Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 13887 

Sitewide: Because the remedial 

actions at all OUs are protective, the 

Site is protective of human health and 

the environment. 

The 2012 Five-Year Review did not 

identify any issues in any of the 

operable units. The Final Remedial 

Action Report for OU–1 was signed in 

1998 and the Final Remedial Action 

Report for OU–3 was signed in 2007. 

EPA signed the Superfund Property 

Reuse Evaluation Checklist for 

Reporting the Sitewide Ready for 

Anticipated Use Government 

Performance and Results Act Measure in 

2009. 

The next Five-Year Review is 

scheduled to be completed in 

September 2017. 

Community Involvement 

Leading up to the 1989 ROD, EPA 

kept the community and other 

interested parties apprised of the Site 

activities through informational 

meetings, fact sheets, press releases and 

public meetings. On July 19, 1989, EPA 

held a public informational meeting to 

discuss the results of the Remedial 

Investigation and the cleanup 

alternatives presented in the Feasibility 

Study, and to present the Agency’s 

Proposed Plan. On August 10, 1989, the 

Agency held a public hearing to accept 

any oral comments about the Site. 

Since the 1989 ROD, community 

involvement has been low. In June 2002 

EPA published a Proposed Plan to 

amend the 1989 ROD. EPA held a public 

information meeting on June 24, 2002, 

and a formal public hearing on July 9, 

2002. Only a few community members 

attended the informational meeting and 

none attended the public hearing. No 

comments from the community were 

received on the June 2002 Proposed 

Plan. 

EPA issued a press release on May 8, 

2002, that was published in the 

Kennebec Journal announcing EPA’s 

first five-year review of the O’Connor 

Site cleanup. The press release 

encouraged public participation. 

Similarly, EPA issued public notices 

announcing EPA’s second and third 

five-year reviews that were published in 

the Kennebec Journal on May 24, 2007, 

and May 25, 2012, respectively. These 

notices encouraged public participation 

and provided EPA contact information. 

EPA will follow the procedures for 

community involvement activities 

associated with deletion described in 

the 2011 guidance document ‘‘Close Out 

Procedures for National Priorities List 

Sites.’’ These include preparing a public 

notice for publication in the local paper 

and notification to the Natural Resource 

Trustees of EPA’s plan to delete the Site 

from the NPL. 

Determination That the Site Meets the 

Criteria for Deletion in the NCP 

EPA Region 1 has followed the 

deletion procedures required by 40 CFR 

300.425(e). The implemented remedy 

has achieved the degree of cleanup or 

protection specified in the 1989 ROD, 

1994 ESD, and 2002 ROD Amendment 

for all pathways of exposure. The 

activities for OU–1 remedy were 

successfully completed in 1997 and the 

activities for OU–3 remedy were 

successfully completed in 2006. With 

the 2002 Technical Impracticability 

waiver, groundwater (OU–2) beyond the 

TI Zone has met all cleanup standards 

since 2006. Therefore, EPA has 

determined, in consultation with 

MEDEP, all appropriate response 

actions have been implemented, and 

thus a criterion for deletion has been 

met. 

V. Deletion Action 

The EPA, with concurrence of the 

State of Maine through the Maine 

Department of Environmental 

Protection, has determined that all 

appropriate response actions under 

CERCLA, other than operation, 

maintenance, monitoring and five-year 

reviews have been completed. 

Therefore, EPA is deleting the Site from 

the NPL. 

Because EPA considers this action to 

be noncontroversial and routine, EPA is 

taking it without prior publication. This 

action will be effective May 12, 2014 

unless EPA receives adverse comments 

by April 11, 2014. If adverse comments 

are received within the 30-day public 

comment period, EPA will publish a 

timely withdrawal of this direct final 

notice of deletion before the effective 

date of the deletion, and it will not take 

effect. EPA will prepare a response to 

comments and continue with the 

deletion process on the basis of the 

notice of intent to delete and the 

comments already received. There will 

be no additional opportunity to 

comment. 

List of Subjects in 40 CFR Part 300 

Environmental protection, Air 

pollution control, Chemicals, Hazardous 

waste, Hazardous substances, 

Intergovernmental relations, Penalties, 

Reporting and recordkeeping 

requirements, Superfund, Water 

pollution control, Water supply. 

Dated: February 27, 2014. 

H. Curtis Spalding, 

Regional Administrator, Region 1. 

For the reasons set out in this 

document, 40 CFR part 300 is amended 

as follows: 

PART 300—NATIONAL OIL AND 

HAZARDOUS SUBSTANCES 

POLLUTION CONTINGENCY PLAN 

■ 1. The authority citation for part 300 

continues to read as follows: 

Authority: 33 U.S.C. 1321(c)(2); 42 U.S.C. 

9601–9657; E.O. 12777, 56 FR 54757, 3 CFR, 

1991 Comp., p. 351; E.O. 12580, 52 FR 2923; 

3 CFR, 1987 Comp., p. 193. 

Appendix B to Part 300 [Amended] 

■ 2. Table 1 of Appendix B to part 300 

is amended by removing the entry for 

‘‘ME,’’ ‘‘O’Connor Co’’, ‘‘Augusta’’. 

[FR Doc. 2014–05224 Filed 3–11–14; 8:45 am] 

BILLING CODE 6560–50–P 

DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Centers for Medicare & Medicaid 

Services 

42 CFR Part 600 

[CMS–2380–FN] 

RIN 0938–ZB12 

Basic Health Program; Federal 

Funding Methodology for Program 

Year 2015 

AGENCY: Centers for Medicare & 

Medicaid Services (CMS), HHS. 

ACTION: Final methodology. 

SUMMARY: This document provides the 

methodology and data sources to 

determine the federal payment amounts 

made to states in program year 2015 that 

elect to establish a Basic Health Program 

certified by the Secretary under section 

1331 of the Patient Protection and 

Affordable Care Act to offer health 

benefits coverage to low-income 

individuals otherwise eligible to 

purchase coverage through Affordable 

Insurance Exchanges. 

DATES: Effective Date: January 1, 2015. 

FOR FURTHER INFORMATION CONTACT: 

Christopher Truffer, (410) 786–1264; or 

Jessica Schubel, (410) 786–3032. 

SUPPLEMENTARY INFORMATION: 

Table of Contents 

I. Background 

II. Summary of Proposed Provisions and 

Analysis of and Responses to Public 

Comments on the Proposed Methodology 


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13888 Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 

A. Background 

B. Overview of the Funding Methodology 

and Calculation of the Payment Amount 

C. Required Rate Cells 

D. Sources and State Data Considerations 

E. Discussion of Specific Variables Used in 

Payment Equations 

F. Adjustments for American Indians and 

Alaska Natives 

G. Example Application of the BHP 

Funding Methodology 

H. General/Miscellaneous Comments 

III. Provisions of the Final Methodology 

A. Overview of the Funding Methodology 

and Calculation of the Payment Amount 

B. Federal BHP Payment Rate Cells 

C. Sources and State Data Considerations 

D. Discussion of Specific Variables Used in 

Payment Equations 

E. Adjustments for American Indians and 

Alaska Natives 

F. State Option to Use 2014 QHP Premiums 

for BHP Payments 

G. State Option to Include Retrospective 

State-specific Health Risk Adjustment in 

Certified Methodology 

IV. Collection of Information Requirements 

V. Regulatory Impact Statement 

A. Overall Impact 

B. Unfunded Mandates Reform Act 

C. Regulatory Flexibility Act 

D. Federalism 

I. Background 

The Patient Protection and Affordable 

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

March 23, 2010), together with the 

Health Care and Education 

Reconciliation Act of 2010 (Pub. L. 111– 

152), enacted on March 30, 2010 are 

collectively referred as the Affordable 

Care Act. The Affordable Care Act 

provides for the establishment of state 

Affordable Insurance Exchanges 

(Exchanges, also called the Health 

Insurance Marketplace) that provide 

access to affordable health insurance 

coverage offered by qualified health 

plans (QHPs) for most individuals under 

age 65 who are not eligible for health 

coverage under other federally 

supported health benefits programs or 

through affordable employer-sponsored 

insurance coverage, and who have 

incomes above 100 percent of the 

federal poverty line (FPL), or whose 

income is below that level but are 

lawfully present non-citizens ineligible 

for Medicaid because of immigration 

status. Individuals enrolled through 

Exchanges in coverage offered by QHPs 

with incomes below 400 percent of the 

FPL may qualify for the federal 

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

based on their household income, to 

ensure that such coverage meets certain 

standards for affordability. 

In the states that elect to operate a 

Basic Health Program (BHP), BHP will 

make affordable health benefits coverage 

available for individuals under age 65 

with household incomes between 133 

percent and 200 percent of the FPL who 

are not otherwise eligible for Medicaid, 

the Children’s Health Insurance 

Program (CHIP), or affordable employer 

sponsored coverage. (For those states 

that have expanded Medicaid coverage 

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

the Act, the lower income threshold for 

BHP eligibility is effectively 138 percent 

due to the application of a required 5 

percent income disregard in 

determining the upper limits of 

Medicaid income eligibility.) Federal 

funding will be available for BHP based 

on the amount of PTC and CSRs that 

BHP enrollees would have received had 

they been enrolled in QHPs through 

Exchanges. 

We are publishing, concurrently with 

this final methodology, a final rule 

entitled the ‘‘Basic Health Program: 

State Administration of Basic Health 

Programs; Eligibility and Enrollment in 

Standard Health Plans; Essential Health 

Benefits in Standard Health Plans; 

Performance Standards for Basic Health 

Programs; Premium and Cost Sharing 

for Basic Health Programs; Federal 

Funding Process; Trust Fund and 

Financial Integrity’’ (hereinafter referred 

to as the BHP final rule) implementing 

section 1331 of the Affordable Care Act, 

which requires the establishment of 

BHP. The BHP final rule establishes the 

requirements for state and federal 

administration of BHP, including 

provisions regarding eligibility and 

enrollment, benefits, cost-sharing 

requirements and oversight activities. 

While the BHP final rule codifies the 

overall statutory requirements and basic 

procedural framework for the funding 

methodology, it does not contain the 

specific information necessary to 

determine federal payments. We 

anticipated that the methodology would 

be based on data and assumptions that 

would reflect ongoing operations and 

experience of BHP programs as well as 

the operation of the Exchanges. For this 

reason, the BHP final rule specifies that 

the development and publication of the 

funding methodology, including any 

data sources, will be addressed in a 

separate annual Payment Notice 

process. The BHP final rule also 

specifies that the BHP Payment Notice 

process will include the annual 

publication of both a proposed and final 

BHP Payment Notice. 

II. Summary of Proposed Provisions 

and Analysis of and Responses to 

Public Comments on the Proposed 

Methodology 

The following sections, arranged by 

subject area, include a summary of the 

public comments that we received, and 

our responses. For a complete and full 

description of the BHP proposed 

funding methodology, see the ‘‘Basic 

Health Program; Proposed Federal 

Funding Methodology for Program Year 

2015’’ proposed document published in 

the December 23, 2013 Federal Register 

(78 FR 77399). 

We received a total of 32 timely 

comments from state agencies, groups 

advocating on behalf of consumers, 

health care providers, health insurers, 

health care associations, Tribes, and 

tribal organizations. The public 

comments received ranged from general 

support or opposition to the proposed 

methodology to very specific questions 

or comments regarding the proposed 

methodological factors. In addition, we 

held a consultation session on 

December 19, 2013 that was open to all 

interested parties, to provide an 

overview of the BHP proposed funding 

methodology where interested parties 

were afforded an opportunity to ask 

questions and make comments. At the 

consultation session, participating 

parties were reminded to submit written 

comments before the close of the public 

comment period that was specified in 

the BHP proposed methodology. 

A. Background 

In the December 23, 2013 (78 FR 

77399) proposed methodology, as 

background and for contextual 

purposes, we discussed the proposed 

provisions from the September 25, 2013 

BHP proposed rule (78 FR 77401). The 

proposed document also specified the 

methodology of how the federal BHP 

payments would be calculated. For 

specific discussions, please refer to the 

December 23, 2013 proposed 

methodology (78 FR 77401). 

We received the following comments 

on the background information included 

in the proposed methodology: 

Comment: One commenter expressed 

support for publishing the final 

Payment Notice annually in February. 

Response: We thank the commenter 

for their support. 

Comment: Several commenters 

requested that CMS provide an option 

for states to have BHP payments 

retrospectively reconciled for the factors 

specified in statute. Specifically, 

commenters requested that such a 

reconciliation process use actual, statespecific data by taking into account the 

state’s actual health insurance market 

experience for the program year, 

measure the data and payment factors in 

manner agreed upon by both CMS and 

the state, and perform the reconciliation 

using a methodology that is generally 

consistent with the methodology of the 

proposed payment document. 


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Response: We understand the 

commenters’ concern regarding the 

market uncertainties in 2014 and 

appreciate the recommendations to 

refine the methodology to account for 

such uncertainties. However, based on 

initial feedback we received from 

interested states, we developed the BHP 

funding methodology on a prospective 

basis to provide states with a level of 

fiscal certainty as they consider 

implementing BHP in a given program 

year. Except for the population health 

factor, which is discussed further below 

in section III.G in this final 

methodology, we have determined not 

to retrospectively adjust or reconcile the 

various factors that comprise the 

methodology because we believe that 

states operating a BHP will need to have 

budget certainty in order to plan and 

operate their programs. 

In addition, as also discussed below, 

we are revising our methodology to use 

actual 2015 premium amounts to 

calculate BHP funding for 2015. While 

this would be part of the prospective 

methodology and not a retrospective 

adjustment, it would further address 

some of the issues raised in these 

comments. 

Comment: Many commenters noted 

that state-specific market conditions, 

such as in Minnesota where the state’s 

high-risk pool will continue to operate 

in 2014, will not be reflected in the 2014 

Exchange premiums but will affect the 

premium rates in 2015. As such, 

commenters recommended that CMS 

use actual 2015 Exchange premiums to 

improve the accuracy of the federal BHP 

payment rates for program year 2015. 

Response: In response to these 

comments, and in particular because of 

the various issues in the first year of 

BHP implementation, we have adopted 

the commenters’ recommendation and 

will use actual 2015 Exchange 

premiums to determine the final 2015 

federal BHP payment rates in states. 

Given the fact that the Exchanges are 

new in 2014 and the potential for 

changes in 2015, we believe that it is 

appropriate to make this adjustment in 

the methodology for the first year of 

BHP implementation as it will improve 

the accuracy of the rates. For additional 

information on the process we will use 

to determine the final 2015 federal BHP 

payment rates, please see the additional 

discussion included in section III.D.1 

(reference premium) of this final 

methodology. 

While using actual 2015 Exchange 

premiums will improve the accuracy of 

the federal BHP payment rates by taking 

into account certain market conditions, 

we understand that, for decision making 

purposes, some states may need to 

establish budgets based on final 2015 

federal BHP payment rates before actual 

2015 premium information becomes 

available. In such an event, we will 

provide the state with the option to have 

us use 2014 premium data (projected 

forward to 2015) to calculate its final 

2015 federal BHP payment rates. As 

specified in this payment notice, a state 

must notify CMS by May 15, 2014 that 

it is electing this option. Upon 

completing the calculation process, we 

will publish the final rates for such 

states in a subsequent Federal Register 

notice, and use these final rates to 

determine the state’s aggregate 2015 

BHP federal payments, which will be 

deposited into the state’s BHP trust fund 

on a quarterly basis. We have amended 

this final methodology by adding 

section III.F to discuss this process in 

further detail. If a state does not elect 

this option to use 2014 Exchange 

premiums for calculating final 2015 

BHP federal payments, we will calculate 

the payments using the 2015 premiums 

and also publish those rates in the 

Federal Register. Before publication, we 

are available to provide technical 

assistance to help the state better 

estimate the potential range of 2015 

BHP federal payments. Finally, as we 

gain more experience in the Exchanges, 

and as data becomes more readily 

available, we will continue to review 

the methodology, including the data 

elements and other factors to further 

refine future BHP funding 

methodologies and improve the 

accuracy of the overall result. 

Comment: Several commenters 

requested that CMS consider adjusting 

the funding methodology during the 

annual program year to ensure the 

accuracy of the methodology in the 

event new data becomes available. The 

commenters also requested that CMS 

consider adjusting the methodology and 

recalculate the federal BHP payment 

rates in the event that the payment rates 

are determined to be inadequate and 

negatively affect the participation of 

standard health plan offerors. 

Response: We appreciate the 

commenters’ concern with respect to the 

accuracy of the funding methodology as 

well as their interest in ensuring robust 

standard health plan offeror 

participation. While the statute directs 

the Secretary to adjust the payment for 

any fiscal year to reflect any error in the 

determination of the payment amount in 

the preceding fiscal year, the statute 

generally does not contemplate 

retrospective adjustment to amounts 

properly calculated under the certified 

methodology. Instead, the statute 

provides that adjustments are only made 

prospectively, and only to reflect errors. 

We read that term ‘‘errors’’ to mean 

mathematical errors or erroneous 

enrollment numbers (which are 

multiplied by the per enrollee amount 

determined by the certified 

methodology). While the statute does 

not expressly provide for retrospective 

adjustments to a certified methodology, 

as discussed below we are providing an 

optional process for states to propose to 

include in the certified methodology a 

state-specific retrospective adjustment 

to reflect any disparity in BHP 

population health status (a risk 

adjustment) in each rate cell in 

comparison to the Exchange population 

that would affect the federal payment 

for that population. Permitting 

retrospective adjustment on this one 

factor (the population health factor) 

given the difficulty in arriving at a 

national approach to accurately 

determine this factor prospectively, in 

particular due to the lack of data and 

experience from the exchanges available 

at the beginning of 2014. 

With respect to other commenters’ 

concern that the federal BHP payment 

rates could be so low that they would 

negatively affect standard health plan 

offeror participation, the federal BHP 

payment is not necessarily 

determinative of the contract costs for 

standard health plans. The statute 

provides states that elect to operate a 

BHP with considerable flexibility to 

control costs through a competitive 

contracting process and other measures, 

and to supplement federal funding with 

additional state or local funding. The 

state may negotiate with its standard 

health plan offerors on the amount of 

capitation payments, the benefits in 

excess of the required essential health 

benefits, and the premiums consistent 

with the BHP enrollee protections. A 

state does not need to structure its 

standard health plan offeror payments 

to align with the federal BHP payment 

rate cells. A state has the flexibility to 

use the same rate cell structure, mimic 

the same structure that is used in other 

insurance affordability programs, or 

develop a new structure specifically for 

BHP. 

Comment: We received one comment 

requesting that CMS develop statespecific BHP funding methodologies to 

more accurately account for the health 

status of a state’s BHP population 

relative to consumers in the state’s 

Exchange. 

Response: We appreciate the 

commenter’s interest in ensuring the 

development of the most accurate 

population health factor, and as such, 

are revising our methodology from what 

was proposed to include in the certified 

methodology a temporary state-specific 


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adjustment to retrospectively adjust this 

factor for 2015. This retrospective 

adjustment, which would be subject to 

CMS review and approval, would be 

conducted to determine whether the 

difference in health status between the 

state’s BHP population and consumers 

in the Exchange in 2015 would affect 

PTC, CSRs, risk adjustment and 

reinsurance payments that would have 

been made had BHP enrollees been 

enrolled in coverage through the 

Exchange. For additional information on 

this option, please refer to section III.G. 

Comment: One commenter requested 

that CMS clarify when the actual 

reconciliation of BHP payment amounts 

will occur, including the timeframes in 

each quarter. 

Response: We appreciate the 

commenter’s interest in the payment 

reconciliation process, and anticipate 

providing future guidance on BHP 

payment operations. 

Comment: We received one comment 

requesting clarification on when a state 

must submit both projected and actual 

enrollment data in order for CMS to 

determine the prospective quarterly 

federal BHP payment. 

Response: For a state to receive a 

prospective federal BHP payment, the 

state must submit its projected BHP 

enrollment 60 days before the start of 

the fiscal quarter. Actual enrollment is 

required no later than 60 days after a 

fiscal quarter has ended. Once a state’s 

BHP has been in operation for a few 

fiscal quarters, we anticipate using the 

state’s actual enrollment in the previous 

quarter to determine the upcoming 

quarter’s federal BHP payment thereby 

eliminating the need for the state to 

submit projected enrollment data. 

B. Overview of the Funding 

Methodology and Calculation of the 

Payment Amount 

We proposed in the overview of the 

funding methodology to calculate the 

PTC and CSRs as consistently as 

possible and in general alignment with 

the methodology used by Exchanges to 

calculate the advance payments of the 

PTC and CSRs, and by the Internal 

Revenue Service (IRS) to calculate the 

final PTC. We proposed in this section 

four equations that comprise the overall 

BHP funding methodology. For specific 

discussions, please refer to the 

December 23, 2013 proposed 

methodology (78 FR 77401). 

We received the following comments 

regarding the equations proposed to 

calculate the PTC and CSR components 

of the BHP funding methodology: 

Comment: While we received support 

for the two-step process to calculate the 

federal BHP payment rate, one 

commenter requested that CMS release 

the data requirements states need to 

provide information related to the BHP 

risk profile so that rates are properly set 

to account for risk. The commenter also 

requested that CMS provide data 

alternatives in the event that states 

encounter difficulties in collecting the 

data needed to risk adjust. 

Response: We appreciate the support 

for the two-step process and are 

finalizing this approach as proposed in 

this final methodology. As explained 

further in section III.D.2 of this final 

methodology, we are not requiring any 

data from the states on the risk of these 

populations unless a state elects to 

notify CMS that it will conduct a 

retrospective risk adjustment analysis in 

accordance with the process set forth in 

section III.G of this methodology. If the 

state decides to conduct such an 

analysis, it has discretion when 

determining the data requirements and 

any necessary alternatives; however, the 

state must submit to CMS such 

information as well as the proposed 

methodology it intends to use during 

the reconciliation process for approval 

and certification. Regardless of whether 

or not states elect this option, we will 

continue to review this factor as we gain 

more experience in the Exchanges, and 

as data becomes more readily available, 

to refine future BHP funding 

methodologies. 

Comment: One commenter requested 

clarification on Equation 1. Specifically, 

the commenter asked whether the 

average expected PTC that all persons in 

the rate cell would receive is an average 

for people within a certain region, or if 

this is a statewide average. 

Response: The average expected PTC 

that all persons in the rate cell would 

receive is an average for persons within 

a state’s geographic rating area, which in 

most instances would be a county or 

county-equivalent entity. These would 

not be statewide rates. 

Comment: One commenter requested 

that CMS revise Equation 1 to account 

for the impact of induced utilization on 

the base premiums used to calculate the 

advanced payment of the premium tax 

credit (APTC). Such an adjustment 

would account for a greater APTC value 

due to the increase in health care 

service utilization. The commenter 

proposed such an adjustment to equal 

1.12 divided by the average assumed 

induced utilization adjustment inherent 

in commercial premiums absent BHP. 

Response: We do not believe that this 

adjustment is appropriate. This 

adjustment would be inconsistent with 

how the PTC is calculated and with the 

statute. In addition, we would note that 

only accounting for how the presence of 

the CSR may increase the average costs 

for enrollees would not be appropriate, 

as the CSR may also have an effect of 

lowering the average costs as well (for 

example, the provision of the CSR may 

encourage persons with lower expected 

health care costs to enroll). 

Comment: Several commenters 

expressed support for the PTC 

calculation as it takes into account the 

CSRs that are particular to American 

Indians and Alaska Natives. 

Response: We thank the commenters 

for their support and are finalizing the 

proposed provision. 

Comment: Several commenters 

requested that CMS reconsider applying 

100 percent of the CSR that would have 

been available in the Exchange to the 

BHP payment methodology, as opposed 

to 95 percent. Many commenters stated 

that the statute provides for this 

interpretation given the placement of 

the comma in section 1331(d)(3)(i) of 

the Affordable Care Act. 

Response: We appreciate the 

commenters’ concern regarding this 

issue, and we have carefully considered 

and reviewed the commenters’ 

suggestions. We have interpreted the 95 

percent specified in statute to refer to 

both the PTC and CSR components of 

the BHP payment methodology. We 

believe that applying the 95 percent to 

both components of the methodology 

represents the best reading of the statute 

and the intent of the drafters, and we are 

therefore finalizing the proposed 

provision. 

Comment: We received one comment 

identifying a potential error in Equation 

2. Specifically, the commenter believes 

that the equation should read ‘‘FRAC × 

AV’’ rather ‘‘FRAC + AV.’’ 

Response: We appreciate the 

identification of a potential error; 

however, the equation, as written in the 

proposed methodology, is correct. The 

symbol in the proposed methodology is 

the division symbol, not the addition 

symbol. We have revised the display of 

the formula for the sake of clarity, as 

shown below. 


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Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 13891 

Comment: We received a comment 

with respect to the premium trend factor 

included in the equations. Specifically, 

the commenter expressed concern that it 

will not capture changes in premiums 

due to non-claim issues such as 

increases in premium taxes, assessment, 

and Exchange user fees. The commenter 

recommended that non-claim issues be 

included in the equations, and that the 

equations should be calculated using 

only individual membership and vary 

by state. 

Response: The methodology does take 

into account non-claim issues, as the 

National Health Expenditure projections 

include all plan expenses (including 

administrative costs and plan taxes and 

fees). We recognize that the 

methodology does not use a factor 

specific to individual private health 

insurance premiums, but we believe this 

is a reasonable estimate of future growth 

of all private health insurance 

premiums. We believe that the equation 

reflects a consistent approach for 

calculating this portion of the federal 

BHP payment for all states, and note 

that it incorporates state-specific values 

for the adjusted reference premium and 

the tobacco rating factor adjustment. 

We also note that the federal 2015 

BHP payment will be calculated using 

the actual 2015 Exchange premiums 

instead of the projected 2015 Exchange 

premiums (unless a state elects to use its 

2014 premium as the basis for the 2015 

calculation). We believe that this 

addresses the concerns raised by the 

commenters that there may be 

differences in the premium growth rates 

across states because the calculation 

will use actual Exchange premiums in 

effect for the year. 

C. Required Rate Cells 

In this section, we proposed that a 

state implementing BHP provide us 

with an estimate of the number of BHP 

enrollees it will enroll in the upcoming 

BHP program, by applicable rate cell, to 

determine the federal BHP payment 

amounts. For each state, we proposed 

using rate cells that separate the BHP 

population into separate cells based on 

the following five factors: age; 

geographic rating area; coverage status; 

household size; and income. For 

specific discussions, please refer to the 

December 23, 2013 proposed 

methodology (78 FR 77403). 

We received the following comments 

on the proposed rate cells: 

Comment: One commenter expressed 

support in using rate cells organized by 

income range to determine the aggregate 

federal BHP payment. The commenter 

believes that the variation in available 

PTC is minimal between the high and 

low points in each of the rates cells, and 

the proposed approach provides for an 

administratively simple way to calculate 

the federal BHP payment amount. The 

commenter believes that it was unclear 

in the proposed methodology how the 

averages in each rate cell will be 

calculated, and recommended that CMS 

provide states with the flexibility to 

determine the average PTC within each 

rate cell depending on the distribution 

of its BHP population. 

Response: We thank the commenter 

for their support; however, we believe 

that applying a uniform distribution 

across income ranges within each rate 

cell to determine the average PTC is the 

most appropriate approach. This 

approach will allow for timely 

calculation of the rates, will eliminate 

the risk that rate cells with a small 

number of persons projected to enroll 

would see the BHP payment rates 

skewed, and will not require any 

estimation of BHP enrollment for each 

rate cell prospectively. Furthermore, we 

do not believe that determining the 

average PTC based on the distribution of 

the BHP population would materially 

change the final BHP payment. 

Comment: Several commenters 

expressed concern that the age bands 

included in the proposed methodology 

were too broad, and recommended that 

CMS consider narrowing the age bands, 

particularly the 21–44 age band. 

Response: We appreciate these 

comments, and the final BHP payment 

methodology will split the proposed age 

band into two separate age bands: 21– 

34 and 35–44. 

Comment: One commenter requested 

that CMS offer as an option to states a 

smaller number of rate categories, 

actuarially rolled up from the 

population cells, to better align with the 

rate categories states already have 

established in their Medicaid 

information systems. The commenter 

believes that such an approach would 

reduce administrative burden on states 

implementing BHP. 

Response: We appreciate and share 

the commenter’s interest in reducing the 

administrative burden on states 

implementing BHP. The use of distinct 

rate cells is necessary to accurately 

reflect the different costs of the PTCs 

and CSRs for subcomponent population 

groups that would be paid if the 

individuals had been enrolled in 

coverage through the Exchange. This 

approach is necessary to ensure an 

accurate and precise determination of 

available federal funding in the absence 

of reliable data on the composition of 

the BHP population. At some future 

point in time, when reliable data is 

available about the BHP population, it 

might be possible to reduce the number 

of rate cells based on actuarial 

projections. 

These rate cells will likely differ from 

the rate cells that the state uses to pay 

standard health plans (to the extent that 

a state uses rate cells at all), because 

they are based on a different underlying 

purpose. The BHP federal payment rate 

cells are to determine the PTCs and 

CSRs that would be paid in the absence 

of a BHP, while rate cells that a state 

may use for purpose of payment to 

standard health plans need to reflect the 

relative overall covered health care costs 

of each segment of the population. 

States have considerable flexibility in 

determining how to pay standard health 

plan offerors, and are not required to 

use rate cells at all. A state may elect to 

use the BHP federal payment rate cells, 

may use a payment structure borrowed 

from other insurance affordability 

programs, or may use a payment 

structure specifically designed for BHP. 

D. Sources and State Data 

Considerations 

We proposed in this section to use, to 

the extent possible, data submitted to 

the federal government by QHP issuers 

seeking to offer coverage through an 

Exchange to determine the federal BHP 

payment cell rates. However, in states 

operating a State Based Exchange (SBE), 

we proposed that such states submit 

required data for CMS to calculate the 

federal BHP payment rates in those 

states. For specific discussions, please 

refer to the December 23, 2013 proposed 

methodology (78 FR 77404). 

We received the following comments 

on the data needed from SBEs to 

determine the federal BHP payment 

rates: 

Comment: One commenter requested 

that CMS permit states operating SBEs 

to submit data after the January 20, 2014 

deadline on a technical assistance basis. 

Response: We will review 2014 

premium data that is submitted on a 

technical assistance basis after the 

January 20, 2014 deadline to help 


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provide interested states determine 

preliminary 2015 federal BHP payment 

rates. Because final 2015 federal BHP 

payment rates will be determined using 

actual 2015 premium data, states do not 

need to submit 2014 premium data 

unless they are interested in working 

with CMS to develop preliminary 

estimates of the federal BHP payments 

using the 2014 data. Finally, we are also 

available to provide technical assistance 

to states as they collect the information 

needed to complete the premium 

collection tool. 

E. Discussion of Specific Variables Used 

in Payment Equations 

In this section, we proposed 11 

specific variables to use in the payment 

equations that comprise the overall BHP 

funding methodology. For each 

proposed variable, we include a 

discussion on the assumptions and data 

sources used in developing the 

variables. For specific discussions, 

please refer to the December 23, 2013 

proposed methodology (78 FR 77404). 

We received the following comments 

on the specific variables used in the 

payment equations: 

1. Variable 1—Reference Premium 

Comment: Several commenters 

supported the assumptions used in 

developing the funding methodology, 

including the use of the second lowest 

cost silver plan premium and lowest 

cost bronze premium. 

Response: We thank the commenters 

for their support and are finalizing the 

proposed assumptions. 

Comment: While one commenter 

expressed support for using the second 

lowest cost silver plan as the 

methodology’s reference premium, the 

commenter recommended that CMS 

permit the value of the second lowest 

cost silver plan change in the event that 

the QHP leaves the Exchange, or 

enrollment in the QHP closes. 

Response: While we appreciate the 

commenter’s interest in ensuring that 

the reference premium is reflective of 

the actual second lowest cost silver plan 

at a given point, we are not revising the 

final methodology to incorporate the 

commenter’s recommendation. We 

believe that such a recommendation 

would prove inconsistent with the 

policy set forth in 26 CFR 1.36B–3(f)(6) 

to update the payment methodology, 

and subsequently the federal BHP 

payment rates, in the event that the 

second lowest cost silver plan used as 

the reference premium changes (that is 

terminates or closes enrollment during 

the year). 

Comment: Several commenters 

requested that CMS consider using a 

national average premium as the 

reference premium in the methodology 

in the event that CMS does not adjust 

the methodology to use actual 

premiums rather than use a reference 

premium trended forward by the 

premium trend factor. 

Response: While we appreciate the 

commenters’ recommendation, we are 

not adopting the use of a national 

average premium as the methodology’s 

reference premium as we believe this 

would be inconsistent with the 

requirements in statute. Unless 

otherwise notified by a state, we intend 

to use the actual 2015 second lowest 

cost silver plan premiums to determine 

the final 2015 federal BHP payment 

rates, which we believe addresses the 

commenters’ concerns. 

Comment: Several commenters 

requested that, when calculating the 

CSR component of the federal BHP 

payment, CMS account for the 

likelihood that American Indians and 

Alaska Natives will elect to enroll in a 

bronze-level QHP that would utilize the 

entire PTC that would have otherwise 

been available to the enrollees rather 

than assuming the enrollees will select 

the lowest cost bronze level QHP. The 

commenter noted that while American 

Indians and Alaska Natives purchasing 

coverage in the Exchange will likely 

select a bronze level QHP, they may not 

always select the lowest cost bronze 

plan. 

Response: We appreciate the 

commenters’ concerns about the level of 

funding related to American Indians 

and Alaska Natives enrolled in BHP. 

With regard to comments that the 

methodology assume that American 

Indians and Alaska Natives who enroll 

through the Exchange would choose a 

QHP with a premium that is at least 

equal to the value of the PTC, the 

payment methodology is consistent with 

this assumption. 

With regard to the comments that 

American Indians and Alaska Natives 

who would enroll through the Exchange 

may select other bronze level QHPs than 

the lowest cost plan, we acknowledge 

the likelihood of the selection of 

different bronze level QHPs, but we 

believe it is not possible to project how 

these enrollees would select different 

plans for 2015 (similar to the limitations 

regarding the assumption of how 

enrollees would select plans other than 

the second lowest cost silver plan). In 

addition, while there may be instances 

where the value of PTC would exceed 

the value of some bronze QHP 

premiums, this may vary by age, 

household size, household income, and 

other factors; we believe this further 

limits the ability to project how 

enrollees would select different plans. 

Thus, we have selected what we believe 

to be an assumption that is reasonable 

and results in the correct level of 

funding for BHP. 

2. Variable 2—Premium Trend Factor 

Comment: Several commenters 

requested that CMS reconsider 

removing the premium trend factor from 

the methodology and simply reconcile 

the BHP federal payment rates using 

actual 2015 second lowest cost silver 

premiums. In the event that CMS will 

not use actual premiums, the 

commenters recommended, as an 

alternative, that CMS not use the 

proposed premium trend factor, but 

rather develop a factor that sufficiently 

offsets the artificially low 2014 

Exchange premiums, or provide the 

state with the option to submit a statespecific trend factor that is based on 

other reliable cost and experience data. 

Commenters also expressed interest in 

using actual Exchange premium data to 

develop the premium trend factor in 

future program years. 

Response: As noted in an earlier 

response, and discussed further in 

section III.D.1 of this final methodology, 

we will determine final 2015 federal 

BHP payment rates using actual 2015 

premiums unless notified by a state to 

calculate its payment rates with 2014 

premium data. We believe that this 

approach is appropriate in the first year 

of BHP implementation given the 

uncertainties in market conditions in 

the Exchanges. 

Given that we are using actual 2015 

premiums, we are not adopting the 

commenters’ recommendation to apply 

a different premium trend factor other 

than the National Health Expenditure 

projection with an adjustment for the 

impact of the reinsurance pool on QHP 

premiums between 2014 and 2015. With 

respect to commenters’ interest in the 

premium trend factor that will be used 

in future BHP program years, we will 

use actual Exchange and BHP 

experience to develop this factor for 

future funding methodologies, which 

will follow the Payment document 

process specified in the BHP final 

regulation. Publishing an annual 

proposed and final Payment document 

will help refine the BHP funding 

methodology as we gain more 

experience from the Exchanges as well 

as better data that is based on actual 

market conditions. 

Comment: One commenter requested 

that CMS provide additional 

clarification on the transitional 

reinsurance adjustment. The commenter 

believes that the adjustment would 

include a component that would be 


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equal to the percentage of costs not 

covered by reinsurance recoveries in 

2015 over the percentage of costs not 

covered by reinsurance recoveries in 

2014. 

Response: We provide additional 

clarification on the reinsurance 

adjustment in section III.F of this final 

methodology. 

3. Variable 3—Population Health Factor 

Comment: Several commenters 

disagreed with our proposed value for 

the population health factor. 

Specifically, commenters believe that 

the 1.00 value did not accurately reflect 

the health status of potential BHP 

eligible individuals in certain states. As 

such, commenters requested that CMS 

retrospectively adjust this factor using 

either a state-specific methodology, or 

the same methodology that is used to 

risk adjust in the individual market. 

Response: We understand the 

commenters’ interest in ensuring that 

the population health factor accurately 

reflects the health status of BHP 

individuals relative to consumers in the 

Exchange. In light of the comments we 

received on this issue, and, in 

particular, because of the lack of 

currently available data, we are 

providing states with an option to 

propose a methodology, as discussed 

further in section III.G of this final 

methodology, for CMS approval that 

would retrospectively adjust for risk. 

We understand that such an assessment 

may be necessary to determine whether 

the difference in health status between 

the state’s BHP population and 

consumers in the Exchange would affect 

PTC, CSRs, risk adjustment and 

reinsurance payments that would have 

been made had BHP enrollees been 

enrolled in coverage through the 

Exchange. 

While we are finalizing the proposed 

value of the population health factor, we 

would note that as additional 

experience is gained in the Exchange 

and more data becomes available, we 

believe that this factor will be reviewed 

to ensure it accurately reflects the health 

status of BHP enrollees relative to 

consumers in the Exchange. 

Comment: While we received several 

comments in support of the proposed 

provision to exclude BHP from the 

individual market’s risk pool, other 

commenters requested that CMS 

consider providing states with the 

option to include BHP in its individual 

market’s risk pool. Commenters also 

requested that CMS permit states to 

have the ability to apply aspects of the 

reinsurance, risk adjustment, and risk 

corridor program to BHP. Several 

commenters noted that the existence of 

the reinsurance program has likely 

reduced individual market premiums, 

and further emphasized the importance 

of making a reinsurance payment in 

BHP using the same mechanism and 

conditions in the individual market. 

Response: We have carefully 

considered this issue and have 

determined that BHP should be 

excluded from the individual market 

because the market reform rules under 

the Public Health Service Act that were 

added by Title I, Subtitles A and B of 

the Affordable Care Act, such as the 

requirements for guaranteed issue, and 

premium rating do not apply to 

standard health plans participating in 

BHP. Moreover, in accordance with 45 

CFR 153.234 and 45 CFR 153.20, 

standard health plans operating under a 

BHP are not eligible to participate in the 

reinsurance program and the federallyoperated risk adjustment program. With 

respect to the risk corridor program, the 

statute, under section 1342 of the 

Affordable Care Act, precludes standard 

health plans from participation. To the 

extent that a state operating a BHP 

determines that, because of the riskprofile of its BHP population, standard 

health plans should be included in 

mechanisms that share risk, the state 

would need to use other methods for 

achieving this goal, such as electing to 

submit a proposed methodology to 

retrospectively risk adjust. 

Comment: One commenter requested 

that CMS consider, when developing 

risk formulas, to adequately capture risk 

associated with chronic and behavioral 

health conditions. 

Response: We appreciate the 

comment, but as we are not developing 

a risk adjustment between the BHP and 

individual market populations for 2015, 

the issue of risk associated with chronic 

and behavioral health conditions does 

not affect the federal BHP payment. In 

the event that a state elects to propose 

a risk adjustment reconciliation 

methodology, we encourage the 

commenter to engage with the state as 

it develops such a methodology. 

Comment: One commenter requested 

clarification on whether the population 

health factor will be based on a certain 

region, or if it will be a statewide 

adjustment. 

Response: The population health 

factor will be a state-wide adjustment 

unless a state utilizes a different 

approach approved by CMS in its risk 

adjustment reconciliation methodology. 

4. Variable 6—Income Reconciliation 

Factor 

Comment: Several commenters 

recommended that CMS explicitly state 

that the PTC repayment caps specified 

in the Affordable Care Act will be 

applied to income reconciliation 

process in BHP. 

Response: We appreciate the 

commenters’ interest in ensuring that 

BHP enrollees are not subject to PTC 

repayments in excess of what would 

have otherwise occurred had they 

enrolled in the Exchange, but want to 

assure the commenters that BHP 

enrollees are not subject to PTC 

repayments. Repayments were 

considered as we developed the income 

reconciliation factor. While the 

repayment caps were included in the 

development of this factor, they do not 

apply to BHP enrollees as there is no 

individual income reconciliation 

process in BHP. BHP enrollees are not 

eligible to receive an advance payment 

of the PTC (APTC), and as such, they are 

not subject to the same income 

reconciliation process as Exchange 

consumers. 

Comment: One commenter requested 

that CMS consider the differences in the 

income distribution of state BHP 

populations in estimating the 

reconciliation effect. 

Response: We appreciate the 

comment, but we believe that a national 

factor is appropriate and we are 

maintaining it for this year’s payment 

notice. We note that there is a relatively 

narrow range of incomes for BHPeligible consumers, and thus statespecific income distributions are 

unlikely to have a significant impact on 

the BHP payment. 

Comment: Several commenters 

recommended that CMS adjust the 

income reconciliation factor to account 

for certain eligibility and enrollment 

processes. For example, the commenters 

noted that if a state reviews databases 

and/or requires reporting of changes in 

enrollees’ income and household 

composition, it would be unfair to apply 

a full reconciliation factor to this state 

since the income reconciliation factor 

assumes no income changes in the 

course of the payment year will affect 

eligibility. Commenters did note that a 

full reconciliation factor could be 

applied if a state elected to implement 

a 12-month continuous eligibility 

policy. 

Response: The income reconciliation 

factor has been developed consistent 

with the assumption that states will 

adopt a continuous eligibility policy. 

We do not have a basis to develop a 

prospective factor if a state does not do 

so, because state review and 

redetermination processes will vary. We 

will consider revisiting this assumption 

in future years for such states, based on 

available data on the effectiveness of 


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state review and redetermination 

processes. 

5. Variable 7—Tobacco Rating 

Adjustment Factor 

Comment: Based on available state 

data, one commenter expressed concern 

that the BHP population may have 

higher rates of smoking relative to the 

state average. As such, the commenter 

requested that CMS apply an adjustment 

based on state average smoking rates. 

Response: We appreciate the 

comment, and intend to use statespecific tobacco usage rates by age, 

based on data available from the Center 

for Disease Control and Prevention, 

which is described in more detail in 

section III.D.6 of this final methodology. 

We do not intend to make an adjustment 

based on different rates of tobacco usage 

by income level. 

Comment: One commenter requested 

that CMS provide additional detail on 

how it will calculate the estimated 

adjustment when calculating the CSR 

and whether the tobacco adjustment 

factor will be the same factor statewide, 

or vary by region. 

Response: The tobacco usage rates 

that are a component of the tobacco 

rating adjustment factor are statewide. 

To the extent that the difference 

between the non-tobacco and tobacco 

premiums varies by geographic rating 

area within the state, the tobacco rating 

adjustment factor may also vary as well. 

6. Variable 8—Factor to Remove 

Administrative Costs 

Comment: Several commenters 

requested that CMS either provide states 

the option to provide a state-specific 

factor, or to retrospectively reconcile 

using the actual medical loss ratio in the 

Exchange in a given BHP program year. 

Response: We appreciate the 

comments, but we believe that using the 

factor that we proposed to remove 

administrative costs is the most 

appropriate and consistent methodology 

to calculate the federal BHP payment. 

We would clarify that the factor to 

remove administrative costs is not 

precisely the same as the medical loss 

ratio; the factor to remove 

administrative costs also excludes 

certain plan costs (such as taxes, fees, 

and quality improvement activities) that 

are not counted towards the total plan 

revenue when calculating the medical 

loss ratio. Thus, the factor to remove 

administrative costs would likely be less 

than the actual or target medical loss 

ratios. 

Comment: Several commenters 

expressed concern that because states 

cannot expend BHP trust funds to cover 

administrative costs associated with 

BHP operations, including this factor in 

the methodology would only further 

reduce the state resources needed to 

support the operation of BHP. 

Response: While we understand the 

commenters’ concerns regarding the 

availability of funding for 

administrative costs, the statute does 

not permit states to use BHP trust funds 

for any activity beyond the expenditures 

related to the provision of the standard 

health plan except for lowering 

premiums and cost sharing and/or 

providing additional benefits. We 

believe that it is appropriate to include 

this factor in the funding methodology 

as it is necessary to remove costs such 

as taxes, fees and administrative 

expenses from the reference premium in 

order to determine the costs associated 

with allowed health benefits. 

7. Variable 10—Induced Utilization 

Factor 

Comment: Several commenters 

requested that CMS provide a state with 

the option to use a different induced 

utilization factor if it can demonstrate 

that utilization is more or less than 12 

percent as a result of the CSRs. 

Response: While we appreciate the 

commenters’ interest in ensuring that 

the methodology is developed using the 

most accurate data available, we are not 

adopting the commenters’ 

recommendation to permit such an 

option to states as we believe that using 

the factors developed for the 2015 HHS 

Payment Notice is the most appropriate 

methodology for calculating the federal 

BHP payment until more experience in 

BHP and the Exchange is gained and 

more data become available. 

8. Variable 11—Changes in Actuarial 

Value 

Comment: One commenter requested 

that CMS allow states to adjust for the 

actuarial value difference based on 

empirical evidence of the utilization for 

a typical BHP eligible population in that 

state. 

Response: While we appreciate the 

commenter’s interest in ensuring that 

the methodology is developed using the 

most accurate data available that is 

based on market experience, we are not 

adopting the commenter’s 

recommendation to permit such an 

option to states as it is not consistent 

with statute. The change in actuarial 

value, which determines the value of 

the CSR, is specified in statute. As such, 

there is no basis to make such an 

adjustment based on state experience. 

F. Adjustments for American Indians 

and Alaska Natives 

We proposed to make several 

adjustments for American Indians and 

Alaska Natives when calculating the 

CSR portion of the federal BHP payment 

rate to be consistent with the Exchange 

rules. For specific discussions, please 

refer to the December 23, 2013 proposed 

methodology (78 FR 77409). 

We received the following comments 

on the proposed adjustments when 

calculating the CSR component for 

American Indians and Alaska Natives: 

Comment: Several commenters 

supported our proposal to make several 

adjustments for American Indians and 

Alaska Natives when calculating the 

CSR portion of the federal BHP payment 

rate. 

Response: We thank the commenters 

for their support and are finalizing the 

proposed provision. 

Comment: Consistent with their 

comments regarding the reference 

premium, many commenters requested 

that CMS provide states with the option 

to retrospectively reconcile their federal 

BHP payments using actual premiums 

for the lowest cost bronze plans in the 

CSR calculation for American Indians 

and Alaska Natives. 

Response: As discussed further in 

section III.D.1 of this final methodology, 

and elsewhere, we believe that it is 

appropriate for the first year of BHP 

implementation to determine final 2015 

federal BHP payments using actual 2015 

premiums, unless otherwise notified by 

the state, given the market uncertainties 

and the infancy of the Exchanges. Given 

this, we will also use actual 2015 lowest 

cost bronze plan premiums to calculate 

the CSR component for American 

Indians and Alaska Natives. 

G. Example Application of the BHP 

Funding Methodology 

In this section, we included an 

example of the proposed approach 

described in the proposed methodology. 

For specific discussions, please refer to 

the December 23, 2013 proposed 

methodology (78 FR 77410). 

We received the following comment 

on the example application of the BHP 

funding methodology: 

Comment: One commenter requested 

clarification with respect to column 2 in 

Table 2 of the proposed methodology 

(78 FR 77411). Specifically, the 

commenter believes that the percentages 

included in the column were incorrect 

and requested that the correct values be 

included in the final methodology. 

Response: We thank the commenter 

for identifying the incorrect percentages 

in Table 2 of the proposed methodology. 


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Because the table was simply 

illustrative, we are not republishing the 

table in this final methodology. The 

incorrect percentages did not affect the 

illustrative purpose of the Table, but the 

correct values should have ranged from 

3.29 to 4.00 percent, instead of 2.29 to 

3.00 percent. 

H. General/Miscellaneous Comments 

We received the following general 

comments on the proposed federal BHP 

funding methodology, as well as 

comments related to the BHP proposed 

rule: 

Comment: One commenter expressed 

support for the proposed methodology 

stating that CMS had struck the right 

balance without making the 

methodology unduly complex. 

Response: We thank the commenter 

for their support. 

Comment: Several commenters 

expressed concern that the proposed 

BHP funding methodology will not 

provide sufficient funding to sustain 

existing state coverage programs that 

provide affordable coverage to 

individuals enrolled in such programs. 

Response: We appreciate the 

commenters’ concerns with respect to 

ensuring the availability of affordable 

coverage and continuing existing 

programs to prevent disruptions in care; 

however, the statute specifies that the 

Secretary will determine the BHP 

funding amount such that it equals 95 

percent of the PTC and CSRs that would 

have otherwise been available had BHP 

enrollees received QHP coverage in an 

Exchange. 

Comment: Several commenters 

requested that CMS consider offering 

states the option of implementing risk 

corridors as a means of sharing risk. 

Response: We appreciate the 

commenters’ interest in the 

implementation of risk corridors in 

BHP; to the extent that a state operating 

a BHP determines that, because of the 

risk-profile of its BHP population, 

standard health plans should be 

included in mechanisms that share risk, 

the state would need to establish statespecific methods for achieving this goal, 

such as proposing a risk adjustment 

reconciliation methodology. Because 

section 1342 of the Affordable Care Act 

specifically limits the risk corridor 

program to QHPs, standard health plans 

operating under BHP are not eligible to 

participate. As such, we are not revising 

the final methodology to adopt the 

commenters’ recommendation as the 

document provides state flexibility in 

using other methods to implement 

mechanisms that share risk. 

Comment: Several commenters urged 

CMS to permit states to use BHP trust 

funds to cover the administrative costs 

associated with implementing BHP. 

Response: This comment is outside 

the scope of this final methodology; 

however, we received an identical 

comment on the BHP proposed rule. 

The statute only permits the 

expenditure of BHP trust funds to 

further reduce premiums and cost 

sharing and provide additional benefits 

to individuals eligible for BHP; more 

detail is provided in the BHP final rule. 

Comment: One commenter requested 

that CMS clarify whether BHP trust 

funds can be used to provide benefits 

beyond Essential Health Benefits (EHBs) 

and to make supplemental payments to 

FQHCs if such payments are not equal 

to the PPS rate. The commenter also 

recommended that CMS require states to 

use excess funds to lower premiums and 

cost sharing. 

Response: This comment is outside 

the scope of this final methodology; 

however, we received an identical 

comment on the BHP proposed rule. 

The statute does provide states with the 

flexibility to expend BHP trust funds to 

further reduce premiums and cost 

sharing and provide additional benefits 

to individuals eligible for BHP; more 

detail is provided in the BHP final rule. 

Comment: One commenter requested 

that CMS require states to align their 

BHPs with existing Medicaid 

regulations and program requirements 

to prevent ‘‘churn’’ (that is, the 

temporary shifting of low-income 

individuals from one insurance 

affordability program to another). 

Response: This comment is outside 

the scope of this final methodology; 

however, please refer to specific 

discussions in the BHP final rule 

regarding the insurance affordability 

program coordination requirements. 

Comment: One commenter requested 

specific guidance on the premiums and 

cost sharing imposed on BHP enrollees, 

including whether these amounts can 

vary by income consistent with the 

premiums and cost sharing imposed in 

the Exchange. 

Response: This comment is outside 

the scope of this final methodology; 

however, we received an identical 

comment on the BHP proposed rule, 

which is addressed further in the BHP 

final rule. 

Comment: One commenter requested 

that CMS require states, as a condition 

of payment, assure that the BHP costsharing protections applicable to 

American Indians and Alaska Natives 

are equivalent to those these individuals 

would receive through the Exchange. 

Response: This comment is outside 

the scope of this final methodology; 

however, we received an identical 

comment on the BHP proposed rule, 

which is addressed further in the BHP 

final rule. 

Comment: One commenter expressed 

concern that the federal regulations and 

informal guidance implementing the 

Exchange’s network adequacy standards 

do not sufficiently acknowledge FQHC’s 

importance as safety-net providers, and 

recommended that CMS require the 

availability of FQHC services to each 

enrollee. 

Response: This comment is outside 

the scope of this final methodology; 

however, we received an identical 

comment on the BHP proposed rule, 

which is addressed further in the BHP 

final rule. 

Comment: Several commenters 

recommended that CMS require states to 

include FQHCs in their standard health 

plan contracts and ensure that FQHCs 

receive the PPS rate for services 

rendered. 

Response: This comment is outside 

the scope of this final methodology; 

however, we received an identical 

comment on the BHP proposed rule, 

which is addressed further in the BHP 

final rule. 

III. Provisions of the Final Methodology 

A. Overview of the Funding 

Methodology and Calculation of the 

Payment Amount 

Section 1331(d)(3) of the Affordable 

Care Act directs the Secretary to 

consider several factors when 

determining the federal BHP payment 

amount, which, as specified in the 

statute, must equal 95 percent of the 

value of the PTC and CSRs that BHP 

enrollees would have been provided 

had they enrolled in a QHP through an 

Exchange. Thus, the BHP funding 

methodology is designed to calculate 

the PTC and CSRs as consistently as 

possible and in general alignment with 

the methodology used by Exchanges to 

calculate the advance payments of the 

PTC and CSRs, and by the IRS to 

calculate final PTCs. In general, we rely 

on values for factors in the payment 

methodology specified in statute or 

other regulations as available, and we 

have developed values for other factors 

not otherwise specified in statute, or 

previously calculated in other 

regulations, to simulate the values of the 

PTC and CSRs that BHP enrollees would 

have received if they had enrolled in 

QHPs offered through an Exchange. In 

accordance with section 

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

Act, the final funding methodology 

must be certified by the Chief Actuary 

of CMS, in consultation with the Office 

of Tax Analysis of the Department of the 


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13896 Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 

Treasury, as having met the 

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

of the Affordable Care Act. 

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

Affordable Care Act specifies that the 

payment determination ‘‘shall take into 

account all relevant factors necessary to 

determine the value of the premium tax 

credits and cost-sharing reductions that 

would have been provided to eligible 

individuals . . . including the age and 

income of the enrollee, whether the 

enrollment is for self-only or family 

coverage, geographic differences in 

average spending for health care across 

rating areas, the health status of the 

enrollee for purposes of determining 

risk adjustment payments and 

reinsurance payments that would have 

been made if the enrollee had enrolled 

in a qualified health plan through an 

Exchange, and whether any 

reconciliation of the credit or costsharing reductions would have occurred 

if the enrollee had been so enrolled.’’ 

The payment methodology takes each of 

these factors into account. 

We have developed a methodology 

such that the total federal BHP payment 

amount will be based on multiple ‘‘rate 

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

represents a unique combination of age 

range, geographic rating area, coverage 

category (for example, self-only or twoadult coverage through BHP), household 

size, and income range as a percentage 

of FPL. Thus, there are distinct rate cells 

for individuals in each coverage 

category within a particular age range 

who reside in a specific geographic 

rating area and are in households of the 

same size and income range. We note 

that for states that do not use age as a 

rating factor in the individual market, 

we will develop BHP payment rates to 

be consistent with those states’ rating 

rules. Thus, in the case of a state that 

does not use age as a rating factor, the 

BHP payment rates would not vary by 

age. 

The federal BHP payment rate for 

each rate cell will be calculated in two 

parts. The first part will equal 95 

percent of the estimated PTC that would 

have been paid if a BHP enrollee in that 

rate cell had instead enrolled in a QHP 

in the Exchange. The second part will 

equal 95 percent of the estimated CSR 

payment that would have been made if 

a BHP enrollee in that rate cell had 

instead enrolled in a QHP in the 

Exchange. These two parts will be 

added together and the total rate for that 

rate cell will equal the sum of the PTC 

and CSR rates. 

To calculate the total federal BHP 

payment, Equation (1) will be used to 

calculate the estimated PTC for 

individuals in each rate cell and 

Equation (2) will be used to calculate 

the estimated CSR payments for 

individuals in each rate cell. By 

applying the equations separately to rate 

cells based on age, income and other 

factors, we will have taken those factors 

into account in the calculation. In 

addition, the equations incorporate the 

estimated experience of individuals in 

each rate cell if enrolled in coverage 

through the Exchange, taking into 

account additional relevant variables. 

Each of the variables in the equations is 

defined in the following sections, and 

further detail is provided later in this 

section of the payment methodology. 

In addition, we describe how we will 

calculate the adjusted reference 

premium (described later in this section 

of the payment methodology) that is 

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

defined in Equation (3a) and Equation 

(3b). 

1. Equation 1: Estimated PTC by Rate 

Cell 

The estimated PTC, on a per enrollee 

basis, will be calculated for each rate 

cell for each state based on age range, 

geographic rating area, coverage 

category, household size, and income 

range. The PTC portion of the rate will 

be calculated in a manner consistent 

with the methodology used to calculate 

the PTC for persons enrolled in a QHP, 

with three adjustments. First, the PTC 

portion of the rate for each rate cell will 

represent the mean, or average, expected 

PTC that all persons in the rate cell 

would receive, rather than being 

calculated for each individual enrollee. 

Second, the reference premium used to 

calculate the PTC (described in more 

detail later in the section) will be 

adjusted for BHP population health 

status (and, in the case of a state that 

elects to use 2014 premiums for the 

basis of the BHP federal payment, for 

the projected change in the premium 

from the current year (that is, the year 

of the final payment methodology) to 

the following year, to which the rates 

announced in the final payment 

methodology would apply.) These 

adjustments are described in Equation 

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

will be adjusted prospectively to reflect 

the mean, or average, net expected 

impact of income reconciliation on the 

combination of all persons enrolled in 

BHP; this adjustment, as described 

further below, will account for the 

estimated impact on the PTC that would 

have occurred had such reconciliation 

been performed. Finally, the rate will be 

multiplied by 95 percent, consistent 

with section 1331(d)(3)(A)(i) of the 

Affordable Care Act. We note that in the 

situation where the average income 

contribution of an enrollee would 

exceed the adjusted reference premium, 

we will calculate the PTC to be equal to 

0 and not let the PTC be negative. 

Equation (1) is defined as: 

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

BHP payment rate 

a = Age range 

g = Geographic rating area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

h = Household size 

i = Income range (as percentage of FPL) 

ARPa,g,c = Adjusted reference premium 

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

1 percentage-point increment of FPL 

j = jth percentage-point increment FPL 

n = Number of income increments used to 

calculate the mean PTC 

PTCFh,i,j = Premium Tax Credit Formula 

percentage 

IRF = Income reconciliation factor 

2. Equation 2: Estimated CSR Payment 

by Rate Cell 

The CSR portion of the rate will be 

calculated for each rate cell for each 

state based on age range, geographic 

rating area, coverage category, 

household size, and income range 

defined as a percentage of FPL. The CSR 

portion of the rate will be calculated in 

a manner consistent with the 

methodology used to calculate the CSR 

advance payments for persons enrolled 

in a QHP, as described in the HHS 

Notice of Benefit and Payment 

Parameters for 2015 proposed rule, with 

three principal adjustments. (We will 

make separate calculations that include 

different adjustments for American 

Indian Alaska Native BHP enrollees, as 

described in section III.E of this final 


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Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 13897 

methodology.) For the first adjustment, 

the CSR rate, like the PTC rate, will 

represent the mean, or average, expected 

CSR subsidy that would be paid on 

behalf of all persons in the rate cell, 

instead of the CSR subsidy being 

calculated for each individual enrollee. 

Second, this calculation will be based 

on the adjusted reference premium, as 

described below. Third, as explained 

earlier, this equation uses an adjusted 

reference premium that reflects 

premiums charged to non-tobacco users, 

rather than the actual premium that is 

charged to tobacco users to calculate 

CSR advance payments for tobacco 

users enrolled in a QHP. Accordingly, 

the equation includes a tobacco rating 

adjustment factor that will account for 

BHP enrollees’ estimated tobaccorelated health costs that are outside the 

premium charged to non-tobacco-users. 

Finally, the rate will be multiplied by 95 

percent, as provided in section 

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

Act. 

Equation (2) is defined as: 

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

portion of BHP payment rate 

a = Age range 

g = Geographic rating area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

h = Household size 

i = Income range (as percentage of FPL) 

ARPa,g,c = Adjusted reference premium 

TRAF = Tobacco rating adjustment factor 

FRAC = Factor removing administrative costs 

AV = Actuarial value of plan (as percentage 

of allowed benefits covered by the 

applicable QHP without a cost-sharing 

reduction subsidy) 

IUFh,i = Induced utilization factor 

DAVh,i = Change in actuarial value (as 

percentage of allowed benefits) 

3. Equation 3a and Equation 3b: 

Adjusted Reference Premium Variable 

(Used in Equations 1 and 2) 

As part of these calculations for both 

the PTC and CSR components, the value 

of the adjusted reference premium is 

described, as specified in Equation (3a) 

(except in the case of a state that elects 

to use the 2014 premiums as the basis 

for the federal BHP payment, as 

described in section III.F of this final 

methodology, and in which case 

Equation (3b) will be used). The 

adjusted reference premium will be 

equal to the reference premium, which 

will be based on the second lowest cost 

silver plan premium in 2015, multiplied 

by the BHP population health factor 

(described in section III.D of this final 

methodology), which will reflect the 

projected impact that enrolling BHPeligible individuals in QHPs on an 

Exchange would have had on the 

average QHP premium. 

ARPa,g,c = Adjusted reference premium 

a = Age range 

g = Geographic rating area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

RPa,g,c = Reference premium 

PHF = Population health factor 

In the case of a state that elects to use 

the reference premium based off of the 

2014 premiums (as described in section 

III.F of this final methodology), the 

value of the adjusted reference premium 

will be calculated using Equation (3b). 

The adjusted reference premium will be 

equal to the reference premium, which 

would be based on the second lowest 

cost silver plan premium in 2014, 

multiplied by the BHP population 

health factor (described in section III.D 

of this final methodology), which will 

reflect the projected impact that 

enrolling BHP-eligible individuals in 

QHPs on an Exchange would have had 

on the average QHP premium, and by 

the premium trend factor, which will 

reflect the projected change in the 

premium level between 2014 and 2015 

(including the estimated impact of 

changes resulting from the transitional 

reinsurance program established in 

section 1341 of the Affordable Care Act). 

ARPa,g,c = Adjusted reference premium 

a = Age range 

g = Geographic rating area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

RPa,g,c = Reference premium 

PHF = Population health factor 

PTF = Premium trend factor 

4. Equation 4: Determination of Total 

Monthly Payment for BHP Enrollees in 

Each Rate Cell 

In general, the rate for each rate cell 

will be multiplied by the number of 

BHP enrollees in that cell (that is, the 

number of enrollees that meet the 

criteria for each rate cell) to calculate 

the total monthly BHP payment. This 

calculation is shown in Equation 4. 

PMT = Total monthly BHP payment 

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

BHP payment rate 

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

portion of BHP payment rate 

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

a = Age range 

g = Geographic rating area 

c = Coverage status (self-only or applicable 

category of family coverage) obtained 

through BHP 

h = Household size 

i = Income range (as percentage of FPL) 


tkelley on DSK3SPTVN1PROD with RULESER12MR14.006</GPH> ER12MR14.007</GPH> ER12MR14.008</GPH> ER12MR14.009</GPH>
13898 Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 

1This curve is used to implement the Affordable 

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

not create an alternative rate structure to comply 

with that limit. The curve applies to all individual 

market plans, both within and outside the 

Exchange. The age bands capture the principal 

allowed age-based variations in premiums as 

permitted by this curve. More information can be 

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

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

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

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

the age bands in this methodology divide the total 

age-based premium variation into the three most 

equally-sized ranges (defining size by the ratio 

between the highest and lowest premiums within 

the band) that are consistent with the age-bands 

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

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

Software, May 7, 2013, http://www.cms.gov/CCIIO/ 

Resources/Regulations-and-Guidance/Downloads/

ra_tables_04_16_2013xlsx.xlsx. 

2For example, a cell within a particular state 

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

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

counties included in each such group. These 

geographic areas are consistent with the geographic 

rating areas established under the 2014 Market 

Reform Rules. They also reflect the service area 

requirements applicable to qualified health plans, 

as described in 45 CFR § 155.1055, except that 

service areas smaller than counties are addressed as 

explained below. 

3The three lowest income ranges would be 

limited to lawfully present immigrants who are 

ineligible for Medicaid because of immigration 

status. 

B. Federal BHP Payment Rate Cells 

We will require that a state 

implementing BHP provide us an 

estimate of the number of BHP enrollees 

it projects will enroll in the upcoming 

BHP program year, by applicable rate 

cell, prior to the first quarter of program 

operations. Upon our approval of such 

estimates as reasonable, the estimates 

will be used to calculate the prospective 

payment for the first and subsequent 

quarters of program operation until the 

state has provided us actual enrollment 

data. These data will be required to 

calculate the final BHP payment 

amount, and make any necessary 

reconciliation adjustments to the prior 

quarters’ prospective payment amounts 

due to differences between projected 

and actual enrollment. Subsequent 

quarterly deposits to the state’s trust 

fund will be based on the most recent 

actual enrollment data submitted to us. 

Procedures will ensure that federal 

payments to a state reflect actual BHP 

enrollment during a year, within each 

applicable category, and prospectively 

determined federal payment rates for 

each category of BHP enrollment, with 

such categories defined in terms of age 

range, geographic rating area, coverage 

status, household size, and income 

range, as explained above. 

We will require the use of certain rate 

cells as part of the federal BHP payment 

methodology. For each state, we will 

use rate cells that separate the BHP 

population into separate cells based on 

the following five factors: 

Factor 1—Age: We will separate 

enrollees into rate cells by age, using the 

following age ranges that capture the 

widest variations in premiums under 

HHS’s Default Age Curve: 1

• Ages 0–20. 

• Ages 21–34. 

• Ages 35–44. 

• Ages 45–54. 

• Ages 55–64. 

Factor 2—Geographic rating area: For 

each state, we will separate enrollees 

into rate cells by geographic rating areas 

within which a single reference 

premium is charged by QHPs offered 

through the state’s Exchange. Multiple, 

non-contiguous geographic rating areas 

may be incorporated within a single 

cell, so long as those areas share a 

common reference premium.2

Factor 3—Coverage status: We will 

separate enrollees into rate cells by 

coverage status, reflecting whether an 

individual is enrolled in self-only 

coverage or persons are enrolled in 

family coverage through BHP, as 

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

the Affordable Care Act. Among 

recipients of family coverage through 

BHP, separate rate cells, as explained 

below, will apply based on whether 

such coverage involves two adults alone 

or whether it involves children. 

Factor 4—Household size: We will 

separate enrollees into rate cells by 

household size that states use to 

determine BHP enrollees’ income as a 

percentage of the FPL under proposed 

42 CFR 600.320. We will require 

separate rate cells for several specific 

household sizes. For each additional 

member above the largest specified size, 

we will publish instructions on how we 

will calculate the appropriate payment 

rate based on data for the rate cell with 

the closest specified household size. We 

will publish rates for separate rate cells 

for household sizes 1, 2, 3, 4, and 5, as 

unpublished analyses of American 

Community Survey data conducted by 

the Urban Institute (which take into 

account unaccepted offers of employersponsored insurance, as well as income, 

Medicaid and CHIP eligibility, 

citizenship and immigration status, and 

current health coverage status) find that 

less than 1 percent of all BHP-eligible 

persons live in households of size 5 or 

greater. 

Factor 5—Income: For households of 

each applicable size, we will create 

separate rate cells by income range, as 

a percentage of FPL. The PTC that a 

person would receive if enrolled in a 

QHP varies by income, both in level and 

as a ratio to the FPL, and the CSR varies 

by income as a percentage of FPL. Thus, 

separate rate cells will be used to 

calculate federal BHP payment rates to 

reflect different bands of income 

measured as a percentage of FPL. We 

will use the following income ranges, 

measured as a ratio to the FPL: 

• 0 to 50 percent of the FPL. 

• 51 to 100 percent of the FPL. 

• 101 to 138 percent of the FPL.3

• 139 to 150 percent of the FPL. 

• 151 to 175 percent of the FPL. 

• 176 to 200 percent of the FPL. 

These rate cells will only be used to 

calculate the federal BHP payment 

amount. A state implementing BHP is 

not be required to use these rate cells or 

any of the factors in these rate cells as 

part of the state payment to the standard 

health plans participating in BHP or to 

help define BHP enrollees’ covered 

benefits, premium costs, or out-ofpocket cost-sharing levels. 

We will use the calculated rate for 

each rate cell to determine the federal 

BHP payment, rather than varying such 

rates to correspond to each individual 

BHP enrollee’s age and income level. 

We believe that the proposed approach 

will increase the administrative 

feasibility of making federal BHP 

payments and provide an accurate and 

reasonable methodology for calculating 

the total federal BHP payment. We 

believe that this approach should not 

significantly change federal payment 

amounts, as within applicable ranges, 

the BHP-eligible population is 

distributed relatively evenly. 

C. Sources and State Data 

Considerations 

To the extent possible, we will use 

data submitted to the federal 

government by QHP issuers seeking to 

offer coverage through an Exchange to 

perform the calculations that determine 

federal BHP payment cell rates. 

States operating a State Based 

Exchange (SBE) in the individual 

market, however, must provide certain 

data, including premiums for second 

lowest cost silver plans, by geographic 

rating area, in order for CMS to calculate 

the federal BHP payment rates in those 

states. An SBE state interested in 

obtaining the applicable federal BHP 

payment rates for its state must submit 

such data accurately, completely, and as 

specified by CMS, by no later than 

November 1, 2014, in order for CMS to 

calculate the applicable rates for 2015. 

If additional state data (that is, in 

addition to the second lowest cost silver 

plan premium data) are needed to 

determine the federal BHP payment 


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Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 13899 

4CMCS. ‘‘State Medicaid and CHIP Income 

Eligibility Standards Effective January 1, 2014.’’ 

rate, such data must be submitted in a 

timely manner, and in a format 

specified by CMS to support the 

development and timely release of 

annual BHP payment notices. The 

specifications for data collection to 

support the development of BHP 

payment rates for 2015 will be 

published in a separate CMS notice. 

If a state operating a SBE provides the 

necessary data accurately, completely, 

and as specified by CMS, but after the 

date specified above, we anticipate 

publishing federal payment rates for 

such a state in a subsequent Payment 

Notice. As noted in the BHP proposed 

rule, a state may elect to implement its 

BHP after a program year has begun. In 

such an instance, we propose that the 

state, if operating a SBE, submit its data 

no later than 30 days after the Blueprint 

submission for CMS to calculate the 

applicable federal payment rates. We 

further propose that the BHP Blueprint 

itself must be submitted for Secretarial 

certification with an effective date of no 

sooner than 120 days after submission 

of the BHP Blueprint. In addition, the 

state must ensure that its Blueprint 

include a detailed description of how 

the state will coordinate with other 

insurance affordability programs to 

transition and transfer BHP-eligible 

individuals out of their existing QHP 

coverage, consistent with the 

requirements set forth in proposed in 42 

CFR 600.330 and 600.425. We believe 

that this 120-day period is necessary to 

establish the requisite administrative 

structures and ensure that all statutory 

and regulatory requirements are 

satisfied. 

D. Discussion of Specific Variables Used 

in Payment Equations 

1. Reference Premium (RP) 

To calculate the estimated PTC that 

would be paid if individuals enrolled in 

QHPs through the Exchange, we must 

calculate a reference premium (RP) 

because the PTC is based, in part, on the 

premiums for the second lowest cost 

silver plan as explained in section II.C.5 

of this final methodology regarding the 

Premium Tax Credit Formula (PTCF). 

Accordingly, for the purposes of 

calculating the BHP payment rates, the 

reference premium, in accordance with 

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

adjusted monthly premium for an 

applicable second lowest cost silver 

plan. The applicable second lowest cost 

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

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

silver plan of the individual market in 

the rating area in which the taxpayer 

resides, which is offered through the 

same Exchange. We will use the 

adjusted monthly premium for an 

applicable second lowest cost silver 

plan in 2015 as the reference premium 

(except in the case of a state that elects 

to use the 2014 premium as the basis for 

the federal BHP payment, as described 

in section III.F of this final 

methodology). 

The reference premium will be the 

premium applicable to non-tobacco 

users. This is consistent with the 

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

bases the PTC on premiums that are 

adjusted for age alone, without regard to 

tobacco use, even for states that allow 

insurers to vary premiums based on 

tobacco use pursuant to 42 U.S.C. 

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

Consistent with the policy set forth in 

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

PTC for those enrolled in a QHP through 

an Exchange, we will not update the 

payment methodology, and 

subsequently the federal BHP payment 

rates, in the event that the second 

lowest cost silver plan used as the 

reference premium changes (that is, 

terminates or closes enrollment during 

the year). 

The applicable second lowest cost 

silver plan premium will be included in 

the BHP payment methodology by age 

range, geographic area, and self-only or 

applicable category of family coverage 

obtained through BHP. 

American Indians and Alaska Natives 

are eligible for a full cost sharing 

subsidy regardless of the plan they 

select. We assume that American 

Indians and Alaska Natives would be 

more likely to enroll in bronze plans as 

a result; thus, for American Indian/

Alaska Native BHP enrollees, we will 

use the lowest cost bronze plan as the 

basis for the reference premium for the 

purposes of calculating the CSR portion 

of the federal BHP payment as described 

further in section III.E of this final 

methodology. 

The applicable age bracket will be one 

dimension of each rate cell. We have 

assumed a uniform distribution of ages 

and will estimate the average premium 

amount within each rate cell. We 

believe that assuming a uniform 

distribution of ages within these ranges 

is a reasonable approach and would 

produce a reliable determination of the 

PTC and CSR components. We also 

believe this approach would avoid 

potential inaccuracies that could 

otherwise occur in relatively small 

payment cells if age distribution were 

measured by the number of persons 

eligible or enrolled. We will also use the 

same geographic rating areas as 

specified for the Exchanges in each state 

within which the same second lowest 

cost silver level premium is charged. 

Although plans are allowed to serve 

geographic rating areas smaller than 

counties after obtaining our approval, 

for purposes of defining BHP payment 

rate cells, no geographic area will be 

smaller than a county. We do not 

believe that this assumption will have a 

significant impact on federal payment 

levels and it would likely simplify both 

the calculation of BHP payment rates 

and the operation of BHP. 

Finally, in terms of the coverage 

category, federal payment rates will 

only recognize self-only and two-adult 

coverage, with exceptions that account 

for children who are potentially eligible 

for BHP. First, in states that set the 

upper income threshold for children’s 

Medicaid and CHIP eligibility below 

200 percent of FPL (based on modified 

adjusted gross income), children in 

households with incomes between that 

threshold and 200 percent of FPL would 

be potentially eligible for BHP. 

Currently, the only states in this 

category are Arizona, Idaho, and North 

Dakota.4 Second, BHP would include 

lawfully present immigrant children 

with incomes at or below 200 percent of 

FPL in states that have not exercised the 

option under the sections 

1903(v)(4)(A)(ii) and 2107(e)(1)(E) of the 

Social Security Act (the Act) to qualify 

all otherwise eligible, lawfully present 

immigrant children for Medicaid and 

CHIP. States that fall within these 

exceptions would be identified based on 

their Medicaid and CHIP State Plans, 

and the rate cells would include 

appropriate categories of BHP family 

coverage for children. In other states, 

BHP eligibility will generally be 

restricted to adults, since children who 

are citizens or lawfully present 

immigrants and who live in households 

with incomes at or below 200 percent of 

FPL will qualify for Medicaid or CHIP 

and thus be ineligible for BHP under 

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

Care Act, which limits BHP to 

individuals who are ineligible for 

minimum essential coverage (as defined 

in section 5000A(f) of the Internal 

Revenue Code of 1986). 

2. Population Health Factor (PHF) 

We considered including an explicit 

population health factor in each rate cell 

that varies based on the characteristics 

of BHP enrollees within that cell, but we 

are not proposing such a variable, for 

several reasons. We believe that because 

BHP-eligible consumers’ are eligible to 

enroll in QHPs in 2014, the 2014 QHP 

premiums already account for the health 

status of BHP-eligible consumers, as 


tkelley on DSK3SPTVN1PROD with RULES
13900 Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 

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

health plans are not required to submit reinsurance 

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

coverage not required to submit reinsurance 

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

under the national reinsurance parameters are 

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

explained in further detail below. Also, 

the function of this factor is to provide 

a reference premium amount that 

reflects the premiums that QHPs would 

have charged without the 

implementation of BHP, taking into 

account both the risk profile of BHPeligible consumers in the state and the 

operation of risk-adjustment and 

reinsurance mechanisms in the 

Exchanges. Our proposed approach to 

the population health factor seeks to 

achieve this goal based on the 

characteristics of the state’s BHP-eligible 

consumers as a whole. 

In the BHP proposed rule, we 

described in preamble what we believe 

to be the most appropriate approach to 

account for potential differences in 

health status between BHP enrollees 

and consumers in the individual 

market, including those obtaining 

coverage through the Exchange—that is, 

including a risk adjustment factor in the 

BHP funding methodology. We believe 

that it is appropriate to consider 

whether or not to develop a population 

health adjustment to account for 

potential differences in health status 

between persons eligible for BHP and 

those enrolled in the individual market, 

as the two populations may not have the 

same average health status. 

Accordingly, we have considered 

applying a population-wide adjustment 

for health status in the BHP payment 

calculation to account for the impact on 

a state’s Exchange premiums, hence the 

PTC and the value of CSRs, of changes 

to average risk levels in the state’s 

individual market that result from BHP 

implementation. Our proposed 

approach to the adjustment for 

population health status seeks to have 

the federal BHP payment reflect the 

premium that would have been charged 

if BHP-eligible consumers were allowed 

to purchase QHPs in their state’s 

Exchange, rather than the premium that 

is being charged in the Exchange 

without the inclusion of BHP 

consumers. This factor would be greater 

than 1.00 if BHP enrollees in a state are, 

on average, in poorer health status than 

those covered through the state’s 

individual market, and thus Exchange 

premiums would have been higher had 

the state not implemented BHP. This 

factor would be less than 1.00 if BHP 

enrollees in a state are, on average, in 

better health status than those covered 

through the state’s individual market, 

and thus Exchange premiums would 

have been lower if the state had not 

implemented BHP. 

We proposed that the population 

health adjustment for the 2015 BHP 

program year would equal 1.00. Most 

BHP-eligible consumers will be able to 

purchase coverage in the individual 

market during 2014, or the 

‘‘measurement year’’—that is, the year 

that precedes implementation of BHP 

and that provides the basis for 

estimating unadjusted reference 

premiums; thus, making no adjustment 

to the premiums for differences in BHPeligible enrollees’ health would be 

appropriate. As a result, BHP-eligible 

consumers’ health status is already 

included in the premiums that would be 

used to calculate the federal BHP 

payment rates. 

In states where significant numbers of 

BHP-eligible persons are covered 

outside of the individual market in 

2014, it may be possible to estimate 

differences in expected health status 

between persons who are eligible for 

BHP and persons otherwise eligible for 

coverage in the individual market. 

However, we believe that the different 

levels of federal subsidies based on 

household income for coverage for 

persons enrolled in a QHP through an 

Exchange may have a substantial 

influence on the participation rate of 

enrollees. This may result in relatively 

healthier persons with higher levels of 

subsidies enrolling in coverage, and this 

effect may partially or entirely offset 

some other differences in the health 

status between BHP-eligible persons and 

those otherwise covered in the 

individual market. 

On the Exchanges, premiums in most 

states will vary based on age, which 

research has shown is directly 

correlated to average health cost. 

Because the reference premium used to 

calculate BHP federal payment rates 

will vary by age, some of the difference 

in average health costs would be 

addressed by this approach to 

calculating the BHP payment. However, 

this does not further simplify the task of 

estimating the remaining adjustment 

needed to compensate for any impact of 

BHP implementation on average risk 

levels in the state’s individual market. 

Given these analytic challenges, the 

existing role played by age-rated 

premiums in compensating for risk, and 

the limited data about Exchange 

coverage and the characteristics of BHPeligible consumers that will available by 

the time we establish federal payment 

rates for 2015, we believe that the most 

appropriate adjustment for 2015 would 

be 1.00, including in states that cover 

BHP-eligible persons outside the 

individual market in 2014. In the event 

that states believe this adjustment is not 

reflective of the health status of their 

BHP populations, we are providing 

states with the option, as described 

further in section III.G, to include a 

retrospective population health status 

adjustment in the certified 

methodology, which is subject to CMS 

review and approval. Regardless of 

whether a state elects to include a 

retrospective population health status 

adjustment, we anticipate that, in future 

years, when additional data become 

available about Exchange coverage and 

the characteristics of BHP enrollees, we 

may estimate this factor differently. 

Finally, while the statute requires 

consideration of risk adjustment 

payments and reinsurance payments 

insofar as they would have affected the 

PTC and CSRs that would have been 

provided to BHP-eligible individuals 

had they enrolled in QHPs, this does not 

mean that a BHP program’s standard 

health plans receive such payments. As 

explained in the BHP final rule, BHP 

standard health plans are not included 

in the risk adjustment program operated 

by HHS on behalf of states. Further, 

standard health plans do not qualify for 

payments from the transitional 

reinsurance program established under 

section 1341 of the Affordable Care 

Act.5 To the extent that a state operating 

a BHP determines that, because of the 

distinctive risk profile of BHP-eligible 

consumers, BHP standard health plans 

should be included in mechanisms that 

share risk with other plans in the state’s 

individual market, the state would need 

to use other methods for achieving this 

goal. 

3. Income (I) 

Household income is a significant 

determinant of the amount of the PTC 

and CSRs that are provided for persons 

enrolled in a QHP through the 

Exchange. Accordingly, the BHP 

payment methodology incorporates 

income into the calculations of the 

payment rates through the use of 

income-based rate cells. We are defining 

income in accordance with the 

definition of modified adjusted gross 

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

consistent with the definition in 45 CFR 

155.300. Income will be measured 

relative to the FPL, which is updated 

periodically in the Federal Register by 

the Secretary of Health and Human 

Services under the authority of 42 

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

in the consumer price index for all 

urban consumers (CPI–U). In this 

methodology, household size and 

income as a percentage of FPL would be 


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6These income ranges and this analysis of 

income apply to the calculation of the PTC. Many 

fewer income ranges and a much simpler analysis 

apply in determining the value of CSRs, as specified 

below. 

7See Table IV A1 from the 2013 reports in http:// 

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

TrustFunds/Downloads/TR2013.pdf. 

used as factors in developing the rate 

cells. We will use the following income 

ranges measured as a percentage of 

FPL: 6

• 0–50 percent. 

• 51–100 percent. 

• 101–138 percent. 

• 139–150 percent. 

• 151–175 percent. 

• 176–200 percent. 

We will assume a uniform income 

distribution for each federal BHP 

payment cell. We believe that assuming 

a uniform income distribution for the 

income ranges proposed would be 

reasonably accurate for the purposes of 

calculating the PTC and CSR 

components of the BHP payment and 

would avoid potential errors that could 

result if other sources of data were used 

to estimate the specific income 

distribution of persons who are eligible 

for or enrolled in BHP within rate cells 

that may be relatively small. Thus, 

when calculating the mean, or average, 

PTC for a rate cell, we will calculate the 

value of the PTC at each one percentage 

point interval of the income range for 

each federal BHP payment cell and then 

calculate the average of the PTC across 

all intervals. This calculation will rely 

on the PTC formula described below. 

As the PTC for persons enrolled in 

QHPs would be calculated based on 

their income during the open 

enrollment period, and that income 

would be measured against the FPL at 

that time, we will adjust the FPL by 

multiplying the FPL by a projected 

increase in the CPI–U between the time 

that the BHP payment rates are 

published and the QHP open enrollment 

period, if the FPL is expected to be 

updated during that time. In that case, 

the projected increase in the CPI–U 

would be based on the intermediate 

inflation forecasts from the most recent 

OASDI and Medicare Trustees Reports.7

4. Premium Tax Credit Formula (PTCF) 

In Equation 1, we will use the formula 

described in 26 U.S.C. 36B(b) to 

calculate the estimated PTC that would 

be paid on behalf of a person enrolled 

in a QHP on an Exchange as part of the 

BHP payment methodology. This 

formula is used to determine the 

amount of premium that an individual 

or household would be required to pay 

if they had enrolled in the SLCSP on an 

Exchange, which is based on (A) the 

household income; (B) the household 

income measured as a percentage of 

FPL; and (C) the schedule specified in 

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

below. The difference between the 

amount of premium a person or a 

household is required to pay and the 

adjusted monthly premium for the 

applicable second lowest cost silver 

plan is the amount of the PTC that 

would be allowed to the enrollee. 

The PTC amount provided for a 

person enrolled in a QHP through an 

Exchange is calculated in accordance 

with the methodology described in 26 

U.S.C. 36B(b)(2) as the amount equal to 

the lesser of: (A) The monthly premiums 

for such month of one or more QHPs 

offered in the individual market within 

a state that cover the taxpayer, the 

taxpayer’s spouse, or any dependent (as 

defined in 26 U.S.C. 152) of the taxpayer 

and that the taxpayer and spouse or 

dependents were enrolled in through an 

Exchange; or (B) the excess (if any) of 

(i) the adjusted monthly premium for 

such month for the applicable second 

lowest cost silver plan for the taxpayer 

over (ii) an amount equal to 1⁄12 of the 

product of the applicable percentage 

(described below) and the taxpayer’s 

household income for the taxable year. 

The applicable percentage is defined 

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

1.36B–3(g) as the percentage that 

applies to a taxpayer’s household 

income that is within an income tier 

specified in the table, increasing on a 

sliding scale in a linear manner from an 

initial premium percentage to a final 

premium percentage specified in the 

table (see Table 1): 

TABLE 1—HOUSEHOLD’S CONTRIBUTION TO HEALTH INSURANCE PREMIUM AS A PERCENTAGE OF INCOME

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

tier: 

The initial 

premium 

percentage is— 

The final 

premium 

percentage is— 

Up to 133% .................................................................................................................................................. 2 .0 2 .0 

133% but less than 150% ........................................................................................................................... 3 .0 4 .0 

150% but less than 200% ........................................................................................................................... 4 .0 6 .3 

200% but less than 250% ........................................................................................................................... 6 .3 8 .05 

250% but less than 300% ........................................................................................................................... 8 .05 9 .5 

300% but not more than 400% ................................................................................................................... 9 .5 9 .5 

These are the applicable percentages 

for CY 2015. The applicable percentages 

will be updated in future years in 

accordance with 26 U.S.C. 

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

5. Income Reconciliation Factor (IRF) 

For persons enrolled in a QHP 

through an Exchange who receive 

APTC, there will be an annual 

reconciliation following the end of the 

year to compare such payment to the 

correct amount of PTC based on 

household circumstances shown on the 

federal income tax return. Any 

difference between the latter amounts 

and the credit received during the year 

would either be paid to the taxpayer (if 

the taxpayer received less in APTC than 

her or she was entitled to receive) or 

charged to the taxpayer as additional tax 

(if the taxpayer received more in APTC 

than he or she was entitled to receive, 

subject to any limitations in statute or 

regulation), as provided in 26 U.S.C. 

36B(f). 

Section 1331(e)(2) of the Affordable 

Care Act specifies that individuals 

enrolled in BHP may not be treated as 

a qualified individual under section 

1312 eligible for enrollment in a QHP 

offered through an Exchange. Therefore, 

BHP enrollees are not eligible to receive 

an APTC to purchase coverage in the 

Exchange. Because they do not receive 

APTC, BHP enrollees are not subject to 

the same income reconciliation as 

Exchange consumers. Nonetheless, there 

may still be differences between a BHP 

enrollee’s household income reported at 

the beginning of the year and the actual 

income over the year. These may 

include small changes (reflecting 

changes in hourly wage rates, hours 

worked per week, and other fluctuations 

in income during the year) and large 


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8See http://www.cdc.gov/nchs/nhis/tobacco.htm; 

http://apps.nccd.cdc.gov/statesystem/default/

DataSource.aspx. 

changes (reflecting significant changes 

in employment status, hourly wage 

rates, or substantial fluctuations in 

income). There may also be changes in 

household composition. Thus, we 

believe that using unadjusted income as 

reported prior to the BHP program year 

may result in calculations of estimated 

PTC that are inconsistent with the 

actual incomes of BHP enrollees during 

the year. Even if the BHP program 

adjusts household income 

determinations and corresponding 

claims of federal payment amounts 

based on household reports during the 

year or data from third-party sources, 

such adjustments may not fully capture 

the effects of tax reconciliation that BHP 

enrollees would have experienced had 

they been enrolled in a QHP through an 

Exchange and received APTC. 

Therefore, we are including an 

income adjustment factor in Equation 1 

that would account for the difference 

between calculating estimated PTC 

using: (a) Income relative to FPL as 

determined at initial application and 

potentially revised mid-year, under 

proposed 42 CFR 600.320, for purposes 

of determining BHP eligibility and 

claiming federal BHP payments; and (b) 

actual income relative to FPL received 

during the plan year, as it would be 

reflected on individual federal income 

tax returns. This adjustment will 

prospectively estimate the average effect 

of income reconciliation aggregated 

across the BHP population had those 

BHP enrollees been subject to tax 

reconciliation after receiving APTC for 

coverage provided through QHPs. For 

2015, the reconciliation effects are based 

on tax data for 2 years, reflecting income 

and tax unit composition changes over 

time among BHP-eligible individuals. 

This estimate has been developed by the 

Office of Tax Analysis (OTA) at the 

Department of the Treasury. 

The OTA maintains a model that 

combines detailed tax and other data, 

including Exchange enrollment and PTC 

claimed, to project Exchange premiums, 

enrollment, and tax credits. For each 

enrollee, this model compares the APTC 

estimated at the point of enrollment 

with the PTC based on household 

income and family size reported at the 

end of the tax year. The former reflects 

the determination using enrollee 

information furnished by the applicant. 

The latter would reflect the PTC 

eligibility based on information on the 

tax return, which would have been 

determined if the individual had not 

enrolled in BHP. The ratio of the 

reconciled PTC to the initial 

determination of PTC will be used as 

the income reconciliation factor in 

Equation (1) for estimating the PTC 

portion of the BHP payment rate. 

For 2015, OTA has estimated that the 

income reconciliation factor for states 

that have implemented the Medicaid 

eligibility expansion to cover adults up 

to 133 percent of the FPL will be 94.52 

percent, and for states that have not 

implemented the Medicaid eligibility 

expansion and do not cover adults up to 

133 percent of the FPL will be 95.32 

percent. Given that a state may 

implement the Medicaid eligibility 

expansion at any time during the year, 

and potentially after BHP payment rates 

have been developed, we will use the 

average of these two factors (94.92 

percent) for 2015. 

6. Tobacco Rating Adjustment Factor 

(TRAF) 

As described above, the reference 

premium is estimated, for purposes of 

determining both the PTC and related 

federal BHP payments, based on 

premiums charged for non-tobacco 

users, including in states that allow 

premium variations based on tobacco 

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

300gg(a)(1)(A)(iv). In contrast, as 

proposed in the HHS Notice of Benefit 

and Payment Parameters for 2015, the 

CSR advance payments are based on the 

total premium for a policy, including 

any adjustment for tobacco use. 

Accordingly, we will incorporate a 

tobacco rating adjustment factor into 

Equation 2 that reflects the average 

percentage increase in health care costs 

that results from tobacco use among the 

BHP-eligible population and that would 

not be reflected in the premium charged 

to non-users, subject to the tobacco 

rating factor adjustments allowed by 

each state. This factor will also take into 

account the estimated proportion of 

tobacco users among BHP-eligible 

consumers. 

To estimate the average effect of 

tobacco use on health care costs (not 

reflected in the premium charged to 

non-users), we will calculate the ratio 

between premiums that silver level 

QHPs charge for tobacco users to the 

premiums they charge for non-tobacco 

users at selected ages. To calculate 

estimated proportions of tobacco users, 

we will use data from the Centers for 

Disease Control and Prevention (CDC) to 

estimate tobacco utilization rates by 

state and relevant population 

characteristic.8 For BHP program year 

2015, we will compare these tobacco 

utilization rates to the characteristics of 

BHP-eligible consumers, as shown by 

national and state survey data. 

Specifically, for each state, we will 

calculate the tobacco usage rate based 

on the percentage of persons by age who 

use cigarettes and the percentage of 

persons by age that use smokeless 

tobacco, and calculate the utilization 

rate by adding the two rates together. 

The data is available for 3 age intervals: 

18–24; 25–44; and 45–64. For the BHP 

payment rate cell for persons ages 21– 

34, we would calculate the factor as (4/ 

14 * the utilization rate of 18–24 year 

olds) plus (10/14 * the utilization rate 

of 25–44 year olds), which would be the 

weighted average of tobacco usage for 

persons 21–34 assuming a uniform 

distribution of ages; for all other age 

ranges used for the rate cells, we would 

use the age range in the CDC data in 

which the BHP payment rate cell age 

range is contained. 

We will provide tobacco rating factors 

that may vary by age and by geographic 

area within each state. To the extent that 

the second lowest cost silver plans have 

a different ratio of tobacco user rates to 

non tobacco user rates in different 

geographic areas, the tobacco rating 

adjustment factor may differ across 

geographic areas within a state. In 

addition, to the extent that the second 

lowest cost silver plan has a different 

ratio of tobacco user rates to non 

tobacco user rates by age, or that there 

is a different prevalence of tobacco use 

by age, the tobacco rating adjustment 

factor may differ by age. 

7. Factor for Removing Administrative 

Costs (FRAC) 

The Factor for Removing 

Administrative Costs (FRAC) represents 

the average proportion of the total 

premium that covers allowed health 

benefits, and we include this factor in 

our calculation of estimated CSRs in 

Equation 2. The product of the reference 

premium and the FRAC would 

approximate the estimated amount of 

EHB claims that would be expected to 

be paid by the plan. This step is needed 

because the premium also covers such 

costs as taxes, fees, and QHP 

administrative expenses. We have set 

this factor equal to 0.80, which is 

proposed for calculating CSR advance 

payments for 2015 in the HHS Notice of 

Benefit and Payment Parameters for 

2015. 

8. Actuarial Value (AV) 

The actuarial value is defined as the 

percentage paid by a health plan of the 

total allowed costs of benefits, as 

defined under 45 CFR § 156.20. (For 

example, if the average health care costs 

for enrollees in a health insurance plan 

were $1,000 and that plan has an 


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Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 13903 

actuarial value of 70 percent, the plan 

would be expected to pay $700 ($1,000 

× 0.70) for health care costs per enrollee, 

on average.) By dividing such estimated 

costs by the actuarial value in the 

proposed methodology, we would 

calculate the estimated amount of total 

EHB-allowed claims, including both the 

portion of such claims paid by the plan 

and the portion paid by the consumer 

for in-network care. (To continue with 

that same example, we would divide the 

plan’s expected $700 payment of the 

person’s EHB-allowed claims by the 

plan’s 70 percent actuarial value to 

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

by the consumer, is $1,000.) 

For the purposes of calculating the 

CSR rate in Equation 2, we will use the 

standard actuarial value of the silver 

level plans in the individual market, 

which is equal to 70 percent. 

9. Induced Utilization Factor (IUF) 

The induced utilization factor is 

proposed as a factor in calculating 

estimated CSRs in Equation 2 to account 

for the increase in health care service 

utilization associated with a reduction 

in the level of cost sharing a QHP 

enrollee would have to pay, based on 

the cost-sharing reduction subsidies 

provided to enrollees. 

In the HHS Notice of Benefit and 

Payment Parameters for 2015 proposed 

rule, we proposed induced utilization 

factors for the purposes of calculating 

cost-sharing reduction advance 

payments for 2015. The induced 

utilization factor for all persons who 

would enroll in a silver plan and qualify 

for BHP based on their household 

income as a percentage of FPL is 1.12; 

this would include persons with 

household income between 100 percent 

and 200 percent of FPL, lawfully 

present non-citizens below 100 percent 

of FPL who are ineligible for Medicaid 

because of immigration status, and 

persons with household income under 

300 percent of FPL, not subject to any 

cost-sharing. Thus, we will use the 

induced utilization factor equal to 1.12 

for the BHP payment methodology. 

10. Change in Actuarial Value (DAV) 

The increase in actuarial value would 

account for the impact of the costsharing reduction subsidies on the 

relative amount of EHB claims that 

would be covered for or paid by eligible 

persons, and we include it as a factor in 

calculating estimated CSRs in Equation 

2. 

The actuarial values of QHPs for 

persons eligible for cost-sharing 

reduction subsidies are defined in 45 

CFR 156.420(a), and eligibility for such 

subsidies is defined in 45 CFR 

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

enrollees with household incomes 

between 100 percent and 150 percent of 

FPL, and those below 100 percent of 

FPL who are ineligible for Medicaid 

because of their immigration status, 

CSRs increase the actuarial value of a 

QHP silver plan from 70 percent to 94 

percent. For QHP enrollees with 

household incomes between 150 

percent and 200 percent of FPL, CSRs 

increase the actuarial value of a QHP 

silver plan from 70 percent to 87 

percent. 

We will apply this factor by 

subtracting the standard AV from the 

higher AV allowed by the applicable 

cost-sharing reduction. For BHP 

enrollees with household incomes at or 

below 150 percent of FPL, this factor is 

0.24 (94 percent minus 70 percent); for 

BHP enrollees with household incomes 

more than 150 percent but not more 

than 200 percent of FPL, this factor is 

0.17 (87 percent minus 70 percent). 

E. Adjustments for American Indians 

and Alaska Natives 

There are several exceptions made for 

American Indians and Alaska Natives 

enrolled in QHPs through an Exchange 

to calculate the PTC and CSRs. Thus, we 

will make adjustments to the payment 

methodology described above to be 

consistent with the Exchange rules. 

We will make the following 

adjustments: 

1. The adjusted reference premium for 

use in the CSR portion of the rate will 

be the lowest cost bronze plan instead 

of the second lowest cost silver plan, 

with the same adjustment for the 

population health factor (and in the case 

of a state that elects to use the 2014 

premiums as the basis of the federal 

BHP payment, the same adjustment for 

the premium trend factor). American 

Indians and Alaska Natives are eligible 

for CSRs with any metal level plan, and 

thus we believe that eligible persons 

would be more likely to select a bronze 

level plan instead of a silver level plan. 

(It is important to note that this would 

not change the PTC, as that is the 

maximum possible PTC payment, which 

is always based on the second lowest 

cost silver plan.) 

2. The actuarial value for use in the 

CSR portion of the rate is 0.60 instead 

of 0.70, which is consistent with the 

actuarial value of a bronze level plan. 

3. The induced utilization factor for 

use in the CSR portion of the rate is 

1.15, which is consistent with the 

proposed HHS Notice of Benefit and 

Payment Parameters for 2015 induced 

utilization factor for calculating advance 

CSR payments for persons enrolled in 

bronze level plans and eligible for CSRs 

up to 100 percent of actuarial value. 

4. The change in the actuarial value 

for use in the CSR portion of the rate is 

0.40. This reflects the increase from 60 

percent actuarial value of the bronze 

plan to 100 percent actuarial value, as 

American Indians and Alaska Natives 

are eligible to receive CSRs up to 100 

percent of actuarial value. 

F. State Option To Use 2014 QHP 

Premiums for BHP Payments 

In the interest of allowing states 

greater certainty in the total BHP federal 

payments for 2015, we will provide 

states the option to have their final 2015 

federal BHP payment rates to be 

calculated using the projected 2015 

adjusted reference premium (that is, 

using 2014 premium data multiplied by 

the premium trend factor defined 

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

For a state that elects to use the 2014 

premium as the basis for the 2015 BHP 

federal payment, the state must inform 

CMS no later than May 15, 2014. 

For Equation (3b), we define the 

premium trend factor as follows: 

Premium Trend Factor (PTF) 

In Equation (3b), we calculate an 

adjusted reference premium (ARP) 

based on the application of certain 

relevant variables to the reference 

premium (RP), including a premium 

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

that elects to use the 2014 premiums as 

the basis for determining the BHP 

payment, it is appropriate to apply a 

factor that would account for the change 

in health care costs between the year of 

the premium data and the BHP plan 

year. We are defining this as the 

premium trend factor in the BHP 

payment methodology. This factor 

approximates the change in health care 

costs per enrollee, which would 

include, but is not limited to, changes 

in the price of health care services and 

changes in the utilization of health care 

services. This provides an estimate of 

the adjusted monthly premium for the 

applicable second lowest cost silver 

plan that would be more accurate and 

reflective of health care costs in the BHP 

program year, which will be the year 

following issuance of the final federal 

payment notice. In addition, we believe 

that it is appropriate to adjust the trend 

factor for the estimated impact of 

changes to the transitional reinsurance 

program on the average QHP premium. 

We will use the annual growth rate in 

private health insurance expenditures 

per enrollee from the National Health 

Expenditure projections, developed by 

the Office of the Actuary in CMS 

(citation, http://www.cms.gov/ResearchStatistics-Data-and-Systems/StatisticsVerDate Mar<15>2010 16:15 Mar 11, 2014 Jkt 232001 PO 00000 Frm 00031 Fmt 4700 Sfmt 4700 E:\FR\FM\12MRR1.SGM 12MRR1

tkelley on DSK3SPTVN1PROD with RULES
13904 Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 

Trends-and-Reports/

NationalHealthExpendData/

Downloads/Proj2012.pdf). For 2015, the 

projected increase in private health 

insurance premiums per enrollee is 3.55 

percent. 

The adjustment for changes in the 

transitional reinsurance program is 

developed from analysis by CMS’ Center 

for Consumer Information and 

Insurance Oversight (CCIIO). In the 2014 

notice (78 FR 15519), CCIIO estimated 

that the transitional reinsurance 

program reduced QHP premiums on 

average by 10 to 15 percent. In 

unpublished analysis, CCIIO estimated 

that the transitional reinsurance 

program would reduce QHP premiums 

in 2015 on average by 6 percent, as the 

amount of funding in the reinsurance 

program decreases. Based on these 

analyses, we estimate that the changes 

in the transitional reinsurance program 

would lead to an increase of 4.44 

percent in average QHP premiums 

between 2014 and 2015; assuming that 

the 2014 QHP premiums are reduced by 

10 percent due to the reinsurance 

program, we calculate the adjustment as 

(1¥0.06)/(1¥0.10)¥1 = 0.0444. 

Combining these two factors together, 

we calculate that the premium trend 

factor for 2015 would be 8.15 percent: 

(1+0.0355) * (1+0.0444)¥1 = 0.0815. 

G. State Option To Include 

Retrospective State-specific Health Risk 

Adjustment in Certified Methodology 

In order to determine whether the 

potential difference in health status 

between BHP enrollees and consumers 

in the Exchange would affect the PTC, 

CSRs, risk adjustment and reinsurance 

payments that would have otherwise 

been made had BHP enrollees been 

enrolled in coverage on the Exchange, 

we will provide states implementing the 

BHP the option to propose and to 

implement, as part of the certified 

methodology, a retrospective adjustment 

to the federal BHP payments to reflect 

the actual value that would be assigned 

to the population health factor (or risk 

adjustment) based on data accumulated 

during program year 2015 for each rate 

cell. 

We acknowledge that there is notable 

uncertainty with respect to this factor 

due to the lack of experience of QHPs 

on the Exchange and other payments 

related to the Exchange, which is why, 

absent a state election, we will use a 

value for the population health factor to 

determine a prospective payment rate 

which assumes no difference in the 

health status of BHP enrollees and QHP 

enrollees. There is considerable 

uncertainty regarding whether the BHP 

enrollees will pose a greater risk or a 

lesser risk compared to the QHP 

enrollees, how to best measure such 

risk, and the potential effect such risk 

would have had on PTC, CSRs, risk 

adjustment and reinsurance payments 

that would have otherwise been made 

had BHP enrollees been enrolled in 

coverage on the Exchange. To the 

extent, however, that a state develops an 

approved protocol to collect data and 

effectively measure the relative risk and 

the effect on federal payments, we 

would permit a retrospective adjustment 

that measured the actual difference in 

risk between the two populations to be 

incorporated into the certified BHP 

payment methodology and used to 

adjust payments in the previous year. 

In order for a state electing the option 

to implement a retrospective population 

health status adjustment, the state 

would be required to submit a proposed 

protocol to CMS, which would be 

subject to approval by CMS and would 

be required to be certified by the Chief 

Actuary of CMS, in consultation with 

the Office of Tax Analysis, as part of the 

BHP payment methodology. We 

anticipate issuing future guidance 

shortly that will provide the basic 

framework in which a state must 

include in its proposed protocol and 

instructions for submission to CMS for 

approval; a state must submit its 

proposed protocol by August 1, 2014 for 

CMS approval. This submission must 

also include how the state will collect 

the necessary data to determine the 

adjustment, including any contracting 

contingences that may be in place with 

participating standard health plan 

offerors. CMS will provide technical 

assistance to states as they develop their 

protocol. In order to implement the 

population health status, CMS must 

approve the state’s protocol no later 

than December 31, 2014. Finally, the 

state must complete the population 

health status adjustment at the end of 

2015 based on the approved protocol. 

After the end of the 2015 program year, 

and once data is made available, CMS 

will review the state’s findings, 

consistent with the approved protocol, 

and make any necessary adjustments to 

the state’s federal BHP payment amount. 

If CMS determines that the federal BHP 

payments were less than they would 

have been using the final adjustment 

factor, CMS would apply the difference 

to the state’s quarterly BHP trust fund 

deposit. If CMS determines that the 

federal BHP payments were more than 

they would have been using the final 

reconciled factor, CMS would subtract 

the difference from the next quarterly 

BHP payment to the state. 

IV. Collection of Information 

Requirements 

The information collection 

requirements and burden estimates 

associated with this final methodology 

have been approved by OMB through 

July 31, 2014 under OCN 0938–1218 

(CMS–10510). CMS will be seeking to 

extend OMB’s approval period at a later 

time. 

This final methodology would not 

impose any new or revised reporting or 

recordkeeping requirements and, 

therefore, does not require additional 

OMB review under the authority of the 

Paperwork Reduction Act of 1995 (44 

U.S.C. 3501 et seq.). 

V. Regulatory Impact Statement 

A. Overall Impact 

We have examined the impacts of this 

final methodology as required by 

Executive Order 12866 on Regulatory 

Planning and Review (September 30, 

1993), Executive Order 13563 on 

Improving Regulation and Regulatory 

Review (January 18, 2011), the 

Regulatory Flexibility Act (RFA) 

(September 19, 1980, Pub. L. 96–354), 

section 1102(b) of the Social Security 

Act, 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). Section 3(f) of Executive Order 

12866 defines a ‘‘significant regulatory 

action’’ as an action that is likely to 

result in a rule: (1) Having an annual 

effect on the economy of $100 million 

or more in any 1 year, or adversely and 

materially affecting a sector of the 

economy, productivity, competition, 

jobs, the environment, public health or 

safety, or state, local or tribal 

governments or communities (also 

referred to as ‘‘economically 

significant’’); (2) creating a serious 

inconsistency or otherwise interfering 

with an action taken or planned by 

another agency; (3) materially altering 

the budgetary impacts of entitlement 

grants, user fees, or loan programs or the 

rights and obligations of recipients 

thereof; or (4) raising novel legal or 

policy issues arising out of legal 

mandates, the President’s priorities, or 


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Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 13905 

the principles set forth in the Executive 

Order. 

A regulatory impact analysis (RIA) 

must be prepared for major rules with 

economically significant effects ($100 

million or more in any 1 year). As noted 

in the BHP rule, BHP provides states the 

flexibility to establish an alternative 

coverage program for low-income 

individuals who would otherwise be 

eligible to purchase coverage through 

the Exchange. We are uncertain, as 

described further below, as to whether 

the effects of the rulemaking, and 

subsequently, this final methodology, 

will be ‘‘economically significant’’ as 

measured by the $100 million threshold, 

and hence a major rule under the 

Congressional Review Act. In 

accordance with the provisions of 

Executive Order 12866, this final 

methodology was reviewed by the 

Office of Management and Budget. 

1. Need for the Notice 

Section 1331 of the Affordable Care 

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

requires the Secretary to establish a 

BHP, and subsection (d)(1) specifically 

provides that if the Secretary finds that 

a state ‘‘meets the requirements of the 

program established under subsection 

(a) [of section 1331], the Secretary shall 

transfer to the State’’ federal BHP 

payments described in subsection (d)(3). 

This final methodology provides for the 

funding methodology to determine the 

federal BHP payment amounts required 

to implement these provisions. 

2. Alternative Approaches 

Many of the factors in this final 

methodology are specified in statute; 

therefore, we are limited in the 

alternative approaches we could 

consider. One area in which we had a 

choice was in selecting the data sources 

used to determine the factors included 

in the methodology. Except for statespecific reference premiums and 

enrollment data, we are using national 

rather than state-specific data. This is 

due to the lack of currently available 

state-specific data needed to develop the 

majority of the factors included in the 

methodology. We believe the national 

data will produce sufficiently accurate 

determinations of payment rates. In 

addition, we believe that this approach 

will be less burdensome on states. With 

respect to reference premiums and 

enrollment data, using state-specific 

data rather than national data will 

produce more accurate determinations 

than national averages. 

3. Transfers 

The provisions of this final 

methodology are designed to determine 

the amount of funds that will be 

transferred to states offering coverage 

through a BHP rather than to 

individuals eligible for premium and 

cost-sharing reductions for coverage 

purchased on the Exchange. We are 

uncertain what the total federal BHP 

payment amounts to states will be as 

these amounts will vary from state to 

state due to the varying nature of state 

composition. For example, total federal 

BHP payment amounts may be greater 

in more populous states simply by 

virtue of the fact that they have a larger 

BHP-eligible population and total 

payment amounts are based on actual 

enrollment. Alternatively, total federal 

BHP payment amounts may be lower in 

states with a younger BHP-eligible 

population as the reference premium 

used to calculate the federal BHP 

payment will be lower relative to older 

BHP enrollees. While state composition 

will cause total federal BHP payment 

amounts to vary from state to state, the 

methodology accounts for these 

variations to ensure accurate BHP 

payment transfers are made to each 

state. 

B. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits before issuing any 

rule whose mandates require spending 

in any 1 year of $100 million in 1995 

dollars, updated annually for inflation, 

by state, local, or tribal governments, in 

the aggregate, or by the private sector. In 

2014, that threshold is approximately 

$141 million. States have the option, but 

are not required, to establish a BHP. 

Further, the methodology will establish 

federal payment rates without requiring 

states to provide the Secretary with any 

data not already required by other 

provisions of the Affordable Care Act or 

its implementing regulations. Thus, this 

final methodology does not mandate 

expenditures by state governments, 

local governments, or tribal 

governments. 

C. Regulatory Flexibility Act 

The Regulatory Flexibility Act (5 

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

agencies to prepare an initial regulatory 

flexibility analysis to describe the 

impact of the final rule on small 

entities, unless the head of the agency 

can certify that the rule will not have a 

significant economic impact on a 

substantial number of small entities. 

The Act generally defines a ‘‘small 

entity’’ as (1) a proprietary firm meeting 

the size standards of the Small Business 

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

in its field; or (3) a small government 

jurisdiction with a population of less 

than 50,000. Individuals and states are 

not included in the definition of a small 

entity. Few of the entities that meet the 

definition of a small entity as that term 

is used in the RFA would be impacted 

directly by this final methodology. 

Because this final document is 

focused on the funding methodology 

that will be used to determine federal 

BHP payment rates, it does not contain 

provisions that would have a significant 

direct impact on hospitals and other 

health care providers that are designated 

as small entities under the RFA. 

However, the provisions in this final 

methodology may have a substantial, 

positive indirect effect on hospitals and 

other health care providers due to the 

substantial increase in the prevalence of 

health coverage among populations who 

are currently unable to pay for needed 

health care, leading to lower rates of 

uncompensated care at hospitals. As 

such, the Department cannot determine 

whether this final methodology would 

have a significant economic impact on 

a substantial number of small entities. 

Section 1102(b) of the Act requires us 

to prepare a regulatory impact analysis 

if a proposed notice may have a 

significant economic impact on the 

operations of a substantial number of 

small rural hospitals. For purposes of 

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

small rural hospital as a hospital that is 

located outside of a metropolitan 

statistical area and has fewer than 100 

beds. As indicated in the preceding 

discussion, there may be indirect 

positive effects from reductions in 

uncompensated care. Again, the 

Department cannot determine whether 

this final methodology would have a 

significant economic impact on a 

substantial number of small rural 

hospitals. 

D. Federalism 

Executive Order 13132 establishes 

certain requirements that an agency 

must meet when it promulgates a 

proposed rule (and subsequent final 

rule) that imposes substantial direct 

effects on states, preempts state law, or 

otherwise has federalism implications. 

The BHP is entirely optional for states, 

and if implemented in a state, provides 

access to a pool of funding that would 

not otherwise be available to the state. 

We have consulted with states to 

receive input on how the Affordable 

Care Act provisions codified in this 

final methodology would affect states. 

We have participated in a number of 

conference calls and in person meetings 

with state officials. 


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13906 Federal Register / Vol. 79, No. 48 / Wednesday, March 12, 2014 / Rules and Regulations 

We continue to engage in ongoing 

consultations with states that have 

expressed interest in implementing a 

BHP through the BHP Learning 

Collaborative, which serves as a staff 

level policy and technical exchange of 

information between CMS and the 

states. Through consultations with this 

Learning Collaborative, we have been 

able to get input from states on many of 

the specific issues addressed in this 

methodology. 

Authority: Section 1331(d)(3) of the 

Affordable Care Act. 

Dated: February 19, 2014. 

Marilyn Tavenner, 

Administrator, Centers for Medicare & 

Medicaid Services. 

Approved: February 21, 2014. 

Kathleen Sebelius, 

Secretary, Department of Health and Human 

Services. 

[FR Doc. 2014–05257 Filed 3–7–14; 4:15 pm] 

BILLING CODE 4120–01–P 

DEPARTMENT OF COMMERCE 

National Oceanic and Atmospheric 

Administration 

50 CFR Part 300 

[Docket No. 131213999–4208–02] 

RIN 0648–BD82 

Pacific Halibut Fisheries; Catch 

Sharing Plan 

AGENCY: National Marine Fisheries 

Service (NMFS), National Oceanic and 

Atmospheric Administration (NOAA), 

Commerce. 

ACTION: Final rule. 

SUMMARY: The Assistant Administrator 

(AA) for Fisheries, National Oceanic 

and Atmospheric Administration 

(NOAA), on behalf of the International 

Pacific Halibut Commission (IPHC), 

publishes annual management measures 

adopted as regulations by the IPHC and 

accepted by the Secretary of State 

governing the Pacific halibut fishery. 

These actions are intended to enhance 

the conservation of Pacific halibut and 

further the goals and objectives of the 

North Pacific Fishery Management 

Council (NPFMC). 

DATES: The IPHC’s 2014 annual 

management measures are effective 

March 7, 2014. The 2014 management 

measures are effective until superseded. 

ADDRESSES: Additional requests for 

information regarding this action may 

be obtained by contacting the 

International Pacific Halibut 

Commission, 2320 W. Commodore Way, 

Suite 300, Seattle, WA 98199–1287; or 

Sustainable Fisheries Division, NMFS 

Alaska Region, P.O. Box 21668, Juneau, 

AK 99802, Attn: Ellen Sebastian, 

Records Officer; or Sustainable Fisheries 

Division, NMFS West Coast Region, 

7600 Sand Point Way NE., Seattle, WA 

98115. This final rule also is accessible 

via the Internet at the Federal 

eRulemaking portal at http://

www.regulations.gov. 

FOR FURTHER INFORMATION CONTACT: For 

waters off Alaska, Glenn Merrill or Julie 

Scheurer, 907–586–7228; or, for waters 

off the U.S. West Coast, Sarah Williams, 

206–526–4646. 

SUPPLEMENTARY INFORMATION: 

Background 

The IPHC has adopted regulations 

governing the Pacific halibut fishery in 

2014, pursuant to the Convention 

between Canada and the United States 

for the Preservation of the Halibut 

Fishery of the North Pacific Ocean and 

Bering Sea (Convention), signed at 

Ottawa, Ontario, on March 2, 1953, as 

amended by a Protocol Amending the 

Convention (signed at Washington, DC, 

on March 29, 1979). 

As provided by the Northern Pacific 

Halibut Act of 1982 (Halibut Act) at 16 

U.S.C. 773b, the Secretary of State, with 

the concurrence of the Secretary of 

Commerce, may accept or reject, on 

behalf of the United States, regulations 

adopted by the IPHC in accordance with 

the Convention (Halibut Act, Sections 

773–773k). The Secretary of State of the 

United States, with the concurrence of 

the Secretary of Commerce, accepted the 

2014 IPHC regulations as provided by 

the Halibut Act at 16 U.S.C. 773–773k. 

The Halibut Act provides the 

Secretary of Commerce with the 

authority and general responsibility to 

carry out the requirements of the 

Convention and the Halibut Act. The 

Regional Fishery Management Councils 

may develop, and the Secretary of 

Commerce may implement, regulations 

governing harvesting privileges among 

U.S. fishermen in U.S. waters that are in 

addition to, and not in conflict with, 

approved IPHC regulations. The NPFMC 

has exercised this authority most 

notably in developing halibut 

management programs for three 

fisheries that harvest halibut in Alaska: 

the subsistence, sport, and commercial 

fisheries. 

Subsistence and sport halibut fishery 

regulations are codified at 50 CFR part 

300. Commercial halibut fisheries in 

Alaska are subject to the Individual 

Fishing Quota (IFQ) Program and 

Community Development Quota (CDQ) 

Program (50 CFR part 679), and the areaspecific catch sharing plans. 

The NPFMC implemented a CSP 

among commercial IFQ and CDQ 

halibut fisheries in IPHC Areas 4C, 4D 

and 4E (Area 4, Western Alaska) 

through rulemaking, and the Secretary 

approved the plan on March 20, 1996 

(61 FR 11337). The Area 4 CSP 

regulations were codified at 50 CFR 

300.65, and were amended on March 17, 

1998 (63 FR 13000). New annual 

regulations pertaining to the Area 4 CSP 

also may be implemented through IPHC 

action, subject to acceptance by the 

Secretary of State. The NPFMC 

recommended and NMFS implemented 

through rulemaking a CSP among 

guided sport (charter) and commercial 

IFQ halibut fisheries in IPHC Area 2C 

(Southeast Alaska) and Area 3A 

(Southcentral Alaska) on January 13, 

2014 (78 FR 75844, December 12, 2013). 

The CSP replaces the guideline harvest 

level (GHL) program that had been in 

place in these regulatory areas since 

2004. The Area 2C and 3A CSP 

regulations are codified at 50 CFR 

300.65. The CSP defines an annual 

process for allocating halibut between 

the commercial and charter fisheries so 

that each sector’s allocation varies in 

proportion to halibut abundance; 

specifies a public process for setting 

annual management measures; and 

authorizes limited annual leases of 

commercial IFQ for use in the charter 

fishery. The CSP also authorizes 

supplemental individual transfers of 

commercial halibut IFQ as guided 

angler fish (GAF) to qualified charter 

halibut permit holders for harvest by 

charter vessel anglers in Areas 2C and 

3A. Through the GAF program, 

qualified charter halibut permit holders 

may offer charter vessel anglers the 

opportunity to retain halibut up to the 

limit for unguided anglers when the 

charter management measure in place 

would limit charter vessel anglers to a 

more restrictive harvest limit. In other 

words, a charter vessel angler may 

retain a halibut as GAF that exceeds the 

daily bag limit and length restrictions in 

place for charter anglers only to the 

extent that the angler’s halibut retained 

under the charter halibut management 

measure plus halibut retained as GAF 

do not exceed daily bag limit and length 

restrictions imposed on unguided 

anglers. Federal regulations for the GAF 

program are at 50 CFR 300.65. 

The IPHC held its annual meeting in 

Seattle, Washington, January 13–17, 

2014, and adopted a number of changes 

to the previous IPHC regulations (78 FR 

16423, March 15, 2013). The Secretary 

of State accepted the annual 

management measures, including the 


tkelley on DSK3SPTVN1PROD with RULES