-s haring reduction reconciliation. To streamline payment and charge flows from all of these programs – advance payments of the premium tax credit, advance payments and reconciliation of cost-sharing reductions, FF E user fees, and the premium stabilization programs – we propose in §156.1215(b) that HHS may net amounts owed to the Federal government against payments due to an issuer (or an affiliated issuer under the same TIN) under these programs in 2015 and later years. We believe that this process will enable HHS to operate a monthly payment cycle that will be efficient for both issuers and HHS. In §156.1215(c), we propose that any amount owed to the Federal government by an issuer and its affiliates for advance payments of the premium tax credit, advance payments of and reconciliation of cost-sharing reductions after netting be the basis for calculating a debt owed to the Federal government. We propose that pa yments and collections under all of these programs would occur under an integrated monthly payment and collection cycle. We seek comment on these proposals, includ ing on the appropriate payment timeframes for these charges so that amounts may be netted and invoiced as part of an orderly, monthly payment cycle. b. Confirmation of HHS paymen t and collections reports As discussed in the preamble to §156.1210 of the second final Program Integrity Rule, HHS anticipates sending a monthly payment and collections report – the HIX 820 – to issuers describing the advance payments of the premiu m tax credit and advance payments of cost-CMS-9954-P 177
sharing reductions that an issuer is to receive on behalf of eligible enrollees, and the FFE user fee charges that the issuer must pa y. These amounts are based on en rollments previously confirmed by the issuer as part of the enrollment transa ction process and the resu ltant HIX 820 discrepancy reporting process described in §156.1210. Under §156.1210 (a), an issuer must respond to the payment and collections report within 15 calenda r days of receipt of the report by either confirming the report or notifying HHS if there is a discrepancy between the data provided in the payment and collections report and the data that the issuer has. Unde r §156.1210(b), if an issuer reports a discrepancy in a payment and collections report later than 15 cale ndar days after receipt of the report, HHS will work with the issuer to resolve the discrepancy as long as the late reporting was not due to misconduct on the part of the issuer. As described below, any resolution to such an identified discrepancy would be reflected in a later payment and collections report and the invoice generated und er that later report would not affect the debt established by the invoice generated in connect ion with the earlier report. We propose that an issuer that notif ies HHS of a discrepancy under §156.1210 will trigger an administrative discrepa ncy resolution process. Followi ng the end of the benefit year, if the issuer remains dissatisfied with the result s of that process, the issuer may make a request for reconsideration as proposed below in §156.1220(a). We intend that this discrepancy resoluti on process would permit HHS to work with issuers to resolve outstanding disc repancies in a cooperative manner. Because of the number and timing of the daily flows of enrollment and pr emium-related data and confirmations between HHS, the Exchange, and the issuer, we anticipate th at there would be frequent adjustments to the enrollment counts and therefore the amounts of the advance paymen ts of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees. To decrease the administrative burden on issuers, HHS, and the Exchanges, and in recognition of the num ber and timing of theCMS-9954-P 178
data flows involved, we propose not to retroac tively adjust previous months’ payment and collections reports and amounts prev iously due. Consistent with our approach in the Medicare Advantage program, the invoice for a particular month would be calculated on the monthly payment cycle. We propose that the amount thus invoiced for a particular month, which would reflect netted amounts as described above, constitu te an amount owed to the Federal government. As more accurate data become available to HHS, the Exchange, and the issuer, we propose that this later information not reduce or increase th e previous determination of an amount owed. Rather, the information would be captured in su bsequent months and reflected in subsequent payment cycles, and reflected in later invoices. Thus, an issuer would be required to pa y the full amount of any invoice issued in connection with a payment and collection report for a month ev en if the issuer notes a discrepancy that may later be resolved as a credit in a later invoice. Therefore, we propose to add paragraph (c) to §156.1210 to provide th at discrepancies in payment and collections reports identified to HHS under that section would be addressed in subsequent payment and collections reports, and w ould not be used to change debts determined pursuant to invoices generated under previ ous payment and collections reports. We seek comment on this approach. c. Administrative appeals We propose an administrative appeals pro cess designed to address any unresolved discrepancies for advance payments of the premiu m tax credit, advance payments of cost-sharing reductions, FFE user fee payments, payments and charges for the premium stabilization programs, cost-sharing reduction reconciliation payments and charges, and any assessments under §153.740(b) of a default risk adjustment char ge. This administrative appeals process is similar to that utilized to address payment disput es in the Medicare Part D program, in which anCMS-9954-P 179
appeal to a CMS hearing officer, and then the Ad ministrator of CMS, if desired, may be filed after a request for reconsideration. In §156.1220(a), we propose that an issuer may f ile a request for reconsideration of what the issuer believes is a processing error by HHS, 36 HHS’s incorrect application of the relevant methodology, or HHS’s mathematical error only with respect to: (1) adva nce payments of the premium tax credit, advance payment of cost-sha ring reductions and FFE user fee charges; (2) risk adjustment payments or charges for a be nefit year, including an assessment of risk adjustment user fees; (3) reinsurance payments fo r a benefit year; (4) a ri sk adjustment default charge for a benefit year; (5) a reconciliation pa yment or charge for cost-sharing reductions for a benefit year; or (6) risk corridors payments or ch arges for a benefit year. For a dispute regarding advance payments of the premium tax credit, ad vance payments of cost-sharing reductions, or FFE user fee amounts for a benefit year, we propose that a request for reconsideration must be filed within 30 calendar days af ter the issuer receives a final reconsideration notification specifying the aggregate amount of advance pa yments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees for the applicable benefit year. We anticipate that this final reconsideration notificat ion would be provided in the summer of the year following the benefit year. We believe that the constant flow of enrollment data for payments under these programs will lead to difficulty in fina lizing a precise, final ca lculation for a benefit year, and propose to finalize payments under these programs including for pur poses of appeal by the late summer of the following year. We are considering permitting reconsideration only for material errors. We seek comment on this proposal, including on the minimum materiality threshold that should be required to seek reconsideration. For example, we are considering a

36 We note that under proposed §156.1220(a)(3)(i)-(ii), an issuer may not submit data for consideration in the appeal if the data was not submitted prior to the applicable data submission deadline, but may submit documentary evidence that certain data was timely submitted.CMS-9954-P 180
minimum materiality threshold of 1 percent or 5 percent of total pa yments made to the issuer for the year for advance payments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees, or a minimum dollar amount such as $10,000. For a dispute regarding a risk adjustment payment or charge, including an assessment of risk adjustment user fees, a rein surance payment, a default risk adjustment charge, a cost-sharing reduction reconciliation payment or charge, or a risk corridors payment or charge, we propose that a request for reconsideration must be f iled within 30 calendar da ys of receipt of the applicable notification of payments and charge s provided by HHS. We believe that because the interim and final dedicated distributed data environment reporting process proposed at §153.710(d) and (e) would permit an issuer an extende d period of time in which to review risk adjustment and reinsurance data and because th e cost-sharing reduction reconciliation and risk corridors payments or charges are based on data provided by the issuer, 30 calendar days should be sufficient for an issuer to review the notific ation and make a request for reconsideration. We seek comment on this timeline. In §156.1220(a)(3)(i), we propose that the request for reconsideration specify the findings or issues that the issuer challenges and the reasons for the challenge. In §156.1220(a)(3)(ii), we propose that a reconsideration with respect to a processing error by HHS, HHS’s incorrect application of the relevant methodology, or HHS’s mathematical error may be requested only if, to the extent the issue could have been previously identifi ed by the issuer to HHS under §153.710(d)(2) or (e)(2), it was so identified and remains unresolved. Similarly, in §156.1220(a)(3)(iii), we propose that a reconsideration with respect to advance payments of the premium tax credit, advance payments of cost-s haring reductions, and FFE user fees may be requested only if, to the extent the issue could have been previ ously identified by the issuer to HHS under §156.1210, it was so identified and remains unresolved. We propose to clarify thatCMS-9954-P 181
an issuer may request reconsideration if it pr eviously identified an issue under §156.1210 after the 15-calendar-day deadline, but late discovery of the issue was not due to misconduct on the part of the issuer. In §156.1220(a)(3)(iv), we propose that the i ssuer may include in the request for reconsideration additional documentary evidence that HHS should consider. Such documents may not include data that was to have been file d by the applicable data submission deadline, but may include evidence of the timely submission of such documents. In §156.1220(a)(4), we propose that in c onducting the reconsideration, HHS would review the payment determination, the eviden ce and findings upon which it was based, and any additional documentary evidence submitted by the issu er. HHS would also have the discretion to review any other evidence it beli eves is relevant in deciding the reconsideration (and would provide the issuer a reasonable opportunity to review and rebut the evidence), and would then inform the issuer of the final decision in writing. We propose that an issu er would be required to prove its case by a preponderance of the evid ence with respect to issues of fact. In §156.1220(a)(5), we propose that a reconsid eration decision would be final and binding for decisions regarding the advance pa yments of the premium tax credit, advance payments of cost-sharing reductions, and FFE user fees. A reconsideration with respect to other matters would be subject to the outcome of a re quest for informal hearing filed in accordance with proposed §156.1220(b). Because the monthly iterative discrepancy report process is available until the reconsideration notice is sent and because of the simplicity of the calculation of advance payments of the premium tax credit, advance payments of cost-sharing reductions, or FFE user fees, we believe that providing one level of administrative appeal for advance payments of the premium tax credit, advance pa yments of cost-sharing reductions, and FFE user fees is sufficient. We propose in §156.1220(b) th at an issuer that el ects to challenge theCMS-9954-P 182

reconsideration decision for the fi nal risk adjustment payment or charge, including an assessment of risk adjustment user fees; reinsurance paym ent; default risk adjustme nt charge; cost-sharing reduction reconciliation payment or charge; or risk corridors payment or charge for a benefit year provided under paragraph (a) of proposed §156.1220 would be entitled to an informal hearing before a CMS hearing officer. In §156.1220(b)(1), we propose that a request for an informal hearing be made in writing and filed with HHS w ithin 15 calendar days of the date the issuer receives the reconsider ation decision. In §156.1220(b)(2), we propose that the request for an informal hearing must include a copy of the reconsideration decision and must specify the findings or issues in the decision that the issuer is challenging a nd its reasons for the challenge. We also propose that HHS may submit for review by the CMS hearing officer a statement of the reasons supporting the rec onsideration decision. In §156.1220(b)(3)(i), we propose that the issuer receive a written not ice of the time and place of the informal hearing at least 15 cale ndar days before the scheduled date. In §156.1220(b)(3)(ii), we propose that the CMS hear ing officer would neith er receive testimony nor accept any new evidence that was not presented with the reconsideration request or in any statement provided by HHS. We propose that th e scope of the CMS hearing officer’s review would be limited to the statements provided by the issuer and HHS and the record that was before HHS in making the reconsideration determ ination. We would require that the issuer prove its case by clear and convinc ing evidence with respect to i ssues of fact and would permit the issuer to be represented by c ounsel in the informal hearing. In §156.1220(b)(4), we propose that, following the informal hearing, the CMS hearing officer would send the decision and the reasons fo r the decision to the issuer. We propose that this decision would be final a nd binding, but subject to any Admi nistrator’s review initiated in accordance with proposed §156.1220(c).CMS-9954-P 183
We propose in §156.1220(c)(1) that if th e CMS hearing officer upholds the reconsideration decision, the issu er may request a review by the Administrator of CMS within 15 calendar days of receipt of the CMS hearing offi cer’s decision. The request for a review by the Administrator of CMS must specify the findings or issues in th e decision that the issuer is challenging, and the reasons for the challenge. We propose that HHS may submit for review by the Administrator of CMS a statement supporti ng the decision of the CMS hearing officer. In §156.1220(c)(2), we propose that the Admini strator of CMS or a delegate would review the hearing officer’s decision, any writ ten documents submitted by HHS or the issuer, as well as any other information incl uded in the record of the CM S hearing officer’s decision, and would determine whether to uphold, reverse, or modify the CMS hearing officer’s decision. We propose that the issuer would be required to pr ove its case by clear and convincing evidence with respect to issues of fact. We propose that the Admini strator’s determination would be considered final and binding. We believe that the administrative appeals process outlined above would give issuers reasonable opportunity for reconsideration and review of their payments and charges. Furthermore, building on established procedur es utilized by HHS in Medicare Part D will provide a structure for administrative appeals with which issuers are already familiar. We seek comment on the proposed reconsideration and administrative appeals process.CMS-9954-P 184

IV. Collection of Information Requirements Under the Paperwork Reduction Act of 1995, we are required to provi de 30-day notice in the Federal Register and solicit public comment before a co llection of information requirement is submitted to the Office of Management and Budget (OMB) for review and approval. This proposed rule contains informati on collection requirements (ICRs) that are subject to review by OMB. A description of these provisions is given in the following paragraphs with an estimate of the annual burden, summarized in Table 6. To fa irly evaluate whether an information collection should be approved by OMB, section 3506(c)(2)( A) of the Paperwork Reduction Act of 1995 requires that we solicit comment on the following issues:

● The need for the information collection and its usefulness in carrying out the proper functions of our agency.

● The accuracy of our estimate of the information collection burden.

● The quality, utility, and clarity of the information to be collected.

● Recommendations to minimize the inform ation collection burden on the affected public, including automate d collection techniques. We are soliciting public comment on each of these issues for the following sections of this proposed rule that c ontain ICRs. We generally used data from the Bureau of Labor Statistics to derive average labor costs (including capital costs, overh ead, and fringe benefits) for estimating the burden associated with the ICRs. A. ICRs Related to HHS Audits of State-operated Reinsurance Programs (§153.270) In §153.270, we propose that HHS or its designee may conduct a financial and programmatic audit of a State-operated rein surance program to assess compliance with reinsurance program requirements. We also pro pose that, if an audit results in a finding of material weakness or significant deficiency, a Stat e must ensure that the applicable reinsuranceCMS-9954-P 185
entity provides a written corrective action plan to HHS for approval with in 60 calendar days of the issuance of the final audit report. The burden associated with meeting this third party disclosure requirement includes th e burden for a State that estab lishes a reinsurance program to ensure that its applicable rein surance entity and any relevant contractors, subcontractors, or agents cooperate with and take appropriate actions in connection with any audit, and the burden associated with preparing and submitting a correc tive action plan to HHS for approval. Because only two States will operate reinsurance in the 2 014 benefit year, this colle ction is exempt from the PRA under 44 U.S.C. 3502(3)(A)(i), and we ar e not seeking approval from OMB for this information collection requirement. We discuss th e impact associated with HHS audits of Stateoperated reinsurance programs in the Regulatory Imp act Analysis section of this proposed rule. B. ICRs Regarding Issuer and Entity Administ rative Burden Related to Audits for the Premium Stabilization Programs (§153.405(i); §153.540(a); §153.410(d); §153.620(c)) We propose that HHS or its designee would ha ve the authority to audit QHP issuers, contributing entities, and issuers of risk adjustment covered plans or reinsurance-eligible plans to assess compliance with the requirements of subparts E, F, G and H of part 153, as applicable. As mentioned earlier in this proposed rule, where possible, we intend to align the risk corridors audit process with the audits conducted for the MLR progr am. Therefore, we believe that the issuer burden associated with the risk corridors audit is al ready accounted for as part of the Supporting Statement for the MLR program approved under OMB control number 0938-1164. For issuers of risk adjustment covered plans and issuers of reinsurance-eligible plans, these provisions would result in a third party disclosure requireme nt for issuers to prepare and compile the financial and programmatic informati on necessary to comply with the audit. For each onsite review, we estimate that it will take an average of 40 hours for administrative work to assemble the requested information, 19.5 hours to review the information for completeness,CMS-9954-P 186

and 30 minutes to submit the information to HHS in preparation for an onsite review. We estimate that an onsite review would require an additional 2 hours to schedule the onsite activities with the complian ce reviewer (at an hourly wage rate of $53.75), 4 hours for introductory meeting, 8 hours to to ur reviewers onsite, 10 hours of interview time, 2 hours to walk through processes with th e reviewer, and 4 hours for concl uding meetings, resulting in a total of approximately 60 hours of preparation time and an add itional 30 hours of onsite time for each issuer. We estimate that it will take 90 hours at a cost of approximately $4,838 for each issuer to make information available to HHS for an onsite review. Because we have not finalized our audit protocols, it is difficult to accu rately estimate an audit rate. However, we believe that it would be reasona ble to assume that approxima tely 120 issuers, representing roughly 5 percent of issuers of risk adjustment c overed plans or reinsuran ce-eligible plans would be audited. Therefore, we estimate an aggregate burden of 10,800 hours and $580,500 for issuers as a result of this requirement. For contributing entities, we estimate that th e disclosure burden would be substantially less because the audit would be simpler. We estimate the burden to be approximately onequarter of that of an issuer of a risk adjustment covered plan or a reinsurance-e ligible plan, or approximately 22.5 hours at a cost of approximately $1,209 for each contributing entity. Similarly, because we have not finalized the audit pr otocols, it is difficult to accurately estimate an audit rate. However, we estimate that approxi mately 1 percent of contributing entities would be audited, representing 226 contribu ting entities. Therefore, we estimate an aggregate burden of 5,085 hours, or $273,319, as a result of this propo sed requirement. We will revise the information collection currently approve d under OMB Control Number 0938–1155 with an October 31, 2015 expiration date to a ccount for this additional burden. C. ICRs Regarding Potential Adjustments for Transitional Plans (§153.500-§153.540)CMS-9954-P 187
For the 2014 benefit year, we are consideri ng adjustments to the premium stabilization programs that would help to further mitigate an y unexpected losses for QHP issuers with plans that are affected by the transitional policy. To eff ectuate potential adjustments, we must estimate the State-specific effect on averag e claims costs. We therefor e propose to require all issuers participating in the individual and small group ma rkets in a State to submit to HHS a membermonth enrollment count for transitional plans an d non-transitional plans in the individual and small group markets. This submission would occu r in 2015 prior to the ri sk corridors July 31, 2015 data submission deadline. HHS would analy ze that enrollment data , and publish the Statespecific adjustments that issuers would use in the risk corridors calculatio ns for the 2014 benefit year. To reduce the burden on issuers, we are co nsidering coordinating this data collection with other data collections for the premium stabili zation programs. We request comment on data collection methods and the potential effect on issuers’ administrative costs. We estimate that there will be approximately 2,400 issuers in the individual and small group market in the 2014 benefit ye ar, and that it would take an insurance analyst approximately 30 minutes (at an hourly wage rate of $38.49) to estimate enrollment in transitional plans and non-transitional plans and submit this information to HHS. Therefore, we estimate a cost of approximately $19.25 for each issuer, and an aggr egate cost of $46,200 for all individual and small group market issuers (though this cost ma y be lower depending upon the data collection method we adopt). Because we anticipate coll ecting this information in 2015, and because we expect to issue additional clar ifying guidance on this proposed policy, will seek OMB approval and solicit public comment on this informati on collection requirement at a future date. D. ICRs Regarding Risk Corri dors Data Validation (§153.530 and §153.540) For the 2014 benefit year, we propose to coll ect risk corridors da ta by using the same form as is used for MLR data collection, at the same time (July 31 st of the year following theCMS-9954-P 188
applicable benefit year). We intend to modify the MLR collection form for benefit year 2015, approved under OMB control number 0938-1164, to a dd reporting elements (for example, QHPspecific premium amounts) that are required under the risk corridors data submission requirements under §153.530. We intend to include th ese data elements in an amendment to the information collection approved under OMB control number 0938-1164 for MLR data submission that we will publish for public co mment and advance for OMB approval in the future. Because the MLR program and the risk corri dors program will require similar data, we estimate that submitting the data elements required for the risk corridors program will impose limited additional burden on issuers. We es timate that it will take each QHP issuer approximately 1.5 hours, representing 1 hour for an insurance analyst (at an hourly wage rate of $38.49) and 30 minutes for a senior manager (at an hourly wage rate of $77), to input and review data that is specific to the ri sk corridors progr am in the MLR and risk corridors reporting form for benefit year 2015. We estimate that 1,200 QHP i ssuers will submit risk corridors data for the 2014 benefit year in the 2015 risk corridors and MLR reporting cycle. Therefore, we estimate an aggregate burden of 1,800 hours (at a total cost of approximately $92,394) for QHP issuers as a result of this requirement. We will revise the information collection currently approved OMB Control Number 0938–1155 with an October 31, 2015 expiration date to account for this additional burden. In §153.540(b), we propose that HHS may im pose CMPs on QHP issuers on a State Exchange that do not comply with the risk corridors requirements in Subpart F. We note that we would impose any CMP in accordance with th e procedures set forth in 45 CFR156.805. Although the processes set forth in §156.805 would result in inform ation collection requirements that are subject to PRA, we expect to impos e CMPs on fewer than 10 entities in a year.CMS-9954-P 189

Therefore, we believe that this collection is exempt from the PRA under 44 U.S.C. 3502(3)(A)(i). E. ICRs Regarding Data Validation Require ments when HHS Operates Risk Adjustment (§153.630) In §153.630(b)(1), we propose that an issuer of a risk adjustment covered plan must engage one or more independent auditors to perf orm an initial validation audit of a sample of its risk adjustment data selected by HHS. This prov ision also proposes that the issuer provide HHS with the identity of the initial valid ation auditor, and attest to the absence of conflicts of interest between the initial validation au ditor (or the members of its a udit team, owners, directors, officers, or employees) and the issuer (or its ow ners, directors, officers, or employees), in a timeframe and manner to be specified by HHS. We previously estimated the cost to issuers to conduct an initial validation audit in the 2014 Pa yment Notice and the associated information collection request approved under OMB Cont rol Number 0938-1155 with an October 1, 2015 expiration date. Therefore, the burden associated with this reporting requirement is the time and effort necessary to report the auditor’s identity to HHS. We estimate it will take an insurance operations analyst (at an hourly wage rate of $38.49) and a senior manager (at an hourly wage rate of $77) each approximately 15 minutes to pr epare and send an electronic report to HHS. Therefore, for 2,400 risk adjustment covered issuers, the aggregate burden associated with this requirement is 1,200 hours, at an approximate cost of $69,300. In §153.630(b)(8), we propose that the initia l validation auditor measure and report to the issuer and HHS, in a manner and timeframe sp ecified by HHS, the inter-rater reliability rates among its reviewers. Also in this provision, we propose that the initial validation auditor to achieve a minimum consistency measure of 95 per cent for demographic, enrollment, and health status review outcomes. We believe establis hing standards for inter-rater reliability amongCMS-9954-P 190
reviewers is standard practice in the industry a nd will not result in extr a cost for the initial validation auditor. Therefore, the burden associ ated with this reporting requirement is the time and effort for the initial validation auditor to report the inter-rater re liability rate to the issuer and to HHS. We estimate it will take an insurance op erations analyst (at an hourly wage rate of $38.49) and a senior manager (at an hourly wage rate of $77) each appr oximately 15 minutes to report the inter-rater reliability rate to the issuer and to HHS. Therefore, assuming that 2,400 issuers of risk adjustment covered plans each engage one independent auditor to perform the initial validation audit, the aggregate burden a ssociated with this requ irement is 1,200 hours, at an approximate cost of $69,300. We will revise the information collection currently approved under OMB Control Number 0938–1155 with an Oct ober 31, 2015 expiration date to account for this additional burden. F. ICRs Regarding Quarterl y Data Submissions (§153.700(a)) Section 153.700 provides that issu ers of a risk adjustment covered plan or a reinsuranceeligible plan must establish a dedicated distri buted data environment and provide data access to HHS, in a manner and timeframe specified by HHS, for any HHS-operated risk adjustment and reinsurance program. In this proposed rule, we cl arify this timeframe, proposing that an issuer must make good faith efforts to make complete, current enrollment and claims files accessible through its dedicated distributed data environments no less freque ntly than quarterly, once the issuer’s dedicated distributed data environment is established. Based on HHS’s most recent estimate of fully insured issuers in the individual and small group markets, we estimate that 2,400 issuers will be subject to the requirement to establish a dedicated data environment to e ither receive reinsurance payments or make risk adjustment transfers. Although we are clarifying in this pro posed rule that issuers must make this data available to HHS on a quarterly ba sis, the aggregate burden associat ed with this requirement isCMS-9954-P 191
already accounted for under the Premium Stabiliz ation Rule Supporting Statement that is approved under OMB control number 0938–1155 with an October 31, 2015 expiration date. We will revise that supporting statemen t to specify that issuers must comply with this information collection requirement on a quarterly basis. G. ICRs Related to Confirmation of Dedi cated Distributed Data Environment Reports (§153.700(d) and (e)) We propose in §153.710(d) that within 30 calendar days of the date of an interim dedicated distributed data envir onment report from HHS, an issuer of a reinsurance-eligible or risk adjustment covered plan must either conf irm to HHS that the information in the interim reports for the risk adjustment and reinsurance programs accurately reflect the data to which the issuer has provided access to HHS through its dedicated distributed data environment in accordance with §153.700(a) for the timeframe specified in the report, or describe to HHS any inaccuracy it identifies in the interim report. Si milar to the interim report process, we propose in §153.710(e) that the issuer either confirm to HHS that the inform ation in the final dedicated distributed data environment report accurately refl ects the data to which the issuer has provided access to HHS through its dedicated distribut ed data environment in accordance with §153.700(a) for the benefit year specified in the report, or describe to HHS any inaccuracy it identifies in the final dedicated distributed da ta environment report within 15 calendar days of the date of the report. We estimate that 2,400 issuers of risk adjustme nt covered plans and reinsurance-eligible plans will be subject to this requirement, a nd that issuers will compar e enrollee condition codes with risk scores and analyze claims costs to confirm information in the interim and final dedicated distributed data environment reports. On average, we estimate that it will take an insurance operations analyst (at an hourly wage rate of $38.49) approximately 2 hours to respondCMS-9954-P 192
to an interim report and 6 hours to respond to th e final dedicated distri buted data environment report. Therefore, we estimate an aggregate burden of 19,200 hours and $739,008 for 2,400 issuers as a result of this requirement. We will revise the information collection currently approved under OMB Control Number 0938–1155 w ith an October 31, 2015 expiration date to account for this additional burden. H. ICRs Regarding Privacy and Security of Personally Identifiable Information (§155.260(a)) In §155.260(a), we propose that an Exchange may submit to the Secretary a proposed use or disclosure of eligibility and enrollment PII. The Exchange submitting such a request must provide a detailed description of the use or di sclosure and how the proposed use or disclosure will ensure the efficient operation of the Exchange s consistent with section 1411(g)(2)(A) of the Affordable Care Act. The requesting Exchange must also describe how the information to be used or disclosed will be protected in complia nce with the privacy and security standards established by the Exchange. We estimate fewer than 10 states will submit such proposals on a yearly basis. While this reporting requirement is subject to the PRA, we believe the associated burden is exempt under 5 CFR 1320.3(c)(4) and 44 U.S.C. 3502(3)(A)(i), since fewer than 10 entities would be affected. Therefore, we are not seeking approval from OMB for these information collection requirements. We seek co mment on this estimate from states that are contemplating any uses of eligibility and enro llment PII for which they would submit such a proposal. I. ICRs Regarding Quality Standards: Establishm ent of Patient Safety Standards for QHP Issuers (§156.1110) In §156.1110, we describe the information co llection, recordkeeping, and disclosure requirements that a QHP issuer must meet to demonstrate compliance with these proposed patient safety standards. The burden estimate as sociated with these standards includes the timeCMS-9954-P 193
and effort required for QHPs to maintain and submit hospital CMS Certification Numbers and any other information to the Exchange that demo nstrates that each of its contracted hospitals with greater than 50 beds meets the patient sa fety standards require d in §156.1110(a). In the near future, HHS intends to publish a rule proposing more specific quality standards for Exchanges and QHPs and will solicit public comme nt. At that time and per requirements outlined in the PRA, we intend to estimate the burden on QHPs to comply with the patient safety provisions of §156.1110. Until that time, we ar e soliciting comments on the burden for QHPs to maintain and submit such documentation to dem onstrate meeting the patient safety standards proposed here. J. ICRs Regarding Administrative Appeals (§156.1220) In §156.1220, we propose an administrative appe als process to address unresolved discrepancies for advance payment of the premium tax credit, advance payment and reconciliation of cost-sha ring reductions, FFE user fees, and th e premium stabilization programs, as well as any assessment of a default ri sk adjustment charge under §153.740(b). In §156.1220(a), we propose that an issuer ma y file a request for reconsideration to contest a processing error by HHS , HHS’s incorrect application of the relevant methodology, or HHS’s mathematical error for the amount of: (1 ) advance payment of the premium tax credit, advance payment of cost-sharing reductions or Federally-facilitated us er fees charge for a particular month; (2) risk adjustment payments or charges for a benefit year, including an assessment of risk adjustment user fees; (3) rein surance payments for a benefit year; (4) a risk adjustment default charge for a benefit year; (5 ) a reconciliation payment or charge for costsharing reductions for a benefit ye ar; or (6) risk corridors payments or charges for a benefit year. While the hours involved in a request for rec onsideration may vary, for the purpose of this burden estimate we estimate that it will take an in surance operations analyst 1 hour (at an hourlyCMS-9954-P 194
wage rate of $38.49) to make the comparison and submit a request for reconsideration to HHS. We estimate that 24 issuers, representing approxi mately 1 percent of a ll issuers that may be eligible for reinsurance payments, risk adju stment payments or charges (including any assessment of risk adjustment user fees or a de fault risk adjustment charge), advance payment and reconciliation of cost-sharing reductions, ad vance payment of the premium tax credit, and FFE user fees, will submit a request for reconsider ation, resulting in a total aggregate burden of approximately $924. We will revise the informa tion collection currently approved OMB Control Number 0938–1155 with an October 31, 2015 expirati on date to account fo r this additional burden. In §156.1220(b), we propose that an issuer that is dissatisfie d with the reconsideration decision regarding: (1) risk adjustment payments and charges, including an assessment of risk adjustment user fees; (2) reinsurance payments; (3 ) default risk adjustment charge; (4) reconciled cost-sharing reduction amounts; or (5) risk corridors paymen ts or charges, provided under paragraph (a) of §156.1220, is entitled to an informal hearing before a CMS hearing officer, if a request is made in writing within 15 calenda r days of the date th e issuer receives the reconsideration decision. Further review is available from the Ad ministrator of CMS. However, we believe these processes will occur extremely in frequently. Since collections from fewer than 10 entities are exempt from the PRA under 44 U. S.C. 3502(3)(A)(i), we are not seeking PRA approval for this information collection requirement. TABLE 7: Annual Reporting, Reco rdkeeping and Disclosure Burden

Regulation Section(s) Number of respondents Responses Burden per Response (hours) Total Annual Burden (hours) Hourly Labor Cost of Reporting ($) Total Labor Cost of Reporting ($) Total Capital/ Maintenance Costs ($) Total Cost ($) §153.405 226 226 22.50 5,085 53.75 273,319 0 273,319 §153.410; §153.620 120 120 90.00 10,800 53.75 580,500 0 580,500CMS-9954-P 195

Regulation Section(s) Number of respondents Responses Burden per Response (hours) Total Annual Burden (hours) Hourly Labor Cost of Reporting ($) Total Labor Cost of Reporting ($) Total Capital/ Maintenance Costs ($) Total Cost ($) §153.500- §153.540- 2,400 2,400 0.50 1,200 38.49 46,200 46,200 §153.540 1,200 1,200 1.50 1,200 51.33 92,394 0 92,394 §153.630(b)(1) 2,400 2,400 0.50 1,200 57.75 69,300 0 69,300 §153.630(b)(8) 2,400 2,400 0.50 1,200 57.75 69,300 0 69,300 (§153.700(d) and (e)) 2,400 2,400 8.00 19,200 38.49 739,008 0 739,008 §156.1220 24 24 1.00 24 38.49 924 0 924 Total 3,970 a 1,870,945 0 1,870,945
a ICRs associated with §153.500, §153.630(b)(1), §153.630(b)(8) and §153.700(d) and (e) apply to the same respondents, so the total number of unique respondents is 3,970.
We have submitted an information collection request to OMB for review and approval of the ICRs contained in this proposed rule. Th e requirements are not effective until approved by OMB and assigned a valid OMB control number. To obtain copies of the supporting statemen t and any related forms for the paperwork collections referenced above, access CMS’s Web Site at http://www.cms.gov/Regulations-andGuidance/Legislation/PaperworkReductionActof 1995/PRA-Listing.html or e-mail your request, including your address, phone number, OM B number, and CMS document identifier, to Paperwork@cms.hhs.gov, or call the Repor ts Clearance Office at 410-786-1326. If you comment on these information collec tion requirements, please do either of the following: 1. Submit your comments electronically as specified in the ADDRESSES section of this proposed rule; or 2. Submit your comments to the Office of Info rmation and Regulatory Affairs, Office of Management and Budget, Attention: CMS Desk Officer, CMS-9972-F. Fa x: (202) 395–5806; or Email: OIRA

_ submission@omb.eop.gov

.CMS-9954-P 196

V. Response to Comments Because of the large number of public comments we normally receive on Federal Register documents, we are not able to acknowledge or respond to them individually. We will consider all comments we receive by the date and time specified in the "DATES" section of this preamble, and, when we proceed with a subse quent document, we will respond to the comments in the preamble to that document. VI. Regulatory Impact Statement (or Analysis) A. Statement of Need This proposed rule proposes standards relate d to the premium stabilization programs (risk adjustment, reinsurance, and risk corridors) that will protect issuers from the potential effects of adverse selection and protect cons umers from increases in premiums due to issuer uncertainty. The Premium Stabilization Rule and 2014 Payment Notice provided detail on the implementation of these programs, including th e specific parameters applicable to these programs. This proposed rule also proposes ad ditional standards with respect to composite rating, privacy and security of pe rsonally identifiable information, the open enrollment period for 2015, the actuarial value cal culator, the annual limitation on cost sharing for stand-alone dental plans, the meaningful difference standard for qualified health plans offered through a Federallyfacilitated Exchange, patient safety standards fo r issuers of qualified he alth plans, the Small Business Health Options Program, cost shari ng parameters, cost-sharing reductions, and FFE user fees. B. Overall Impact We have examined the impacts of this rule as required by Executive Order 12866 on Regulatory Planning and Review (Septemb er 30, 1993), Executive Order 13563 on Improving Regulation and Regulatory Review (January 18, 2011), the Regul atory Flexibility Act (RFA)CMS-9954-P 197
(September 19, 1980, Pub. L. 96-354), section 202 of the Unfunded Mandates Reform Act of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 804(2)). Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. A regulatory impact an alysis (RIA) must be prepared for rules with economically significant effects ($100 million or more in any 1 year). OMB has determined that this proposed rule is “economically si gnificant” within the meaning of section 3(f)(1) of Executive Order 12866, because it is likely to have an annual effect of $100 million in any 1 year. Accordingly, we have prepared a RIA that presents the costs and benefits of this proposed rule. Although it is difficult to discu ss the wide-ranging e ffects of these provisions in isolation, the overarching goal of the premium stabilizatio n and Exchange-related provisions and policies in the Affordable Care Act is to make affordab le health insurance avai lable to individuals who do not have access to affordable employer-sponsor ed coverage. The provisions within this proposed rule are integral to the goal of expanding coverage. For example, the premium stabilization programs decrease the risk of fina ncial loss that health insurance issuers might otherwise expect in 2015 and the advance paymen ts of the premium tax credit and cost-sharing reduction programs assist low- and moderate-i ncome consumers and Indians in purchasing health insurance. The combined impacts of thes e provisions affect the pr ivate sector, issuers, and consumers, through increased access to health care services including preventive services,CMS-9954-P 198
decreased uncompensated care, lower premiums, es tablishment of patient safety standards, and increased plan transparency. Through the reduc tion in financial uncertainty for issuers and increased affordability for consumers, these prov isions are expected to increase access to health
coverage. In this RIA, we discuss the requirements in th is proposed rule relate d to cost sharing and FFE user fees, as well as new oversight provisions for the prem ium stabilization programs. C. Impact Estimates of the Payment Notice Provisions and Accounting Table In accordance with OMB Circular A-4, Table 8 below depicts an accounting statement summarizing HHS’s assessment of the benefits, costs, and transfers associated with this regulatory action. This proposed rule implements standards for programs that will have numerous effects, including providing consumers with affordable hea lth insurance coverage, reducing the impact of adverse selection, and stabilizi ng premiums in the individual a nd small group health insurance markets and in an Exchange. We are unable to qu antify certain benefits of this proposed rule – such as increased patient safety and improved h ealth and longevity due to increased insurance enrollment – and certain costs – such as the co st of providing additiona l medical services to newly-enrolled individuals. The effects in Ta ble 8 reflect qualitative impacts and estimated direct monetary costs and tran sfers resulting from the provisi ons of this proposed rule for contributing entities, States, Exchanges, and heal th insurance issuers. The annualized monetized costs described in Table 8 reflect direct admini strative costs (including costs associated with labor, capital, overhead, and fringe benefits) to States and health in surance issuers as a result of the proposed provisions, and include administ rative costs estimated in the Collection of Information section of this proposed rule. We note estimated transfers in Table 8 do not reflect any user fees paid by insurance issuers for FFEs because we cannot estimate those fee totals. WeCMS-9954-P 199
also note that, while we are proposing a 2015 reinsura nce contribution rate th at is lower than the 2014 reinsurance contribution rate , total reinsurance administra tive expenses, including the reinsurance contribution rate, will increase from 2014 to 2015. TABLE 8: Accounting Table

Benefits: Qualitative: * Increased enrollment in the individual market leading to improved access to health care for the previously uninsured, especially individuals with medical conditions, which will result in improved health and protection from the risk of catastrophic medical expenditures * A common marketing standard covering the entire insurance market, reducing adverse selection and increasing competition * Robust oversight of programs that use Federal funds to ensure proper use of taxpayer dollars * Access to higher quality health care through the establishment of patient safety standards * Increasing coverage options for small employers and part-time employees while mitigating the effect of adverse selection Costs: Estimate Year Dollar Discount Rate Period Covered 1.75 million 2013 7 percent 2014- 2017 Annualized Monetized ($/year) 1.82 million 2013 3 percent 2014- 2017 Qualitative: * Costs incurred by issuers and contributing entities to comply with provisions in the proposed rule * Costs incurred by States for complying with audits of State-operated reinsurance programs
Transfers: Estimate Year Dollar Discount Rate Period Covered 11.59 million 2013 7 percent 2014- 2017 Annualized Monetized ($/year) 12.04 million 2013 3 percent 2014- 2017 * Transfers reflect incremental cost increases from 2014-2015 for reinsurance administrative expenses and the risk adjustment user fee, which are transf ers from contributing entities and health insurance issuers to the Federal government. * Unquantified: Lower premium rates in the individual market due to the improved risk profile of the insured, competition, and pooling This RIA expands upon the impact analyses of previous rules and utilizes the Congressional Budget Office’s (CBO ) analysis of the Affordable Care Act’s impact on Federal spending, revenue collection, and insurance enroll ment. The CBO’s estimates remain the most comprehensive for provisions pertaining to the A ffordable Care Act, and include Federal budget impact estimates for provisions that HHS has not independently estimated. The CBO’s May 2013 baseline projections estimated that 22 millio n enrollees will enroll in Exchange coverageCMS-9954-P 200
by 2016, including approximately 18 million Exchange enrollees who will be receiving subsidies. 37 Participation rates among pot ential enrollees are expected to be lower in the first few years of Exchange availability as employers and individuals adjust to the features of the Exchanges. Table 9 summarizes the effects of the risk adjustment and reinsurance programs on the Federal budget from fiscal ye ars 2014 through 2017, with the addi tional, societal effects of this proposed rule discussed in th is RIA. We do not expect the pr ovisions of this proposed rule to significantly alter CBO’s es timates of the budget impact of the risk adjustment and reinsurance programs that are desc ribed in Table 9. For this RIA, we are shifting the estimates for the risk adjustment and reinsurance programs to reflect the 4-year period from fiscal years 2014 through 2017, because CBO’s scoring of the risk adjustment and reinsurance programs assumed that payments and charges would begi n in 2014, when in fact these payments and charges will begin in 2015. CBO did not separately estimate the program costs of risk corridors, but assumed aggregate collections from some i ssuers would offset payments made to other issuers. We note that transfers associated w ith the risk adjustment and reinsurance programs were previously estimated in the Premium St abilization Rule; therefore, to avoid doublecounting, we do not include them in the accounting statement for this proposed rule (Table 8). In addition to utilizing CBO projections, HHS conducted an internal analysis of the effects of its regulations on enrollment and pr emiums. Based on these internal analyses, we anticipate that the quantitative e ffects of the provisions proposed inthis rule are consistent with our previous estimates in the 2014 Payment Notic e for the impacts associ ated with the costsharing reduction program, the advance paymen ts of the premium tax credit program, the premium stabilization programs, and FFE user fee requirements for health insurance issuers.

37 “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act,” Congressional Budget Office, May 2013.CMS-9954-P 201

TABLE 9: Estimated Federal Government Outl ays and Receipts for the Risk Adjustment and Reinsurance Programs from FY 2013-2017, in billions of dollars Year 2013 2014 2015 2016 2017 2013-2017 Risk Adjustment and Reinsurance Program Payments -- 6 17 18 20 61

Risk Adjustment and Reinsurance Program Collections * -- 13 16 18 18 65

* Risk adjustment program paym ents and receipts lag by one quarter. Recei pt will fully offset payments over time. Source: Congressional Budget Office. 2012. Letter to Hon. John Boehner. July 24, 2012. Risk Adjustment The risk adjustment program is a permanent program created by the Affordable Care Act that transfers funds from lowe r risk, non-grandfathered plans to higher risk, non-grandfathered plans in the individual and sma ll group markets, inside and outsid e the Exchanges. In subparts D and G of the Premium Stabilization Rule and th e 2014 Payment Notice, we established standards for the administration of the risk adjustment program. A State approved or conditionally approved by th e Secretary to operate an Exchange may establish a risk adjustment program, or have HHS do so on its behalf. As described in the 2014 Payment Notice, if HHS operates risk adjustment on behalf of a State, it will fund its risk adjustment program operations by assessing a risk adjustment user fee on issuers of risk adjustment covered plans. For the 2015 benefit y ear, we estimate that the total cost for HHS to operate the risk adjustment program on behalf of States for 2015 will be approximately $27.3 million, and that the per capita risk adjustment user fee would be less than $1.00 per year for HHS to operate the risk adjustment program on behalf of States for 2015. In this proposed rule, we propose in §153.620(c) that HHS or its designee may audit an issuer of a risk adjustment covered plan, when HHS operates risk adju stment on behalf of a State, to assess the issuer’s compliance with the requirements of subparts G and H of 45 CFR part 153. As discussed above, HHS intends to fund risk adjust ment operations (not includingCMS-9954-P 202
Federal personnel costs), including risk adjustme nt program integrity and audit functions, by collecting a per capita user fee fr om issuers of risk adjustment covered plans. Therefore, we believe that the costs to the Federal government associated with the risk adjustment audit activities in this propose d rule would be covered through the ri sk adjustment user fee, and that there would be no impact for the Federal governmen t as a result of the proposed audit provisions. The proposed audit provision would result in addi tional costs for issuers of risk adjustment covered plans related to gather ing information and preparing fo r an audit. We discuss the administrative costs associated with this propose d requirement for issuers in the Collection of Information section of this proposed rule. Although this proposed rule would result in some additional admi nistrative burden for issuers of risk adjustment covered plans as a result of the proposed requirements for risk adjustment data validation and submission of discre pancy reports in response to interim and final dedicated distributed data envir onment reports, we note that much of the impact associated with establishing a dedicated distribut ed data environment and a risk adjustment data validation process has previously been es timated in the Premium Stabilization Rule and the 2014 Payment Notice. We do not believe that provisions containe d within this proposed ru le substan tially alter the previous estimates. We describe these admini strative costs in the Collection of Information Requirements section of this proposed rule. Reinsurance The Affordable Care Act directs that a transi tional reinsurance program be established in each State to help stabilize premiums for cove rage in the individual market from 2014 through 2016. In the 2014 Payment Notice, we expanded upon the standards set forth in subparts C and E of the Premium Stabilization Rule and esta blished the 2014 uniform reinsurance payment parameters and national contribution rate. In this proposed rule, we set forth the 2015 uniformCMS-9954-P 203
reinsurance payment parameters and contribution rate, and oversight prov isions related to the operation of the reinsurance program. Section 153.220(c) provides that HHS will publish the uniform per capita reinsurance contribution rate for the upcoming benefit year in the annual HHS notice of benefit and payment parameters. Section 1341(b)(3)(B)( iii) of the Affordable Care Ac t specifies that $10 billion for reinsurance contributions is to be collected fr om contributing entities in 2014 (the reinsurance payment pool), $6 billion in 2015, and $4 billion in 2016. Additionally, sections 1341(b)(3)(B)(iv) and 1341(b )(4) of the Affordable Care Act direct that $2 billion in funds is to be collected for contribution to the U.S. Treas ury in 2014, $2 billion in 2015, and $1 billion in 2016. Finally, section 1341(b)(3)(B)( ii) of the Affordable Care Act allows for the collection of additional amounts for administrative expenses. Taken together, these three components make up the total dollar amount to be co llected from contributing entities for each of the 3 years of the reinsurance program under the unif orm per capita contribution rate. If HHS operates the reinsurance program on beha lf of a State, HHS would retain $0.14 as an annual per capita fee to fund HHS’s performan ce of all reinsurance functions. If a State establishes its own reinsurance program, HHS would transfer $0.07 of the per capita administrative fee to the State for purposes of administrative expens es incurred in making reinsurance payments, and retain the remain ing $0.07 to offset the costs of contribution collection. To safeguard the use of Federal funds in the transitional reinsurance program, we propose in §153.270(a) that HHS or its designee may cond uct a financial and programmatic audit of a State-operated reinsurance program to assess co mpliance with the requirements of subparts B and C of 45 CFR part 153. As discussed above, HHS intends to fund reinsurance operations (not including Federal personnel cost s), including program integrity a nd audit functions, by collectingCMS-9954-P 204
as part of the uniform contribu tion rate, administrative expenses associated with operating the reinsurance program from all rein surance contributing entities. Th erefore, we believe that the costs to the Federal government a ssociated with the reinsurance a udit activities in this proposed rule would be covered through the reinsurance co ntribution rate, and that there would be no net budget impact for the Federal government as a resu lt of the proposed audit provisions. Because this proposed audit requirement w ould direct a State that estab lishes a reinsurance program to ensure that its applicable rein surance entity and any relevant contractors, subcontractors, or agents cooperate with an audit, and would direct the State to provide to HHS for approval a written corrective action plan; im plement the plan; and provide to HHS written documentation of the corrective actions once taken, if the audit resulted in a find ing of material weakness or significant deficiency, the propos ed requirement would impose a cost on States operating reinsurance. We believe that State-operated reinsurance programs woul d already electronically maintain the information necessary for an audit as part of their normal business practices and as a result of the maintenance of records requireme nt set forth in §153.240(c), no additional time or effort will be necessary to develop and maintain audit information. We estimate that it will take a compliance analyst (at an hour ly wage rate of $53.75) 40 hours to gather the necessary information required for an audit, 5 hours to pr epare a corrective action plan based on the audit findings and 64 hours to implement and document th e corrective actions taken if necessary. We also estimate a senior manager (at an hourly wage rate of $77) will take 5 hours to oversee the transmission of audit information to HHS and to review the corrective action plan prior to submission to HHS, and 16 hours to oversee implem entation of any correc tive actions taken. Therefore, we estimate a total administrative cost of approximately $7,476 for each Stateoperated reinsurance program as a result of this proposed audit requirement. For the two States that will operate reinsurance fo r the 2014 benefit year, we esti mate an aggregate burden ofCMS-9954-P 205
approximately $14,952 as a result of this requirement . Although we have estimated the cost of a potential audit in this RIA, we note that we will not audit all State-operated reinsurance programs, and may not audit any of these programs. In §153.405(i) and §153.410(d), we propose that HHS may audit contributing entities and issuers of reinsurance-eligible plans to assess compliance with reinsurance program requirements. We discuss the costs to contribut ing entities and issuers of reinsurance-eligible plans as a result of this proposed requirement in the Collection of Inform ation section of this proposed rule. We intend to combine issuer audits for the premium stabilization programs whenever practicable to reduce th e financial burden of these audits on issuers. Consequently, we anticipate that, because issuers of reinsurance-eligible plans may also be subject to risk adjustment requirements, we would conduct thes e audits in a manner that avoids overlapping review of information that is required for both programs. Risk Corridors The Affordable Care Act creates a temporar y risk corridors program for the years 2014, 2015, and 2016 that applies to QHPs, as defined in §153.500. The risk corridors program creates a mechanism for sharing risk for allowable co sts between the Federa l government and QHP issuers. The Affordable Care Act establishes the risk corridors program as a Federal program; consequently, HHS will operate the risk corridor s program under Federal rules with no State variation. The risk corridors progr am will help protect against inaccu rate rate setting in the early years of the Exchanges by limiting the ex tent of issuer losses and gains. As mentioned elsewhere in this propose d rule, for the 2014 benefit year, we are proposing an adjustment to the risk corridors formula that would help to further mitigate potential QHP issuers’ unexpected losses that are attributable to the effects of the transition policy. This proposed adjustment may increase the total amount of risk corridors payments thatCMS-9954-P 206
the Federal government will make to QHP issu ers, and reduce the amount of risk corridors receipts; however, we are consid ering a number of approaches th at would limit the impact of the policy on the Federal budget. Because of the difficulty associated with predicting State enforcement of 2014 market rule s and estimating the enrollment in transitional plans and in QHPs, we cannot estimate the magnitude of this impact on aggregate risk corridors payments and charges at this time. We al so estimate that this proposed ad justment would result in direct administrative costs for individual and small gr oup market issuers that are discussed in the Collection of Information secti on of this proposed rule. To ensure the integrity of risk corridor s data reporting, we propose in §153.540(a) to establish HHS authority to conduct post-payment a udits of QHP issuers. We are contemplating several ways to reduce issuer burden, such as conducting the risk corridors audits using the existing MLR audit process or conducting risk co rridors audits under an overall issuer audit program. Therefore, as described in the Collection of Information section of this proposed rule, we believe that the cost for i ssuers that would result from this proposed audit requirement is already accounted for as part of the MLR audit process. We also propose in §153.540(c) to extend our CMP authority unde r sections 1321(a)(1) and (c)(2) of the Affordable Care Act to all QHP issuers that fail to pr ovide timely, accurate, and complete data necessary for risk corridors calcula tions, or that otherwise do not comply with the standards in subpart F of 45 CFR part 153. We propose to assess CMPs on QHP issuers in State Exchanges in accordance with the same enforcem ent and sanction procedures that apply to QHP issuers on an FFE under §156.805. As set forth in §156.805(c), HHS will impose a maximum penalty amount of $100 per day on a QHP issuer for each violation, for eachindividual adversely affected by the noncompliance. As noted in the preamble to §153.54 0 in this proposed rule, for violations ofCMS-9954-P 207
subpart F where the number of individuals adve rsely affected by the non-compliance cannot be determined, we propose giving HHS the authority to estimate the number of individuals likely to be adversely affected by the non-compliance. We note that CMPs will be imposed only for serious issues of non-compliance. We expect to provide techni cal assistance to issuers, as appropriate, to assist them in maintaining complia nce with the applicable standards. We also plan to coordinate with States and the MLR program in our overs ight and enforcement activities to avoid inappropriately duplicating enforcement efforts. Consequently, we anticipate that CMPs will be rare, and that the impact of th is proposed requirement on QHP issuers will be negligible. Provisions Related to Cost Sharing The Affordable Care Act provides for the redu ction or elimination of cost sharing for certain eligible individu als enrolled in QHPs offe red through the Exchanges. This assistance will help many low- and moderate-income individuals and families obtain health insurance – for many people, cost sharing is a barrie r to obtaining needed health care. 38 To support the administration of the cost-shari ng reduction program, we set forth in this proposed rule the reductions in the maximum annu al limitation on cost sharing for silver plan variations and a modified methodology for cal culating advance payments for cost-sharing reductions. For benefit year 2015, we propose to require the same reductions in the maximum annual limitation on cost sharing as were finali zed for benefit year 2014. We note that we are proposing certain modifications to the methodology for calculating advance payments for costsharing reductions, but we do not believe thes e changes will result in a significant economic

38 Brook, Robert H., John E. Ware, William H. Rogers , Emmett B. Keeler, Allyson Ross Davies, Cathy D. Sherbourne, George A. Goldberg, Kathleen N. Lohr, Patricia Camp and Joseph P. Newhouse. The Effect of Coinsurance on the Health of Adults: Results from the RAND Health Insurance Experiment. Santa Monica, CA: RAND Corporation, 1984. Available at: http://www.rand.org/pubs/ reports/R3055.CMS-9954-P 208
impact. Therefore, we do not believe the provis ions related to cost-sharing reductions in this proposed rule will have an impact on the progr am established by and described in the 2014 Payment Notice. We also proposed a methodology for esti mating average per capita premium, and proposed the premium adjustment percentage for the 2015 benefit year. Section 156.130(e) provides that the premium adjustment percentage is the percentage (if an y) by which the average per capita premium for health insurance coverage for the preceding calendar year exceeds such average per capita premium for health insuranc e for 2013, and that this percentage will be published annually in the HHS no tice of benefit and payment parameters. The annual premium adjustment percentage that is issued sets the rate of increase for four parameters detailed in the Affordable Care Act: the annua l limitation on cost sh aring (defined at §156.130(a)), the annual limitation on deductibles for plans in the small group (defined at §156.130( b)), and the section 4980H(a) and section 4980H(b) a ssessable payment amounts (proposed at 26 CFR 54.4980H in the “Shared Responsibility for Employers Rega rding Health Coverage ,” published in the Federal Register January 2, 2013 (78 FR 218)). We believe that the proposed premium adjustment percentage is well within the parameters used in the modeling of the Affordable Care Act, and do not expect that these proposed provisions w ill alter CBO’s May 2013 baseline estimates of the budget impact. Annual Open Enrollment Period We propose amendments to §155.410(e) and (f) to amend the dates for the annual open enrollment period and related coverage effec tive dates. These proposed amendments would benefit issuers at no additional cost, as Excha nges would delay their QHP certification dates by at least one month, giving issuers additional ti me. Because open enrollment dates would be moved forward, Exchanges would still have the sa me amount of time for the QHP certificationCMS-9954-P 209
process, and we do not anticipate that this would come at an additional cost to Exchanges. Consumers would have the benefit of a more be neficial open enrollment period, without any additional demand placed on them. Calculation of Plan Actuarial Value Issuers may incur minor administrative cost s associated with altering cost-sharing parameters of their plan designs to ensure co mpliance with AV requirements when utilizing the AV calculator from year-to-year. These requiremen ts are established in the EHB Rule and are in accordance with the proposed provisions in this proposed rule. Since issuers have extensive experience in offering products with various levels of cost sharing and si nce these modifications are expected to be relatively minor for most i ssuers, HHS expects that the process for computing AV with the AV Calculator will not demand many additional resources.
User Fees To support the operation of FFEs, we require in §156.50(c) that a participating issuer offering a plan through an FFE must remit a user fee to HHS each month equal to the product of the monthly user fee rate specifi ed in the annual HHS notice of benefit and payment parameters for the applicable benefit year and the monthl y premium charged by the issuer for each policy under the plan where enrollment is through an FFE. For the 2015 benefit year, we propose a monthly user fee rate equal to 3.5 percent of the monthly premium. We do not have an aggregate estimate of the collections from the user fee at this time because we do not yet have a count of the number of States in which HHS w ill run an FFE or FF-SHOP in 2015.
SHOP The SHOPs facilitate the enrollment of eligib le employees of small employers into small group health insurance plans. A qualitative analys is of the costs and benefits of establishing a SHOP was included in the RIA published in c onjunction with the Exchange EstablishmentCMS-9954-P 210

Rule. 39 This RIA addresses the additional costs a nd benefits of the proposed modifications in this proposed rule to the SHOP sections of the Exchange Establishment Rule. In this proposed rule, we propose revisi ng paragraph §155.705 (b)(1), which lists the rules regarding eligibility and enrollment to wh ich the SHOPs must adhere, to include mention of additional provisions regardi ng termination of coverage in SHOPs and SHOP employer and employee eligibility appeals that were finalized in the first final Program Integrity Rule. We propose that an employer in the FF-SHOPs would ha ve the option to offer its employees either a single SADP or a choice of all SADPs available in an FF-SHOP for plan years beginning on or after January 1, 2015. In §155.705(b)(11)(ii)(D) we propose prohibiting an employer in an FFSHOP from basing its contributi on on composite rates when employee choice becomes available and the employer elects to offer its employees a ll plans in a metal tier selected by the employer. We also propose amendments to §155.705(b)(4 ) that would allow SHOPs performing premium aggregation to estab lish a standard method for premium calculation, payment, and collection. We propose that in the FF-SHOPs, af ter premium aggregation becomes available in plan years beginning on or after January 1, 2015, employers would be required to remit premiums to the FF-SHOP in accordance with a payment timeline and process established by HHS through guidance, and that pr emiums for coverage of less th an 1 month would be prorated by multiplying the number of days of coverage in the partial month by the premium for 1 month divided by the number of days in the month. In developing the premium payment timeline and process, HHS will consider its interest in ope rating and administering the FF-SHOPs efficiently, as well as issuers’ interests in ensuring tim ely payment of premiums, and issuers’ and employers’ interests in establishi ng a fair and workable premium payment process. We believe

39 Available at: http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdfCMS-9954-P 211
the proposed approach to prorating to be the fa irest for both consumers and issuers because an enrollee will pay for the portion of cove rage provided for a partial month. We also propose amendments to §155.705(b)(11) that would provide additional flexibility to an employer’s abil ity to define a percentage c ontribution toward premiums under the employer selected reference plan in the FF-SHOPs. Although we proposed and rejected a similar approach in the 2014 Paym ent Notice because we concluded it was inconsistent with the uniformity provisions established in Internal Revenue Service Notice 2010–82, which require employers to contribute a uniform percentage to employee premiums in order to claim a small business tax credit, we believe small employers are best able to determine whether offering different contribution leve ls would be in the best interest of the business and its employees. We believe that this additional flexibility would br ing the FF-SHOPs more in line with current small group market practices and provide an additional in centive for small employers to participate in the FF-SHOPs. Additionally, we believe that pr oviding a mechanism that would allow different contribution levels based on full-time or non-full- time status may encourage some employers to offer coverage to non-full-time employees. In §155.715, we propose amendments that w ould provide for SHOP eligibility adjustment periods for both employers and em ployees only when there is an inconsistency between information provided by an applican t and information collected through optional verification methods under §155.715( c)(2) rather than when an employer submits information on the SHOP single employer applicatio n that is inconsistent with the eligibility standards described in §155.710 or when the SHOP receives informa tion on the employee’s application that is inconsistent with the information provided by the employer, as current paragraph §155.715(d) provides. We also propose to amend paragraph (c)(4) to re place a reference to sections 1411(b)(2) and (c) of the Affordable Care Act wi th a reference to Subpart D of 45 CFR part 155,CMS-9954-P 212
and to add a reference to eligibility verifications as well as to eligibility determinations. The proposed changes would prohibit a SHOP from performing any individual market Exchange eligibility determinations or ve rifications as described in Subpart D, which, for example, includes making eligibility determinations for ad vance payments of the premium tax credit and cost sharing reductions in the in dividual market Exchange. In §155.730 we propose to provide that SHOPs ar e not permitted to collect information from applicants, employers, or employees in the SHOP if that information is not necessary to determine SHOP eligibility or effectuate enro llment through a SHOP. Limiting the information required of an applicant helps to protect c onsumer privacy and promote efficiency and streamlining of the SHOP application process. In §155.220, we propose for plan years beginni ng on or after January 1, 2015 to allow SHOPs, in States that permit this activity under State law, to permit enrollment in a SHOP QHP through the Internet Web site of an agent or broker under the standards set forth in §155.220(c)(3). Permitting an employer to comple te QHP selection thro ugh the Internet Web site of an agent or broker is an additional pot ential enrollment channel that would provide small employers with another avenue to the SHOPs. In §156.285, we propose that when premium aggregation becomes available in FFSHOPs for plan years beginning on or after Janua ry 1, 2015, if an issuer does not receive an enrollment cancellation transaction from the FF-SHOP , it should effectuate coverage even if the issuer would not receive an employer’s initial premium payment from the FF-SHOP prior to the coverage effective date. We al so propose that a qualified empl oyer in the SHOP that becomes a large employer would continue to be rated as a small employer and propose to prohibit issuers from composite billing in the FF-SHOPs when employee choice becomes available and an employer selects a level of covera ge and not a single plan.CMS-9954-P 213
We do not expect the proposed pol icies related to the SHOP to create any new significant costs for small businesses, employees, or the FF-SHOPs. Patient Safety The proposed patient safety requirements woul d be implemented in phases, to ensure that QHP issuers contract with hospitals that meet adequate safety and quality standards in their networks. The proposed rule would require QHP issuers to collect and maintain CCNs for each of its contracted hospitals that are certified for more than 50 be ds. It also would require that this documentation, if requested by the Exchange, be submitted in a form and manner specified by the Exchange. QHP issuers would already have established procedures and relationships to contract with hospitals including obtaining hospi tal identification information. Therefore, HHS believes that there would not be a significant ad ditional cost for a QHP issuer to collect and maintain CCNs. QHP issuers would incur costs to submit this information, if requested, to the Exchange. We discuss the burden associated wi th submitting this information in the Collection of Information section of this proposed rule. D. Regulatory Alternatives Considered We considered a number of alternatives to our proposed approach to program integrity for the premium stabilization programs. For ex ample, although we finalized in previous rulemaking our framework for the risk adjustment data validation program to be used when we operate risk adjustment on behalf of a State, the preamble to this propo sed rule discusses and seeks comment on a number of alternative a pproaches to the detailed methodology proposed here. For example, we have suggested a number of options for confidence intervals and whether to use tests of statistical significance in determin ing plan average risk score adjustments. We have also suggested an expedite d second validation audit approach to permit more time for inter-CMS-9954-P 214
auditor discussions and appeals. We have suggested a number of wa ys to calculate a default risk adjustment charge for an issuer that fa ils to provide initial validation audits. In the preamble discussion of our proposed modifications to the risk adjustment methodology, we considered not providing for an induced demand adjustment for Medicaid expansion plan variations, but we believe that not doing so would underestimate the risk in those plans, potentially leading to hi gher premiums in those plans. In §153.270, we propose that HHS may audit St ate-operated reinsurance programs to ensure appropriate use of Federal funds. We al so considered not proposing that HHS have such authority. However, we believe that because HHS will collect reinsurance contributions and because a State’s issuers’ reinsurance requests af fect the availability of reinsurance funds for issuers in other States, we think it is critical for HHS to have the authority to perform these audits, so that issuers and States are confident th at they will receive the correct allocation of the reinsurance payments. We also considered prop osing that HHS have the authority to audit a State-operated risk adjustment program. Howe ver, we decided not to do so because those programs do not take in Federal funds and thos e programs have little impact on the health insurance markets in other States. We considered not proposing that HHS ha ve the authority to assess CMPs on QHP issuers for non-compliance with the risk corridor s standards. This would reduce the burden on QHP issuers on State Exchanges and would have re duced Federal oversight costs. However, we determined that similar standards and oversight were appropriate for all issuers of QHPs, regardless of whether the QHPs were offered th rough FFEs or State Exchanges, in order to ensure compliance with the risk corridors program and the prope r use of Federal funds. In the preamble discussion of the 2015 rein surance payment parameters, we also considered, when setting forth the proposed 2015 reinsurance payment parameters, a set ofCMS-9954-P 215
uniform reinsurance payment parameters that w ould have substantially raised the attachment point or lowered the reinsuran ce cap, but believe those uniform reinsurance payment parameters would have raised the complexity of estima ting the effects of reinsurance for issuers. As detailed in the preamble discussion re garding our proposed approach to estimating cost-sharing reduction amounts in connection with reinsurance calculatio ns, we considered a number of alternative approach es to this estimation. Finall y, we considered a number of different approaches to the di screpancy and administrative appeals process proposed in §153.710 and §156.1220. Some of these approaches would ha ve provided for lengthier and more formal administrative appeals processes, including for advance payments of the premium tax credit, advance payment for cost-sharing reductions, and FFE user fees in 2014. We did not adopt that approach for these 2014 programs, and instead re ly on operational discrepancy reports and onelevel of administrative appeals – a request for reconsideration, because we believe that this approach will be simpler and less expensive, and will permit operations specialists, issuers and HHS to resolve most problems more quickly. We considered relying solely on a simpler operational discrepancy report process for the pr emium stabilization programs and cost-sharing reductions reconciliation in 2015 – but decided that due to the complexity of the calculations involved in these programs and the potential ma gnitude of the payment flows, issuers would prefer that these calculations be subject to more formal administrative processes. Multiple alternatives were considered to the proposed SHOP approaches and are discussed in detail above. E. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq .) (RFA) requires agencies to prepare an initial regulatory flexibility analysis to describe the impact of the proposed rule on small entities, unless the head of the agency can cer tify that the rule will not have a significantCMS-9954-P 216
economic impact on a substantial number of sma ll entities. The RFA 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 organization that is not dominant in its field, or (3) a small government jurisdiction with a popul ation of less than 50,000. St ates and individuals are not included in the definition of “small entity.” HHS us es a change in revenues of more than 3 to 5 percent as its measure of significant economic imp act on a substantial numb er of small entities. In this proposed rule, we propose provisions fo r the risk adjustment, reinsurance, and risk corridors programs, which are intended to stabil ize premiums as insurance market reforms are implemented and Exchanges facilita te increased enrollment. Becau se we believe that insurance firms offering comprehensive health insurance po licies generally exceed the size thresholds for “small entities” established by the SBA, we do not believe that an initial regulatory flexibility analysis is required for such firms. For purposes of the RFA, we expect the followi ng types of entities to be affected by this proposed rule:

● Health insurance issuers.

● Group health plans.

● Reinsurance entities. We believe that health insura nce issuers and group health pl ans would be classified under the North American Industry Classification Sy stem (NAICS) code 5241 14 (Direct Health and Medical Insurance Carriers). According to SB A size standards, entitie s with average annual receipts of $35.5 million or less would be consid ered small entities for these NAICS codes. Issuers could possibly be classified in 621491 (HMO Medical Centers) and, if this is the case, the SBA size standard would be $30 million or less.CMS-9954-P 217
In this proposed rule, we proposed requireme nts on employers that choose to participate in a SHOP Exchange. The SHOPs are limited by st atute to employers with at least one but not more than 100 employees. For this reason, we expect that many employers who would be affected by the proposals would meet the SBA sta ndard for small entities. We do not believe that the proposals impose requirements on empl oyers offering health insurance through the SHOP that are more restrictive than the cu rrent requirements on small employers offering employer sponsored insurance. Additionally, as discussed in the RIA, we believe the proposed policy will provide greater choice for both employ ees and employers. We believe the processes that we have established consti tute the minimum amount of requi rements necessary to implement the SHOP program and accomplish our policy go als, and that no appropriate regulatory alternatives could be developed to further lessen the compliance burden. We believe that a substantial number of spons ors of self-insured group health plans could qualify as “small entities.” This proposed rule provides HHS with the authority to audit these entities. However, we do not believ e that the burden of these audits is likely to reflect more than 3 to 5 percent of such an entity’s revenues. F. Unfunded Mandates Section 202 of the Unfunded Mandates Re form Act of 1995 (UMRA) requires that agencies assess anticipated costs and benefits an d take certain other ac tions before issuing a proposed rule that includes any Federal mandate that may result in expenditures in any 1 year by a State, local, or Tribal governments, in the ag gregate, or by the privat e sector, of $100 million in 1995 dollars, updated annually for inflation. In 2013, that threshold is approximately $141 million. Although we have not been able to quantify the user fees that will be associated with this proposed rule, the combined ad ministrative cost and user fee imp act on State, local, or TribalCMS-9954-P 218
governments and the private sector may be above the threshold. Earlier portions of this RIA constitute our UMRA analysis. G. Federalism Executive Order 13132 establishes certain requirem ents that an agency must meet when it promulgates a proposed rule that imposes substan tial direct costs on State and local governments, preempts State law, or otherwise has Federalism im plications. Because States have flexibility in designing their Exchange and Exchange-relate d programs, State decisions will ultimately influence both administrative expenses and ove rall premiums. States are not required to establish an Exchange or risk ad justment or reinsurance program. For States electing to operate an Exchange, risk adjustment or reinsurance prog ram, much of the initia l cost of creating these programs will be funded by Exchange Planning and Establishment Grants. After establishment, Exchanges will be financially self-sustaining, with revenue sources at the discretion of the State. Current State Exchanges charge user fees to issuers. In HHS’s view, while this proposed rule di d not impose substantial direct requirement costs on State and local governments, this regulat ion has Federalism implications due to direct effects on the distribu tion of power and responsibilitie s among the State and Federal governments relating to determining standards relating to health insu rance that is offered in the individual and small group markets. Each State electing to establ ish an Exchange must adopt the Federal standards contained in the Affordable Ca re Act and in this proposed rule, or have in effect a State law or regulation that impleme nts these Federal standards. However, HHS anticipates that the Federalism implications (if any) are substantially mitigated because under the statute, States have choices regarding the stru cture and governance of their Exchanges and risk adjustment and reinsurance progr ams. Additionally, the Affordable Care Act does not requireCMS-9954-P 219
States to establish these programs; if a State elects not to estab lish any of these programs or is not approved to do so, HHS must establish a nd operate the programs in that State. In compliance with the requirement of Ex ecutive Order 13132 that agencies examine closely any policies that may ha ve Federalism implications or limit the policy making discretion of the States, HHS has engaged in efforts to c onsult with and work cooperatively with affected States, including participating in conference calls with and atte nding conferences of the National Association of Insurance Commi ssioners, and consulting with State insurance officials on an individual basis. Throughout the process of developing this pr oposed rule, HHS has attempted to balance the States’ interests in regulating health insurance issuers, and C ongress’ intent to provide access to Affordable Insurance Exchanges for consumers in every State. By doing so, it is HHS’s view that we have complied with the requirements of Executive Order 13132. H. Congressional Review Act This proposed rule is subject to the Congressional Review Act provisions of the Small Business Regulatory Enforcement Fairness Act of 1996 (5 U.S.C. 801 et seq.), which specifies that before a rule can take eff ect, the Federal agency promulgati ng the rule shall submit to each House of the Congress and to th e Comptroller General a report containing a copy of the rule along with other specified information, and has been transmitted to Congress and the Comptroller General for review.CMS-9954-P 220

List of Subjects
45 CFR Part 144 Health care, Health insurance, Repor ting and recordkeeping requirements.
45 CFR Part 147 Health care, Health insurance, Reporting and recordkeeping requirements, and State regulation of health insurance.
45 CFR Part 153 Administrative practice and pro cedure, Adverse selection, Hea lth care, Health insurance, Health records, Organization and functions (Government agencies), Premium stabilization, Reporting and recordkeeping requirements, Reinsura nce, Risk adjustment, Risk corridors, Risk mitigation, State and local governments.
45 CFR Part 155 Administrative practice and pr ocedure, Health care access, Health insurance, Reporting and recordkeeping requirements, State and local governments, Cost-sharing reductions, Advance payments of premium tax credit, Administrati on and calculation of advance payments of the premium tax credit, Plan va riations, Actuarial value.
45 CFR Part 156 Administrative appeals, Ad ministrative practice and pr ocedure, Administration and calculation of advance payments of premium tax credit, Advertising, Advisory Committees, Brokers, Conflict of interest, Consumer prot ection, Cost-sharing reductions, Grant programshealth, Grants administration, Health care, Heal th insurance, Health maintenance organization (HMO), Health records, Hospitals, American Indian/Alaska Natives, Individuals with disabilities, Loan programs-health, Organiza tion and functions (Government agencies), Medicaid, Payment and collections reports, Public assistance pr ograms, Reporting andCMS-9954-P 221
recordkeeping requirements, State and local gover nments, Sunshine Act, Technical assistance, Women, and Youth.CMS-9954-P 222
For the reasons set forth in the preamble, th e Department of Health and Human Services proposes to amend 45 CFR parts 147, 153, 155, a nd 156, and proposes to further amend 45 CFR parts 144, 153, and 156, as amended October 30, 2013, at 78 FR 65091, effective December 30, 2013, as set forth below: PART 144 – REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE 1. The authority citation for part 14 4 continues to read as follows: Authority : Secs. 2701 through 2763, 2791, and 2792 of the Public Health Service Act 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 300gg-92. 2. Section 144.103 is amended by revising the first sentence in pa ragraph (1) of the definition of “Policy year” to read as follows: §144.103 Definitions. * * * * * Policy year * * * (1) A grandfathered health plan offered in the individual health insurance market and student health insurance coverage , the 12-month period that is de signated as the policy year in the policy documents of the individual health insurance cove rage. * * *
* * * * *
PART 147 – HEALTH INSURANCE REFO RM REQUIREMENTS FOR THE GROUP
AND INDIVIDUAL HEALTH INSURANCE MARKETS 3. The authority citation for part 147 continues to read as follows: Authority : Secs. 2701 through 2763, 2791, and 2792 of the Public Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-91, and 300gg-92), as amended. 4. Section 147.102 is amended by revising paragraph (c)(3) to read as follows: § 147.102 Fair health insurance premiums.CMS-9954-P 223

* * * * * (c) * * * (3) Application to small group market . In the case of the sm all group market, the total premium charged to the group is determined by summing the premiu ms of covered participants and beneficiaries in accordance wi th paragraph (c)(1) or (2) of th is section, as applicable. Nothing in this section precludes a State from requiring issuers to offer, or an issuer from voluntarily offering, to a group pr emiums that are based on av erage enrollee premium amounts, provided that the total group premium is the sa me total amount derived in accordance with paragraph (c)(1) or (2) of this se ction, as applicable. In such case, effective for plan years beginning on or after January 1, 2015, an issuer must ensure that average enrollee premium amounts calculated based on applicable employee enro llment at the beginning of the plan year do not vary for any participant or beneficiary during the plan year.
* * * * * 5. Section 147.145 is amended by revising para graph (b)(1)(ii) to read as follows: § 147.145 Student health insurance coverage. * * * * * (b) * * * (1) * * * (ii) For purposes of section 2702 of the Publ ic Health Service Act, a health insurance issuer that offers student health insurance covera ge is not required to accept individuals who are not students or dependents of students in such coverage, and, notwithstan ding the requirements of §147.104(b), is not required to es tablish open enrollment periods or coverage effective dates that are based on a calendar pol icy year or to offer policie s on a calendar year basis.
* * * * *CMS-9954-P 224

PART 153 – STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND
RISK ADJUSTMENT UNDER THE AFFORDABLE CARE ACT 6. The authority citation for part 15 3 continues to read as follows: Authority : Secs. 1311, 1321, 1341–1343, Pub. L. 111–148, 24 Stat. 119. 7. Section 153.20 is amended by revising the definition of “contributing entity” and adding a definition of “major medical coverage” to read as follows: § 153.20 Definitions. * * * * * Contributing entity means— (1) A health insurance issuer; or (2) For the 2014 benefit year, a self-insured group health plan (including a group health plan that is partially self-insured and partiall y insured, where the health insurance coverage does not constitute major medical covera ge), whether or not it uses a th ird party administrator; and for the 2015 and 2016 benefit years, a self-insured gr oup health plan (including a group health plan that is partially self-insured and partially insu red, where the health insurance coverage does not constitute major medical coverage) that uses a third party administra tor in connection with claims processing or adjudication (including the management of app eals) or plan enrollment. A self-insured group health plan th at is a contributing entity is responsible for the reinsurance contributions, although it may elect to use a third party administra tor or administ rative servicesonly contractor for transfer of the reinsurance co ntributions.
* * * * * Major medical coverage means, for purposes only of the requirements related to reinsurance contributions under section 1341 of the Affordable Care Act, health coverage for aCMS-9954-P 225
broad range of services and trea tments provided in various setti ngs that provides minimum value in accordance with § 156.145 of this subchapter.
* * * * * 8. Section 153.230 is amended by revising paragraph (d) to read as follows: § 153.230 Calculation of reinsurance payments ma de under the national contribution rate. * * * * * (d) Uniform adjustment to national reinsurance payments . If HHS determines that all reinsurance payments requested under the natio nal payment parameters from all reinsuranceeligible plans in all States for a benefit year will not be equal to the amount of all reinsurance contributions collected for reinsurance payments under the national contribution rate in all States for an applicable benefit year, HHS will determine a uniform pro rata adjustment to be applied to all such requests for reinsurance payments for all States. Each applicable reinsurance entity, or HHS on behalf of a State, must reduce or in crease the reinsurance payment amounts for the applicable benefit year by any adjustment required under this pa ragraph (d). 9. Section 153.235 is amended by removing and reserving paragraph (b). §153.235 Allocation and distribution of reinsurance contributions. * * * * * (b) [Reserved] 10. Section 153.270 is added to subp art C to read as follows: § 153.270 HHS audits of State-operated reinsurance programs. (a) Audits . HHS or its designee may conduct a fi nancial and programmatic audit of a State-operated reinsurance program to assess compliance with the re quirements of this subpart or subpart B of this part. A Stat e that establishes a reinsurance program must ensure that itsCMS-9954-P 226
applicable reinsurance entity and any relevant c ontractors, subcontractors, or agents cooperate with any audit under this section. (b) Action on audit findings . If an audit results in a fi nding of material weakness or significant deficiency with respect to compliance w ith any requirement of this subpart or subpart B, the State must ensure that th e applicable reinsurance entity: (1) Within 60 calendar days of the issuance of the final audit report, provides a written corrective action plan to HHS for approval; (2) Implements that plan; and (3) Provides to HHS written documentation of the corrective actions once taken. 11. Section 153.400 is amended by revising paragr aph (a)(1) introductor y text and adding paragraphs (a)(1)(v) and (v i) to read as follows: § 153.400 Reinsurance contribution funds. (a) * * * (1) In general, reinsurance contributions are required for major medical coverage that is considered to be part of a commercial book of busin ess, but are not required to be paid more than once with respect to the same cove red life. In order to effectuate that principle, a contributing entity must make reinsurance contributions for lives covered by its self-insured group health plans and health insurance covera ge except to the extent that:
* * * * * (v) Such plan or coverage appl ies to individuals with primary residence in a territory that does not operate a reinsurance program. (vi) In the case of employer-p rovided group health coverage: (A) Such coverage applies to individuals with individual market health insurance coverage for which reinsurance co ntributions are required; orCMS-9954-P 227
(B) Such coverage is supplemental or sec ondary to group health coverage for which reinsurance contributions must be made for the same covered lives.
* * * * * 12. Section 153.405 is amended by revising pa ragraphs (c) and (e)(3) and adding paragraph (i) to read as follows: §153.405 Calculation of reinsurance contributions. * * * * * (c) Notification and payment . (1) Following submission of the annual enrollment count described in paragraph (b) of this section, HHS will notify the contributing entity of the reinsurance contribution amount allocated to rein surance payments and administrative expenses to be paid for the applicable benefit year. (2) In the fourth quarter of the calendar year following the applicab le benefit year, HHS will notify the contributing entity of the portion of the reinsurance contribution amount allocated for payments to the U.S. Treasury for the applicable benefit year. (3) A contributing entity must remit reinsurance contributions to HHS within 30 days after the date of a notification.
* * * * * (e) * * * (3) Using the number of lives covered for the most current plan year calculated based upon the “Annual Return/Report of Employee Benefit Plan” filed with the Department of Labor (Form 5500) for the last applicable time period. For purposes of this paragraph (e)(3), the number of lives covered for the plan year for a plan offering only self-onl y coverage equals the sum of the total participants covered at the beginn ing and end of the plan year, as reported on the Form 5500, divided by 2, and the number of lives covered for the plan year for a plan offeringCMS-9954-P 228
self-only coverage and coverage other than se lf-only coverage equals the sum of the total participants covered at the beginning and the end of the plan year, as reported on the Form 5500.
* * * * * (i) Audits . HHS or its designee may audit a contri buting entity to assess its compliance with the requirements of this subpart. 13. Section 153.410 is amended by adding paragraph (d) to read as follows: § 153.410 Requests for reinsurance payment. * * * * * (d) Audits . HHS or its designee may audit an issuer of a reinsurance-eligible plan to assess its compliance with the re quirements of this subpart and subpart H. The issuer must ensure that its relevant contract ors, subcontractors, or agents c ooperate with any audit under this section. If an audit results in a finding of materi al weakness or significant deficiency with respect to compliance with any requirement of this subpart or subpart H, the issuer must complete all of the following: (1) Within 30 calendar days of the issuance of the final audit report, provide a written corrective action plan to HHS for approval. (2) Implement that plan. (3) Provide to HHS written documentati on of the corrective actions once taken. 14. Section 153.510 is amended by adding paragraph (f) to read as follows: § 153.510 Risk corridors establis hment and payment methodology. * * * * * (f) Eligibility under heal th insurance market rules . The provisions of this subpart apply only for plans offered by a QHP issuer in the S HOP or the individual or small group market, as determined according to the employee counting method applicable under State law, that areCMS-9954-P 229
subject to the following provisi ons: §§147.102, 147.104, 147.106, 147.150, 156.80, and subpart B of part 156 of this subchapter. 15. Section 153.540 is added to subp art F to read as follows: § 153.540 Compliance with risk corridors standards. (a) Audits . HHS or its designee may audit a QHP i ssuer to assess its compliance with the requirements of this subpart. HHS will conduct an audit in accordance with the procedures set forth in §158.402(a) through (e) of this subchapter. (b) Enforcement actions . If an issuer of a QHP on a State-based Exchange fails to comply with the requirements of this subpa rt, HHS may impose civil money penalties in accordance with the procedures set forth in §156.805 of this subchapter. 16. Section 153.620 is amended by adding pa ragraph (c) to read as follows: § 153.620 Compliance with risk adjustment standards. * * * * * (c) Audits . HHS or its designee may audit an issuer of a risk adjustment covered plan to assess its compliance with the require ments of this subpart and subpart H of this part. The issuer must ensure that its relevant contractors, subcontractors, or agents cooperate with any audit under this section. If an audit results in a finding of material weakness or significant deficiency with respect to compliance with any requirement of this subpart or subpart H of this part, the issuer must complete all of the following: (1) Within 30 calendar days of the issuance of the final audit report, provide a written corrective action plan to HHS for approval. (2) Implement that plan. (3) Provide to HHS written documentati on of the corrective actions once taken.CMS-9954-P 230
17. Section 153.630 is amended by revising para graph (b)(1) and adding paragraphs (b)(5) through (10) to read as follows: § 153.630 Data validation requirements wh en HHS operates risk adjustment. * * * * * (b) * * * (1) An issuer of a risk adjustment covered plan must engage one or more independent auditors to perform an initial va lidation audit of a sample of its risk adjustment data selected by HHS. The issuer must provide HHS with the iden tity of the initial validation auditor, and must attest to the absence of conflicts of interest be tween the initial validati on auditor (or the members of its audit team, owners, directors, officers, or employees) and the issuer (or its owners, directors, officers, or empl oyees), in a timeframe and ma nner to be specified by HHS.
* * * * * (5) An initial validation audit must be conduc ted by medical coders ce rtified as such and in good standing by a nationally r ecognized accrediting agency. (6) An issuer must provide the initial valid ation auditor and the s econd validator auditor with all relevant source enrollment documenta tion, all claims and encounter data, and medical record documentation from providers of servi ces to each enrollee in the applicable sample without unreasonable delay and in a manner that reasonably assures confid entiality and security in transmission. (7) The risk score of each enrollee in the sample must be validated by – (i) Validating the enrollee’s enrollment data and demographic data through review of source enrollment documentation; (ii) Validating enrollee health status through review of a ll relevant medical record documentation. Medical record documentation must originate from the provider of the servicesCMS-9954-P 231
and align with dates of servic e for the medical diagnoses, and reflect permitted providers and services. For purposes of this section, “m edical record documentation” means clinical documentation of hospital inpatient or outpatient treatment or professional medical treatment from which enrollee health status is documented and related to accepted risk adjustment services that occurred during a specified period of tim e. Medical record documentation must be generated under a face-to-face or telehealth vi sit documented and authenticated by a permitted provider of services; (iii) Validating medical records according to industry standards for coding and reporting; and (iv) Having a senior reviewer confirm any enrollee risk adjustment error discovered during the initial validation audit. For purposes of this section, a “senior reviewer” is a reviewer certified as a medical coder by a nationally recogn ized accrediting agency who possesses at least 5 years of experien ce in medical coding. (8) The initial validation auditor must meas ure and report to the issuer and HHS, in a manner and timeframe specified by HHS, its inter-rat er reliability rates among its reviewers. The initial validation auditor must achieve a consistency measure of at least 95 percent for demographic, enrollment, and hea lth status review outcomes. (9) Enforcement actions: If an issuer of a risk adjustment covered plan fails to engage an initial validation auditor or to submit the result s of an initial validation audit to HHS, HHS may impose civil money penalties in accordance with the procedures set forth in §156.805 of this subchapter. (10) Default data validation charge: If an issuer of a risk adjustment covered plan fails to engage an initial validation auditor or to submit the results of an initial validation audit to HHS, HHS will impose a default risk adjustment charge.CMS-9954-P 232

* * * * * 18. Section 153.710 is amended by adding paragraphs (d), (e), (f), and (g) to read as follows: § 153.710 Data requirements.
* * * * * (d) Interim dedicated distribut ed data environment reports . Within 30 calendar days of the date of an interim dedicated distributed da ta environment report from HHS, the issuer must, in a format specified by HHS, either: (1) Confirm to HHS that the information in the interim report accurately reflects the data to which the issuer has provided access to HHS through its dedicated distributed data environment in accordance with § 153.700(a) for the timeframe specified in the report; or (2) Describe to HHS any discrepancy it identifie s in the interim dedicat ed distributed data environment report. (e) Final dedicated distributed data environment report . Within 15 calendar days of the date of the final dedicated distributed data en vironment report from HHS, the issuer must, in a format specified by HHS, either: (1) Confirm to HHS that the information in th e final report accurately reflects the data to which the issuer has provided access to HHS th rough its dedicated distributed data environment in accordance with §153.700(a) for the benefit year specified in the report; or (2) Describe to HHS any discrepancy it identif ies in the final dedica ted distributed data environment report. (f) Unresolved discrepancies . If a discrepancy first iden tified in an interim or final dedicated distributed data environment report in accordance with paragra phs (d)(2) or (e)(2) of this section remains unresolved af ter the issuance of the notificati on of risk adjustment paymentsCMS-9954-P 233
and charges or reinsurance pa yments under §153.310(e) or §153.240( b)(1)(ii), respectively, an issuer of a risk adjustment covered plan or re insurance-eligible plan may make a request for reconsideration regarding su ch discrepancy under the pro cess set forth in § 156.1220(a). (g) Risk corridors and me dical loss ratio reporting . (1) Notwithstanding any discrepancy report made under paragraph (d)(2) or (e)(2) of this section, or any request for reconsideration under § 156.1220(a) with respect to any risk ad justment payment or charge, including an assessment of risk adjustment user fees; re insurance payment; cost-s haring reconciliation payment or charge; or risk corridors payment or charge, unless the dispute has been resolved, an issuer must report, for purposes of the ri sk corridors and medical loss ratio programs: (i) The risk adjustment payment to be made or charge assessed, including an assessment of risk adjustment user fees, by HHS in the notification provided under § 153.310(e); (ii) The reinsurance payment to be made by HHS in the notification provided under §153.240(b)(1)(ii); (iii) A cost-sharing reduction amount equal to the amount of the advance payments of cost-sharing reductions paid to the i ssuer by HHS for the benefit year; and (iv) For medical loss ratio report only, the risk corridors payment to be made or charge assessed by HHS as reflected in the notification provide d under §153.510(d). (2) An issuer must report any adjustment made following any discrepancy report made under paragraph (d)(2) or (e)(2) of this section, or any reque st for reconsideration under § 156.1220(a) with respect to any risk adjustment pa yment or charge, including an assessment of risk adjustment user fees; reinsurance payment; cost-sharing reconciliation payment or charge; or risk corridors payment or charge; or following any audit, where such adjustment has not be accounted for in a prior risk corri dors or medical loss ratio report, in the next following risk corridors or medical loss ratio report.CMS-9954-P 234

PART 155 - EXCHANGE ESTABLISHMEN T STANDARDS AND OTHER RELATED
STANDARDS UNDER THE AFFORDABLE CARE ACT 19. Authority citation for part 155 is revised to read as follows: Authority : Title I of the Affordable Ca re Act, sections 1301, 1302, 1303, 1304, 1311, 1312, 1313, 1321, 1322, 1331, 1332, 1334, 1402, 1411, 1412, 1413, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 18021-18024, 18031-18033, 18041-18042, 18051, 18054, 18071, and 18081- 18083). 20. Section 155.106 is amended by revising pa ragraph (a)(2) to read as follows: § 155.106 Election to operate an Exchange after 2014. (a) * * * * * (2) Have in effect an approved, or c onditionally approved, Exchange Blueprint and operational readiness assessment at least 6.5 months prior to the Exchange’s first effective date of coverage; and
* * * * * 21. Section 155.220 is amended by addi ng paragraph (i) as follows: § 155.220 Ability of States to permit agents an d brokers to assist qualified individuals, qualified employers, or qualified employees enrolling in QHPs. * * * * * (i) For plan years beginning on or after January 1, 2015, in States that permit this activity under state law, a SHOP may permit agents and broke rs to use an Internet Web site to assist qualified employers and facilitate enrollment of qualified employees in a QHP through the Exchange, under paragraph (c)(3) of this section. 22. Section 155.260 is amended by revising paragra phs (a)(1), (a)(2) and (b) to read as follows:CMS-9954-P 235

§ 155.260 Privacy and security of person ally identifiable information. (a) * * * (1) Where the Exchange creates or collects personally identifiable information for the purposes of determining eligibil ity for enrollment in a qualified health plan; determining eligibility for other in surance affordability programs, as defined in §155.20; or determining eligibility for exemptions from the individual responsibility pr ovisions in section 5000A of the Code, the Exchange may only use or disclose su ch personally identifiable information to the extent such information is necessary: (i) For the Exchange to carry out the functions described in §155.200; (ii) For the Exchange to carry out other functions not descri bed in paragraph (a)(1)(i) of this section, which the Secretary determines to be in compliance with section 1411(g)(2)(A) of the Affordable Care Act and for which an indivi dual provides consent for his or her information to be used or disclosed; or (iii) For the Exchange to carry out other functions not descri bed in paragraphs (a)(1)(i) and (ii) of this secti on, for which an individual provides consen t for his or her information to be used or disclosed, and which the Secretary determines are in compliance with section 1411(g)(2)(A) of the Affordable Care Act unde r the following substantive and procedural requirements: (A) Substantive requirements . The Secretary may approve ot her uses and disclosures of personally identifiable information created or collect ed as described in paragraph (a)(1) of this section that are not described in paragraphs (a)(1)(i) or (a)(1)(ii) of this section, provided that HHS determines that the information will be us ed only for the purposes of and to the extent necessary in ensuring the efficient operation of the Exchange consistent with sectionCMS-9954-P 236
1411(g)(2)(A) of the Affordable Care Act, and that the uses and disclosures are also permissible under relevant law and policy. (B) Procedural requirements for approval of a use or disclosure of personally identifiable information . To seek approval for a use or disclosu re of personally identifiable information created or collected as described in paragraph (a )(1) of this section th at is not described in paragraphs (a)(1)(i) or (a)(1)(ii), the Exchange must submit the following information to HHS: (1 ) Identity of the Exchange a nd appropriate contact persons; (2 ) Detailed description of the proposed use or disclosure, which must include, but not necessarily be limited to, a listing or descripti on of the specific information to be used or disclosed and an identification of the persons or entities that may access or receive the information; (3 ) Description of how the use or disclosure will ensure the efficient operation of the Exchange consistent with section 1411(g )(2)(A) of the Affordable Care Act; and (4 ) Description of how the information to be used or disclosed will be protected in compliance with privacy and security standards th at meet the requirements of this section or other relevant law, as applicable. (2) The Exchange may not create, collect, use, or disclose personally identifiable information unless the creation, coll ection, use, or disclosure is consistent with this section.
* * * * * (b) Application to non-Exchange entities

. (1) Non-Exchange entities

. A non-Exchange entity is any individual or entity that: (i) Gains access to personally identifiable information submitted to an Exchange; orCMS-9954-P 237
(ii) Collects, uses, or disclose s personally identifiable information gathered directly from applicants, qualified individuals, or enrollees while that individual or entity is performing functions agreed to with the Exchange. (2) Prior to any person or entity becoming a non-Exchange entity, Exchanges must execute with the person or entity a c ontract or agreement that includes: (i) A description of the functions to be performed by the non-Exchange entity; (ii) A provision(s) binding the non-Exchange entity to comply with the privacy and security standards and obligations adopted in accordance with pa ragraph (b)(3) of this section, and specifically listing or incorp orating those privacy and security standards and obligations; (iii) A provision requiring the non-Exchange entity to monitor, periodically assess, and update its security controls and related system risks to ensure the con tinued effectiveness of those controls in accordance with pa ragraph (a)(5) of this section; (iv) A provision requiring the non-Exchange en tity to inform the Exchange of any change in its administrative, technical , or operational environments defined as material within the contract; and (v) A provision that requires the non-Exchange entity to bind any downstream entities to the same privacy and security standards and obligations to which the non-Exchange entity has agreed in its contract or agreement with the Exchange. (3) When collection, use or disclosure is not otherwise required by law, the privacy and security standards to which an Excha nge binds non-Exchange entities must: (i) Be consistent with the principles and re quirements listed in pa ragraphs (a)(1) through (a)(6) of this section, including be ing at least as protective as the standards the Exchange has established and implemented for itself in comp liance with paragraph (a )(3) of this section; (ii) Comply with the requirements of paragraphs (c), (d), (f) and (g) of this section; andCMS-9954-P 238
(iii) Take into specific consideration: (A) The environment in which the non-Exchange entity is operating; (B) Whether the standards are relevant and appl icable to the non-Exchange entity’s duties and activities in connection with the Exchange; and (C) Any existing legal requirements to wh ich the non-Exchange entity is bound in relation to its administrative, t echnical, and operational controls and practices, including but not limited to, its existing data handling and info rmation technology processes and protocols.
* * * * * 23. Section 155.410 is amended by revising paragr aphs (e) and (f) to read as follows: §155.410 Initial and annual open enrollment periods. * * * * * (e) Annual open enrollment period . For benefit years beginning - (1) On January 1, 2015, the annual open enro llment period begins November 15 of 2014, and extends through January 15 of 2015. (2) On or after January 1, 2016, the annual open enrollment period begins October 15 of the preceding calendar year, and extends thr ough December 7 of the pr eceding calendar year. (f) Effective date for coverage afte r the annual open enrollment period . For the benefit years beginning – (1) On January 1, 2015, the Exchange must ensure coverage is effective - (i) January 1, 2015, for plan selections receiv ed by the Exchange on or before December 15, 2014. (ii) February 1, 2015, for plan selections received by the Exchange from December 16, 2015 through January 15, 2015.CMS-9954-P 239
(2) On or after January 1, 2016, the Exchange mu st ensure coverage is effective as of the first day of the following benefit year for a qualified individual who has made a QHP selection during the annual open enrollment period.
* * * * * 24. Section 155.705 is amended by: a. Revising paragraph (b)(1); b. Adding paragraph (b)(3)(v); c. Redesignating paragraph (b )(4)(ii) as (b)(4)(iii); d. Adding new paragr aph (b)(4)(ii); and e. Revising paragraphs (b)(11)(ii)(C) and (D). The additions and revisions read as follows: § 155.705 Functions of a SHOP. * * * * * (b) * * * (1) Enrollment and eligibility functions. The SHOP must adhere to the requirements outlined in §§ 155.710, 155.715, 155.720, 155.725, 155.730, 155.735, and 155.740.
* * * * * (3) * * * (v) For plan years beginning on or after Ja nuary 1, 2015, a Federally-facilitated SHOP will provide a qualified employer a choice of two methods to ma ke stand-alone dental plans available to qualified employ ees and their dependents: (A) The employer may choose to make availa ble a single stand-alone dental plan. (B) The employer may choose to make availa ble all stand-alone de ntal plans offered through the Federally- facilitated SHOP.CMS-9954-P 240
(4) * * * (ii) The SHOP may establish one or more standard processes for premium calculation, premium payment, and premium collection. (A) Qualified employers in a Federally-faci litated SHOP must ma ke premium payments according to a timeline and process established by HHS; (B) For a Federally-facilitated SHOP, the prem ium for coverage lasting less than 1 month must equal the product of: (1 ) The premium for 1 month of coverage divi ded by the number of days in the month; and (2 ) The number of days for which coverage is being provided in the month described in paragraph (b)(4)(ii)(B)(1 ) of this section.
* * * * * (11) * * * (ii) * * * (C) The employer will define a percentage contribution toward premiums for employeeonly coverage under the reference plan and, if dependent coverage is offered, a percentage contribution toward premiums for dependent cove rage under the reference plan. To the extent permitted by other applicable law, for plan years beginning on or after January 1, 2015, the Federally-facilitated SHOP may permit an employer to define a different percentage contribution for full-time employees from the percentage co ntribution it defines for non-full-time employees, and it may permit an employer to define a diffe rent percentage contribution for dependent coverage for full-time employees from the pe rcentage contribution it defines for dependent coverage for non-full-time employees.CMS-9954-P 241
(D) In a Federally-facilitated SHOP, for pl an years beginning on or after January 1, 2015, if the employer elects to offer coverage to its employees under §155.705(b)(3)(iv)(A), neither State law nor the employer may require that em ployer contributions be based on a calculated composite premium for the reference plan for em ployees, for adult dependents of employees, and for dependents of employees under age 21.
* * * * * 25. Section 155.715 is amended by revising paragr aphs (c)(4), (d)(1) introductory text, and (d)(2) introductory text to read as follows: § 155.715 Eligibility determination process for SHOP. * * * * * (c) * * * (4) May not perform individual market Ex change eligibility determinations or verifications described in subpart D of this part. (d) * * * (1) When the information submitted on the SHOP single employer application is inconsistent with information collected from third-party data sources through the verification process described in §155.715( c)(2), the SHOP must–
* * * * * (2) When the information submitted on the SHOP single employee application is inconsistent with information collected from third-party data sources through the verification process described in §155.715( c)(2), the SHOP must–
* * * * * 26. Section 155.730 is amended by redesignating paragraph (g) as paragraph (g)(1) and by adding paragraph (g)(2) to read as follows:CMS-9954-P 242

§155.730 Application standards for SHOP. * * * * * (g) * * * (1) * * * (2) The SHOP is not permitted to collect information on the single employer or single employee application unless that information is necessary to determine SHOP eligibility or effectuate enrollment through the SHOP. 27. Section 155.1030 is amended by revising paragraphs (b)(1), (3), and (4) to read as follows: §155.1030 QHP certification standards related to advance payments of the premium tax credit and cost-sharing reductions. * * * * * (b) * * * (1) The Exchange must collect and review annually the rate alloca tion and the actuarial memorandum that an issuer submits to the Exchange under § 156.470 of this subchapter, to ensure that the allo cation meets the standa rds set forth in § 156.470(c) and (d).
* * * * * (3) The Exchange must use the methodol ogy specified in the annual HHS notice of benefit and payment parameters to calcul ate advance payment amounts for cost-sharing reductions, and must transmit the advance payment amounts to HHS, in accordance with § 156.340(a). (4) HHS may use the information provided to HHS by the Exchange under this section for oversight of advance payments of cost -sharing reductions and premium tax credits.
* * * * *CMS-9954-P 243

PART 156 – HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE CARE ACT, INCLUDING STAN DARDS RELATED TO EXCHANGES 28. The authority citation for part 15 6 is revised to read as follows: Authority : Title I of the Affordable Care Act, sections 1301–1304, 1311–1312, 1321– 1322, 1324, 1334, 1342–1343, 1401–1402, and 1412, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 18021–18024, 18031–18032, 18041–18042, 18044, 18054, 18061, 18063, 18071, 18082, 26 U.S.C. 36B, and 31 U.S.C. 9701). 29. Section 156.135 is amended by revising para graph (a) and adding paragraph (g) to read as follows: § 156.135 AV calculation for determ ining level of coverage. (a) Calculation of AV . Subject to paragraphs (b) and (d ) of this section, to calculate the AV of a health plan, the issuer must use the AV Calculator developed and made available by HHS for the given benefit year.
* * * * * (g) Updates to the AV calculator . HHS will update the AV Calculator as follows, HHS will: (1) Update the annual limit on cost sharing and related functions based on a projected estimate to enable the AV Calculator to comply with § 156.130(a)(2); (2) Update the continuance tables to reflect more current enrollment data when HHS has determined that the enrolled population has materially changed; (3) Update the algorithms when HHS has determ ined the need to adapt the AV Calculator for use by additional plan designs or to allow the AV Calculator to accommodate potential new types of plan designs, where such adaptations ca n be based on actuaria lly sound principles andCMS-9954-P 244
will not have a substantial effect on the AV calculations performed by the then current AV Calculator; (4) Update the continuance tables to reflect more current claims data no more than every 3 and no less than every 5 years and to annually tre nd the claims data when the trending factor is more than 5 percent different, calc ulated on a cumulative basis; and (5) Update the AV Calculator user interface wh en a change would be useful to a broad group of users of the AV Calculator, would not a ffect the function of the AV Calculator, and would be technically feasible. 30. Section 156.150 is revised to read as follows: § 156.150 Application to stand-alone de ntal plans inside the Exchange. (a) Annual limitation on cost-sharing . For a stand-alone dental plan covering the pediatric dental EHB under §155.1065 of this subchapter in any Exchange, cost sharing may not exceed $300 for one covered child and $400 for two or more covered children. (b) [Reserved]

31. Section 156.285 is amended by adding paragr aph (a)(4) and revising paragraph (c)(7) to read as follows: § 156.285 Additional standards specific to SHOP. (a) * * * (4)(i) Adhere to the premium rating st andards described in § 147.102 regardless of whether the QHP is sold in the small gr oup market or the large group market; and (ii) Effective in plan years beginning on or after January 1, 2015, a QHP issuer in a Federally-facilitated SHOP may not offer to an employer premiu ms that are based on averageCMS-9954-P 245
enrollee amounts under § 147.102(c)(3), if the employer elects to offer coverage to its employees under § 155.705(b)(3)(iv)(A).
* * * * * (c) * * * (7) A QHP issuer must enroll a qua lified employee only if the SHOP — (i) Notifies the QHP issuer that the employee is a qualified employee; (ii) Transmits information to the QHP issuer as provided in § 155.400(a) of this subchapter; and (iii) Effective for QHPs offered through a Fe derally-facilitated S HOP in plan years beginning on or after January 1, 2015, does not send a cancellation notice to the QHP issuer prior to the effective date of coverage.
* * * * * 32. Section 156.298 is added to s ubpart C to read as follows: § 156.298 Meaningful difference standard for Qu alified Health Plans in the Federallyfacilitated Exchanges. (a) General . Subject to paragraph (b)(2) of this section, starting in the 2015 coverage year, in order to be certified as a QHP offere d through a Federally-facilitated Exchange, a plan must be meaningfully different from all other QHPs offered by the same issuer of that plan within a service area and level of coverage in th e Exchange, as defined in paragraph (b) of this section. (b) Meaningful difference standard . A plan is considered meaningfully different from another plan in the same service area and metal ti er (including catastrophic plans) if a reasonable consumer would be able to identify two or more material differences among the following characteristics between the pl an and other plan offerings:CMS-9954-P 246
(1) Cost sharing; (2) Provider networks; (3) Covered benefits; (4) Plan type; (5) Premiums; (6) Health Savings Account eligibility; or (7) Self-only, non-self-only, or ch ild-only coverage offerings. (c) Exception for limited plan availability . If HHS determines that the plan offerings at a particular metal level (includi ng catastrophic plans) within a county are limited, plans submitted for certification in that particular metal level (including catastrophic plan s) within that county will not be subject to the meaningful difference requirement set forth in paragraph (b) of this section. (d) Two-year transition period fo r issuers with new acquisitions . During the first 2 years after a merger or acquisition in which an acquiring issuer obtains or merges with another issuer, the FFEs may certify plans as QHPs that were previously offered by the acquired or merged issuer without those plans meeting the meaningful difference standard set forth in paragraph (b) of this section. 33. Section 156.420 is amended by revising para graphs (c), (d), and (e) to read as follows: §156.420 Plan variations. * * * * * (c) Benefit and network equivale nce in silver plan variations . A standard s ilver plan and each silver plan variation thereof must cover the same benefits and providers. Each silver planCMS-9954-P 247
variation is subject to all requi rements applicable to the standard silver plan (except for the requirement that the plan have an AV as set forth in §156.140(b)(2)). (d) Benefit and network equivalence in zer o and limited cost shar ing plan variations . A QHP and each zero cost sharing plan variation or limited cost sharing plan variation thereof must cover the same benefits and providers. The out-o f-pocket spending required of enrollees in the zero cost sharing plan variation of a QHP for a benefit that is not an essential health benefit from a provider (including a provider outside the plan ’s network) may not exceed the corresponding out-of-pocket spending required in the limited cost sharing plan variation of the QHP, and the out-of-pocket spending required of enrollees in the limited cost sharing plan variation of the QHP for a benefit that is not an essential health benefit from a provider (including a provider outside the plan’s network) may not exceed the corresponding out-of-pocket spending required in the QHP with no cost-sharing reductions. A lim ited cost sharing plan va riation must have the same cost sharing for essential health benefits not described in paragraph (b)(2) of this section as the QHP with no cost-sharing reductions. Each zero cost sharing plan variation or limited cost sharing plan variation is subj ect to all requirements applicable to the QHP (except for the requirement that the plan have an AV as set forth in §156.140(b)). (e) Decreasing cost sharing and out-of-poc ket spending in higher AV silver plan variations . The cost sharing or out-of-pocket spe nding required of enrollees under any silver plan variation of a standard silver plan for a be nefit from a provider (inc luding a provider outside the plan’s network) may not exceed the corres ponding cost sharing or out-of-pocket spending required in the standard silver pl an or any other silver plan va riation thereof with a lower AV.
* * * * * 34. Section 156.430 is amended by removing and reserving paragraph (a) and by revising paragraph (b)(1) to read as follows:CMS-9954-P 248

§156.430 Payment for cost-sharing reductions. (b) * * * (1) A QHP issuer will receive periodic a dvance payments based on the advance payment amounts calculated in accordance with §155.1030(b)(3).
* * * * * 35. Section 156.470 is amended by revising pa ragraph (a) to read as follows: §156.470 Allocation of rates for advance paym ents of the premium tax credit. (a) Allocation to additional health benefits for QHPs . An issuer must provide to the Exchange annually for approval, in the manne r and timeframe established by HHS, for each health plan at any level of coverage offered, or intended to be offered, in the individual market on an Exchange, an allocation of the rate for the plan to: (1) EHB, other than services described in §156.280(d)(1); and (2) Any other services or benefits offered by the health plan not de scribed in paragraph (a)(1) of this section.
* * * * * 36. Section 156.1110 is added to Subpa rt L to read as follows: §156.1110 Establishment of patient safety standards for QHP issuers. (a) Patient safety standards . A QHP issuer that contracts with a hospital with greater than 50 beds must verify that the hospital, as defined in section 1861(e) of the So cial Security Act, is Medicare-certified or has been issued a Medica id-only CMS Certificati on Number (CCN) and is subject to the Medicare Hospital Conditi on of Participation requirements for — (1) A quality assessment and performance im provement program as specified in 42 CFR 482.21; and (2) Discharge planning as specified in 42 CFR 482.43.CMS-9954-P 249
(b) Documentation . A QHP issuer must collect, from each of its contracted hospitals with greater than 50 beds, information that demons trates that those hospitals meet patient safety standards required in paragraph (a) of this section including, but not limited to, the CCN. (c) Reporting . (1) A QHP issuer must make availa ble to the Exchange the documentation referenced in paragraph (b) of this section, upon request by the Exchange , in a time and manner specified by the Exchange. (2) Issuers of multi-State plans, as define d in § 155.1000(a) of this subchapter, must provide the documentation describe d in paragraph (b) of this s ection to the U.S. Office of Personnel Management, in the time and manne r specified by the U.S. Office of Personnel Management. (d) Effective date . A QHP issuer must ensure that each QHP meets patient safety standards in accordance with para graph (a) of this section effective for plan years beginning on or after January 1, 2015. 37. Section 156.1210 is amended by adding para graph (c) to read as follows: § 156.1210 Confirmation of HHS payment and collections reports.
* * * * * (c) Discrepancies to be a ddressed in future reports . Discrepancies in payment and collections reports identified to HHS under this se ction will be addressed in subsequent payment and collections reports, and will not be used to change debts determined pursuant to invoices generated under previous paym ent and collections reports. 38. Section 156.1215 is added to Subpa rt M to read as follows: § 156.1215 Payment and collections processes. (a) Netting of payments and charges for 2014 . In 2014, as part of its monthly payment and collections process, HHS will net payments owed to QHP issuers and their affiliates under theCMS-9954-P 250
same taxpayer identification number against amo unts due to the Federal government from the QHP issuers and their affiliates under the same taxpayer identification number for advance payments of the premium tax credit, advance pa yments of cost-sharing reductions, and payment of Federally-facilitated Exchange user fees. (b) Netting of payments a nd charges for later years . In 2015 and later years, as part of its payment and collections process, HHS may net payments owed to issuers and their affiliates operating under the same tax identification number against amounts due to the Federal government from the issuers and their affiliates under the same taxpayer identification number for advance payments of the premium tax credit, advance payments of and reconciliation of costsharing reductions, payment of Federally-facilitated Exchange us er fees, and risk adjustment, reinsurance, and risk corri dors payments and charges. (c) Determination of debt . Any amount owed to the Federal government by an issuer and its affiliates for advance payments of the premium tax credit, advance payments of and reconciliation of cost-s haring reductions, Federally-facilit ated Exchange user fees, risk adjustment, reinsurance, and risk corridors, after HHS ne ts amounts owed by the Federal government under these programs, is a determination of a debt. 39. Section 156.1220 is added to subpart M to read as follows: § 156.1220 Administrative appeals. (a) Requests for reconsideration . (1) Matters for reconsideration . An issuer may file a request for reconsideration under this secti on to contest a proce ssing error by HHS, HHS’s incorrect application of the relevant methodology, or HHS’s ma thematical error only with respect to the following: (i) The amount of advance payment of the pr emium tax credit, advance payment of costsharing reductions or Federall y-facilitated Exchange user fe es charge for a benefit year;CMS-9954-P 251
(ii) The amount of a risk adjustment paymen t or charge for a benefit year, including an assessment of risk adjustment user fees; (iii) The amount of a reinsurance payment for a benefit year; (iv) The amount of a risk adjustment default charge for a benefit year; (v) The amount of a reconciliation payment or charge for cost-sharing reductions for a benefit year; or (vi) The amount of a risk corridors pa yment or charge for a benefit year. (2) Time for filing a request for reconsideration . The request for reconsideration must be filed in accordance with the following timeframes: (i) For advance payments of the premium ta x credit, advance payments of cost-sharing reductions, or Federally-faci litated Exchange user fee charges, within 30 calendar days after the issuer receives a final recons ideration notification specifying the aggregate amount of advance payments of the premium tax credit, advan ce payments of cost-s haring reductions, and Federally-facilitated Exchange user f ees for the applicable benefit year; (ii) For a risk adjustment payment or charge , including an assessment of risk adjustment user fees, within 30 calendar days of rece ipt of the notificatio n provided by HHS under §153.310(e); (iii) For a reinsurance payment, within 30 cal endar days of receipt of the notification provided by HHS under §153.240(b)(1)(ii); (iv) For a default risk adjustment charge, within 30 calendar days of receipt of the notification of the default risk adjustment charge; (v) For reconciliation of cost-s haring reductions, within 30 cale ndar days of receipt of the notification provided by HHS of the cost-sharing reduction rec onciliation payment or charge; andCMS-9954-P 252
(vi) For a risk corridors payment or charge , within 30 calendar days of receipt of the notification provided by HHS under § 153.510(d). (3) Content of request . (i) The request for reconsidera tion must specify the findings or issues specified in paragraph (a)( 1) of this section that the issu er challenges, and the reasons for the challenge. (ii) Notwithstanding paragraph (a)(3)(i) of this section, a reconsideration with respect to a processing error by HHS, HHS’s incorrect applic ation of the relevant methodology, or HHS’s mathematical error may be requested only if, to th e extent the issue could have been previously identified by the issuer to HHS under § 153.710(d)(2) or (e)(2) of this subchapter, it was so identified and remains unresolved. (iii) Notwithstanding paragraph (a)(3)(i) of this section, a reconsideration with respect to advance payments of the premium tax credit, ad vance payments of cost-sharing reductions, and Federally-facilitated Exchange user fees may be re quested only if, to extent the issue could have been previously identified by the issuer to HHS under § 156.1210 of this subpart, it was so identified and remains unresolved. An issuer may request reconsiderat ion if it previously identified an issue under § 156.1210 of this subpart after the 15-cal endar-day deadline, but late discovery of the issue was not due to misconduct on the part of the issuer. (iv) The issuer may include in the reques t for reconsideration additional documentary evidence that HHS should consider. Such documents may not include data that was to have been filed by the applicable data subm ission deadline, but may include ev idence of timely submission. (4) Scope of review for reconsideration . In conducting the reconsideration, HHS will review the appropriate payment and charge determinations, the evidence and findings upon which the determination was based, and any additional documentary evidence submitted by the issuer. HHS may also review a ny other evidence it believes to be relevant in deciding theCMS-9954-P 253
reconsideration, which will be provided to the issu er with a reasonable oppor tunity to review and rebut the evidence. The issuer must prove it s case by a preponderance of the evidence with respect to issues of fact. (5) Reconsideration decision . HHS will inform the issuer of the reconsideration decision in writing. A reconsideration decision is fina l and binding for decisions regarding the advance payments of the premium tax credit, advance pa yment of cost-sharing reductions, or Federallyfacilitated Exchange user fees. A reconsiderat ion decision with respect to other matters is subject to the outcome of a request for informal hearing filed in accordance with paragraph (b) of this section. (b) Informal hearing . An issuer may request an info rmal hearing before a CMS hearing officer to appeal HHS’s r econsideration decision. (1) Manner and timing for request . A request for an informal hearing must be made in writing and filed with HHS with in 15 calendar days of the da te the issuer receives the reconsideration decision under paragr aph (a)(5) of this section. (2) Content of request . The request for informal hearing must include a copy of the reconsideration decision and must specify the findings or issues in the decision that the issuer challenges, and its reasons for the challenge. HHS may submit for review by the CMS hearing officer a statement of its reasons for the reconsideration decision. (3) Informal hearing procedures . (i) The issuer will receiv e a written notice of the time and place of the informal hearing at least 15 calendar days before the scheduled date. (ii) The CMS hearing officer will neithe r receive testimony nor accept any new evidence that was not presented with th e reconsideration request and HHS statement under paragraph (b) of this section. The CMS hearing officer will review only the documentary evidence provided by the issuer and HHS, and the record that was be fore HHS when HHS made its reconsiderationCMS-9954-P 254
determination. The issuer may be represented by counsel in the informal hearing, and must prove its case by clear and convincing eviden ce with respect to issues of fact. (4) Decision of the CMS hearing officer . The CMS hearing officer will send the informal hearing decision and the reasons for the decision to the issuer. The decision of the CMS hearing officer is final and binding, but is subject to the results of any Ad ministrator’s review initiated in accordance with paragraph (c) of this section. (c) Review by the Administrator . (1) If the CMS hearing officer upholds the reconsideration decision, the i ssuer may request review by the Administrator of CMS within 15 calendar days of receipt of the CMS hearing offi cer’s decision. The request for review must specify the findings or issues that the issuer challenges. HHS may submit for review by the Administrator a statement supporting the decision of the CMS hearing officer. (2) The Administrator will review the CMS h earing officer’s decision, the statements of the issuer and HHS, and any other information included in the record of the CMS hearing officer’s decision, and will determine whether to uphold, reverse, or modify the CMS hearing officer’s decision. The issuer must provide its case by clea r and convincing evidence with respect to issues of fact. The Administrator will send the de cision and the reasons for the decisions to the issuer. (3) The Administrator’s determination is final and binding.CMS-9954-P

Dated: November 21, 2013

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

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Approved: November 21, 2013

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__________________________________ Kathleen Sebelius, Secretary , Department of Health and Human Services

. BILLING CODE 4120-01-P

[FR Doc. 2013-28610 Filed 11/25/2013 at 4:15 pm; Publication Date: 12/02/2013]