[Federal Register Volume 82, Number 211 (Thursday, November 2, 2017)]
[Proposed Rules]
[Pages 51052-51148]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-23599]



[[Page 51051]]

Vol. 82

Thursday,

No. 211

November 2, 2017

Part III





Department of Health and Human Services





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45 CFR Parts 147, 153, et al.





Patient Protection and Affordable Care Act; HHS Notice of Benefit and 
Payment Parameters for 2019; Proposed Rule

Federal Register / Vol. 82 , No. 211 / Thursday, November 2, 2017 / 
Proposed Rules

[[Page 51052]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 147, 153, 154, 155, 156, 157, and 158

[CMS-9930-P]
RIN 0938-AT12


Patient Protection and Affordable Care Act; HHS Notice of Benefit 
and Payment Parameters for 2019

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule sets forth payment parameters and 
provisions related to the risk adjustment and risk adjustment data 
validation programs; cost-sharing parameters and cost-sharing 
reductions; and user fees for Federally-facilitated Exchanges and 
State-based Exchanges on the Federal platform. It proposes changes that 
would enhance the role of States as related to essential health 
benefits (EHB) and qualified health plan (QHP) certification; and would 
provide States with additional flexibility in the operation and 
establishment of Exchanges, including the Small Business Health Options 
Program (SHOP) Exchanges. It includes proposed changes to standards 
related to Exchanges; the required functions of the SHOPs; actuarial 
value for stand-alone dental plans; the rate review program; the 
medical loss ratio program; eligibility and enrollment; exemptions; and 
other related topics.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on November 27, 
2017.

ADDRESSES: In commenting, please refer to file code CMS-9930-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-9930-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-9930-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period: a. For delivery in Washington, DC--
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION, CONTACT: Lindsey Murtagh, (301) 492-4106, 
Rachel Arguello, (301) 492-4263, or Alper Ozinal, (301) 492-4178, for 
general information.
    Krutika Amin, (301) 492-5153, for matters related to risk 
adjustment, and Federally-facilitated Exchange and State-based Exchange 
on the Federal platform user fees.
    Adrianne Patterson, (410) 786-0686 or Abigail Walker, (410) 786-
1725, for matters related to sequestration and administrative appeals 
of financial transfers.
    Melissa Jaffe, (301) 492-4129 or Adam Shaw, (410) 786-1091, for 
matters related to risk adjustment data validation.
    Lisa Cuozzo, (410)-786-1746, for matters related to rate review.
    Jenny Chen, (301)-492-5156, for matters related to establishing a 
State-based Exchange, and State-based Exchanges on the Federal 
platform.
    Emily Ames, (301) 492-4246, for matters related to Navigators and 
non-Navigator assistance personnel.
    Elissa Dines, (301) 492-4388, for matters related to employer-
sponsored coverage verification.
    Kendra May, (301) 492-4477, for matters related to the requirement 
to file an income tax return and reconcile APTC and terminations.
    Carolyn Kraemer, (301) 492-4197, for matters related to special 
enrollment periods under part 155.
    Amanda Brander, (202) 690-7892, for matters related to exemptions 
from the shared responsibility payment.
    Terence Kane, (301) 492-4449, for matters related to income 
inconsistencies.
    Jacob Schnur, (410) 786-7703, for matters related to direct 
enrollment.
    Laura Eldon, (301) 492-4372, for matters related to the Federally-
facilitated SHOP.
    Shilpa Gogna, (301) 492-4257, for matters related to SHOP in State-
based Exchanges.
    Leigha Basini, (301) 492-4380, Rebecca Zimmermann, (301) 492-4396, 
or Allison Yadsko, (410) 786-1740, for matters related to standardized 
options, essential health benefits, stand-alone dental plans and other 
standards for QHP issuers.
    Pat Meisol, (410) 786-1917, for matters related to cost-sharing 
reductions, and the premium adjustment percentage.
    Christina Whitefield, (301) 492-4172, for matters related to the 
medical loss ratio program.
    Cam Moultrie Clemmons, (206) 615-2338, for matters related to 
minimum essential coverage.

SUPPLEMENTARY INFORMATION:
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,

[[Page 51053]]

Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Acronyms

    Because of the many organizations and terms to which we refer by 
acronym in this proposed rule, we are listing these acronyms and their 
corresponding terms in alphabetical order below:

APTC Advance payments of the premium tax credit
AV Actuarial value
CBO Congressional Budget Office
CFR Code of Federal Regulations
CHIP Children's Health Insurance Program
CMP Civil money penalties
CMS Centers for Medicare & Medicaid Services
Code Internal Revenue Code of 1986 (26 U.S.C. 1, et seq.)
EDGE External Data Gathering Environment
EHB Essential health benefits
FFE Federally-facilitated Exchange
FF-SHOP Federally-facilitated Small Business Health Options Program
FPL Federal poverty level
FR Federal Register
FTI Federal tax information
HCC Hierarchical condition category
HHS United States Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
ICR Information collection requirements
IRS Internal Revenue Service
MEC Minimum essential coverage
MLR Medical loss ratio
NAIC National Association of Insurance Commissioners
NHEA National Health Expenditure Accounts
OIG Office of the Inspector General
OMB Office of Management and Budget
PHS Act Public Health Service Act
PMPM Per member per month
Patient Protection and Affordable Care Act or PPACA The collective 
term for the Patient Protection and Affordable Care Act (Pub. L. 
111-148) and the Health Care and Education Reconciliation Act of 
2010 (Pub. L. 111-152), as amended
PRA Paperwork Reduction Act of 1995
PTC Premium tax credit
QIA Quality improvement activities
QHP Qualified health plan
RBC Risk-based capital
RXCs Prescription drug utilization factors
SADPs Stand-alone dental plans
SBE State-based Exchange
SBE-FP State-based Exchange on the Federal platform
SHOP Small Business Health Options Program
SSA Social Security Administration

Table of Contents

I. Executive Summary
II. Background
    A. Legislative and Regulatory Overview
    B. Stakeholder Consultation and Input
    C. Structure of Proposed Rule
III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2019
    A. Part 147--Health Insurance Reform Requirements for the Group 
and Individual Health Insurance Markets
    B. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment Under the Affordable Care Act
    C. Part 154--Health Insurance Issuer Rate Increases: Disclosure 
and Review Requirements
    D. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
    E. Part 156--Health Insurance Issuer Standards Under the 
Affordable Care Act, Including Standards Related to Exchanges
    F. Part 157--Employer Interactions With Exchanges and SHOP 
Participation
    G. Part 158--Issuer Use of Premium Revenue: Reporting and Rebate 
Requirements
IV. Collection of Information Requirements
    A. Wage Estimates
    B. ICRs Regarding Updates to the Risk Adjustment Model
    C. ICRs Regarding Small Group Market Flexibility for Risk 
Adjustment
    D. ICRs Regarding Risk Adjustment Data Validation and 500 
Billable Member Months
    E. ICRs Regarding Health Insurance Issuer Rate Increases: 
Disclosure and Review Requirements--Applicability
    F. ICRs Regarding Rate Increases Subject to Review
    G. ICRs Regarding the Small Business Health Options Program
    H. ICRs Regarding States Defining the Essential Health Benefits
    I. ICRs Regarding Medical Loss Ratio
    J. Summary of Annual Burden Estimates for Proposed Requirements
    K. Submission of PRA-Related Comments
V. Response to Comments
VI. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Impact Estimates of the Payment Notice Provisions and 
Accounting Table
    D. Regulatory Alternatives Considered
    E. Regulatory Flexibility Act
    F. Unfunded Mandates
    G. Federalism
    H. Congressional Review Act
    I. Reducing Regulation and Controlling Regulatory Costs

I. Executive Summary

    American Health Benefit Exchanges, or ``Exchanges'' (also called 
``Marketplaces'') are entities established under the Patient Protection 
and Affordable Care Act (PPACA) through which qualified individuals and 
qualified employers can purchase health insurance coverage. Many 
individuals who enroll in qualified health plans (QHPs) through 
individual market Exchanges are eligible to receive a premium tax 
credit (PTC) to reduce their costs for health insurance premiums, and 
receive reductions in required cost-sharing payments to reduce out-of-
pocket expenses for healthcare services. The PPACA also established the 
risk adjustment program, which is intended to mitigate the potential 
impact of adverse selection and stabilize the price of health insurance 
in the individual and small group markets, both on and off Exchanges.
    Over time, issuer exits and increasing insurance rates have 
threatened the stability of the individual and small group Exchanges in 
many geographic areas. In previous rulemaking, we established 
provisions and parameters to implement many PPACA provisions and 
programs. In this proposed rule, we propose to amend these provisions 
and parameters, with a focus on enhancing the role of States in these 
programs and providing States with additional flexibilities, reducing 
unnecessary regulatory burden on stakeholders, empowering consumers, 
and improving affordability.
    On January 20, 2017, the President issued an Executive Order which 
stated that, to the maximum extent permitted by law, the Secretary of 
HHS and heads of all other executive departments and agencies with 
authorities and responsibilities under the PPACA should exercise all 
authority and discretion available to them to waive, defer, grant 
exemptions from, or delay the implementation of any provision or 
requirement of the PPACA that would impose a fiscal burden on any State 
or a cost, fee, tax, penalty, or regulatory burden on individuals, 
families, healthcare providers, health insurers, patients, recipients 
of healthcare services, purchasers of health insurance, or makers of 
medical devices, products, or medications. In this proposed rule, we 
are proposing, within the limitations of the current statute, to reduce 
fiscal and regulatory burdens across different program areas, and to 
support innovative health insurance models.
    We propose several changes that would significantly expand the role 
of States in the administration of the PPACA. We propose to provide 
States with additional flexibility in the definition of essential 
health benefits (EHBs) and outline potential future directions for 
defining EHBs. In addition to granting States more flexibility 
regulating their markets, we believe this change would permit States to 
modify EHBs to increase affordability of health insurance in the 
individual and small group markets. We also propose to explore 
additional ways to support State-based Exchanges (SBEs) in adopting 
innovative approaches to

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operating and sustaining their Exchanges, and to make the State-based 
Exchanges on the Federal platform (SBE-FP) model a more appealing and 
viable model for States. We propose that States assume a larger role in 
the QHP certification process for the Federally-facilitated Exchanges 
(FFEs). This would confirm States' traditional role in overseeing their 
health insurance markets, and reduce the issuer burden associated with 
having to comply with duplicative State and Federal reviews.
    This proposed rule also contains several policies that would 
provide States with greater flexibility. We propose to provide States 
with significantly more flexibility in how they operate a Small 
Business Health Options Program (SHOP), permitting them to operate 
these Exchanges more efficiently, potentially benefitting States, 
issuers, employers and employees. We propose changes that would allow 
for a more efficient SHOP, such that employers and employees could 
enroll in SHOP coverage by working with a QHP issuer or SHOP-registered 
agent or broker. Additionally, we propose to provide States more 
flexibility regarding risk adjustment transfers in their markets. We 
also propose to make it easier for States to apply for and be granted 
an adjustment to the individual market medical loss ratio (MLR) 
standard in their State. We believe this change would provide States 
with an additional tool to help stabilize and provide relief in their 
individual markets. Additionally, we seek comment related to the 
inclusion of Federal and State taxes in MLR and rebate calculation, and 
we propose other changes to the MLR program to reduce the burden on 
issuers.
    Risk adjustment continues to be a core program for stabilizing the 
individual and small group markets both on and off Exchanges, and we 
propose recalibrated parameters for the HHS risk adjustment 
methodology. We also propose several changes related to the risk 
adjustment data validation program that are intended to ensure the 
integrity of the results of risk adjustment, while alleviating issuer 
burden associated with participating in risk adjustment data 
validation.
    As we do every year in the HHS notice of benefit and payment 
parameters, we propose updated parameters applicable in the individual 
and small group markets. We propose the user fee rate for issuers 
participating on FFEs and SBE-FPs for 2019 to be 3.5 and 3.0 percent of 
premiums, respectively. We propose to update the premium adjustment 
percentage for 2019, which is used to set the rate of increase for 
several parameters detailed in the PPACA, including the maximum annual 
limitation on cost sharing for 2019, the required contribution 
percentage used to determine eligibility for certain exemptions under 
section 5000A of the Code, and the assessable payment amounts under 
section 4980H(a) and (b) of the Code. We propose to update the maximum 
annual limitations on cost sharing for the 2019 benefit year for cost-
sharing reduction plan variations. We also propose changes to the cost-
sharing reduction reconciliation process.
    We propose a number of changes related to rate review that are 
intended to provide States with greater flexibility in the rate filing 
process and reduce regulatory burden. Specifically, we propose to 
exempt student health insurance coverage from Federal rate review 
requirements, and to provide States with more flexibility regarding 
timing of the rate review process established under 45 CFR part 154. We 
also propose to modify the 10 percent threshold for reasonableness 
review to a 15 percent default threshold, with States continuing to 
have the flexibility to establish a different threshold.
    Recognizing that Exchanges, including the FFEs, face resource 
constraints, we also propose changes to the requirements regarding 
Navigators, and the requirements regarding non-Navigator assistance 
personnel subject to Sec.  155.215, to enable Exchanges to more easily 
operate these programs with limited resources. Similarly, we also 
propose to allow an agent, broker or issuer participating in direct 
enrollment to have its selected third-party entity conduct operational 
readiness reviews, rather than requiring those reviews to be conducted 
by entities approved by HHS.
    In this proposed rule, we propose relatively minor adjustments to 
our programs and rules as we do each year. We propose a number of 
incremental amendments to our policies around coverage, eligibility, 
enrollment, and affordability exemptions.
    We continue to be very interested in exploring ways to improve 
Exchange program integrity. In this rule, we seek comment on a number 
of program integrity items, including whether we should consider 
shortening the length of time the Exchanges are authorized to obtain 
enrollee tax information, as well as ways to prompt more timely 
consumer reporting of changes in circumstances during the benefit year 
that may impact an individual's eligibility for coverage and financial 
assistance. In addition, we ask for comment on any additional program 
integrity improvements that have not been outlined in this rule, but 
could be beneficial in a future rulemaking.
    Finally, we note that we intend to consider proposals in future 
rulemaking that would help reduce drug costs and promote drug price 
transparency. We also note that we intend to provide guidance on other 
aspects of Exchange eligibility in the near future. In particular, we 
intend to reconsider the appropriate thresholds for changes in income 
that will trigger a data matching inconsistency, processes for denying 
eligibility for advance subsidies for individuals who fail to reconcile 
advance payments of the premium tax credit (APTC) on their Federal 
income tax return, processes for matching enrollment data with the 
Medicare and Medicaid programs, and the appropriate manner of 
recalculating APTC following a midyear change in eligibility, and seek 
comments on each of these issues as we prepare proposed rules on these 
topics.
    Instituting strong program safeguards to ensure that only 
individuals who are eligible are enrolled in Exchange coverage, and 
that they are only receiving the amount of financial assistance they 
are eligible for, is essential to ensuring that the Exchanges operate 
as intended, and is also a key priority for the Administration. We have 
already taken action to strengthen safeguards around Exchange 
eligibility, most recently through the implementation of the Special 
Enrollment Verification initiative; however, we continue to be 
interested in exploring ways to further safeguard Federal tax dollars 
flowing through Exchanges.

II. Background

A. Legislative and Regulatory Overview

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010. The Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), which amended and revised 
several provisions of the Patient Protection and Affordable Care Act, 
was enacted on March 30, 2010. In this proposed rule, we refer to the 
two statutes collectively as the ``Patient Protection and Affordable 
Care Act'' or ``PPACA.''
    Subtitles A and C of title I of the PPACA reorganized, amended, and 
added to the provisions of part A of title XXVII of the Public Health 
Service Act (PHS Act) relating to group health plans and health 
insurance issuers in the group and individual markets.
    Section 2701 of the PHS Act, as added by the PPACA, restricts the 
variation in premium rates charged by a health insurance issuer for 
non-grandfathered

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health insurance coverage in the individual or small group market to 
certain specified factors. These factors are family size, rating area, 
age and tobacco use.
    Section 2701 of the PHS Act operates in coordination with section 
1312(c) of the PPACA. Section 1312(c) of the PPACA generally requires a 
health insurance issuer to consider all enrollees in all health plans 
(except for grandfathered health plans) offered by such issuer to be 
members of a single risk pool for each of its individual and small 
group markets. States have the option to merge the individual market 
and small group market risk pools under section 1312(c)(3) of the 
PPACA.
    Section 2702 of the PHS Act, as added by the PPACA, requires health 
insurance issuers that offer health insurance coverage in the group or 
individual market in a State to offer coverage to and accept every 
employer and individual in the State that applies for such coverage 
unless an exception applies.\1\
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    \1\ Before enactment of the Patient Protection and Affordable 
Care Act, the Health Insurance Portability and Accountability Act of 
1996 (HIPAA) amended the PHS Act (formerly section 2711) to 
generally require guaranteed availability of coverage for employers 
in the small group market.
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    Section 2703 of the PHS Act, as added by the PPACA, and sections 
2712 and 2741 of the PHS Act, as added by HIPAA prior to the enactment 
of the PPACA, require health insurance issuers that offer health 
insurance coverage in the group or individual market to renew or 
continue in force such coverage at the option of the plan sponsor or 
individual unless an exception applies.
    Section 2718 of the PHS Act, as added by the PPACA, generally 
requires health insurance issuers to submit an annual MLR report to 
HHS, and provide rebates to enrollees if the issuers do not achieve 
specified MLR thresholds.
    Section 2794 of the PHS Act, as added by the PPACA, directs the 
Secretary of HHS (the Secretary), in conjunction with the States, to 
establish a process for the annual review of ``unreasonable increases 
in premiums for health insurance coverage.'' \2\ The law also requires 
health insurance issuers to submit to the Secretary and the applicable 
State justifications for unreasonable premium increases prior to the 
implementation of the increases. Section 2794(b)(2) of the PHS Act 
further specifies that beginning with plan years starting in 2014, the 
Secretary, in conjunction with the States, will monitor premium 
increases of health insurance coverage offered through an Exchange and 
outside of an Exchange.
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    \2\ The implementing regulations in part 154 limit the scope of 
the requirements under section 2794 of the PHS Act to health 
insurance issuers offering health insurance coverage in the 
individual market or small group market. See Rate Increase 
Disclosure and Review; Final Rule, 76 FR 29964, 29966 (May 23, 
2011).
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    Section 1252 of the PPACA provides that any standard or requirement 
adopted by a State under title I of the PPACA, or any amendment made by 
title I of the PPACA, is to be applied uniformly to all health plans in 
each insurance market to which the standard and requirement apply.
    Section 1302 of the PPACA provides for the establishment of an 
essential health benefits package that includes coverage of EHB (as 
defined by the Secretary), cost-sharing limits, and actuarial value 
requirements. The law directs that EHBs be equal in scope to the 
benefits provided under a typical employer plan, and that they cover at 
least the following 10 general categories: Ambulatory patient services; 
emergency services; hospitalization; maternity and newborn care; mental 
health and substance use disorder services, including behavioral health 
treatment; prescription drugs; rehabilitative and habilitative services 
and devices; laboratory services; preventive and wellness services and 
chronic disease management; and pediatric services, including oral and 
vision care.
    Section 1301(a)(1)(B) of the PPACA directs all issuers of QHPs to 
cover the EHB package described in section 1302(a) of the PPACA, 
including coverage of the services described in section 1302(b) of the 
PPACA, to adhere to the cost-sharing limits described in section 
1302(c) of the PPACA and to meet the AV levels established in section 
1302(d) of the PPACA. Section 2707(a) of the PHS Act, which is 
effective for plan or policy years beginning on or after January 1, 
2014, extends the coverage of the EHB package to non-grandfathered 
individual and small group health insurance coverage, irrespective of 
whether such coverage is offered through an Exchange. In addition, 
section 2707(b) of the PHS Act directs non-grandfathered group health 
plans to ensure that cost sharing under the plan does not exceed the 
limitations described in sections 1302(c)(1) of the PPACA.
    Section 1302(d) of the PPACA describes the various levels of 
coverage based on actuarial value (AV). Consistent with section 
1302(d)(2)(A) of the PPACA, AV is calculated based on the provision of 
EHB to a standard population. Section 1302(d)(3) of the PPACA directs 
the Secretary to develop guidelines that allow for de minimis variation 
in AV calculations.
    Section 1311(b)(1)(B) of the PPACA directs that the Small Business 
Health Options Program assist qualified small employers in facilitating 
the enrollment of their employees in QHPs offered in the small group 
market. Sections 1312(f)(1) and (2) of the PPACA define qualified 
individuals and qualified employers. Under section 1312(f)(2)(B) of the 
PPACA, beginning in 2017, States have the option to allow issuers to 
offer QHPs in the large group market through an Exchange.\3\ Section 
1312(a)(2) of the PPACA provides that in a SHOP, a qualified employer 
may select a level of coverage, and that employees may then, in turn, 
choose SHOP plans within the level selected by the qualified employer.
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    \3\ If a State elects this option, the rating rules in section 
2701 of the PHS Act and its implementing regulations will apply to 
all coverage offered in such State's large group market (except for 
self-insured group health plans) pursuant to section 2701(a)(5) of 
the PHS Act.
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    Section 1311(c)(1)(B) of the PPACA requires the Secretary to 
establish minimum criteria for provider network adequacy that a health 
plan must meet to be certified as a QHP.
    Section 1311(c)(5) of the PPACA requires the Secretary to continue 
to operate, maintain, and update the Internet portal developed under 
section 1103 of the PPACA to provide information to consumers and small 
businesses on affordable health insurance coverage options.
    Sections 1311(d)(4)(K) and 1311(i) of the PPACA direct all 
Exchanges to establish a Navigator program.
    Section 1311(c)(6)(C) of the PPACA establishes special enrollment 
periods and section 1311(c)(6)(D) of the PPACA establishes the monthly 
enrollment period for Indians, as defined by section 4 of the Indian 
Health Care Improvement Act.
    Section 1312(e) of the PPACA directs the Secretary to establish 
procedures under which a State may permit agents and brokers to enroll 
qualified individuals and qualified employers in QHPs through an 
Exchange and to assist individuals in applying for financial assistance 
for QHPs sold through an Exchange.
    Section 1321(a) of the PPACA provides broad authority for the 
Secretary to establish standards and regulations to implement the 
statutory requirements related to Exchanges, QHPs and other components 
of title I of the PPACA. Section 1321(a)(1) of the PPACA directs the 
Secretary to issue regulations that set standards for meeting the 
requirements of title I of the PPACA with respect to, among other

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things, the establishment and operation of Exchanges.
    Sections 1313 and 1321 of the PPACA provide the Secretary with the 
authority to oversee the financial integrity of State Exchanges, their 
compliance with HHS standards, and the efficient and non-discriminatory 
administration of State Exchange activities. Section 1321 of the PPACA 
provides for State flexibility in the operation and enforcement of 
Exchanges and related requirements.
    When operating an FFE under section 1321(c)(1) of the PPACA, HHS 
has the authority under sections 1321(c)(1) and 1311(d)(5)(A) of the 
PPACA to collect and spend user fees. In addition, 31 U.S.C. 9701 
permits a Federal agency to establish a charge for a service provided 
by the agency. Office of Management and Budget (OMB) Circular A-25 
Revised establishes Federal policy regarding user fees and specifies 
that a user charge will be assessed against each identifiable recipient 
for special benefits derived from Federal activities beyond those 
received by the general public.
    Section 1321(c)(2) of the PPACA authorizes the Secretary to enforce 
the Exchange standards using civil money penalties (CMPs) on the same 
basis as detailed in section 2723(b) of the PHS Act. Section 2723(b) of 
the PHS Act authorizes the Secretary to impose CMPs as a means of 
enforcing the individual and group market reforms contained in Part A 
of title XXVII of the PHS Act when a State fails to substantially 
enforce these provisions
    Section 1321(d) of the PPACA provides that nothing in title I of 
the PPACA should be construed to preempt any State law that does not 
prevent the application of title I of the PPACA. Section 1311(k) of the 
PPACA specifies that Exchanges may not establish rules that conflict 
with or prevent the application of regulations issued by the Secretary.
    Section 1343 of the PPACA establishes a permanent risk adjustment 
program to provide increased payments to health insurance issuers that 
attract higher-risk populations, such as those with chronic conditions, 
funded by payments from those that attract lower-risk populations; 
thereby, reducing incentives for issuers to avoid higher-risk 
enrollees.
    Section 1402 of the PPACA provides for, among other things, 
reductions in cost sharing for essential health benefits for qualified 
low- and moderate-income enrollees in silver level health plans offered 
through the individual market Exchanges. This section also provides for 
reductions in cost sharing for Indians enrolled in QHPs at any metal 
level.
    Section 5000A of the Code, as added by section 1501(b) of the 
PPACA, requires all applicable individuals to maintain minimum 
essential coverage (MEC) for each month or make an individual shared 
responsibility payment. Section 5000A(f) of the Code defines MEC as any 
of the following: (1) Coverage under a specified government sponsored 
program; (2) coverage under an eligible employer-sponsored plan; (3) 
coverage under a health plan offered in the individual market within a 
State; and (4) coverage under a grandfathered health plan. Section 
5000A(f)(1)(E) of the Code authorizes the Secretary of HHS, in 
coordination with the Secretary of the Treasury, to designate other 
health benefits coverage as MEC.
    The Protecting Affordable Coverage for Employees Act (Pub. L. 114-
60) amended section 1304(b) of the PPACA and section 2791(e) of the PHS 
Act to amend the definition of small employer in these statutes to 
mean, in connection with a group health plan with respect to a calendar 
year and a plan year, an employer who employed an average of at least 1 
but not more than 50 employees on business days during the preceding 
calendar year and who employs at least 1 employee on the first day of 
the plan year. It also amended these statutes to make conforming 
changes to the definition of large employer, and to provide that a 
State may treat as a small employer, with respect to a calendar year 
and a plan year, an employer who employed an average of at least 1 but 
not more than 100 employees on business days during the preceding 
calendar year and who employs at least 1 employee on the first day of 
the plan year.
1. Premium Stabilization Programs \4\
---------------------------------------------------------------------------

    \4\ By premium stabilization program, we are referring to the 
risk adjustment, risk corridors and reinsurance programs established 
by the PPACA.
---------------------------------------------------------------------------

    In the July 15, 2011 Federal Register (76 FR 41929), we published a 
proposed rule outlining the framework for the premium stabilization 
programs. We implemented the premium stabilization programs in a final 
rule, published in the March 23, 2012 Federal Register (77 FR 17219) 
(Premium Stabilization Rule). In the December 7, 2012 Federal Register 
(77 FR 73117), we published a proposed rule outlining the benefit and 
payment parameters for the 2014 benefit year to expand the provisions 
related to the premium stabilization programs and set forth payment 
parameters in those programs (proposed 2014 Payment Notice). We 
published the 2014 Payment Notice final rule in the March 11, 2013 
Federal Register (78 FR 15409).
    In the December 2, 2013 Federal Register (78 FR 72321), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2015 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2015 Payment Notice). We published the 2015 Payment Notice 
final rule in the March 11, 2014 Federal Register (79 FR 13743).
    In the November 26, 2014 Federal Register (79 FR 70673), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2016 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2016 Payment Notice). We published the 2016 Payment Notice 
final rule in the February 27, 2015 Federal Register (80 FR 10749).
    In the December 2, 2015 Federal Register (80 FR 75487), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2017 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2017 Payment Notice). We published the 2017 Payment Notice 
final rule in the March 8, 2016 Federal Register (81 FR 12203).
    In the September 6, 2016 Federal Register (81 FR 61455), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2018 benefit year, and to further promote stable premiums in 
the individual and small group markets. We proposed updates to the risk 
adjustment methodology, new policies around the use of external data 
for recalibration of our risk adjustment models, and amendments to the 
risk adjustment data validation process (proposed 2018 Payment Notice). 
We published the 2018 Payment Notice final rule in the December 22, 
2016 Federal Register (81 FR 94058).
2. Program Integrity
    In the June 19, 2013 Federal Register (78 FR 37031), we published a 
proposed rule that proposed certain program integrity standards related 
to Exchanges and the premium stabilization programs (proposed Program 
Integrity Rule). The provisions of that proposed rule were finalized in 
two rules, the ``first Program Integrity Rule'' published in the August

[[Page 51057]]

30, 2013 Federal Register (78 FR 54069) and the ``second Program 
Integrity Rule'' published in the October 30, 2013 Federal Register (78 
FR 65045).
3. Exchanges
    We published a request for comment relating to Exchanges in the 
August 3, 2010 Federal Register (75 FR 45584). We issued initial 
guidance to States on Exchanges on November 18, 2010. We proposed a 
rule in the July 15, 2011 Federal Register (76 FR 41865) to implement 
components of the Exchanges, and a rule in the August 17, 2011 Federal 
Register (76 FR 51201) regarding Exchange functions in the individual 
market and SHOP, eligibility determinations, and Exchange standards for 
employers. A final rule implementing components of the Exchanges and 
setting forth standards for eligibility for Exchanges was published in 
the March 27, 2012 Federal Register (77 FR 18309) (Exchange 
Establishment Rule).
    We established additional standards for SHOP in the 2014 Payment 
Notice and in the Amendments to the HHS Notice of Benefit and Payment 
Parameters for 2014 interim final rule, published in the March 11, 2013 
Federal Register (78 FR 15541). The provisions established in the 
interim final rule were finalized in the second Program Integrity Rule. 
We also set forth standards related to Exchange user fees in the 2014 
Payment Notice. We established an adjustment to the FFE user fee in the 
Coverage of Certain Preventive Services Under the Affordable Care Act 
final rule, published in the July 2, 2013 Federal Register (78 FR 
39869) (Preventive Services Rule).
    In a final rule published in the July 17, 2013 Federal Register (78 
FR 42823), we established standards for Navigators and non-Navigator 
assistance personnel in FFEs and for non-Navigator assistance personnel 
funded through an Exchange establishment grant. This final rule also 
established a certified application counselor program for Exchanges and 
set standards for that program.
    In an interim final rule, published in the May 11, 2016 Federal 
Register (81 FR 29146), we made amendments to the parameters of certain 
special enrollment periods (2016 Interim Final Rule). We finalized 
these in the 2018 Payment Notice final rule in the December 22, 2016 
Federal Register (81 FR 94058). In the April 18, 2017 Market 
Stabilization final rule Federal Register (82 FR 18346), we amended 
standards relating to special enrollment periods and QHP certification.
4. Essential Health Benefits and Actuarial Value
    On December 16, 2011, HHS released a bulletin \5\ (the EHB 
Bulletin) that outlined an intended regulatory approach for defining 
EHB, including a benchmark-based framework. HHS also published a 
bulletin that outlined its intended regulatory approach to calculations 
of AV on February 24, 2012.\6\ A proposed rule relating to EHBs and AVs 
was published in the November 26, 2012 Federal Register (77 FR 70643). 
We established requirements relating to EHBs and AVs in the Standards 
Related to Essential Health Benefits, Actuarial Value, and 
Accreditation Final Rule, which was published in the February 25, 2013 
Federal Register (78 FR 12833) (EHB Rule). In the April 18, 2017 Market 
Stabilization final rule (82 FR 18346), we expanded the de minimis 
range applicable to plan metal levels.
---------------------------------------------------------------------------

    \5\ ``Essential Health Benefits Bulletin.'' December 16, 2011. 
Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf.
    \6\ ``Actuarial Value and Cost-Sharing Reductions Bulletin.'' 
February 24, 2012. Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/Av-csr-bulletin.pdf.
---------------------------------------------------------------------------

5. Minimum Essential Coverage
    In the February 1, 2013 Federal Register (78 FR 7348), we published 
a proposed rule that designates other health benefits coverage as MEC 
and outlines substantive and procedural requirements that other types 
of coverage must fulfill in order to be recognized as MEC. The 
provisions were finalized in the July 1, 2013 Federal Register (78 FR 
39494).
    In the November 26, 2014 Federal Register (79 FR 70674), we 
published a proposed rule seeking comments on whether State high risk 
pools should be permanently designated as MEC or whether the 
designation should be time-limited. In the February 27, 2015 Federal 
Register (80 FR 10750), we designated State high risk pools established 
on or before November 26, 2014 as MEC.
6. Market Rules
    A proposed rule relating to the 2014 health insurance market rules 
was published in the November 26, 2012 Federal Register (77 FR 70584). 
A final rule implementing the health insurance market rules was 
published in the February 27, 2013 Federal Register (78 FR 13406) (2014 
Market Rules).
    A proposed rule relating to Exchanges and Insurance Market 
Standards for 2015 and Beyond was published in the March 21, 2014 
Federal Register (79 FR 15808) (2015 Market Standards Proposed Rule). A 
final rule implementing the Exchange and Insurance Market Standards for 
2015 and Beyond was published in the May 27, 2014 Federal Register (79 
FR 30240) (2015 Market Standards Rule). The 2018 Payment Notice final 
rule in the December 22, 2016 Federal Register (81 FR 94058) provided 
additional guidance on guaranteed availability and guaranteed 
renewability. In the April 18, 2017 Market Stabilization final rule (82 
FR 18346), we released further guidance related to guaranteed 
availability.
7. Rate Review
    A proposed rule to establish the rate review program was published 
in the December 23, 2010 Federal Register (75 FR 81003). A final rule 
with comment period implementing the rate review program was published 
in the May 23, 2011 Federal Register (76 FR 29963) (Rate Review Rule). 
The provisions of the Rate Review Rule were amended in final rules 
published in the September 6, 2011 Federal Register (76 FR 54969), the 
February 27, 2013 Federal Register (78 FR 13405), the May 27, 2014 
Federal Register (79 FR 30239), the February 27, 2015 Federal Register 
(80 FR 10749), the March 8, 2016 Federal Register (81 FR 12203) and the 
December 22, 2016 Federal Register (81 FR 94058).
8. Medical Loss Ratio
    We published a request for comment on section 2718 of the PHS Act 
in the April 14, 2010 Federal Register (75 FR 19297), and published an 
interim final rule with a 60-day comment period relating to the MLR 
program on December 1, 2010 (75 FR 74863). A final rule with a 30-day 
comment period was published in the December 7, 2011 Federal Register 
(76 FR 76573). An interim final rule with a 60-day comment period was 
published in the December 7, 2011 Federal Register (76 FR 76595). A 
final rule was published in the Federal Register on May 16, 2012 (77 FR 
28790). The medical loss ratio program requirements were amended in 
final rules published in the March 11, 2014 Federal Register (79 FR 
13743), the May 27, 2014 Federal Register (79 FR 30339), the February 
27, 2015 Federal Register (80 FR 10749), the March 8, 2016 Federal 
Register (81 FR 12203), and the December 22, 2016 Federal Register (81 
FR 94183).

B. Stakeholder Consultation and Input

    HHS has consulted with stakeholders on policies related to the 
operation of Exchanges, including the SHOP, and the premium 
stabilization programs. We

[[Page 51058]]

have held a number of listening sessions with consumers, providers, 
employers, health plans, and the actuarial community to gather public 
input. We have solicited input from State representatives on numerous 
topics, particularly essential health benefits, QHP certification and 
Exchange establishment. We consulted with stakeholders through regular 
meetings with the National Association of Insurance Commissioners 
(NAIC), regular contact with States through the Exchange Establishment 
grant and Exchange Blueprint approval processes, and meetings with 
Tribal leaders and representatives, health insurance issuers, trade 
groups, consumer advocates, employers, and other interested parties. We 
considered all public input we received as we developed the policies in 
this proposed rule.
    HHS also received several thousand unique comments in response to a 
request for information, entitled ``Reducing Regulatory Burdens Imposed 
by the Patient Protection and Affordable Care Act and Improving 
Healthcare Choices to Empower Patients'', published in the June 12, 
2017 Federal Register (82 FR 26885) (Request for Information). Review 
of these comments is ongoing, and we anticipate continuing to address 
comments in future rulemaking and guidance.

C. Structure of Proposed Rule

    The regulations outlined in this proposed rule would be codified in 
45 CFR parts 147, 153, 154, 155, 156, 157, and 158.
    The proposed regulations in part 147 would amend the rules 
regarding fair health insurance premiums and guaranteed availability to 
reflect proposed changes related to the SHOPs and special enrollment 
periods.
    The proposed regulations in part 153 propose to recalibrate the 
risk adjustment models consistent with the methodology finalized for 
the 2018 benefit year with slight modifications to the drug classes 
included in the 2019 benefit year adult models and the incorporation of 
blended MarketScan[supreg] and the most recent enrollee-level External 
Data Gathering Environment (EDGE) data. The proposed regulations 
address high-cost risk pooling, where we are proposing to implement the 
same parameters that applied to the 2018 benefit year to the 2019 
benefit year. The proposed regulations in part 153 also include the 
risk adjustment user fee and modifications to risk adjustment data 
validation. We also propose State flexibility to the risk adjustment 
transfers starting for the 2019 benefit year.
    The proposed regulations in part 154 propose certain modifications 
to enhance State flexibility for the rate review program. We propose to 
exempt student health insurance coverage from Federal rate review 
requirements. We propose to raise the default threshold for review of 
reasonableness in the rate review process from 10 percent to 15 
percent. We also propose to allow States with Effective Rate Review 
Programs to set later submission deadlines for rate filings from 
issuers that offer non-QHPs only. In addition, we propose to change the 
notification period for States with Effective Rate Review Programs to 
notify HHS prior to posting rate increases (from 30 days to 5 business 
days).
    The proposed regulations in part 155 include modifications to the 
functions of an Exchange, and a new approach to operational readiness 
reviews for direct enrollment partners which would allow agents, 
brokers, and issuers to select their own third-party entities for 
conducting those reviews. We propose modifications to the rules around 
verification of eligibility. We also propose to increase flexibility in 
the Navigator program by removing the requirement that each Exchange 
must have at least two Navigator entities, one of which must be a 
community and consumer focused non-profit, and to remove the standard 
requiring physical presence of the Navigator entity in the Exchange 
service area. We propose to modify the parameters around certain 
special enrollment periods. We propose to modify the effective date 
options for enrollee-initiated terminations, and amend the 
affordability exemption so that it may be based on the lowest cost 
Exchange plan if there is no bronze level plan sold through the 
Exchange in that rating area.
    The proposed regulations in part 156 include changes to essential 
health benefits and the QHP certification process. The proposed 
regulations in part 156 set forth proposals related to cost sharing, 
including the premium adjustment percentage, the maximum annual 
limitation on cost sharing, and the reductions in the maximum annual 
limitation for cost-sharing plan variations for 2019. We propose to 
update the FFE and SBE-FP user fee rates for the 2019 benefit year for 
all issuers participating on the FFEs or SBE-FPs. The proposed 
regulations in part 156 would designate as MEC Children's Health 
Insurance Program (CHIP) buy-in programs that provide identical 
coverage to the State's CHIP program under title XXI of the Social 
Security Act. The regulations at part 156 also include proposals 
related to actuarial value for stand-alone dental plans (SADPs) and the 
administrative appeals right with respect to the amount of the advance 
payment of cost-sharing reductions.
    The proposed amendments to the regulations in parts 155, 156, and 
157 include proposals that would provide SHOPs with additional 
operational flexibility, and would modify the requirements for issuers, 
employers, and employees interacting with SHOPs.
    The proposed amendments to the regulations in part 158 propose 
revisions related to reporting quality improvement activity expenses as 
part of the formula for calculating MLR, and revisions related to State 
requests for adjustment to the individual market MLR standard.

III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2019

A. Part 147--Health Insurance Reform Requirements for the Group and 
Individual Health Insurance Markets

1. Fair Health Insurance Premiums (Sec.  147.102)
    As discussed elsewhere in this proposed rule, we are proposing 
substantial changes to the requirements applicable to SHOPs to provide 
those programs with the flexibility to operate in a leaner fashion, a 
flexibility that we intend to utilize in the FF-SHOPs. As part of these 
changes and as discussed in the preamble to Sec. Sec.  156.285 and 
156.286, we are proposing that, effective on the effective date of the 
final rule, if finalized as proposed, the requirement in Sec.  
156.285(a)(4)(ii) regarding premium rating standards in the FF-SHOPs 
would not apply for plan years beginning on or after January 1, 2018. 
Therefore, we propose to delete from Sec.  147.102(c)(3)(iii)(D) a 
reference to Sec.  156.285(a)(4), and to replace the reference to FF-
SHOPs with a reference to SHOPs generally, to reflect that, under the 
proposed approach for SHOPs, some SHOPs may want to prohibit issuers 
from offering average enrollee premiums. We seek comment on this 
proposal and on whether issuers offering coverage through SHOPs should 
always be required to offer average enrollee premiums, or do so only if 
required under applicable State law.
2. Guaranteed Availability of Coverage (Sec.  147.104)
    As discussed elsewhere in this proposed rule, we are proposing 
substantial changes to the requirements applicable to SHOPs to provide 
them with the flexibility to operate in a leaner

[[Page 51059]]

fashion, a flexibility that we intend to utilize in the FF-SHOPs. Among 
those changes, we propose that, effective on the effective date of the 
final rule, if finalized as proposed, the requirements in Sec.  156.285 
would apply for plan years starting before January 1, 2018. We also 
propose a new Sec.  156.286, which specifies those requirements 
contained in Sec.  156.285 that, effective on the effective date of the 
final rule, if finalized as proposed, would continue to apply for plan 
years starting on or after January 1, 2018. Among those requirements is 
the requirement in Sec.  156.285(e) which permits a QHP offered in the 
SHOP to apply group participation rules under certain circumstances. 
This provision is listed in proposed Sec.  156.286(e). The marketwide 
regulations at Sec.  147.104(b)(1)(i)(B) currently reference Sec.  
156.285(e), and we propose to add a reference to Sec.  156.286(e), to 
clarify that, effective on the effective date of the final rule, if 
finalized as proposed, for plans years that start after January 1, 
2018, QHPs offered in the SHOP may restrict the availability of 
coverage with respect to a group health plan that cannot comply with 
group participation rules, to an annual enrollment period of November 
15 through December 15 of each calendar year.
    These regulations also propose to remove the small group coverage 
effective dates that are found in the SHOP regulations at Sec.  155.725 
with respect to plan years beginning on or after January 1, 2018, 
effective on the effective date of the final rule, if finalized as 
proposed. However, there are currently requirements in Sec.  
147.104(b)(1)(i)(C) that, by cross-referencing Sec.  155.725, apply 
those same requirements marketwide, and we do not propose to remove 
that marketwide requirement. We propose changes to Sec.  147.104 to 
reflect these proposed changes. Specifically, we propose to eliminate, 
from Sec.  147.104(b)(1)(i)(C), the cross-reference to Sec.  155.725. 
We propose in place of the cross-reference to explicitly specify in 
Sec.  147.104(b)(1)(i)(C) those same coverage effective dates for 
coverage in the small group market, and for the large group market if 
such coverage is offered through a SHOP, that would be eliminated from 
the SHOP regulations under our proposal for Sec.  155.725.
    We propose to remove paragraph Sec.  147.104(b)(1)(iii), along with 
the cross-reference to it in Sec.  147.104(b)(1)(ii), as paragraph 
(b)(1)(iii) applies to plan selections made in 2013, and is therefore 
no longer necessary.
    Section 147.104(b)(2)(i) extends several of the special enrollment 
periods that apply to issuers on the Exchange, to all issuers in the 
individual market. Although Sec.  147.104(b)(2)(i) is intended to 
specify which special enrollment periods offered through the Exchange 
must also be offered by health insurance issuers with respect to 
coverage offered outside of an Exchange, the paragraph as currently 
written could be read to apply the exceptions to any coverage offered 
by a health insurance issuer in the individual market. We recognize the 
potential for confusion, as coverage offered through an Exchange is 
offered by ``a health insurance issuer in the individual market,'' but 
this coverage is subject to the special enrollment rule at Sec.  
155.420(d), which is intended to require special enrollment periods for 
triggers including those listed in the exceptions in paragraph 
(b)(2)(i). Therefore, for purposes of clarification, we propose to 
amend that phrase in Sec.  147.104(b)(2)(i) to clarify that the 
exceptions in the paragraph only apply with respect to coverage offered 
outside of the Exchange in the individual market.
    With respect to the subset of special enrollment periods in Sec.  
155.420 that apply off-Exchange, current regulations at Sec.  
147.104(b)(2)(ii) state that, in applying Sec.  147.104(b)(2), a 
reference in Sec.  155.420 to a ``QHP'' is deemed to refer to a plan, a 
reference to ``the Exchange'' is deemed to refer to the applicable 
State authority, and a reference to a ``qualified individual'' is 
deemed to refer to an individual in the individual market. As discussed 
in the preamble to Sec.  155.420, we are proposing a change to Sec.  
155.420(a)(5) to exempt qualified individuals from the prior coverage 
requirement that applies to certain special enrollment periods if for 
at least 1 of the 60 days prior to the date of their qualifying event 
they lived in a service area where there were no QHPs offered through 
an Exchange. Section 155.420(a)(5) applies to qualifying individuals 
seeking off-Exchange coverage through an applicable special enrollment 
period, so we propose that this exception for individuals living in a 
service area where there were no QHPs offered through an Exchange would 
also apply.\7\ However, in this instance the reference to ``QHP'' 
should not be deemed to refer to a plan for purposes of applying Sec.  
147.104(b)(2). Therefore, we propose to amend Sec.  147.104(b)(2)(ii) 
to state that a reference in Sec.  155.420 (other than in Sec.  
155.420(a)(5)) to a ``QHP'' is deemed to refer to a plan, a reference 
to ``the Exchange'' is deemed to refer to the applicable State 
authority, and a reference to a ``qualified individual'' is deemed to 
refer to an individual in the individual market.
---------------------------------------------------------------------------

    \7\ As stated in the preamble to Sec.  155.420, the exception to 
the requirement to have previous coverage is intended to relieve 
individuals of that requirement when there was no affordable 
coverage (that is, coverage that could be purchased through an 
Exchange to which APTC might apply) available in their previous 
service area. We believe affordability is key to this exception, and 
therefore, that the scope of the exception should apply equally, 
regardless of whether the individual is seeking to purchase coverage 
inside or outside an Exchange during the special enrollment periods 
for which this exception applies; that is, the exception should 
apply if there was no such affordable coverage available in the 
individual's previous service area (regardless of whether or not any 
coverage was being actively marketed in that service area outside 
the Exchange). Also, when an individual seeks to purchase coverage 
outside an Exchange during such a special enrollment period, we 
believe it might be unreasonably difficult for an issuer to 
determine if at least one issuer was actively marketing coverage in 
the individual's previous service area outside the Exchange, as 
opposed to determining if at least one issuer was making coverage 
available in that service area specifically through an Exchange. We 
solicit comments on this approach.
---------------------------------------------------------------------------

    We seek comment on these proposals.
    Among the special enrollment periods in Sec.  155.420 that apply 
off-Exchange are those specified in Sec.  155.420(d)(2)(i), under which 
a qualified individual gains a dependent or becomes a new dependent 
through marriage, birth, adoption, placement for adoption, or placement 
in foster care, or through a child support order or other court order. 
As applied to on-Exchange coverage under these special enrollment 
periods, an existing dependent may enroll in or change their QHP 
enrollment through these special enrollment periods when a qualified 
individual gains a dependent or becomes a new dependent under the 
circumstances described in Sec.  155.420(d)(2)(i) and the requirement 
in Sec.  155.420(a)(4)(i) that the new dependent must be allowed to 
enroll in the QHP in which the family is already enrolled is not 
applicable. Under the HIPAA special enrollment provisions that continue 
to apply to group health plans and health insurance issuers in 
connection with group health coverage, there are similar special 
enrollment periods when a child becomes a dependent of the employee 
through marriage, birth, adoption, or placement for adoption.\8\ The 
HIPAA regulations specify that, under such circumstances, those special 
enrollment periods apply only to dependents who become a dependent 
through marriage, birth, adoption, or placement for adoption (that is, 
new dependents). We seek comment on whether, in the off-Exchange 
individual market, the special enrollment periods for when an 
individual gains a dependent or

[[Page 51060]]

becomes a new dependent under the circumstances described in Sec.  
155.420(d)(2)(i) should apply to new and existing dependents (as is the 
case in the Exchanges when the requirement in Sec.  155.420(a)(4)(i) 
that the new dependent must be allowed to enroll in the QHP in which 
the family is currently enrolled is not applicable), whether they 
should apply only to new dependents (consistent with the HIPAA group 
market regulations), or whether we should adopt some other approach, 
such as affording the special enrollment periods to some, but not all 
categories of existing dependents.
---------------------------------------------------------------------------

    \8\ See Sec.  146.117(b).
---------------------------------------------------------------------------

B. Part 153--Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment Under the Affordable Care Act

1. Sequestration
    In accordance with the OMB Report to Congress on the Joint 
Committee Reductions for Fiscal Year 2018,\9\ both the transitional 
reinsurance program and permanent risk adjustment program are subject 
to the fiscal year 2018 sequestration. The Federal government's 2018 
fiscal year begins October 1, 2017. Although the 2016 benefit year is 
the final year of the transitional reinsurance program, HHS will 
continue to make reinsurance payments in the 2018 fiscal year, as the 
second contribution collection deadline for the 2016 benefit year is 
November 15, 2017. Therefore, the reinsurance program will be 
sequestered at a rate of 6.6 percent for payments made from fiscal year 
2018 resources (that is, funds collected during the 2018 fiscal year). 
The risk adjustment program will also be sequestered at a rate of 6.6 
percent for payments made from fiscal year 2018 resources (that is, 
funds collected during the 2018 fiscal year).
---------------------------------------------------------------------------

    \9\ Available at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/sequestration_reports/2018_jc_sequestration_report_may2017_potus.pdf.
---------------------------------------------------------------------------

    HHS, in coordination with the OMB, has determined that, under 
section 256(k)(6) of the Balanced Budget and Emergency Deficit Control 
Act of 1985, as amended, and the underlying authority for the 
reinsurance and risk adjustment programs, the funds that are 
sequestered in fiscal year 2018 from the reinsurance and risk 
adjustment programs will become available for payment to issuers in 
fiscal year 2019 without further Congressional action. If Congress does 
not enact deficit reduction provisions that replace the Joint Committee 
reductions, these programs would be sequestered in future fiscal years, 
and any sequestered funding would become available in the fiscal year 
following that in which it was sequestered.
2. Provisions and Parameters for the Risk Adjustment Program
    In subparts D and G of part 153, we established standards for the 
administration of the risk adjustment program. The risk adjustment 
program is a permanent program created by section 1343 of the PPACA 
that transfers funds from lower risk, non-grandfathered plans to higher 
risk, non-grandfathered plans in the individual and small group 
markets, inside and outside the Exchanges. In accordance with Sec.  
153.310(a), a State that is approved or conditionally approved by the 
Secretary to operate an Exchange may establish a risk adjustment 
program, or have HHS do so on its behalf. HHS will be operating risk 
adjustment in every State beginning for the 2017 benefit year, and did 
not receive any applications from States to operate risk adjustment for 
the 2019 benefit year.
    HHS continues to evaluate the risk adjustment program, including by 
reviewing comments received in response to the Request for Information, 
and intends to propose changes in a manner that promotes transparency, 
considers stakeholder feedback and provides adequate notice to issuers, 
while upholding the integrity and accuracy of the program.
a. Overview of the HHS Risk Adjustment Model (Sec.  153.320)
    The HHS risk adjustment model predicts plan liability for an 
average enrollee based on that person's age, sex, and diagnoses (risk 
factors), producing a risk score. The HHS risk adjustment methodology 
utilizes separate models for adults, children, and infants to account 
for cost differences in each of these age groups. In each of the adult 
and child models, the relative risk assigned to an individual's age, 
sex, and diagnoses are added together to produce an individual risk 
score. Additionally, in the adult models, we added enrollment duration 
factors beginning for the 2017 benefit year, and prescription drug 
utilization factors (RXCs) beginning for the 2018 benefit year, in the 
calculation of enrollees' risk scores. Infant risk scores are 
determined by inclusion in one of 25 mutually exclusive groups, based 
on the infant's maturity and the severity of diagnoses. If applicable, 
the risk score for adults, children or infants is multiplied by a cost-
sharing reductions adjustment.
    The enrollment-weighted average risk score of all enrollees in a 
particular risk adjustment covered plan (also referred to as the plan 
liability risk score) within a geographic rating area is one of the 
inputs into the risk adjustment payment transfer formula, which 
determines the payment or charge that an issuer will receive or be 
required to pay for that plan. Thus, the HHS risk adjustment model 
predicts average group costs to account for risk across plans, which 
accords with the Actuarial Standards Board's Actuarial Standards of 
Practice for risk classification.
b. Proposed Updates to the Risk Adjustment Model (Sec.  153.320)
    For the 2019 benefit year risk adjustment model, HHS will continue 
to incorporate the methodological improvements finalized in previous 
rulemaking, such as incorporating preventive services in our simulation 
of plan liability, using more granular trend rates to better reflect 
the growth in specialty drug expenditures and drugs generally as 
compared to medical and surgical expenditures, accounting for partial 
year enrollment in the adult models, including prescription drug 
utilization factors in the adult models, adjusting the risk adjustment 
model and transfers to account for high-cost enrollees, and removing a 
portion of the premiums in the transfer formula to account for a 
portion of administrative costs that do not vary with claims. For the 
2019 benefit year, we propose to recalibrate the risk adjustment models 
using the methodology finalized for the 2018 benefit year, with small 
modifications to the drug classes included in the 2019 benefit year 
adult models, and incorporation of the 2016 benefit year EDGE data in 
the 2019 benefit year risk adjustment model recalibration.
    We seek comment on these proposals.
i. Recalibration Using EDGE Data
    To recalibrate the 2016, 2017 and 2018 benefit year risk adjustment 
models, we used the three most recent years of Truven 
MarketScan[supreg] data. This approach allowed for using the blended, 
or averaged, coefficients from 3 years of separately solved models, 
which promotes stability for the risk adjustment coefficients year-to-
year, particularly for rare conditions with small sample sizes. We 
finalized in the 2018 Payment Notice the collection of enrollee-level 
EDGE data and the recalibration of the risk adjustment model for the 
2019 benefit year using 2016 benefit year EDGE data. We believe that 
blending the coefficients calculated from the 2016 benefit year EDGE 
enrollee-level data with MarketScan[supreg] data will provide stability 
within the risk adjustment program and minimize

[[Page 51061]]

volatility in changes to risk scores from the 2018 to 2019 benefit 
years due to differences in the datasets' underlying populations. As 
such, we propose blending 3 years of data to recalibrate the 
coefficients used in the risk adjustment model and, for the 2019 
benefit year, blending separately solved coefficients from the 2016 
benefit year EDGE enrollee-level data and the 2014 and 2015 
MarketScan[supreg] data using the methodology that will be finalized in 
the 2019 Payment Notice final rule. Given the timing of the 2019 
Payment Notice and the significant analysis necessary to develop the 
2016 benefit year EDGE recalibration dataset, we are not able to 
incorporate the 2016 benefit year EDGE data in this proposed rule. 
Therefore, we use the 2014 and 2015 MarketScan[supreg] data for the 
coefficients in this proposed rule. We propose to finalize the 2019 
benefit year blended coefficients with the separately solved models 
from the 2016 benefit year EDGE enrollee-level data with the 2014 and 
2015 MarketScan[supreg] data. This approach is similar to our approach 
in previous years, in which we updated the final coefficients using 
data from the most recently available benefit year.\10\ We expect to 
publish the final risk adjustment model coefficients for the 2019 
benefit year in the final rule. However, we seek comment on whether we 
should publish the final risk adjustment model coefficients in guidance 
in the spring of 2018, prior to rate setting for the 2019 benefit year, 
similar to our approach for publishing the 2018 benefit year risk 
adjustment coefficients, if we need additional time to analyze the 2016 
enrollee-level EDGE data. Under either approach, the final risk 
adjustment model coefficients for the 2019 benefit year would be 
determined using the methodology that we finalize in the 2019 Payment 
Notice final rule, and would be published either in the final rule or 
in guidance prior to the 2019 benefit year rate setting. Additionally, 
if we find significant demographic or distributional differences in the 
enrollee-level EDGE data compared to the MarketScan data, we seek 
comment on whether we should make adjustments to the risk adjustment 
recalibration model age-sex, HCC and RXC categories for the final 2019 
benefit year. In such a case, we would make adjustments to the models 
to better align them with the enrollee-level EDGE data, to improve the 
prediction of plan liability. The risk adjustment model coefficients 
listed in Tables 2, 4, and 5 are blended coefficients using the 2014 
and 2015 MarketScan[supreg] data.
---------------------------------------------------------------------------

    \10\ See, for example, 2018 Payment Notice final rule, 81 FR 
94058 (December 22, 2016).
---------------------------------------------------------------------------

    We seek comment on our proposal to determine coefficients based on 
a blend of 2014 and 2015 MarketScan[supreg] data and 2016 enrollee-
level EDGE data using the methodology that will be finalized in the 
2019 Payment Notice final rule in the final rule or through guidance. 
We also seek comment on the proposed methodology to equally weight the 
separately solved model coefficients from the 2014 MarketScan[supreg], 
2015 MarketScan[supreg], and 2016 enrollee-level EDGE data for the 
final coefficients, instead of using only the 2016 enrollee-level EDGE 
data to recalibrate the risk adjustment model coefficients for the 2019 
benefit year.
ii. Prescription Drugs
    In the 2018 Payment Notice, we finalized the inclusion of twelve 
RXCs that interact with diagnoses (hierarchical condition categories 
(HCCs)), or drug-diagnosis (RXC-HCC) pairs, in the adult risk 
adjustment models for the 2018 benefit year. Ten of the RXC-HCC pairs 
have three levels of incremental predicted costs (diagnosis-only, 
prescription drug-only, and both diagnosis and prescription drug), 
indicating that they can be used to impute a particular diagnosis. The 
2018 benefit year risk adjustment adult models also included two RXC-
HCC pairs that are used for severity-only--that is, they predict 
incremental costs for enrollees with the diagnosis-only, or with both 
the diagnosis and the prescription drug. For enrollees without the 
associated diagnoses documented for these severity-only RXC-HCC pairs, 
the presence of the drug alone would not lead to the imputation of 
additional plan liability costs attributed to the plan.
    For the 2019 benefit year, we propose to remove the two severity-
only RXCs (RXC 11: Ammonia Detoxicants, and RXC 12: Diuretics, Loop and 
Select Potassium-Sparing). Both severity-only RXCs have low average 
costs per enrollee per year and were constrained to the average cost of 
the drugs to avoid overcompensating issuers for these RXCs. 
Constraining these RXCs removed overprescribing or gaming incentives to 
prescribe a low-cost drug to receive a much larger risk adjustment 
payment. However, after constraints, the two severity-only RXCs have 
extremely small coefficients that no longer predict meaningful 
incremental plan risk associated with a severe health condition. 
Therefore, we propose eliminating these two RXCs from the model. We 
believe that the remaining RXCs do not engender significant gaming 
concerns due to the cost and side-effects of the drugs if prescribed 
without cause. As we noted in the 2018 Payment Notice, where the risk 
of unintended effects on provider prescribing behavior is low, we are 
continuing to include a small number of prescription drug classes as 
predictors of risk and plan liability. For the remaining RXCs, there is 
a high rate of presence of a diagnosis code in the associated HCC in 
the MarketScan[supreg] data, indicating a positive predictive value for 
using these RXCs to impute missing diagnoses. Additionally, as we have 
previously noted, we intend to monitor prescription drug utilization 
for unintended effects, and may propose to remove drug classes based on 
such evidence in future rulemaking. Table 1 contains the proposed list 
of prescription drug factors for the 2019 benefit year risk adjustment 
model. We will evaluate the effects of incorporating prescription drugs 
in the adult models to determine whether to continue, broaden or reduce 
the impact of this set of factors on the HHS risk adjustment models. 
Additionally, we note that commenters on the Request for Information 
support the inclusion of prescription drugs in the risk adjustment 
methodology.
    We seek comment on this proposal.

                    Table 1--Proposed Drug-Diagnosis (RXC-HCC) Pairs for the 2019 Adult Model
----------------------------------------------------------------------------------------------------------------
         RXC               RXC label               HCC                 HCC label             Proposed RXC use
----------------------------------------------------------------------------------------------------------------
RXC 01..............  Anti-HIV Agents....  001................  HIV/AIDS...............  imputation/severity.
RXC 02..............  Anti-Hepatitis C     037C, 036, 035, 034  Chronic Hepatitis C,     imputation/severity.
                       (HCV) Agents.                             Cirrhosis of Liver,
                                                                 End-Stage Liver
                                                                 Disease, and Liver
                                                                 Transplant Status/
                                                                 Complications.
RXC 03..............  Antiarrhythmics....  142................  Specified Heart          imputation/severity.
                                                                 Arrhythmias.

[[Page 51062]]

 
RXC 04..............  Phosphate Binders..  184, 183, 187, 188.  End Stage Renal          imputation/severity.
                                                                 Disease, Kidney
                                                                 Transplant Status,
                                                                 Chronic Kidney
                                                                 Disease, Stage 5,
                                                                 Chronic Kidney
                                                                 Disease, Severe (Stage
                                                                 4).
RXC 05..............  Inflammatory Bowel   048, 041...........  Inflammatory Bowel       imputation/severity.
                       Disease Agents.                           Disease, Intestine
                                                                 Transplant Status/
                                                                 Complications.
RXC 06..............  Insulin............  019, 020, 021, 018.  Diabetes with Acute      imputation/severity.
                                                                 Complications;
                                                                 Diabetes with Chronic
                                                                 Complications;
                                                                 Diabetes without
                                                                 Complication, Pancreas
                                                                 Transplant Status/
                                                                 Complications.
RXC 07..............  Anti-Diabetic        019, 020, 021, 018.  Diabetes with Acute      imputation/severity.
                       Agents, Except                            Complications,
                       Insulin and                               Diabetes with Chronic
                       Metformin Only.                           Complications,
                                                                 Diabetes without
                                                                 Complication, Pancreas
                                                                 Transplant Status/
                                                                 Complications.
RXC 08..............  Multiple Sclerosis   118................  Multiple Sclerosis.....  imputation/severity.
                       Agents.
RXC 09..............  Immune Suppressants  056, 057, 048, 041.  Rheumatoid Arthritis     imputation/severity.
                       and                                       and Specified
                       Immunomodulators.                         Autoimmune Disorders,
                                                                 Systemic Lupus
                                                                 Erythematosus and
                                                                 Other Autoimmune
                                                                 Disorders,
                                                                 Inflammatory Bowel
                                                                 Disease, Intestine
                                                                 Transplant Status/
                                                                 Complications.
RXC 10..............  Cystic Fibrosis      159, 158...........  Cystic Fibrosis, Lung    imputation/severity.
                       Agents.                                   Transplant Status/
                                                                 Complications.
----------------------------------------------------------------------------------------------------------------

iii. High-Cost Risk Pool Adjustment
    HHS finalized a high-cost risk pool adjustment in the 2018 Payment 
Notice to account for the incorporation of risk associated with high-
cost enrollees in the risk adjustment model. Specifically, we finalized 
adjusting the risk adjustment model for high-cost enrollees beginning 
for the 2018 benefit year by excluding a percentage of costs above a 
certain threshold level in the calculation of enrollee-level plan 
liability risk scores so that risk adjustment factors are calculated 
without the high-cost risk, because the average risk associated with 
HCCs and RXCs is better accounted for without the inclusion of the 
high-cost enrollees. In addition, to account for issuers' risk 
associated with the high-cost enrollees, issuers will be compensated 
for a percentage of costs above the threshold. We set the threshold and 
percentage of costs at a level that would continue to incentivize 
issuers to control costs while improving the risk prediction of the 
risk adjustment model. Issuers with high-cost enrollees will receive a 
payment for the percentage of costs above the threshold in their 
respective transfers. Using claims data submitted to the EDGE server by 
issuers of risk adjustment covered plans, HHS will calculate the total 
amount of paid claims costs for high-cost enrollees based on the 
threshold and the coinsurance rate. HHS will then calculate a charge as 
a percentage of the issuers' total premiums in the individual 
(including catastrophic and non-catastrophic plans and merged market 
plans), or small group markets, which will be applied to the total 
transfer amount in that market, maintaining the balance of payments and 
charges within the risk adjustment program. In the 2018 Payment Notice, 
we finalized a threshold of $1 million and a coinsurance rate of 60 
percent across all States for the individual (including catastrophic 
and non-catastrophic plans and merged market plans) and small group 
markets for the 2018 benefit year.
    For the 2019 benefit year, we are proposing to maintain the same 
parameters that would apply to the 2018 benefit year. Therefore, we 
propose to maintain a $1 million threshold and 60 percent coinsurance 
rate for the high-cost risk pool for the 2019 benefit year risk 
adjustment program. We believe this threshold and coinsurance rate 
would result in total payments or charges nationally that are very 
small as a percentage of premiums for issuers, and will prevent States 
and issuers with very high-cost enrollees from bearing a 
disproportionate amount of unpredictable risk. We seek comment on the 
proposed parameters of the high-cost risk pool for the 2019 benefit 
year risk adjustment model.
    Comments in response to the Request for Information noted the 
benefits of incorporating the high-cost risk pool in the risk 
adjustment methodology. We have also received feedback from 
stakeholders on the structure of the high-cost risk pool, including 
that the pool should be multi-tiered, with multiple thresholds and 
increased coinsurance as the thresholds increase to account for the 
reduced number of enrollees at higher thresholds where costs to an 
issuer are catastrophic. We seek comment on alternative methods for 
reimbursing issuers for exceptionally high-cost enrollees through the 
high-cost risk pool and improving the calculation of plan liability in 
the HHS-operated risk adjustment models for future benefit years.
c. List of Factors To Be Employed in the Risk Adjustment Model (Sec.  
153.320)
    The proposed factors resulting from the blended factors from the 
2014 and 2015 MarketScan[supreg] data separately solved models (with 
the incorporation of the partial year enrollment adjustment and 
prescription drugs reflected in the adult models only) are shown in the 
Tables 2, 4, and 5. The adult, child, and infant models have been 
truncated to account for the high-cost enrollee pool payment parameters 
($1 million threshold, 60 percent coinsurance) finalized in the 2018 
Payment Notice. As discussed in the preceding section, we are proposing 
to keep the 2019 benefit year high-cost enrollee risk pool payment 
parameters the same as those finalized for the 2018 benefit year.
    Table 2 contains factors for each adult model, including the age-
sex, HCCs, RXCs and HCC-RXC interaction coefficients. As we have 
previously noted,\11\ some interactions of RXCs and HCCs have negative 
coefficients; however, this does not mean that an enrollee's risk score 
decreases due to the presence of an RXC, an HCC, or both.
---------------------------------------------------------------------------

    \11\ 2018 Benefit Year Final HHS Risk Adjustment Model 
Coefficients. April 18, 2017. Available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/2018-Benefit-Year-Final-HHS-Risk-Adjustment-Model-Coefficients.pdf.
---------------------------------------------------------------------------

    Table 3 contains the HHS HCCs in the severity illness indicator 
variable. Table 4 contains the factors for each child model. Table 5 
contains the factors for each infant model. Tables 6 and 7 contain the 
HCCs included in the infant model maturity and severity categories, 
respectively.

[[Page 51063]]



                 Table 2--Proposed Adult Risk Adjustment Model Factors for 2019 Benefit Year \A\
----------------------------------------------------------------------------------------------------------------
         HCC or RXC No.                  Factor          Platinum     Gold      Silver     Bronze   Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
                                  Age 21-24, Male.....      0.174      0.138      0.094      0.052         0.050
                                  Age 25-29, Male.....      0.151      0.116      0.073      0.030         0.028
                                  Age 30-34, Male.....      0.191      0.147      0.093      0.039         0.036
                                  Age 35-39, Male.....      0.252      0.198      0.132      0.065         0.062
                                  Age 40-44, Male.....      0.321      0.258      0.182      0.104         0.101
                                  Age 45-49, Male.....      0.385      0.313      0.227      0.138         0.134
                                  Age 50-54, Male.....      0.510      0.428      0.328      0.222         0.217
                                  Age 55-59, Male.....      0.577      0.483      0.372      0.253         0.247
                                  Age 60-64, Male.....      0.647      0.538      0.411      0.271         0.264
                                  Age 21-24, Female...      0.286      0.232      0.163      0.093         0.090
                                  Age 25-29, Female...      0.323      0.261      0.185      0.104         0.100
                                  Age 30-34, Female...      0.449      0.372      0.281      0.188         0.184
                                  Age 35-39, Female...      0.540      0.454      0.355      0.257         0.253
                                  Age 40-44, Female...      0.598      0.502      0.392      0.281         0.276
                                  Age 45-49, Female...      0.607      0.506      0.390      0.268         0.263
                                  Age 50-54, Female...      0.686      0.581      0.456      0.323         0.317
                                  Age 55-59, Female...      0.674      0.565      0.436      0.294         0.288
                                  Age 60-64, Female...      0.699      0.579      0.441      0.285         0.277
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HCC001..........................  HIV/AIDS............      0.520      0.434      0.349      0.275         0.271
HCC002..........................  Septicemia, Sepsis,       8.152      7.980      7.865      7.920         7.924
                                   Systemic
                                   Inflammatory
                                   Response Syndrome/
                                   Shock.
HCC003..........................  Central Nervous           5.518      5.438      5.379      5.405         5.407
                                   System Infections,
                                   Except Viral
                                   Meningitis.
HCC004..........................  Viral or Unspecified      4.063      3.867      3.741      3.677         3.676
                                   Meningitis.
HCC006..........................  Opportunistic             5.606      5.522      5.468      5.439         5.438
                                   Infections.
HCC008..........................  Metastatic Cancer...     21.369     20.985     20.694     20.753        20.756
HCC009..........................  Lung, Brain, and         12.190     11.902     11.689     11.686        11.687
                                   Other Severe
                                   Cancers, Including
                                   Pediatric Acute
                                   Lymphoid Leukemia.
HCC010..........................  Non-Hodgkin's             5.316      5.119      4.971      4.910         4.907
                                   Lymphomas and Other
                                   Cancers and Tumors.
HCC011..........................  Colorectal, Breast        4.295      4.100      3.948      3.888         3.885
                                   (Age < 50), Kidney,
                                   and Other Cancers.
HCC012..........................  Breast (Age 50+) and      2.528      2.386      2.275      2.212         2.209
                                   Prostate Cancer,
                                   Benign/Uncertain
                                   Brain Tumors, and
                                   Other Cancers and
                                   Tumors.
HCC013..........................  Thyroid Cancer,           1.195      1.076      0.976      0.869         0.864
                                   Melanoma,
                                   Neurofibromatosis,
                                   and Other Cancers
                                   and Tumors.
HCC018..........................  Pancreas Transplant       4.522      4.340      4.216      4.238         4.239
                                   Status/
                                   Complications.
HCC019..........................  Diabetes with Acute       0.624      0.555      0.490      0.416         0.412
                                   Complications.
HCC020..........................  Diabetes with             0.624      0.555      0.490      0.416         0.412
                                   Chronic
                                   Complications.
HCC021..........................  Diabetes without          0.624      0.555      0.490      0.416         0.412
                                   Complication.
HCC023..........................  Protein-Calorie          11.390     11.380     11.365     11.434        11.438
                                   Malnutrition.
HCC026..........................  Mucopolysaccharidosi      2.122      2.025      1.949      1.887         1.884
                                   s.
HCC027..........................  Lipidoses and             2.122      2.025      1.949      1.887         1.884
                                   Glycogenosis.
HCC029..........................  Amyloidosis,              2.122      2.025      1.949      1.887         1.884
                                   Porphyria, and
                                   Other Metabolic
                                   Disorders.
HCC030..........................  Adrenal, Pituitary,       2.122      2.025      1.949      1.887         1.884
                                   and Other
                                   Significant
                                   Endocrine Disorders.
HCC034..........................  Liver Transplant         10.018      9.924      9.866      9.856         9.856
                                   Status/
                                   Complications.
HCC035..........................  End-Stage Liver           5.862      5.675      5.548      5.558         5.559
                                   Disease.
HCC036..........................  Cirrhosis of Liver..      2.158      2.040      1.962      1.918         1.916
HCC037_1........................  Chronic Viral             0.430      0.327      0.283      0.259         0.258
                                   Hepatitis C.
HCC037_2........................  Chronic Hepatitis,        0.430      0.327      0.283      0.259         0.258
                                   Other/Unspecified.
HCC038..........................  Acute Liver Failure/      4.242      4.105      4.008      3.986         3.985
                                   Disease, Including
                                   Neonatal Hepatitis.
HCC041..........................  Intestine Transplant     29.207     29.126     29.062     29.112        29.112
                                   Status/
                                   Complications.
HCC042..........................  Peritonitis/              9.688      9.465      9.302      9.321         9.323
                                   Gastrointestinal
                                   Perforation/
                                   Necrotizing
                                   Enterocolitis.
HCC045..........................  Intestinal                5.465      5.238      5.087      5.089         5.090
                                   Obstruction.
HCC046..........................  Chronic Pancreatitis      4.522      4.340      4.216      4.238         4.239
HCC047..........................  Acute Pancreatitis/       2.204      2.054      1.947      1.882         1.880
                                   Other Pancreatic
                                   Disorders and
                                   Intestinal
                                   Malabsorption.
HCC048..........................  Inflammatory Bowel        2.094      1.926      1.795      1.702         1.698
                                   Disease.
HCC054..........................  Necrotizing               5.492      5.329      5.207      5.219         5.220
                                   Fasciitis.
HCC055..........................  Bone/Joint/Muscle         5.492      5.329      5.207      5.219         5.220
                                   Infections/Necrosis.
HCC056..........................  Rheumatoid Arthritis      3.393      3.217      3.077      3.031         3.029
                                   and Specified
                                   Autoimmune
                                   Disorders.
HCC057..........................  Systemic Lupus            1.032      0.923      0.831      0.726         0.720
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders.
HCC061..........................  Osteogenesis              2.586      2.421      2.290      2.217         2.213
                                   Imperfecta and
                                   Other
                                   Osteodystrophies.
HCC062..........................  Congenital/               2.586      2.421      2.290      2.217         2.213
                                   Developmental
                                   Skeletal and
                                   Connective Tissue
                                   Disorders.
HCC063..........................  Cleft Lip/Cleft           1.108      0.963      0.856      0.777         0.773
                                   Palate.
HCC066..........................  Hemophilia..........     43.857     43.613     43.412     43.412        43.412
HCC067..........................  Myelodysplastic          11.329     11.211     11.123     11.130        11.132
                                   Syndromes and
                                   Myelofibrosis.
HCC068..........................  Aplastic Anemia.....     11.329     11.211     11.123     11.130        11.132
HCC069..........................  Acquired Hemolytic        7.452      7.322      7.217      7.188         7.187
                                   Anemia, Including
                                   Hemolytic Disease
                                   of Newborn.
HCC070..........................  Sickle Cell Anemia        7.452      7.322      7.217      7.188         7.187
                                   (Hb-SS).
HCC071..........................  Thalassemia Major...      7.452      7.322      7.217      7.188         7.187
HCC073..........................  Combined and Other        5.031      4.913      4.827      4.827         4.827
                                   Severe
                                   Immunodeficiencies.
HCC074..........................  Disorders of the          5.031      4.913      4.827      4.827         4.827
                                   Immune Mechanism.
HCC075..........................  Coagulation Defects       2.419      2.339      2.274      2.237         2.235
                                   and Other Specified
                                   Hematological
                                   Disorders.
HCC081..........................  Drug Psychosis......      3.864      3.647      3.486      3.379         3.373
HCC082..........................  Drug Dependence.....      3.864      3.647      3.486      3.379         3.373
HCC087..........................  Schizophrenia.......      3.093      2.866      2.702      2.629         2.626
HCC088..........................  Major Depressive and      1.545      1.407      1.297      1.191         1.186
                                   Bipolar Disorders.
HCC089..........................  Reactive and              1.545      1.407      1.297      1.191         1.186
                                   Unspecified
                                   Psychosis,
                                   Delusional
                                   Disorders.
HCC090..........................  Personality               1.055      0.948      0.846      0.736         0.731
                                   Disorders.

[[Page 51064]]

 
HCC094..........................  Anorexia/Bulimia          2.381      2.241      2.130      2.064         2.061
                                   Nervosa.
HCC096..........................  Prader-Willi, Patau,      2.057      1.952      1.870      1.810         1.807
                                   Edwards, and
                                   Autosomal Deletion
                                   Syndromes.
HCC097..........................  Down Syndrome,            0.845      0.758      0.679      0.599         0.595
                                   Fragile X, Other
                                   Chromosomal
                                   Anomalies, and
                                   Congenital
                                   Malformation
                                   Syndromes.
HCC102..........................  Autistic Disorder...      1.055      0.948      0.846      0.736         0.731
HCC103..........................  Pervasive                 1.055      0.948      0.846      0.736         0.731
                                   Developmental
                                   Disorders, Except
                                   Autistic Disorder.
HCC106..........................  Traumatic Complete        9.063      8.932      8.834      8.822         8.821
                                   Lesion Cervical
                                   Spinal Cord.
HCC107..........................  Quadriplegia........      9.063      8.932      8.834      8.822         8.821
HCC108..........................  Traumatic Complete        7.368      7.239      7.144      7.121         7.120
                                   Lesion Dorsal
                                   Spinal Cord.
HCC109..........................  Paraplegia..........      7.368      7.239      7.144      7.121         7.120
HCC110..........................  Spinal Cord               5.019      4.833      4.698      4.663         4.662
                                   Disorders/Injuries.
HCC111..........................  Amyotrophic Lateral       2.107      1.911      1.772      1.707         1.705
                                   Sclerosis and Other
                                   Anterior Horn Cell
                                   Disease.
HCC112..........................  Quadriplegic              0.433      0.289      0.181      0.108         0.107
                                   Cerebral Palsy.
HCC113..........................  Cerebral Palsy,           0.364      0.264      0.181      0.108         0.107
                                   Except Quadriplegic.
HCC114..........................  Spina Bifida and          0.016      0.000      0.000      0.000         0.000
                                   Other Brain/Spinal/
                                   Nervous System
                                   Congenital
                                   Anomalies.
HCC115..........................  Myasthenia Gravis/        5.116      4.991      4.900      4.882         4.881
                                   Myoneural Disorders
                                   and Guillain-Barre
                                   Syndrome/
                                   Inflammatory and
                                   Toxic Neuropathy.
HCC117..........................  Muscular Dystrophy..      2.109      1.970      1.873      1.783         1.778
HCC118..........................  Multiple Sclerosis..      8.046      7.788      7.595      7.579         7.578
HCC119..........................  Parkinson's,              2.109      1.970      1.873      1.783         1.778
                                   Huntington's, and
                                   Spinocerebellar
                                   Disease, and Other
                                   Neurodegenerative
                                   Disorders.
HCC120..........................  Seizure Disorders         1.423      1.288      1.183      1.100         1.096
                                   and Convulsions.
HCC121..........................  Hydrocephalus.......      4.823      4.717      4.628      4.597         4.596
HCC122..........................  Non-Traumatic Coma,       8.085      7.965      7.866      7.861         7.860
                                   and Brain
                                   Compression/Anoxic
                                   Damage.
HCC125..........................  Respirator               27.074     27.045     27.016     27.096        27.100
                                   Dependence/
                                   Tracheostomy Status.
HCC126..........................  Respiratory Arrest..      8.400      8.265      8.168      8.241         8.245
HCC127..........................  Cardio-Respiratory        8.400      8.265      8.168      8.241         8.245
                                   Failure and Shock,
                                   Including
                                   Respiratory
                                   Distress Syndromes.
HCC128..........................  Heart Assistive          27.593     27.404     27.268     27.331        27.336
                                   Device/Artificial
                                   Heart.
HCC129..........................  Heart Transplant....     27.593     27.404     27.268     27.331        27.336
HCC130..........................  Congestive Heart          2.847      2.758      2.693      2.686         2.686
                                   Failure.
HCC131..........................  Acute Myocardial          8.501      8.214      8.005      8.114         8.120
                                   Infarction.
HCC132..........................  Unstable Angina and       4.515      4.281      4.129      4.132         4.133
                                   Other Acute
                                   Ischemic Heart
                                   Disease.
HCC135..........................  Heart Infection/          5.135      5.022      4.938      4.908         4.907
                                   Inflammation,
                                   Except Rheumatic.
HCC142..........................  Specified Heart           2.365      2.241      2.148      2.080         2.077
                                   Arrhythmias.
HCC145..........................  Intracranial              7.686      7.448      7.279      7.270         7.270
                                   Hemorrhage.
HCC146..........................  Ischemic or               2.324      2.176      2.085      2.079         2.079
                                   Unspecified Stroke.
HCC149..........................  Cerebral Aneurysm         3.171      3.011      2.895      2.840         2.837
                                   and Arteriovenous
                                   Malformation.
HCC150..........................  Hemiplegia/               4.396      4.314      4.257      4.306         4.309
                                   Hemiparesis.
HCC151..........................  Monoplegia, Other         2.634      2.522      2.444      2.414         2.413
                                   Paralytic Syndromes.
HCC153..........................  Atherosclerosis of        9.113      9.051      9.004      9.096         9.101
                                   the Extremities
                                   with Ulceration or
                                   Gangrene.
HCC154..........................  Vascular Disease          6.411      6.255      6.143      6.133         6.133
                                   with Complications.
HCC156..........................  Pulmonary Embolism        3.132      2.995      2.895      2.850         2.848
                                   and Deep Vein
                                   Thrombosis.
HCC158..........................  Lung Transplant          25.523     25.380     25.270     25.354        25.358
                                   Status/
                                   Complications.
HCC159..........................  Cystic Fibrosis.....     11.222     10.969     10.767     10.781        10.782
HCC160..........................  Chronic Obstructive       0.859      0.766      0.683      0.595         0.591
                                   Pulmonary Disease,
                                   Including
                                   Bronchiectasis.
HCC161..........................  Asthma..............      0.859      0.766      0.683      0.595         0.591
HCC162..........................  Fibrosis of Lung and      1.724      1.629      1.562      1.510         1.507
                                   Other Lung
                                   Disorders.
HCC163..........................  Aspiration and            5.920      5.866      5.827      5.835         5.836
                                   Specified Bacterial
                                   Pneumonias and
                                   Other Severe Lung
                                   Infections.
HCC183..........................  Kidney Transplant         7.636      7.438      7.304      7.276         7.276
                                   Status.
HCC184..........................  End Stage Renal          31.427     31.237     31.086     31.232        31.238
                                   Disease.
HCC187..........................  Chronic Kidney            1.369      1.313      1.276      1.285         1.286
                                   Disease, Stage 5.
HCC188..........................  Chronic Kidney            1.369      1.313      1.276      1.285         1.286
                                   Disease, Stage 4.
HCC203..........................  Ectopic and Molar         1.219      1.074      0.947      0.745         0.733
                                   Pregnancy, Except
                                   with Renal Failure,
                                   Shock, or Embolism.
HCC204..........................  Miscarriage with          1.219      1.074      0.947      0.745         0.733
                                   Complications.
HCC205..........................  Miscarriage with No       1.219      1.074      0.947      0.745         0.733
                                   or Minor
                                   Complications.
HCC207..........................  Completed Pregnancy       3.243      2.827      2.608      2.399         2.398
                                   With Major
                                   Complications.
HCC208..........................  Completed Pregnancy       3.243      2.827      2.608      2.399         2.398
                                   With Complications.
HCC209..........................  Completed Pregnancy       3.243      2.827      2.608      2.399         2.398
                                   with No or Minor
                                   Complications.
HCC217..........................  Chronic Ulcer of          1.958      1.865      1.801      1.788         1.788
                                   Skin, Except
                                   Pressure.
HCC226..........................  Hip Fractures and         8.626      8.433      8.291      8.324         8.326
                                   Pathological
                                   Vertebral or
                                   Humerus Fractures.
HCC227..........................  Pathological              2.240      2.124      2.033      1.957         1.954
                                   Fractures, Except
                                   of Vertebrae, Hip,
                                   or Humerus.
HCC251..........................  Stem Cell, Including     23.527     23.526     23.520     23.544        23.544
                                   Bone Marrow,
                                   Transplant Status/
                                   Complications.
HCC253..........................  Artificial Openings       8.149      8.067      8.005      8.041         8.043
                                   for Feeding or
                                   Elimination.
HCC254..........................  Amputation Status,        3.928      3.819      3.740      3.770         3.772
                                   Lower Limb/
                                   Amputation
                                   Complications.
----------------------------------------------------------------------------------------------------------------
                                               Interaction Factors
----------------------------------------------------------------------------------------------------------------
SEVERE x HCC006.................  Severe illness x          8.221      8.406      8.532      8.658         8.663
                                   Opportunistic
                                   Infections.
SEVERE x HCC008.................  Severe illness x          8.221      8.406      8.532      8.658         8.663
                                   Metastatic Cancer.
SEVERE x HCC009.................  Severe illness x          8.221      8.406      8.532      8.658         8.663
                                   Lung, Brain, and
                                   Other Severe
                                   Cancers, Including
                                   Pediatric Acute
                                   Lymphoid Leukemia.
SEVERE x HCC010.................  Severe illness x Non-     8.221      8.406      8.532      8.658         8.663
                                   Hodgkin's Lymphomas
                                   and Other Cancers
                                   and Tumors.
SEVERE x HCC115.................  Severe illness x          8.221      8.406      8.532      8.658         8.663
                                   Myasthenia Gravis/
                                   Myoneural Disorders
                                   and Guillain-Barre
                                   Syndrome/
                                   Inflammatory and
                                   Toxic Neuropathy.
SEVERE x HCC135.................  Severe illness x          8.221      8.406      8.532      8.658         8.663
                                   Heart Infection/
                                   Inflammation,
                                   Except Rheumatic.
SEVERE x HCC145.................  Severe illness x          8.221      8.406      8.532      8.658         8.663
                                   Intracranial
                                   Hemorrhage.

[[Page 51065]]

 
SEVERE x G06....................  Severe illness x HCC      8.221      8.406      8.532      8.658         8.663
                                   group G06 (G06 is
                                   HCC Group 6 which
                                   includes the
                                   following HCCs in
                                   the blood disease
                                   category: 67, 68).
SEVERE x G08....................  Severe illness x HCC      8.221      8.406      8.532      8.658         8.663
                                   group G08 (G08 is
                                   HCC Group 8 which
                                   includes the
                                   following HCCs in
                                   the blood disease
                                   category: 73, 74).
SEVERE x HCC035.................  Severe illness x End-     1.816      1.916      1.979      2.088         2.092
                                   Stage Liver Disease.
SEVERE x HCC038.................  Severe illness x          1.816      1.916      1.979      2.088         2.092
                                   Acute Liver Failure/
                                   Disease, Including
                                   Neonatal Hepatitis.
SEVERE x HCC153.................  Severe illness x          1.816      1.916      1.979      2.088         2.092
                                   Atherosclerosis of
                                   the Extremities
                                   with Ulceration or
                                   Gangrene.
SEVERE x HCC154.................  Severe illness x          1.816      1.916      1.979      2.088         2.092
                                   Vascular Disease
                                   with Complications.
SEVERE x HCC163.................  Severe illness x          1.816      1.916      1.979      2.088         2.092
                                   Aspiration and
                                   Specified Bacterial
                                   Pneumonias and
                                   Other Severe Lung
                                   Infections.
SEVERE x HCC253.................  Severe illness x          1.816      1.916      1.979      2.088         2.092
                                   Artificial Openings
                                   for Feeding or
                                   Elimination.
SEVERE x G03....................  Severe illness x HCC      1.816      1.916      1.979      2.088         2.092
                                   group G03 (G03 is
                                   HCC Group 3 which
                                   includes the
                                   following HCCs in
                                   the musculoskeletal
                                   disease category:
                                   54, 55).
----------------------------------------------------------------------------------------------------------------
                                           Enrollment Duration Factors
----------------------------------------------------------------------------------------------------------------
                                  One month of              0.491      0.431      0.385      0.363         0.363
                                   enrollment.
                                  Two months of             0.439      0.384      0.337      0.317         0.316
                                   enrollment.
                                  Three months of           0.356      0.308      0.264      0.245         0.244
                                   enrollment.
                                  Four months of            0.302      0.261      0.222      0.204         0.204
                                   enrollment.
                                  Five months of            0.263      0.229      0.195      0.179         0.178
                                   enrollment.
                                  Six months of             0.220      0.193      0.164      0.148         0.147
                                   enrollment.
                                  Seven months of           0.217      0.191      0.164      0.148         0.147
                                   enrollment.
                                  Eight months of           0.160      0.141      0.121      0.109         0.109
                                   enrollment.
                                  Nine months of            0.121      0.107      0.095      0.088         0.088
                                   enrollment.
                                  Ten months of             0.106      0.098      0.090      0.086         0.086
                                   enrollment.
                                  Eleven months of          0.097      0.091      0.085      0.083         0.083
                                   enrollment.
----------------------------------------------------------------------------------------------------------------
                                            Prescription Drug Factors
----------------------------------------------------------------------------------------------------------------
RXC 01..........................  Anti-HIV Agents.....      7.903      7.394      7.016      6.869         6.863
RXC 02..........................  Anti-Hepatitis C         42.192     41.724     41.357     41.522        41.530
                                   (HCV) Agents.
RXC 03..........................  Antiarrhythmics.....      0.115      0.115      0.115      0.115         0.115
RXC 04..........................  Phosphate Binders...      0.640      0.640      0.640      0.640         0.640
RXC 05..........................  Inflammatory Bowel        1.926      1.751      1.620      1.446         1.437
                                   Disease Agents.
RXC 06..........................  Insulin.............      1.520      1.384      1.235      1.059         1.049
RXC 07..........................  Anti-Diabetic             0.499      0.437      0.369      0.282         0.277
                                   Agents, Except
                                   Insulin and
                                   Metformin Only.
RXC 08..........................  Multiple Sclerosis       20.967     20.276     19.754     19.796        19.801
                                   Agents.
RXC 09..........................  Immune Suppressants      12.856     12.303     11.895     11.956        11.959
                                   and
                                   Immunomodulators.
RXC 10..........................  Cystic Fibrosis          10.619     10.340     10.149     10.250        10.255
                                   Agents.
RXC 01 x HCC001.................  Additional effect         2.849      2.926      2.995      3.292         3.306
                                   for enrollees with
                                   RxC 01 (Anti-HIV
                                   Agents) and HCC 001
                                   (HIV/AIDS).
RXC 02 x HCC037_1, 036, 035, 034  Additional effect         3.993      4.162      4.267      4.300         4.301
                                   for enrollees with
                                   RxC 02 (Anti-
                                   Hepatitis C (HCV)
                                   Agents) and (HCC
                                   037_1 (Chronic
                                   Viral Hepatitis C)
                                   or 036 (Cirrhosis
                                   of Liver) or 035
                                   (End-Stage Liver
                                   Disease) or 034
                                   (Liver Transplant
                                   Status/
                                   Complications)).
RXC 03 x HCC142.................  Additional effect         0.000      0.000      0.000      0.000         0.000
                                   for enrollees with
                                   RxC 03
                                   (Antiarrhythmics)
                                   and HCC 142
                                   (Specified Heart
                                   Arrhythmias).
RXC 04 x HCC184, 183, 187, 188..  Additional effect         0.000      0.000      0.000      0.000         0.000
                                   for enrollees with
                                   RxC 04 (Phosphate
                                   Binders) and (HCC
                                   184 (End Stage
                                   Renal Disease) or
                                   183 (Kidney
                                   Transplant Status)
                                   or 187 (Chronic
                                   Kidney Disease,
                                   Stage 5) or 188
                                   (Chronic Kidney
                                   Disease, Severe
                                   Stage 4)).
RXC 05 x HCC048, 041............  Additional effect        -1.002     -0.915     -0.829     -0.721        -0.715
                                   for enrollees with
                                   RxC 05
                                   (Inflammatory Bowel
                                   Disease Agents) and
                                   (HCC 048
                                   (Inflammatory Bowel
                                   Disease) or 041
                                   (Intestine
                                   Transplant Status/
                                   Complications)).
RXC 06 x HCC018, 019, 020, 021..  Additional effect         0.444      0.410      0.463      0.550         0.555
                                   for enrollees with
                                   RxC 06 (Insulin)
                                   and (HCC 018
                                   (Pancreas
                                   Transplant Status/
                                   Complications) or
                                   019 (Diabetes with
                                   Acute
                                   Complications) or
                                   020 (Diabetes with
                                   Chronic
                                   Complications) or
                                   021 (Diabetes
                                   without
                                   Complication)).
RXC 07 x HCC018, 019, 020, 021..  Additional effect        -0.174     -0.161     -0.129     -0.129        -0.130
                                   for enrollees with
                                   RxC 07 (Anti-
                                   Diabetic Agents,
                                   Except Insulin and
                                   Metformin Only) and
                                   (HCC 018 (Pancreas
                                   Transplant Status/
                                   Complications) or
                                   019 (Diabetes with
                                   Acute
                                   Complications) or
                                   020 (Diabetes with
                                   Chronic
                                   Complications) or
                                   021 (Diabetes
                                   without
                                   Complication)).
RXC 08 x HCC118.................  Additional effect        -4.718     -4.268     -3.935     -3.822        -3.819
                                   for enrollees with
                                   RxC 08 (Multiple
                                   Sclerosis Agents)
                                   and HCC 118
                                   (Multiple
                                   Sclerosis).
RXC 09 x HCC056 or 057 and 048    Additional effect        -0.505     -0.528     -0.536     -0.574        -0.576
 or 041.                           for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and (HCC 048
                                   (Inflammatory Bowel
                                   Disease) or 041
                                   (Intestine
                                   Transplant Status/
                                   Complications)) and
                                   (HCC 056
                                   (Rheumatoid
                                   Arthritis and
                                   Specified
                                   Autoimmune
                                   Disorders) or 057
                                   (Systemic Lupus
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders)).
RXC 09 x HCC056.................  Additional effect        -2.712     -2.470     -2.285     -2.173        -2.168
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and HCC 056
                                   (Rheumatoid
                                   Arthritis and
                                   Specified
                                   Autoimmune
                                   Disorders).
RXC 09 x HCC057.................  Additional effect        -0.434     -0.272     -0.144      0.012         0.020
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and HCC 057
                                   (Systemic Lupus
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders).
RXC 09 x HCC048, 041............  Additional effect         1.311      1.573      1.744      1.909         1.917
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and (HCC 048
                                   (Inflammatory Bowel
                                   Disease) or 041
                                   (Intestine
                                   Transplant Status/
                                   Complications)).

[[Page 51066]]

 
RXC 10 x HCC159, 158............  Additional effect        29.675     29.853     29.949     29.967        29.967
                                   for enrollees with
                                   RxC 10 (Cystic
                                   Fibrosis Agents)
                                   and (HCC 159
                                   (Cystic Fibrosis)
                                   or 158 (Lung
                                   Transplant Status/
                                   Complications)).
----------------------------------------------------------------------------------------------------------------
\A\ The proposed risk adjustment model factors for the 2019 benefit year include blended coefficients based on
  separately solved 2014 and 2015 MarketScan[supreg] data. We are proposing to finalize the 2019 benefit year
  risk adjustment model factors based on blended factors from separately solved models using the 2014 and 2015
  MarketScan[supreg] data, and the 2016 benefit year enrollee-level EDGE data.


      Table 3--HHS HCCs in the Severity Illness Indicator Variable
------------------------------------------------------------------------
                               Description
-------------------------------------------------------------------------
Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock
Peritonitis/Gastrointestinal Perforation/Necrotizing Enter colitis
Seizure Disorders and Convulsions
Non-Traumatic Coma, Brain Compression/Anoxic Damage
Respirator Dependence/Tracheostomy Status
Respiratory Arrest
Cardio-Respiratory Failure and Shock, Including Respiratory Distress
 Syndromes
Pulmonary Embolism and Deep Vein Thrombosis
------------------------------------------------------------------------


                   Table 4--Proposed Child Risk Adjustment Model Factors for 2019 Benefit Year
----------------------------------------------------------------------------------------------------------------
             Factor                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 2-4, Male...................           0.194           0.139           0.077           0.023           0.020
Age 5-9, Male...................           0.130           0.091           0.043           0.004           0.002
Age 10-14, Male.................           0.199           0.156           0.099           0.056           0.054
Age 15-20, Male.................           0.268           0.218           0.156           0.102           0.100
Age 2-4, Female.................           0.147           0.100           0.047           0.007           0.005
Age 5-9, Female.................           0.104           0.069           0.029           0.002           0.001
Age 10-14, Female...............           0.189           0.147           0.095           0.057           0.055
Age 15-20, Female...............           0.298           0.239           0.167           0.100           0.097
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS........................           5.744           5.340           5.034           4.949           4.944
Septicemia, Sepsis, Systemic              13.174          13.022          12.922          12.938          12.940
 Inflammatory Response Syndrome/
 Shock..........................
Central Nervous System                     7.345           7.194           7.085           7.094           7.095
 Infections, Except Viral
 Meningitis.....................
Viral or Unspecified Meningitis.           3.062           2.879           2.757           2.629           2.625
Opportunistic Infections........          16.688          16.642          16.604          16.594          16.593
Metastatic Cancer...............          30.079          29.879          29.711          29.715          29.715
Lung, Brain, and Other Severe              9.654           9.442           9.264           9.190           9.186
 Cancers, Including Pediatric
 Acute Lymphoid Leukemia........
Non-Hodgkin's Lymphomas and                8.104           7.883           7.707           7.615           7.611
 Other Cancers and Tumors.......
Colorectal, Breast (Age <50),              2.866           2.706           2.572           2.460           2.454
 Kidney, and Other Cancers......
Breast (Age 50+) and Prostate              2.866           2.706           2.572           2.460           2.454
 Cancer, Benign/Uncertain Brain
 Tumors, and Other Cancers and
 Tumors.........................
Thyroid Cancer, Melanoma,                  1.218           1.090           0.977           0.858           0.852
 Neurofibromatosis, and Other
 Cancers and Tumors.............
Pancreas Transplant Status/               21.519          21.274          21.082          21.114          21.116
 Complications..................
Diabetes with Acute                        2.422           2.129           1.939           1.683           1.672
 Complications..................
Diabetes with Chronic                      2.422           2.129           1.939           1.683           1.672
 Complications..................
Diabetes without Complication...           2.422           2.129           1.939           1.683           1.672
Protein-Calorie Malnutrition....          11.421          11.335          11.264          11.302          11.304
Mucopolysaccharidosis...........           8.584           8.361           8.176           8.141           8.139
Lipidoses and Glycogenosis......           8.584           8.361           8.176           8.141           8.139
Congenital Metabolic Disorders,            8.584           8.361           8.176           8.141           8.139
 Not Elsewhere Classified.......
Amyloidosis, Porphyria, and                8.584           8.361           8.176           8.141           8.139
 Other Metabolic Disorders......
Adrenal, Pituitary, and Other              8.584           8.361           8.176           8.141           8.139
 Significant Endocrine Disorders
Liver Transplant Status/                  21.519          21.274          21.082          21.114          21.116
 Complications..................
End-Stage Liver Disease.........          11.016          10.865          10.767          10.761          10.761
Cirrhosis of Liver..............           6.158           6.041           5.950           5.916           5.914
Chronic Viral Hepatitis C.......           6.888           6.742           6.621           6.604           6.604
Chronic Hepatitis, Other/                  1.679           1.571           1.470           1.385           1.381
 Unspecified....................
Acute Liver Failure/Disease,              10.719          10.579          10.476          10.479          10.480
 Including Neonatal Hepatitis...
Intestine Transplant Status/              21.519          21.274          21.082          21.114          21.116
 Complications..................

[[Page 51067]]

 
Peritonitis/Gastrointestinal              10.481          10.202           9.989           9.995           9.996
 Perforation/Necrotizing
 Enterocolitis..................
Intestinal Obstruction..........           3.953           3.763           3.613           3.521           3.518
Chronic Pancreatitis............          10.876          10.686          10.549          10.567          10.569
Acute Pancreatitis/Other                   2.107           1.992           1.891           1.793           1.788
 Pancreatic Disorders and
 Intestinal Malabsorption.......
Inflammatory Bowel Disease......           6.687           6.344           6.085           5.986           5.981
Necrotizing Fasciitis...........           3.868           3.678           3.524           3.459           3.456
Bone/Joint/Muscle Infections/              3.868           3.678           3.524           3.459           3.456
 Necrosis.......................
Rheumatoid Arthritis and                   4.271           4.056           3.872           3.782           3.778
 Specified Autoimmune Disorders.
Systemic Lupus Erythematosus and           1.227           1.111           0.999           0.872           0.867
 Other Autoimmune Disorders.....
Osteogenesis Imperfecta and                1.364           1.258           1.162           1.079           1.075
 Other Osteodystrophies.........
Congenital/Developmental                   1.364           1.258           1.162           1.079           1.075
 Skeletal and Connective Tissue
 Disorders......................
Cleft Lip/Cleft Palate..........           1.407           1.241           1.107           0.982           0.977
Hemophilia......................          55.787          55.354          55.012          54.989          54.988
Myelodysplastic Syndromes and             12.015          11.906          11.825          11.801          11.800
 Myelofibrosis..................
Aplastic Anemia.................          12.015          11.906          11.825          11.801          11.800
Acquired Hemolytic Anemia,                 6.603           6.387           6.217           6.130           6.126
 Including Hemolytic Disease of
 Newborn........................
Sickle Cell Anemia (Hb-SS)......           6.603           6.387           6.217           6.130           6.126
Thalassemia Major...............           6.603           6.387           6.217           6.130           6.126
Combined and Other Severe                  6.007           5.869           5.759           5.696           5.693
 Immunodeficiencies.............
Disorders of the Immune                    6.007           5.869           5.759           5.696           5.693
 Mechanism......................
Coagulation Defects and Other              4.186           4.074           3.976           3.905           3.902
 Specified Hematological
 Disorders......................
Drug Psychosis..................           5.541           5.318           5.157           5.092           5.090
Drug Dependence.................           5.541           5.318           5.157           5.092           5.090
Schizophrenia...................           4.669           4.332           4.086           3.973           3.968
Major Depressive and Bipolar               1.809           1.621           1.462           1.283           1.275
 Disorders......................
Reactive and Unspecified                   1.681           1.507           1.356           1.179           1.171
 Psychosis, Delusional Disorders
Personality Disorders...........           0.678           0.582           0.476           0.338           0.332
Anorexia/Bulimia Nervosa........           2.792           2.619           2.478           2.413           2.409
Prader-Willi, Patau, Edwards,              2.339           2.176           2.067           2.032           2.031
 and Autosomal Deletion
 Syndromes......................
Down Syndrome, Fragile X, Other            1.838           1.693           1.582           1.491           1.487
 Chromosomal Anomalies, and
 Congenital Malformation
 Syndromes......................
Autistic Disorder...............           1.513           1.364           1.228           1.070           1.063
Pervasive Developmental                    0.737           0.640           0.528           0.382           0.375
 Disorders, Except Autistic
 Disorder.......................
Traumatic Complete Lesion                 12.154          12.087          12.058          12.138          12.142
 Cervical Spinal Cord...........
Quadriplegia....................          12.154          12.087          12.058          12.138          12.142
Traumatic Complete Lesion Dorsal          10.641          10.489          10.347          10.348          10.348
 Spinal Cord....................
Paraplegia......................          10.641          10.489          10.347          10.348          10.348
Spinal Cord Disorders/Injuries..           3.473           3.289           3.147           3.055           3.051
Amyotrophic Lateral Sclerosis              7.137           6.947           6.796           6.711           6.706
 and Other Anterior Horn Cell
 Disease........................
Quadriplegic Cerebral Palsy.....           3.125           2.921           2.787           2.797           2.797
Cerebral Palsy, Except                     0.730           0.588           0.484           0.395           0.391
 Quadriplegic...................
Spina Bifida and Other Brain/              1.219           1.108           1.019           0.949           0.946
 Spinal/Nervous System
 Congenital Anomalies...........
Myasthenia Gravis/Myoneural                8.961           8.809           8.687           8.653           8.652
 Disorders and Guillain-Barre
 Syndrome/Inflammatory and Toxic
 Neuropathy.....................
Muscular Dystrophy..............           2.675           2.515           2.397           2.310           2.307
Multiple Sclerosis..............           9.417           9.117           8.880           8.847           8.846
Parkinson's, Huntington's, and             2.675           2.515           2.397           2.310           2.307
 Spinocerebellar Disease, and
 Other Neurodegenerative
 Disorders......................
Seizure Disorders and                      1.887           1.743           1.611           1.470           1.463
 Convulsions....................
Hydrocephalus...................           3.800           3.697           3.620           3.605           3.605
Non-Traumatic Coma, and Brain              5.359           5.248           5.156           5.116           5.114
 Compression/Anoxic Damage......
Respirator Dependence/                    31.233          31.127          31.052          31.184          31.190
 Tracheostomy Status............
Respiratory Arrest..............           9.997           9.799           9.667           9.653           9.653
Cardio-Respiratory Failure and             9.997           9.799           9.667           9.653           9.653
 Shock, Including Respiratory
 Distress Syndromes.............
Heart Assistive Device/                   21.519          21.274          21.082          21.114          21.116
 Artificial Heart...............
Heart Transplant................          21.519          21.274          21.082          21.114          21.116
Congestive Heart Failure........           5.652           5.562           5.482           5.438           5.435
Acute Myocardial Infarction.....           4.541           4.481           4.446           4.422           4.421
Unstable Angina and Other Acute            4.541           4.481           4.446           4.422           4.421
 Ischemic Heart Disease.........
Heart Infection/Inflammation,             11.390          11.285          11.206          11.181          11.179
 Except Rheumatic...............

[[Page 51068]]

 
Hypoplastic Left Heart Syndrome            5.172           5.012           4.857           4.735           4.729
 and Other Severe Congenital
 Heart Disorders................
Major Congenital Heart/                    1.451           1.360           1.244           1.128           1.122
 Circulatory Disorders..........
Atrial and Ventricular Septal              0.894           0.810           0.707           0.612           0.609
 Defects, Patent Ductus
 Arteriosus, and Other
 Congenital Heart/Circulatory
 Disorders......................
Specified Heart Arrhythmias.....           3.536           3.385           3.253           3.178           3.175
Intracranial Hemorrhage.........          12.297          12.087          11.936          11.925          11.925
Ischemic or Unspecified Stroke..           6.626           6.537           6.482           6.494           6.494
Cerebral Aneurysm and                      3.425           3.247           3.122           3.047           3.043
 Arteriovenous Malformation.....
Hemiplegia/Hemiparesis..........           3.713           3.626           3.568           3.555           3.555
Monoplegia, Other Paralytic                2.871           2.748           2.664           2.635           2.635
 Syndromes......................
Atherosclerosis of the                    10.177           9.954           9.794           9.715           9.712
 Extremities with Ulceration or
 Gangrene.......................
Vascular Disease with                     15.267          15.144          15.047          15.063          15.063
 Complications..................
Pulmonary Embolism and Deep Vein          12.509          12.400          12.319          12.358          12.360
 Thrombosis.....................
Lung Transplant Status/                   21.519          21.274          21.082          21.114          21.116
 Complications..................
Cystic Fibrosis.................          21.519          21.274          21.082          21.114          21.116
Chronic Obstructive Pulmonary              0.364           0.303           0.220           0.128           0.123
 Disease, Including
 Bronchiectasis.................
Asthma..........................           0.364           0.303           0.220           0.128           0.123
Fibrosis of Lung and Other Lung            3.740           3.635           3.537           3.471           3.469
 Disorders......................
Aspiration and Specified                   8.744           8.694           8.652           8.688           8.690
 Bacterial Pneumonias and Other
 Severe Lung Infections.........
Kidney Transplant Status........          13.420          13.163          12.976          12.979          12.978
End Stage Renal Disease.........          33.178          33.107          33.050          33.146          33.150
Chronic Kidney Disease, Stage 5.           1.895           1.768           1.660           1.557           1.555
Chronic Kidney Disease, Severe             1.895           1.768           1.660           1.557           1.555
 (Stage 4)......................
Ectopic and Molar Pregnancy,               1.049           0.899           0.765           0.553           0.542
 Except with Renal Failure,
 Shock, or Embolism.............
Miscarriage with Complications..           1.049           0.899           0.765           0.553           0.542
Miscarriage with No or Minor               1.049           0.899           0.765           0.553           0.542
 Complications..................
Completed Pregnancy With Major             2.784           2.404           2.197           1.961           1.958
 Complications..................
Completed Pregnancy With                   2.784           2.404           2.197           1.961           1.958
 Complications..................
Completed Pregnancy with No or             2.784           2.404           2.197           1.961           1.958
 Minor Complications............
Chronic Ulcer of Skin, Except              2.025           1.939           1.854           1.785           1.781
 Pressure.......................
Hip Fractures and Pathological             5.331           5.100           4.905           4.806           4.802
 Vertebral or Humerus Fractures.
Pathological Fractures, Except             1.417           1.296           1.168           1.028           1.019
 of Vertebrae, Hip, or Humerus..
Stem Cell, Including Bone                 21.519          21.274          21.082          21.114          21.116
 Marrow, Transplant Status/
 Complications..................
Artificial Openings for Feeding           11.532          11.432          11.368          11.481          11.487
 or Elimination.................
Amputation Status, Lower Limb/             7.235           7.007           6.844           6.738           6.734
 Amputation Complications.......
----------------------------------------------------------------------------------------------------------------


                  Table 5--Proposed Infant Risk Adjustment Model Factors for 2019 Benefit Year
----------------------------------------------------------------------------------------------------------------
              Group                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
Extremely Immature * Severity            268.917         267.690         266.660         266.665         266.666
 Level 5 (Highest)..............
Extremely Immature * Severity            164.057         162.851         161.848         161.805         161.804
 Level 4........................
Extremely Immature * Severity             34.929          34.068          33.319          33.095          33.090
 Level 3........................
Extremely Immature * Severity             34.929          34.068          33.319          33.095          33.090
 Level 2........................
Extremely Immature * Severity             34.929          34.068          33.319          33.095          33.090
 Level 1 (Lowest)...............
Immature * Severity Level 5              163.691         162.498         161.499         161.501         161.503
 (Highest)......................
Immature * Severity Level 4.....          72.779          71.594          70.608          70.581          70.582
Immature * Severity Level 3.....          33.416          32.404          31.556          31.393          31.387
Immature * Severity Level 2.....          24.515          23.529          22.711          22.500          22.490
Immature * Severity Level 1               24.515          23.529          22.711          22.500          22.490
 (Lowest).......................
Premature/Multiples * Severity           118.666         117.511         116.565         116.511         116.512
 Level 5 (Highest)..............
Premature/Multiples * Severity            26.998          25.884          24.983          24.819          24.815
 Level 4........................
Premature/Multiples * Severity            13.865          13.000          12.294          11.914          11.898
 Level 3........................
Premature/Multiples * Severity             7.702           7.015           6.435           5.861           5.832
 Level 2........................
Premature/Multiples * Severity             5.180           4.663           4.139           3.538           3.508
 Level 1 (Lowest)...............
Term * Severity Level 5                   94.243          93.167          92.263          92.087          92.080
 (Highest)......................
Term * Severity Level 4.........          14.247          13.396          12.715          12.261          12.242
Term * Severity Level 3.........           5.672           5.124           4.602           3.974           3.940
Term * Severity Level 2.........           3.403           2.987           2.524           1.843           1.808
Term * Severity Level 1 (Lowest)           1.530           1.305           0.896           0.365           0.345
Age1 * Severity Level 5                   49.506          48.891          48.377          48.287          48.283
 (Highest)......................
Age1 * Severity Level 4.........           8.229           7.779           7.399           7.151           7.141

[[Page 51069]]

 
Age1 * Severity Level 3.........           2.945           2.674           2.388           2.123           2.112
Age1 * Severity Level 2.........           1.913           1.697           1.446           1.161           1.147
Age1 * Severity Level 1 (Lowest)           0.513           0.420           0.276           0.179           0.175
Age 0 Male......................           0.575           0.533           0.515           0.461           0.456
Age 1 Male......................           0.115           0.100           0.088           0.060           0.059
----------------------------------------------------------------------------------------------------------------


     Table 6--HHS HCCs Included in Infant Model Maturity Categories
------------------------------------------------------------------------
      Maturity category                     HCC/description
------------------------------------------------------------------------
Extremely Immature...........  Extremely Immature Newborns, Birthweight
                                <500 Grams.
Extremely Immature...........  Extremely Immature Newborns, Including
                                Birthweight 500-749 Grams.
Extremely Immature...........  Extremely Immature Newborns, Including
                                Birthweight 750-999 Grams.
Immature.....................  Premature Newborns, Including Birthweight
                                1,000-1,499 Grams.
Immature.....................  Premature Newborns, Including Birthweight
                                1,500-1,999 Grams.
Premature/Multiples..........  Premature Newborns, Including Birthweight
                                2,000-2,499 Grams.
Premature/Multiples..........  Other Premature, Low Birthweight,
                                Malnourished, or Multiple Birth
                                Newborns.
Term.........................  Term or Post-Term Singleton Newborn,
                                Normal or High Birthweight.
Age 1........................  All age 1 infants.
------------------------------------------------------------------------


     Table 7--HHS HCCs Included in Infant Model Severity Categories
------------------------------------------------------------------------
      Severity category                           HCC
------------------------------------------------------------------------
Severity Level 5 (Highest)...  Metastatic Cancer.
Severity Level 5.............  Pancreas Transplant Status/Complications.
Severity Level 5.............  Liver Transplant Status/Complications.
Severity Level 5.............  End-Stage Liver Disease.
Severity Level 5.............  Intestine Transplant Status/
                                Complications.
Severity Level 5.............  Peritonitis/Gastrointestinal Perforation/
                                Necrotizing Enterocolitis.
Severity Level 5.............  Respirator Dependence/Tracheostomy
                                Status.
Severity Level 5.............  Heart Assistive Device/Artificial Heart.
Severity Level 5.............  Heart Transplant.
Severity Level 5.............  Congestive Heart Failure.
Severity Level 5.............  Hypoplastic Left Heart Syndrome and Other
                                Severe Congenital Heart Disorders.
Severity Level 5.............  Lung Transplant Status/Complications.
Severity Level 5.............  Kidney Transplant Status.
Severity Level 5.............  End Stage Renal Disease.
Severity Level 5.............  Stem Cell, Including Bone Marrow,
                                Transplant Status/Complications.
Severity Level 4.............  Septicemia, Sepsis, Systemic Inflammatory
                                Response Syndrome/Shock.
Severity Level 4.............  Lung, Brain, and Other Severe Cancers,
                                Including Pediatric Acute Lymphoid
                                Leukemia.
Severity Level 4.............  Mucopolysaccharidosis.
Severity Level 4.............  Major Congenital Anomalies of Diaphragm,
                                Abdominal Wall, and Esophagus, Age <2.
Severity Level 4.............  Myelodysplastic Syndromes and
                                Myelofibrosis.
Severity Level 4.............  Aplastic Anemia.
Severity Level 4.............  Combined and Other Severe
                                Immunodeficiencies.
Severity Level 4.............  Traumatic Complete Lesion Cervical Spinal
                                Cord.
Severity Level 4.............  Quadriplegia.
Severity Level 4.............  Amyotrophic Lateral Sclerosis and Other
                                Anterior Horn Cell Disease.
Severity Level 4.............  Quadriplegic Cerebral Palsy.
Severity Level 4.............  Myasthenia Gravis/Myoneural Disorders and
                                Guillain-Barre Syndrome/Inflammatory and
                                Toxic Neuropathy.
Severity Level 4.............  Non-Traumatic Coma, Brain Compression/
                                Anoxic Damage.
Severity Level 4.............  Respiratory Arrest.
Severity Level 4.............  Cardio-Respiratory Failure and Shock,
                                Including Respiratory Distress
                                Syndromes.
Severity Level 4.............  Acute Myocardial Infarction.
Severity Level 4.............  Heart Infection/Inflammation, Except
                                Rheumatic.
Severity Level 4.............  Major Congenital Heart/Circulatory
                                Disorders.
Severity Level 4.............  Intracranial Hemorrhage.
Severity Level 4.............  Ischemic or Unspecified Stroke.
Severity Level 4.............  Vascular Disease with Complications.
Severity Level 4.............  Pulmonary Embolism and Deep Vein
                                Thrombosis.
Severity Level 4.............  Aspiration and Specified Bacterial
                                Pneumonias and Other Severe Lung
                                Infections.
Severity Level 4.............  Chronic Kidney Disease, Stage 5.
Severity Level 4.............  Hip Fractures and Pathological Vertebral
                                or Humerus Fractures.
Severity Level 4.............  Artificial Openings for Feeding or
                                Elimination.
Severity Level 3.............  HIV/AIDS.
Severity Level 3.............  Central Nervous System Infections, Except
                                Viral Meningitis.
Severity Level 3.............  Opportunistic Infections.
Severity Level 3.............  Non-Hodgkin's Lymphomas and Other Cancers
                                and Tumors.

[[Page 51070]]

 
Severity Level 3.............  Colorectal, Breast (Age <50), Kidney and
                                Other Cancers.
Severity Level 3.............  Breast (Age 50+), Prostate Cancer, Benign/
                                Uncertain Brain Tumors, and Other
                                Cancers and Tumors.
Severity Level 3.............  Lipidoses and Glycogenosis.
Severity Level 3.............  Adrenal, Pituitary, and Other Significant
                                Endocrine Disorders.
Severity Level 3.............  Acute Liver Failure/Disease, Including
                                Neonatal Hepatitis.
Severity Level 3.............  Intestinal Obstruction.
Severity Level 3.............  Necrotizing Fasciitis.
Severity Level 3.............  Bone/Joint/Muscle Infections/Necrosis.
Severity Level 3.............  Osteogenesis Imperfecta and Other
                                Osteodystrophies.
Severity Level 3.............  Cleft Lip/Cleft Palate.
Severity Level 3.............  Hemophilia.
Severity Level 3.............  Disorders of the Immune Mechanism.
Severity Level 3.............  Coagulation Defects and Other Specified
                                Hematological Disorders.
Severity Level 3.............  Prader-Willi, Patau, Edwards, and
                                Autosomal Deletion Syndromes.
Severity Level 3.............  Traumatic Complete Lesion Dorsal Spinal
                                Cord.
Severity Level 3.............  Paraplegia.
Severity Level 3.............  Spinal Cord Disorders/Injuries.
Severity Level 3.............  Cerebral Palsy, Except Quadriplegic.
Severity Level 3.............  Muscular Dystrophy.
Severity Level 3.............  Parkinson's, Huntington's, and
                                Spinocerebellar Disease, and Other
                                Neurodegenerative Disorders.
Severity Level 3.............  Hydrocephalus.
Severity Level 3.............  Unstable Angina and Other Acute Ischemic
                                Heart Disease.
Severity Level 3.............  Atrial and Ventricular Septal Defects,
                                Patent Ductus Arteriosus, and Other
                                Congenital Heart/Circulatory Disorders.
Severity Level 3.............  Specified Heart Arrhythmias.
Severity Level 3.............  Cerebral Aneurysm and Arteriovenous
                                Malformation.
Severity Level 3.............  Hemiplegia/Hemiparesis.
Severity Level 3.............  Cystic Fibrosis.
Severity Level 3.............  Fibrosis of Lung and Other Lung
                                Disorders.
Severity Level 3.............  Pathological Fractures, Except of
                                Vertebrae, Hip, or Humerus.
Severity Level 2.............  Viral or Unspecified Meningitis.
Severity Level 2.............  Thyroid, Melanoma, Neurofibromatosis, and
                                Other Cancers and Tumors.
Severity Level 2.............  Diabetes with Acute Complications.
Severity Level 2.............  Diabetes with Chronic Complications.
Severity Level 2.............  Diabetes without Complication.
Severity Level 2.............  Protein-Calorie Malnutrition.
Severity Level 2.............  Congenital Metabolic Disorders, Not
                                Elsewhere Classified.
Severity Level 2.............  Amyloidosis, Porphyria, and Other
                                Metabolic Disorders.
Severity Level 2.............  Cirrhosis of Liver.
Severity Level 2.............  Chronic Pancreatitis.
Severity Level 2.............  Inflammatory Bowel Disease.
Severity Level 2.............  Rheumatoid Arthritis and Specified
                                Autoimmune Disorders.
Severity Level 2.............  Systemic Lupus Erythematosus and Other
                                Autoimmune Disorders.
Severity Level 2.............  Congenital/Developmental Skeletal and
                                Connective Tissue Disorders.
Severity Level 2.............  Acquired Hemolytic Anemia, Including
                                Hemolytic Disease of Newborn.
Severity Level 2.............  Sickle Cell Anemia (Hb-SS).
Severity Level 2.............  Drug Psychosis.
Severity Level 2.............  Drug Dependence.
Severity Level 2.............  Down Syndrome, Fragile X, Other
                                Chromosomal Anomalies, and Congenital
                                Malformation Syndromes.
Severity Level 2.............  Spina Bifida and Other Brain/Spinal/
                                Nervous System Congenital Anomalies.
Severity Level 2.............  Seizure Disorders and Convulsions.
Severity Level 2.............  Monoplegia, Other Paralytic Syndromes.
Severity Level 2.............  Atherosclerosis of the Extremities with
                                Ulceration or Gangrene.
Severity Level 2.............  Chronic Obstructive Pulmonary Disease,
                                Including Bronchiectasis.
Severity Level 2.............  Chronic Ulcer of Skin, Except Pressure.
Severity Level 1 (Lowest)....  Chronic Hepatitis.
Severity Level 1.............  Acute Pancreatitis/Other Pancreatic
                                Disorders and Intestinal Malabsorption.
Severity Level 1.............  Thalassemia Major.
Severity Level 1.............  Autistic Disorder.
Severity Level 1.............  Pervasive Developmental Disorders, Except
                                Autistic Disorder.
Severity Level 1.............  Multiple Sclerosis.
Severity Level 1.............  Asthma.
Severity Level 1.............  Chronic Kidney Disease, Severe (Stage 4).
Severity Level 1.............  Amputation Status, Lower Limb/Amputation
                                Complications.
Severity Level 1.............  No Severity HCCs.
------------------------------------------------------------------------


[[Page 51071]]

d. Cost-Sharing Reductions Adjustments (Sec.  153.320)
    We propose to continue including an adjustment for the receipt of 
cost-sharing reductions in the model to account for increased plan 
liability due to increased utilization of healthcare services by 
enrollees receiving cost-sharing reductions (induced demand) in all 
States where HHS operates risk adjustment. The proposed cost-sharing 
reductions adjustment factors for the 2019 benefit year risk adjustment 
are unchanged from those finalized in the 2018 Payment Notice, and are 
set forth in Table 8. These adjustments would be effective for 2016, 
2017, 2018, and 2019 risk adjustment, and would be multiplied against 
the sum of the demographic, diagnosis, and interaction factors, and 
enrollment and prescription drug utilization factors (for the adult 
model). We anticipate adjusting these factors in the annual HHS notice 
of benefit and payment parameters for the 2020 benefit year as 
enrollee-level data from the individual market will be available in 
time for proposal in that rulemaking.
    We seek comment on this approach.

               Table 8--Cost-Sharing Reductions Adjustment
------------------------------------------------------------------------
                                                              Induced
        Household income                 Plan AV            utilization
                                                              factor
------------------------------------------------------------------------
                     Silver Plan Variant Recipients
------------------------------------------------------------------------
100-150% of FPL................  Plan Variation 94%.....            1.12
150-200% of FPL................  Plan Variation 87%.....            1.12
200-250% of FPL................  Plan Variation 73%.....            1.00
>250% of FPL...................  Standard Plan 70%......            1.00
------------------------------------------------------------------------
                      Zero Cost-Sharing Recipients
------------------------------------------------------------------------
<300% of FPL...................  Platinum (90%).........            1.00
<300% of FPL...................  Gold (80%).............            1.07
<300% of FPL...................  Silver (70%)...........            1.12
<300% of FPL...................  Bronze (60%)...........            1.15
------------------------------------------------------------------------
                     Limited Cost-Sharing Recipients
------------------------------------------------------------------------
>300% of FPL...................  Platinum (90%).........            1.00
>300% of FPL...................  Gold (80%).............            1.07
>300% of FPL...................  Silver (70%)...........            1.12
>300% of FPL...................  Bronze (60%)...........            1.15
------------------------------------------------------------------------

e. Model Performance Statistics (Sec.  153.320)
    To evaluate the model's performance, we examined its R-squared 
statistic and predictive ratios. The R-squared statistic, which 
calculates the percentage of individual variation explained by a model, 
measures the predictive accuracy of the model overall. The predictive 
ratios measure the predictive accuracy of a model for different 
validation groups or subpopulations. The predictive ratio for each of 
the HHS risk adjustment models is the ratio of the weighted mean 
predicted plan liability for the model sample population to the 
weighted mean actual plan liability for the model sample population. 
The predictive ratio represents how well the model does on average at 
predicting plan liability for that subpopulation. A subpopulation that 
is predicted perfectly would have a predictive ratio of 1.0. For each 
of the HHS risk adjustment models, the R-squared statistic and the 
predictive ratios are in the range of published estimates for 
concurrent risk adjustment models.\12\ Because we are proposing to 
blend the coefficients from separately solved models based on 
MarketScan[supreg] 2014 and 2015 data in the proposed rule, we are 
publishing the R-squared statistic for each model and benefit year 
separately to verify their statistical validity. The R-squared 
statistic for each model is shown in Table 9.
---------------------------------------------------------------------------

    \12\ Winkleman, Ross and Syed Mehmud. ``A Comparative Analysis 
of Claims-Based Tools for Health Risk Assessment.'' Society of 
Actuaries. April 2007.

  Table 9--R-Squared Statistic for Proposed HHS Risk Adjustment Models
------------------------------------------------------------------------
                                                R-squared statistic
          Risk adjustment model          -------------------------------
                                               2014            2015
------------------------------------------------------------------------
Platinum Adult..........................          0.4221          0.4212
Platinum Child..........................           0.293          0.3314
Platinum Infant.........................          0.3284          0.3329
Gold Adult..............................          0.4179          0.4164
Gold Child..............................          0.2883          0.3269
Gold Infant.............................          0.3264          0.3309
Silver Adult............................          0.4143          0.4123
Silver Child............................          0.2841          0.3227
Silver Infant...........................           0.325          0.3295
Bronze Adult............................          0.4117          0.4095
Bronze Child............................          0.2805          0.3188

[[Page 51072]]

 
Bronze Infant...........................          0.3247          0.3292
Catastrophic Adult......................          0.4115          0.4094
Catastrophic Child......................          0.2803          0.3186
Catastrophic Infant.....................          0.3247          0.3292
------------------------------------------------------------------------

f. Overview of the Payment Transfer Formula (Sec.  153.320)
i. Accounting for High-Cost Risk Pool in the Transfer Formula
    We previously defined the calculation of plan average actuarial 
risk and the calculation of payments and charges in the Premium 
Stabilization Rule. In the 2014 Payment Notice, we combined those 
concepts into a risk adjustment payment transfer formula. Risk 
adjustment transfers (total payments and charges including outlier 
pooling) will be calculated after issuers have completed risk 
adjustment data reporting. The payment transfer formula includes a set 
of cost adjustment terms that require transfers to be calculated at the 
geographic rating area level for each plan (that is, HHS will calculate 
two separate transfer amounts for a plan that operates in two rating 
areas). The payment transfer formula is designed to provide a per 
member per month (PMPM) transfer amount. The PMPM transfer amount 
derived from the payment transfer formula would be multiplied by each 
plan's total member months for the benefit year to determine the total 
payment due or charge owed by the issuer for that plan in a rating 
area. The total payment or charge is thus calculated to balance the 
State market risk pool in question. In addition to the total charge 
collected and payment made for the State market risk pool, in the 2018 
Payment Notice, we added to the risk adjustment methodology additional 
transfers that would reflect the payments and charges assessed with 
respect to the costs of high-risk enrollees. To account for costs 
associated with high-risk enrollees, we added transfer terms (a payment 
term and a charge term) that would be calculated separately from the 
State transfer formula. Thus, the non-high cost pooling portion of plan 
risk would continue to be calculated as the member month weighted 
average of individual enrollee risk scores. Beginning for the 2018 
benefit year, we added one term that reflects 60 percent of costs above 
$1 million, the threshold for our payments for these high-risk 
enrollees, and another term that reflects a percentage of PMPM premium 
adjustment to the transfer formula for the high-cost enrollee pool to 
maintain the balance of payment and charges within the risk adjustment 
program. For the 2019 benefit year we propose to maintain this 
adjustment to the risk adjustment transfers with the threshold of $1 
million and a coinsurance rate of 60 percent, as finalized for the 2018 
benefit year.
ii. Administrative Cost Reduction to Statewide Average Premium
    Additionally, we propose to continue the policy finalized in the 
2018 Payment Notice to reduce the Statewide average premium in the risk 
adjustment transfer formula by 14 percent to account for the proportion 
of administrative costs that do not vary with claims for the 2019 
benefit year and future benefit years until changed in rulemaking. As a 
note, we define unadjusted Statewide average premiums as the sum of 
average premium per member month of plan (P i) multiplied by plan i's 
share of Statewide enrollment in the market in the risk pool (S i). For 
the 2019 benefit year, the Statewide average premium, which will be 
used for the transfer formula finalized beginning for the 2018 benefit 
year, will be calculated based on the formula below:
[GRAPHIC] [TIFF OMITTED] TP02NO17.001

Where:

s<INF>i</INF> = plan i's share of Statewide enrollment in the market 
in the risk pool;
P i = average premium per member month of plan i.
iii. State Flexibility
    The HHS risk adjustment payment transfer formula generally 
transfers amounts from issuers with lower than average actuarial risk 
to those with higher than average actuarial risk. Such risk adjustment 
transfers are widely used in health insurance markets and recognized as 
critical in mitigating the effects of adverse selection, ensuring 
financial viability of plans that enroll a higher proportion of high-
risk enrollees, and thus, fostering competitive health insurance 
markets. The HHS risk adjustment program transfers are scaled with the 
Statewide average premium in the applicable State market. In the 2018 
Payment Notice, we noted that compared to other scaling factors, such 
as, plans' own premiums, our analyses found Statewide average premium 
proves to be a more accurate means of scaling the transfers for 
differences in relative actuarial risk, particularly in the context of 
a budget-neutral system. We also finalized in the 2018 Payment Notice 
an administrative cost adjustment to the statewide average premium to 
remove a portion of administrative costs that did not vary based on 
claims differences from the Statewide average premium and base the 
transfers on the portion of the premiums that vary with claims.\13\ 
Nevertheless, we acknowledge that, for some States that deviate 
significantly from the national dataset used, a further adjustment to 
the Statewide average premium may more precisely account for 
differences between the plan premium estimate reflecting adverse 
selection and the plan premium estimate not reflecting selection in the 
respective State market risk pools.
---------------------------------------------------------------------------

    \13\ 81 FR 94099, 94100. (December 22, 2016). Available at 
https://www.gpo.gov/fdsys/pkg/FR-2016-12-22/pdf/2016-30433.pdf.
---------------------------------------------------------------------------

    In the 2016 Interim Final Rule,\14\ HHS recognized some State 
regulators' desire to reduce the magnitude of risk adjustment charge 
amounts for some issuers. We acknowledged that States are the primary 
regulators of their insurance markets, and as such, we encouraged 
States to examine whether any local approaches under State legal 
authority are warranted to help ease the transition to new health 
insurance markets.
---------------------------------------------------------------------------

    \14\ 91 FR 29146, 29152. (May 11, 2016). Available at https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-11017.pdf.
---------------------------------------------------------------------------

    In the small group market, employers select the plans offered to 
their employees and often pay a significant portion of employees' 
premiums to encourage enrollment. Depending on the participation rules 
and market dynamics within a particular State, risk selection can be 
significantly less in a State's small group market compared to

[[Page 51073]]

its individual market. The HHS methodology calculates relative risk 
scores between issuers in a State market, and in the case of the small 
group market, the differences between risk scores for issuers within 
State markets are generally smaller, leading to a smaller magnitude of 
risk adjustment transfers in the small group market as compared to the 
individual market. However, certain States have opined that the HHS 
risk adjustment methodology, which is calibrated on a national dataset, 
may in some circumstances, overcompensate for risk differences in the 
small group market for their particular State. In such cases, the 
States have the statutory authority to operate their own State risk 
adjustment program under a Federally-certified alternate risk 
adjustment methodology as they deem fit. We believe that allowing 
certain State-by-State adjustments to the HHS risk adjustment program 
can account for such State-specific differences in risk without the 
necessity for States to undertake operation of their own risk 
adjustment program. Therefore, in the case of small group markets, 
where States can demonstrate that the actuarial risk differences due to 
adverse selection are mitigated by the small group market dynamics 
described above, to tailor the risk adjustment methodology to 
particularities of reduced risk selection in a State's small group 
market, we are proposing to permit States' primary insurance regulators 
to request a percentage adjustment in the calculation of the risk 
adjustment transfer amounts in the small group market in their State, 
beginning for the 2019 benefit year.
    Under this proposal, beginning in the 2019 benefit year and beyond, 
HHS would require any State that intends to request this flexibility to 
submit its proposal for an adjustment to the Statewide average premium 
in the small group market within 30 calendar days after publication of 
the proposed HHS notice of benefit and payment parameters for the 
applicable benefit year in order to permit issuers to incorporate any 
such adjustment into their proposed rates. For example, for the 2019 
benefit year risk adjustment transfers, which will be calculated in the 
2020 calendar year, State proposals would be submitted to HHS no later 
than 30 days after publication of this proposed HHS notice of benefit 
and payment parameters for the 2019 benefit year, similar to the public 
comment deadline for the proposed rule. In order to promote 
transparency and solicit feedback from consumers and stakeholders on 
the proposed adjustment to the HHS risk adjustment transfer formula, 
HHS would publish the requested State adjustments for public comment in 
guidance while it begins its initial review of the State proposal. HHS 
would then make final determinations of approval of State requests by 
March 1 of the benefit year prior to the applicable benefit year, in 
time for issuers' initial rate setting deadline. That is, for the 2019 
benefit year, HHS would make final determinations of approval by March 
1, 2018. The proposed timing of the State adjustment request 
submission, publication of HHS guidance, the public notice and comment 
period and HHS request approval process will permit plans to 
incorporate approved adjustments in their rates for the applicable 
benefit year.
    HHS would consider requests from State regulators to reduce the 
calculation of the Statewide average premium used in the HHS risk 
adjustment transfer formula by up to 50 percent for the applicable 
benefit year. As noted above, Statewide average premium is defined as 
unadjusted Statewide average premium reduced by 14 percent, to account 
for a portion of administrative costs, or as 86 percent of unadjusted 
Statewide average premium. Transfers in the small group market could be 
reduced by up to an additional 43 percent (or 50 percent of the 
transfer amounts, after the 14 percent reduction for a portion of 
administrative costs to the Statewide average premium). We believe this 
adjustment would proportionally reduce the magnitude of risk adjustment 
transfers in the small group market. We seek comment on all aspects of 
this proposal, including the permissible extent of the adjustment, the 
timing of the submission, any evidence the State should be required to 
provide, and what procedural requirements should be in place.
    We also seek comment on whether we should establish a similar 
process through which States could request an adjustment to the 
calculation of Statewide average premiums for risk adjustment in the 
individual market similarly to the proposed small group market 
adjustment. Although adverse selection in the individual market is not 
mitigated by group enrollment or minimum participation requirements 
that require a minimum percentage of employees to enroll in coverage as 
is the selection in the small group market, a State may believe the HHS 
risk adjustment methodology, which is calibrated on a national dataset, 
disproportionately accounts for relative actuarial risk differences in 
its individual market risk pool. We seek comment on whether, if a State 
can demonstrate such a difference in calculated relative actuarial 
risk, we should reduce States' administrative burden in operating its 
own risk adjustment program by allowing some flexibility in the HHS 
risk adjustment methodology to the extent permissible under the 
statute. Therefore, we seek comment on whether the adjustment described 
above for the small group market should also apply to the individual 
market, what individual market features would justify such an 
adjustment, and what additional submissions a State should provide in 
order to justify such a departure for that market. For example, to 
accommodate a State with particular State rating practices that serve 
to mitigate risk selection, we might require a statistical or actuarial 
study demonstrating the extent to which transfer amounts calculated 
pursuant to the HHS risk adjustment methodology finalized for the 
applicable benefit year would overstate differentials in uncompensated 
predicted risk in the individual market.
    As noted above, a State that wishes to make an adjustment for the 
magnitude of these transfers in the individual and small group markets 
may take temporary, reasonable measures under State authority to 
mitigate effects under their own authority.
    We seek comment on these proposals.
iv. The Payment Transfer Formula
    Except as proposed above, the payment transfer formula would be 
unchanged from what was finalized in the 2014 Payment Notice (78 FR 
15430 through 15434). We believe it useful to republish the formula in 
its entirety, since, as noted above, we are proposing to recalibrate 
the HHS risk adjustment model. Transfers (payments and charges) will be 
calculated as the difference between the plan premium estimate 
reflecting risk selection and the plan premium estimate not reflecting 
risk selection. As finalized in the 2014 Payment Notice, the HHS risk 
adjustment payment transfer formula is:

[[Page 51074]]

[GRAPHIC] [TIFF OMITTED] TP02NO17.000

Where:

Ps = Statewide average premium;
PLRSi = plan i's plan liability risk score;
AVi = plan i's metal level AV;
ARFi = allowable rating factor;
IDFi = plan i's induced demand factor;
GCFi = plan i's geographic cost factor;
si = plan i's share of State enrollment.

    The denominator is summed across all plans in the risk pool in the 
market in the State.
    The difference between the two premium estimates in the payment 
transfer formula determines whether a plan pays a risk adjustment 
charge or receives a risk adjustment payment. Note that the value of 
the plan average risk score by itself does not determine whether a plan 
would be assessed a charge or receive a payment--even if the risk score 
is greater than 1.0, it is possible that the plan would be assessed a 
charge if the premium compensation that the plan may receive through 
its rating (as measured through the allowable rating factor) exceeds 
the plan's predicted liability associated with risk selection. Risk 
adjustment transfers are calculated at the risk pool level, and 
catastrophic plans are treated as a separate risk pool for purposes of 
risk adjustment.
    This existing formula would be multiplied by the number of member 
months to determine the total payment or charge assessed with respect 
to plan average risk scores for a plan's geographic rating area for the 
market within the State, and this payment or charge will be added to 
the transfer terms described above to account for the costs of high-
risk enrollees.
g. Risk Adjustment Data Validation Requirements When HHS Operates Risk 
Adjustment (Sec.  153.630)
    HHS will conduct risk adjustment data validation under Sec.  
153.630 in any State where HHS is operating risk adjustment on a 
State's behalf.\15\ The purpose of risk adjustment data validation is 
to ensure issuers are providing accurate high-quality information to 
HHS, which is crucial for the proper functioning of the risk adjustment 
program. Risk adjustment data validation consists of an initial 
validation audit and a second validation audit. Under Sec.  153.630, 
each issuer of a risk adjustment covered plan must engage an 
independent initial validation audit entity. The issuer provides 
demographic, enrollment, and medical record documentation for a sample 
of enrollees selected by HHS to its initial validation auditor for data 
validation. Set forth below are proposed amendments and clarifications 
to the risk adjustment data validation program in light of experience 
and feedback from issuers during the first pilot year.
---------------------------------------------------------------------------

    \15\ Starting with the 2017 benefit year, no State has elected 
to operate a risk adjustment program. Therefore, HHS operates risk 
adjustment in all States.
---------------------------------------------------------------------------

i. Payment Adjustments for Error Rates
    Under Sec.  153.350(c), HHS may adjust risk adjustment payments and 
charges to all issuers of risk adjustment covered plans based on 
adjustments to the average actuarial risk of a risk adjustment plan due 
to errors discovered during risk adjustment data validation. We believe 
that some variation and error should be expected in the compilation of 
data for risk scores, because providers' documentation of enrollee 
health status varies across provider types and groups. Our experiences 
with the Medicare Advantage risk adjustment data validation program and 
the HHS risk adjustment data validation pilot for the 2015 benefit year 
reinforce this belief.
    We propose evaluating material statistical deviation in error rates 
in applying error rates to risk scores beginning with the 2017 benefit 
year risk adjustment data validation. We are considering adjusting an 
issuer's risk score only when the issuer's error rate materially 
deviates from a statistically meaningful value, such as the central 
tendency (a mean or typical value) of errors, nationally. HHS could 
also evaluate error rates within each HCC, or groups of HCCs, and then 
only apply error rates to outlier issuers' risk scores within each HCC 
or group of HCCs. When an error rate materially deviates from the 
central tendency, we propose to apply the difference between the mean 
error rate or the confidence interval around the population's central 
tendency and the calculated error rate instead of the full error rate. 
If all error rates in a State risk pool do not materially deviate from 
the national central tendency of error rates, we propose to not apply 
any adjustments to issuers' risk scores for that benefit year in the 
respective State risk pool.
    We believe the implementation of any of the alternative evaluations 
and subsequent adjustments we propose here would reduce issuer burden, 
streamline the risk adjustment data validation process, improve 
issuers' ability to predict risk adjustment transfers, and promote 
confidence and stability in the budget-neutral payment transfer 
methodology while ensuring the integrity and quality of data provided 
by issuers.
    We seek comment on this proposal and alternatives to evaluating 
material deviation in error rates for applying error rates to risk 
scores beginning with the 2017 benefit year risk adjustment data 
validation.
ii. Payment Adjustments for Issuers That Have Exited the Market
    In the 2015 Payment Notice, we established that HHS will use a 
prospective approach to adjust risk scores and payment transfers based 
on the results of risk adjustment data validation. Specifically, HHS 
will apply the error rate calculated through the risk adjustment data 
validation process for the applicable benefit year to plan risk scores 
in the subsequent benefit year, and then make risk adjustment payment 
transfers based on adjusted plan average risk scores in that subsequent 
benefit year. However, in some cases, an issuer of a risk adjustment 
covered plan may have exited a State market during or at the end of the 
benefit year being audited and therefore would not have risk scores or 
payment transfers in the subsequent benefit year to which HHS could 
make adjustments.
    As previously noted, the purpose of data validation for risk 
adjustment is to promote confidence in the budget-neutral payment 
transfer methodology by ensuring the integrity and quality of data 
provided from issuers. HHS believes that the prospect of not receiving 
payment adjustments based on the results of risk adjustment data 
validation results could undermine these goals by eliminating the 
incentive for an exiting issuer to carefully and accurately submit risk 
adjustment data for its final benefit year in the market. Not only 
could this type of inaccuracy result in overpayments to the exiting 
issuer, it could also cause the other issuers in the market to be over 
or undercompensated for the actual risk of their enrollee populations. 
Therefore, we propose that HHS would use the error rate derived from 
the risk adjustment data validation process to adjust the payment 
transfer for the issuer's final benefit year in the State market, which 
would be concurrent with the benefit year being audited, for issuers 
that exit a State market during or

[[Page 51075]]

at the end of the benefit year being audited. Because risk adjustment 
transfers for a given benefit year are calculated and paid before the 
risk adjustment data validation process for that benefit year is 
completed, this approach would require HHS to make a retroactive 
adjustment to the issuer's payment transfer for its final benefit year 
and reallocate the adjusted transfer amount to the other issuers in the 
State market in that year.
    HHS believes that the proposed retroactive adjustment to an exited 
issuer's payment transfer would help ensure that an issuer with 
inaccurate data does not benefit from this error and that other issuers 
in the State market are not harmed by it. However, we acknowledge that 
this approach could reduce issuers' confidence in the finality of risk 
adjustment transfers for any given benefit year because of the 
potential for retroactive adjustments for an issuer that has exited the 
market. In addition, the calculation of payment transfers could become 
increasingly complex for 2018 benefit year risk adjustment transfers 
and beyond, because HHS could be adjusting payment transfers based on 
the results of data validation, even if transfers were already adjusted 
retroactively for an exited issuer's data validation adjustment (for 
example, 2018 benefit year risk adjustment transfers would be adjusted 
for 2017 benefit year risk adjustment data validation, and would also 
be adjusted for 2018 risk adjustment benefit year data validation if an 
issuer exits the market at the end of the 2018 benefit year). However, 
we believe the payment adjustment proposal for error rates that is 
discussed above could result in some exiting issuers not being adjusted 
at all, alleviating some of the complexity associated with 
retroactively adjusting transfers. We seek comment on this proposal to 
make retroactive adjustments to payment transfers for issuers that have 
exited the market based on the results of risk adjustment data 
validation for the most recent benefit year in which they participated 
in risk adjustment.
iii. 500 Billable Member Months
    Numerous small issuers have expressed concern regarding the 
regulatory burden and cost associated with complying with the risk 
adjustment data validation program. HHS has previously considered these 
concerns and provided relief where possible. For example, in the 2017 
Payment Notice, we included a lower, separate default risk adjustment 
charge for small issuers with 500 billable member months or fewer 
beginning with the 2016 benefit year in light of the high operational 
burden associated with compliance for these issuers.
    We propose that, beginning with 2017 benefit year risk adjustment 
data validation, issuers with 500 billable member months or fewer that 
elect to establish and submit data to an EDGE server would not be 
subject to the requirement to hire an initial validation auditor or 
submit initial validation audit results. Issuers at or below the 500 
billable member months threshold would have their risk score adjusted 
by a default error rate equal to the lower of either the national 
average negative error rate, or the average negative error rate within 
a State, as set forth in the 2018 Payment Notice. We believe exempting 
issuers with 500 billable member months or fewer from the requirement 
to hire an initial validation auditor is appropriate because issuers of 
this size would have a disproportionately high operational burden for 
compliance with risk adjustment data validation. We note that, 
beginning with 2018 benefit year risk adjustment data validation, these 
issuers would not be subject to random sampling under the materiality 
threshold discussed below, and would continue to not be subject to the 
requirement to hire an initial validation auditor or submit initial 
validation audit results, but would have their risk scores adjusted by 
a default error rate annually. We note that if the proposal discussed 
above to implement a central tendency approach to payment adjustments 
is finalized, then it is possible no adjustment would occur for issuers 
below this threshold. We seek comment on the proposed exemption from 
risk adjustment data validation, including the 500 billable member 
months threshold.
iv. Materiality Threshold for Risk Adjustment Data Validation
    In the 2018 Payment Notice, HHS implemented a materiality threshold 
for risk adjustment data validation to ease the burden of annual audit 
requirements for smaller issuers of risk adjustment covered plans. 
Specifically, we stated that issuers with total annual premiums at or 
below $15 million (calculated based on the premiums of the benefit year 
being validated) will not be subject to annual initial validation audit 
requirements, beginning with the 2017 benefit year, but will still be 
subject to an initial validation audit approximately every 3 years. HHS 
based the timeline for enforcement of the materiality threshold on the 
expectation that we would begin making payment adjustments based on the 
results of 2016 benefit year risk adjustment data validation, 
effectively requiring all issuers of risk adjustment covered plans to 
participate in the first benefit year for which risk adjustment 
payments are adjusted. However, in light of our subsequent decision to 
convert the 2016 benefit year to another pilot year,\16\ we propose to 
postpone application of the materiality threshold to the 2018 benefit 
year. Therefore, all issuers of risk adjustment covered plans would be 
required to conduct an initial validation audit for the 2017 benefit 
year risk adjustment data validation, other than issuers with 500 
billable member months or fewer as discussed above. Beginning with the 
2018 benefit year, issuers below the $15 million premium threshold 
would not be required to conduct an initial validation audit every 
year. Under this proposal, HHS would still conduct random and targeted 
sampling under which issuers below the materiality threshold would be 
subject to an initial validation audit approximately every 3 years, 
beginning with 2018 benefit year risk adjustment data validation. In 
addition, issuers below the $15 million threshold that are not selected 
for the random and targeted sampling would have their risk adjustment 
transfers adjusted by a default error rate equal to the lower of the 
average negative error rate nationally, or the average negative error 
rate within a State. We note that if the proposal to implement a 
central tendency approach to payment adjustments discussed above is 
finalized, then it is possible no adjustment would occur for issuers 
below this threshold. We seek comment on this proposal.
---------------------------------------------------------------------------

    \16\ ``HHS-Operated Risk Adjustment Data Validation (HHS-RADV)--
2016 Benefit Year Implementation and Enforcement.'' May 3, 2017. 
Available at https://www.regtap.info/uploads/library/HRADV_PilotGuidance_5CR_050317.pdf.
---------------------------------------------------------------------------

v. Data Validation Sampling Methodology
    Section 153.350(a) requires that a statistically valid sample of 
enrollees from each issuer of risk adjustment covered plans be 
validated. In the 2015 Payment Notice, HHS finalized its methodology 
for selecting the sample of enrollees for the initial validation audit 
for each issuer of a risk adjustment covered plan. We established a 
sample size per issuer for each State in which the issuer offers risk 
adjustment covered plans and clarified that the sample would include 
200 enrollees per issuer for each risk pool in which the issuer 
participates, not 200 enrollees per plan. However, HHS will not 
calculate a risk

[[Page 51076]]

score, or apply risk adjustment payment transfers except for high-cost 
risk pool transfers beginning with the 2018 benefit year, on behalf of 
a State in a market and risk pool when there is only one issuer in the 
market and risk pool. That issuer may participate in another market in 
the State where it is not the sole issuer and, as such, would still 
participate in risk adjustment and risk adjustment data validation for 
the applicable benefit year. In this circumstance, data from the risk 
pools in which the issuer was the sole issuer would not be part of a 
State market risk pool payment transfer, and would not be subject to 
the same quality controls as data used to calculate risk scores and 
payment transfers; consequently, the data could not be validated with 
the same confidence that data used for payment can be validated. 
Therefore, HHS would not require the issuer to validate data for its 
plans in a risk pool that was not risk adjusted against another issuer 
in the State risk pool in the applicable benefit year. We propose to 
change the sampling methodology so that, beginning with the 2017 
benefit year data validation, the initial data validation audit sample 
will only include enrollees from State risk pools in which there was 
more than one issuer and where HHS conducted risk adjustment on behalf 
of the State for the benefit year being validated.\17\ We seek comment 
on this proposal.
---------------------------------------------------------------------------

    \17\ For the 2018 and future benefit years, HHS would not 
require the sole issuer in the State market to include high-cost 
risk pool enrollees in its sample for data validation, as these 
payments will be subject to a separate audit process.
---------------------------------------------------------------------------

vi. Mental and Behavioral Health Records
    Under Sec.  153.630(b)(6), the issuer of a risk adjustment covered 
plan must provide the initial validation auditor and second validation 
auditor with all relevant source enrollment documentation, all claims 
and encounter data, and medical record documentation from providers of 
services to each enrollee in the applicable sample without unreasonable 
delay and in a manner that reasonably assures confidentiality and 
security in transmission. Issuers have advised HHS that certain States' 
medical privacy laws may limit providers' ability to furnish mental and 
behavioral health records for risk adjustment data validation purposes. 
We believe that section 1343 of the PPACA and associated regulations 
require issuers of risk adjustment covered plans to furnish any records 
needed for purposes of the risk adjustment program, including mental 
and behavioral health records. We believe that the HIPAA Privacy Rule 
at 45 CFR 164.512(a) generally permits disclosures of protected health 
information that are required by law within the meaning of 45 CFR 
164.103. Nevertheless, we recognize that some State and Federal privacy 
laws impose requirements for mental and behavioral health information 
that are different from, and potentially more restrictive than, the 
HIPAA regulations. However, without the necessary mental and behavioral 
health information, the diagnosis code for an applicable enrollee 
cannot be validated and, therefore, it would be rejected during risk 
adjustment data validation.
    To address these potential issues, we propose to amend Sec.  
153.630(b)(6) to provide that, if a provider is prohibited from 
furnishing a full mental or behavioral health record by State or 
Federal privacy laws, the provider instead may furnish a mental or 
behavioral health assessment that providers routinely prepare, for 
validation of a mental or behavioral health diagnosis. Although HHS 
needs the full content of the mental or behavioral health record to 
ensure full validation of the accuracy of diagnosis codes, we believe 
that we can still perform some risk adjustment data validation based on 
the information contained in mental or behavioral health assessments in 
those instances in which State or Federal law prohibits submission of 
the full record. For risk adjustment data validation purposes, we would 
expect a mental or behavioral health assessment to be signed by a 
qualified provider who is licensed by the State to diagnose mental 
illness and, to the extent permissible under governing privacy and 
confidentiality laws, to contain: (i) The enrollee's name; (ii) gender; 
(iii) date of birth; (iv) current status of all mental or behavioral 
health diagnoses; and (v) dates of service. We note that 
``psychotherapy notes,'' a subset of mental and behavioral health 
information that receives special protections under the HIPAA Privacy 
Rule, are not required for the purposes of risk adjustment data 
validation.\18\ We also note that some State and Federal privacy laws 
require that providers obtain patient consent before disclosing mental 
or behavioral health records, and that these consent requirements may 
apply to mental or behavioral health assessments. We clarify that we do 
not view a State or Federal law requiring patient consent as 
inconsistent with the risk adjustment data validation requirements to 
furnish a mental or behavioral health record or assessment. 
Additionally, we note that certain substance use disorder patient 
records are subject to the Federal confidentiality law at 42 U.S.C. 
290dd-2 and the regulations promulgated thereunder in 42 CFR part 2 and 
to similar State laws, and generally require consent prior to 
disclosure. We believe that this proposal is consistent with the 
foregoing Federal and State confidentiality rules, and that the 
substance use disorder confidentiality requirements should govern when 
applicable. Therefore, issuers or providers may be required to obtain 
written patient consent in order to comply with this proposal.
---------------------------------------------------------------------------

    \18\ ``Psychotherapy notes'' are notes recorded by a health care 
provider who is a mental health professional documenting or 
analyzing the contents of conversation during a private counseling 
session, or a group, joint, or family counseling session and that 
are separated from the rest of the individual's medical record. 
Psychotherapy notes do not include medication prescription and 
monitoring, counseling session start and stop times, modalities and 
frequency of treatment, test results, and summaries of diagnoses, 
functional status, treatment plan, symptoms, prognosis, and progress 
to date. See 45 CFR 164.501.
---------------------------------------------------------------------------

    The proposal described above allows issuers an additional avenue to 
achieve compliance by permitting abbreviated mental or behavioral 
health assessments for risk adjustment data validation in the event 
that a provider is subject to State or Federal privacy laws that 
prohibit the provider from providing a complete mental or behavioral 
health record to HHS. To submit a mental or behavioral health 
assessment instead of the full mental or behavioral health record, a 
provider would be required to attest that relevant State or Federal 
privacy laws prohibit him or her from providing the entire mental or 
behavioral health record. HHS also believes that the proposal supports 
the integrity of the risk adjustment data validation program by 
ensuring that an initial validation auditor obtains data that will 
enable proper validation of mental or behavioral health HCCs, which are 
susceptible to discretionary coding. Furthermore, we believe the use of 
mental or behavioral health assessments would reduce burden on 
providers by permitting them to utilize records they routinely prepare 
and likely already have, which would avoid the need to prepare special 
summaries solely for the purpose of risk adjustment data validation. We 
seek comment as to the prevalence and typical contents of mental or 
behavioral health assessments under current practice, as well as other 
aspects of this proposal.
vii. Inter-Rater Reliability Rates
    Under Sec.  153.630(b)(8), the initial validation auditor must 
measure and report to the issuer and HHS, in a manner and timeframe 
specified by

[[Page 51077]]

HHS, its inter-rater reliability rates among its reviewers. An initial 
validation auditor must achieve a consistency measure of at least 95 
percent for his or her review outcomes, except for the initial benefit 
years of risk adjustment data validation, for which the initial 
validation auditor may meet an inter-rater reliability standard of 85 
percent. Consistent with our decision to make the 2016 benefit year 
another pilot year as referenced above, we propose to amend Sec.  
153.630(b)(8) to add the 2016 benefit year as an initial year of risk 
adjustment data validation for which the initial validation auditor may 
meet the lower inter-rater reliability standard of 85 percent.
viii. Civil Money Penalties
    An effective risk adjustment data validation program is essential 
to the proper functioning of HHS-operated risk adjustment. In order to 
enforce risk adjustment data validation standards when operating risk 
adjustment data validation on behalf of a State, we are proposing to 
clarify and amend the bases upon which HHS may impose CMPs for 
violations of risk adjustment data validation requirements.
    To give HHS additional flexibility for ensuring compliance with the 
risk adjustment data validation requirements and in light of our 
experience in the first pilot year of the risk adjustment data 
validation program, HHS is proposing to amend Sec.  153.630(b)(9) to 
give HHS the authority to impose a CMP on an issuer of a risk 
adjustment covered plan in the event of misconduct or substantial non-
compliance with the risk adjustment data validation standards and 
requirements. Specifically, we propose to amend Sec.  153.630(b)(9) to 
state that, if an issuer of a risk adjustment covered plan (1) fails to 
engage an initial validation auditor; (2) fails to submit the results 
of an initial validation audit to HHS; (3) engages in misconduct or 
substantial non-compliance with the risk adjustment data validation 
standards and requirements applicable to issuers of risk adjustment 
covered plans; or (4) intentionally or recklessly misrepresents or 
falsifies information that it furnishes to HHS, HHS may impose CMPs in 
accordance with the procedures set forth in Sec.  156.805(b) through 
(e). We note that Sec.  153.630(b)(9) already addresses the possible 
imposition of CMPs for (1) and (2) above, and provides a cross-
reference to Sec.  156.805, which contains the bases and procedures for 
imposing CMPs for (3) and (4) above. Section 153.630(b)(9) provides the 
authority to assess CMPs on all issuers of risk adjustment covered 
plans, not just issuers on an FFE as does Sec.  156.805.\19\ Through 
this proposal, we are clarifying that the authority to impose CMPs for 
(3) and (4) applies to all issuers of risk adjustment covered plans, 
not just those issuers on an FFE. We note that the CMP authority would 
be in addition to HHS's ability to adjust an issuer's transfers under 
Sec.  153.350(c).
---------------------------------------------------------------------------

    \19\ Pursuant to Sec.  153.20, risk adjustment covered plan 
means, for the purpose of the risk adjustment program, any health 
insurance coverage offered in the individual or small group market 
with the exception of grandfathered health plans, group health 
insurance coverage described in 45 CFR 146.145(c), individual health 
insurance coverage described in 45 CFR 148.220, and any plan 
determined not to be a risk adjustment covered plan in the 
applicable Federally certified risk adjustment methodology.
---------------------------------------------------------------------------

    As previously noted in the Second 2013 Program Integrity Rule, and 
in the 2015 Payment Notice, we propose that HHS's possible application 
of CMPs would continue to take into account the totality of the 
issuer's circumstances, including such factors as an issuer's previous 
record of non-compliance (if any), the frequency and level of the 
violation, and any aggravating or mitigating circumstances. 
Additionally, we would continue to impose any CMPs so that the level of 
the enforcement action is proportional to the level of the violation. 
While we reserve the right to impose penalties up to the maximum 
amounts set forth in Sec.  156.805(c), as a general principle, we 
intend to work collaboratively with issuers to address any problems in 
conducting the risk adjustment data validation process.
    We believe this additional CMP authority will improve program 
integrity and fairness by permitting HHS the authority to assess CMPs 
on issuers that engage in misconduct in risk adjustment data 
validation. Although Sec.  153.630(e) permits HHS to adjust payments 
and charges for issuers that do not comply with audit requirements and 
standards, this provision only makes the markets whole in the event of 
a violation of the risk adjustment data validation standards or 
misconduct. We do not believe this provision provides a sufficient 
deterrent effect to ensure program integrity of the risk adjustment 
data validation program. Additionally, we believe this additional 
authority is necessary in light of the policies finalized in the 2018 
Payment Notice, specifically, the concerns HHS highlighted around 
gaming and the inclusion of prescription drug data in the risk 
adjustment model. We seek comment on this proposal.
ix. Adjustment of Risk Adjustment Transfers Due to Submission of 
Incorrect Data
    On September 2, 2015, HHS released the Adjustment of Risk 
Adjustment Transfers Due to Submission of Incorrect Data guidance,\20\ 
setting forth the process by which HHS would address instances of 
materially incorrect EDGE server data submissions. We propose to 
include risk adjustment data validation as a method of discovering 
materially incorrect EDGE server data submissions and making 
adjustments pursuant to Sec.  153.630(e), as described in our September 
2, 2015 guidance. We propose that demographic or enrollment errors 
discovered during risk adjustment data validation would be the basis 
for an adjustment to the applicable benefit year transfer amount, 
rather than the subsequent benefit year risk score. The elements being 
validated are related to the transfer formula. As such, we believe they 
are substantially similar to a discrepancy in the transfer process, 
which is addressed in the current benefit year as part of the process 
for handling discrepancies in data under Sec.  153.710, as opposed to a 
discrepancy in underlying enrollee diagnoses contributing to risk 
scores, which is addressed through subsequent year risk score 
adjustments as part of risk adjustment data validation.
---------------------------------------------------------------------------

    \20\ Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/RA-Adjustment-Guidance-9-2-15.pdf.
---------------------------------------------------------------------------

    As we noted in the September 2, 2015 guidance, an overstatement or 
understatement of premium data may affect issuers differently, because 
it will lead to an increase or decrease in the absolute value of the 
magnitude of the transfers (and will affect the calculation of the 
geographic rating area factors). Therefore, an issuer's submission of 
incorrect EDGE server premium data may have the effect of increasing or 
decreasing the magnitude of risk adjustment transfers to other issuers 
in the market, depending on the direction of the premium error, holding 
constant the other elements of the payment transfer formula. In cases 
where there is a material impact on risk adjustment transfers for that 
particular market as a result of incorrect EDGE server premium data, 
HHS would calculate the dollar value of differences in risk adjustment 
transfers, and, where the difference is detrimental to one or more 
issuers in the market, adjust the other issuers' risk adjustment 
transfer amount by that calculation, and increase the risk adjustment 
charge (or decrease the risk adjustment payment) to the issuer that 
made the data error, in order to balance

[[Page 51078]]

the market.\21\ We believe this approach allows HHS to operate the risk 
adjustment program efficiently, while ensuring that issuers do not 
profit from their data submission errors or harm their competitors in 
the relevant market. We seek comment on this proposal.
---------------------------------------------------------------------------

    \21\ Calculation of the dollar value will include adjustment to 
the statewide premium average and, to the extent possible, 
adjustment to the geographic cost factor.
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h. Risk Adjustment User Fee for 2019 Benefit Year (Sec.  153.610(f))
    As noted above, if a State is not approved to operate, or chooses 
to forgo operating its own risk adjustment program, HHS will operate 
risk adjustment on its behalf. In 2019, HHS anticipates operating a 
risk adjustment program in every State. As described in the 2014 
Payment Notice, HHS's operation of risk adjustment on behalf of States 
is funded through a risk adjustment user fee. Section 153.610(f)(2) 
provides that an issuer of a risk adjustment covered plan must remit a 
user fee to HHS equal to the product of its monthly billable member 
enrollment in the plan and the per member per month risk adjustment 
user fee specified in the annual HHS notice of benefit and payment 
parameters for the applicable benefit year.
    OMB Circular No. A-25R established Federal policy regarding user 
fees, and specified that a user charge will be assessed against each 
identifiable recipient for special benefits derived from Federal 
activities beyond those received by the general public. The risk 
adjustment program will provide special benefits as defined in section 
6(a)(1)(B) of Circular No. A-25R to issuers of risk adjustment covered 
plans because it mitigates the financial instability associated with 
potential adverse risk selection. The risk adjustment program also 
contributes to consumer confidence in the health insurance industry by 
helping to stabilize premiums across the individual and small group 
markets.
    In the 2018 Payment Notice, we calculated the Federal 
administrative expenses of operating the risk adjustment program for 
the 2018 benefit year to result in a risk adjustment user fee rate of 
$1.68 per billable member per year or $0.14 PMPM, based on our 
estimated contract costs for risk adjustment operations and estimates 
of billable member months for individuals enrolled in a risk adjustment 
covered plan. For the 2019 benefit year, we propose to use the same 
methodology to estimate our administrative expenses to operate the 
program. These contract costs cover development of the model and 
methodology, collections, payments, account management, data 
collection, data validation, program integrity and audit functions, 
operational and fraud analytics, stakeholder training, and operational 
support. To calculate the user fee, we divided HHS's projected total 
costs for administering the risk adjustment programs on behalf of 
States by the expected number of billable member months in risk 
adjustment covered plans in HHS-operated risk adjustment States for the 
benefit year.
    We estimate that the total cost for HHS to operate the risk 
adjustment program on behalf of States for 2019 will be approximately 
$38 million, and the risk adjustment user fee would be $1.68 per 
billable member per year, or $0.14 PMPM. The risk adjustment user fee 
contract costs for the 2019 benefit year are lower than the 2018 
benefit year contract costs due to lower risk adjustment data 
validation and stakeholder training costs as issuers are becoming more 
familiar with our programs. We expect billable member months to decline 
slightly compared to the 2016 benefit year, whereas we expected 
billable member months to increase over this time period when setting 
the risk adjustment user fee rate for the 2018 benefit year. Therefore, 
the calculated 2019 benefit year risk adjustment user fee is lower than 
the rate for the 2018 benefit year prior to rounding, but after 
rounding to the nearest cent, is the same as that for the 2018 benefit 
year. We seek comment on the proposed risk adjustment user fee for the 
2019 benefit year.

C. Part 154--Health Insurance Issuer Rate Increases: Disclosure and 
Review Requirements

1. Applicability (Sec.  154.103)
    Since July 18, 2011, issuers have been required to submit rate 
filing justifications for rate increases for non-grandfathered plans in 
the individual and small group markets.\22\ This requirement was 
established, in part, to carry out the Secretary's responsibility, in 
conjunction with States, under section 2794(b)(2)(A) of the PHS Act to 
monitor premium increases of health insurance coverage offered through 
an Exchange and outside of an Exchange. Student health insurance 
coverage is considered by HHS to be a type of individual market 
coverage and is generally subject to the PHS Act individual market 
requirements including rate review.\23\ However, student health 
insurance coverage is not subject to single risk pool requirements.\24\ 
Because student health insurance coverage is only available through 
colleges and universities, it is also exempt from the guaranteed 
availability and guaranteed renewability requirements enacted under 
HIPAA. For purposes of the guaranteed availability and guaranteed 
renewability requirements enacted under the PPACA, a health insurance 
issuer that offers student health insurance coverage is not required to 
accept individuals who are not students or dependents of students, and 
is not required to renew or continue in force coverage for individuals 
who are no longer students or dependents of students. Student health 
insurance coverage also need not be issued on a calendar year 
basis.\25\
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    \22\ See Rate Increase Disclosure and Review; Final Rule, 76 FR 
29964, 29966 (May 23, 2011).
    \23\ See Student Health Insurance Coverage Final Rule 77 FR 
16453 (March 21, 2012).
    \24\ A health insurance issuer that offers student health 
insurance coverage may establish one or more separate risk pools for 
an institution of higher education, if the distinction between or 
among groups of students (or dependents of students) who form the 
risk pool is based on a bona fide school-related classification and 
not based on a health factor (as described in 45 CFR 146.121). 
However, student health insurance rates must reflect the claims 
experience of individuals who comprise the risk pool, and any 
adjustments to rates within a risk pool must be actuarially 
justified. See 45 CFR 147.145(b)(3).
    \25\ 45 CFR 147.145(b)(1).
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    We propose to modify Sec.  154.103(b) to exempt from rate review 
student health insurance coverage, effective for plan or policy years 
beginning on or after January 1, 2019. Grandfathered health plan 
coverage as defined in 45 CFR 147.140 and excepted benefits as 
described in section 2791(c) of the PHS Act are already exempted from 
rate review under the existing regulation at Sec.  154.103(b).
    The Federal rate review requirements currently apply to student 
health insurance coverage because it is considered individual market 
coverage.\26\ Issuers of student health insurance plans are required to 
use the Rate Review Justification module of the Health Insurance 
Oversight System (HIOS) to submit the required rate filing information. 
However, student health insurance coverage is written and sold more 
like large group coverage, which was exempted from rate review as part 
of the implementing regulations in part 154 because States 
traditionally focused their efforts on the review of rates in the small 
group and individual markets. Additionally, purchasers in the large 
group market were viewed as being more sophisticated, with greater 
leverage, and therefore better able to

[[Page 51079]]

avoid the imposition of large rate increases.\27\ Similarly, 
institutions of higher education that offer student health insurance 
coverage are seen as well informed, with significant purchasing power, 
and student health insurance coverage is generally rated and 
administered differently from other forms of individual health 
insurance coverage.\28\
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    \26\ 45 CFR 147.145.
    \27\ See preamble discussion in the proposed rule, ``Rate 
Increase Disclosure and Review'' 75 FR 81004, 81009 (December 23, 
2010).
    \28\ See preamble discussion in the final rule, ``Health 
Insurance Market Rules; Rate Review'' 78 FR 13406, 13424 (February 
27, 2013).
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    States have allowed rating practices for student health insurance 
coverage to be more in line with large group pricing, in which 
experience rating and other factors can be used to determine rates. 
Because student health insurance coverage is typically experience 
rated, and is typically only available to students and their dependents 
with an open enrollment period coinciding with the start of the 
academic year, it is exempt from single risk pool rating requirements 
and not guaranteed to be available or renewable to individuals who are 
not students or dependents of students in an institution of higher 
education. In addition, States have generally given student health 
insurance coverage more plan design flexibility compared to individual 
market plans to better meet student needs and utilization of on-campus 
providers. Because of these factors, some States have requested student 
health insurance coverage be exempt from the rate review requirements 
in part 154 of title 45. The proposed change would reduce the 
regulatory burden on States and issuers of student health insurance 
plans. This proposal is consistent with our general approach of 
providing tailored flexibility with respect to the PHS Act individual 
market reforms for student health insurance coverage. Eliminating the 
burdens associated with the Federal rate review requirements may 
incentivize issuers to offer more student health insurance plans, 
increasing competition among issuers to the benefit of institutions of 
higher education and their students.
    We note that States would continue to have the flexibility to 
review rate increases or other aspects of student health insurance 
coverage. Under this proposal, in States that do not have an Effective 
Rate Review Program, we would monitor the compliance of student health 
insurance coverage with applicable market rating reforms based on 
complaints and as part of targeted market conduct examinations. In 
States where we are enforcing market reforms, we would continue to 
review form filings for student health insurance coverage for 
compliance with applicable PHS Act individual market requirements, but 
would not review rate increases for reasonableness under part 154 of 
title 45.
    We solicit comment on this proposal.
2. Rate Increases Subject to Review (Sec.  154.200)
    Section 2794(a)(1) of the PHS Act requires the Secretary, in 
conjunction with States, to establish a process for the annual review 
of unreasonable premium increases for health insurance coverage. 
Section 2794(a)(2) of the PHS Act requires health insurance issuers to 
submit to the Secretary and relevant State a justification for an 
unreasonable premium increase prior to implementation. States may 
establish a more robust review process, and many have chosen to do so.
    Section 154.200(a)(1) currently provides that a rate increase for 
single risk pool coverage beginning on or after January 1, 2017 is 
subject to a reasonableness review if: (1) The average increase, 
including premium rating factors described in 45 CFR 147.102, for all 
enrollees, weighted by premium volume for any plan within the product, 
meets or exceeds 10 percent; or (2) the increase exceeds a State-
specific threshold approved by the Secretary. We propose to amend this 
provision to establish a 15 percent default threshold for 
reasonableness review, in recognition of significant rate increases in 
the past number of years, rather than the current 10 percent default 
threshold, and seek comment on the appropriate default threshold.\29\
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    \29\ The 10 percent threshold was established in the ``Rate 
Increase Disclosure and Review'' Final rule (76 FR 29963, May 23, 
2011) based upon three indices. These indices are: (1) The medical 
component of the Consumer Price Index (CPI); (2) the National Health 
Expenditure data (NHE); and (3) the Standard and Poor's Healthcare 
Economic Commercial Index. The threshold was finalized at 10 percent 
based on the analysis of the trend in health care costs and rate 
increases provided in the preamble to the proposed rule.
---------------------------------------------------------------------------

    A reasonableness review looks at the assumptions used in 
determining the rate increase to make sure those assumptions are 
supported by evidence. The reasonableness review also checks that the 
increase will not result in a projected Federal MLR below the minimum 
standard in the applicable market and will not unfairly discriminate 
between insureds with similar risk categories.
    Regardless of the threshold set for reasonableness review, all 
issuers must submit a Uniform Rate Review Template (URRT) (Part I of 
the Rate Filing Justification) for all single risk pool plan 
submissions. Issuers offering a QHP or any single risk pool submission 
containing a rate increase of any size must also submit an actuarial 
memorandum (Part III of the Rate Filing Justification). Issuers with 
rate filings that do not meet the threshold for a reasonableness review 
are exempt from the requirement to submit Part II of the Rate Filing 
Justification (Consumer Justification Narrative) for those rate 
filings. No changes are being proposed to these requirements.
    We note that the threshold set by CMS constitutes a minimum 
standard. Some States currently employ stricter rate review standards 
and may continue to do so. Section 154.200(a)(2) currently requires 
States to submit a proposal to the Secretary for approval of any State-
specific threshold. We propose to amend Sec.  154.200(a)(2) to require 
submission of a proposal only if the State-specific threshold is higher 
than the Federal default threshold. We are proposing this change to 
reduce burdens and promote State flexibility. We also propose to amend 
this provision to clarify that a State seeking approval for a higher 
threshold than the Federal default must base its request on factors 
impacting rate increases in the State to the extent that the data 
relating to such factors are available by August of the preceding year.
    CMS released guidance entitled, ``State-Specific Threshold 
Proposals, Guidance for States'' on March 27, 2012,\30\ and outlined 
the process to be followed by States wishing to propose a State-
specific threshold to be effective from September 1, 2012 through 
August 31, 2013. We will issue future guidance on the process for 
submission and review of State requests to propose a State-specific 
threshold above what is set by CMS, to be effective for rate filings 
submitted on or after January 1, 2019.
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    \30\ https://www.cms.gov/CCIIO/Resources/Files/Downloads/dwnlds/rrjssptguidance.pdf.
---------------------------------------------------------------------------

    We also propose to delete paragraph (b) in its entirety. That 
paragraph currently requires that the Secretary publish a notice each 
year indicating which threshold applies to each State. CMS currently 
posts information regarding State-specific threshold requests on its 
Web site \31\ and would continue to do so for States that request a 
State-specific threshold above what is set by CMS, beginning with rate 
filings submitted on or after January 1, 2019. If this proposal is 
finalized, CMS would

[[Page 51080]]

not post information on States where the Federal default or a stricter 
State-specific threshold applies. Under the proposed approach, we would 
rely on States to communicate information about stricter thresholds, as 
well as any other State-specific requirements.
---------------------------------------------------------------------------

    \31\ https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/sst.html.
---------------------------------------------------------------------------

    We propose to redesignate paragraph (c) as paragraph (b) and revise 
that paragraph to delete the language related to rates filed for 
coverage beginning before January 1, 2017, currently captured in 
paragraph (c)(1) as this provision is no longer necessary.\32\ We 
propose to redesignate paragraph (d) as paragraph (c). Finally, we 
propose conforming changes to change the cross references in Sec.  
154.200 to align with the changes described above.
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    \32\ This standard (that is, the average increase for all 
enrollees weighted by premium volume meets or exceeds the applicable 
threshold), however, continues to apply to rates filed for coverage 
beginning before January 1, 2017, including with respect to 
compliance reviews and enforcement actions.
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    We seek comment on these proposals.
3. Submission of Rate Filing Justification (Sec.  154.215)
    Section 154.215(h)(2) includes a reference to 45 CFR 5.65, which 
defined trade secret, confidential commercial or financial information 
under HHS regulations implementing the Freedom of Information Act, 5 
U.S.C. 552. HHS revised 45 CFR part 5 in a final rule issued on October 
28, 2016, effective on November 28, 2016 (81 FR 74930). We propose to 
make a technical correction to Sec.  154.215(h)(2) to refer to 45 CFR 
5.31(d) because 45 CFR 5.65 no longer exists and Sec.  5.31(d) now 
lists the reasons a record may be withheld.
4. Timing of Providing the Rate Filing Justification (Sec.  154.220)
    Section 154.220(b) provides that a health insurance issuer must 
submit applicable sections of the Rate Filing Justification for all 
single risk pool coverage in the individual or small group market by 
the earlier of (1) the date by which the State requires submission of a 
rate filing; or (2) the date specified in guidance by the Secretary. As 
discussed in the 2016 Payment Notice,\33\ we have interpreted that 
section to require submission of all rate filings, for both QHPs and 
non-QHPs, at a uniform time. We have issued rate filing timeline 
guidance on an annual basis establishing the respective dates for each 
benefit year and reiterating that requirement.\34\
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    \33\ 80 FR 10782.
    \34\ See, for example, Bulletin: Revised Timing of Submission 
and Posting of Rate Filing Justifications for the 2017 Filing Year 
for Single Risk Pool Coverage; Revised Timing of Submission for 
Qualified Health Plan Certification Application (April 13, 2017), 
available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-Revised-2017-filing-timeline-bulletin-4-13-17.pdf.
---------------------------------------------------------------------------

    Several State regulators have indicated that requiring all 
submissions at one time poses an undue regulatory burden. They have 
stated that they prefer to set a later date for submission of rate 
filings from issuers that only offer non-QHPs to enable regulators to 
complete the review of QHP rate filings first and review non-QHP rate 
filings later. Therefore, starting with plan year 2019, we propose to 
interpret Sec.  154.220(b) to allow a State with an Effective Rate 
Review Program to set different submission deadlines for rate filings 
from issuers that only offer non-QHPs. This change would reduce burden 
while empowering States to pick the timeframe that works best for their 
markets, and also accounts for market differences between States. This 
is also in line with a comment we received in response to the Request 
for Information requesting that States be allowed to set rate filing 
dates. Under this proposal, an issuer that offers both QHPs and non-
QHPs in a market in a given State would be required to submit its rate 
filing in accordance with the deadlines established for QHPs pursuant 
to Sec.  154.220(b) to support regulatory review of compliance with the 
single risk pool requirement.
    CMS would need to coordinate with all States in order to continue 
collecting preliminary rate filing information and final rate 
determinations in order to comply with the statutory requirement under 
section 2794(b)(2)(A) of the PHS Act to monitor premium increases of 
health insurance coverage offered inside and outside of the Exchanges. 
This coordination will also be important to support compliance under 
section 1311(e)(2) of the PPACA for the FFEs to take into consideration 
State recommendations provided under section 2794(b)(1) of the PHS Act 
when certifying QHPs, as well as information on any excess premium 
growth outside of Exchanges as compared to inside the Exchanges. We 
solicit comment on this proposal.
5. Determinations of Effective Rate Review Programs (Sec.  154.301)
a. State Posting of Rate Increases
    We propose to modify Sec.  154.301(b)(2), which requires a State 
with an Effective Rate Review Program to notify us in writing, no later 
than 30 days prior to the date it intends to make any proposed or final 
rate filing information public if the State will be posting prior to 
the date specified by the Secretary. We propose to reduce the advance 
notification required from 30 days to 5 business days. The 30-day 
notification period was intended to give us sufficient notice in 
advance of State rate increase announcements. However, in many 
instances a State does not know the posting date 30 days in advance, so 
it was difficult to meet this requirement. Shortening the advance 
notice period to 5 business days would better reflect existing State 
practices. Under this proposal, if a State opts to post submissions on 
a rolling basis, as specified in the proposed change below, then the 
State would need to provide this notification to us only for the first 
submission for a given plan year that is publicly posted.
b. Posting of Rate Increases
    Section 154.301(b)(3) currently provides that a State with an 
Effective Rate Review Program must ensure that information regarding 
rate increases is made available to the public at a uniform time for 
all proposed and final rate increases, as applicable, in the relevant 
market segment and without regard to whether coverage is offered on or 
off of an Exchange. That provision was codified in order to set a level 
playing field, to prevent issuers that submit rate filings later from 
having an advantage over their competitors that submitted rate filings 
earlier.
    Upon further analysis and input from stakeholders, including a 
comment we received in response to the Request for Information, we 
propose to eliminate the requirement for uniform posting by deleting 
paragraph (b)(3). This would permit States that have an Effective Rate 
Review Program to post proposed and final rate filing information on a 
rolling basis. We believe that providing this flexibility better 
accords with State laws and historical practices. Prior to the 
introduction of the Federal rate review program, many States received 
and posted rate filing information on a rolling basis. Some State laws 
conflict with the Federal uniform posting requirement and require 
posting of rate filing information upon receipt. In addition, several 
States faced challenges due to information systems that were unable to 
suppress rate filing information until a later date.
    Under this proposal, States with Effective Rate Review Programs 
would continue to be required to provide access from their respective 
Web sites to at least the same information from the rate filing that we 
make available on our Web site (or provide our web address for such 
information). Further, such States must have a mechanism for receiving

[[Page 51081]]

public comments on proposed rate increases subject to review and must 
post the required rate filing information by the applicable deadlines 
established under Sec.  154.301(b)(1).
    We would need to coordinate with States to continue collecting 
preliminary rate filing information and final rate determinations to 
comply with the statutory requirement under section 2794(b)(2)(A) of 
the PHS Act to monitor premium increases of health insurance coverage 
offered inside and outside of the Exchanges. This coordination would 
also be important to support compliance under section 1311(e)(2) of the 
PPACA for the FFEs to take into consideration State recommendations 
provided under section 2794(b)(1) of the PHS Act when certifying QHPs, 
as well as information on any excess premium growth outside of 
Exchanges as compared to inside the Exchanges. We would continue to 
post proposed and final rate changes at http://ratereview.HealthCare.gov at a uniform time, consistent with current 
practices and Sec.  154.215(h).
    We solicit comment on these proposals for posting of rate 
increases.

D. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act

1. Standardized Options (Sec.  155.20)
    In the 2017 Payment Notice, HHS introduced standardized options 
(also now referred to as Simple Choice plans). A standardized option is 
a QHP offered for sale through an individual market Exchange that 
either has a standardized cost-sharing structure specified by HHS in 
rulemaking or has a standardized cost-sharing structure specified by 
HHS in rulemaking that is modified only to the extent necessary to 
align with the high deductible health plan (HDHP) requirements under 
section 223 of the Code or the applicable annual limitation on cost 
sharing and HHS actuarial value requirements. For the 2017 and 2018 
benefit years, HHS specified standardized options in rulemaking, 
encouraged issuers to offer such plans and provided differential 
display of these plans on HealthCare.gov.
    We seek to encourage free market principles in the individual 
market, and to maximize innovation by issuers in designing and offering 
a wide range of plans to consumers. We have heard concerns that 
providing differential display for these plans may limit enrollment in 
coverage with plan designs that do not match the standardized options, 
removing incentives for issuers to offer coverage with innovative plan 
designs. We believe that encouraging innovation is especially important 
now, given the stresses faced by the individual market. Therefore, we 
are proposing not to specify any standardized options for the 2019 
benefit year, and not to provide differential display for standardized 
options on HealthCare.gov. If this proposal is finalized, agents, 
brokers and issuers that assist consumers with QHP selection and 
enrollment as described in Sec.  155.220(c)(3) and Sec.  156.265(b), 
respectively, would also not be required to provide differential 
display for standardized options on those third-party Web sites.
    We seek comment on this proposal.
2. General Standards Related to the Establishment of an Exchange
a. Flexibility for State-Based Exchanges and State-Based Exchanges on 
the Federal Platform (Sec.  155.106 and Sec.  155.200)
    While the PPACA allowed each State to operate its own SBE, 
currently, 11 States and the District of Columbia operate their own 
Exchanges, five States utilize the SBE-FP model, and FFEs operate in 
the remaining 34 States. We seek to support innovation by States 
operating SBEs by providing opportunities for increased program 
flexibilities to help support the retention and financial self-
sustainability of States participating in the SBE model. In particular, 
we seek comment on how HHS can best support SBE efforts to utilize 
commercial platform services, including what type of technical support 
would be useful and what, if any, specific regulatory changes would 
facilitate the use of these services.
    We also propose to explore strategies to make the SBE-FP model more 
appealing and viable to States with FFEs, as well as to support 
retention of existing SBE-FPs. As codified in the 2017 Payment Notice, 
the SBE-FP model allows States to establish the legal status of their 
Exchanges as SBEs while leveraging the economies of scale available 
through the Federal eligibility and enrollment platform and information 
technology infrastructure. The SBE-FP model offers States opportunities 
to retain more control over their Exchanges than if an FFE operated in 
the State, as it allows them to control plan management and consumer 
assistance activities, without the additional responsibility of 
building the infrastructure required to operate an IT eligibility and 
enrollment platform. Accordingly, we seek to explore options for 
streamlining current requirements and leveraging private sector and 
Federal platform technologies and advances to increase opportunities 
for those States interested in remaining or becoming SBE-FPs.
    As discussed in prior rulemaking, due to operational limitations, 
HHS is unable at this time to offer a ``menu'' of Federal services from 
which an SBE-FP may select some, but not other, services on the Federal 
platform. However, we have stated in previous rules that we would 
explore the availability of new capabilities of the Federal platform to 
customize particular functionalities. We intend to continue to explore 
additional areas where current authority, technology, and operational 
capacities would permit HHS to provide additional options in 
operational functions to SBE-FPs and provide SBE-FPs with a greater 
role in decision-making. Those areas include allowing SBE-FPs greater 
access to enrollment data and operational statistics to enable States 
to more effectively design their local outreach and education 
strategies, providing SBE-FPs access to personally identifiable 
consumer data to assist the FFE with conducting resource-intensive 
consumer assistance activities such as data matching issues or special 
enrollment period verifications, and exploring branding opportunities 
for SBE-FPs to make their role more visible, including potential State-
specific landing pages on HealthCare.gov. We seek comment on these 
options, as well as other activities that SBE-FPs could undertake that 
would strengthen and enhance the SBE-FP model.
b. Election To Operate an Exchange After 2014 (Sec.  155.106)
    Section 155.106 describes the process for a State electing to 
operate an SBE, for a State terminating its SBE and transitioning to an 
FFE, and for a State seeking to operate an SBE-FP. This section applies 
to both individual market and SHOP Exchanges. Currently, under Sec.  
155.106(c), as finalized in the 2017 Payment Notice, States can elect 
to operate an individual market SBE-FP, an SBE-FP for SHOP, or both. If 
a State operates an SBE-FP for SHOP, the SBE-FP utilizes the Federal 
platform for enrollment, eligibility, and premium aggregation services.
    As discussed more fully in section III.D.7 of this proposed rule, 
we are proposing changes to required SHOP functionality, effective on 
the effective date of the final rule, if finalized as proposed, for 
plan years beginning on or after January 1, 2018, under which qualified 
employers and employees could enroll in SHOP plans by working with a 
QHP issuer or SHOP-registered agent or broker. If these proposals are

[[Page 51082]]

finalized as proposed, many Federal platform services currently 
available to a State operating an SBE-FP would no longer exist, 
including employee eligibility, enrollment, and premium aggregation 
services. Therefore, States operating an SBE-FP for SHOP would no 
longer be able to utilize the Federal platform for those functions.
    If the proposed changes reducing SHOP requirements for SHOP 
functionality are finalized as proposed, we propose to amend Sec.  
155.106(c) to remove the option for States to seek approval to operate 
an SBE-FP for SHOP after the effective date of the final rule. 
Nonetheless, States that are currently operating an SBE-FP for SHOP, 
which include Kentucky and Nevada, could maintain their existing SBE-
FPs for SHOP, using the Federal platform functionality that would 
remain if the proposals regarding SHOP functionality are finalized as 
proposed and subject to the applicable requirements in Sec.  
155.200(f)(4), which we also have proposed to amend to align with the 
proposed changes to SHOP functionality requirements. Issuers in these 
SBE-FPs for SHOP would continue to be subject to Sec.  156.350, which 
we have also proposed to amend to align with the proposed changes to 
SHOP functionality requirements. For those issuers that offer SHOP QHPs 
in SBE-FPs for SHOP beginning on or after January 1, 2018, the expected 
burden (as well as expected reduction in burden) should be similar to 
that of issuers in the FF-SHOPs.
    We seek comment on all aspects of this proposal.
c. Additional Required Benefits (Sec.  155.170)
    Section 1311(d)(3)(B) of the PPACA permits a State, at its option, 
to require QHPs to cover benefits in addition to the EHB, but requires 
a State to make payments, either to the individual enrollee or to the 
issuer on behalf of the enrollee, to defray the cost of these 
additional State-required benefits. In previous rulemaking, we directed 
States to identify additional State-required benefits that are subject 
to defrayal and provided direction on how States must calculate the 
cost of those benefits.\35\
---------------------------------------------------------------------------

    \35\ See the EHB Rule, available at https://www.gpo.gov/fdsys/pkg/FR-2013-02-25/pdf/2013-04084.pdf. Also see the 2016 Payment 
Notice Final Rule, available at https://www.gpo.gov/fdsys/pkg/FR-2015-02-27/pdf/2015-03751.pdf. and the 2017 Payment Notice Final 
Rule, available at https://www.gpo.gov/fdsys/pkg/FR-2016-03-08/pdf/2016-04439.pdf.
---------------------------------------------------------------------------

    At Sec.  156.111 of this proposed rule, we make a number of 
proposals related to State changes to EHB-benchmark plans beginning for 
the 2019 plan year. In light of those proposals, we are affirming that 
we are not proposing any changes to the policies governing State-
required benefits at Sec.  155.170. Under any of the proposed methods 
for a State to select a new EHB-benchmark plan, benefits mandated by 
State action prior to or on December 31, 2011 could be considered EHB 
according to the continuing policy described above and would not 
require State defrayal. However, State-required benefits mandated by 
State action taking place after December 31, 2011, other than for 
purposes of compliance with Federal requirements, would continue to be 
considered in addition to EHB under this continuing policy even if 
embedded in the State's newly selected EHB-benchmark plan under the 
proposals at Sec.  156.111, and their costs would accordingly be 
required to be defrayed by the State. Therefore, whether a State 
mandate could be considered EHB is dependent on when the State enacted 
the mandate.
    As discussed more in the preamble for Sec.  156.111, we propose 
that Sec.  155.170 would continue to apply in the same manner as it 
currently applies to Sec.  156.110 and that the proposed Sec.  156.111, 
which offers States the flexibility to select a new EHB-benchmark plan, 
would not remove the obligations required under the proposed Sec.  
156.111(a)(3) with regard to maximum allowed generosity for a State's 
EHB-benchmark plan. For further discussion of how the State mandate 
policy at Sec.  155.170 would apply to EHB under the proposals at Sec.  
156.111 supplying States with options to select a new EHB-benchmark 
plan for plan years beginning in 2019 and later, see the preamble to 
Sec.  156.111.
    We solicit comments regarding State mandates and our proposal to 
apply Sec.  155.170 in the same manner as it currently applies to Sec.  
156.110 to the options proposed at Sec.  156.111, which would allow 
States to select new EHB-benchmark plans. Specifically, we are 
interested in comments on different applications of the State mandate 
policy to the proposed policy for EHB-benchmark plan selections at 
Sec.  156.111 that would increase State flexibility, while also being 
cost effective for States, consumers, and the Federal government, such 
as allowing States the flexibility to update benefits mandated by State 
action prior to or on December 31, 2011, that are considered EHB if the 
State can prove that the update to the State mandate is budget neutral.
3. General Functions of an Exchange
a. Functions of an Exchange (Sec.  155.200)
    The 2017 Payment Notice finalized requirements at Sec.  
155.200(f)(2) for SBE-FPs to establish and oversee certain requirements 
for their QHPs and QHP issuers that are no less strict than the 
requirements that apply to QHPs and QHP issuers on an FFE. Due to the 
operational complexities in implementing these requirements from both 
the State and Federal perspective, and to promote the goal of returning 
regulatory authority over the insurance markets to States, we propose 
to eliminate requirements for SBE-FPs to enforce FFE standards for 
network adequacy at Sec.  155.200(f)(2)(ii) and essential community 
providers at Sec.  155.200(f)(2)(iii). Instead, we propose that the 
SBE-FPs, like other SBEs, would have the flexibility to determine how 
to implement the network adequacy and essential community provider 
standards with which issuers offering QHPs through the SBE-FP must 
comply. We believe SBE-FPs are best positioned to determine these 
standards for the QHP certification process in their States, and that 
the removal of the requirement that SBE-FPs establish and oversee 
requirements for their issuers that are no less strict that the manner 
in which these regulatory requirements are applied to FFE issuers would 
streamline certain aspects of the QHP certification process, and return 
traditional insurance market regulatory authority to the States. 
Additionally, HHS is proposing elsewhere in this proposed rule that, 
for 2019 plan years and later, the FFEs would rely on State reviews of 
network adequacy standards where the States have been determined to 
have an adequate review process. Accordingly, we believe similar 
deference should be granted to States with SBE-FPs. We believe these 
changes would further empower SBE-FPs to use their QHP certification 
authority to encourage issuers to stay in the Exchange, enter the 
Exchange for the first time, or expand into additional service areas.
    We also are proposing to remove the requirement at Sec.  
155.200(f)(2)(iv) that QHP issuers in SBE-FPs comply with the Federal 
meaningful difference standard to reflect the proposal to remove Sec.  
156.298 described elsewhere in this rule.
    Section 155.200(f)(4) describes requirements for States that 
operate an SBE-FP for SHOP. As discussed above, although we are 
proposing that States can no longer elect to operate SBE-FPs for SHOP 
after the effective date of the final rule, if finalized as proposed, 
Kentucky and Nevada are already

[[Page 51083]]

approved to operate SBE-FPs for SHOP, and thus the requirements in 
Sec.  155.200(f)(4) could remain relevant for those SBE-FPs for SHOP. 
We therefore propose to amend Sec.  155.200(f)(4) to reflect the 
proposed amendments (described in section III.D.7 of this proposed 
rule) under which the functionality of the FF-SHOPs' platform would be 
reduced for plan years beginning on or after January 1, 2018. 
Specifically, we propose to amend the introductory text to Sec.  
155.200(f)(4) to describe the requirement applicable, effective on the 
effective date of the final rule, if finalized as proposed, for plan 
years beginning on January 1, 2018 and beyond, and to make the 
requirements in paragraphs (f)(4)(i) through (vii), effective on the 
effective date of the final rule, if finalized as proposed, applicable 
for only plan years beginning prior to January 1, 2018.
    Specifically we propose that the requirements in (f)(4)(i) and 
(iv), which require SBE-FPs for SHOP to align their premium payment and 
employer contribution calculation methodologies with those used by the 
Federal platform, would not apply for plan years beginning on or after 
January 1, 2018, effective on the effective date of the final rule, if 
finalized as proposed. Because under our proposed amendments to Sec.  
155.705 and proposed introduction of Sec.  155.706, for plan years 
beginning on or after January 1, 2018, the Federal platform for SHOP 
would no longer calculate premium rates or employer contributions, and 
would no longer aggregate premium payments (as of the effective date of 
the final rule, if finalized as proposed), there would be no further 
need for such alignment for plan years beginning on or after January 1, 
2018.
    Because under our proposed approach the Federal platform would 
continue to include plan display with premium amounts, we do not 
propose changes to the requirement that States operating an SBE-FP must 
require its QHP issuers to make any changes to rates in accordance with 
the timeline applicable in a Federally-facilitated SHOP under current 
Sec.  155.705(b)(6)(i)(A), which regulation is mirrored in our proposed 
introduction of Sec.  155.706(b)(6)(i)(A). However, we propose to 
specify that this requirement applies in the introductory text to 
(f)(4), to reflect the proposed change to make the requirements in 
(f)(4)(i) through (vii) applicable for only plan years beginning prior 
to January 1, 2018, effective on the effective date of the final rule, 
if finalized as proposed.
    Additionally, because under our proposed approach, for plan years 
beginning on or after January 1, 2018, the Federal platform would, 
effective on the effective date of the final rule, if finalized as 
proposed, no longer calculate whether a qualified employer has met the 
applicable minimum participation rate, there would no longer be any 
need for States operating an SBE-FP for SHOP to align their minimum 
participation rate requirements and calculation methodologies with 
those applicable in the FF-SHOPs for plan years beginning on or after 
January 1, 2018. We therefore propose that this requirement would only 
apply for plan years beginning prior to January 1, 2018, effective on 
the effective date of the final rule, if finalized as proposed.
    To align with our proposed amendments at Sec.  155.725 and proposed 
new section Sec.  155.726, under which the FF-SHOPs, effective on the 
effective date of the final rule, if finalized as proposed, for plan 
years beginning on or after January 1, 2018, would no longer establish 
annual employee open enrollment periods, or establish effective dates 
of coverage for an initial group enrollment or group renewal, we also 
propose that the requirements in Sec.  155.200(f)(4)(v) and (vi) would 
only apply for plan years beginning prior to January 1, 2018, effective 
on the effective date of the final rule, if finalized as proposed. 
Finally, to align with our proposed amendments at Sec.  155.735, under 
which the FF-SHOP, effective on the effective date of the final rule, 
if finalized as proposed, for plan years beginning on or after January 
1, 2018, would no longer determine the timing, form, and manner in 
which coverage or enrollment in a SHOP QHP may be terminated, we 
propose that the requirement in Sec.  155.200(f)(4)(vii) would only 
apply for plan years beginning prior to January 1, 2018, effective on 
the effective date of the final rule, if finalized as proposed.
    We seek comment on these proposals.
b. Navigator Program Standards (Sec.  155.210)
    Each Exchange is required under section 1311(d)(4)(K) and 1311(i) 
of the PPACA to establish a Navigator program under which it awards 
grants to entities that, among other things: Conduct public education 
activities to raise awareness of the availability of QHPs, distribute 
fair and impartial information concerning enrollment in QHPs and the 
availability of premium tax credits and CSRs, and facilitate enrollment 
in QHPs. Under section 1311(i)(2)(B) of the PPACA, these entities may 
include trade, industry, and professional associations; commercial 
fishing industry organizations; ranching and farming organizations; 
community and consumer-focused nonprofit groups; chambers of commerce; 
unions; resource partners of the Small Business Administration; other 
licensed insurance agents and brokers; and other entities that meet the 
statutory requirements at section 1311(i)(3), (4), and (5) of the 
PPACA.
    Currently, Sec.  155.210(c)(2) specifies that each Exchange must 
include among its Navigator grantees both a community and consumer-
focused nonprofit group and at least one other entity that is from one 
of the other categories listed at Sec.  155.210(c)(2), including other 
public or private entities or individuals that meet the requirements of 
Sec.  155.210. Section 155.210(c)(2)(viii) specifies that these other 
entities may include Indian tribes, tribal organizations, urban Indian 
organizations, and State or local human service agencies.
    To maximize the flexibility and efficiency of the Navigator 
program, we propose to amend Sec.  155.210(c)(2) to remove the 
requirements that each Exchange must have at least two Navigator 
entities and that one of these entities must be a community and 
consumer-focused nonprofit group. We believe removing these 
requirements would provide Exchanges with improved flexibility to award 
funding to the number and type of entities that would be most effective 
for the specific Exchanges. Eliminating the requirement to have at 
least two Navigator entities would allow each Exchange to optimally use 
the funding amounts available, which may include selecting a single, 
high performing grantee in an Exchange.
    The requirement that one Navigator grantee in each Exchange must be 
a community and consumer-focused nonprofit group may unnecessarily 
limit an Exchange's ability to award grants to the strongest 
applicants. Additionally, if we finalize our proposal to permit an 
Exchange to have only one Navigator grantee but retain the requirement 
regarding community and consumer-focused nonprofit groups, this 
requirement could effectively exclude any other type of statutorily 
eligible entities from becoming Navigators. Eliminating this 
requirement would provide Exchanges with the flexibility to target 
grants to the highest scoring and performing entities, regardless of 
organization type.
    Removing these requirements at Sec.  155.210(c)(2) would also 
promote Exchange flexibility and autonomy to structure Navigator 
programs tailored to each Exchange. An Exchange could award a grant to 
a single Navigator

[[Page 51084]]

entity from any of the permitted types. Alternatively, Exchanges could 
elect to continue awarding two or more grants, as they have been doing 
thus far, and include a community and consumer-focused nonprofit group 
among those grantees.
    Section 155.210(e)(7) requires each Navigator entity to maintain a 
physical presence in the Exchange service area, so that face-to-face 
assistance can be provided to applicants and enrollees. We propose to 
remove this requirement to provide more flexibility to each Exchange to 
structure its Navigator program to best serve the Exchange service 
area. Under section 1311(i)(2)(A) of the PPACA and Sec.  
155.210(c)(1)(ii), entities seeking to become Navigator grantees must 
demonstrate to the Exchange that they have existing relationships, or 
could readily establish relationships, with employers and employees, 
consumers (including uninsured and underinsured consumers), or self-
employed individuals likely to be eligible for enrollment in a QHP. 
Consistent with those provisions, Navigator grant applicants in the 
FFEs are scored on their ability to make this demonstration. Based on 
HHS's experience with Navigator programs in FFEs and other public 
programs, we believe entities with a physical presence and strong 
relationships in their FFE service areas tend to deliver the most 
effective outreach and enrollment results. However, we believe that 
each Exchange is best suited to determining the weight to give a 
physical presence in the Exchange service area when selecting Navigator 
entities, as long as the Exchange's Navigator grantee selection process 
is consistent with section 1311(i)(2)(A) of PPACA and Sec.  
155.210(c)(1)(ii).
    These proposals are intended to maximize flexibility for each 
Exchange in awarding Navigator grants. We seek comment on statutorily 
acceptable alternative types of entities that could serve as Navigators 
and possible new ways in which Navigators could carry out their duties.
    For reasons similar to those motivating our proposed changes to 
Sec.  155.210(e)(7), as well as to promote consistency across programs, 
we propose to remove the corresponding requirement at Sec.  155.215(h) 
that requires maintenance of a physical presence in the Exchange 
service area by all non-Navigator entities subject to Sec.  155.215.
    In addition to the requirement to maintain a physical presence in 
the Exchange service area, Sec. Sec.  155.210(e)(7) and 155.215(h) 
currently provide that, in an FFE, no individual or entity is 
ineligible to operate as a Navigator or non-Navigator assistance 
personnel solely because its principal place of business is outside of 
the Exchange service area. We note that there is also a corresponding 
provision applicable to certified application counselors and certified 
application counselor organizations at Sec.  155.225(b)(3). We are not 
proposing changes to these provisions. We codified these provisions due 
to concerns about non-Federal requirements that these types of 
assisters maintain their principal place of business in the State (79 
FR 30273-30274), and we continue to have these concerns.
    We solicit comments on all aspects of these proposals.
c. Standards Applicable to Navigators and Non-Navigator Assistance 
Personnel Carrying Out Consumer Assistance Functions Under Sec. Sec.  
155.205(d) and (e) and 155.210 in a Federally-Facilitated Exchange and 
to Non-Navigator Assistance Personnel Funded Through an Exchange 
Establishment Grant (Sec.  155.215)
    For a discussion of the provisions of this proposed rule related to 
standards applicable to non-Navigator Assistance Personnel subject to 
Sec.  155.215, please see the preamble to Sec.  155.210.
d. Standards for Third-Party Entities To Perform Audits of Agents, 
Brokers, and Issuers Participating in Direct Enrollment (Sec.  155.221)
    In the 2018 Payment Notice, we implemented an approach for an HHS-
approved third party to conduct onboarding operational readiness 
reviews and audits authorized by Sec.  155.220(c)(5), specific to use 
of the direct enrollment pathway by agents and brokers registered with 
the FFEs. HHS proposes new standards in this rule to replace the 
standards set forth in the 2018 Payment Notice for Sec.  155.221. HHS 
also proposes to expand the applicability of this section to require 
issuers, in addition to agents and brokers, participating in direct 
enrollment to engage third-party entities to conduct the required 
operational readiness reviews. We propose a conforming edit to Sec.  
156.1230(b)(2) to reflect this proposal.
    HHS is proposing to implement an approach wherein agents, brokers, 
and issuers that participate in direct enrollment and use their own 
Internet Web site for QHP selection or to complete the Exchange 
eligibility application would select their own third-party entities for 
conducting audits, rather than requiring HHS to initially review and 
approve these entities. HHS anticipates this approach would reduce the 
regulatory burden on agents, brokers, and issuers by allowing the 
opportunity to choose an auditor or use an existing auditor. In 
addition, HHS anticipates that agents, brokers, and issuers already 
conduct audits for compliance with HHS requirements, and implementing 
this program would reduce duplicative HHS oversight. This approach 
would also reduce the burden on third-party entity reviewers, as the 
entities would no longer need to apply for HHS-approval to perform 
operational readiness reviews. HHS believes this approach would expand 
the available number of qualified third-party entities to perform the 
audits, thereby enabling more agents, brokers and issuers to 
demonstrate operational readiness to participate in direct enrollment. 
We believe this would expand consumer access to direct enrollment 
pathways for enrolling in Exchange coverage. The proposed approach 
would also reduce the burdens on HHS by no longer requiring the 
establishment of a Federal application, approval and appeals process 
for these entities to conduct operational readiness reviews. HHS 
anticipates this approach would allow more flexibility for private 
entities to respond to potential changes and HHS requirements as HHS 
considers future enhancements to the direct enrollment pathway. Under 
this proposal, agents, brokers and issuers must select an auditor who 
meets the requirements described in the proposed amendments to Sec.  
155.221(b), such as privacy and security experience, to perform a 
review to demonstrate operational readiness as required under Sec.  
155.220(c)(3)(i)(K) and Sec.  156.1230(b)(2).
    We propose to replace Sec.  155.221(a) with a new paragraph to 
require agents, brokers, and issuers to select a third-party entity 
that meets the proposed standard outlined in the new Sec.  155.221(b), 
described below, to perform these operational readiness reviews, 
instead of restricting the availability to third-party entities that 
have been pre-approved by HHS. Specifically, Sec.  155.221(a) would 
require that the agent, broker, or issuer engage a third-party entity 
that meets the standards outlined in the new Sec.  155.221(b) to 
conduct an annual operational readiness review prior to participating 
in direct enrollment. Consistent with Sec.  155.220(c)(3)(i)(K) and 
Sec.  156.1230(b)(2), the operational readiness review would be 
performed using the third parties' own audit processes and methods 
subject to HHS-defined specifications and

[[Page 51085]]

requirements. The third-party entity's review would verify compliance 
by the agent, broker, or issuer with the applicable requirements in 
Sec. Sec.  155.220, 155.260, 156.265, and 156.1230, and would need to 
be completed prior to the use of the agent, broker or issuer Internet 
Web site for submission of an Exchange application or completion of QHP 
selection. HHS would publish technical guidance outlining the review 
standards and other operational details, as well as provide other 
resources to assist the third-party entities in conducting the reviews 
at a later date. The new proposed paragraph (a) also provides that the 
third-party entity would be a downstream or delegated entity of the 
agent, broker or issuer that participates or wishes to participate in 
direct enrollment. Therefore, these third-party entities would be 
subject to HHS oversight as delegated or downstream entities of an 
agent, broker, or issuer, and the agent, broker, or issuer would remain 
responsible for compliance with all applicable direct enrollment 
requirements.
    HHS proposes revising Sec.  155.221(b) to modify the standards that 
third-party entities must satisfy to perform the reviews to demonstrate 
operational readiness under Sec.  155.220(c)(3)(i)(K) and Sec.  
156.1230(b)(2). HHS proposes replacing the introductory language at 
Sec.  155.221(b) with new language to align with the new proposed 
approach where the agent, broker, or issuer selects the third-party 
entity to perform the audit under paragraph (a) and remove the 
requirement for approval of these entities by HHS. New Sec.  
155.221(b)(1) would remove the requirement that an entity must submit 
its application to HHS; instead we propose to require the entity to 
have experience conducting audits or similar services, including 
specific experience with relevant privacy and security standards due to 
the operational requirements of the current direct enrollment processes 
and any potential future enhancements. This would include demonstrated 
experience with current National Institute of Standards and Technology 
(NIST) SP 800-53 or the HIPAA Security Rule standards, and the review 
of compliance with those standards. Auditors must also be capable of 
performing penetration testing on all interfaces that collect 
personally identified information or connect with HHS. We propose 
modifying Sec.  155.221(b)(2) to include issuers participating in 
direct enrollment and to expand the scope of the audit to also include 
review of compliance with other applicable program requirements (for 
example, Web site design, or consumer disclosures). We propose to 
modify Sec.  155.221(b)(3) to require the auditor to collect, store, 
and share with HHS all data related to its audits of agents, brokers, 
and issuers under paragraph (a) in a manner, format, and frequency 
specified by HHS until 10 years from the date of creation. The proposed 
amendments to paragraph (b)(3) also require the auditor to comply with 
the privacy and security standards HHS adopts for agents, brokers, and 
issuers as required in accordance with Sec.  155.260.
    Further, HHS proposes adding new paragraph (b)(4) to implement a 
conflict of interest standard that requires disclosure of financial 
relationships between a third-party entity conducting a direct 
enrollment operational readiness review and the agent, broker, or 
issuer. We also propose to add Sec.  155.221(b)(5) to require 
compliance by the third-party entity with all applicable Federal and 
State requirements, and to add Sec.  155.221(b)(6) to require the 
third-party entity to ensure, on an annual basis, that appropriate 
staff successfully complete operational readiness review training as 
established by HHS prior to conducting audits under paragraph (a) of 
this section. The training would provide information about compliance, 
direct enrollment technical requirements, applicable privacy and 
security standards, and reporting requirements.
    Under proposed Sec.  155.221(b)(7), a third-party entity would be 
required to permit access by the Secretary and the Office of the 
Inspector General (OIG), or their designees, in connection with their 
right to evaluate through audit, inspection, or other means, to the 
third-party entity's books, contracts, computers, or other electronic 
systems, relating to the third-party entity's audits of agents, 
broker's, or issuer's obligations in accordance with Federal standards 
under paragraph (a) of this section until 10 years from the date of 
creation. This is intended to align with the existing obligation on QHP 
issuer downstream and delegated entity requirements under Sec.  
156.340(b) to cooperate with HHS and OIG audits, investigations, or 
other reviews. Proposed new paragraph (b)(8) would require compliance 
with other minimum business criteria specified in guidance by HHS.
    To provide agents, brokers, and issuers with flexibility, HHS 
proposes replacing Sec.  155.221(c) with a new paragraph to permit an 
agent, broker, or issuer participating in direct enrollment to engage 
multiple third-party entities to perform the audits under paragraph (a) 
and to clarify that each such third-party entity will need to 
separately comply with the standards proposed under paragraph (b).
    HHS proposes deleting paragraphs Sec.  155.221(d) (regarding a list 
of HHS-approved entities) and (e) (regarding an appeals process for 
entities that were not approved) to conform to the other proposed 
changes in this section.
    We solicit comments on these proposals, and general feedback on the 
direct enrollment process to inform the development of future direct 
enrollment operational and oversight standards, including improvements 
to the pathway to further expand access to coverage.
4. Exchange Functions in the Individual Market: Eligibility 
Determinations for Exchange Participation and Insurance Affordability 
Programs
a. Eligibility Standards (Sec.  155.305)
    Section Sec.  155.305(f)(4)(i) prohibits an Exchange from 
determining a consumer is eligible for APTC if APTC payments were made 
on behalf of the tax filer for the consumer's household (or either 
spouse, if the tax filer is married) for a previous year for which tax 
data would be utilized for verification of household income and family 
size, and the tax filer or his or her spouse did not comply with the 
requirement to file an income tax return and reconcile APTC received 
for that year. Under the current regulation at paragraph (f)(4)(ii), 
Exchanges cannot discontinue APTC due to the failure to file and 
reconcile associated APTC unless direct notification is first sent to 
the tax filer that his or her eligibility will be discontinued as a 
result of the tax filer's failure to comply with the requirement 
specified under paragraph (f)(4)(i) of Sec.  155.305.
    We propose to amend Sec.  155.305(f)(4) by removing the direct 
notification requirement in paragraph (f)(4)(ii) and revising the 
remaining paragraph (f)(4) to move the content in paragraph (f)(4)(i) 
into paragraph (f)(4).
    Upon further examination, we have determined that notification 
practices in place prior to adoption of the direct notification 
requirement provide sufficient clarity for consumers prior to action 
being taken to discontinue APTC. Specifically, these practices were to 
discontinue APTC by notifying the household contact that his or her 
eligibility will be discontinued as a result of the tax filer's failure 
to comply with the filing and reconciliation requirement.
    In past years, the FFEs have sent notifications to the household 
contact based on notification preference--electronically or at the 
address specified

[[Page 51086]]

when he or she submitted the application. Because of the restrictions 
on disclosing Federal tax information (FTI), these notices cited three 
possible reasons why a consumer may be at risk for losing APTC, one of 
which is failure to file and reconcile. In our experience operating the 
FFEs and the Federal eligibility and enrollment platform, the household 
contact may often be the same person as the tax filer on whose behalf 
APTC is paid; accordingly, since FFE notices have been sent to the 
household contact, we believe the notifications have been addressed, in 
many cases, to the person who is the tax filer for the household. In 
cases where the household contact has not been the tax filer, because 
the notification has been clear that it concerns eligibility for APTC, 
we expect that the household contact likely has shared the notice with 
the tax filer on whose behalf APTC was paid. As evidence that tax 
filers generally have received notification directly regarding their 
receipt of APTC and information that they have not satisfied the 
requirement to file and reconcile, this notification method has 
successfully resulted in tax filers for approximately 60 percent of 
households receiving the notification taking appropriate action to file 
a tax return and reconcile associated APTC. However, because tax filers 
for approximately 40 percent of households receiving the notification 
did not take appropriate action, HHS believes it is important for 
program integrity purposes that Exchanges discontinue APTC for tax 
filers who failed to file a tax return and reconcile after the notice 
was provided. If the Exchange discontinues APTC in connection with the 
requirement under paragraph Sec.  155.305(f)(4), the enrollee would 
have the right to appeal the discontinuation of APTC and maintain APTC 
during the appeal. Therefore, we propose to remove the direct 
notification requirement in Sec.  155.305(f)(4)(ii).
    We also believe this change could reduce burden on Exchanges. 
Absent this proposed change, in order to discontinue APTC for consumers 
who failed to file a tax return and reconcile their income taxes, 
Exchanges would be required to establish a mechanism through which to 
notify tax filers without making an unauthorized disclosure of 
protected FTI. Doing so could be financially and operationally 
burdensome and out of proportion to the limited need for FTI handling 
in Exchange notice generation functionality.
    As discussed above, we believe that removing the direct 
notification requirement will reduce the burden on Exchanges, while tax 
filers and households that have been identified as not meeting the 
requirement to file and reconcile will continue to receive adequate 
notice under the approach that Exchanges using the federal eligibility 
and enrollment platform have taken in past years. However, improving 
the clarity and overall effectiveness of this notification process is a 
priority, and we continue to explore ways to make the process even more 
robust and consumer-friendly, without unduly burdening the Exchanges. 
We may issue additional information about our notification process in 
the future as an aid to SBEs seeking to implement a more robust 
process.
    We seek comment on this proposal.
b. Verification Process Related to Eligibility for Insurance 
Affordability Programs (Sec.  155.320)
i. Income Inconsistencies
    Section Sec.  155.320(c)(3)(iii) sets forth the verification 
process for increases in household income. Generally, if income data 
from our electronic data sources indicate a tax filer's attested 
projected annual income is more than the income amount represented by 
income data returned by the IRS and the SSA and current income data 
sources, Sec.  155.320(c)(3)(iii) requires the Exchange to accept the 
attestation without further verification. Currently, Exchanges 
generally are not permitted to create inconsistencies for consumers 
when the consumer's attested income is greater than the amount 
represented by income data returned by IRS and the SSA and current 
income data sources.
    We propose to revise Sec.  155.320(c)(3)(iii) to specify that the 
Exchange will also generate annual income inconsistencies in certain 
circumstances when a tax filer's attested projected annual income is 
greater than the income amount represented by income data returned by 
IRS and the SSA and current income data sources. Current regulations 
generally require the Exchange to accept a consumer's attestation to 
projected annual household income when the attestation reflects a 
higher income than what is indicated in data from the IRS and Social 
Security Administration. This approach continues to make sense from a 
program integrity perspective when both the attestation and data from 
trusted data sources are over 100 percent Federal poverty level (FPL), 
since an attestation that is higher than data from trusted data sources 
in that situation would reflect a lower APTC than would be provided if 
the information from trusted data were used instead.
    However, where electronic data sources reflect income under 100 
percent FPL and a consumer attests to income between 100 percent FPL 
and 400 percent FPL, where the attested income exceeds the income 
reflected in trusted data sources by more than some reasonable 
threshold, we believe it would be reasonable to request additional 
documentation, since the consumer's attested income could make him or 
her eligible for APTC that would not be available using income data 
from electronic data sources. This proposal also would help limit tax 
filers' potential liability at tax reconciliation to repay excess APTC. 
Accordingly, we propose to add new paragraphs (c)(3)(iii)(D) and (E), 
and to modify paragraphs (c)(3)(vi)(C), (D), (F), and (G), to specify 
that the Exchange will follow the procedures in Sec.  155.315(f)(1) 
through (4) to create an annual income data matching issue for 
consumers if: (1) The consumer attested to projected annual income 
between 100 percent and 400 percent of the FPL; (2) the Exchange has 
data from IRS and SSA that indicates income is below 100 percent FPL; 
(3) the Exchange has not assessed or determined the consumer to have 
income within the Medicaid or CHIP eligibility standard; and (4) the 
consumer's attested projected annual income exceeds the income 
reflected in the data available from electronic data sources by a 
reasonable threshold established by the Exchange and approved by HHS. 
We propose that a reasonable threshold must not be less than 10 
percent, and can also include a threshold dollar amount. In accordance 
with the existing process in Sec.  155.315(f)(1) through (4), if the 
applicant fails to provide documentation verifying their income 
attestation, the Exchange would redetermine the applicant's eligibility 
for APTC and CSRs based on available IRS and SSA data, which under this 
proposal would typically result in discontinuing APTC and CSR as 
required in paragraph (c)(3)(vi)(G). The adjustment and notification 
process would work like other inconsistency adjustments laid out in 
paragraph (c)(3)(vi)(F).
    We propose to allow the Exchange to set the threshold for setting a 
data matching issue similar to Sec.  155.320(c)(3)(vi). We propose that 
a reasonable threshold should take into account that consumers with 
incomes near 100 percent FPL have a smaller margin for error in dollar 
terms. Therefore, a reasonable threshold might also include a fixed 
dollar amount in

[[Page 51087]]

addition to a percentage threshold. We seek comment on this proposal.
    In paragraph (c)(3)(vi)(D) we propose to make changes to provide 
consistency with changes finalized in the 2017 Payment Notice regarding 
the threshold for the generation of annual income data matching issues 
for decreases in annual household income. This proposed change would 
specify that the 10 percent threshold standard no longer applies to 
cases when a tax filer's attested projected income is less than all 
data sources, or when no electronic data sources are available. 
Instead, an Exchange would use the reasonable threshold established in 
accordance with Sec.  155.320(c)(3)(vi).
    We note, however, our interest in providing further guidance on the 
appropriate thresholds for the generation of data matching issues 
generally. It is our intent to reconsider and provide further guidance 
on these thresholds in the near future, and in anticipation of that 
effort we seek comment on the appropriate thresholds to use at various 
income levels and in various circumstances. In particular, we welcome 
data and evidence on this issue.
    We intend to address this issue as part of broader rulemaking and 
guidance on a number of related program integrity issues, including 
further examination of our processes for denying eligibility for 
subsidies for individuals who have failed to reconcile APTC on their 
Federal income tax return, Exchange processes for matching enrollment 
data with Medicare and Medicaid in order to remove duplicate 
enrollments, and our rules around recalculation of eligibility for APTC 
following a midyear change in eligibility. In anticipation of these 
actions, we seek comment generally on these and other program integrity 
topics.
ii. Verification of Eligibility for Employer Sponsored Coverage
    An employee, or a member of the employee's family, who is eligible 
to enroll in qualifying coverage in an eligible employer-sponsored plan 
is not eligible for a premium tax credit unless the plan's coverage for 
the employee is either unaffordable, as defined in section 
36B(c)(2)(C)(i)(II) of the Code, or does not provide minimum value, as 
defined in section 36B(c)(2)(C)(ii) of the Code. An employee (or member 
of the employee's family) also is not eligible if he or she actually 
enrolls in the employer-sponsored plan, even if the plan is not 
affordable or fails to provide minimum value.
    When an individual submits a request for an eligibility 
determination for insurance affordability programs, including as part 
of the eligibility verification process for APTC and CSRs, Sec.  
155.320(d) requires the Exchange to verify whether the applicant 
reasonably expects to be enrolled in an eligible employer-sponsored 
plan or is eligible for qualifying coverage in an eligible employer-
sponsored plan for the benefit year for which coverage is requested. 
Paragraph (d)(2) of Sec.  155.320 describes the data sources an 
Exchange must use to perform verification. Paragraph (d)(2)(i) requires 
an Exchange to obtain data from any electronic data sources that are 
available to the Exchange and which have been approved by HHS based on 
evidence showing that such data sources are sufficiently current, 
accurate, and minimize administrative burden. Paragraph (d)(2)(ii) 
requires that the Exchange also obtain available data based on Federal 
employment through HHS, and paragraph (d)(2)(iii) requires the Exchange 
to obtain available data from the SHOP that corresponds to the State in 
which the Exchange is operating. Under Sec.  155.320(d)(4), if an 
Exchange is unable to fulfill the requirement to connect to the data 
sources set forth in (d)(2), the Exchange is required to conduct 
sampling as described under paragraph (d)(4)(i), or--for benefit years 
2016 and 2017--it may conduct an HHS-approved alternative process 
instead of sampling, as provided under paragraph (d)(4)(ii).
    We propose to amend Sec.  155.320(d)(4) to allow an Exchange to 
conduct an HHS-approved alternative process instead of sampling, as 
provided under paragraph (d)(4)(ii), for benefit years through 2019. 
When we introduced this option for benefit years 2016 and 2017, we 
received comments that encouraged us to make this option permanent. 
However, at the time we stated that we believed the alternative process 
should be used as an interim measure to gather information about the 
verification process as Exchanges improve their long-term verification 
programs.\36\ We also stated that we believed the temporary option 
would provide Exchanges with needed flexibility as verification 
processes are refined and employer databases compiled, to improve long-
term verification programs. While Exchanges have since gained greater 
access to data and explored approaches to sampling, challenges remain. 
To reduce regulatory burdens on Exchanges while they address remaining 
hurdles to developing a long-term approach to verification, we believe 
the option to use an alternative process instead of sampling should be 
extended through plan year 2019.
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    \36\ 81 FR 12203, 12269 (March 8, 2016).
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    After the option to use an alternate process for benefit years 2016 
or 2017 was finalized, HHS investigated the feasibility of connecting 
to a comprehensive database of information on employer-sponsored 
coverage that could be used by all Exchanges to fulfill verification 
requirements under Sec.  155.320(d)(2)(i). Such a database would be 
most useful and cost-effective if it contained information on employer-
sponsored coverage from as many non-Federal and non-SHOP employers as 
possible. We found that a comprehensive database does not currently 
exist and building such a database would be a resource-intensive 
endeavor. In addition, employers are not required to provide 
information to Exchanges or HHS regarding the coverage they offer, 
potentially limiting the completeness of such a database.
    Because of the current challenges associated with building an HHS-
approved database that is sufficiently complete and accurate to satisfy 
requirements under paragraph (d)(2)(i), we anticipate many Exchanges 
will fulfill verification requirements using an alternate process, as 
described under paragraph (d)(4). And, in recognition of the challenges 
that Exchanges may encounter with conducting sampling, as explained 
below, we propose to extend the option for Exchanges to conduct an 
alternative process to sampling through benefit year 2019. Our hope is 
that Exchanges can continue to compile databases sufficient to meet 
verification requirements under paragraph (d)(2) and to continue to 
refine their approaches to sampling to meet verification requirements 
under paragraph (d)(4)(i).
    In accordance with the requirement at paragraph (d)(4) to pursue an 
alternate process, the FFE conducted a pilot study that incorporated 
many components of sampling. The pilot was intended to assess 
sampling's value protecting the integrity of the attestation process 
regarding applicant access to and enrollment in employer-sponsored 
coverage. As part of this sampling pilot, employers for a small sample 
of enrollees receiving APTC through the FFE were contacted by 
telephone, based on the employer contact information applicants 
provided on their Exchange applications, and asked whether specified 
employees were also enrolled in a qualifying employer-sponsored plan or 
were offered qualifying coverage in an employer-sponsored plan. The FFE 
collected information by contacting employers' human resources 
personnel.

[[Page 51088]]

    Sampling may be a lower cost option for SBEs compared to FFEs. For 
example, the FFE operates Exchanges for 38 States, and the volume of 
employers that the FFE encompasses may inherently present challenges in 
relying on sampling results that States may not face. Some states may 
collect and have access to data from employers that makes verifying 
consumers' attestations more efficient and reliable, or may have 
existing channels through which they can communicate with in-State 
employers. Therefore, we are maintaining the option to use sampling as 
an alternate method of verification under paragraph (d)(4) to allow 
SBEs maximum flexibility. We expect that the proposed change to 
paragraph (d)(4) to allow Exchanges to continue to use an HHS-approved 
alternative process to sampling through plan year 2019 will provide 
Exchanges with important flexibility to conduct the most efficient, 
reliable alternate method of verification as Exchanges refine their 
approaches to conducting sampling over time, and until data sources 
exist that provide an effective way to verify consumers' enrollment in 
or access to qualifying employer-sponsored coverage. If SBEs use an 
alternative process to sampling to conduct verification under paragraph 
(d)(4)(ii), the process must be approved by HHS. To be approved by HHS, 
we expect an Exchange to develop an alternate process that provides 
insight into whether employees provide accurate information or the 
Exchange effectively verifies information about enrollment in and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan.\37\ This requires Exchanges to conduct reliable and sufficient 
verification, while giving them the flexibility to find the most 
efficient ways of doing so for their Exchange.
---------------------------------------------------------------------------

    \37\ 81 FR 94058, 94125 (December 22, 2016).
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    We note that to the extent an Exchange believes an alternate 
process to verification through data sources other than those described 
under paragraph (d)(2) may result in a more efficient or comprehensive 
verification procedure, the Exchange may also, in accordance with 
Sec. Sec.  155.315(h) and 155.320(a)(2), request HHS approval for use 
of an alternate process for verifying enrollment in and access to 
employer sponsored coverage. We note that HHS received support for 
providing flexibility for the use of alternate data sources by 
Exchanges in comments to the Request for Information. For example, we 
received comments indicating that, for some Exchanges, due to the 
limited number of Federal employees in their State, connecting to the 
database containing data on Federal employment provides little utility 
in Exchange verification of applicants' eligibility for employer-
sponsored coverage. One commenter encouraged HHS to consider removing 
the regulatory requirement to connect to this database for purposes of 
employer-sponsored coverage verification. We have also received 
feedback from some Exchanges noting challenges and limitations 
connecting to a SHOP database. These Exchanges noted that, given the 
limited enrollment in SHOP in many States and that many States do not 
have a SHOP database to which to connect, requiring verification 
through SHOP imposes a technical and financial challenge for States 
that may not be the most efficient and cost-effective way to perform 
verification.
    We seek comment on these proposals. Additionally, we seek 
information and suggestions from State-based Exchanges and other 
stakeholders on ways to improve verification of whether an applicant 
reasonably expects to be enrolled in an eligible employer-sponsored 
plan or is eligible for qualifying coverage in an eligible employer-
sponsored plan for the benefit year for which coverage is requested.
c. Eligibility Redetermination During a Benefit Year (Sec.  155.330)
    We seek comment on ways to better encourage enrollees to report 
changes in circumstance during the benefit year that may have an impact 
on their eligibility for Exchange coverage or for advance payment of 
the premium tax credit or cost sharing reductions. The FFEs currently 
conduct proactive outreach to enrollees through a variety of means, 
including emails, phone calls, and paper mail to encourage them to 
return to the Exchange to update their information throughout the 
benefit year and during key Exchange operational efforts, such as open 
enrollment. The FFEs also periodically provide general information and 
reminders to enrollees. However, many individual changes in 
circumstance, such as an individual's changes in household income or 
size, remain unknown by the Exchanges until reported by the enrollee 
and, such changes may have a significant impact on the enrollee's 
eligibility for QHP coverage through the Exchange and for financial 
assistance.
    Therefore, we are interested in hearing from stakeholders about 
ways to increase enrollee reporting of individual changes in 
circumstance within 30 days of the change in order to ensure compliance 
with Sec.  155.330(b). Increasing such reporting would benefit 
enrollees by ensuring that they continue to be enrolled given their 
current eligibility for financial assistance and would improve program 
integrity.
d. Annual Eligibility Redetermination (Sec.  155.335)
    We are considering the possibility of amending the length of time 
that individuals may authorize the Exchanges to obtain the updated tax 
return information for enrollees as described in Sec.  155.335(k)(2). 
Currently, the Exchanges may obtain updated tax return information for 
a period of no more than five years based on a single authorization.
    We seek comment on whether five years is an appropriate amount of 
time for this type of an authorization to last or whether a shorter 
time period should be considered. In particular, we are contemplating 
whether shortening this authorization period would improve Exchange 
program integrity by helping to ensure that the enrollee's application 
at the time of re-enrollment accurately reflects his or her data 
collection preferences, that all sources of income that may impact his 
or her eligibility for APTC and cost sharing reductions are listed on 
the application, and that individuals update their applications on a 
more regular basis to reflect other changes in circumstances that 
affect eligibility (such as changes in employment or marital status).
5. Exchange Functions in the Individual Market: Enrollment in Qualified 
Health Plans
a. Special Enrollment Periods (Sec.  155.420)
i. Plan Options Under Select Special Enrollment Periods
    For many special enrollment periods, a dependent of an Exchange 
enrollee may newly enroll in Exchange coverage or switch Exchange plans 
when the dependent or another qualified individual on the Exchange 
application qualifies for a special enrollment period. Even though 
dependents may access special enrollment periods based on different 
qualifying events, when they qualify for a special enrollment period to 
newly enroll in Exchange coverage, regardless of whether it is a 
special enrollment period due to gaining or becoming a dependent or due 
to a loss of minimum essential coverage, we believe they should be 
treated alike. Section 155.420(a)(4) defines the coverage changes 
Exchange enrollees may make when they or their dependents qualify for 
special enrollment periods. We are proposing to modify how paragraph 
(a)(4)(iii) treats

[[Page 51089]]

dependents to align more closely with paragraph (a)(4)(i) which 
addresses when an existing enrollee gains a new dependent. To do this, 
we propose to modify paragraph (a)(4)(iii) to establish a distinction 
between how the rule treats existing enrollees who qualify for one of 
the relevant special enrollment periods themselves or when existing 
Exchange enrollees themselves and their dependent(s) qualify for one of 
the relevant special enrollment periods; and when only new dependents 
qualify for one of the relevant special enrollment periods and are 
enrolling in coverage with an existing Exchange enrollee. We propose to 
establish this distinction by separating these situations into new 
paragraphs (a)(4)(iii)(A) and (a)(4)(iii)(B). We believe the latter 
situation is akin to when an enrollee adds a new dependent to their 
coverage, even though in this situation the dependent is qualifying for 
a different special enrollment period.
    Proposed new paragraph (a)(4)(iii)(A) would address the coverage 
options available to current enrollees and dependents who qualify for a 
special enrollment period. As is current policy under paragraph 
(a)(4)(iii), paragraph (a)(4)(iii)(A) would continue to allow enrollees 
and their dependents who qualify for the special enrollment periods 
specified in paragraphs (d), other than those described in paragraphs 
(d)(2)(i), (d)(4), (d)(6)(i) or (ii) for becoming newly eligible for 
CSRs, (d)(8), (d)(9), and (d)(10) of this section, to use their special 
enrollment period to change to another QHP within the same level of 
coverage or one metal level higher or lower, if no such QHP is 
available, as outlined in Sec.  156.140(b) of this subchapter.
    Proposed new paragraph (a)(4)(iii)(B) would address the coverage 
options available when only a dependent who is not currently enrolled 
in Exchange coverage qualifies for a special enrollment period. We are 
proposing to revise the policy for these qualified individuals to align 
with paragraph (a)(4)(i) of this section. We propose that, if a new 
dependent qualifies for one of the special enrollment periods specified 
in paragraphs (d)(1), (d)(3), (d)(6)(iii), (d)(6)(iv), (d)(7), (d)(11), 
and (d)(13) of this section and an enrollee would like to add the 
dependent to his or her QHP at that time, the Exchange must allow the 
enrollee to add the dependent to his or her current QHP; or, if the 
plan's business rules do not allow the dependent to enroll, the 
Exchange must allow the enrollee and dependent to change to another QHP 
within the same level of coverage; or, if no such QHP is available, 
allow them to switch to a QHP one metal level lower or higher, as 
outlined in Sec.  156.140(b) of this subchapter. Alternatively, the 
enrollee may enroll the dependent in a separate QHP at any metal level.
    We believe that these modifications are needed in order to align 
the flexibilities available to enrollees and dependents when a 
dependent is newly enrolling in Exchange coverage during the benefit 
year due to qualifying for a special enrollment period. With this 
proposed change, regardless of the special enrollment period for which 
a dependent qualifies, an enrollee may either add the dependent to his 
or her existing QHP, as long as they continue to qualify for it, or 
enroll the new dependent in a separate QHP at any metal level.
    In the event that both the enrollee and the new dependent qualify 
for special enrollment periods referenced in proposed paragraphs 
(a)(4)(iii)(A) and (a)(4)(iii)(B), respectively, and the enrollee wants 
to add this new dependent to his or her QHP, the Exchange would allow 
both the enrollee and dependent to switch to a new QHP at the same 
metal level, if available, as described in proposed paragraph 
(a)(4)(iii)(A).
    In addition, we propose to exclude the special enrollment period in 
paragraph (d)(12) for material plan or benefit display errors from 
paragraph (a)(4)(iii). This is because we understand that certain 
material plan or benefit display errors may impact an enrollees' 
decision to enroll in a level of coverage, in addition to his or her 
decision to enroll in a specific QHP. Therefore, we believe that, if an 
enrollee qualifies for the special enrollment period because of a 
material plan or benefit display error, he or she should be allowed to 
switch to a different QHP at any metal level that better meets his or 
her needs.
    We seek comment on these proposals.
ii. Exception to Prior Coverage Requirement for Qualified Individuals 
Who Have Lived in Service Areas Where No QHP Is Offered Through an 
Exchange
    In response to concerns from stakeholders that certain special 
enrollment periods intended to help qualified individuals maintain 
continuous coverage for themselves and their families were being used 
to newly enroll in coverage mid-year, HHS recently added a prior 
coverage requirement to the special enrollment period for gaining 
access to new QHPs as a result of a permanent move, described in Sec.  
155.420(d)(7), and the special enrollment period for gaining or 
becoming a dependent through marriage, described in Sec.  
155.420(d)(2)(i). Section 155.420(a)(5) specifies how a qualified 
individual can satisfy the prior coverage requirement. Qualified 
individuals can either demonstrate that they had minimum essential 
coverage as described in 26 CFR 1.5000A-1(b) for 1 or more days during 
the 60 days preceding the date of the qualifying event; lived in a 
foreign country or in a United States territory for 1 or more days 
during the 60 days preceding the date of the qualifying event; or are 
an Indian, as defined by section 4 of the Indian Health Care 
Improvement Act. This prior coverage requirement encourages individuals 
to maintain coverage throughout the year.
    However, we recognize that individuals living in a service area, as 
defined by Sec.  155.1055, where no Exchange QHPs are offered, may not 
be able to obtain affordable coverage. We believe that individuals in 
this situation should not later be prevented from enrolling in coverage 
through a special enrollment period that requires prior coverage, when 
they were previously unable to enroll in Exchange coverage because it 
was unavailable or inaccessible. Therefore, we propose to amend 
paragraph (a)(5) to exempt qualified individuals from the prior 
coverage requirement if, for at least 1 of the 60 days prior to the 
date of their qualifying event, they lived in a service area where 
there were no QHPs offered through an Exchange. Absent this change, 
qualified individuals who have lived for part of the benefit year in a 
location where no QHPs were offered through an Exchange, and therefore 
may have been unable to enroll in minimum essential coverage, would be 
prevented from subsequently qualifying for a special enrollment period 
due to a permanent move or marriage.
    Additionally, we note that the proposed amendment to paragraph 
(a)(5) would apply, along with the rest of the paragraph, to the 
individual market outside of the Exchange through the cross-reference 
to Sec.  155.420(d) in Sec.  147.104(b)(2). In this context, health 
insurance issuers offering coverage outside an Exchange would not be 
able to require qualified individuals to demonstrate prior coverage if 
they lived for at least 1 of the 60 days prior to their qualifying 
event in a service area where there were no QHPs offered through an 
Exchange.
    We invite comment on this proposal.

[[Page 51090]]

iii. Effective Date Options for Special Enrollment Periods Relating to 
Gaining or Becoming a Dependent
    Paragraph (b)(2)(i) of Sec.  155.420 requires Exchanges to provide 
qualified individuals who qualify for a special enrollment period due 
to gaining or becoming a dependent through birth, adoption, placement 
for adoption, or placement in foster care with a retroactive coverage 
effective date back to the date of the qualifying event, and provides 
Exchanges with the option to allow these consumers to elect an 
effective date of the first of the month following the date of the 
event or following regular coverage effective dates, in accordance with 
paragraph (b)(1) of this section. Paragraph (b)(2)(v) addresses 
coverage effective date options for special enrollment periods related 
to gaining or becoming a dependent due to a child support or other 
court order as described in paragraph (d)(2)(i); it requires Exchanges 
to ensure that coverage takes effect on the date of the court order and 
permits the Exchange to allow qualified individuals to elect an 
effective date based on paragraph (b)(1), but it does not provide 
qualified individuals with an option to begin their coverage the first 
of the month following the date of the event.
    We propose to remove paragraph (b)(2)(v) of this section and to 
revise paragraph (b)(2)(i) to include the special enrollment period for 
a court order to align the coverage effective dates for all special 
enrollment periods based on gaining or becoming a dependent, with the 
exception of gaining or becoming a dependent through marriage. Aligning 
coverage effective date options ensures that Exchanges provide 
qualified individuals in similar situations with the same flexibility 
with regard to coverage effective dates. We then propose to redesignate 
current paragraph (b)(2)(vi) as paragraph (b)(2)(v).
    In addition, we propose to modify paragraph (b)(2)(i) so that, in 
addition to requiring an Exchange to ensure that coverage is effective 
retroactive to the date of the qualifying event, it may permit the 
qualified individual or enrollee to elect a coverage effective date of 
the first of the month following plan selection, rather than the first 
of the month following the qualifying event, as currently written, or 
following regular coverage effective dates, in accordance with 
paragraph (b)(1) of this section.
    This amendment would streamline Exchange operations and align this 
coverage effective date option with the accelerated prospective 
coverage effective date rule as it applies to other special enrollment 
periods, including the special enrollment period for gaining or 
becoming a dependent through marriage, as described in (b)(2)(ii) of 
this section. Thus, at the Exchange's option, qualified individuals who 
qualify for a special enrollment period due to gaining or becoming a 
dependent through birth, adoption, placement for adoption, placement in 
foster care, or through a child support or other court order, would be 
able to elect from the same coverage effective date options, including: 
the date of qualifying event, the first day of the month following plan 
selection, or regular coverage effective dates in accordance with 
paragraph (b)(1). These amendments would standardize the coverage 
effective date options for qualified individuals who have experienced 
similar qualifying events.
    We request comments on this proposal.
iv. Loss of Coverage Special Enrollment Period (Sec.  
155.420(d)(1)(iii))
    Section Sec.  155.420(d)(1) establishes a special enrollment period 
for qualified individuals who lose certain types of coverage, including 
minimum essential coverage. As described in paragraph (d)(1)(iii), 
qualified individuals who lose certain types of Medicaid pregnancy-
related coverage not considered minimum essential coverage may also 
qualify for this special enrollment period. This is to ensure that 
women losing eligibility for coverage of pregnancy-related services 
that often meet their primary and specialty healthcare needs are not 
left without the option to enroll in a QHP through an Exchange after 
they lose access to those services.
    We propose to revise paragraph (d)(1)(iii) to include women who 
lose access to healthcare services that they were receiving through 
CHIP coverage for their unborn child. While CHIP coverage for unborn 
children, provided based on the definition of a child described in 42 
CFR 457.10, is considered minimum essential coverage for the unborn 
child, it is not considered minimum essential coverage for the pregnant 
woman. Nonetheless, these pregnant women may receive a set of health 
services comparable to those available to women enrolled in Medicaid 
pregnancy-related coverage. For this reason, pregnant women who have 
received prenatal care as part of CHIP coverage for their unborn child 
may apply and be determined eligible for a hardship exemption from the 
FFEs so that they are not required to also maintain minimum essential 
coverage during that time.
    The proposed revision to paragraph (d)(1)(iii) would provide a 
pathway to coverage for new mothers who lose access to healthcare 
services provided through unborn child CHIP coverage following the 
birth of their child, and who are otherwise eligible to enroll in a QHP 
through the Exchange. Under paragraph (c)(2) of this section, these 
qualified individuals would have up to 60 days before or after the loss 
of access to CHIP unborn child coverage to qualify for the loss of 
coverage special enrollment period and enroll in a QHP. If they select 
a plan prior to their loss of CHIP unborn child coverage, their 
Exchange coverage would begin as soon as the first day of the month 
following the loss of coverage. If they select a plan after the loss of 
CHIP unborn child coverage, their Exchange coverage would begin either 
the first of the following month or following regular, prospective 
coverage effective dates at the option of the Exchange, as provided 
under paragraph (b)(2)(iv). We believe that this revision is needed to 
ensure a pathway to coverage for women in the 17 states that offer 
unborn child CHIP coverage, so that they may maintain access to 
continuous coverage after the birth of their child.
    We request comments on this proposal.
iv. Technical Amendment (Sec.  155.420(d)(10)(i))
    We propose to make a technical amendment to update the cross 
reference to 26 CFR 1.36B-2T in Sec.  155.420(d)(10)(i), regarding the 
special enrollment period for victims of domestic abuse or spousal 
abandonment. The temporary regulation under section 36B of the Code 
originally cited has now been finalized without change to the 
definition cited in this special enrollment period. Therefore, this 
technical correction would not in any way alter the parameters of this 
special enrollment period.
b. Effective Dates for Terminations (Sec.  155.430)
    Section 155.430 specifies the termination dates for Exchange 
enrollees. Paragraph (d)(1)(i) of Sec.  155.430 defines ``reasonable 
notice'' as at least 14 days before the requested effective date of 
termination. Paragraph (d)(2) sets forth three possible effective dates 
for enrollee-initiated terminations made in accordance with paragraph 
(b)(1): (1) The termination date specified by the enrollee, if the 
enrollee provides reasonable notice; (2) 14 days after the termination 
is requested by the enrollee,

[[Page 51091]]

if the enrollee does not provide reasonable notice; or (3) on a date on 
or after the date on which the termination is requested by the 
enrollee, if the enrollee's QHP issuer agrees to effectuate termination 
in fewer than 14 days, and the enrollee requests an earlier termination 
effective date. Further, current paragraph (d)(2)(iv) sets the QHP 
termination effective date for enrollees newly eligible for Medicaid, 
CHIP, or the basic health program as the day before the individual is 
determined eligible for Medicaid, CHIP, or the basic health program.
    While the 14-day ``reasonable notice'' rule was created to provide 
issuers ample termination transaction processing time, we believe that 
most Exchanges and issuers have the operational capability to make 
enrollee-initiated terminations effective in fewer than 14 days--and 
often do so on the same day of enrollee request. When asked, issuers 
have not informed HHS of any challenges in processing these same-day 
transactions. Therefore, we propose to remove paragraphs (d)(2)(i) 
through (d)(2)(iii) and align the effective dates for all enrollee-
initiated terminations on the date on which the termination is 
requested by the enrollee or on another prospective date selected by 
the enrollee.
    To further align termination effective dates, we also propose 
removing existing paragraph (d)(2)(iv), which states that the QHP 
termination date for an enrollee newly determined eligible for 
Medicaid, CHIP or a basic health program is the date before the 
Medicaid, CHIP, or basic health program eligibility determination. We 
do not provide QHP termination dates according to eligibility for other 
forms of coverage, such as Medicare or employer-sponsored coverage. 
This rule singles out the Medicaid/CHIP/basic health program enrollee 
population for an earlier termination date than other Exchange 
consumers, causing unnecessary confusion for consumers and issuers. 
Consumers may also be determined eligible through the State Medicaid 
agency, instead of the Exchange, resulting in challenges in 
coordinating effective dates through the State and the Exchange and its 
issuers. The removal of paragraph (d)(2)(iv) may limit enrollees' 
ability to retroactively terminate QHP coverage when it overlaps with 
Medicaid or CHIP, which could result in consumers being unable to 
recoup premiums paid for periods when the enrollee was enrolled in QHP 
coverage through the Exchange and gains retroactive eligibility for 
Medicaid or CHIP. However, these types of retroactive terminations can 
lead to major challenges for consumers as Medicaid/CHIP providers may 
not cover claims reversed by the QHP--leading to unexpected out-of-
pocket costs for consumers.
    Consolidating these termination effective date scenarios--based on 
reasonable notice or the reason for termination--into one option for 
consumers would help streamline operations for Exchanges and issuers. 
Allowing enrollees to terminate their coverage immediately or on a 
future date of their choosing also would provide consumers with greater 
control over ending their QHP coverage and would help minimize or 
eliminate overlaps in coverage. Such flexibility would also allow 
Exchanges to send termination transactions to issuers that do not need 
subsequent adjustment, reducing the need for casework or direct 
consumer contact with issuers to request earlier termination dates as 
permitted under paragraph (d)(2)(iii).
    We believe that streamlining these termination dates would not 
negatively affect issuer or Exchange operations, but we invite comment 
from Exchanges, issuers, and other stakeholders on any burdens these 
rule changes may impose, as well as whether we should make the changes 
at the option of the Exchange or the issuer.
6. Definitions (Sec.  155.500)
    This section defines terms that are relevant to this subpart. We 
propose to amend the definitions of ``Appeal request'' and ``Appeals 
entity'' by adding a cross reference to proposed section Sec.  
155.716(e)'' to align with the other proposals discussed throughout 
this proposed rule.
7. Eligibility Standards for Exemptions (Sec.  155.605)
a. Hardship Exemptions (Sec.  155.605(d))
    Section 1311(d)(4)(H) of the PPACA and section 5000A(e)(5) of the 
Code allow individuals to seek an exemption from the individual shared 
responsibility provision due to a lack of affordable coverage based on 
an individual's projected income. Section 155.605(d)(2) establishes the 
circumstances under which an Exchange must determine an applicant 
eligible for an exemption due to lack of affordable coverage based on 
projected income. For determining whether affordable coverage is 
available, paragraph (d)(2) states that the Exchange should use the 
standards specified in section 5000A(e)(1) of the Code which, among 
other things, specifies that the Exchange should use, for individuals 
not eligible for employer-sponsored coverage, the annual premium for 
the lowest-cost bronze plan available in the individual market through 
the Exchange in the State in the rating area in which the individual 
resides.
    However, market instability has resulted in limited offerings of 
plans on the Exchanges in many regions, and there may be individuals 
who live in a rating area without a bronze plan. Under the current 
regulation, the Exchange would not be able to make a determination as 
to whether an individual not eligible for employer-sponsored coverage 
who lives in a rating area without a bronze plan is eligible for the 
exemption due to lack of affordable coverage based on projected income. 
We propose to amend paragraph Sec.  155.605(d)(2)(iv), to allow an 
Exchange to make a determination of lack of affordable coverage based 
on projected income for individuals not eligible for employer-sponsored 
coverage using the annual premium for the lowest cost Exchange metal 
level plan available in the individual market through the Exchange in 
the State in the rating area in which the individual resides if there 
is no bronze level plan sold through the Exchange in that rating area. 
Absent this proposed change, individuals may lack access to affordable 
coverage, but be unable to qualify for an exemption determination from 
the Exchange due to the Exchange's inability to calculate whether 
coverage is unaffordable due to the absence of a bronze plan in that 
rating area. Under the proposed amendment to Sec.  155.605(d)(2), 
Exchanges would use the amount of the lowest cost Exchange metal level 
plan available to the individual when no bronze level plan is 
available.
    We invite comment on this proposal.
b. Required Contribution Percentage (Sec.  155.605(e)(3))
    Under section 5000A of the Code, an individual must have minimum 
essential coverage for each month, qualify for an exemption, or make an 
individual shared responsibility payment. Under section 5000A(e)(1) of 
the Code, an individual is exempt if the amount that he or she would be 
required to pay for minimum essential coverage (the required 
contribution) exceeds a particular percentage (the required 
contribution percentage) of his or her actual household income for a 
taxable year. In addition, under Sec.  155.605(d)(2), an individual is 
exempt if his or her required contribution exceeds the required 
contribution percentage of his or her projected household income for a 
year. Finally, under Sec.  155.605(d)(2)(iv), certain

[[Page 51092]]

employed individuals are exempt if, on an individual basis, the cost of 
self-only coverage is less than the required contribution percentage, 
but the aggregate cost of individual coverage through employers exceeds 
the required contribution percentage and no family coverage is 
available through an employer at a cost less than the required 
contribution percentage.
    Section 5000A established the 2014 required contribution percentage 
at 8 percent. For plan years after 2014, section 5000A(e)(1)(D) of the 
Code and 26 CFR 1.5000A-3(e)(2)(ii) provide that the required 
contribution percentage is the percentage determined by the Secretary 
of HHS that reflects the excess of the rate of premium growth between 
the preceding calendar year and 2013, over the rate of income growth 
for that period.
    We established a methodology for determining the excess of the rate 
of premium growth over the rate of income growth for plan years after 
2014 in the 2015 Market Standards Rule (79 FR 30302), and we stated 
that future adjustments would be published annually in the HHS notice 
of benefit and payment parameters.
    Under the HHS methodology, the rate of premium growth over the rate 
of income growth for a particular calendar year is the quotient of (x) 
1 plus the rate of premium growth between the preceding calendar year 
and 2013, carried out to ten significant digits, divided by (y) 1 plus 
the rate of income growth between the preceding calendar year and 2013, 
carried out to ten significant digits.\38\
---------------------------------------------------------------------------

    \38\ We also defined the required contribution percentage at 
Sec.  155.600(a) to mean the product of 8 percent and the rate of 
premium growth over the rate of income growth for the calendar year, 
rounded to the nearest one-hundredth of one percent.
---------------------------------------------------------------------------

    As the measure of premium growth for a calendar year, we 
established in the 2015 Market Standards Rule that we would use the 
premium adjustment percentage. The premium adjustment percentage is 
based on projections of average per enrollee employer-sponsored 
insurance premiums from the National Health Expenditure Accounts 
(NHEA), which are calculated by the CMS Office of the Actuary.\39\ (As 
discussed elsewhere in this preamble, we are proposing the 2019 premium 
adjustment percentage to be 1.2516634051, (or an increase of about 25 
percent over the period from 2013 to 2018). This reflects an increase 
of about 7.7 percent over the 2018 premium adjustment percentage 
(1.2516634051/1.1617303196).
---------------------------------------------------------------------------

    \39\ For any given year, the premium adjustment percentage is 
the percentage (if any) by which the most recent NHEA projection of 
per enrollee employer-sponsored insurance premiums for the preceding 
year exceeds the most recent NHEA estimate of per enrollee employer-
sponsored insurance premiums for 2013.
---------------------------------------------------------------------------

    As the measure of income growth for a calendar year, we established 
in the 2017 Payment Notice that we would use per capita personal income 
(PI). Under the approach finalized in the 2017 Payment Notice, and 
using the NHEA data, the rate of income growth for 2019 is the 
percentage (if any) by which the most recent projection of per capita 
PI for the preceding calendar year ($53,729 for 2018) exceeds per 
capita PI for 2013 ($44,555), carried out to ten significant digits. 
The ratio of per capita PI for 2018 over the per capita PI for 2013 is 
estimated to be 1.2059028167 (that is, per capita income growth of 
about 20.6 percent). This reflects an increase of about 4.5 percent 
relative to the increase for 2013 to 2017 (1.2059028167/1.1540603665) 
used in last year's rule.
    Thus, using the 2019 premium adjustment percentage proposed in this 
rule, the excess of the rate of premium growth over the rate of income 
growth for 2013 to 2018 is 1.2516634051/1.2059028167, or 1.0379471610. 
This results in a proposed required contribution percentage for 2019 of 
8.00*1.0379471610 or 8.30 percent, when rounded to the nearest one-
hundredth of one percent, an increase of 0.25 percentage point from 
2018 (8.30358-8.05317). The excess of the rate of premium growth over 
the rate of income growth also is used for determining the applicable 
percentage in section 36B(b)(3)(A) of the Code and the required 
contribution percentage in section 36B(c)(2)(C) of the Code.
    We seek comment on whether there are other measures of premium 
growth or income growth that we could use to calculate the required 
contribution percentage.
8. Eligibility Process for Exemptions
    Paragraph 155.610(h)(2) describes the timeframe during which the 
Exchange will accept an individual's application for a hardship 
exemption. We are proposing to make a technical correction to paragraph 
155.610(h)(2) to reflect the prior redesignation of paragraph 
155.605(g)(1), which describes the criteria for a hardship exemption, 
to paragraph 155.605(d)(1) in the 2017 Payment Notice.\40\
---------------------------------------------------------------------------

    \40\ 81 FR 12346, March 8, 2016.
---------------------------------------------------------------------------

    We seek comment on this proposal.
9. Exchange Functions: Small Business Health Options Program
    We previously interpreted the PPACA's provisions regarding the 
SHOPs to require that all SHOPs provide for employer eligibility, 
employee eligibility, and certain enrollment functions, including 
premium aggregation services.
    We recognize that SHOPs, including SBE-FP for SHOP and FF-SHOPs, 
continue to face challenges and, to accommodate those challenges and to 
provide SHOPs with more flexibility in operating their programs, we 
propose to allow SHOPs to operate in a leaner fashion beginning for 
plan years beginning on or after January 1, 2018. If the proposals of 
this rule are finalized, the changes would become effective as of the 
effective date of the final rule. In the 2018 Payment Notice, HHS 
finalized the removal of a participation provision that had required 
certain QHP issuers to participate in an FF-SHOP in order to 
participate in an FFE. As a result, HHS expects that there will be a 
significant decrease in the number of issuers in the FF-SHOPs in the 
2018 plan year and therefore, also expects fewer enrollments in the FF-
SHOPs and SBE-FPs utilizing the Federal platform for SHOP. With the 
anticipated significant decreases in QHP issuer participation and 
enrollment beginning in 2018, it is not cost effective for the Federal 
government to continue to maintain certain FF-SHOP functionalities, 
collect significantly reduced user fees on a monthly basis, maintain 
the technologies required to maintain an FF-SHOP Web site and payment 
platform, generate enrollment and payment transaction files, and 
perform enrollment reconciliation. Specifically, as previously 
signaled,\41\ we are proposing to remove regulatory burden on SHOPs by 
removing several of the existing requirements imposed upon the SHOPs, 
focusing on removing requirements to provide certain functionality that 
is not expressly required by the PPACA, while still ensuring 
appropriate implementation of statutorily required functions of the 
SHOP. Under this proposal, employer groups that are currently enrolled, 
or will enroll in a SHOP QHP for plan years that begin prior to January 
1, 2018, would enroll in a SHOP QHP consistent with the current SHOP 
regulations. If this rule is finalized as proposed, the

[[Page 51093]]

changes would take effect for plan years beginning on or after January 
1, 2018 as of the effective date of the final rule.
---------------------------------------------------------------------------

    \41\ Centers for Medicare & Medicaid Services Offers New Health 
Coverage Enrollment Option for Small Business (May 15, 2017), 
available at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2017-Press-releases-items/2017-05-15.html.
---------------------------------------------------------------------------

    Under the proposed approach, SHOPs would no longer be required to 
provide employee eligibility, premium aggregation, and online 
enrollment functionality for plan years beginning on or after January 
1, 2018, effective on the effective date of the final rule, if 
finalized as proposed. If these proposals are finalized as proposed, 
the FF-SHOPs and the SBE-FP for SHOPs would take advantage of this 
flexibility, and SBEs would continue to have the flexibility to operate 
a SHOP in the way that they choose in accordance with applicable 
Federal and State law. Notably, we received comments to the Request for 
Information that provided support for this proposed enrollment 
approach. Moreover, few SBEs currently utilize a similar enrollment 
approach as is being proposed as a transitional measure that was 
expected to extend through plan years beginning in 2018. These SBEs 
have already inquired about the possibility to continue permitting 
enrollment of their SHOP consumers through a participating QHP SHOP 
issuer, or a SHOP-registered agent or broker, for plan years beginning 
in 2019 and beyond.\42\ Additionally, these SBEs have each indicated 
that this enrollment method has contributed to reduced SHOP Exchange 
programmatic expenses, which is critical for SBEs to maintain financial 
sustainability as required by section 1311(d)(5)(A) of the PPACA.
---------------------------------------------------------------------------

    \42\ Extension of state-based SHOP Direct Enrollment Transition 
(April 18, 2016), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/1332-and-SHOP-Guidance-508-FINAL.pdf.
---------------------------------------------------------------------------

    To reflect the proposed changes for plan years beginning on or 
after January 1, 2018, effective on the effective date of the final 
rule, if finalized as proposed, we are proposing modifications 
throughout the requirements applicable in the SHOPs. However, because 
some groups' plan years that begin prior to the effective date of the 
rule finalizing this proposal will continue beyond the effective date 
of the rule finalizing this proposal, both the existing requirements 
and the proposed requirements would need to be in place simultaneously. 
For this reason, we propose to make many of the existing regulatory 
sections regarding SHOP applicable for plan years beginning prior to 
January 1, 2018 only, and propose new regulatory sections applicable 
for plan years beginning on or after January 1, 2018. After the 
effective date of this rule, the new regulatory sections will be 
effective for all 2018 plans, regardless of whether they started prior 
to the effective date of the rule. Except as described in this rule, we 
propose that these new regulatory sections would mirror the existing 
regulatory sections.
    Specifically, we propose to amend Sec. Sec.  155.705, 155.715, 
155.720, 155.725, 155.730, 155.735, 155.740, 156.285 and 157.205 to 
make each section applicable only to plan years beginning prior to 
January 1, 2018. Additionally, we propose to introduce mirroring new 
sections, applicable for plan years beginning on or after January 1, 
2018, at Sec. Sec.  155.706, 155.716, 155.721, 155.726, 155.731, 
155.741, 156.286 and 157.206. We do not propose a new section mirroring 
current Sec.  155.735, as further explained later in this preamble. We 
also propose minor changes to Sec.  155.700. These are described in the 
sections that follow. We also propose additional changes related to the 
proposed new approach to SHOP in Sec. Sec.  155.106, 155.200, and 
156.350, to define the streamlined enrollment approach that groups 
enrolling in a SHOP QHP in a SBE-FP would take, if the proposals in 
this rule were to become finalized. In light of the substantial changes 
proposed throughout this document, we intend to make conforming 
amendments and to update all applicable cross references in these and 
other regulations, including Sec. Sec.  147.102, 147.104, 155.500, 
156.200, and 156.340. We solicit comment on any additional cross-
references that should be amended.
    If this proposal is finalized, SHOPs that opt to operate in a 
leaner fashion, such as the FF-SHOPs, would still assist qualified 
employers who are small employers in facilitating the enrollment of 
their employees in QHPs offered in the small group market in the State, 
consistent with section 1311(b)(1)(B) of the PPACA, because the basic 
functionalities of an Exchange would still be provided. Under the 
proposed approach, SHOPs would continue to be required to certify plans 
for sale through the SHOP, and the following features would still be 
available: An Internet Web site that displays and provides QHP 
information, a premium calculator that generates estimated prices of 
the available QHPs, and a call center to answer questions related to 
the SHOP. Further, small employers would continue to obtain an 
eligibility determination from the SHOP Web site but would enroll in a 
SHOP QHP by working with a SHOP-registered agent or broker, or with a 
QHP issuer participating in a SHOP to complete the enrollment process.
    An enrollment completed by working with a SHOP-registered agent or 
broker, or with a QHP issuer participating in a SHOP under the proposed 
flexibilities, would be considered to be an enrollment through the 
SHOP, and an employer would be considered to have offered its employees 
coverage through a SHOP for purposes of section 45R of the Code (the 
Small Business Health Care Tax Credit), if the employer: (1) Obtains 
from the SHOP a favorable determination of eligibility to participate 
in the SHOP; (2) enrolls in a SHOP QHP offered by an issuer; and (3) 
chooses to have the enrollment identified as being through the SHOP. If 
an enrollment meets this definition, the QHP issuer would be required 
to conduct enrollment with all applicable SHOP rules and policies.
    Because the SHOP would be required to determine employer 
eligibility to participate in the SHOP only, and not be required to 
determine employer group members' eligibility to enroll, it would only 
be responsible for handling appeals as they relate to an employer's 
eligibility in the SHOP, as currently described in Sec.  155.740. If, 
under the flexibilities described here, employer group members enrolled 
in a SHOP QHP needed to file an appeal related to their SHOP coverage, 
they generally would file the appeal directly with the insurance 
company, or could take advantage of other appeals mechanisms under 
applicable State and Federal law. If an employer group member, under 
the approach proposed throughout this document, believed that he or she 
were entitled to a SHOP special enrollment period, but was denied that 
special enrollment period, the employer group member could file a 
complaint with the SHOP and the SHOP would investigate. SHOP special 
enrollment periods would continue to be available to enrollees who 
experience specified qualifying events. If the proposed changes are 
finalized, SHOPs that use the new flexibilities, such as the FF-SHOPs, 
would no longer have the information required to determine employer 
group members' eligibility for special enrollment periods. Therefore, 
issuers wishing to participate in such a SHOP would be required to 
administer special enrollment periods.
    SHOPs opting to operate in a leaner fashion, like the FF-SHOPs, 
would continue to provide employers with the option to offer a choice 
of plans, consistent with section 1312(a)(2) of the PPACA, by 
continuing to allow employers to offer their employees a choice of 
plans, either by coverage level, or, in some States, by participating 
QHP issuer. Employers would be able to see the SHOP plans available, by 
coverage level and issuers, in their area using the

[[Page 51094]]

plan comparison tool available on a SHOP Web site. To streamline 
enrollment through a SHOP, the employer would maintain the ability to 
offer their employees a choice of plans across issuers. Employers who 
choose to offer a choice of plans to employees would contact the 
participating QHP issuers, whose plans they would like to offer to 
their employees, to obtain the application information necessary in 
order to enroll in coverage.
    Once the necessary information required to enroll is obtained from 
the QHP issuer or issuers or from the SHOP-registered agent or broker, 
the employer could disseminate the application information to its 
employees. The employer could later collect the information from its 
employees and send it to the applicable QHP issuer or issuers or the 
SHOP-registered agent or broker. Employers generally would also be 
responsible for collecting monthly premium payments from employees and 
sending them to the appropriate issuers. While initially offered to 
support employers' option to offer a choice of plans across issuers, 
premium aggregation services are not a service mandated by the PPACA 
and therefore may be altered or removed, as proposed in this proposed 
rule. SHOP-registered agents and brokers would be able to assist 
employers perform these tasks, if the employer chooses to work with a 
SHOP-registered agent or broker.
    Additionally, to further support employers' option to offer a 
choice of plans across issuers, under the proposed approach, an 
employer's minimum participation rate would continue to be calculated 
at the employer level, though the SHOPs would not be involved in 
calculating it, and the FF-SHOPs would no longer calculate it. 
Participating QHP issuers would not be permitted to deny enrollment on 
the basis of failure to meet minimum participation requirements to 
employers who have been determined eligible to participate in the SHOP, 
and who have met the applicable minimum participation rate, as 
specified by the SHOP, even if only one employee in a group wishes to 
enroll with a particular issuer.
    Under the proposed approach, SHOPs would also still be able to 
administer the provision at section 1304(b)(4)(D) of the PPACA that 
guarantees continuing eligibility for growing small employers by 
limiting the validity of an employer's eligibility determination such 
that it terminates when the employer makes a change that could end its 
eligibility under Sec.  155.710(b), by requiring the employer to submit 
a new single employer application to the SHOP if the employer makes a 
change that could end its eligibility under Sec.  155.710, and by 
requiring issuers to be able to distinguish SHOP enrollments from non-
SHOP enrollments. Under the proposed flexibilities, issuers would be 
expected to rely on the determination of eligibility to reflect the 
employer's ongoing eligibility to participate in the SHOP and the IRS 
would have the option to follow up with an employer for additional 
information if necessary.
    HHS understands that the changes outlined in this proposed rule, if 
finalized, would allow SHOPs to adopt changes (and we propose that the 
FF-SHOPs would adopt such changes) that result in a substantial 
departure from current operations for participating SHOP QHP issuers, 
employers, and enrollees. We recognize that if this proposed rule is 
finalized, it would be effective on the effective date of the final 
rule, and thus could take effect after the first date that employers 
can complete an enrollment that takes effect on or after January 1, 
2018. It is important to note that employer groups currently enrolled 
in a SHOP plan that began in 2017 in a SHOP that would opt to operate 
in a leaner fashion would not be affected until their plan year ends, 
as the current regulations will be in effect for the entirety of a plan 
that began in 2017. The current regulations will also be in place for 
the beginning of plan year 2018 for those plans that start before the 
effective date of the rule. But, after the effective date of the rule, 
any finalized regulations pertaining to plan year 2018 will be 
effective for all plans that begin or began in 2018, regardless of 
whether they started prior to the effective date. HHS acknowledges that 
this transition will create challenges and is concerned about employers 
enrolling between when rates become available for plan years beginning 
in 2018 and when the proposed flexibilities in this rule would go into 
effect. We seek comment on how to best ease this transition.
    HHS also recognizes that if the proposals are finalized and take 
effect after rates become available for plan years beginning in 2018, 
employers participating in an FF-SHOP that complete the enrollment 
process for a plan that would take effect on or after January 1, 2018, 
but prior to the effective date of the final rule could begin the 
enrollment process on the existing SHOP Web site, and might receive 
billing and premium aggregation services through the SHOP Web site for 
only a short time period in 2018 before any final version of these 
proposals could take effect. If SHOP enrollment processes that would no 
longer be required to be provided by the SHOP were discontinued when 
the rule took effect, issuers and small employers could experience a 
disruption in the processing of payments or subsequent enrollments, 
which could result in loss of coverage due to non-payment of premiums 
that might affect an employer's ability to claim the Small Business 
Health Care Tax Credit. This approach would also result in complex data 
transfers between a SHOP and issuers. Nonetheless, not allowing SHOPs 
to operate in a leaner fashion as soon as possible would cause SHOPs to 
continue to incur substantial financial and operational burdens, and 
would undermine the goal of achieving financial sustainability, as 
referenced above. This is why the proposals in this proposed rule would 
apply as of the effective date of the final rule, and any finalized 
regulations pertaining to plan year 2018 will be effective for all 
plans that begin or began in 2018, regardless of whether they started 
prior to the effective date. Issuers that intend to use the FF-SHOP and 
SBE-FP for SHOP systems that will no longer be required under the new 
regulations are encouraged to inform HHS of their intention to do so as 
soon as possible, so that HHS may work through the necessary 
operational, technology, and transition issues to establish manual 
procedures to accommodate them. Manual procedures could include premium 
aggregation services and processing of enrollments in SHOP QHPs.
    We seek comment on these proposals, including on any other 
regulatory provisions that should be changed to reflect the changes 
described here.
a. Standards for the Establishment of a SHOP (Sec.  155.700)
    Section 155.700 outlines the general requirements to establish a 
SHOP and defines certain terms specific to SHOPs. We propose to amend 
Sec.  155.700(a) by adding paragraph (a)(1) to make the current 
requirements applicable for only plan years beginning prior to January 
1, 2018. We propose to add paragraph (a)(2) to describe the general 
requirements applicable for plan years beginning on or after January 1, 
2018. Proposed paragraph (a)(2) more closely aligns with the statutory 
language in section 1311(b)(1)(B) of the PPACA than existing paragraph 
(a), and would specify that SHOPs must assist qualified employers in 
facilitating the enrollment of their employees in small group market 
QHPs. We believe that the PPACA does not have to be interpreted to 
require SHOPs to facilitate the enrollment of qualified employees into 
QHPs, as is specified by the current

[[Page 51095]]

regulation. Instead, we believe it can also be interpreted in a less 
burdensome way, to require SHOPs to assist qualified employers in 
facilitating employees' enrollment into QHPs, which would still be 
provided for under our proposals. If finalized, these changes would 
become effective as of the effective date of the final rule. We seek 
comment on this proposal.
b. Functions of a SHOP (Sec.  155.705) for Plan Years Beginning Prior 
to January 1, 2018. (Sec.  155.705)
    As discussed in the following section, we propose to modify the 
regulatory requirements regarding functions of a SHOP for plan years 
beginning on or after January 1, 2018 and to introduce those 
requirements in a new Sec.  155.706. To reflect the proposal that the 
requirements currently in Sec.  155.705 would apply only for plan years 
beginning before January 1, 2018, we propose to amend the heading of 
Sec.  155.705 and add paragraph (f), to state that the section would 
apply only for plan years that begin prior to January 1, 2018. We 
discuss the proposed new Sec.  155.706 below.
c. Functions of a SHOP for Plan Years Beginning on or After January 1, 
2018 (Sec.  155.706)
    Section 155.705 describes required Exchange functions that are 
specific to SHOPs. To permit SHOPs to operate in a leaner fashion for 
plan years beginning on or after January 1, 2018, we are proposing 
several changes to the required functions of a SHOP. If finalized, 
these changes would become effective as of the effective date of the 
final rule. Under these proposals, which we propose to introduce in new 
Sec.  155.706, certain functions that are currently required would 
become optional for SHOPs for plan years beginning on or after January 
1, 2018, and the FF-SHOPs would not provide them. With the exception of 
the proposed changes to the functions described here, the functions 
would remain the same as in Sec.  155.705. The proposals described in 
this section would become effective on the effective date of the final 
rule, if finalized as proposed.
    We propose only to include the paragraphs in current paragraph 
(b)(3) of Sec.  155.705, that would be applicable to plan years 
beginning on or after January 1, 2018, maintaining the currently 
applicable policy requiring SHOPs to allow employers to select a level 
of coverage and to offer a choice of QHPs across that level of 
coverage, and permitting SHOPs to allow employers to offer a choice of 
all QHPs from a single issuer, or another method of providing employer 
choice. To provide additional flexibility, we also propose to codify 
that State SHOPs may, as the FF-SHOPs have, offer employers a choice of 
SADPs. To reflect the proposals described in Sec.  156.150(b) of this 
document, we propose that SHOPs could and FF-SHOPs would allow 
employers to offer a choice of SADPs across a selected level of 
coverage, if such levels of coverage are available. In the event that 
no SADP coverage levels are available, employers would be able to offer 
a choice of all SADPs offered in an area. We also propose conforming 
amendments to the structure of this paragraph.
    Because, as discussed earlier in this preamble, premium aggregation 
services are not mandated by the PPACA and to maximize the 
flexibilities associated with operating a SHOP, we propose to remove 
required functions related to premium aggregation. Specifically, we 
propose that the only premium aggregation function from Sec.  
155.705(b)(4) that would be applicable in plan years beginning on or 
after January 1, 2018, would be an amended version of the function in 
Sec.  155.705(b)(4)(ii)(A), relating to the continuation of coverage. 
State-based Exchanges would be permitted to continue providing 
remaining premium aggregation services in their SHOPs currently 
described at Sec.  155.705(b)(4) if they choose to do so. SHOPs 
electing not to provide premium aggregation services, like the FF-
SHOPs, would still be required to provide an opportunity for employers 
to offer employees a choice of plans. In SHOPs not offering premium 
aggregation services, we expect that employers generally would receive 
premium bills from each of the plans or issuers with which an employee 
enrolls and would pay premiums to each such plan or issuer. Section 
155.705(b)(4)(ii)(A) (which we propose to include in a revised form in 
Sec.  155.706) describes the process through which the SHOP may enter 
into an agreement with a qualified employer related to the 
administration of continuation coverage. Under the proposed approach 
for enrollment in a SHOP QHP for plan years beginning on or after 
January 1, 2018, the FF-SHOPs would no longer facilitate the collection 
of premiums. Therefore, we propose that Sec.  155.706(b)(4) would 
mirror Sec.  155.705(b)(4)(ii)(A) but would not include the provision 
that permits the FF-SHOPs to limit the service to the collection of 
premiums related to the requirements under 29 U.S.C. 1161, et seq.
    Paragraph (b)(7) of Sec.  155.705 describes the SHOP function 
related to QHP availability in merged markets and paragraph (b)(8) 
describes the function related to QHP availability in unmerged markets. 
We propose to include these functions in Sec.  155.706(b)(7) and 
(b)(8).
    However, under the proposal to streamline SHOP enrollment for plan 
years beginning on or after January 1, 2018, we propose to change the 
references to a ``qualified employee'' to an ``employer group'' in both 
paragraphs, as the SHOP would no longer be required to process employee 
enrollments under the proposed approach.
    Paragraph (b)(10) of Sec.  155.705 establishes requirements related 
to minimum participation rates and SHOP coverage; we propose to include 
these requirements in Sec.  155.706(b)(10), with certain modifications. 
In order to facilitate employers' ability to offer employees a choice 
of plans through a SHOP, as is required under section 1312(a)(2) of the 
PPACA, Sec.  155.705(b)(10) requires that any minimum participation 
rate applicable in a SHOP be calculated based on the rate of employee 
participation in the SHOP, rather than on the rate of participation in 
any particular QHP or QHPs of any particular issuer. In the FF-SHOPs, 
this requirement has been implemented through the requirements 
currently outlined at Sec.  155.705(b)(10)(i)-(iii). Currently, the 
Federally-facilitated SHOPs calculate a group's minimum participation 
rate based on the information provided by the employer and the 
employees during the online enrollment process. Under the proposed 
approach, the SHOP would not be required to collect the enrollment 
information needed to calculate a group's minimum participation rate. 
Under this proposal, issuers would be permitted to use their 
established practices allowed under State law for groups enrolling in 
their certified SHOP plans for plan years beginning on or after January 
1, 2018, so long as they comply with Sec.  147.104, and so long as the 
minimum participation rate is calculated based on the level of 
participation in the SHOP instead of on the level of participation in 
any one QHP or with any one issuer (that is, so long as SHOP 
participation is measured at the employer group level). Issuers 
participating in the FF-SHOPs would be required to adhere to the level 
of participation as would continue to be specified in Sec.  
155.706(b)(10) and issuers in State SHOPs would be subject to any 
minimum participation rate established by the SHOP, consistent with 
this provision. We also propose that

[[Page 51096]]

Sec.  155.706(b)(10) would not include the language in Sec.  
155.705(b)(10)(i) because it applies to plan years beginning before 
January 1, 2016, and would therefore not be applicable for the period 
covered in Sec.  155.706. We also propose to clarify that, under the 
proposed approach, the reference in proposed Sec.  155.706(b)(10) to 
the time the employer submits the SHOP group enrollment would be 
interpreted to mean the time when the employer submits a complete group 
enrollment or renewal to the QHP issuer or SHOP-registered agent or 
broker, applicable.
    Section 155.705(b)(11) specifies the requirements related to an 
online premium calculator. For plan years beginning on or after January 
1, 2018, we propose to modify these requirements and include the 
modified requirements in Sec.  155.706(b)(11). Specifically, Sec.  
155.706 (b)(11) would specify that the premium calculator described in 
Sec.  155.205(b)(6) must facilitate the comparison of available QHPs. 
This would reflect that SHOPs would no longer be required to maintain 
enrollment and premium payment information or administer premium 
billing, and therefore, would no longer necessarily have employer 
contribution information. If this proposal is finalized, the SHOPs 
would be required to maintain a calculator that facilitates the 
comparison of available QHPs and would generate premium estimates, but 
would no longer be required to reflect any employer contribution. 
Therefore, we propose to not include the requirements in Sec.  
155.705(b)(11)(i) or (ii) in Sec.  155.706(b)(11), since these reflect 
methods SHOPs would use for determining employer contributions. In the 
FF-SHOPs and SBE-FPs for SHOP, this premium calculator would be where 
an employer or SHOP-registered agent or broker could go to see a 
complete listing of all the QHPs available in a given area. The tool 
has served and would continue to serve as a resource for employers and 
SHOP-registered agents and brokers. Because we believe the premium 
calculator requirement at section 1311(d)(4)(G) of the PPACA could be 
interpreted to apply to only individual market Exchanges based on its 
reference to APTCs and CSRs, which are not available through SHOPs, we 
believe that this proposal is consistent with the statute.
    Section 155.705(c) generally requires a SHOP to provide data 
related to eligibility and enrollment of a qualified employee to the 
applicable individual market Exchange. For plan years beginning on or 
after January 1, 2018, we propose that this requirement would apply 
only in SHOPs that collect employee enrollment data related to 
eligibility and enrollment of a qualified employee, unless the SHOP is 
operated pursuant to Sec.  155.100(a)(2).
    Finally, we propose in paragraph (e) that the provisions of the 
section would be applicable for plan years beginning on or after 
January 1, 2018, effective on the effective date of the final rule, if 
finalized as proposed.
d. Eligibility Determination Process for SHOP for Plan Years Beginning 
Prior to January 1, 2018 (Sec.  155.715)
    As discussed in the following section, we propose to modify the 
regulatory requirements regarding the eligibility determination process 
for SHOP for plan years beginning on or after January 1, 2018, 
effective on the effective date of the final rule, if finalized as 
proposed, and to introduce those requirements in a new Sec.  155.716. 
To reflect the proposal that the requirements currently in Sec.  
155.715 would apply only for plan years beginning before January 1, 
2018, we propose to amend the heading of Sec.  155.715 and add 
paragraph (h), to state that the section would apply only for plan 
years that begin prior to January 1, 2018.
e. Eligibility Determination Process for SHOP for Plan Years Beginning 
on or After January 1, 2018 (Sec.  155.716)
    Section 155.715 describes the SHOP eligibility determination 
process for employers and employees. We propose to add new Sec.  
155.716 to describe the eligibility determination process for SHOPs for 
plan years beginning on or after January 1, 2018. With the exception of 
the proposed changes to the process described here, the process would 
remain the same as in Sec.  155.715. However, this new section would 
modify and remove some of the requirements in Sec.  155.715. The 
proposals described in this section would be effective on the effective 
date of the final rule, if finalized as proposed.
    Section 155.715(a) requires that before permitting the purchase of 
coverage in a QHP, the SHOP must determine that the employer or 
individual who requests coverage is eligible. Under current 
regulations, this requirement means that employers and employees must 
complete an application to participate in the SHOP. Accordingly, the 
FF-SHOPs have established certain operational requirements related to 
submitting an application through the FF-SHOP Web site, including 
creating an account on the FF-SHOP Web site, (for employers) providing 
information on the business (including location, Employer 
Identification Number, and number of employees), and identity 
verification.
    To reduce the barriers on employers to obtain SHOP coverage, we 
propose in Sec.  155.716 that SHOPs must determine that the employer 
who requests coverage is eligible, but that SHOPs generally would not 
always need to do so before the issuer permits the purchase of coverage 
in a QHP through a SHOP, for plan years beginning on or after January 
1, 2018. This would generally permit an employer to purchase a QHP 
before obtaining a determination of SHOP eligibility and confirming 
with the issuer the status of the enrollment as being through the SHOP. 
As further explained in the preamble to Sec.  156.286, issuers would be 
expected to establish processes to ensure that they can accurately 
identify which enrollments are considered SHOP enrollments and which 
are not considered SHOP enrollments. We would encourage employers to 
obtain an eligibility determination from the SHOP as close to the date 
in which they purchase a SHOP QHP. We also are considering establishing 
a limit on how long an employer can wait between purchasing the QHP and 
obtaining the determination of eligibility for that QHP to be 
considered purchased through the SHOP. We solicit comments on whether 
to establish such a limit, and how long it should be.
    As a condition of claiming the Small Business Health Care Tax 
Credit, small employers must be prepared to provide sufficient proof 
that they meet applicable criteria. Part of the employer's 
responsibility in providing evidence that it is a small employer 
eligible for the Small Business Health Care Tax Credit includes the 
ability to verify not only the purchase of a SHOP QHP, but the ability 
to produce a favorable eligibility determination from a SHOP. 
Therefore, employers applying for the Small Business Health Care Tax 
Credit are also encouraged to obtain an eligibility determination from 
the SHOP in the taxable year in which they intend to apply for the 
credit.
    Section 155.715(b) requires the SHOP to accept SHOP applications 
from both employers and employees, and Sec.  155.715(c) provides for 
the verification of both employer and employee eligibility. For plan 
years beginning on or after January 1, 2018, we propose to provide 
SHOPs flexibility to forgo providing for employee eligibility 
determinations and related functionality and obligations (and the FF-
SHOPs would pursue this flexibility). If finalized, these changes would 
become effective as of the effective date of the

[[Page 51097]]

final rule. We propose that SHOPs would not be required to accept 
applications by employees or determine eligibility of employees 
because, under the proposed approach to enrollment in a SHOP, SHOPs 
would not be required to interact with employees. Proposed paragraphs 
(b) and (c) of Sec.  155.716 would still require SHOPs to accept a SHOP 
single employer application form from employers, and to verify employer 
eligibility subject to provisions like those currently in Sec.  
155.715(c)(2) through (4). We intend to update the single employer 
applications that employers applying to participate in SHOPs would use 
to reflect our proposed changes to Sec.  155.730 described elsewhere in 
this preamble. Employee information is primarily collected for purposes 
of enrollment, and therefore would not be necessary to the operation of 
a leaner SHOP under our proposed approach. State-based SHOPs that 
intend to maintain more robust SHOP functionalities, in lieu of the 
flexibilities in this proposal, would be permitted to continue to 
determine employee eligibility. We believe this proposal is consistent 
with the statute because, as noted above, the PPACA does not have to be 
interpreted to require SHOPs to provide for employee enrollment 
functionality, and does not define qualified employees.
    Paragraph (d) of Sec.  155.715 describes the eligibility adjustment 
period. We propose to include in Sec.  155.716(d) these requirements as 
they relate to eligibility for employers. However, because SHOPs would 
not be required to accept applications from employees, we propose not 
to include the requirements in Sec.  155.715(d)(2), relating to 
eligibility for employees, in new Sec.  155.716. We also propose to add 
language to reflect that SHOPs also must address inconsistencies in 
employer eligibility information received from sources other than those 
used in the employer eligibility process described in Sec.  155.715(c).
    To reflect our proposed changes to the employer eligibility 
verification process, as further described in this section and in the 
preamble to Sec.  157.205, and our proposal not to include a section 
mirroring Sec.  155.735 regarding terminations, we are adding a 
requirement in the paragraphs mirroring paragraphs (d)(3)(i) and (e) of 
Sec.  155.715 to require the SHOP to notify employers not only of a 
denial of the employer's eligibility to participate in the SHOP, but 
also of a termination of the employer's eligibility to participate in 
the SHOP.
    Paragraph (f) of Sec.  155.715 specifies the requirement that the 
SHOP notify an employee of his or her eligibility to enroll in a SHOP. 
Because we would not be requiring SHOPs to determine employee 
eligibility for plan years beginning on or after January 1, 2018, we 
propose not to include this requirement in Sec.  155.716. SHOPs that 
continue to provide employee eligibility functionality should continue 
notifying employees of their eligibility. Under the proposed approach 
for SHOP flexibilities for plan years beginning on or after January 1, 
2018, we anticipate that the participating QHP issuer or employer would 
determine the method of employee enrollment and notification, 
consistent with otherwise applicable Federal or State law.
    Paragraph (g) of Sec.  155.715 describes the requirements 
surrounding communication between the SHOP and QHP issuers in the event 
of an employer withdrawing from the SHOP and the notification of 
qualified employees of an employer's withdrawal from SHOP. Under the 
proposed approach for SHOPs beginning for plan years that begin on or 
after January 1, 2018, the enrollment and disenrollment processes would 
be addressed between the employer and the issuer or the agent or 
broker. Therefore, we are not proposing to include these requirements 
in Sec.  155.716.
    We further propose in paragraph (f) of Sec.  155.716 that an 
employer's determination of eligibility to participate in the SHOP 
obtained under paragraph (a) remains valid until the employer makes a 
change that could end its eligibility under Sec.  155.710(b). This 
could include terminating offers of coverage to employees maintaining 
full-time status, growing to be a large employer without having 
maintained continuous SHOP coverage, or moving its principal business 
address or eligible employee worksites out of the SHOP service area. 
The employer would be required under new regulations proposed in part 
157 to take further action upon termination of the validity of the 
determination of eligibility to participate in a SHOP to submit a new 
application for determination of eligibility or to withdraw from 
participation in the SHOP. We are considering requiring SHOPs to 
acknowledge an employer's withdrawal from participation in the SHOP 
within a reasonable time. Alternatively, we are considering requiring 
that employers reapply to determine their SHOP eligibility on an annual 
basis. We seek comment on these proposals. Under the proposals 
described herein, a SHOP would no longer be required to operate an 
enrollment system, where information such as an employee roster or 
employee worksite would generally be collected and stored. Because 
employers would no longer use a SHOP's systems to report and document 
these changes, employers must inform the SHOP if their business status 
changes.
    We propose to specify in paragraph (g) that the provisions in Sec.  
155.716 would be applicable for plan years beginning on or after 
January 1, 2018. If finalized as proposed, these changes would become 
effective as of the effective date of the final rule.
    We seek comment on these proposals.
f. Enrollment of Employees Into QHPs Under SHOP for Plan Years 
Beginning Prior to January 1, 2018 (Sec.  155.720)
    Section 155.720 contains requirements related to the enrollment of 
employees into QHPs under SHOP. To reflect that our proposed approach 
would no longer require SHOPs to provide functionality related to 
enrollment of employees for plan years beginning on or after January 1, 
2018, effective on the effective date of the final rule, if finalized 
as proposed, we propose to amend the heading of Sec.  155.720 and add 
paragraph (j), to state that the section would apply only for plan 
years that begin prior to January 1, 2018.
    Specifically, we propose that the requirement in paragraph (b) of 
Sec.  155.720 that SHOPs establish a timeline and process for QHP 
issuers and employers to follow regarding purchasing coverage and 
processing of enrollment would not be applicable for plan years that 
begin on or after January 1, 2018. SBEs that choose to maintain their 
current operations may continue establishing enrollment timelines, as 
State law and SHOP technology permit. We also propose that the 
requirements to transmit enrollment information on behalf of qualified 
employers and employees to QHP issuers as described in current 
paragraph (c), and to process payments as described in current 
paragraph (d) would not apply after plan year 2017, since SHOPs may not 
have enrollment or payment information to transmit. We propose that the 
requirement in paragraph (e) that SHOPs ensure a QHP issuer notifies a 
qualified employee enrolled in a QHP of the effective date of his or 
her coverage would not apply for plan years beginning on or after 
January 1, 2018 because SHOPs may not have the enrollment information 
necessary to enforce this requirement, if the proposed approach became 
final. We anticipate QHP issuers would notify employees in accordance 
with applicable State law. Additionally, after

[[Page 51098]]

plan year 2017 plans have ended, we propose not to require SHOPs to 
reconcile enrollment information as described in paragraph (g), as 
SHOPs would not have enrollment files to reconcile with issuers. We 
also propose that the requirements described in current paragraph (h), 
which requires a SHOP to notify a qualified employee's employer in the 
event the qualified employee terminates his or her SHOP coverage, would 
no longer apply for plan years beginning on or after January 1, 2018. 
If finalized, these changes would become effective as of the effective 
date of the final rule. Under the proposed approach, SHOPs may not have 
that information to communicate to the qualified employee's employer.
g. Record Retention and IRS Reporting for Plan Years Beginning on or 
After January 1, 2018 (Sec.  155.721)
    Our proposed approach would not require SHOPs to provide 
functionality related to enrollment of employees for plan years 
beginning on or after January 1, 2018, and we are therefore proposing 
that Sec.  155.720 would be inapplicable for those plan years, 
effective on the effective date of the final rule, if finalized as 
proposed. However, there are requirements in that section related to 
record retention and IRS reporting that would continue to be applicable 
with some modifications. We propose to include modified versions of 
these requirements in a new Sec.  155.721, titled ``Record retention 
and IRS Reporting for plan years beginning on or after January 1, 
2018.''
    We propose that all SHOPs would still be required to maintain 
records of employer eligibility for 10 years, as described in paragraph 
(f). Because SHOPs utilizing the proposed flexibilities, like the FF-
SHOPs, would not have information on employees, we do not propose to 
continue requiring that SHOPs maintain information on employees.
    Section 155.720(i) describes the information the SHOP is currently 
required to communicate to the IRS for purposes of the Small Business 
Health Care Tax Credit. We propose to modify the reporting for plan 
years beginning on or after the effective date of the rule finalizing 
this proposal to require SHOPs to send the IRS information about the 
employers determined eligible to purchase a SHOP QHP only upon the 
request of the IRS. We believe providing the IRS with a list of 
employers determined eligible to participate in a SHOP, at the IRS's 
request, fulfills HHS's reporting responsibility. SBEs that currently 
report all the information required by existing Sec.  155.720(i) and 
will continue to collect such information related to an employer's 
eligibility and enrollment in a SHOP are encouraged to continue 
reporting this information to assist the IRS in administering the Small 
Business Health Care Tax Credit. As mentioned earlier in this document, 
employers in all States must be able to provide sufficient evidence 
that they meet all the necessary eligibility requirements for the Small 
Business Health Care Tax Credit, if they intend to apply for it. The 
IRS may ask employers to produce the aforementioned evidence and 
employers have a responsibility to produce it. Further, employers may 
work with their issuer to verify their contribution information, 
employee enrollment information and any other applicable information 
required to apply for the Small Business Health Care Tax Credit through 
their tax filings.
h. Enrollment Periods Under SHOP for Plan Years Beginning Prior to 
January 1, 2018 (Sec.  155.725)
    As discussed in the following section, we propose to modify the 
regulatory requirements regarding enrollment periods under a SHOP for 
plan years beginning on or after January 1, 2018, and to introduce 
those requirements in a new Sec.  155.726. To reflect the proposal that 
the requirements currently in Sec.  155.725 would apply only for plan 
years beginning before January 1, 2018, we propose to amend the heading 
of Sec.  155.725 and add paragraph (l), to state that the section would 
only apply for plan years that begin prior to January 1, 2018. If 
finalized, these changes would become effective as of the effective 
date of the final rule. We discuss the proposed new Sec.  155.726 
below.
i. Enrollment Periods Under SHOP for Plan Years Beginning on or After 
January 1, 2018 (Sec.  155.726)
    Section 155.725 describes enrollment periods under SHOP, including 
the timeline under which employer groups must enroll in SHOP coverage, 
and the notices the SHOP is required to send related to enrollment 
periods. We propose to introduce a new Sec.  155.726, which would 
retain the rolling enrollment and minimum participation rate provisions 
of Sec.  155.725(b) and (k), but would remove the requirements 
applicable to enrollment periods under SHOP other than those related to 
special enrollment periods for plan years beginning on or after January 
1, 2018, to reflect the increased flexibility we are proposing. The 
proposals described in this section would be effective on the effective 
date of the final rule, if finalized as proposed.
    Section Sec.  155.725(a) requires that SHOPs ensure that enrollment 
transactions are sent to QHP issuers and that such issuers adhere to 
coverage effective dates in accordance with this section. We propose 
that many previously required enrollment and election periods would no 
longer apply for plan years beginning on or after January 1, 2018. 
State-based SHOPs that continue to provide online enrollment 
functionality would be able to continue to adhere to these 
requirements. However, under the proposed approach, some SHOPs 
(including the FF-SHOPs) may not have enrollment information to 
communicate to the issuers and may not want to continue setting and 
enforcing coverage effective dates under the previously specified 
requirements. In SHOPs, like the FF-SHOPs, that pursue the proposed 
approach, we anticipate that most enrollment timelines, deadlines, and 
coverage effective dates in SHOPs would be set by employers and issuers 
consistent with applicable State law and otherwise applicable Federal 
law. We do, however, believe that, under the proposed approach, the 
SHOP should be responsible for ensuring that QHP issuers adhere to the 
remaining required enrollment periods and their corresponding coverage 
effective dates. Therefore, we propose to include this requirement in 
Sec.  155.726(a).
    Paragraph (c) of Sec.  155.725 states that the SHOP must provide 
qualified employers with an annual election period prior to completion 
of the employer's plan year and paragraph (d) of Sec.  155.725 requires 
the SHOP to provide notice of that period in advance of that period. 
Given that, under the proposed approach for SHOPs for plan years 
beginning on or after January 1, 2018, SHOPs would not be required to 
process enrollments, we propose that these requirements would not apply 
for plan years beginning on or after January 1, 2018. We anticipate 
that participating QHP issuers in SHOPs pursuing the proposed approach, 
like in the FF-SHOPs, would be responsible for setting any requirements 
around renewals, annual employer election periods, and annual employee 
open enrollment periods, based on their current practices, and subject 
to applicable State law and otherwise applicable Federal law, including 
Sec. Sec.  147.104 and 147.106. For similar reasons, we propose that 
the requirements in Sec.  155.725(e), which requires the SHOP to set a 
standard open enrollment period for qualified employees, and Sec.  
155.725(f), which requires the SHOP to send a notice to the employee 
about the open enrollment

[[Page 51099]]

period, would not apply for plan years beginning on or after January 1, 
2018.
    Section 155.725(g) requires SHOPs to establish and maintain 
enrollment and coverage effective dates, including waiting periods, for 
newly qualified employees. However, our proposed amendments at 
paragraphs (b), (c)(1), and (d)(2) of Sec.  155.715 would remove the 
requirement for SHOPs to perform employee eligibility determinations, 
accept and process single employee SHOP application forms, as well as 
verify employee eligibility for plan years beginning on or after 
January 1, 2018. Furthermore, our proposed amendments to remove 
paragraphs (c) and (d) of Sec.  155.725 would remove the requirement 
for SHOPs to maintain enrollment records for plan years beginning on or 
after January 1, 2018. SHOPs that utilize these proposed flexibilities, 
like the FF-SHOPs, may be unable to satisfy the requirements in Sec.  
155.725(g). To align with these proposed amendments, we propose that 
the requirements in Sec.  155.725(g) would not apply for plan years 
beginning on or after January 1, 2018. Instead, we anticipate that 
enrollment timelines, deadlines, and coverage effective dates for newly 
qualified employees in SHOPs that pursue the proposed approach would be 
set by employers and issuers consistent with applicable State law and 
otherwise applicable Federal law, including Sec.  147.116. Further, as 
noted above, issuers offering plans in SHOPs would still be required to 
adhere to the guaranteed availability requirements set in Sec.  
147.104(b)(1)(i) and the special enrollment period requirements in 
proposed Sec.  155.726(c).
    We also propose that the requirement in Sec.  155.725(h)(1) that a 
SHOP establish the effective dates of coverage for initial and annual 
group enrollments would not apply for plan years beginning on or after 
January 1, 2018. Because SHOPs utilizing the proposed flexibilities, 
like the FF-SHOPs, would no longer be involved in processing group 
enrollments, and would therefore not be able to hold issuers 
accountable to these enrollment deadlines, we believe it is more 
appropriate to permit QHP issuers in SHOPs to set their own enrollment 
timelines. However, SBEs would be permitted to continue establishing 
these effective dates. We are also proposing to remove paragraph (h)(2) 
for plan years beginning on or after January 1, 2018, which establishes 
the effective dates for initial and annual group enrollments in FF-
SHOPs, because the FF-SHOPs intends to utilize the proposed 
flexibilities. We anticipate that issuers in SHOPs that pursue this 
approach, like in FF-SHOPs, would set enrollment timelines for employer 
groups participating in these SHOPs, based on their current practices, 
and consistent with the market rules set forth in Sec. Sec.  147.104 
and 147.106, and otherwise applicable State law.
    We propose that the special enrollment periods specified in Sec.  
155.725(j) would continue to be applicable in the SHOPs for plan years 
beginning on or after January 1, 2018, and propose to include these in 
Sec.  155.726(c). We also propose that the requirements regarding 
special enrollment periods in Sec.  155.725(j)(3) would apply for plan 
years beginning on or after January 1, 2018. However, we propose to 
modify the SHOPs' responsibilities with respect to special enrollment 
periods. As stated earlier in this preamble, under our proposed 
approach for SHOPs beginning in plan years starting on or after January 
1, 2018, SHOPs would no longer be required to provide functionality 
related to enrollment of employees. For SHOPs that pursue the proposed 
approach, like the FF-SHOPs, issuers would preliminarily be responsible 
for completing enrollments, and so we expect issuers would implement 
enrollment periods. We are therefore proposing to modify the 
requirements to reflect that the SHOP's proposed role is not to provide 
special enrollment periods, but to ensure that QHP issuers offering 
coverage through the SHOP provides the special enrollment periods set 
forth in regulation.
    We seek comment on these proposals.
j. Application Standards for SHOP for Plan Years Beginning Prior to 
January 1, 2018 (Sec.  155.730)
    As discussed in the following section, we propose to modify the 
regulatory requirements regarding application standards of a SHOP for 
plan years beginning on or after January 1, 2018 and to introduce those 
requirements in a new Sec.  155.731. To reflect the proposal that the 
requirements currently in Sec.  155.730 would apply only for plan years 
beginning before January 1, 2018, we propose to amend the heading of 
Sec.  155.730 and add paragraph (h), to state that the section would 
apply for only plan years that begin prior to January 1, 2018, 
effective on the effective date of the final rule, if finalized as 
proposed.
k. Application Standards for SHOP for Plan Years Beginning on or After 
January 1, 2018 (Sec.  155.731)
    Section 155.730 describes the requirements for employer and 
employee applications in the SHOPs. We propose to modify these 
requirements for plan years beginning on or after January 1, 2018, and 
to introduce these modified requirements in Sec.  155.731. With the 
exception of the proposed changes to the requirements described here, 
the requirements would remain the same as in Sec.  155.730. The 
proposals in this section would be effective on the effective date of 
the final rule, if finalized as proposed.
    Because under the proposed approach to SHOP enrollment for plan 
years beginning on or after January 1, 2018, QHP issuers would complete 
the process of enrolling qualified employees into coverage in SHOPs, it 
would not be necessary for a SHOP to collect information necessary for 
purchasing coverage. Therefore, we propose to modify the information 
collection requirements related to the single employer application to 
require SHOPs to collect only information that would be necessary for 
SHOPs to determine employer eligibility to participate in the SHOP 
under Sec.  155.710(b). To more closely align the description of the 
data elements collected with those standards for eligibility to 
participate, we propose to require the SHOP to collect the employer 
name and address of the employer's locations; information sufficient to 
confirm that the employer is a small employer; the Employer 
Identification Number; and information sufficient to confirm that the 
employer is offering, at a minimum, all full-time employees' coverage 
in a QHP through a SHOP. SHOPs could collect other information, at 
their option subject to the limitations in Sec.  155.716(c)(2) and 
Sec.  155.731(f).
    Paragraph (c) of 155.730 requires the use of a single employee 
application. We propose that this requirement would not apply for SHOP 
beginning for plan years starting on or after January 1, 2018, as the 
information collected in this application would no longer be necessary, 
since the SHOP would no longer process employees' enrollment.
    Section 155.730(d) permits a SHOP to use a model single employer 
application and model single employee application provided by HHS and 
Sec.  155.730(e) permits the use of HHS-approved alternatives to these 
model applications. We also propose to maintain these options, but for 
consistency with the proposal described throughout this preamble, we 
propose not to reference a model single employee application. We expect 
to update the model single employer application for consistency with 
the elements described in proposed Sec.  155.731(b).
    Paragraph (g) of Sec.  155.730 describes additional application 
safeguards for SHOP employer and employee applications, which we 
propose to

[[Page 51100]]

maintain in Sec.  155.731(f) with minor amendments to reflect the 
proposal to eliminate the requirement to collect a single employee 
application. We also propose in new paragraph (g) to state that Sec.  
155.731 is only applicable for plan years beginning on or after January 
1, 2018. If finalized, these changes would become effective as of the 
effective date of the final rule.
    We seek comment on these proposals.
l. Termination of SHOP Enrollment or Coverage (Sec.  155.735)
    Section 155.735 outlines requirements related to terminations of 
SHOP coverage or enrollment. Under our proposed approach, described in 
detail in the preamble to earlier sections of this proposed rule, the 
process of completing enrollments, as well as terminating coverage, 
could be completed by issuers, and would not be required to be 
completed by the SHOPs. Issuers would be expected to comply with 
otherwise applicable State and Federal law regarding terminating 
coverage, the timelines and effective dates for termination, and any 
notice requirements, including those at Sec. Sec.  147.106 and 156.285. 
Accordingly, we propose that this section would be applicable for only 
plan years beginning prior to January 1, 2018, as described in the 
proposed amendment to the heading and new paragraph (h), effective on 
the effective date of the final rule, if finalized as proposed. SHOPs 
maintaining current enrollment functions would be encouraged to set 
termination guidelines and distribute notices for terminations based on 
nonpayment of premiums or loss of employee eligibility, unless State 
law requires QHP issuers to send the notices. Because SHOPs, such as 
the FF-SHOPs, would no longer be required to enroll groups into a SHOP 
QHP, they would no longer be required to maintain the ability to 
terminate coverage. We believe proposed new Sec. Sec.  155.716 and 
157.206 sufficiently address terminations of eligibility for 
participation in a SHOP. We seek comments on this proposal.
m. SHOP Employer and Employee Eligibility Appeals Requirements for Plan 
Years Beginning Prior to January 1, 2018 (Sec.  155.740)
    As discussed in the following section, we propose to modify the 
regulatory requirements regarding employer and employee eligibility 
appeals in SHOP for plan years beginning on or after January 1, 2018, 
and to introduce those modified requirements in a new Sec.  155.741. To 
reflect the proposal that the requirements currently in Sec.  155.740 
would apply only for plan years beginning before January 1, 2018, 
effective on the effective date of the final rule, if finalized as 
proposed, we propose to amend the heading of Sec.  155.740 and add 
paragraph (p), to state that the section would apply only for plan 
years that begin prior to January 1, 2018.
n. SHOP Employer and Employee Eligibility Appeals Requirements for Plan 
Years Beginning on or After January 1, 2018 (Sec.  155.741)
    Section 155.740 describes the SHOP eligibility appeals process for 
employers and employees. These provisions describe the applicable 
definitions, the general requirements to provide for appeals, and 
employers' and employee's rights to appeal an eligibility determination 
from the SHOP.
    To continue to provide for employer eligibility appeals, we propose 
to add new Sec.  155.741, mirroring Sec.  155.740, with the following 
exceptions. Because we propose elsewhere that the requirement to 
provide employees with eligibility determinations and the requirement 
in Sec.  155.715(f) regarding notification of employee eligibility 
would no longer apply in plan years beginning on or after January 1, 
2018, we propose not to include a paragraph mirroring Sec.  155.740(d), 
which describes employees' rights to appeal. We also propose to omit 
other references to employee appeal rights, to add references to 
provide for appeals of terminations of eligibility to participate in a 
SHOP, and to update cross-references as applicable.
    We propose in paragraph (o) that the provisions of Sec.  155.741 
would only be applicable to plan years beginning on or after January 1, 
2018, effective on the effective date of the final rule, if finalized 
as proposed.
    We seek comments on these proposals.

E. Part 156--Health Insurance Issuer Standards Under the Affordable 
Care Act, Including Standards Related to Exchanges

1. FFE and SBE-FP User Fee Rates for the 2019 Benefit Year (Sec.  
156.50)
    Section 1311(d)(5)(A) of the PPACA permits an Exchange to charge 
assessments or user fees on participating health insurance issuers as a 
means of generating funding to support its operations. In addition, 31 
U.S.C. 9701 permits a Federal agency to establish a charge for a 
service provided by the agency. If a State does not elect to operate an 
Exchange or does not have an approved Exchange, section 1321(c)(1) of 
the PPACA directs HHS to operate an Exchange within the State. 
Accordingly, in Sec.  156.50(c), we specified that a participating 
issuer offering a plan through an FFE or SBE-FP must remit a user fee 
to HHS each month that is equal to the product of the monthly user fee 
rate specified in the annual HHS notice of benefit and payment 
parameters for FFEs and SBE-FPs for the applicable benefit year, and 
the monthly premium charged by the issuer for each policy under the 
plan where enrollment is through an FFE or SBE-FP.
    OMB Circular No. A-25R establishes Federal policy regarding user 
fees; it specifies that a user fee charge will be assessed against each 
identifiable recipient for special benefits derived from Federal 
activities beyond those received by the general public. As in benefit 
years 2014 through 2018, issuers seeking to participate in an FFE in 
the 2019 benefit year will receive two special benefits not available 
to the general public: (1) The certification of their plans as QHPs; 
and (2) the ability to sell health insurance coverage through an FFE to 
individuals determined eligible for enrollment in a QHP. These special 
benefits are provided to participating issuers through the following 
Federal activities for the 2019 benefit year in connection with the 
operation of FFEs:
    <bullet> Provision of consumer assistance tools;
    <bullet> Consumer outreach and education;
    <bullet> Management of a Navigator program;
    <bullet> Regulation of agents and brokers;
    <bullet> Eligibility determinations;
    <bullet> Enrollment processes; and
    <bullet> Certification processes for QHPs (including ongoing 
compliance verification, recertification and decertification).
    OMB Circular No. A-25R further states that user fee charges should 
generally be set at a level that is sufficient to recover the full cost 
to the Federal government of providing the service when the government 
is acting in its capacity as sovereign (as is the case when HHS 
operates an FFE). Activities performed by the Federal government that 
do not provide issuers participating in an FFE with a special benefit 
are not covered by this user fee.
    Based on estimated contract costs, enrollment and premiums for the 
2019 benefit year, we propose to maintain the 2019 benefit year user 
fee rate for all participating FFE issuers at 3.5 percent of total 
monthly premiums. We seek comment on this proposal.
    State-based Exchanges on the Federal platform enter into a Federal 
platform

[[Page 51101]]

agreement with HHS to leverage the systems established for the FFEs to 
perform certain Exchange functions, and to enhance efficiency and 
coordination between State and Federal programs. Accordingly, in Sec.  
156.50(c)(2), we specified that an issuer offering a plan through an 
SBE-FP must remit a user fee to HHS, in the timeframe and manner 
established by HHS, equal to the product of the monthly user fee rate 
specified in the annual HHS notice of benefit and payment parameters 
for SBE-FPs for the applicable benefit year, unless the SBE-FP and HHS 
agree on an alternative mechanism to collect the funds from the SBE-FP 
or State instead of direct collection from the SBE-FP issuers. The 
benefits provided to issuers in SBE-FPs by the Federal government will 
include use of the Federal Exchange information technology and call 
center infrastructure used in connection with eligibility 
determinations for enrollment in QHPs and other applicable State health 
subsidy programs, as defined at section 1413(e) of the PPACA, and 
enrollment in QHPs under Sec.  155.400. As previously discussed, OMB 
Circular No. A-25R established Federal policy regarding user fees, and 
specified that a user charge will be assessed against each identifiable 
recipient for special benefits derived from Federal activities beyond 
those received by the general public. The user fee rate for SBE-FPs is 
calculated based on the proportion of FFE costs that are associated 
with the FFE information technology infrastructure, the consumer call 
center infrastructure, and eligibility and enrollment services, and 
allocating a share of those costs to issuers in the relevant SBE-FPs. A 
significant portion of expenditures for FFE services are associated 
with the information technology, call center infrastructure, and 
eligibility determinations for enrollment in QHPs and other applicable 
State health subsidy programs as defined at section 1413(e) of the 
PPACA, and personnel who perform the functions set forth in Sec.  
155.400 to facilitate enrollment in QHPs. Based on this methodology, we 
propose to charge issuers offering QHPs through an SBE-FP a user fee 
rate of 3.0 percent of the monthly premium charged by the issuer for 
each policy under plans offered through an SBE-FP. This fee would 
support FFE operations associated with providing the services described 
above. We seek comment on this proposal.
    We will continue to examine contract cost estimates for the special 
benefits provided to issuers offering QHPs on the FFEs and SBE-FPs for 
the 2019 benefit year as we finalize the FFE and SBE-FP user fee rates, 
which will be reflected in the final rule. Additionally, outreach and 
education efforts will be evaluated annually and funded at the 
appropriate level. We seek comment on the proposed FFE and SBE-FP user 
fee rates.
    As we describe elsewhere in this proposed rule, for plan years 
beginning on or after January 1, 2018, effective on the effective date 
of the final rule, if finalized as proposed, we are proposing to remove 
employee eligibility, premium aggregation, and online enrollment 
functionality through the FF-SHOPs for FFE and SBE-FP SHOP issuers. 
Given the changes to the functionality for the FF-SHOPs, HHS would not 
provide these special benefits through the FF-SHOPs after the effective 
date of the rule finalizing this proposal. Therefore, HHS would not 
assess a user fee on issuers offering QHPs through FF-SHOPs for FFE or 
SBE-FP SHOP issuers because these user fees are currently only charged 
to issuers who receive special benefits from enrolling individuals 
through the FF-SHOPs' platform. In instances where enrollment did occur 
through the Federal platform, for example, for plan years beginning 
prior to the effective date of the final rule, HHS will continue 
charging SHOP issuers monthly FFE or SBE-FP user fees, as applicable.
2. Essential Health Benefits Package
    Section 2707(a) of the PHS Act, as added by the PPACA, directs 
health insurance issuers that offer non-grandfathered health insurance 
coverage in the individual or small group market to ensure that such 
coverage includes the EHB package, which is defined under section 
1302(a) of the PPACA to include coverage that provides for the EHB 
defined by the Secretary under section 1302(b) of the PPACA; limits 
cost sharing in accordance with section 1302(c) of the PPACA; and 
provides either the bronze, silver, gold, or platinum level of 
coverage, or is a catastrophic plan under sections 1302(d) and (e) of 
the PPACA. Section 1302(b) of the PPACA states that the Secretary is to 
define EHB, except that EHB must include at least the following general 
categories and the items and services covered within the categories: 
(1) Ambulatory patient services; (2) emergency services; (3) 
hospitalization; (4) maternity and newborn care; (5) mental health and 
substance use disorder services including behavioral health treatment; 
(6) prescription drugs; (7) rehabilitative and habilitative services 
and devices; (8) laboratory services; (9) preventive and wellness 
services and chronic disease management; and (10) pediatric services, 
including oral and vision care. Additionally, section 1302(b)(2) of the 
PPACA states that the Secretary must ensure that the scope of EHB for 
the 10 EHB categories be equal to the scope of benefits provided under 
a typical employer plan, as determined by the Secretary. Furthermore, 
section 1302(b)(2) of the PPACA states, in defining and revising EHB, 
that the Secretary is to submit a report to the appropriate committees 
of Congress containing a certification from the CMS Chief Actuary that 
such EHB are equal in scope to the benefits provided under a typical 
employer plan. In defining and revising the 10 EHB categories, the 
Secretary must also provide notice and an opportunity for public 
comment. Additionally, section 1302(b)(4)(G) and (H) of the PPACA 
require the Secretary to periodically review and update the definition 
of EHB and provide a report to Congress that contains assessments 
related to the need to update the definition of EHB.
    Section 1302(b)(4) of the PPACA requires the Secretary, in defining 
the EHB, to: (1) Ensure that such EHB reflect an appropriate balance 
among the categories so that benefits are not unduly weighted toward 
any category; (2) not make coverage decisions, determine reimbursement 
rates, establish incentive programs, or design benefits in ways that 
discriminate against individuals because of their age, disability, or 
expected length of life; (3) take into account the healthcare needs of 
diverse segments of the population, including women, children, persons 
with disabilities, and other groups; (4) ensure the health benefits 
established as essential not be subject to denial to individuals 
against their wishes on the basis of the individuals' age or expected 
length of life or of the individuals' present or predicted disability, 
degree of medical dependency, or quality of life; and (5) provide that 
a QHP shall not be treated as providing coverage for EHB unless it 
meets certain requirements for coverage of emergency services.
    To implement section 1302(b) of the PPACA, HHS defined EHB based on 
a benchmark plan approach, which provided at Sec.  156.100 for the 
States' selection from one of 10 base-benchmark plans, including the 
largest health plan by enrollment in any of the three largest small 
group insurance products by enrollment, any of the largest three 
employee health benefit plan options by enrollment offered and 
generally available to State employees in the State, any of the largest 
three

[[Page 51102]]

national Federal Employees Health Benefits Program (FEHBP) plan options 
by aggregate enrollment that is offered to all health-benefits-eligible 
Federal employees under 5 U.S.C. 8903, or the coverage plan with the 
largest insured commercial non-Medicaid enrollment offered by a health 
maintenance organization operating in the State. States were required 
at Sec.  156.110 to supplement their base-benchmark plan from Sec.  
156.100 to ensure the 10 EHB categories were being covered to establish 
the State's EHB-benchmark plan. Section 156.110 also ensures that the 
EHB-benchmark plan meets the standards of nondiscrimination and balance 
of benefits, and allows habilitative services to be determined by the 
State.
    We believe that States should have additional choices with respect 
to benefits and affordable coverage. As such, we are proposing to 
provide States with additional flexibility in their selection of an 
EHB-benchmark plan for plan year 2019 and later plan years. In addition 
to granting States more flexibility regulating their markets, we 
believe these changes would permit States to modify EHB to increase 
affordability of health insurance in the individual and small group 
markets beginning in 2019. We propose that the current EHB-benchmark 
plan selection would continue to apply for any year for which a State 
does not select a new EHB-benchmark plan under this proposal. We seek 
comment on all aspects of this proposal. We also seek comment on the 
timing of this proposed policy, and specifically whether this policy 
should start with the 2019 plan year, as proposed, or with the 2020 
plan year.
    For plan years further in the future, we are considering 
establishing a Federal default definition of EHB that would better 
align medical risk in insurance products by balancing costs to the 
scope of benefits. The benefits of a Federal default could outweigh the 
potential impact on flexibility afforded to States, but we are also 
considering allowing States continued flexibility to adopt their own 
EHB-benchmark plans, provided they defray costs that exceed the Federal 
default. The National Academy of Medicine previously recommended a 
similar approach to HHS in their report on Essential Health Benefits: 
Balancing Costs and Coverage.\43\ We understand that in developing this 
type of default definition there are trade-offs in adjusting benefits 
and services. For instance, as part of this approach, we could 
establish a national benchmark plan standard for prescription drugs 
that could balance these tradeoffs and provide a consistent 
prescription drug default standard across States. We anticipate 
publishing further details on such an approach and gathering 
stakeholder input as we explore this longer-term approach. For now, we 
solicit initial comments on this longer-term approach, particularly 
with regards to setting a national prescription drug benefit standard 
under a Federal default EHB definition and the trade-offs in adjusting 
benefits from the current EHBs.
---------------------------------------------------------------------------

    \43\ Institute of Medicine, ``Essential Health Benefits: 
Balancing Coverage and Cost.'' October 6, 2011. Available at http://www.nationalacademies.org/hmd/Reports/2011/Essential-Health-Benefits-Balancing-Coverage-and-Cost.aspx.
---------------------------------------------------------------------------

a. State Selection of Benchmark Plan for Plan Years Beginning Prior to 
January 1, 2019 (Sec.  156.100)
    To reflect the proposed options in Sec.  156.111 for States to 
adopt new EHB-benchmark plans for plan years 2019 and later, we propose 
to make conforming changes to Sec.  156.100 to explicitly state that 
this selection applies only through plan years beginning in 2018, and 
Sec.  156.111 applies for plan years beginning after 2018.
b. State Selection of EHB-Benchmark Plan for Plan Years Beginning on or 
After January 1, 2019 (Sec.  156.111)
i. States' EHB-Benchmark Plan Options (Sec.  156.111(a))
    We propose adding new Sec.  156.111, which would provide States 
with the flexibility to update their EHB-benchmark plans more 
frequently and to select among more options. Specifically, we propose 
that a State may change its EHB-benchmark plan by: (1) Selecting the 
EHB-benchmark plan that another State used for the 2017 plan year \44\ 
under Sec.  156.100 and Sec.  156.110; (2) replacing one or more EHB 
categories of benefits under Sec.  156.110(a) in its EHB-benchmark plan 
used for the 2017 plan year with the same categories of benefits from 
another State's EHB-benchmark plan used for the 2017 plan year under 
Sec.  156.100 and Sec.  156.110; or (3) otherwise selecting a set of 
benefits that would become the State's EHB-benchmark plan, provided 
that the EHB-benchmark plan does not exceed the generosity of the most 
generous of among a set of comparison plans. Under this third option, 
the comparison plans would be the State's EHB-benchmark plan used for 
the 2017 plan year and the plans described in Sec.  156.100(a)(1) for 
the 2017 plan year, supplemented as necessary under Sec.  156.110. 
These plans would include the largest health plan by enrollment in each 
of the three largest small group insurance products by enrollment from 
the State's 2017 EHB-benchmark plan options.\45\ The intention of this 
proposal is to provide flexibility and the option for stability. 
Specifically, the proposal would allow States the flexibility to change 
their EHB-benchmark plans annually. At the same time, this proposed 
policy would also allow States that prefer to maintain their current 
EHB-benchmark plans to do so without action.
---------------------------------------------------------------------------

    \44\ The State's EHB-benchmark plans used for the 2017 plan year 
are based on plans from a previous plan year, but we occasionally 
refer to them as 2017 plans because these plans are applicable as 
the State's EHB-benchmark plans in 2017.
    \45\ The Essential Health Benefits: List of the Largest Three 
Small Group Products by State for 2017 is available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Top3ListFinal-5-19-2015.pdf. States' EHB-benchmark plans used for 
the 2017 plan year are able at https://www.cms.gov/;CCIIO/Resources/
Data-Resources/Downloads/Final-List-of-BMPs_4816.pdf.
---------------------------------------------------------------------------

Option 1: Select Another State's EHB-Benchmark Plan
    The first option proposed in paragraph (a)(1) would permit a State 
to select one of the EHB-benchmark plans used for the 2017 plan year by 
another State. This option would increase the number of selection 
options for each State without necessarily requiring extensive analysis 
on the part of a State because all States' current benchmark plan 
documents are publicly available.\46\ We are not proposing to change 
the State mandate policy at Sec.  155.170 under this option. Under this 
proposed policy, we propose that benefits mandated by State action 
prior to or on December 31, 2011, could continue to be considered EHB 
under Sec.  155.170, and would not require the State to defray the 
costs. However, if a State selects an EHB-benchmark plan

[[Page 51103]]

from another State using this option, the selecting State would still 
be required to defray the cost of any benefits included in that State's 
EHB-benchmark plan that are benefits mandated by the selecting State 
after December 31, 2011, and that are subject to defrayal under the 
current regulations.\47\ For example, if State A selects the EHB-
benchmark plan of State B, State A would be required to defray the cost 
of any benefits included in State B's EHB-benchmark plan that are 
required to be provided by State A's action after December 31, 2011, 
and that are subject to defrayal under current regulations. We solicit 
comments on this proposal, including on the application of the State 
mandate policy under this proposal and on whether other flexibilities 
are needed by States under this proposed option, such as allowing a 
State to select its EHB-benchmark plan from any of the 10 previous 
base-benchmark plan options available to the State or other States 
under Sec.  156.100, supplemented as necessary under Sec.  156.110.
---------------------------------------------------------------------------

    \46\ Benefits and limits described in the available benchmark 
plan documents on CMS's Web site may not be fully applicable due to 
other laws and regulations. For instance, under section 2711 of the 
PHS Act, as added by the PPACA, issuers may not impose dollar limits 
on EHBs. When dollar limits are specified in available benchmark 
plan documents, States would have removed the dollar limits or 
converted them to non-dollar limits when interpreting and applying 
EHB policy. CMS recognizes States as the primary enforcers of EHB 
policy. Thus, when a State would use a benchmark plan that 
originated in another State under any proposals under Sec.  156.111, 
we would defer to the selecting State's implementation of the 
benefits and limits consistent with otherwise applicable law, even 
when such interpretation differs from the originating State's 
interpretation. This applies throughout the proposals under Sec.  
156.111. All States' current benchmark plan documents are posted on 
CCIIO's Web site at https://www.cms.gov/CCIIO/Resources/Data-Resources/ehb.html.
    \47\ Pursuant to 45 CFR 155.170, the State must make payments to 
defray the cost of additional required benefits either to an 
enrollee, as defined in 45 CFR 155.20, or directly to the QHP issuer 
on behalf of the enrollee.
---------------------------------------------------------------------------

Option 2: Replace Category or Categories From Another State's EHB-
Benchmark Plan
    Paragraph (a)(2) would allow a State to partially replace its 
current EHB-benchmark plan, using EHB-benchmark plans used by other 
States for the 2017 plan year. Under this option, we propose that a 
State may replace any EHB category or categories of benefits in its 
EHB-benchmark plan from the 10 required EHB categories with the same 
category or categories of benefits from another State's EHB-benchmark 
plan used for the 2017 plan year. For example, a State may select the 
prescription drug coverage from another State's EHB-benchmark plan 
(which might include a different formulary drug count) and a third 
State's EHB-benchmark plan hospitalization category. This option would 
allow States to make precise changes to their EHB-benchmark plans by 
adjusting specific categories of benefits.
    Similar to the option proposed in paragraph (a)(1), we also propose 
that benefits mandated by State action prior to or on December 31, 
2011, could continue to be considered EHB under this proposal in 
accordance with Sec.  155.170, and would not require the State to 
defray their costs. However, if a State uses this option to replace one 
or more categories of its EHB-benchmark plan used for the 2017 plan 
year with a category or categories of benefits from another State's 
EHB-benchmark plan used for the 2017 plan year, the selecting State 
would be required to defray the cost of any benefits included in the 
categories of benefits from the other State's EHB-benchmark plan that 
are mandated by the selecting State's action after December 31, 2011 
and that are subject to defrayal under current regulations. For 
example, if State A replaces a category of benefits in its EHB-
benchmark plan with a category of benefits from State B's EHB-benchmark 
plan, State A must defray the cost of any benefits in that category 
mandated by State A after December 31, 2011 that are included in the 
replacement category of benefits and that are subject to defrayal under 
current regulations. We solicit comments on this proposed option, 
including on the application of the State mandate policy under this 
proposal and on whether other flexibilities are needed by States under 
this proposed option, such as allowing States to select their 
categories of benefits from any of the 10 previous base-benchmark plan 
options available to the State or other States under Sec.  156.100, 
supplemented as necessary under Sec.  156.110.
Option 3: Select a Set of Benefits To Become the State's EHB-Benchmark 
Plan
    Lastly, under paragraph (a)(3), we propose that the State could 
select a set of benefits that would become its EHB-benchmark plan using 
a different process, so long as the new EHB-benchmark plan does not 
exceed the generosity of the most generous among a set of comparison 
plans. Under this option, the set of comparison plans would be the 
State's EHB-benchmark plan used for the 2017 plan year and the plans 
described in Sec.  156.100(a)(1) that were available as base-benchmark 
plan options for the 2017 plan year, supplemented as necessary under 
Sec.  156.110. These plans would include the largest health plan by 
enrollment in each of the three largest small group insurance products 
by enrollment from the State's base-benchmark options for the 2017 plan 
year. We believe this proposed limit on the generosity of the plan 
benefits would help to ensure that States select EHB in a manner that 
is equal to the scope of benefits provided under a typical employer 
plan, while minimizing the opportunity for a State to select EHB in a 
manner that would significantly decrease affordability for patients. 
While this proposed option would allow more flexibility to States in 
establishing an EHB-benchmark plan than other proposed options, this 
option would be the most resource intensive for the State. For example, 
a State selecting this option would need to have a formulary drug list 
that would be used to establish the State's EHB-benchmark plan drug 
count for the purposes of Sec.  156.122(a)(1), which could be more 
labor intensive for the State than selecting another State's EHB-
benchmark plan prescription drug category of benefits that already 
exists and is publicly available for review.
    Furthermore, this option requires that the State determine an EHB-
benchmark plan's generosity, and we propose that the State would 
determine if its proposed EHB-benchmark plan does not exceed the 
generosity of the most generous of a set of comparison plans using an 
actuarial certification, developed by an actuary who is a member of 
American Academy of Actuaries, in accordance with generally accepted 
actuarial principles and methodologies. For this actuarial 
certification, we propose that the State could determine generosity in 
the same manner as we would use to measure whether the plan is equal in 
scope of benefits provided under a typical employer plan, described 
later in this section. We solicit comments on this proposed standard 
and approach to calculating the generosity of plans' benefits.
    We also recognize that the increased flexibility offered to States 
under this proposed option to define an EHB-benchmark plan for 2019 and 
later years could allow a State to embed any desired benefit mandate 
into the EHB-benchmark plan, without any requirement to defray the 
obligation. For this reason, we propose to apply the benefit mandate 
defrayal policy under Sec.  155.170 to this option. Specifically, we 
propose that benefits mandated by State action prior to or on December 
31, 2011 could continue to be considered EHB under this proposal 
according to Sec.  155.170, and would not require State defrayal. 
However, if a State selects its EHB-benchmark plan using this option, 
the State must continue to defray the cost of any benefits mandated by 
State action after December 31, 2011 that are subject to defrayal under 
current regulations. For example, if the State selects a set of 
benefits to become its EHB-benchmark plan under paragraph (a)(3), any 
benefits mandated by that State after December 31, 2011 that are 
subject to defrayal under current regulations would not be considered 
EHB, and the State would be required to defray the cost of any such 
benefits included in the State's EHB-benchmark plan under this proposed 
option.

[[Page 51104]]

    We solicit comments on this proposal and all of the proposed 
options in this section, including whether a different approach is 
needed to defray the cost of any benefits mandated by State action, on 
our proposed approach to limit a State's new EHB-benchmark plan such 
that it does not exceed the generosity of the comparison plans and on 
whether other options should be provided to States to select their EHB-
benchmark plans beyond the three proposed options.
ii. The Requirements for States' EHB-Benchmark Plans (Sec.  156.111(b)-
(d))
    For all of the proposed options for States to select a new EHB-
benchmark plan, we also propose that a State's EHB-benchmark plan must 
meet certain requirements established under the PPACA with regard to 
EHB coverage, scope of benefits, and notice and opportunity for public 
comment. In paragraph (b)(1), we propose to require that the State's 
EHB-benchmark plan provide an appropriate balance of coverage for the 
10 EHB categories of benefits as established at Sec.  156.110(a) and 
under section 1302(b)(1) of the PPACA. The intention of this proposed 
requirement is to ensure that the State's EHB-benchmark plan selection 
meets the requirement to cover at least the 10 EHB categories, 
including the items and services covered in those categories.
    In paragraph (b)(2), we propose to define requirements regarding 
the scope of benefits that must be provided by a State's EHB-benchmark 
plan. In paragraph (b)(2)(i), we propose that the State's EHB-benchmark 
plan must be equal in scope of benefits to what is provided under a 
typical employer plan. This proposed requirement reflects section 
1302(b)(2) of the PPACA, which requires the Secretary to ensure that 
the scope of the EHB is equal to the scope of benefits provided under a 
typical employer plan, as determined by the Secretary. We recognize 
that the scope of benefits covered by employer plans varies, including 
variations based on State laws, consumers' purchasing preferences, and 
local markets. We believe it is appropriate to recognize this variation 
in the definition of a typical employer plan. We also believe that, 
although State laws (for example, laws with benefit mandates) may 
affect the scope of benefits in plans available in a given State, it is 
important that a Federal definition of a typical employer plan maximize 
States' flexibility to choose an EHB-benchmark plan, so that States are 
not constrained in their selection. Therefore, we propose to define a 
typical employer plan as an employer plan within a product (as these 
terms are defined in Sec.  144.103 of this subchapter) with substantial 
enrollment in the product of at least 5,000 enrollees sold in the small 
group or large group market, in one or more States, or a self-insured 
group health plan with substantial enrollment of at least 5,000 
enrollees in one or more States. We also seek comment on whether the 
definition of a typical employer plan should reflect in substantial 
part a plan that would be typical in the State in question, and whether 
an appropriate way to measure typicality in that case would be to 
provide that the typical employer plan be defined to also have at least 
100 enrollees enrolled in that plan or product in the applicable State. 
We seek comment broadly on whether typicality should be defined in 
other ways, including whether it should be based upon the State's 10 
base-benchmark plan options for plan year 2017, supplemented as 
required to become the State's EHB-benchmark plan under Sec.  156.110, 
or on whether the definition of a typical employer plan for this 
purpose should be limited to plans that already cover all 10 EHB 
categories. We also solicit comment on whether the proposed typical 
employer plan definition should exclude self-insured plans, since 
States may not have the ability to obtain the required information on 
those plans.
    Under the proposed definition of a typical employer plan as a plan 
with enrollment of at least 5,000 enrollees in one or more States, we 
believe that the State's option to select another State's EHB-benchmark 
plan at proposed Sec.  156.111(a)(1) would automatically meet this 
requirement because each of the available options is an employer plan 
that had substantial enrollment. We solicit comment on the proposed 
definition of a typical employer plan, including on whether we should 
provide additional guidance or requirements for the definition of a 
typical employer plan, such as requiring that the plan selected as a 
typical employer plan is from a recent year after December 31, 2013, 
requiring that the plan provide minimum value, or requiring that the 
plan selected as a typical employer plan not be an indemnity plan or an 
account-based plan like a health reimbursement arrangement. We also 
solicit comment on whether actuaries could develop a standard of 
practice for a benefit comparison calculation to determine that a plan 
is equal to the scope of benefits provided under a typical employer 
plan that could also apply to determine that a State's EHB-benchmark 
plan does not exceed the generosity of the most generous plan in 
accordance with Option 3 under proposed Sec.  156.111(a)(3).
    We specifically seek comment on CMS's draft example of an 
acceptable methodology for comparing benefits of a State's EHB-
benchmark plan selection to the benefits of a typical employer 
plan.\48\ The purpose of this draft document is to outline an example 
of one approach actuaries could follow when comparing benefits in order 
to complete the required actuarial certification and associated 
actuarial report under proposed Sec.  156.111(e)(2)(i) for typicality 
described later in this section. We are particularly interested in 
comments on this draft methodology from the actuarial community. We 
further request that commenters submit comments to this draft document 
as part of their comments to this proposed rule.
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    \48\ The Draft Example of an Acceptable Methodology for 
Comparing Benefits of a State's EHB-benchmark Plan Selection to 
Benefits of a Typical Employer Plan As Proposed under the HHS Notice 
of Benefit and Payment Parameters for 2019 (CMS-9930-P) is available 
on CCIIO's Regulation and Guidance Web page at https://www.cms.gov/cciio/resources/regulations-and-guidance/index.html.
---------------------------------------------------------------------------

    In paragraph (b)(2)(ii), we propose that the State's EHB-benchmark 
plan must not have benefits unduly weighted towards any of the 
categories of benefits at Sec.  156.110(a) as established under section 
1302(b)(4)(A) of the PPACA. The purpose of this proposed provision is 
to ensure the State's EHB-benchmark plan selection reflects an 
appropriate balance among the categories. Additionally, in paragraph 
(b)(2)(iii), we propose that the State's EHB-benchmark plan must 
provide benefits for diverse segments of the population, including 
women, children, persons with disabilities, and other groups as 
established under section 1302(b)(4)(C) of the PPACA.
    We propose at paragraph (c), that the State must provide reasonable 
public notice and an opportunity for public comment on the State's 
selection of an EHB-benchmark plan. We believe that some States already 
provided public notice and an opportunity for public comment in their 
current EHB-benchmark plan selection processes completed for prior plan 
years. Recognizing that States have their own processes in place to 
provide notice and opportunity for public comment, we propose that 
States would determine what constitutes a reasonable public notice and 
public comment process. We remind States that any public participation 
processes must continue to comply with applicable Federal civil rights 
laws, including national

[[Page 51105]]

standards that ensure access to individuals with disabilities. We 
solicit comments on whether the State should be required to post the 
public notice on their Web site, whether other requirements are needed 
for States' public notice and comment processes, and what those 
requirements should be. We propose that this process would apply 
whenever a State changes its EHB-benchmark plan in accordance with 
proposed Sec.  156.111(a).
    Lastly, we propose at paragraph (d) that a State must notify HHS of 
the selection of a new EHB-benchmark plan by a date to be determined by 
HHS for each applicable plan year. We also propose that if the State 
does not make a selection by the annual selection date, the State's 
EHB-benchmark plan for the applicable plan year would be that State's 
EHB-benchmark plan applicable for the prior plan year.
    Taken together, these proposed requirements are intended to align 
with statutory requirements. With the exception of the proposed change 
in this proposed rule to the substitution provision at Sec.  
156.115(b), we intend to retain the current issuer requirements related 
to EHB at Sec. Sec.  156.115, 156.122,\49\ and 156.125 and those 
requirements would continue to apply to all plans subject to the EHB 
requirements.
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    \49\ 45 CFR 156.122(a)(1) establishes that, generally, a health 
plan does not provide EHB unless it covers at least the greater of: 
(1) One drug in every United States Pharmacopeia (USP) category and 
class; or (2) the same number of prescription drugs in each category 
and class as the EHB-benchmark plan. Under the current version of 
the USP Medicare Model Guidelines (MMG) drug classification system 
used for the EHB drug count at Sec.  156.122(a)(1), this proposal 
means that all plans required to comply with EHB will continue to 
have to cover at least one drug in the Anti-Addiction/Substance 
Abuse Treatment Agents (Opioid Reversal Agent) class. Naloxone is 
currently the only active ingredient in the Opioid Reversal Agent 
class, and as a result all plans required to comply with EHB would 
be required to continue to cover at least one form of naloxone under 
this proposed policy. This was previously addressed in the 2018 
Letter to Issuers in the Federally-facilitated Marketplaces 
available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-2018-Letter-to-Issuers-in-the-Federally-facilitated-Marketplaces-and-February-17-Addendum.pdf.
---------------------------------------------------------------------------

    In addition to these proposed requirements in selecting the State's 
EHB-benchmark plan, States may also wish to consider the impact of the 
EHB-benchmark plan's scope of benefits on the availability of premium 
tax credits and cost-sharing reductions for enrollees in the State, as 
the premium tax credit is based on the amount of premiums allocable to 
EHB and cost-sharing reductions provide reduced cost sharing for EHB 
only.\50\ We solicit comments on these proposals and whether other 
requirements are needed.
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    \50\ The definition of EHB also has an impact on the annual 
limitation on cost sharing at section 1302(c) of the PPACA (which is 
incorporated into section 2707(b) of the PHS Act) and the 
prohibition of annual and lifetime dollar limits at section 2711 of 
the PHS Act, as added by the PPACA.
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iii. Data Collection for State's EHB-Benchmark Plans for 2019 Plan Year 
and Later (Sec.  156.111(e))
    For States that opt to select a new EHB-benchmark plan under Sec.  
156.111(a) in any given year, we propose to establish the data 
collection requirements under proposed Sec.  156.111(e). We propose a 
State must submit documents in a format and manner specified by HHS by 
a date determined by HHS.
    Specifically, paragraph (e)(1) would require documentation that 
would confirm that the State's EHB-benchmark plan complies with the 
requirements under proposed Sec.  156.111(a), (b) and (c), which 
includes the requirement that the 10 EHB categories of benefits are 
covered under the State's EHB-benchmark plan. This documentation would 
also include information on which selection option under proposed Sec.  
156.111(a) the State is using, including whether the State is using 
another State's EHB-benchmark plan.
    For a State selecting an EHB-benchmark plan under proposed Sec.  
156.111(a)(2) or (3), paragraph (e)(2) would require the State to 
submit an actuarial certification and an associated actuarial report 
from an actuary, who is a member of the American Academy of Actuaries, 
in accordance with generally accepted actuarial principles and 
methodologies, affirming that the State's EHB-benchmark plan is equal 
in scope of benefits provided under a typical employer plan. We solicit 
comments on whether this actuarial certification should also be 
required for a State selecting an EHB-benchmark plan under proposed 
Sec.  156.111(a)(1). Additionally, we also propose that if the State is 
selecting its EHB-benchmark plan using Sec.  156.111(a)(3) that allows 
the State to otherwise select a set of benefits that would become its 
EHB-benchmark plan, that this actuarial certification would affirm that 
the new EHB-benchmark plan does not exceed the generosity of the most 
generous among the set of comparison plans specified in paragraph 
(a)(3). Specifically, we propose that the actuarial certification and 
associated actuarial report would be required to be in accordance with 
generally accepted actuarial principles and methodologies. This would 
include complying with all applicable Actuarial Standards of Practice 
(ASOP) (including but not limited to ASOP 41 on actuarial 
communications). For example, ASOP 41 includes disclosure requirements, 
including those that apply to the disclosure of information on the 
methods and assumptions being used.
    The purpose of this provision is to ensure that the scope of EHB is 
equal in scope of benefits provided under a typical employer plan and 
to provide the information to support the certification from the Chief 
Actuary of CMS for the Secretary to submit along with a report to 
Congress, consistent with section 1302(b)(2)(B) of the PPACA. As 
described previously, we are seeking comment on a draft methodology for 
comparing benefits of a State's EHB-benchmark plan selection to the 
benefits of a typical employer plan.\51\ We solicit comment on this 
proposed actuarial certification and associated actuarial report and on 
whether the draft methodology should be the required approach for the 
State's actuarial certification and associated actuarial report.
---------------------------------------------------------------------------

    \51\ The Draft Example of an Acceptable Methodology for 
Comparing Benefits of a State's EHB-benchmark Plan Selection to 
Benefits of a Typical Employer Plan As Proposed under the HHS Notice 
of Benefit and Payment Parameters for 2019 (CMS-9930-P) is available 
on CCIIO's Regulation and Guidance Web page at https://www.cms.gov/cciio/resources/regulations-and-guidance/index.html.
---------------------------------------------------------------------------

    Paragraph (e)(3) would require the State to submit the State's EHB-
benchmark plan document that reflects the benefits and limitations, 
including the medical management requirements, a schedule of benefits 
and, if the State is selecting its EHB-benchmark plan using the option 
in paragraph (a)(3) of this section, a formulary drug list in a format 
and manner specified by HHS similar to current Sec.  156.120. The 
purpose of this provision is to ensure that the State's EHB-benchmark 
plan has a clearly defined set of covered benefits and limits. For a 
State that chooses an EHB-benchmark plan under proposed Sec.  
156.111(a)(1), the State may submit the plan document from the other 
State's EHB-benchmark plan used for the 2017 plan year to fulfill this 
proposed requirement. For a State that selects an EHB-benchmark plan 
under proposed Sec.  156.111(a)(2), the State would create a combined 
plan document by pulling parts of the plan documents from the other 
State's or States' benchmark plan documents. States may need to make 
conforming edits in the other States' plan documents to align language 
and terminology when pulling language from other States' plan 
documents. For a State that chooses the option proposed

[[Page 51106]]

at Sec.  156.111(a)(3), the State may need to develop a plan document 
for this purpose. Additionally, under proposed Sec.  156.111(e)(3), if 
the State is selecting its EHB-benchmark plan using the option in Sec.  
156.111(a)(3) of this section, we propose that the State must also 
include a formulary drug list for the State's EHB-benchmark plan in a 
format and manner specified by HHS. Specifically, the State would need 
to submit a formulary drug list in the format and manner specified by 
HHS, which is a separate template from the plan document. We also 
propose for the purposes of a benefit, such as pediatric dental, that 
is defined by another program under the State's EHB-benchmark plan, the 
State may submit a separate document that reflects the benefits and 
limitations, including the medical management requirements and a 
schedule of benefits comparable to how States that defined their dental 
coverage using their State's CHIP programs have done previously. 
Otherwise, regardless of which option the State is using to select a 
new EHB-benchmark plan, the State would be expected to submit one 
comprehensive plan document for the entire State's EHB-benchmark plan 
benchmark selection.
    Lastly, paragraph (e)(4) would require the State to submit 
documentation specified by HHS, which is necessary to operationalize 
the State's EHB-benchmark plan. This documentation would be used to 
provide public resources on a State's EHB-benchmark plan and support 
related templates and tools. We propose that this documentation would 
include having the State submit a complete and accurate EHB summary 
chart that reflects the State's EHB-benchmark plan and aligns with the 
documentation that we currently make publicly available on a State's 
EHB-benchmark plan. The purpose of this provision is to ensure that 
State's EHB-benchmark plan can be operationalized. For States that 
choose Sec.  156.111(a)(1) or (a)(2) where the State is developing its 
benchmark plan based on another State's EHB-benchmark plan, the State 
could develop this document utilizing information from the EHB summary 
chart that is currently publicly available.\52\
---------------------------------------------------------------------------

    \52\ All States' current benchmark plan documents are posted on 
CCIIO's Web site at https://www.cms.gov/CCIIO/Resources/Data-Resources/ehb.html.
---------------------------------------------------------------------------

    Like our current approach to the EHB-benchmark plan policy, we 
propose that HHS would post the State's EHB summary document and the 
State's EHB-benchmark plan document that reflects the benefits and 
limitations, including the medical management requirements and a 
schedule of benefits that may include a new formulary drug count on 
CCIIO's Web site. In addition to posting those documents, we are also 
considering posting the State's EHB-benchmark plan confirmations 
proposed at Sec.  156.111(e)(1). In preparation for the short 
timeframes for States to submit such documents in time for issuers to 
design plans for plan years 2019 and 2020, we propose that the deadline 
for States' submission of the required documents for the State's EHB-
benchmark plan option would be March 16, 2018, for the 2019 plan year 
and July 1, 2018, for the 2020 plan year.\53\ Due to the short 
timeframes for 2019, we would not be able to update the Plans and 
Benefits Template Add-in file used in the Plans and Benefits Template 
for States for 2019.\54\ For 2020, we would plan to update the Add-in 
file to reflect the State's EHB-benchmark plan.
---------------------------------------------------------------------------

    \53\ Due to the proposed tight timeframe for 2019, we would not 
be able to allow States to submit additional documentation or 
changes to submitted documents after the deadline. Any questions or 
issues that a State has about the EHB-benchmark plan documents would 
need to be asked and resolved prior to the State's submission 
deadline.
    \54\ Instead, we would only plan to post the State's EHB-
benchmark documents, including an updated drug count, on CCIIO's Web 
site. This means that for 2019 the State would be expected to 
instruct its issuers on how to manually change the State's current 
Add-in file to align with the State's EHB-benchmark plan.
---------------------------------------------------------------------------

    We propose that in order for a State's selection of a new EHB-
benchmark plan from the proposed options to be accepted, the State's 
new EHB-benchmark plan must comply with the associated EHB regulatory 
and statutory requirements, including those under this proposed rule. 
If a State's EHB-benchmark plan selection does not meet these 
regulatory and statutory requirements, the State's current EHB-
benchmark plan would continue to apply. We solicit comments on the 
proposed processes and deadlines for the 2019 and 2020 plan years.\55\ 
We also solicit comments on the proposed data collection and associated 
documents and whether other specifications for these documents are 
needed.
---------------------------------------------------------------------------

    \55\ For the 2019 plan year, HHS would post States' EHB-
benchmark plan documents after the proposed State submission 
deadline, which would likely be in April 2018.
---------------------------------------------------------------------------

c. Provision of EHB (Sec.  156.115)
    We are also proposing additional flexibility for States by revising 
the rules regarding EHB benefit category substitution. Currently, EHB 
compliant plans are required to provide benefits that are substantially 
equal to the EHB-benchmark plan, but are allowed to substitute benefits 
within categories, if allowed by the State, provided that the benefits 
are actuarially equivalent to the benefit that is being replaced. 
Substitutions of prescription drug benefits are not permitted.\56\ We 
first introduced the concept of benefit substitution in the 2011 EHB 
Bulletin.\57\ The EHB Bulletin considered whether to permit benefit 
substitution between benefit categories. Some commenters supported wide 
latitude for substitution, while others opposed substitution both 
within and across categories. In the EHB Rule, we finalized at Sec.  
156.115(b)(1) that substitution could only occur within the statutorily 
required benefit categories (other than prescription drug benefits), 
not between different benefit categories.
---------------------------------------------------------------------------

    \56\ See Sec.  156.115(b)(1)(iii), as established in the EHB 
Rule. Additionally, Sec.  156.122(a)(1) specifies that plans that 
provide EHB must cover at least the greater of: (i) One drug in 
every United States Pharmacopeia (USP) category and class; or (ii) 
The same number of prescription drugs in each category and class as 
the EHB-benchmark plan. Additionally, as discussed in the HHS Notice 
of Benefit and Payment Parameters for 2016 Final Rule (80 FR 10817) 
preamble for Sec.  156.122, if a plan is covering drugs beyond the 
number of drugs covered by the benchmark, all of these drugs are EHB 
and must count towards the annual limitation on cost sharing.
    \57\ Essential Health Benefits Bulletin, Center for Consumer 
Information and Insurance Oversight (December 16, 2011), available 
at https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf.
---------------------------------------------------------------------------

    In an effort to promote greater flexibility, consumer choice, and 
plan innovation through coverage and plan design options, we propose 
modifying paragraph (b)(1)(ii) to allow for substitution to occur 
within the same EHB category and between EHB categories, as long as the 
substituted benefit is actuarially equivalent to the benefit being 
replaced and is not a prescription drug benefit. The plan with 
substitutions must still provide benefits that are substantially equal 
to the EHB-benchmark plan, must provide an appropriate balance among 
the EHB categories such that benefits are not unduly weighted towards 
any category, and must provide benefits for diverse segments of the 
population. It is generally the State's responsibility to assess that 
EHB compliant plans adhere to these requirements.
    We believe this modification at Sec.  156.115(b)(1)(ii) balances 
the value of comparability of plan benefits with opportunities for plan 
innovation and provision of benefit choice in the market. Under this 
approach, to comply with the EHB requirements, plans that exercise the 
flexibility to substitute benefits within or between EHB categories 
must be able to demonstrate actuarial equivalency of substituted

[[Page 51107]]

benefit categories in accordance with the requirements in paragraph 
(b)(2) of this section. These protections would ensure that 
substitution within or between benefit categories would balance 
adequate coverage for patients with plan innovation.
    We also note that nothing in this proposal would prohibit plans 
required to provide EHB from imposing non-dollar limits, unless 
otherwise prohibited by Federal law.\58\ In addition, we note that the 
regulation would continue to defer to States, which would continue to 
have the option to set criteria for benefit substitution, enforce a 
stricter standard on benefit substitution, or prohibit it altogether 
consistent with paragraph (b) of this section. We solicit comments on 
this proposed change, including on whether other flexibilities with 
regard to substitution are needed and whether additional standards are 
necessary to assess the scope and quality of benefits being substituted 
between categories. Additionally, we are particularly interested in 
comments on this proposal that provide examples of how issuers may be 
able to utilize this additional proposed flexibility to meaningfully 
substitute benefits between categories. We also seek comment on 
examples of substitution that issuers would be interested in pursuing.
---------------------------------------------------------------------------

    \58\ See Frequently Asked Questions on Essential Health Benefits 
Bulletin (February 17, 2012), Q9, available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/ehb-faq-508.pdf and the EHB rule. As 
finalized in the EHB Rule, issuers of QHPs were permitted to make 
actuarially equivalent substitutions within statutory categories 
under Sec.  156.115(b)(1)(ii). Therefore, and as further explained 
in the EHB FAQ, plans are permitted to impose non-dollar limits, 
consistent with other guidance, that are at least actuarially 
equivalent to the annual dollar limits.
---------------------------------------------------------------------------

d. Premium Adjustment Percentage (Sec.  156.130)
    Section 1302(c)(4) of the PPACA directs the Secretary of HHS to 
determine an annual premium adjustment percentage, which is used to set 
the rate of increase for three parameters detailed in the PPACA: The 
maximum annual limitation on cost sharing (defined at Sec.  
156.130(a)); the required contribution percentage used to determine 
eligibility for certain exemptions under section 5000A of the Code; and 
the assessable payment amounts under section 4980H(a) and (b) of the 
Code. Section 156.130(e) provides that the premium adjustment 
percentage is the percentage (if any) by which the average per capita 
premium for health insurance coverage for the preceding calendar year 
exceeds such average per capita premium for health insurance for 2013, 
and that this percentage will be published in the annual HHS notice of 
benefit and payment parameters.
    Under the methodology established in the 2015 Payment Notice and 
amended in the 2015 Market Standards Rule for estimating average per 
capita premium for purposes of calculating the premium adjustment 
percentage, the premium adjustment percentage is calculated based on 
the estimates and projections of average per enrollee employer-
sponsored insurance premiums from the NHEA, which are calculated by the 
CMS Office of the Actuary. Accordingly, using the employer-sponsored 
insurance data, the premium adjustment percentage for 2019 is the 
percentage (if any) by which the most recent NHEA projection of per 
enrollee employer-sponsored insurance premiums for 2018 ($6,396) 
exceeds the most recent NHEA estimate of per enrollee employer-
sponsored insurance premiums for 2013 ($5,110).\59\ Using this formula, 
the proposed premium adjustment percentage for 2019 is 1.2516634051 or 
approximately 25 percent. Based on the proposed 2019 premium adjustment 
percentage, we propose the following cost-sharing parameters for 
calendar year 2019.
---------------------------------------------------------------------------

    \59\ We note that the 2013 premium used for this calculation has 
been updated to reflect the latest NHEA data. See ``NHE Projections 
2016-2025--Tables'' available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html in 
Tables 1 and 17. A detailed description of the NHE projection 
methodology is available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/proj2016.pdf.
---------------------------------------------------------------------------

i. Maximum Annual Limitation on Cost Sharing for Calendar Year 2019
    Under Sec.  156.130(a)(2), for the 2019 calendar year, cost sharing 
for self-only coverage may not exceed the dollar limit for calendar 
year 2014 increased by an amount equal to the product of that amount 
and the premium adjustment percentage for 2019, and for other than 
self-only coverage, the limit is twice the dollar limit for self-only 
coverage. Under Sec.  156.130(d), these amounts must be rounded down to 
the next lowest multiple of 50 dollars. Using the premium adjustment 
percentage of 1.2516634051 for 2019 as proposed above, and the 2014 
maximum annual limitation on cost sharing of $6,350 for self-only 
coverage, which was published by the IRS on May 2, 2013,\60\ we propose 
that the 2019 maximum annual limitation on cost sharing would be $7,900 
for self-only coverage and $15,800 for other than self-only coverage. 
This represents an approximately 7 percent increase above the 2018 
parameters of $7,350 for self-only coverage and $14,700 for other than 
self-only coverage.
---------------------------------------------------------------------------

    \60\ See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

e. Reduced Maximum Annual Limitation on Cost Sharing (Sec.  156.130)
    Sections 1402(a) through (c) of the PPACA direct issuers to reduce 
cost sharing for EHBs for eligible individuals enrolled in a silver 
level QHP. In the 2014 Payment Notice, we established standards related 
to the provision of these cost-sharing reductions. Specifically, in 
part 156, subpart E, we specified that QHP issuers must provide cost-
sharing reductions by developing plan variations, which are separate 
cost-sharing structures for each eligibility category that change how 
the cost sharing required under the QHP is to be shared between the 
enrollee and the Federal government. At Sec.  156.420(a), we detailed 
the structure of these plan variations and specified that QHP issuers 
must ensure that each silver plan variation has an annual limitation on 
cost sharing no greater than the applicable reduced maximum annual 
limitation on cost sharing specified in the annual HHS notice of 
benefit and payment parameters. Although the amount of the reduction in 
the maximum annual limitation on cost sharing is specified in section 
1402(c)(1)(A) of the PPACA, section 1402(c)(1)(B)(ii) of the PPACA 
states that the Secretary may adjust the cost-sharing limits to ensure 
that the resulting limits do not cause the AVs of the health plans to 
exceed the levels specified in section 1402(c)(1)(B)(i) of the PPACA 
(that is, 73 percent, 87 percent, or 94 percent, depending on the 
income of the enrollee). Accordingly, we propose to continue to use a 
method we established in the 2014 Payment Notice for determining the 
appropriate reductions in the maximum annual limitation on cost sharing 
for cost-sharing plan variations. As we proposed above, the 2019 
maximum annual limitation on cost sharing would be $7,900 for self-only 
coverage and $15,800 for other than self-only coverage. We analyzed the 
effect on AV of the reductions in the maximum annual limitation on cost 
sharing described in the statute to determine whether to adjust the 
reductions so that the AV of a silver plan variation will not exceed 
the AV specified in the statute. Below, we describe our analysis for 
the 2019 benefit year and our proposed results.
    Consistent with our analysis in the 2014 through 2018 Payment 
Notices, we

[[Page 51108]]

developed three test silver level QHPs, and analyzed the impact on AV 
of the reductions described in the PPACA to the estimated 2019 maximum 
annual limitation on cost sharing for self-only coverage ($7,900). The 
test plan designs are based on data collected for 2017 plan year QHP 
certification to ensure that they represent a range of plan designs 
that we expect issuers to offer at the silver level of coverage through 
the Exchanges. For 2019, the test silver level QHPs included a PPO with 
typical cost-sharing structure ($7,900 annual limitation on cost 
sharing, $2,350 deductible, and 20 percent in-network coinsurance 
rate), a PPO with a lower annual limitation on cost sharing ($5,250 
annual limitation on cost sharing, $3,050 deductible, and 20 percent 
in-network coinsurance rate), and an HMO ($7,900 annual limitation on 
cost sharing, $3,375 deductible, 20 percent in-network coinsurance 
rate, and the following services with copayments that are not subject 
to the deductible or coinsurance: $500 inpatient stay per day, $500 
emergency department visit, $25 primary care office visit, and $55 
specialist office visit). All three test QHPs meet the AV requirements 
for silver level health plans.
    We then entered these test plans into the proposed 2019 AV 
Calculator and observed how the reductions in the maximum annual 
limitation on cost sharing specified in the PPACA affected the AVs of 
the plans. We found that the reduction in the maximum annual limitation 
on cost sharing specified in the PPACA for enrollees with a household 
income between 100 and 150 percent FPL (2/3 reduction in the maximum 
annual limitation on cost sharing), and 150 and 200 percent of the FPL 
(2/3 reduction), would not cause the AV of any of the model QHPs to 
exceed the statutorily specified AV levels (94 and 87 percent, 
respectively). In contrast, the reduction in the maximum annual 
limitation on cost sharing specified in the PPACA for enrollees with a 
household income between 200 and 250 percent of FPL (1/2 reduction), 
would cause the AVs of two of the test QHPs to exceed the specified AV 
level of 73 percent. As a result, we propose that the maximum annual 
limitation on cost sharing for enrollees in the 2017 benefit year with 
a household income between 200 and 250 percent of FPL be reduced by 
approximately 1/5, rather than 1/2. We further propose that the maximum 
annual limitation on cost sharing for enrollees with a household income 
between 100 and 200 percent of the FPL be reduced by approximately 2/3, 
as specified in the statute, and as shown in Table 10. These proposed 
reductions in the maximum annual limitation on cost sharing should 
adequately account for unique plan designs that may not be captured by 
our three model QHPs. We also note that selecting a reduction for the 
maximum annual limitation on cost sharing that is less than the 
reduction specified in the statute would not reduce the benefit 
afforded to enrollees in aggregate because QHP issuers are required to 
further reduce their annual limitation on cost sharing, or reduce other 
types of cost sharing, if the required reduction does not cause the AV 
of the QHP to meet the specified level.
    In prior years, we have found that for individuals with household 
incomes of 250 to 400 percent of the FPL, without any change in other 
forms of cost sharing, any reduction in the maximum annual limitation 
on cost sharing will cause an increase in AV that exceeds the maximum 
70 percent level set in the statute. In the Market Stabilization Rule, 
we analyzed the effect of reducing the maximum annual limitation on 
cost sharing based on how we calculated the 2018 reduced maximum annual 
limitation on cost sharing. We stated that we were not certain what the 
AV spread of plan designs will be under the finalized policy, whether 
issuers will in fact reduce the AVs of their base silver plans to the 
lower end of the de minimis range, and whether issuers will retain plan 
designs above the 70 percent AV range and that we would monitor 2018 
standard silver plan designs. As a result, we did not reduce the 
maximum annual limitation on cost sharing for individuals with 
household incomes between 250 and 400 percent FPL.\61\
---------------------------------------------------------------------------

    \61\ 2014 Payment Notice, 78 FR at 15481; Market Stabilization 
Rule. 82 FR at 18370-18371.
---------------------------------------------------------------------------

    We seek comment on this analysis and the proposed reductions in the 
maximum annual limitation on cost sharing for 2019.
    We note that for 2019, as described in Sec.  156.135(d), States are 
permitted to submit for approval by HHS State-specific datasets for use 
as the standard population to calculate AV.\62\ No State submitted a 
dataset by the September 1, 2017 deadline.
---------------------------------------------------------------------------

    \62\ The annual deadline for submitting State specific data for 
the AV Calculator was announced August 15, 2014. See https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/final-state-avc-guidance.pdf.

                   Table 10--Reductions in Maximum Annual Limitation on Cost Sharing for 2019
----------------------------------------------------------------------------------------------------------------
                                                                       Reduced maximum        Reduced maximum
                                                                    annual limitation  on   annual limitation on
                       Eligibility category                           cost sharing  for      cost sharing  for
                                                                     self-only  coverage   other than  self-only
                                                                           for 2019          coverage  for 2019
----------------------------------------------------------------------------------------------------------------
Individuals eligible for cost-sharing reductions under Sec.                        $2,600                  5,200
 155.305(g)(2)(i) (that is, 100-150 percent of FPL)...............
Individuals eligible for cost-sharing reductions under Sec.                         2,600                  5,200
 155.305(g)(2)(ii) (that is, 150-200 percent of FPL)..............
Individuals eligible for cost-sharing reductions under Sec.                         6,300                 12,600
 155.305(g)(2)(iii) (that is, 200-250 percent of FPL).............
----------------------------------------------------------------------------------------------------------------

f. Application to Stand-Alone Dental Plans Inside the Exchange (Sec.  
156.150)
    Section 1302(d)(2) of the PPACA directs the Secretary to issue 
regulations on the calculation of AV and its application to the levels 
of coverage. In the 2013 EHB Rule, HHS finalized the requirements for 
the calculation of AV for stand-alone dental plans. Specifically, Sec.  
156.150 prohibits SADPs from using the AV Calculator used by other 
individual and small group market plans and requires SADPs to cover the 
pediatric dental EHB at one of two AV levels, within an allowable de 
minimis variation of <plus-minus> 2 percentage points.
    We are proposing to remove the requirement for SADP issuers to meet

[[Page 51109]]

the low (70 percent <plus-minus> 2 percentage points) and high (80 
percent <plus-minus> 2 percentage points) AV levels specified in Sec.  
156.150(b). Specifically, we are proposing to remove paragraph (b). 
SADP issuers would offer the pediatric dental EHB without selecting or 
calculating an AV level of that coverage. SADP issuers would continue 
to be held to the annual limitation on cost sharing for the pediatric 
EHB, as required in paragraph (a), and provide the pediatric dental EHB 
as required by Sec.  155.1065, in order to be certified as QHPs.
    The PPACA does not specifically require SADP issuers to offer 
coverage at the high and low levels of AV. By removing the AV level 
requirement, SADP issuers will have the opportunity to offer more 
flexible plan designs to consumers. In previous comments, SADP issuers 
had noted that it is difficult to meet the low AV requirements and 
offer preventive care without cost sharing, which consumers are 
accustomed to in the large group market. Issuers could offer SADPs at 
varying premiums and levels of coverage, so long as they continue to 
offer the pediatric dental EHB and annual limitations on cost sharing. 
We believe that this will allow consumers to select from a greater 
variety of plans and find one that is more likely to meet their 
specific needs.
    We seek comment on this proposal.
3. Qualified Health Plan Minimum Certification Standards
a. Qualified Health Plan Certification (Subpart C)
    In the Market Stabilization final rule, HHS finalized several 
standards to affirm the traditional role of States in overseeing their 
health insurance markets while reducing the regulatory burden of 
participating in Exchanges for issuers. We believe that robust 
participation of QHP issuers in Exchanges will facilitate consumer 
access to affordable coverage. In recognition of the call to return to 
States their traditional authority to regulate health plans and to 
streamline QHP certification processes, HHS proposes to continue to 
enhance the State flexibilities in QHP certification that began for 
plan year 2018 by identifying areas where States are already performing 
reviews that are duplicative of the Federal QHP certification process 
and incorporating these reviews into the QHP certification process. In 
addition to empowering States, these proposals would reduce issuer 
burden.
    In the Market Stabilization final rule, we finalized two proposals 
related to QHP certification for plan year 2018 around network adequacy 
(Sec.  156.230) and essential community providers (Sec.  156.235) that 
we now propose for the 2019 benefit year and beyond. Specifically, with 
respect to network adequacy, we propose to rely on the States' reviews 
in States in which an FFE is operating, provided the State has a 
sufficient network adequacy review process. For the 2019 benefit year 
and beyond, we propose to defer to the States' reviews in States with 
the authority to enforce standards that are at least equal to the 
``reasonable access standard'' defined in Sec.  156.230 and means to 
assess issuer network adequacy. In States that do not have the 
authority and means to conduct sufficient network adequacy reviews, we 
propose for the 2019 benefit year and beyond to rely on an issuer's 
accreditation (commercial, Medicaid, or Exchange) from an HHS-
recognized accrediting entity, which we propose would include the three 
accrediting entities HHS has previously recognized for the 
accreditation of QHPs: The National Committee for Quality Assurance, 
URAC, and Accreditation Association for Ambulatory Health Care.\63\ 
Unaccredited issuers would be required to submit an access plan as part 
of the QHP application. To show that the QHP's network meets the 
requirement in Sec.  156.230(a)(2), the access plan would need to 
demonstrate that an issuer has standards and procedures in place to 
maintain an adequate network consistent with the National Association 
of Insurance Commissioners' Health Benefit Plan Network Access and 
Adequacy Model Act (the Model Act is available at http://www.naic.org/store/free/MDL-74.pdf). We propose to further coordinate with States to 
monitor network adequacy, for example, through complaint tracking. With 
respect to QHP certification review for the essential community 
provider (ECP) standard, we propose for the 2019 benefit year and 
beyond that we will continue to allow issuers to use the ECP write-in 
process to identify ECPs that are not on the HHS list of available ECPs 
and will maintain the 20 percent ECP standard. We believe this standard 
will substantially reduce the regulatory burden on issuers while 
preserving adequate access to care provided by ECPs. As in previous 
years, if an issuer's application does not satisfy the ECP standard, 
the issuer would be required to include as part of its application for 
QHP certification a satisfactory narrative justification describing how 
the issuer's provider networks, as presently constituted, provide an 
adequate level of service for low-income and medically underserved 
individuals and how the issuer plans to increase ECP participation in 
the issuer's provider networks in future years. At a minimum, such 
narrative justification would include the number of contracts offered 
to ECPs for the applicable plan year; the number of additional 
contracts an issuer expects to offer and the timeframe of those planned 
negotiations; the names of the specific ECPs to which the issuer has 
offered contracts that are still pending; and contingency plans for how 
the issuer's provider network, as currently designed, would provide 
adequate care to enrollees who might otherwise be cared for by relevant 
ECP types that are missing from the issuer's provider network.
---------------------------------------------------------------------------

    \63\ Recognition of Entities for the Accreditation of Qualified 
Health Plans 77 FR 70163 (November 23, 2012) and Approval of an 
Application by the Accreditation Association for Ambulatory Health 
Care (AAAHC) To Be a Recognized Accrediting Entity for the 
Accreditation of Qualified Health Plans 78 FR 77470 (December 23, 
2013).
---------------------------------------------------------------------------

    We also previously outlined areas where HHS will rely on State 
reviews of QHP certification standards for States with FFEs starting in 
plan year 2018, including States with FFEs that perform plan management 
functions in partnership with HHS, in The Guidance to States on Review 
of Qualified Health Plan Certification Standards in Federally-
facilitated Marketplaces for Plan Years 2018 and Later,\64\ released on 
April 13, 2017. We intended these changes to help streamline the QHP 
certification process and avoid duplicative Federal and State efforts. 
In that guidance, we provided that in FFE States that do not perform 
plan management functions, HHS will continue to review QHP data for 
these States, but will rely on State review for licensure and good 
standing standards required at Sec.  156.200(b)(4), and for network 
adequacy standards required at Sec.  156.230. For FFEs in States 
performing plan management functions, HHS will continue to rely on 
State plan data review for QHP certification standards, including for 
service area and prescription drug formulary outliers and non-
discrimination in cost sharing. We will continue to review plan data 
relating to Federal funds or plan display on HealthCare.gov, such as 
cost-sharing reduction plan variation at Sec.  156.420 and annual re-
enrollment at Sec.  155.335(j). We do not propose any changes to the 
approach described in this guidance.
---------------------------------------------------------------------------

    \64\ https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/QHP-Certifcation-Reviews-Guidance-41317.pdf.
---------------------------------------------------------------------------

    To further streamline QHP certification by avoiding duplicative

[[Page 51110]]

reviews, we also announced in the QHP Rate Outlier Analysis for Plan 
Year 2018 and Beyond \65\ that we would rely on States to identify rate 
outliers for purposes of QHP certification,\66\ except for those States 
that do not have an Effective Rate Review Program. These changes were 
intended to allow States and issuers greater flexibility in 
facilitating the certification of plans best suited to their markets, 
while avoiding duplicative State and Federal activities. We do not 
propose any changes to the approach described in this guidance.
---------------------------------------------------------------------------

    \65\ https://www.regtap.info/uploads/library/QHP_RateOutlier_FAQ_5CR_071017.pdf.
    \66\ This review generally identifies rates that are relatively 
low compared to other QHP rates in the same rating area. The 
identification of a QHP rate as an outlier does not necessarily 
indicate inappropriate rate development; instead, this information 
helps inform the determination of whether certifying the QHP to be 
offered on the Exchange would be in the interest of consumers.
---------------------------------------------------------------------------

    For Plan Years 2019 and later, HHS proposes to further expand the 
role of States in the QHP certification process for FFEs, including 
FFEs where the State performs plan management functions. Specifically, 
we propose to defer to States for additional review areas, including 
accreditation requirements at Sec.  156.275, compliance reviews at 
Sec.  156.715, minimum geographic area of the plan's service area at 
Sec.  155.1055, and quality improvement strategy reporting at Sec.  
156.1130, if feasible and appropriate. We believe States currently 
perform reviews in these areas that are duplicative of the Federal 
reviews for QHP certification. As a result, we do not believe this 
policy would require States to undertake additional reviews or change 
existing reviews to match the Federal standards for QHPs. We seek 
comment on whether States are performing work in these areas, and 
whether there are more or different areas of review for which it would 
be appropriate for the FFEs to defer to State reviews for QHP 
certification. We seek comment regarding the potential benefits as well 
as challenges or unintended consequences that States and issuers may 
encounter if States performed increased roles in QHP certification 
reviews by taking on the reviews noted above, or other, additional 
reviews. We also seek comment on the impact for QHP issuers 
participating in multiple States and across Exchange types. HHS 
anticipates outlining plan year 2019 QHP certification standards in 
future guidance, including outlining areas where States performing plan 
management functions have flexibility to follow a different approach. 
We also propose to amend Sec.  156.200(b)(2) by adding a cross 
reference to proposed Sec.  155.706 to align with other proposals in 
this rule.
b. Additional Standards Specific to SHOP for Plan Years Beginning Prior 
to January 1, 2018 (Sec.  156.285)
    As discussed in the following section, we propose to modify the 
regulatory requirements regarding additional standards specific to SHOP 
for plan years beginning on or after January 1, 2018 and to introduce 
those requirements in a new Sec.  156.286. To reflect the proposal that 
the requirements currently in Sec.  156.285 would apply only for plan 
years beginning before January 1, 2018, we propose to amend the heading 
of Sec.  156.285 and add paragraph (f), to state that the section would 
only apply for plan years that begin prior to January 1, 2018. We 
discuss the proposed new standards applicable for plan years beginning 
on or after January 1, 2018 in the following section. These changes 
would be effective on the effective date of the final rule, if 
finalized as proposed.
c. Additional Standards Specific to SHOP for Plan Years Beginning on or 
After January 1, 2018 (Sec.  156.286)
    Section 156.285 currently describes the requirements on QHP issuers 
participating in SHOPs to accept enrollment and payment information 
from a SHOP on behalf of an employer or enrollee. As discussed above, 
we propose to amend Sec.  156.285 to make it only applicable for plan 
years beginning prior to January 1, 2018, and to modify the additional 
standards specific to QHP issuers participating in SHOPs applicable for 
plan years beginning on or after January 1, 2018 through the 
introduction of a new Sec.  156.286. New Sec.  156.286 would include 
only those standards that have been applicable under Sec.  156.285 that 
would continue to apply to the SHOPs under the proposed approach 
discussed earlier in this preamble, with minor modifications and 
clarifications. The proposals described in this section would be 
effective on the effective date of the final rule, if finalized as 
proposed.
    We propose to retain Sec.  156.285(a) as Sec.  156.286(a), but, to 
reflect the proposal that a SHOP would not be required to process 
enrollments and payments, to require issuers to accept payment not only 
from the SHOP, but from a qualified employer or enrollee or a SHOP. We 
also propose not to include the requirement currently in Sec.  
156.285(a)(4)(ii), as the Federally-facilitated SHOPs would no longer 
be involved in premium payments. For the same reason, we also propose a 
narrower version of Sec.  156.285(b) as Sec.  156.286(b), requiring 
only that issuers adhere to the enrollment periods and processes 
established by the SHOP consistent with Sec.  155.726, and establish 
uniform enrollment timelines and processes for qualified employers and 
group members. We also propose in Sec.  156.286(c) to include only 
those requirements from Sec.  156.285(c) that do not relate to the 
payment and enrollment processes that we have proposed would no longer 
be required.
    We also propose not to include a paragraph mirroring paragraph (d) 
of Sec.  156.285. This would reflect our proposal to remove the 
requirements contained in current Sec.  155.735, and generally not to 
impose coverage related timelines on issuers of QHPs through the SHOPs 
for plans beginning on or after January 1, 2018. We propose to include 
a paragraph mirroring Sec.  155.285(e) as Sec.  156.286(d).
    Finally, under our proposed approach, SHOPs would no longer be 
required to provide employee enrollment functionality. When enrollments 
are completed by working with SHOP issuers or SHOP-registered agent or 
brokers, it may not always be immediately apparent to the issuer 
whether the enrollment is through the SHOP, and whether it is part of 
an employer's offering a choice of plans. To ensure that issuers 
offering QHPs through a SHOP do so in a manner that is consistent with 
our proposed interpretation of the SHOP provisions of the statute, we 
propose to add new paragraphs (e) and (f) in Sec.  156.286. These would 
require that QHP issuers offering a QHP through the SHOP accept 
enrollments from groups in accordance with the employer choice policies 
applicable to the SHOP under Sec.  155.706(b)(3), that they maintain 
processes sufficient to identify whether a group market enrollment is 
an enrollment through the SHOP, and they maintain records of SHOP 
enrollments for a period of 10 years following the enrollment. Proposed 
paragraph (f) also would require issuers to utilize a uniform 
enrollment form, as required by section 1311(c)(1)(F) of the PPACA. As 
noted in the preamble to Sec.  155.716, we intend to update the single 
employer application to reflect our proposed changes in Sec.  155.731. 
An issuer would be considered to satisfy this proposed requirement if 
it used that application form.
    Finally, we propose in paragraph (g) to state that the requirements 
contained within Sec.  156.286 are only applicable for plan years 
beginning on or after January

[[Page 51111]]

1, 2018, effective on the effective date of the final rule, if 
finalized as proposed.
d. Meaningful Difference Standard for Qualified Health Plans in the 
Federally-Facilitated Exchanges (Sec.  156.298)
    We propose to remove Sec.  156.298 to eliminate meaningful 
difference standards for QHPs offered through a Federally-facilitated 
Exchange or State-Based Exchange on the Federal platform. Under this 
standard, in order to be certified as a QHP, a plan must be 
meaningfully different from all other QHPs offered by the same issuer 
of that plan within a service area and level of coverage in the 
Exchange. As defined in Sec.  156.298(b), QHPs are considered 
meaningfully different from other plans if a reasonable consumer would 
be able to identify one or more material differences among five key 
characteristics between the plan and other plans to be offered by the 
same issuer.
    This meaningful difference standard was implemented to make it 
easier for consumers to understand differences between plans, and 
choose the right plan option for them. However, with fewer issuers 
participating in the Exchange, and fewer plans for consumers to choose 
from, we propose to remove these standards, as we no longer believe the 
requirement is necessary. We believe removing the meaningful difference 
standard would encourage plan design innovation, by providing more 
flexibility to issuers in designing plans, and thus increase plan 
offerings and choice for consumers.
e. Other Considerations
    We seek comment on ways in which HHS can foster market-driven 
programs that can improve the management and costs of care and that 
provide consumers with quality, person-centered coverage. As we stated 
in the 2017 and 2018 Payment Notices, we believe that innovative 
issuer, provider, Exchange, and local programs or strategies can 
successfully promote and manage care, in a manner that contributes to 
better health outcomes and lower rates while creating important 
differentiation opportunities for market participants. We seek comment 
on ways in which we can facilitate such innovation, and in particular 
on whether there are regulations or policies in place that we should 
modify in order to better meet the goals of affordability, quality, and 
access to care.
    We are particularly interested in receiving comments on how we may 
encourage value based insurance design within the individual and small 
group markets and ways to support issuers in using cost sharing to 
incentivize more cost-effective enrollee behavior and higher quality 
health outcomes, in accordance with section 2713(c) of the PHS Act. 
Currently, under our rules, issuers have considerable discretion in the 
design of cost-sharing structures, subject to certain statutory AV 
requirements, non-discrimination law and rules, and other applicable 
law, such as the Paul Wellstone and Pete Domenici Mental Health Parity 
and Addiction Equity Act of 2008.
    We would like to encourage issuers to offer HDHPs that can be 
paired with an HSA as a cost effective options for enrollees. While the 
proportion of available HSA-eligible HDHPs has been stable in the FFEs, 
the percentage of enrollees in HDHPs has decreased slightly over the 
last 3 years as there are certain technical barriers for issuers in 
offering HDHPs in the EHB compliant market.\67\ We are particularly 
interested in exploring how to use plan display options on 
HealthCare.gov to promote the availability of HDHPs to applicants, and 
seek comment on how best to do so.
---------------------------------------------------------------------------

    \67\ For instance, the maximum annual limitation on cost sharing 
established at section 1302(c) of the PPACA is increasing at a 
faster rate than the maximum out of pocket cost limits for HDHPs 
under section 223 of the Code. Therefore, a plan that utilizes the 
maximum annual limitation on cost sharing under the PPACA would not 
meet the requirements to be an HDHP under the Code that could be 
paired with an HSA.
---------------------------------------------------------------------------

    We are also interested in value based insurance designs that focus 
on cost effective drug tiering structures; address overused, higher 
cost health services; provide innovative network design that 
incentivizes enrollees to use higher quality care; and promote use of 
preventive care and wellness services. We solicit comments on how HHS 
can better encourage these types of plan designs, and whether any 
existing regulatory provisions or practices discourage such designs.
4. Standards for Downstream and Delegated Entities (Sec.  156.340)
    This section discusses the responsibilities of a QHP issuer and its 
applicable downstream entities. We propose to amend paragraph (a)(2) to 
add a cross reference to proposed Sec.  155.706 to align with other 
proposals made throughout this proposed rule.
5. Eligibility and Enrollment Standards for Qualified Health Plan 
Issuers on State-Based Exchanges on the Federal Platform (Sec.  
156.350)
    Section 156.350 describes the eligibility and enrollment standards 
for issuers that offer QHP coverage in the SBE-FPs. Currently, Sec.  
156.350(a)(1) and (2) state that for a QHP issuer to participate in an 
SBE-FP for SHOP, it must comply with the requirements at Sec.  
156.285(a)(4)(ii) and Sec.  156.285(c)(5) and (c)(8)(iii), 
respectively. However, as discussed elsewhere in this proposed rule, to 
align with our proposal regarding the SHOPs, we are proposing that 
these referenced requirements at Sec.  156.285 would not be applicable 
for plan years beginning on or after January 1, 2018, effective on the 
effective date of the final rule, if finalized as proposed. We 
therefore propose to amend Sec.  156.350(a)(1) and (a)(2) to specify 
that they only apply through plan years beginning prior to January 1, 
2018.
    We seek comment on these proposals.
6. Minimum Essential Coverage
a. Other Coverage That Qualifies as Minimum Essential Coverage (Sec.  
156.602)
    A CHIP program is a type of government-sponsored coverage, defined 
under title XXI of the Act that provides low-cost health coverage to 
children in low-income families that do not otherwise have health 
coverage. States may be eligible to receive Federal funds to initiate 
and expand such programs. A CHIP buy-in program, a ``full pay'' option 
where a covered family pays the full premium typically without any 
Federal or State assistance, often provides similar or identical 
benefits as the State CHIP program for children in families that do not 
financially qualify for the State's CHIP program.\68\ CHIP buy-in 
programs are not authorized or funded under title XXI of the Act, and 
therefore are not government-sponsored minimum essential coverage under 
section 5000A(f)(1)(A) of the Code. However, CHIP buy-in programs may 
be recognized as minimum essential coverage by the Secretary in 
consultation with the Secretary of the Treasury, pursuant to the 
Secretary's authority under section 5000A(f)(1)(E) of the Code.
---------------------------------------------------------------------------

    \68\ Under IRS Notice 2015-37, individuals who may enroll in a 
CHIP buy-in program designated as MEC are eligible for MEC under the 
CHIP buy-in program for purposes of the premium tax credit under 
section 36B of the Code only if they are enrolled in the program.
---------------------------------------------------------------------------

    In considering whether to recognize coverage as minimum essential 
coverage under the application process provided for in Sec.  156.604, 
HHS generally evaluates whether the coverage complies with 
substantially all the requirements of title I of the PPACA that apply 
to non-grandfathered coverage in the individual market, including the 
essential health benefits requirements.

[[Page 51112]]

Many CHIP buy-in programs have benefits identical to those offered 
through the State's CHIP program under title XXI; however, those 
benefits might not meet the ``substantially all'' standard as currently 
interpreted by HHS, due primarily to differences between the CHIP buy-
in benefits and those offered under the EHB-benchmark plan. While the 
EHB benchmark plan includes benefits to address the healthcare needs of 
all individuals, including older adults, the CHIP buy-in programs only 
offer coverage to children. Consequently, States may need to increase 
the benefits, and as a result, the cost of CHIP buy-in programs in 
order to meet the ``substantially all'' standard. Based on discussions 
with States that sponsor CHIP buy-in programs, we understand that 
administering two programs with different benefits creates a resource 
burden on States.
    Section 156.602 specifies the types of coverage that are designated 
as minimum essential coverage pursuant to the Secretary's authority 
under section 5000A(f)(1)(E) of the Code. We propose to amend this 
section to include coverage under a CHIP buy-in program that provides 
identical coverage to that State's CHIP program under title XXI of the 
Act.
    We seek comment on this proposal, including its effects on the 
individual market risk pool.
    We also seek comment on whether CHIP buy-in programs that provide 
greater coverage should be categorically designated as minimum 
essential coverage, without submitting an application, or whether such 
programs must submit an application so that HHS can evaluate any 
differences from the State's CHIP program under title XXI to ensure 
that the program substantially resembles the State's CHIP program under 
title XXI. For example, a CHIP buy-in program could impose less cost 
sharing or more generous benefits than the State's CHIP program under 
title XXI. We also seek comment on whether other types of government-
sponsored buy-in programs, such as Medicaid buy-in programs, should be 
recognized as minimum essential coverage without having to submit an 
application, and whether this proposal should apply to such programs.
b. Requirements for Recognition as Minimum Essential Coverage (Sec.  
156.604)
    We recognize that the benefits in some CHIP buy-in programs are 
similar but not identical to the State's CHIP program under title XXI; 
for example, they impose greater cost sharing or reduced benefits in 
comparison with the State's CHIP program under title XXI.
    Under the proposed changes to Sec.  156.602, CHIP buy-in programs 
with benefits that differ at all from the State's CHIP program under 
title XXI would still be required to submit an application with HHS if 
they wish to be recognized as minimum essential coverage. HHS would 
evaluate such programs based on the ``substantially all'' standard that 
currently applies under Sec.  156.604. We seek comment on whether HHS 
should create a new standard of review under which such programs must 
``substantially resemble'' the State's CHIP program under title XXI to 
qualify as minimum essential coverage under Sec.  156.604. The 
``substantially resemble'' standard would not be as stringent as the 
``substantially all'' standard, but would give HHS the flexibility to 
evaluate CHIP buy-in programs based on whether they are providing 
coverage similar to the State's CHIP program under title XXI and are 
meeting the health requirements of the children enrolled in the 
coverage. We are not proposing to codify the ``substantially resemble'' 
standard in Sec.  156.604; however, we propose that the Secretary use 
the Secretary's discretion and authority under section 5000A(f)(1)(E) 
of the Code to recognize as minimum essential coverage a CHIP buy-in 
program that provides coverage similar to the State's CHIP program 
under title XXI or when the facts and circumstances indicate that the 
CHIP buy-in program should be recognized as minimum essential coverage. 
We seek comment on this proposal, including its effects on the 
individual market risk pool.
7. Quality Rating System (Sec.  156.1120)
    We recognize that social risk factors play a major role in health, 
and one of our core objectives is to improve patients' outcomes 
including reducing health disparities. In addition, we seek to ensure 
that the quality of care furnished by providers and health plans is 
assessed as fairly and accurately as possible under HHS quality 
reporting programs, including the Quality Rating System established 
under section 1311(c)(3) of the PPACA, while helping to ensure that 
individuals and populations receive high quality, person-centered care. 
In response to several comments we received from the Request for 
Information, we continue to assess ways to reduce burden and promote 
State flexibility in the implementation of all statutorily required 
Exchange quality programs, including the Quality Rating System, and we 
continue to prioritize strategies to improve the value for consumers. 
We received many comments in response to our request for public comment 
as part of the annual Quality Rating System Call Letter process, on 
whether we should account for social risk factors in the Quality Rating 
System, which provides quality ratings (or star ratings from 1 to 5 
stars) that account for member experience, medical care and health plan 
administration for QHPs, offered through an Exchange. We are not 
proposing amendments to the Quality Rating System in this rule. We 
continue to evaluate what method or combination of methods would be 
most appropriate for accounting for social risk factors in the Quality 
Rating System as well as other HHS quality reporting programs. We have 
closely reviewed related reports by the Office of the Assistant 
Secretary for Planning and Evaluation \69\ and the National Academies 
of Sciences, Engineering, and Medicine.\70\ In addition, we continue to 
await the results of the National Quality Forum trial \71\ on risk 
adjustment for quality measures. We continue to advance healthcare 
quality across QHPs, as well as providers, to improve outcomes of their 
enrollees with social risk factors without masking potential 
disparities or minimizing incentives to improve the outcomes for 
disadvantaged populations.
---------------------------------------------------------------------------

    \69\ Office of the Assistant Secretary for Planning and 
Evaluation. Report to Congress: Social Risk Factors and Performance 
under Medicare's Value-based Purchasing Programs. (December 21, 
2016). Available at https://aspe.hhs.gov/pdf-report/report-congress-social-risk-factors-and-performance-under-medicares-value-based-purchasing-programs.
    \70\ National Academies of Sciences, Engineering, and Medicine. 
Accounting for Social Risk Factors in Medicare Payment. (January 10, 
2017). Available at http://nationalacademies.org/hmd/reports/2017/accounting-for-social-risk-factors-in-medicare-payment-5.aspx.
    \71\ National Quality Forum socioeconomic status (SES) trial 
period Web site at http://www.qualityforum.org/ProjectDescription.aspx?projectID=80124.
---------------------------------------------------------------------------

    We seek comment as part of this rulemaking on types of social risk 
factors that may be most appropriate as well as the methods to account 
for social risk factors for QHP issuer quality reporting. Examples of 
social risk factors include: Low income subsidy; race and ethnicity; 
and geographic area of residence. Approaches to account for social risk 
factors include stratifying measure scores or risk adjustment of a 
particular measure. We seek comment on which social risk factors could 
be used alone or in combination, current data sources where this 
information would be available, and whether other data should be 
collected to better capture the effects of social risk. We will

[[Page 51113]]

take commenters' input into consideration as we continue to assess the 
appropriateness and feasibility of accounting for social risk factors 
in the Quality Rating System.
8. Direct Enrollment With the QHP Issuer in a Manner Considered To Be 
Through the Exchange (Sec.  156.1230)
    We propose to amend paragraph (b)(2) of Sec.  156.1230 to conform 
with the proposed amendments to Sec.  155.221. The proposed change 
would require that, prior to a QHP issuer's Internet Web site being 
used to complete a QHP selection, the QHP issuer must engage a third 
party entity in accordance with Sec.  155.221 to demonstrate 
operational readiness and compliance with applicable requirements. For 
a discussion of the provisions of this proposed rule related to third 
party entities performing operational readiness reviews, please see the 
preamble to Sec.  155.221.
F. Part 157--Employer Interactions With Exchanges and SHOP 
Participation
1. Qualified Employer Participation Process in a SHOP for Plan Years 
Beginning Prior to January 1, 2018 (Sec.  157.205)
    As discussed in the following section, we propose to modify the 
regulatory requirements regarding the qualified employer participation 
process in a SHOP for plan years beginning on or after January 1, 2018 
and to introduce those requirements in a new Sec.  157.206. To reflect 
the proposal that the requirements currently in Sec.  157.205 would 
apply only for plan years beginning before January 1, 2018, we propose 
to amend the heading of Sec.  157.205 and add paragraph (h), to state 
that the section would apply only for plan years that begin prior to 
January 1, 2018. These changes would be effective on the effective date 
of the final rule, if finalized as proposed.
2. Qualified Employer Participation Process in a SHOP for Plan Years 
Beginning on or After January 1, 2018. (Sec.  157.206)
    Section 157.205 describes requirements for participating SHOP 
employers. To reflect the proposal to allow SHOPs to operate in a 
leaner fashion, we are proposing several changes to the requirements 
related to qualified employer participation process in a SHOP for plan 
years beginning on or after January 1, 2018, and propose to introduce 
these requirements in Sec.  157.206. With the exception of the proposed 
changes to the process described here, the process would remain the 
same as in Sec.  157.205. The proposals described in this section would 
be effective on the effective date of the final rule, if finalized as 
proposed.
    Paragraph (d) of Sec.  157.205 requires a qualified employer to 
submit any contribution towards the premiums of any qualified employee 
according to the standards and processes described in Sec.  155.705. 
Because we are proposing that the requirements in Sec.  155.705 
regarding employer contribution methods would not apply for plan years 
beginning on or after January 1, 2018, we also propose that the 
requirement in Sec.  157.705(d) would not apply for those plan years.
    Paragraph (e)(1) of Sec.  157.205 describes obligations of 
qualified employers to employees hired outside of the initial or annual 
open enrollment periods. We propose in Sec.  157.206(d) that qualified 
employers must provide employees hired outside of the initial or annual 
open enrollment period with information about the enrollment process. 
We propose that the requirement in paragraph (e)(1) of Sec.  157.705, 
which requires qualified employers to provide these employees with an 
enrollment period in accordance with Sec.  155.725(g), would not be 
included in Sec.  157.206, as we are proposing that the requirement in 
Sec.  155.725(g) would not be applicable for plan years beginning on or 
after January 1, 2018. We also propose that the requirement in Sec.  
157.205(e)(2) to provide information about the enrollment process in 
accordance with Sec.  155.725 would not apply for plan years beginning 
on or after January 1, 2018 to reflect the proposal that the process 
provided for in many of the provisions in Sec.  155.725 would not apply 
for those plan years.
    We also propose that the requirements in Sec.  157.205(f) regarding 
the process for notifying the SHOP in the event the eligibility status 
of an employee, or employee's dependent has changed would not apply for 
plan years beginning on or after January 1, 2018. Under the proposed 
approach for plan years beginning on or after January 1, 2018, SHOPs 
would not be required to process employee enrollment, so there would be 
no reason for all qualified employers to provide such information.
    Further, we propose that the requirement in Sec.  157.205(g) that 
qualified employers adhere to the annual employer election period under 
Sec.  155.725(c) would not apply for plan years beginning on or after 
January 1, 2018. Elsewhere, we propose that the annual employer 
election period provision in Sec.  155.725(c) would not apply for those 
plan years, and this proposal would reflect that removal.
    Finally, we propose in paragraph (e) of Sec.  157.206 to include 
new requirements for qualified employers reflective of the proposed 
approach for SHOPs generally. First, since we propose in Sec.  
155.716(f) that an employer's determination of eligibility to 
participate in the SHOP remains valid until the employer makes a change 
that could end its eligibility under Sec.  155.710(b), we propose in 
Sec.  157.205(e)(1) that employers must submit a new application to the 
SHOP if the employer makes a change that could end its eligibility 
under Sec.  155.710 or withdraw from participation in the SHOP. Second, 
because under our proposed changes SHOPs would not be required to 
process group enrollments, and therefore would not necessarily 
communicate with QHP issuers about employer eligibility determinations, 
we propose to require employers to notify the QHP issuer of an 
unfavorable eligibility determination. However, we propose that the 
employer be required to provide the notification within 5 business days 
of the end of any applicable appeal process under Sec.  155.741. 
Specifically, the end of the appeal process could occur when the time 
to file an appeal lapses without an appeal being filed, when the appeal 
is rejected or dismissed, or when the appeal process concludes with an 
adjudication by the appeals entity, as applicable. We also propose in 
paragraph (e)(3) to describe the employer's obligations regarding loss 
of eligibility to participate in a SHOP or termination of enrollment or 
coverage through the SHOP, if this proposed approach were to be 
finalized. Given that under the proposed approach there would not 
necessarily be communication between the SHOP and a participating QHP 
issuer regarding employer eligibility, enrollment, or terminations, 
there may be no way for the SHOP to notify an issuer in the event an 
employer becomes ineligible to participate in SHOP. Therefore, we 
propose to add paragraph (e)(3) to require employers to notify an 
issuer of a loss of eligibility to participate in SHOP, or a desire to 
terminate SHOP enrollment or coverage.
    We propose in paragraph (f) of Sec.  157.205 that the section would 
apply for plan years beginning on or after January 1, 2018, only. If 
finalized, these changes would become effective as of the effective 
date of the final rule.
    We seek comment on this proposal.

[[Page 51114]]

G. Part 158--Issuer Use of Premium Revenue: Reporting and Rebate 
Requirements

1. Reporting of Federal and State Taxes (Sec.  158.162)
    Section 2718 of the PHS Act requires that Federal and State taxes 
be reported, but that such amounts are to be excluded from premium 
revenue when calculating an issuer's MLR and accompanying rebates. 
However, the statute does not define what is included in Federal and 
States taxes. The MLR December 1, 2010, interim final rule (75 FR 
74864) interprets this language and broadly describes Federal and State 
taxes that must be reported but are excluded from premiums in the MLR 
and rebate calculations, and Federal and State taxes that must be 
reported and are not excluded from premiums in MLR and rebate 
calculations. During our review of MLR reports submitted by issuers, 
HHS noted that some issuers were excluding employment taxes (such as 
the Federal Insurance Contributions Act (FICA), the Railroad Retirement 
Tax Act (RRTA), and the Federal Unemployment Act (FUTA) taxes; State 
unemployment/reemployment insurance and State employment training 
taxes; and other similar taxes and assessments) from earned premiums in 
their MLR and rebate calculations, whereas most issuers were including 
employment taxes in earned premiums in the MLR and rebate calculations. 
In order to provide consistency and clarity for MLR reporting, HHS 
amended Sec.  158.162 in the 2016 Payment Notice (80 FR 10750) to 
specify that all issuers must include employment taxes in earned 
premiums and must not deduct such taxes in the MLR and rebate 
calculations starting with the 2016 MLR reporting year.
    However, in light of the changes in the market landscape since 
Sec.  158.162 was amended in early 2015, HHS is considering whether 
revising the decision on the treatment of employment taxes may help 
improve market stability, particularly in the individual market, by 
providing an incentive for issuers to enter or remain in the market. In 
addition, in response to the Request for Information, we received 
several comments in favor of allowing issuers to deduct such taxes from 
these calculations. Therefore, we are inviting comments on whether, in 
order to encourage issuer participation and competition in the markets, 
HHS should revise paragraph (a)(2) and paragraph (b)(2)(iv) of Sec.  
158.162 to allow all issuers to deduct Federal and State employment 
taxes from premiums in their MLR and rebate calculations, starting with 
the 2017 MLR reporting year for reports to be filed by July 31, 2018. 
We are not reconsidering the treatment of the other taxes that cannot 
be excluded from premiums in MLR and rebate calculations (for example, 
Federal taxes on investment income and capital gains) because we 
believe those taxes can be distinguished from employment taxes and the 
NAIC had explicitly recommended to HHS that such taxes should not be 
excluded from premiums.\72\
---------------------------------------------------------------------------

    \72\ National Association of Insurance Commissioners--Model 
Regulation Service, Regulation for Uniform Definitions and 
Standardized Methodologies for Calculation of the Medical Loss Ratio 
for Plan Years 2011, 2012 and 2013 per Section 2718 (b) of the 
Public Health Service Act (Oct 27, 2010), available at http://www.naic.org/documents/committees_ex_mlr_reg_asadopted.pdf.
---------------------------------------------------------------------------

    We solicit comments on this approach from all stakeholders, 
including on whether we should instead amend the MLR regulations to 
collect the employment tax data separately from other tax data as an 
informational item on the MLR Annual Reporting Form to gather data to 
inform a decision regarding whether to amend the regulation for future 
years, and whether changing the treatment of employment taxes would be 
likely to help improve market stability and competition.
2. Allocation of Expenses (Sec.  158.170)
    For a discussion of the proposed amendment to Sec.  158.170(b) 
regarding the description of the allocation method for quality 
improvement activity (QIA) expenses, please see the preamble to Sec.  
158.221.
3. Formula for Calculating an Issuer's Medical Loss Ratio (Sec.  
158.221)
    We propose amending Sec.  158.221 by adding new paragraph (b)(8) to 
provide issuers with an option to report quality improvement activity 
expenses as a single fixed percentage of premium amount starting with 
the 2017 MLR reporting year (for reports to be filed by July 31, 2018). 
We also propose making conforming amendments to Sec.  158.170(b) 
(Allocation of expenses) in order to recognize the new proposed option 
for reporting QIA expenses.
    Section 2718(c) of the PHS Act tasked the NAIC with establishing 
standardized definitions and methodologies for calculating MLR and 
rebates, subject to the certification of the Secretary. Consistent with 
the NAIC's recommendation to HHS,\73\ the MLR interim final rule, 
published on December 1, 2010 (75 FR 74863), allows issuers to include 
in the MLR numerator expenditures for five categories of activities 
that improve health care quality. Accordingly, issuers are currently 
required to report QIA expenditures in alignment with the five separate 
categories codified in Sec.  158.150(b)(2)(i)-(v). Additionally, Sec.  
158.170 requires issuers to use and disclose specific allocation 
methods to report expenses, including QIA expenditures.
---------------------------------------------------------------------------

    \73\ National Association of Insurance Commissioners--Model 
Regulation Service, Regulation for Uniform Definitions and 
Standardized Methodologies for Calculation of the Medical Loss Ratio 
for Plan Years 2011, 2012 and 2013 per Section 2718 (b) of the 
Public Health Service Act (Oct 27, 2010), available at http://www.naic.org/documents/committees_ex_mlr_reg_asadopted.pdf.
---------------------------------------------------------------------------

    However, in the course of conducting the MLR audits, HHS observed 
that the current MLR regulations require a substantial effort by 
issuers to accurately identify, track and report QIA expenses. HHS has 
also observed that, between 2011 and 2015, issuers that did report QIA 
expenses have reported spending, on average, a consistent percentage of 
premium on total QIA: approximately 0.7 percent in 2011, and 0.8 
percent in 2012 through 2015.
    Given issuers' relatively low and consistent reported expenditures 
on QIA and the significant burden associated with identifying, tracking 
and reporting these expenditures, we propose adding Sec.  158.221(b)(8) 
to permit issuers an option to report on their MLR reporting form a 
single QIA amount equal to 0.8 percent of earned premium in the 
relevant State and market, in lieu of tracking and reporting the 
issuer's actual expenditures for QIA, as defined in Sec.  158.150 and 
Sec.  158.151. Under this proposal, all issuers would be able to 
include 0.8 percent of earned premium in their MLR numerator as QIA 
expenses for the relevant State and market. This is in line with a 
comment received in response to the Request for Information requesting 
that the MLR formula be simplified. The accompanying proposed 
amendments to Sec.  158.170(b) would require issuers that elect the 
option to include 0.8 percent of earned premium for QIA expenses to 
indicate as such when describing the allocation method used for QIA 
expenses. Issuers that spend more than 0.8 percent of earned premium on 
QIA would have the option to report the total actual, higher amount 
spent and, if choosing this option, would have to report QIA in the 
five categories described in Sec.  158.150(b)(2)(i)-(v), as well as 
comply with the allocation of expenses requirements established under 
Sec.  158.170. We seek comment on this proposal.

[[Page 51115]]

4. Potential Adjustment to the MLR for a State's Individual Market 
(Subpart C)
    We propose to amend 45 CFR part 158, subpart C to modify the 
process and criteria for the Secretary to determine whether to adjust 
the 80 percent MLR standard in the individual market in a State. This 
proposal is consistent with comments we received on the Request for 
Information requesting that issuers be allowed to include additional 
expenses in their MLR calculation, since States would be able to more 
easily request reductions of the individual market MLR standard, which 
would effectively enable issuers in those States to spend more premium 
on additional expenses.
    Section 2718(d) of the PHS Act provides that the Secretary may 
adjust the MLR standard in the individual market if the Secretary 
determines it appropriate on account of the volatility of the 
individual market due to the establishment of Exchanges. The MLR 
December 1, 2010, interim final rule (75 FR 74864) set forth the 
framework for a State to request such an adjustment and the process and 
criteria for the Secretary to determine whether to grant a State's 
request. Subpart C of 45 CFR part 158 specifies that the adjustment 
request must be initiated by the State, the adjustment may be granted 
for up to 3 years at a time, the information that the State must 
provide to support its request, and the criteria that HHS may consider 
in making a determination. It also requires the Secretary to invite 
public comments on the adjustment requests, allows States to hold 
optional public hearings, and enables States to request reconsideration 
of adverse determinations.
    Section 158.301 specifies that an adjustment may be granted only if 
there is a reasonable likelihood that application of the 80 percent MLR 
standard may destabilize the individual market in a State. Because in 
the current environment, it generally is not the MLR standard in 
isolation but rather factors that, taken together, can contribute to 
instability of the individual market in certain States, the current 
framework restricts the States' ability to obtain adjustments to the 
MLR standard as part of innovative solutions for stabilizing their 
individual markets. Therefore, as outlined below, we propose to make 
amendments throughout subpart C of part 158 to allow for adjustments to 
the individual market MLR standard in any State that demonstrates that 
a lower MLR standard could help stabilize its individual market, and to 
streamline the process for applying for such adjustments to reduce 
burdens for States and HHS.
a. Standard for Adjustment to the Medical Loss Ratio (Sec.  158.301)
    Currently, Sec.  158.301 permits the Secretary to adjust the MLR 
standard that must be met by issuers offering coverage in the 
individual market in a State for a given MLR reporting year, if the 
Secretary determines that the 80 percent MLR standard may destabilize 
the individual market in that State. For the reasons described above, 
we propose to amend Sec.  158.301 to permit the Secretary to adjust the 
individual market MLR standard in any State if the Secretary determines 
that there is a reasonable likelihood that an adjustment to the 80 
percent MLR standard will help stabilize the individual market in that 
State. We seek comment on this proposal.
b. Information Regarding the State's Individual Health Insurance Market 
(Sec.  158.321)
    We propose to amend Sec.  158.321 to modify the information that a 
State must submit to the Secretary with its request for an adjustment 
to the 80 percent MLR standard in its individual market. Currently, 
Sec.  158.321 requires the State to describe the State MLR standard and 
formula for assessing compliance (Sec.  158.321(a)), its market 
withdrawal requirements (Sec.  158.321(b)), and the mechanisms 
available to the State to provide consumers with options for alternate 
coverage (Sec.  158.321(c)). This information is used to determine what 
a State is able to do to mitigate instability in its individual market 
without an adjustment to the MLR standard. Because we seek to make the 
MLR adjustment process less burdensome on States and make adjustments 
available to enable States to develop innovative solutions for 
stabilizing their individual markets, we propose to remove the 
requirements in Sec.  158.321(a) through (c). Further, all States must 
follow the Federal minimum standards for the MLR calculation, market 
withdrawals, and guaranteed issue and limits on health status ratings; 
therefore, we believe it is not necessary for a State to include this 
information as part of its MLR adjustment request. Additionally, we 
propose to redesignate paragraph (d) as paragraph (a) and to revise the 
redesignated paragraph to describe the information the State must 
submit regarding the State's individual health insurance market, as 
outlined below.
    Current regulations require a State to provide detailed individual 
market enrollment and premium data for each issuer at the product level 
as well as each issuer's market share of the individual market in the 
State (Sec.  158.321(d)(1)). We consider this requirement unduly 
burdensome and propose to replace it at Sec.  158.321(a)(2) with a 
requirement to submit information on total number of enrollees (life-
years and covered lives) for each type of coverage sold or renewed in 
the State's individual market, as described in more detail below. We 
believe that enrollment data on life-years and covered lives for each 
type of individual market coverage, rather than the number of 
individual enrollees by product, would provide sufficient information 
because the much more granular product-level detail is not necessary 
for HHS to evaluate the likelihood and magnitude of enrollees 
potentially moving from one type of coverage to the other and the 
impact this may have on the State individual market's risk pool and 
market competition. ``Life-years,'' which the MLR Annual Reporting Form 
Instructions define as member-months divided by 12, generally represent 
average enrollment over the course of a year, while ``covered lives'' 
are defined in those Form Instructions as enrollment on the last day of 
the year. Similarly, we propose to eliminate the requirement currently 
in Sec.  158.321(d)(1) to submit product-level premium data in favor of 
the total earned premium data in the proposed Sec.  158.321(a)(1) as 
described below, and to eliminate the Sec.  158.321(d)(1) requirement 
to submit the issuer's individual market share because HHS can 
determine it based on the MLR data available to HHS.
    Section 158.321(d)(2) also currently requires States to submit 
information regarding the total earned premium (Sec.  
158.321(d)(2)(i)), agent and broker commissions (Sec.  
158.321(d)(2)(iv)), and risk-based capital (RBC) level (Sec.  
158.321(d)(2)(viii)), for each issuer that offers individual market 
coverage to more than 1,000 enrollees. We consider this information to 
continue to be relevant to determining the health of a State's 
individual market and whether an adjustment to the MLR standard could 
help stabilize the market. We therefore propose to continue to require 
States to include information on total earned premium (proposed Sec.  
158.321(a)(1)) and total agent and broker commission expenses (proposed 
Sec.  158.321(a)(3)) for each type of coverage sold or renewed in the 
State's individual market, as described in more detail below, as well 
as the RBC level (proposed Sec.  158.321(a)(5)), which, due to the 
manner in which RBC is calculated, would only be appropriate to

[[Page 51116]]

report at the issuer level, rather than for each type of coverage. We 
also propose to revise the accompanying regulation text for these data 
elements for readability. We further propose that State requests should 
include information on total incurred claims (proposed Sec.  
158.321(a)(1)) for each type of individual market coverage described 
below, in lieu of the current more burdensome requirement to provide 
reported and estimated individual market MLRs (Sec.  158.321(d)(2)(ii) 
through (iii)).
    We propose to modify these requirements to require States to only 
include the information for each issuer actively offering individual 
market coverage. In most States, only a few issuers are actively 
participating, while the majority of issuers that have policies in 
force are not active and generally cover a much smaller percentage of 
the market. HHS can obtain the limited information on such issuers that 
would be relevant to analyzing a State's request from the combination 
of the MLR data available to HHS and the data on active issuers 
provided by the State, rather than requiring a State to submit data on 
these issuers as part of its request for an adjustment. We also propose 
to add a new Sec.  158.321(b) to require that a State request include 
the individual market data required in the proposed new Sec.  
158.321(a)(1) through (4) and (6) separately for each issuer actively 
offering individual market plans in that State group by the following 
categories, as applicable: On-Exchange, off-Exchange, grandfathered 
health plans as defined in Sec.  147.140, coverage that meets the 
criteria for transitional policies outlined in applicable guidance,\74\ 
and non-grandfathered single risk pool coverage, in order to enable the 
Secretary to assess the situation in the State's individual market and 
to appropriately evaluate the State's proposal. Proposed new Sec.  
158.321(b) would also require the State to report the RBC information 
at the issuer level for each issuer actively offering coverage in the 
State's individual market. A State would not be required to provide 
information on student health insurance coverage as defined in Sec.  
147.145 or individual market excepted benefits as defined in Sec.  
148.220.
---------------------------------------------------------------------------

    \74\ See, for example, CMS ``Insurance Standards Bulletin 
Series--Information--Extension of Transitional Policy through 
Calendar Year 2018 (February 23, 2017) available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Extension-Transitional-Policy-CY2018.pdf.
---------------------------------------------------------------------------

    To further reduce the burden on States, we propose to remove the 
requirements to provide net underwriting profit for each issuer's total 
business in the State and after-tax profit and profit margin for the 
individual market and total business in the State (Sec.  
158.321(d)(2)(vii)), as well as to rename the remaining requirement to 
provide the individual market ``net underwriting profit'' to ``net 
underwriting gain'' to more accurately reflect the accounting term 
(proposed Sec.  158.321(a)(4)). We believe data on the individual 
market net underwriting gain provides sufficient information because an 
issuer's total gain or loss in a State does not necessarily impact the 
issuer's decision to participate in the individual market. We also 
propose to delete the requirement to provide information on estimated 
MLR rebates (Sec.  158.321(d)(2)(v)) to reduce the burden on States 
because HHS can estimate rebate amounts based on available data. 
Additionally, we propose to revise the language at current paragraph 
Sec.  158.321(d)(2)(ix), proposed to be redesignated at Sec.  
158.321(a)(6), to require the State to provide information not only on 
notices by issuers covered in Sec.  158.321(a) of market exits, but 
also the equally or more pertinent issuer notices of beginning to offer 
coverage in the individual market, as well as ceasing or commencing 
offering individual market coverage on the Exchange or in specific 
geographic areas (for example, counties); and to add a new Sec.  
158.321(c) to require similar information on issuers not actively 
offering coverage in the individual market that have indicated an 
intent to enter or exit the individual market, including ceasing or 
commencing offering individual market coverage on the Exchange or in 
specific geographic areas. Lastly, we recognize that in many situations 
the information proposed to be required in Sec.  158.321(a) will only 
be available for the preceding calendar year, but we propose to provide 
States with an option to also include information for the current year 
(where available), which may be more relevant if a State makes a 
request in a later part of the year.
    We seek comment on this proposal.
c. Proposal for Adjusted Medical Loss Ratio (Sec.  158.322)
    To reduce the burden on States, we propose to remove paragraphs 
(a), (c) and (d) of Sec.  158.322, which would remove the requirements 
for a State to justify how its proposed adjustment was determined, and 
to estimate rebates that would be paid with and without an adjustment 
because HHS can make these estimates instead of the State. Consistent 
with our proposed changes to Sec.  158.301, we propose to revise Sec.  
158.322 to require the State to both provide its proposed, adjusted MLR 
standard and explain how this proposed standard would help stabilize 
its individual market. We also propose to delete current paragraph (b), 
which requires an explanation of how an adjustment would permit issuers 
to adjust current business models and practices in order to meet an 80 
percent MLR as soon as is practicable, to further reduce burden on 
States submitting adjustment requests.
    We seek comment on this proposal.
d. Criteria for Assessing Request for Adjustment to the Medical Loss 
Ratio (Sec.  158.330)
    Section 158.330 lists the criteria that the Secretary may consider 
in determining whether to approve a State request to adjust the 80 
percent MLR standard for the individual market. We are proposing 
amendments throughout the section to reflect the proposal in Sec.  
158.301 to allow adjustments if the Secretary determines the adjustment 
would help stabilize the individual market in that State, and the 
proposed changes to the information requirements in Sec.  158.321. 
These changes are intended to further streamline the process and reduce 
burdens for States and HHS. Specifically we propose conforming 
amendments to the introductory text of Sec.  158.330 to provide that 
the Secretary may consider the identified criteria when assessing 
whether an adjustment to the individual market MLR standard would be 
reasonably likely to help stabilize the individual market in a State 
that has requested such an adjustment. We propose to replace the 
information currently outlined at Sec.  158.330(a)(1)-(4) regarding 
individual market issuers reasonably likely to exit the State with 
information regarding the number and financial performance of issuers 
actively offering individual market coverage on-Exchange, off-Exchange, 
grandfathered health plans as defined in Sec.  147.140, coverage that 
meets the criteria for transitional policies outlined in applicable 
guidance, and non-grandfathered single risk pool coverage; the number 
of issuers reasonably likely to cease or begin offering such individual 
market coverage in the State; and the likelihood that an adjustment 
would increase competition in the State's individual market, including 
in underserved areas (proposed Sec.  158.330(a)). We propose to delete 
the existing criteria captured at Sec.  158.330(b) related to 
consideration of the number of individual market enrollees covered by 
issuers that are reasonably likely to exit the State's individual 
market absent

[[Page 51117]]

the requested adjustment because the goal of a State request for 
adjustment may be to ensure that health insurance coverage is available 
to all, rather than a certain percentage of, consumers who want it, and 
that consumers not only have coverage, but also a choice of several 
issuers. We propose conforming amendments to the criteria currently 
captured at Sec.  158.330(c), proposed to be redesignated at Sec.  
158.330(b), regarding whether an adjustment might improve consumers' 
access to agents and brokers. Similar to the proposed amendments to 
Sec.  158.321 described above to remove the requirement for States to 
provide information on available mechanisms to provide alternate 
coverage, we propose to replace the current criteria outlined at Sec.  
158.330(d)(1)-(5) with consideration of information on the capacity of 
any new issuers or issuers remaining in the individual market to write 
additional business in the event one or more issuers were to cease or 
begin offering individual market coverage on Exchanges, in certain 
geographic areas, or in the entire individual market in the State 
(proposed Sec.  158.330(c)). We propose to retain and modify the 
existing criteria at Sec.  158.330(e), proposed to be redesignated at 
Sec.  158.330(d), on the impact on premiums charged, and on benefits 
and cost sharing provided, to consumers by issuers remaining in or 
entering the individual market in the event one or more issuers were to 
cease offering individual market coverage on the Exchange, in certain 
geographic areas, or in the entire individual market in the State. 
Finally, the proposed amendments retain the existing criteria at Sec.  
158.330(f), proposed to be redesignated at Sec.  158.330(e), for 
consideration of any other relevant information submitted by the State.
    We seek comment on this proposal.
e. Treatment as a Public Document (Sec.  158.341)
    Because the format in which States may submit requests for 
adjustments may not comply with Federal requirements for documents 
posted on Federal Web sites, some of these documents may not be able to 
be posted directly to the applicable Federal Web site. For example, a 
State may submit spreadsheets containing data or copies of issuer 
letters in a format that is not accessible for individuals with visual 
impairments. However, HHS is committed to transparency and making this 
information promptly available to the public. Therefore, we propose to 
amend Sec.  158.341 to reflect that Federal requirements for documents 
posted on Federal Web sites may not permit these documents to be 
posted, and to specify that instructions for the public to access 
information on requests for adjustment to the MLR standard submitted by 
States will be provided on the Secretary's Internet Web site.
f. Subsequent Requests for Adjustment to the Medical Loss Ratio (Sec.  
158.350)
    We propose to make conforming amendments to Sec.  158.350, which 
describes the information that a State must submit with a subsequent 
request for an adjustment to the MLR standard, to make this information 
consistent with our proposed changes to Sec.  158.301 and Sec.  
158.330.
    We seek comment on this proposal.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. This 
proposed rule contains information collection requirements (ICRs) that 
are subject to review by OMB. A description of these provisions is 
given in the following paragraphs with an estimate of the annual 
burden, summarized in Table 12. To fairly evaluate whether an 
information collection should be approved by OMB, section 3506(c)(2)(A) 
of the Paperwork Reduction Act of 1995 (PRA) requires that we solicit 
comment on the following issues:
    <bullet> The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
    <bullet> The accuracy of our estimate of the information collection 
burden.
    <bullet> The quality, utility, and clarity of the information to be 
collected.
    <bullet> Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of the required issues 
under section 3506(c)(2)(A) of the PRA for the following information 
collection requirements.

A. Wage Estimates

    To derive wage estimates, we generally used data from the Bureau of 
Labor Statistics to derive average labor costs (including a 100 percent 
increase for fringe benefits and overhead) for estimating the burden 
associated with the ICRs.\75\ Table 11 in this proposed rule presents 
the mean hourly wage (calculated at 100 percent of salary), the cost of 
fringe benefits and overhead, and the adjusted hourly wage.
---------------------------------------------------------------------------

    \75\ See May 2016 Bureau of Labor Statistics, Occupational 
Employment Statistics, National Occupational Employment and Wage 
Estimates at https://www.bls.gov/oes/current/oes_nat.htm. For State 
Government Employees see NAICS 999200--State Government, excluding 
schools and hospitals (OES Designation) https://www.bls.gov/oes/current/naics4_999200.htm.
---------------------------------------------------------------------------

    As indicated, employee hourly wage estimates have been adjusted by 
a factor of 100 percent. This is necessarily a rough adjustment, both 
because fringe benefits and overhead costs vary significantly across 
employers, and because methods of estimating these costs vary widely 
across studies. Nonetheless, there is no practical alternative, and we 
believe that doubling the hourly wage to estimate total cost is a 
reasonably accurate estimation method.

                            Table 11--Adjusted Hourly Wages Used in Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                   Occupational     Mean hourly    benefits and      Adjusted
                Occupation title                       code         wage ($/hr)    overhead ($/   hourly wage ($/
                                                                                        hr)             hr)
----------------------------------------------------------------------------------------------------------------
Business Operation Specialist *.................         13-1199          $31.59          $31.59          $63.18
Operations Manager..............................         11-1021           58.70           58.70          117.40
Software Developers, Systems Software...........         15-1133           53.17           53.17          106.34
Actuary.........................................         15-2011           54.87           54.87          109.74
Actuary *.......................................         15-2011           40.41           40.41           80.82
Financial Examiner *............................         13-2061           33.02           33.02           66.04
Financial Analyst *.............................         13-2051           34.39           34.39           68.78

[[Page 51118]]

 
Financial Manager *.............................         11-3031           45.83           45.83           91.66
Lawyer *........................................         23-1011           44.87           44.87           89.74
Secretaries and Administrative Assistants,               43-6014           17.38           17.38           34.76
 Except Legal, Medical, and Executive...........
Commissioner **.................................  ..............           58.45           58.45          116.90
Market Research Analyst.........................         13-1161           33.95           33.95           67.90
----------------------------------------------------------------------------------------------------------------
* Denotes occupations were wages were obtained for State Government employees (https://www.bls.gov/oes/current/naics4_999200.htm).
** Data on compensation of State Insurance Commissioners collected by the Council of State Governments and
  compiled by Ballotpedia (http://www.ballotpedia.org). The wage data used in the burden estimates include the
  cost of fringe benefits and the adjusted hourly wage.

B. ICRs Regarding State Flexibility for Risk Adjustment (Sec.  153.320)

    We are proposing to allow State regulators to request a reduction 
in the calculation of Statewide average premium, beginning for the 2019 
benefit year. HHS would require any State that intends to request this 
flexibility to submit its proposal for an adjustment to the Statewide 
average premium in the small group market within 30 calendar days after 
publication of the proposed HHS notice of benefit and payment 
parameters for the applicable benefit year for timely review and issuer 
notification prior to rate setting. The burden associated with this 
requirement is the time and effort for the State regulators to submit 
its proposal to HHS. We estimate that it will take a business 
operations specialist 32 hours (at a rate of $63.18 per hour) to 
prepare the request and 16 hours for a senior manager (at a rate of 
$117.40 per hour) to review the request and transmit it electronically 
to HHS. We estimate that each State seeking a reduction in the average 
premium calculation will incur a burden of 48 hours at a cost of 
approximately $3,900 per state to comply with this reporting 
requirement (32 hours for the insurance operations analyst and 16 hours 
for the senior manager). Although we are unable to precisely estimate 
the number of States that will make this request, we expect that no 
more than 25 States will make these requests annually, resulting in a 
total annual burden of approximately 1,200 hours with an associated 
total cost of $97,504. We seek comment on this estimated burden. We 
propose to revise the current information collection approved under OMB 
control number 0938-1155: Standards Related to Reinsurance, Risk 
Corridors, Risk Adjustment, and Payment Appeals, to account for this 
additional burden.

C. ICRs Regarding Risk Adjustment Data Validation and 500 Billable 
Member Months (Sec.  153.630)

    We propose that, beginning with 2017 benefit year risk adjustment 
data validation, issuers with 500 billable member months or fewer that 
elect to establish and submit data to an EDGE server would not be 
subject to the requirement to hire an initial validation auditor or 
submit initial validation audit results. Issuers at or below the 500 
billable member months threshold would have their risk score adjusted 
by a default error rate equal to the lower of either the national 
average negative error rate, or the average negative error rate within 
a State, as set forth in the 2018 Payment Notice. We note that, 
beginning with 2018 benefit year risk adjustment data validation, these 
issuers would not be subject to random sampling under the materiality 
threshold discussed below, and would continue to not be subject to the 
requirement to hire an initial validation auditor or submit initial 
validation audit results, but would have their risk scores adjusted by 
a default error rate annually. We note that if the proposal to 
implement a central tendency approach to payment adjustments is 
finalized, then it is possible no adjustment would occur for issuers 
below this threshold.
    HHS estimates that not requiring issuers that have 500 or fewer 
billable member months Statewide to conduct an initial validation audit 
beginning in the 2017 benefit year would exempt 50 issuers from an 
initial validation audit and reduce administrative costs for each 
issuer by 828 hours with an estimated cost reduction on average of up 
to $100,000. The total burden reduction for all 50 issuers would be 
41,400 hours with an associated reduction in cost or $3,520,000. The 
postponement of the materiality threshold to the 2018 benefit year 
would not impact issuer burden relative to previous estimates for the 
risk adjustment data validation program included in the 2014 and 2015 
Payment Notices, particularly given that the program has been converted 
to a pilot for the first 2 years of operation. We propose to revise the 
current information collection approved under OMB control number 0938-
1155: Standards Related to Reinsurance, Risk Corridors, Risk 
Adjustment, and Payment Appeals, to account for this reduction in 
burden.

D. ICRs Regarding Health Insurance Issuer Rate Increases: Disclosure 
and Review Requirements--Applicability (Sec.  154.103)

    We propose to modify Sec.  154.103(b) to exempt student health 
insurance coverage as defined in 45 CFR 147.145 from the Federal rate 
review requirements. Because we would no longer be reviewing rates for 
student health insurance coverage, we expect to collect less 
information for the 2019 plan or policy year than collected for 
previous years. This would lead to a reduction in burden related to the 
submission and review for issuers and States. We estimate that 75 
student health insurance issuers will no longer be required to submit 
rate increases to HHS. We estimate that each rate review submission 
takes 11 hours for an actuary (at a rate of $109.74 per hour) to 
prepare, and that each issuer would submit an average of 2.5 plans, at 
an estimated annual cost of $3,018, resulting in a total reduction in 
the annual burden to issuers of approximately 2,063 hours and an 
associated reduction in cost of approximately $226,339. We estimate 
that States would no longer submit rate increases for 188 student 
health insurance plans to HHS. We estimate a reduction in burden to 
States of one hour per plan for an actuary (at a rate of $80.82 per 
hour) to prepare and electronically submit the appropriate materials, 
for a total reduction in burden of approximately 188 hours annually 
with an associated cost reduction of approximately $15,194. We propose 
to

[[Page 51119]]

revise our current burden estimate approved under OMB control number 
0938-1141: Rate Increase Disclosure and Review Reporting Requirements, 
to reflect the reduced burden on States and issuers.

E. ICRs Regarding Rate Increases Subject to Review (Sec.  154.200)

    We propose to amend Sec.  154.200 to establish a 15 percent default 
threshold for reasonableness review. We expect this to reduce burden 
for some issuers because Part II of the Rate Filing Justification 
(Consumer Justification Narrative) is only required for increases that 
meet or exceed the threshold. Based on rate filings for the 2018 plan 
year, we estimate a burden reduction of approximately 17 percent, or 
129 fewer Narratives. We reached this estimate by counting the number 
of submissions with a product subject to review due to an increase 
between 10 percent and 14.9 percent. We estimate that each Consumer 
Justification Narrative takes 0.5 hours for an actuary (at a rate of 
$109.74 per hour) to prepare and electronically transmit this document 
to HHS. We estimate a total reduction in burden of 65 hours and an 
associated cost reduction is $7,078. We propose to revise our current 
burden estimate approved under OMB control number 0938-1141: Rate 
Increase Disclosure and Review Reporting Requirements, to reflect the 
reduced burden on issuers.

F. ICRs Regarding the Small Business Health Options Program (SHOP)

    We are proposing to grant additional flexibilities, effective on 
the effective date of the final rule, if finalized as proposed, and 
applicable for plan years beginning on or after January 1, 2018, to 
SHOPs, to qualified employers and employees enrolling in SHOP plans, 
and to participating QHP issuers and SHOP-registered agents and brokers 
in how they interact with a SHOP. Under the proposals outlined 
throughout this document, SHOPs would no longer be required to provide 
enrollment, premium aggregation services, and online enrollment 
functionality through a SHOP Web site. Instead, small groups would 
enroll in a SHOP plan through a SHOP-registered agent or broker or 
through a participating QHP issuer participating in a SHOP. If this 
rule is finalized as proposed, the FF-SHOPs would follow the approach 
as outlined. SBEs would have the flexibility to operate a SHOP in a way 
that meets the needs of their State and complies with the regulatory 
flexibilities outlined herein.
    Under the proposed approach, several pieces of information 
currently being collected by a SHOP would no longer be collected by a 
SHOP, or, the way in which the information is collected would change. 
For example, employers, employees, and agents and brokers may be 
required to provide the information currently collected by a SHOP to an 
issuer for the purposes of enrollment in a SHOP plan. The SHOP however, 
would not be the entity collecting the information and the Federal 
government thus would experience a reduction in burden. Under the 
proposals described throughout this rule, employers and employees would 
no longer be required to visit a SHOP Web site in order to enroll in a 
SHOP plan and a SHOP would no longer be required to have the capability 
or the need to collect enrollment information. Employers would however, 
be required to apply to the SHOP to obtain an eligibility 
determination, as described in Sec.  155.710, at which point the 
employer would be asked to provide: (1) Employer name and address of 
employer's locations; (2) Information sufficient to confirm the 
employer is a small employer; (3) Employer Identification Number (EIN); 
and (4) Information sufficient to confirm that the employer is 
offering, at a minimum, all full-time employees coverage in a QHP 
through a SHOP. Under current regulations, the employer provides, and a 
SHOP collects, this information as part of enrolling in a SHOP QHP 
through a SHOP. HHS previously estimated that an employer needed two 
hours to complete the eligibility determination when it was included as 
part of enrolling in a SHOP QHP and that 6,000 employers would complete 
an application annually to determine their eligibility through a SHOP 
Web site. Based on these criteria, HHS estimated that the total annual 
burden for 6,000 employers was 12,000 hours, with a total annual cost 
of $561,240 to complete the SHOP application and eligibility 
determination process. With the proposed flexibilities, HHS estimates 
that for each employer, an administrative assistant would need less 
than 5 minutes (at rate of $34.76 per hour) to complete the required 
eligibility determination. Under the proposed flexibilities, employers 
would also no longer be required to create an account on an FF-SHOP Web 
site in order to complete the eligibility determination or enroll in a 
SHOP QHP. Therefore, HHS estimates that it would cost an employer 
approximately $3 to complete an eligibility determination. Assuming 
that 6,000 employers would complete an eligibility determination, HHS 
estimates that the total annual burden would be approximately 500 
hours, with an estimated total cost of $17,400. This would result in a 
net burden reduction of 11,500 hours and a net cost reduction of 
approximately $543,840 annually. Under the proposals in Sec.  
157.206(e)(1), employers would be responsible for submitting a new 
eligibility determination or, submitting a notice of withdrawal, in the 
event the group experienced a change that would impact the group's 
eligibility to participate in a SHOP. Under the proposals in Sec.  
157.206(e)(2), employers would also be required to notify their QHP 
issuer(s) of a determination of ineligibility. Finally, employers would 
also, under Sec.  157.206(e)(3) be required to notify their issuer(s) 
of their intent to no longer participate in a SHOP. While these 
proposals would require employers to communicate with issuers in ways 
they do not under current SHOP enrollment practices, HHS does not 
anticipate that these practices would increase the burden on employers 
as they, under current practice, must notify the SHOP of changes in 
eligibility and termination. Although the proposals in Sec.  155.716 
impose an information collection requirement, the information that 
would be collected is no different from what is already approved under 
OMB control number 0938-1193: Data Collection to Support Eligibility 
Determinations and Enrollment for Small Businesses in the Small 
Business Health Options, and therefore we are not proposing to revise 
the information collection at this time.
    Employees, under the proposals to Sec.  155.716 would not 
experience an increase in burden. Under the proposals described 
throughout this proposed rule, employees would no longer be required to 
visit an FF-SHOP Web site to create an account, or, for any application 
or enrollment purpose, but they may need to provide similar information 
to an agent or broker or issuer as a condition of enrollment into a 
SHOP QHP. HHS previously estimated that 60,000 employees completed an 
application annually, each spending approximately one hour to complete 
an online application through an FF-SHOP Web site. The estimated annual 
burden was 60,000 burden hours with an annual cost of $1,025,400. With 
the proposed flexibilities to a SHOP as described in this rule, HHS 
predicts that the burden on employees to complete an online application 
would shift as no application would be provided through a SHOP Web 
site, but the information may be required by an agent or broker or an 
issuer in order for the employee to complete an enrollment into a SHOP

[[Page 51120]]

QHP. The proposals described throughout this proposed rule will allow 
agents and brokers and issuers to enroll consumers in SHOP plans using 
the channels they are most familiar with, potentially reducing the 
burden of enrolling SHOP groups. This information collection is 
currently approved under OMB control number 0938-1194: Data Collection 
to Support Eligibility Determinations and Enrollment for Employees in 
the Small Business Health Options Program. Therefore, we are not 
proposing to revise the information collection at this time.
    Current regulations, found throughout Sec. Sec.  155.705, 155.715, 
155.720, 155.725, require SHOPs to generate certain notices. These 
notices may include: (1) Notices of annual election periods, (2) 
notices to employers of employee coverage terminations, (3) notices of 
application inconsistencies, (4) notices of appeal rights and 
instructions, (5) notices of employee and employer eligibility, (6) 
notices of employer withdrawal, (7) (in FF-SHOPs only) notices to 
employees if a dependent turns 26 and is no longer eligible for 
dependent coverage, (8) billing invoices, successful and unsuccessful 
payment confirmation notices, and (9) past due payment notices. In 
prior guidance, HHS previously estimated costs for paper notices in an 
FF-SHOP. In that estimate, HHS assumed that 80 percent of enrollees 
requested electronic notices and 20 percent of enrollees requested 
paper notices. HHS estimated that mailing paper notices costs a SHOP 
Exchange $0.53 per notice. HHS determined that SHOPs sent approximately 
48,000 notices to enrollees when (1) a dependent became ineligible to 
remain on the plan, (2) successful payment was processed, and (3) a 
payment was unsuccessful in the last year. Assuming that 20 percent of 
enrollees would opt to receive paper notices instead of electronic 
notifications, HHS estimated that approximately 9,600 notices would be 
sent, costing FF-SHOPs approximately $5,088. Under the proposed 
flexibilities, the SHOPs would only be required to send notices of 
employer eligibility and appeals. This cost would not directly be 
transferred to issuers as issuers may already be required to send such 
notices per other applicable State and Federal Law. This collection is 
currently approved under OMB control number 0938-1207: Essential Health 
Benefits in Alternative Benefit Plans, Eligibility Notices, Fair 
Hearing and Appeal Processes, and Premiums and Cost Sharing; Exchanges: 
Eligibility and Enrollment. If this approach is finalized as proposed, 
issuers would be required to collect premiums, as premium aggregation 
services would no longer be provided by the SHOPs that take advantage 
of the proposed flexibilities. HHS does not anticipate a significant 
increase of issuers' burden in this scenario, as it is not 
significantly different from their current operating practices.

G. ICRs Regarding States Defining the Essential Health Benefits (Sec.  
156.111(e))

    We propose at Sec.  156.111(e) to revise the collection of data for 
selection of States' EHB-benchmark plans for plan years beginning on or 
after January 1, 2019. This proposal includes the documentation that 
States would be required to submit if the State chooses to change its 
EHB-benchmark plan. For this purpose, we propose to amend the currently 
approved information collection (OMB Control Number: 0938-1174) to 
reflect the proposed policy. Because Sec.  156.111(e) would replace the 
current data collection requirements at Sec.  156.120, we would update 
the current EHB-benchmark plan selection to account for the proposed 
new regulation and any associated burden with this requirement that 
would fall on those States that choose to reselect their EHB-benchmark 
plan. Under the previous benchmark plan selection policy, 29 States 
selected one of the 10 base-benchmark plan options and 22 States 
defaulted. The current policy did not allow for States to make an 
annual selection. The proposed regulation would allow States to modify 
their EHB-benchmark plans annually, but would not require them to 
respond to this ICR for any year for which they did not change their 
EHB-benchmark plan. As such, for purposes of this proposed regulation, 
we estimate that 10 States would choose to make a change to their EHB-
benchmark plans in any given year (total of 30 States over 3 years 
within the authorization of this ICR) and would respond to this ICR.
    The proposals at Sec.  156.111(e)(1) would require the State to 
provide confirmation that the State's EHB-benchmark plan selection 
complies with certain requirements, including those under proposed 
Sec.  156.111(a), (b), and (c). To complete this requirement, we 
estimate that a financial examiner would require 4 hours (at a rate of 
$66.04 per hour) to fill out, review, and transmit a complete and 
accurate document. We estimate that it would cost each State $264 to 
meet this reporting requirement, with a total annual burden for all 10 
States of 40 hours and an associated total cost of $2,642.
    The proposals in Sec.  156.111(e)(2) would further require the 
State to submit an actuarial certification and associated actuarial 
report of the methods and assumptions when selecting proposed options 
under Sec.  156.111(a)(2) and (3). Specifically, the actuarial 
certification that is being collected under this ICR would be required 
to include an actuarial report that complies with generally accepted 
actuarial principles and methodologies. This would include complying 
with all applicable ASOPs (including ASOP 41 on actuarial 
communications). For example, ASOP 41 on actuarial communications 
includes disclosure requirements, including those that apply to the 
disclosure of information on the methods and assumptions being used for 
the actuarial certification and report. The actuarial certification for 
this proposed requirement is provided in a template and includes an 
attestation that the standard actuarial practices have been followed or 
that exceptions have been noted. The signing actuary would be required 
to be a Member of the American Academy of Actuaries. We are also 
seeking comment on a draft document entitled Draft Example of an 
Acceptable Methodology for Comparing Benefits of a State's EHB-
benchmark Plan Selection to Benefits of a Typical Employer Plan As 
Proposed under the HHS Notice of Benefit and Payment Parameters for 
2019 (CMS-9930-P) \76\ that would provide an example of method an 
actuary could use to develop this actuarial certification and report.
---------------------------------------------------------------------------

    \76\ The Draft Example of an Acceptable Methodology for 
Comparing Benefits of a State's EHB-benchmark Plan Selection to 
Benefits of a Typical Employer Plan As Proposed under the HHS Notice 
of Benefit and Payment Parameters for 2019 (CMS-9930-P) is available 
on CCIIO's Regulation and Guidance Web page at https://www.cms.gov/cciio/resources/regulations-and-guidance/index.html.
---------------------------------------------------------------------------

    We estimate that an actuary, who is a member of the American 
Academy of Actuaries, would require 16 hours (at a rate of $80.82 per 
hour) on average for Sec.  156.111(e)(2). This would include the 
certification and associated actuarial report from an actuary to 
affirm, in accordance with generally accepted actuarial principles and 
methodologies that the State's EHB-benchmark plan definition is equal 
in scope of benefits provided under a typical employer plan. 
Additionally, this estimate of 16 hours would also apply if the State 
is selecting its EHB-benchmark plan using the option proposed at Sec.  
156.111(a)(3). The option proposed at Sec.  156.111(a)(3) would also 
require the actuary to affirm

[[Page 51121]]

that the State's selected EHB-benchmark plan does not exceed the 
generosity of the most generous among a set of comparison plans 
proposed Sec.  156.111(a)(3), including the State's EHB-benchmark plan 
used for the 2017 plan year and any of the State's base-benchmark plan 
options for the 2017 plan year described in Sec.  156.100(a)(1), 
supplemented as necessary under Sec.  156.110. For these calculations, 
the actuary would need to conduct the appropriate calculations to 
create and review an actuarial certification and associated actuarial 
report, including minimal time required for recordkeeping. The precise 
level of effort for the actuary certification and associated actuarial 
report under Sec.  156.111(e)(2) would likely vary depending on the 
State's approach to its EHB-benchmark plan and this certification 
requirement. For example, the State may only need to do one plan 
comparison for the purposes of both of these proposed certification 
requirements. Specifically, the State could use the same plan, such as 
the State's EHB-benchmark plan used for the 2017 plan year, to 
determine that the new State's EHB-benchmark plan is equal to the scope 
of benefits provided under a typical employer plan. The State could 
also use those findings to determine that because the new State EHB-
benchmark plan is equal in scope of benefits to the State's EHB-
benchmark plan used for the 2017 plan year, the new State EHB-benchmark 
plan does not exceed the generosity of the most generous of the set of 
comparison plans. We estimate that a financial examiner would require 
one hour (at a rate of $66.04 per hour) to review, combine, and 
electronically transmit these documents to HHS, as part of a State's 
EHB-benchmark plan submission. Because this section of the proposed 
regulation would only apply to options 2 and 3 under proposed Sec.  
156.111(a)(2) and (3), we are estimating that only two thirds of States 
(7 of the 10 States) would need to complete and submit this proposed 
documentation requirement. Therefore, we estimate that each State would 
incur a burden of 17 hours with an associated cost of $1,359, with a 
total annual burden for 7 states of 119 hours at associated total cost 
of $9,514. We seek comment on this estimate.
    The proposals at Sec.  156.111(e)(3) would further require each 
State to submit its new EHB-benchmark plan documents. The level of 
effort associated with this requirement could depend on the State's 
selection of the EHB-benchmark plan options under the proposed 
regulation at Sec.  156.111(a). However, for the purposes of this 
estimate, we estimate that it would require a financial examiner (at a 
rate of $66.04 per hour) 12 hours on average to create, review, and 
electronically transmit the State's EHB-benchmark plan document that 
accurately reflects the benefits and limitations, including medical 
management requirements and a schedule of benefits, resulting in a 
burden of 12 hours and an associated cost of $792, with a total annual 
burden for all 10 states of 120 hours and an associated cost of $7,925. 
The burden for producing these documents is significantly higher than 
previous estimates because the previous data collection generally only 
required the State (or issuer) to transmit the selected benchmark plan 
document. In contrast, in some cases, the proposed Sec.  156.111(a) may 
result in the State needing to create a completely new document or 
significantly modify the current document to represent the plan 
document. Additionally, this estimate of 12 hours also includes the 
burden necessary for a State selecting the option at proposed Sec.  
156.111(e)(3) where the State would also be required to submit a 
formulary drug list for the State's EHB-benchmark plan in a format and 
manner specified by HHS. Specifically, the burden for the State 
selecting this option would also likely vary as the State could use an 
existing formulary drug list or create its own formulary drug list 
separately for this purpose. To collect the formulary drug list, the 
State would be required to use the template provided by HHS and submit 
the formulary drug list as a list of RxNorm Concept Unique Identifiers 
(RxCUIs).
    Lastly, the proposal at Sec.  156.111(e)(4) would require the State 
to submit the documentation necessary to operationalize the State's 
EHB-benchmark plan. This reporting requirement includes the EHB summary 
file that is currently posted on CCIIO's Web site, used as part of the 
QHP certification process, and integrated into HHS's IT Build systems 
that feed into the data that is displayed on HealthCare.gov. While this 
document would not be a new document, the burden associated with this 
document would be new for States. We estimate that it would require a 
financial examiner 12 hours, on average, (at a rate of $66.04 per hour) 
to create, review, and electronically submit a complete and accurate 
document to HHS resulting in a burden of 12 hours and an associated 
cost of $792, with a total annual burden for all 10 states of 120 hours 
and an associated cost of $7,925.
    Under the current policy, the burden estimates 226 respondents per 
year, for a total yearly burden total of 165 annual burden hours and a 
total annual associated cost of $8,094 to meet these reporting 
requirements. Under the proposed policy related to EHB, we estimate 
that the total number of respondents would be 10 per year, for a total 
yearly burden of 399 hours and an associated cost of $28,005 to meet 
these reporting requirements. The estimated burden associated with the 
proposed changes represents an increase of 234 hours (increase from 165 
hours to 399 hours) and an annual costs increase of $19,911 (from 
$8,094 to $28,005) over the approved information collection (OMB 
Control Number: 0938-1174).
    As part of the update to this OMB Control Number: 0938-1174, we are 
also seeking comment on requirements for SADPs to submit voluntary 
reporting. This collection includes data on whether the issuer intends 
to offer SADP coverage, the anticipated Exchange market in which 
coverage would be offered, and the State and service area in which the 
issuer offers coverage. The burden associated with meeting this 
requirement includes the time and effort needed by the issuer to report 
on whether it intends to offer SADP coverage. We estimate that it will 
take one half hour for a health insurance issuer to meet this reporting 
requirement. We estimate that approximately 175 issuers will respond to 
this data collection. Therefore, we anticipate that the reporting 
requirement would require a market research analyst one half-hour 
annually to identify and submit the responsive records to CMS (at a 
rate of $67.90 per hour), for a total cost of $34 a year per reporting 
entity. This would result in an annual burden of 87.5 hours for all 175 
issuers and a resulting estimated annual cost of $5,941. OMB approvals 
are issued for three years; therefore, the aggregate burden for three 
years would be approximately 263 hours with an associated cost of 
approximately $17,824. We seek comment on these proposed estimates.

H. ICRs Regarding Medical Loss Ratio (Sec. Sec.  158.170, 158.221, 
158.320-323, 158.340, 158.346, and 158.350)

    We are proposing to amend Sec.  158.221 to allow issuers the option 
to report quality improvement activity expenses as a single fixed 
percentage of premium amount, and make conforming amendments to Sec.  
158.170. We do not anticipate that implementing this provision would 
require significant changes to the MLR annual reporting

[[Page 51122]]

form and the associated burden. The burden related to this collection 
is currently approved under OMB control number 0938-1164; Medical Loss 
Ratio Annual Reports, MLR Notices, and Recordkeeping Requirements.
    We are also proposing to amend Subpart C to modify the data and 
narratives which a State must submit as part of the State's request for 
an adjustment to the MLR standard in the individual market for that 
State. There is no standardized application form associated with a 
State's request, but each request must contain certain data elements in 
order to receive consideration by the Secretary, which are described in 
Sec. Sec.  158.320-158.323, 158.340, 158.346, and 158.350. The burden 
related to the proposed requirements was previously approved under OMB 
control number 0938-1114, Medical Loss Ratio (IFR) Information 
Collection Requirements and Supporting Regulations; the approval 
expired in 2014. We intend to reinstate this information collection, 
with modifications to reflect our proposed revisions to subpart C of 
part 158. This document serves as the 60-day notice to afford the 
public an opportunity to comment on this collection of information 
requirement. To obtain copies of a supporting statement and any related 
forms for the proposed collection summarized in this document, you may 
make your request using one of following: (1) Access CMS's Web site 
address at http://www.cms.hhs.gov/PaperworkReductionActof1995; (2) 
email your request, including your address, phone number, OMB Control 
Number 0938-1114, and CMS document identifier CMS-10361, to 
<a href="/cdn-cgi/l/email-protection#beeedfcedbccc9d1ccd5feddd3cd90d6d6cd90d9d1c8"><span class="__cf_email__" data-cfemail="257544554057524a574e654648560b4d4d560b424a53">[email protected]</span></a>; or (3) call the Reports Clearance Office at 
(410) 786-1326.
    We are proposing to eliminate collection of the following 
information from a State requesting an adjustment: The State MLR 
standard and formula for assessing compliance (Sec.  158.321(a)), its 
market withdrawal requirements (Sec.  158.321(b)), and the mechanisms 
available to the State to provide consumers with options for alternate 
coverage (Sec.  158.321(c)); as well as the net underwriting profit for 
the total business in the State and the after-tax profit and profit 
margin for the individual market and total business in the State (Sec.  
158.321(d)(2)(vii)), and the estimated rebate (Sec.  158.321(d)(2)(v)) 
of each issuer with at least 1,000 enrollees in the State. We expect 
this proposal to reduce the burden on States seeking an adjustment. We 
are also proposing to replace the requirement that a State requesting 
an adjustment must submit enrollment and premium data for every 
individual market issuer at the product level (Sec.  158.321(d)(1)) and 
the reported and estimated MLRs (Sec.  158.321(d)(2)(ii) and (iii)) for 
issuers with at least 1,000 enrollees, with total enrollment (life-
years and covered lives), premium, and total incurred claims for only 
active individual market issuers, separately for five types of 
individual market coverage: on-Exchange plans, off-Exchange plans, 
grandfathered health plans as defined in Sec.  147.140, coverage that 
meets the criteria for transitional policies outlined in applicable 
guidance, and non-grandfathered single risk pool coverage. States would 
not be required to provide information on student health insurance 
coverage as defined in Sec.  147.145 or excepted benefits as defined in 
Sec.  148.220. We expect this proposal to result in a net reduction in 
burden on States seeking an adjustment. We are also proposing to 
continue to collect data on total agents' and broker's commission 
expenses and net underwriting gain (proposed to be redesignated from 
Sec.  158.321(d)(2)(iv) and (vi) to Sec.  158.321(a)(3) and (4), 
respectively) for only active individual market issuers, but separately 
for the five types of coverage described above. We would continue to 
collect information on risk-based capital levels (proposed to be 
redesignated from Sec.  158.321(d)(2)(viii) to Sec.  158.321(a)(5)) at 
the issuer level. While this proposal would require more breakdown of 
the data than Sec.  158.321 currently requires, in most States there 
are more issuers with at least 1,000 enrollees than there are active 
issuers in the individual market, and consequently we expect that this 
proposal would have no net impact on the burden. Additionally, we are 
proposing to update Sec.  158.321(d)(2)(ix) to collect more specific 
information on issuer notices to the State of changes to participation 
in the State's individual market, rather than focusing exclusively on 
notices to exit the individual market. We do not expect this proposal 
to have an appreciable impact on the burden. We are further proposing 
to eliminate the requirement that a State requesting an adjustment 
provide information explaining and justifying how its proposed 
adjustment was determined and estimating rebates that would be paid 
with and without an adjustment (Sec.  158.322(a), (c), and (d)); as 
well as to replace what information a State must provide pursuant to 
Sec.  158.322(b) with a requirement to explain how the adjustment would 
help stabilize the State's individual market. We expect this proposal 
to reduce the burden. Lastly, we are proposing to update what 
information a State must submit with a subsequent request for 
adjustment pursuant to Sec.  158.350. We do not expect this proposal to 
change the burden.
    Based on preliminary data analysis and previous State requests for 
adjustments, we estimate that approximately 22 States would submit 
applications in the first year that the proposed MLR adjustment process 
is codified. We estimate that it would take approximately 140 hours on 
average for each State to complete the application, including gathering 
and analyzing data, synthesizing information, and developing a proposal 
for an adjusted MLR standard. Specifically, we assume that the 
application would take a financial analyst approximately 96 hours (at a 
rate of $68.78 per hour), an actuary 6 hours (at a rate of $80.82 per 
hour), a financial manager 10 hours (at a rate of $91.66 per hour), a 
lawyer 24 hours (at a rate of $89.74 per hour), and the Commissioner 4 
hours (at a rate of $116.90 per hour) to assemble and review the 
various components of the application, resulting in total of burden for 
each state of 140 hours with an associated cost of $10,626 per 
response, representing an estimated total burden reduction of 45 hours 
per response. The documents would be submitted electronically at 
minimal cost. We estimate that the total burden for 22 states to submit 
a request for an adjustment to the individual market MLR standard would 
be 3,080 hours with an associated cost of approximately $233,767, with 
an estimated net total reduction in burden of 620 hours. We recognize 
that this burden may vary between States, as some States may have 
better access to the required application information elements, while 
other States may have to seek some of the required information from 
health insurance issuers in their States, which could increase their 
burden. Some States may, if providing the requested information is an 
undue burden, ask the Secretary to consider their application without 
some of the information elements. We seek comment regarding this 
information collection requirement.

I. Summary of Annual Burden Estimates for Proposed Requirements

[[Page 51123]]



                                           Table 12--Proposed Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Total      Labor cost
                                                            OMB control                                Burden per     annual         of       Total cost
                   Regulation section(s)                        No.        Respondents    Responses     response      burden     reporting       ($)
                                                                                                        (hours)      (hours)        ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   153.320............................................    0938-1155              25           25           48        1,200    97,504.00    97,504.00
Sec.   156.111(e)(1)......................................    0938-1174            * 10           10            4           40     2,641.60     2,641.60
Sec.   156.111(e)(2)......................................    0938-1174             * 7            7           17          119     9,514.12     9,514.12
Sec.   156.111(3)(3)......................................    0938-1174            * 10           10           12          120     7,924.80     7,924.80
Sec.   156.111(e)(4)......................................    0938-1174            * 10           10           12          120     7,924.80     7,924.80
Sec.  Sec.   158.320-323, 158.340, 158.346-350............    0938-1114              22           22          140        3,080   233,766.72   233,766.72
                                                              0938-1174             175          175          0.5         87.5     5,941.25     5,941.25
                                                           ---------------------------------------------------------------------------------------------
    Total.................................................  ...........             207          234  ...........       4766.5   365,217.29   365,217.29
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Denote the same entities. For purposes of calculating the total, the highest value is used only once.
** There are no capital/maintenance costs associated with the information collection requirements contained in this rule; therefore, we have removed the
  associated column from Table 12.

J. Submission of PRA-Related Comments

    We have submitted a copy of this proposed rule to OMB for its 
review of the rule's information collection and recordkeeping 
requirements. These requirements are not effective until they have been 
approved by the OMB.
    To obtain copies of the supporting statement and any related forms 
for the proposed collections discussed above, please visit CMS's Web 
site at www.cms.hhs.gov/PaperworkReductionActof1995, or call the 
Reports Clearance Office at 410-786-1326.
    We invite public comments on these potential information collection 
requirements. If you wish to comment, please submit your comments 
electronically as specified in the ADDRESSES section of this proposed 
rule and identify the rule (CMS-9930-P), the ICR's CFR citation, CMS ID 
number, and OMB control number.
    ICR-related comments are due January 2, 2018.

V. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the ``DATES'' section of this 
proposed rule, and, when we proceed with a subsequent document, we will 
respond to the comments in the preamble to that document.

VI. Regulatory Impact Analysis

A. Statement of Need

    This rule proposes standards related to the risk adjustment program 
for the 2019 benefit year, as well as certain modifications that will 
promote State flexibility and control over their insurance markets, 
reduce burden on stakeholders, and protect consumers from increases in 
premiums due to issuer uncertainty. The Premium Stabilization Rule and 
previous Payment Notices provided detail on the implementation of the 
risk adjustment program, including the specific parameters applicable 
for the 2014, 2015, 2016, 2017, and 2018 benefit years. This rule 
proposes additional standards related to essential health benefits; 
cost-sharing parameters; qualified health plan certification; the 
Exchanges, including terminations, exemptions, eligibility and 
enrollment; AV for stand-alone dental plans; MEC; the rate review 
program; the medical loss ratio program; the Small Business Health 
Options Program; and FFE and SBE-FP user fees.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 202 of the Unfunded Mandates Reform Act 
of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), and the Congressional Review Act (5 U.S.C. 
804(2)), and Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. A regulatory impact analysis (RIA) must be prepared for 
rules with economically significant effects ($100 million or more in 
any 1 year).
    OMB has determined that this proposed rule is ``economically 
significant'' within the meaning of section 3(f)(1) of Executive Order 
12866, because it is likely to have an annual effect of $100 million in 
any 1 year. Accordingly, we have prepared an RIA that presents the 
costs and benefits of this proposed rule.
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule--
(1) having an annual effect on the economy of $100 million or more in 
any 1 year, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year), 
and a ``significant'' regulatory action is subject to review by OMB. 
HHS has concluded that this rule is likely to have economic impacts of 
$100 million or more in at least 1 year, and therefore, meets the 
definition of ``significant rule'' under Executive Order 12866. 
Therefore, HHS has provided an assessment of the potential costs, 
benefits, and transfers associated with this rule.
    The provisions in this proposed rule aim to improve the health and 
stability of the Exchanges, and to provide States

[[Page 51124]]

with additional flexibility and control over their insurance markets. 
They would reduce regulatory burden, and reduce administrative costs 
for issuers and States, and would lower net premiums for consumers. 
Through the reduction in financial uncertainty for issuers and 
increased affordability for consumers, these provisions are expected to 
increase access to affordable health coverage. Although there is some 
uncertainty regarding the net effect on enrollment and premiums, we 
anticipate that the provisions of this proposed rule would help further 
HHS's goal of ensuring that all consumers have access to quality, 
affordable healthcare; that markets are stable; and that Exchanges 
operate smoothly.
    In accordance with Executive Order 12866, HHS has determined that 
the benefits of this regulatory action justify the costs.
    Although it is difficult to discuss the wide-ranging effects of 
these provisions in isolation, the overarching goal of the premium 
stabilization, market standards, and Exchange-related provisions and 
policies in the PPACA is to make affordable health insurance available 
to individuals who do not have access to affordable employer-sponsored 
coverage or government-sponsored coverage. The provisions within this 
proposed rule are integral to the goal of expanding coverage. For 
example, the risk adjustment program helps prevent risk selection and 
decrease the risk of financial loss that health insurance issuers might 
otherwise expect in 2019.
    HHS anticipates that the provisions of this proposed rule will help 
further the Department's goal of ensuring that all consumers have 
access to quality and affordable health care and are able to make 
informed choices, that Exchanges operate smoothly, that the risk 
adjustment program works as intended, and that States have more control 
and flexibility over essential health benefits, QHP certification and 
the operation and establishment of Exchanges. Affected entities such as 
QHP issuers would incur costs to comply with the proposed provisions, 
for example, those related to the functions of a SHOP; including 
calculating the minimum participation rate at the employer level and 
processing SHOP enrollments for employers and employees; and States 
would incur costs to comply with provisions regarding essential health 
benefits. In accordance with Executive Order 12866, HHS believes that 
the benefits of this regulatory action justify the costs.

C. Impact Estimates of the Payment Notice Provisions and Accounting 
Table

    In accordance with OMB Circular A-4, Table 13 depicts an accounting 
statement summarizing HHS's assessment of the benefits, costs, and 
transfers associated with this regulatory action.
    This proposed rule implements standards for programs that will have 
numerous effects, including providing consumers with access to 
affordable health insurance coverage, reducing the impact of adverse 
selection, and stabilizing premiums in the individual and small group 
health insurance markets and in an Exchange. We are unable to quantify 
certain benefits of this proposed rule--such as any reduction in burden 
related to changes in the timing related to States posting proposed and 
final rate filing information; increased flexibility for Exchanges 
related to the removal of certain requirements for Navigator programs 
and non-Navigator assistance personnel entities; increased access to 
the direct enrollment pathway stemming from permitting a third-party 
entity to conduct operational readiness reviews for agents, brokers, 
and issuers; benefits to Exchanges related to proposed simplifications 
of verification requirements; benefits to consumers, issuers or 
Exchanges related to the changes related to the special enrollment 
periods; increased flexibility for States relating to the proposals 
regarding the SHOP enrollment process; potential decreases in premiums 
to consumers related to removing actuarial value standards for SADPs; 
and reductions in burden associated with CHIP buy-in plans with 
identical coverage to the CHIP program under title XXI of the Act in 
the applicable State being automatically recognized as MEC--and certain 
costs--such as the costs incurred by small employers, agents and 
brokers, and potential increases in out-of-pocket costs to consumers 
related to removing actuarial value standards for SADPs; and costs to 
issuers, brokers, agents, and employers related to changes in SHOP 
enrollment procedures. The effects in Table 13 reflect qualitative 
impacts and estimated direct monetary costs and transfers resulting 
from the provisions of this proposed rule for health insurance issuers. 
The annualized monetized costs described in Table 13 reflect direct 
administrative costs to health insurance issuers as a result of the 
proposed provisions, and include administrative costs associated with 
States requesting a reduction in the calculation of Statewide average 
premium for the State's small group market for the purpose of risk 
adjustment, the reduction in costs relating to issuers and States 
having to no longer submit rate increases for student health insurance 
plans to HHS, and costs associated with States seeking an adjustment to 
the MLR standard in the State's individual market that are estimated in 
the Collection of Information section of this proposed rule. The annual 
monetized transfers described in Table 13 include costs associated with 
SBE-FP user fees, the risk adjustment user fee paid to HHS by issuers, 
and reductions in rebate payments from issuers to consumers related to 
QIA and MLR adjustments. We are proposing to collect a total of $38 
million in risk adjustment user fees or $1.68 per enrollee per year 
from risk adjustment issuers, which is less than the $40 million in 
contract costs expected for benefit year 2017 when we established a 
similar $1.68 per-enrollee-per-year risk adjustment user fee amount. As 
in 2018, the risk adjustment user fee contract costs for 2019 include 
additional costs for risk adjustment data validation; however, we 
expect reduced costs related to issuer outreach and education as 
issuers gain familiarity with the risk adjustment program, and 
enrollment remains steady in 2019 HHS risk adjustment covered plans 
compared to the billable member month enrollment estimated for 2018. 
Also, we expect a decrease in FFE user fee collections necessary as we 
estimate lower contract costs due to streamlining of FFE operations and 
an increase in premiums but also lower enrollment, resulting in a 
proposed user fee rate of 3.5 percent for 2019, which is the same as 
the FFE user fee rate established for 2014 through 2018 benefit years. 
However, the decrease in user fee collections required to support FFE 
functions for the 2019 benefit year will be similar to the updated 
costs for the 2018 benefit year, and the user fee rate will yield the 
same amount of transfers from FFE issuers to the Federal government as 
in the prior benefit year. Therefore, there are no changes to the FFE 
user fee transfers to include in Table 13. We are also proposing an 
SBE-FP user fee rate to be set at 3.0 percent for benefit year 2019, 
which is higher than the 2.0 percent SBE-FP user fee rate we finalized 
for the 2018 benefit year. In this rule, we are also proposing to cease 
charging user fees on SHOP issuers offering plans through an FFE or 
SBE-FP starting for plan years beginning on and after January 1, 2018.

[[Page 51125]]



                                           Table 13--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative:
   <bullet> Greater market stability resulting from improvements to the risk adjustment methodology.
   <bullet> Potential increased enrollment in the individual market stemming from lower premiums, leading to
    improved access to health care for the previously uninsured, especially individuals with medical conditions,
    which will result in improved health and protection from the risk of catastrophic medical expenditures.a
   <bullet> More informed Exchange QHP certification decisions.
   <bullet> Increased coverage options for small businesses and employees with less adverse selection.
   <bullet> Cost savings to consumers and issuers due to reduced administrative costs for issuers.
   <bullet> Reduced costs and burden for States with CHIP buy-in plans automatically recognized as recognized as
    MEC.b
   <bullet> Potential decreases in premiums associated with States opting to select a new EHB-benchmark plan.
   <bullet> Reduced burden to Exchanges, due to the removal of the requirements that each Exchange must have at
    least two Navigator entities, and that one of these entities must be a community and consumer-focused
    nonprofit group, and the removal of the requirement that each Navigator (and each non-Navigator entity
    subject to Sec.   155.215) maintain a physical presence in the Exchange service area.
   <bullet> Reduced costs and burden and increased flexibility to agents and brokers performing direct
    enrollment and their third party auditors due to the removal of the requirement to obtain HHS approval to
    perform reviews.
   <bullet> Reduction in administrative costs to issuers due to the removal of the meaningful difference
    standard, and proposed changes to the SHOPs.
   <bullet> Reduction in costs and burden to issuers by establishing a 15 percent default threshold for rate
    increase reasonableness review.
----------------------------------------------------------------------------------------------------------------
Costs                                                Estimate          Year        Discount rate      Period
                                                       (million)          dollar       (percent)         covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)                               -$28            2016               7       2018-2022
                                                 ---------------------------------------------------------------
                                                          -26.75            2016               3       2018-2022
----------------------------------------------------------------------------------------------------------------
Quantitative:
   <bullet> Costs incurred by issuers and States to comply with provisions in the proposed rule as detailed in
    the Collection of Information Requirements section, taking into account the reduction in burden and costs
    for issuers and States due to the elimination of the requirement to submit rate reviews to HHS for student
    health insurance coverage b and increase in the rate review threshold and the reduction in burden and costs
    to States related to the requests for adjustment to the MLR standard in their individual markets.
   <bullet> Reduction in costs to issuers due to changes to the requirements for risk adjustment data
    validation.
   <bullet> Reduction in potential costs to Exchanges since they will no longer be required to conduct sampling
    as a verification process for eligibility for employer-based insurance starting plan year 2018, and can
    instead conduct an alternate process through plan year 2019.
   <bullet> Regulatory familiarization costs.
----------------------------------------------------------------------------------------------------------------
Qualitative:
   <bullet> Costs due to increases in providing medical services (if health insurance enrollment increases).
   <bullet> Costs to issuers of redesigning SADPs to account for the removal of actuarial value standards for
    SADPs.
   <bullet> Potential increases in out of pocket costs associated with States opting to select a new EHB-
    benchmark plan.
----------------------------------------------------------------------------------------------------------------
Transfers                                            Estimate          Year        Discount rate      Period
                                                       (million)          dollar       (percent)         covered
----------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized ($/year)                      $16.2            2017               7       2018-2022
                                                 ---------------------------------------------------------------
                                                              17            2017               3       2018-2022
----------------------------------------------------------------------------------------------------------------
Other Annualized Monetized ($/year)                           87            2017               7       2018-2022
                                                 ---------------------------------------------------------------
                                                              87            2017               3       2018-2022
----------------------------------------------------------------------------------------------------------------
Quantitative:
   <bullet> Decrease in transfers from health insurance issuers to the Federal government of $2 million related
    to the decrease in annual cost of risk adjustment user fees for 2019-2021 (the total risk adjustment user
    fee amount for 2018 was $40 million and was previously estimated to remain the same for years 2019-2021).
   <bullet> Increased transfers from SBE-FP issuers to the Federal government of $20 million due to increase in
    user fee rate from 2.0 set in 2018 to 3.0 percent proposed for 2019.
   <bullet> Decrease in user fee transfers from SHOP issuers offering plans through an FFE or SBE-FP to the
    Federal government of approximately $6 million in 2019.
   <bullet> Reduced transfers from consumers to health insurance issuers in the form of rebates of $75 million
    to $87 million due to proposed amendments to the medical loss ratio requirements.c
----------------------------------------------------------------------------------------------------------------
Qualitative:
   <bullet> Lower premium rates in the individual market due to the improved risk profile of the insured,
    competition, and pooling.
   <bullet> A decrease in the premiums and risk adjustment transfers in the small group market as a result of
    potential State requests to reduce the Statewide average premium for the purposes of the risk adjustment
    transfer formula in the small group market.
   <bullet> Potential increases in premiums associated with adjustments to MLR.
   <bullet> Potential decreases in premiums associated with removal of AV standards for SADPs.
   <bullet> Potential increases in out of pocket costs associated with removal of AV standards for SADPs.
----------------------------------------------------------------------------------------------------------------
a Removal of AV standards for SADPs may reduce enrollment due to reductions in coverage and potential higher out-
  of-pocket costs.

[[Page 51126]]

 
b The reduction in burden and costs associated with student health insurance and CHIP buy-in plans could result
  in lower premiums for these groups.
c For the purpose of calculating total transfers, the upper bound was used.

    This RIA expands upon the impact analyses of previous rules and 
utilizes the Congressional Budget Office's (CBO) analysis of the 
PPACA's impact on Federal spending, revenue collection, and insurance 
enrollment. The PPACA ends the transitional reinsurance program and 
temporary risk corridors program after the benefit year 2016. 
Therefore, the costs associated with those programs are not included in 
Tables 14 or 15 for fiscal years 2019-2022. Table 14 summarizes the 
effects of the risk adjustment program on the Federal budget from 
fiscal years 2018 through 2022, with the additional, societal effects 
of this proposed rule discussed in this RIA. We do not expect the 
provisions of this proposed rule to significantly alter CBO's estimates 
of the budget impact of the premium stabilization programs that are 
described in Table 14. We note that transfers associated with the risk 
adjustment program were previously estimated in the Premium 
Stabilization Rule; therefore, to avoid double-counting, we do not 
include them in the accounting statement for this proposed rule (Table 
13).
    In addition to utilizing CBO projections, HHS conducted an internal 
analysis of the effects of its regulations on enrollment and premiums. 
Based on these internal analyses, we anticipate that the quantitative 
effects of the provisions proposed in this rule are consistent with our 
previous estimates in the 2018 Payment Notice for the impacts 
associated with the advance payment of premium tax credits, the premium 
stabilization programs, and FFE user fee requirements.

   Table 14--Estimated Federal Government Outlays and Receipts for the Risk Adjustment, Reinsurance, and Risk
                                  Corridors Programs From Fiscal Year 2018-2022
                                            [In billions of dollars]
----------------------------------------------------------------------------------------------------------------
                     Year                         2018       2019       2020       2021       2022     2018-2022
----------------------------------------------------------------------------------------------------------------
Risk Adjustment, Reinsurance, and Risk                 5          5          5          6          6          27
 Corridors Program Payments..................
Risk Adjustment, Reinsurance, and Risk                 5          5          6          6          6          28
 Corridors Program Collections *.............
----------------------------------------------------------------------------------------------------------------
Note 1: Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments
  over time.
Note 2: The CBO score reflects an additional $1 million in payments in FY 2018 that are collected in prior
  fiscal years. CBO does not expect a shortfall in these programs.
Source: Congressional Budget Office. Federal Subsidies for Health Insurance Coverage for People Under Age 65:
  2017 to 2027 Table 2. September 2017. Available at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53091-fshic.pdf.

1. Risk Adjustment
    The risk adjustment program is a permanent program created by the 
PPACA that transfers funds from lower risk, non-grandfathered plans to 
higher risk, non-grandfathered plans in the individual and small group 
markets, inside and outside the Exchanges. We established standards for 
the administration of the risk adjustment program, in subparts D and G 
of part 153 in Title 45 of the CFR.
    A State approved or conditionally approved by the Secretary to 
operate an Exchange may establish a risk adjustment program, or have 
HHS do so on its behalf. As described in the 2014 through 2018 Payment 
Notices, if HHS operates risk adjustment on behalf of a State, it will 
fund its risk adjustment program operations by assessing a risk 
adjustment user fee on issuers of risk adjustment covered plans. For 
the 2019 benefit year, we estimate that the total cost for HHS to 
operate the risk adjustment program on behalf of States for 2019 will 
be approximately $38 million, slightly less than in 2018, and that the 
risk adjustment user fee would be approximately $1.68 per enrollee per 
year. This user fee reflects contract costs to support the risk 
adjustment data validation process in 2019, lower costs related to risk 
adjustment issuer outreach and education, and lower enrollment in risk 
adjustment covered QHPs, which results in the same user fee rate as the 
2018 benefit year after rounding to the nearest cent.
    We believe that our proposal to blend the coefficients calculated 
from the 2016 benefit year EDGE enrollee-level data with 2014 and 2015 
MarketScan[supreg] data will provide stability within the risk 
adjustment program and minimize volatility in changes to risk scores 
from the 2018 benefit year to the 2019 benefit year due to differences 
in the datasets' underlying populations.
    We are proposing to allow States to request a reduction in the 
Statewide average premium in the small group market. We expect this 
proposed policy would reduce premiums and transfers in the small group 
markets proportional to the percent by which the States choose to 
reduce the transfers. However, because the risk adjustment program is 
budget neutral, any State decision to reduce the Statewide average 
premium used to calculate risk adjustment transfers will have no net 
impact on risk adjustment transfers.
2. Risk Adjustment Data Validation
    This proposed regulation includes changes to the requirements for 
risk adjustment data validation that overall would reduce regulatory 
burden and costs for issuers of risk adjusted plans. HHS believes the 
proposal to only adjust issuers' risk adjustment risk scores whose data 
validation error rates materially deviate from the national central 
tendency of error rates would help market stability by increasing 
issuers' ability to predict risk adjustment transfers and liquidity 
needs. We anticipate that, under this proposal, most issuers required 
to participate in risk adjustment data validation would not have their 
risk scores adjusted, based on our analysis of error rates in the 
Medicare risk adjustment data validation program.
    The proposal to retroactively adjust transfers for issuers that 
exited a State market would result in transfer adjustments for a small 
subset of issuers that previously would not have had their transfers 
adjusted, but HHS does not expect this policy to increase burden for 
these issuers, especially in light of the payment adjustment proposal 
described above.
    HHS estimates that not requiring issuers that have 500 or fewer 
billable member months Statewide to conduct an initial validation audit 
beginning in the 2017 benefit year would reduce the administrative 
burden and costs on those issuers. The reduction in burden and costs 
related to this ICR has been discussed previously in the Collection of 
Information Requirements section.

[[Page 51127]]

    Under the proposed change to the sampling methodology, issuers that 
were the sole issuer in a risk pool would still need to provide a 
sample for data validation, but the sample would not include enrollees 
from the risk pool where they were the sole issuer. Therefore, this 
proposal would not have a significant impact on costs or burden for 
affected issuers.
    We propose to amend Sec.  153.630(b)(6) to state that a provider 
licensed to diagnose mental illness that is prohibited by State privacy 
laws from furnishing a complete medical record for data validation may 
furnish a signed mental or behavioral health assessment that providers 
routinely prepare. For risk adjustment data validation purposes, we 
assume a mental or behavioral health assessment is signed by a 
qualified provider who is licensed by the State to diagnose mental 
illness and, to the extent permissible under governing privacy and 
confidentiality laws, contains: (i) The enrollee's name; (ii) gender; 
(iii) date of birth; (iv) current status of all mental or behavioral 
health diagnoses; and (v) dates of service. The burden associated with 
submitting medical records for RADV purposes and therefore, this 
proposal, is currently approved under OMB Control Number 0938-1155: 
Standards Related to Reinsurance, Risk Corridors, Risk Adjustment, and 
Payment Appeals.
    We propose to amend Sec.  153.630(b)(9) to state that, if an issuer 
of a risk adjustment covered plan (1) fails to engage an initial 
validation auditor; (2) fails to submit the results of an initial 
validation audit to HHS; (3) engages in misconduct or substantial non-
compliance with the risk adjustment data validation standards and 
requirements applicable to issuers of risk adjustment covered plans; or 
(4) intentionally or recklessly misrepresents or falsifies information 
that it furnishes to HHS, HHS may impose CMPs in accordance with the 
procedures set forth in Sec.  156.805(b) through (e). Because risk 
adjustment data validation has thus far operated as a pilot program, we 
cannot estimate the number of issuers that would be subject to CMPs. 
However, we do not expect that a significant number of issuers would 
engage in the extreme misconduct required to warrant a CMP under this 
proposal.
3. Rate Review
    In Sec.  154.103, we propose to exclude student health insurance 
coverage from the Federal rate review requirements. This would reduce 
burden related to rate review submission and review for issuers and 
States. In addition, providing States with more flexibility regarding 
timing of submission of rate filing justification, reducing the advance 
notification requirement for rate increase announcements, timing of 
posting proposed and final rate filing information, and changing the 
threshold for reasonableness review to a 15 percent increase rather 
than a 10 percent increase, would reduce regulatory burden for issuers 
and States. The reduction in burden and costs related to ICRs have been 
discussed previously in the Collection of Information Requirements 
section.
4. Additional Required Benefits (Sec.  155.170)
    In the preamble to Sec.  155.170, we propose to extend the 
applicability of the policies governing State-required benefits to the 
proposals described at Sec.  156.111 that would provide States with new 
options for selecting their EHB-benchmark plans beginning for the 2019 
plan year. Specifically, under any of the three proposed EHB-benchmark 
plan selection options, or if the State defaults to its current EHB-
benchmark plan, the current policies regarding State-required benefits 
would continue to apply if the proposals at Sec.  156.111 are 
finalized. Because these policies would continue to be in effect, we do 
not anticipate any additional burden on States or issuers due to this 
proposal.
5. Standards for Navigators and Certain Non-Navigator Assistance 
Personnel (Sec. Sec.  155.210 and 155.215)
    We propose to amend Sec.  155.210(c)(2) to remove the requirements 
that each Exchange must have at least two Navigator entities and that 
one of these entities must be a community and consumer-focused 
nonprofit group. We also propose to amend Sec. Sec.  155.210(e)(7) and 
155.215(h) to remove the requirements that Navigators and non-Navigator 
assistance personnel entities subject to those regulations maintain a 
physical presence in the Exchange service area. The proposed amendments 
to Sec.  155.210(c)(2) would reduce the burden on Exchanges to have at 
least two separate Navigator entities, and as a result, Exchanges may 
be able to reduce funding amounts while still meeting program 
requirements. Removing these requirements would help promote 
flexibility and autonomy for each Exchange to structure its Navigator 
program, and to award grant funding to the number and type of entities 
that would be most effective for that specific Exchange service area. 
To the extent that Exchanges take advantage of these flexibilities, 
consumers may have fewer options of Navigator grantees and may not have 
access to a Navigator grantee or a non-Navigator assistance personnel 
entity that maintains a physical presence in the Exchange service area. 
Exchanges continue to have the flexibility to fund more than one 
Navigator grantee and SBEs continue to have the flexibility to require 
that Navigators maintain a physical presence in the Exchange service 
area.
6. Standards for Third-Party Entities To Perform Audits of Agents, 
Brokers, and Issuers Participating in Direct Enrollment (Sec.  155.221)
    The proposed regulations would replace the existing requirement 
that an HHS-approved third party perform audits of agents and brokers 
participating in direct enrollment to instead permit a third-party 
entity to conduct operational readiness reviews for agents, brokers, 
and issuers participating in direct enrollment. HHS anticipates this 
approach would reduce the regulatory burden on agents, brokers, and 
issuers utilizing this section for enhanced direct enrollment 
oversight. HHS also anticipates that this proposal would reduce the 
burden on third-party auditors performing reviews under Sec.  155.221, 
as those entities would no longer be required to obtain HHS approval to 
perform the reviews. Furthermore, we believe this proposal would expand 
the available number of qualified third-party auditors by removing any 
time and operational restrictions imposed by the HHS pre-approval 
requirement, which would provide more flexibility to agents, brokers, 
or issuers as they complete operational readiness reviews. 
Additionally, we believe this proposal would enable more agents, 
brokers and issuers to demonstrate operational readiness by reducing 
the burden on HHS for conducting reviews, expediting the ability of 
these entities to demonstrate readiness, and increasing the feasibility 
of approval for use of innovative pathways, thereby creating more 
opportunities for enrollment in QHP coverage for consumers, potentially 
increasing enrollment. HHS anticipates that some of the burden would be 
lessened by the fact that many agent, brokers, or issuers would already 
have the established privacy and security controls, and may have 
existing relationships with auditors that could be leveraged for these 
reviews. We would provide additional technical details regarding 
compliance with the specific requirements under these rules in guidance 
in the future. It is difficult to estimate a nationwide effect with

[[Page 51128]]

precision. We seek comment on the impact of this policy.
7. Eligibility Standards (Sec.  155.305)
    The requirement in Sec.  155.305(f)(4)(ii) that the Exchange must 
send direct notification to the tax filer before denying eligibility 
for APTC to consumers who fail to file and reconcile went into effect 
in mid-January 2017; therefore, it did not impact operations for the 
2017 open enrollment period, which was nearly over then. At that point 
in time, for the FFE, the household contacts for non-filers had been 
notified of their tax filer's non-compliance, and APTC had been 
discontinued at auto re-enrollment for those who did not file a Federal 
income tax return according to IRS data or inform the FFE that they had 
filed a Federal tax return and reconciled past APTC. Requiring the 
Exchange to deny APTC for failure to file and reconcile even in the 
absence of ``direct notification . . . to the tax filer'' is unlikely 
to add new burden since Exchanges have not yet implemented Sec.  
155.305(f)(4)(ii). We do not believe that Exchanges have built an FTI-
compliant noticing infrastructure since the publication of the final 
rule establishing Sec.  155.305(f)(4)(ii) that they would need to 
dismantle if this proposal is finalized. However, if Sec.  
155.305(f)(4)(ii) remains in effect, Exchanges will incur significant 
costs, as discussed above, to build the infrastructure necessary to 
directly notify tax filers about their tax filing status while 
protecting FTI.
8. Verification Requirements (Sec.  55.320)
    Verification Requirements in this proposed rule would also amend 
Sec.  155.320(d)(4) to allow an Exchange to conduct an HHS-approved 
alternative process instead of sampling, as provided under paragraph 
(d)(4)(ii) through benefit year 2019. We believe this would relieve 
Exchanges from the burden of investing resources to conduct sampling 
when the FFEs' study of a sampling-like process found that this method 
of verification may not be cost-effective for some Exchanges at this 
time. We estimate the burden associated with sampling based in part on 
the alternative process used for the FFEs. HHS incurred approximately 
$750,000 in costs to design and operationalize this study and the study 
indicated that $353,581 of APTC was potentially incorrectly granted to 
individuals who inaccurately attested to their eligibility for or 
enrollment in a qualifying eligible employer-sponsored plan. We placed 
calls to employers to verify 15,125 cases but were only able to verify 
1,948 cases. A large number of employers either could not be reached or 
were unable to verify a consumer's information, resulting in a 
verification rate of approximately 13 percent. The sample-size involved 
in the 2016 study did not represent a statistically significant sample 
of the target population and did not fulfill all regulatory 
requirements for sampling under paragraph (d)(4)(i) of Sec.  155.320.
    Taking additional costs into account--namely, the cost of sending 
notices to employees as required under paragraph (d)(4)(i)(A), the cost 
of building the infrastructure and implementing the first year of 
operationalizing this process, and the cost of expanding the number of 
cases to a statistically significant sample size of approximately 1 
million cases--we estimate that the overall cost of implementing 
sampling would be approximately $8 million for the FFE, and between $2 
million and $7 million for other Exchanges, depending on their 
enrollment volume and existing infrastructure. Therefore, we estimate 
that the average per-Exchange cost of implementing sampling that 
resembles the FFE's approach would be approximately $4.5 million for a 
total cost to State-based Exchanges of $54 million, when assuming 12 
State-based Exchanges (operating in 11 States and the District of 
Columbia). This cost estimate does not, however, take into account the 
cost of notifying consumers when the information provided by their 
employer changes their eligibility determination described under 
paragraph (d)(4)(i)(E), the cost of providing employees consumer 
support that may be needed to understand notices and any change in 
eligibility, or the cost of ending those consumers' APTCs, when 
necessary. This estimate also does not account for the unique operating 
costs of each Exchange, the proposed change to paragraph (d)(4) to 
allow Exchanges to continue to use an alternate process through benefit 
year 2019, and the flexibility afforded Exchanges described at Sec.  
155.315(h) and referenced in Sec.  155.320(a)(2).
    We believe these changes would lessen the financial and technical 
burdens on Exchanges under current regulation and allow Exchanges to 
conduct an alternative process to sampling under paragraph (d)(4) as 
approaches to sampling are refined and data bases are compiled over 
time. We seek comment on the reduction in burden associated with 
extending the option to allow Exchanges to fulfill verification 
requirements by conducting an HHS-approved alternative process to 
sampling through plan year 2019.
9. Special Enrollment Periods (Sec.  155.420)
    We do not anticipate that the revisions to Sec.  155.420 would 
create any costs or burdens. The proposed revisions in paragraph 
(b)(2)(i) align regulatory policy for special enrollment periods based 
on a court order with other similar special enrollment period types, 
and create operational efficiencies for Exchanges by streamlining 
effective date options across similar special enrollment period 
qualifying events related to a qualified individual gaining or becoming 
a dependent. For example, this revision to the regulation would enable 
the FFE to use a simpler online, automated application pathway for more 
special enrollment period-eligible consumers, meaning that fewer 
consumers will need to use a manual and costly casework process to use 
their special enrollment period. For limited cases when casework 
support is required, operations would also be simplified.
    Similarly, the revision to paragraph (d)(1)(iii) allows Exchanges 
to provide similar treatment to all women losing non-MEC pregnancy-
related coverage, which enables a more streamlined special enrollment 
period eligibility process.
    Additionally, amending paragraph (a)(5) to exempt qualified 
individuals from the prior coverage requirement that applies to certain 
special enrollment periods if, for at least 1 of the 60 days prior to 
the date of their qualifying event, they lived in a service area where 
there were no QHPs offered through an Exchange may provide a pathway to 
coverage for a small group of individuals, and is not anticipated to 
impact the Exchange risk pool. The Exchange already exempts qualified 
individuals who may not previously have had access to QHP coverage 
through an Exchange, including those who were previously living in a 
foreign country or United States territory and Indians as defined by 
section 4 of the Indian Health Care Improvement Act. Therefore, we do 
not believe that adding an additional small population to this 
exemption will create additional costs or burdens.
    Finally, because simplified special enrollment period eligibility 
policy provides improved pathways to continuous coverage for special 
enrollment period-eligible consumers, we anticipate that the revisions 
would reduce burden on consumers, have a positive effect on the risk 
pool, and not result in additional costs or burdens for issuers.

[[Page 51129]]

10. Effective Dates for Terminations (Sec.  155.430)
    Permitting all enrollee-initiated terminations to become effective 
on the date of enrollee request or a later date of their choosing and 
removing the special termination effective date for newly eligible 
Medicaid/CHIP/basic health plan consumers streamlines termination 
effective dates for Exchanges and reduces complication and confusion 
among consumers and issuers. There are no new costs incurred by 
Exchanges or issuers by aligning these termination dates, as Exchanges 
and issuers are well acquainted with same-day termination transactions. 
However, enrollees who receive retroactive coverage under Medicaid may 
be unable to recoup QHP premiums paid. Nevertheless, operationalizing 
the aligned termination dates may reduce system errors and related 
casework, as well as confusion for consumers, issuers, and caseworker 
and call center staff based on contradictory rules for different 
scenarios.
11. Eligibility Standards for Exemptions (Sec.  155.605)
    We do not anticipate that the proposed amendment to Sec.  
155.605(d) would create additional costs or burdens. The proposed 
amendment to Sec.  155.605(d)(2)(iv) would enable the Exchanges to 
process the consumer's exemption from the individual shared 
responsibility provision due to lack of affordable coverage based on 
projected income, for those not eligible for employer-sponsored 
coverage, when there is no bronze plan available by allowing the 
Exchanges to process the consumer's exemption based on the lowest cost 
Exchange metal level plan available in the individual market through 
the Exchange in the State in the rating area in which the individual 
resides. This proposal would not increase the burden on consumers or 
Exchanges. Without these revisions, individuals may lack access to 
qualifying or affordable health coverage, but be unable to qualify for 
an exemption from the individual shared responsibility provision to 
purchase qualifying health coverage and the associated financial 
penalty due to the lack of coverage in their area or the inability to 
calculate whether coverage is unaffordable. This proposal would also 
not result in additional costs or burdens for issuers.
12. Small Business Health Options Program (Part 155, Subpart H, Sec.  
155.200, Sec. Sec.  156.285 and 156.286, Sec.  156.350, Sec. Sec.  
157.205 and 157.206)
    HHS is proposing to grant additional flexibilities, for plan years 
beginning on or after January 1, 2018, to small employers enrolling in 
SHOP QHPs and to participating QHP issuers in how they interact with a 
SHOP. If finalized, these changes would become effective as of the 
effective date of the final rule. Under this proposed rule, several 
existing requirements on SHOPs would not apply for plan years beginning 
on or after January 1, 2018, allowing SBEs the flexibility to operate a 
SHOP in a way that makes sense for the small businesses in their State, 
with reduced limitations imposed by Federal regulation. The FF-SHOPs, 
if this rule is finalized as proposed, would take advantage of the 
flexibility of the enrollment approach described through this proposed 
rule and operate in a leaner fashion. Under the proposed approach, 
SHOPs would no longer be required to enroll small groups in SHOP QHPs 
through a SHOP Web site. Instead, small employers would enroll through 
a participating QHP issuer, or a SHOP-registered agent or broker.
    HHS believes that the proposed changes would reduce burden on 
participating QHP issuers, small employers, and agents and brokers for 
several reasons. Under the proposed approach to SHOP enrollment for 
plan years beginning on or after January 1, 2018, effective on the 
effective date of the final rule, if finalized as proposed, 
participating QHP issuers would enroll small groups through their 
existing enrollment channels--utilizing their existing technologies and 
processes. Small groups enrolled in SHOP QHPs for plan years before 
January 1, 2018 would not be affected by the proposed changes to 
enrollment through a SHOP until they would be due to renew in a SHOP 
QHP for the 2018 plan year. While some additional requirements would be 
imposed onto issuers, if this approach were to become final, HHS 
anticipates that any additional burden on issuers as a result of the 
changes proposed in this rule, if finalized, would be negated in an 
ultimate net reduction in burden as many Federal regulations are being 
removed and any additional requirements onto issuers mainly consist of 
practices they currently perform in the private market.
    In the 2018 Payment Notice, HHS finalized the removal of a 
participation provision that had required certain QHP issuers to 
participate in an FF-SHOP in order to participate in an FFE. As a 
result, HHS expects that there will be a significant decrease in the 
number of issuers in the FF-SHOPs in the 2018 plan year and therefore, 
also expects fewer enrollments in the FF-SHOPs and SBE-FPs utilizing 
the Federal platform for SHOP. As of January 1, 2017, approximately 
7,554 employer groups were enrolled in the FF-SHOPs, covering 38,749 
lives. With the anticipated significant decreases in QHP issuer 
participation and enrollment beginning in 2018, it is not cost 
effective for the Federal government to continue to maintain certain 
FF-SHOP functionalities, collect significantly reduced user fees on a 
monthly basis, maintain the technologies required to maintain an FF-
SHOP Web site and payment platform, generate enrollment and payment 
transaction files, and perform enrollment reconciliation.
    Under the proposed approach, issuers would still be subject to 
their State requirements, and HHS would minimize Federal requirements 
related to SHOP plans (that is, notice requirements, etc.) for plan 
years beginning on or after January 1, 2018. For example, issuers are 
often required by State law to generate enrollment and payment notices, 
and would continue to generate any State-required notices under the 
proposed SHOP enrollment approach. Under the proposed approach, the FF-
SHOPs would no longer generate enrollment notices, but the notice 
requirements for the FF-SHOPs would not necessarily be transferred 
directly to participating QHP issuers. HHS can imagine a scenario where 
an issuer might generate an additional notice to a SHOP consumer that 
they are not required by Federal law to send, but may be required by 
State law, to send.
    Issuers, under the proposed approach would still be required to 
accept enrollment from employers that offer their employees a choice of 
plans. HHS can foresee a circumstance where an employer offers its 
employees a choice of plans, across plan categories, and where the 
employees choose to enroll in plans offered by multiple issuers. In 
this circumstance, it would also be possible that an issuer would 
receive one application for enrollment from a group. Under the proposed 
approach to SHOP enrollment, the issuer would be required to accept 
that single enrollment so long as the employer's group has met the 
minimum participation rate for their State, or is enrolling between 
November 15 and December 15, when the minimum participation rate rules 
do not apply. Given the expected decrease in issuer participation in 
the SHOP beginning in plan year 2018, HHS believes that a circumstance, 
similar to

[[Page 51130]]

the one discussed above may occur. In the absence of premium 
aggregation services, issuers, under the proposed approach would be 
working directly with an employer, or their appointed SHOP-registered 
agent or broker for matters of enrollment and premium billing and 
payment. Under the proposed regulations, issuers would be required to 
enroll consumers into plans, even if only one employee of a group would 
like to enroll. Further, if this proposal were to become final, issuers 
would also be required to process enrollments into SHOP QHPs, and, 
handle appeals (other than appeals related to employer eligibility), 
administer special enrollment periods and terminations. Issuers would 
still be subject to the market wide effective dates outlined in Sec.  
147.104(b)(1)(i)(C). While HHS believes that issuers currently perform 
the majority of these tasks, issuers may experience an increase in 
burden as it relates to the volume of consumers enrolling in their SHOP 
QHPs. Overall, HHS believes that under this approach, issuers would see 
a net cost savings, as their business processes for SHOP enrollments 
could be more closely aligned with their current business practices for 
enrollments outside the SHOP, and they would no longer be remitting 
user fees for FF-SHOP and SBE-FP SHOP enrollments.
    As noted, SBEs would be given the flexibility to adopt an 
enrollment approach through which enrollments occur directly with 
issuers or SHOP-registered agents or brokers, to continue to operate 
with the same functionalities as they currently do or to develop new 
practices as permitted by the proposals in this rule. In any case, SBEs 
would need to meet only the proposed regulations, therefore minimizing 
the overall amount of regulatory requirements that SBEs would otherwise 
need to meet. HHS believes that the proposed new flexibility for SBEs 
will result in an overall reduction in burden and cost for SBEs because 
we are providing SBEs with the flexibility to pursue the enrollment 
approach that best meets their needs, because we are reducing the 
overall regulatory requirements for the SHOP Exchanges, and for the 
same reasons described above regarding why the proposed enrollment 
approach would reduce burdens on the FF-SHOP and its stakeholders.
    Under the proposed approach for plan years beginning on or after 
January 1, 2018, HHS believes that employers seeking to purchase FF-
SHOP coverage would experience a reduction in regulatory burden related 
to enrollment, despite the fact that they may be required to visit at 
least two Web sites (the SHOP Web site and the issuer's Web site) prior 
to completing an enrollment in SHOP coverage as they would be able to 
enroll in coverage through a SHOP-registered agent or broker or through 
a participating QHP issuer--using issuers' streamlined enrollment 
technologies. Employers would also be required, under the proposals 
described throughout this document to notify their QHP issuer of their 
eligibility to purchase a SHOP QHP and of their ineligibility, if their 
eligibility were to be revoked. We believe this would still be less 
cumbersome than the existing eligibility and enrollment process.
    Under the proposed approach, some employers, specifically those who 
offer their employees a choice of plans, would experience an increase 
of administrative burden with the removal of a SHOP's premium 
aggregation services. Without a SHOP's premium aggregation services, 
employers would have to collect the enrollment and payment information 
needed from each of the issuers whose plans the employer intends to 
offer to its employees. In the event employees select plans from 
multiple insurance companies, the employer would be responsible for 
distributing the applications for enrollment to the individual issuers, 
collecting payments from the employees and sending the individual 
payments to each issuer. Due to the expected decrease in issuer 
participation in the FF-SHOPs, some SHOP employers will likely only 
have one issuer offering FF-SHOP plans in their area and would not be 
able to offer their employees a choice of plans across issuers. In 
addition, historically, a majority of employers have not offered 
employee choice across different issuers. Therefore HHS does not 
believe the potential increased burden in this area due the proposed 
removal of premium aggregation services to be significant. Employers 
would still be able to view a listing of all of the SHOP QHPs 
available, by plan category and issuer on a SHOP Web site. HHS expects 
that the actual process of enrolling in SHOP QHPs under this approach 
would be less burdensome than the existing enrollment approach through 
a SHOP Web site. As previously mentioned, HHS anticipates significantly 
lower issuer participation in the SHOP in the 2018 plan year. A 
decrease in issuer participation unfortunately also results in less 
choice for consumers. While employers could experience an increase in 
burden, under the proposed flexibilities for SHOPs, HHS anticipates the 
benefits of the proposed approach would ultimately outweigh the minimal 
additional costs employers could face, if these proposals were to be 
finalized.
    Further, because the Federal government would experience a dramatic 
reduction in the role it plays in operating an FF-SHOP and the contract 
support that it requires in order to support it. In 2016, the cost of 
running the FF-SHOP Web site was approximately $30 million, and HHS 
expects annual expenditures to drop significantly--by at least 90 
percent--within a few years, as it responsibly wind-downs the 
integration of the FF-SHOPs.
13. User Fees (Sec.  156.50)
    To support the operation of FFEs, we require in Sec.  156.50(c) 
that a participating issuer offering a plan through an FFE or SBE-FP 
must remit a user fee to HHS each month equal to the product of the 
monthly user fee rate specified in the annual HHS notice of benefit and 
payment parameters for the applicable benefit year and the monthly 
premium charged by the issuer for each policy under the plan where 
enrollment is through an FFE. In this proposed rule, for the 2019 
benefit year, we propose a monthly FFE user fee rate equal to 3.5 
percent and for an SBE-FP equal to 3.0 percent of the monthly premium. 
This increase in SBE-FP user fee rate from 2.0 percent in 2018 to 3.0 
percent in 2019 will increase transfers from SBE-FP issuers to the 
Federal government by $20 million. Additionally, we propose to cease 
charging monthly user fees to SHOP issuers offering plans through an 
FFE or SBE-FP for plan years beginning on and after January 1, 2018, 
effective on the effective date of the final rule, if finalized as 
proposed. This proposal will decrease user fee transfers from SHOP 
issuers offering plans through an FFE or SBE-FP of approximately $6 
million.
14. Provision of EHB
    In Sec.  156.111, we propose to provide States with more 
flexibility by offering States three new methods for selecting their 
State EHB-benchmark plans. Under this proposal, if the State does not 
select one of the three methods for changing its EHB-benchmark plan, 
the State would default to its current EHB-benchmark plan. We recognize 
that, to the extent that States take advantage of the proposed EHB-
benchmark plan selection options at Sec.  156.111, States, issuers, and 
consumers would experience an increase in burden to develop new 
policies and implement new plan designs. We anticipate that

[[Page 51131]]

most States would need to invest resources to analyze the three new 
EHB-benchmark selection options to make an informed selection, even if 
a State defaults. Several States may select one of the new options, and 
would need additional resources to facilitate a public notice and 
comment period; develop and submit the necessary documents specified by 
HHS (including the requisite actuarial certification) to effectuate the 
State's selection; and, if making changes to their EHB-benchmark plan 
for 2019, to instruct their issuers on how to manually change the Add-
in file used in the Plans and Benefits Template to align with the 
State's EHB-benchmark plan, as discussed in preamble.\77\ Additionally, 
in States that choose to select their EHB-benchmark plan under any of 
the three available proposed options, issuers offering plans that 
provide EHB would incur additional administrative costs associated with 
designing plans compliant with the State's newly selected EHB-benchmark 
plan.
---------------------------------------------------------------------------

    \77\ For certain States, taking action on the EHB-benchmark plan 
may require legislature action or other high level state approval.
---------------------------------------------------------------------------

    Due to the many PPACA policies directly or indirectly tied to EHB, 
HHS recognizes the impact this proposed policy would have on parties 
beyond issuers required to provide EHB-compliant plans. For example, 
the State's new EHB-benchmark selection could impact how HHS reviews 
and recognizes plans seeking minimal essential coverage 
designation,\78\ how issuers set their annual limitation on cost-
sharing, and how issuers determine which benefits may not be subject to 
annual and lifetime dollar limits.\79\
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    \78\ Consumers generally must maintain minimum essential 
coverage or obtain an exemption to avoid the individual shared 
responsibility payment. As noted in the preamble to Sec.  156.602 in 
this proposed rule, in considering whether to recognize coverage as 
MEC under the application process provided for in Sec.  156.604, HHS 
generally evaluates whether the coverage complies with substantially 
all the requirements of title I of the PPACA that apply to non-
grandfathered coverage in the individual market, including the EHB 
requirements.
    \79\ The definition of EHB also has an impact on the annual 
limitation on cost sharing at section 1302(c) of the PPACA (which is 
incorporated into section 2707(b) of the PHS Act) and the 
prohibition of annual and lifetime dollar limits at section 2711 of 
the PHS Act, as added by the PPACA.
---------------------------------------------------------------------------

    It is our aim that the flexibility under the proposed policy would 
allow for States and issuers to be more innovative in designing benefit 
structures and affordable health plans that benefit the consumer. 
However, we realize that this proposed policy would have varying impact 
on consumers depending on how a State chooses to implement the proposed 
policy. Consumers enrolled in individual and small group market plans 
would be impacted by changes to EHB in that their benefits may change 
and in some cases premiums could increase or decrease depending upon 
State implementation of the proposed policies. Additionally, in States 
that use one of the proposed methods to select a new EHB-benchmark 
plan, the new EHB-benchmark plan selection may impact the amount of 
premium tax credit (PTC) and CSRs for enrollees in the State. For these 
consumers, subsidies would increase or decrease when compared to their 
State's current EHB-benchmark plan. PTC is available only for that 
portion of a plan's premium attributed to EHB. To the extent that a 
State's EHB-benchmark plan, under the proposal, leads to lower premiums 
for the second lowest cost silver plan, PTC would be reduced, but not 
the percent of income a consumer with PTC is expected to contribute to 
their premium. This effect would represent a transfer from consumers 
who receive PTC to the Federal government. Individual and small group 
market enrollees who do not receive PTC would experience lower premiums 
for less comprehensive coverage that could result in more affordable 
coverage options but possibly higher out-of-pocket costs for the 
consumer.
    We anticipate that States are more likely to select EHB-benchmark 
plans under this proposal such that premiums are reduced. The proposal, 
however, provides some flexibility for States to select EHB-benchmark 
plans in a manner that would increase premiums, for example by 
selecting another State's EHB-benchmark plan that provides greater 
benefits than the State's current EHB-benchmark plan. To the extent 
that a State's EHB-benchmark plan leads to higher premiums for the 
second lowest cost silver plan, PTC would be increased.
    Consumers who have specific health needs may also be impacted by 
the proposed policy. In the individual and small group markets, 
depending on the selection made by the State in which the consumer 
lives, consumers with less comprehensive plans may no longer have 
coverage for certain services. In other States, again depending on 
State choices, consumers may gain coverage for some services.
    As explained above, HHS anticipates that modifying Sec.  156.111 as 
proposed would generate additional costs for States, issuers, and 
certain consumers in the short run. However, although we are uncertain 
as to how States might take advantage of this flexibility and States 
are not required to make any changes under this policy, we also believe 
the additional flexibility in plan and benefit design might produce 
premium savings, outweighing the potential burdens. The proposed 
polices offer issuers in States that utilize the proposed flexibility 
to select a new EHB-benchmark plan the opportunity to lower plan 
premiums, which would increase affordability of health insurance for 
consumers in the individual and small group markets who do not receive 
PTC and do not require the benefits that are no longer considered EHB.
    When adjusting coverage of services under the proposed options, we 
encourage States to consider the spillover effects in addition to the 
costs and utilization of these services. Spillover effects include 
increased use of other services, such as increased used of emergency 
services or increased use of public services provided by the State or 
other government entities, when a certain service is no longer covered 
by insurance. Depending on the State population's use of services and 
health care needs, States may arrive at different conclusions about the 
effects of adjusting a particular benefit. Because we do not know how 
States would choose to adjust their benchmark plans, we are not able to 
predict the effects these modifications may have on costs.
    Additionally, we also proposed at Sec.  156.115 to allow for 
benefit substitution to occur within the same EHB category or between 
EHB categories to offer additional issuer flexibility. Because issuers 
are already familiar with substituting benefits within benefit 
categories, we do not believe that broadening the policy to allow 
benefit substitution between benefit categories would create additional 
burden for issuers. This proposal would increase the burden on 
consumers who choose between plans offered in the individual and small 
group markets as they would need to spend more time and effort 
comparing benefits offered by different plans in order to determine 
what, if any, benefits have been substituted and what plan would best 
suit their health care and financial needs. We also note that States 
are generally primarily responsible for enforcement of EHB and continue 
to have the option to set criteria for benefit substitution. 
Additionally, by allowing substitution between categories, States may 
encounter difficulties in ensuring that all categories are filled in 
such a way that amounts to EHB.
    We solicit comments on the impact of the proposed EHB policy and on 
whether other impacts should be considered.

[[Page 51132]]

15. Application to Stand-Alone Dental Plans Inside the Exchange (Sec.  
156.150)
    In this proposed rule, we are proposing to remove AV requirements 
for SADP issuers. We estimate that the proposed change in AV could lead 
to a reduction in premiums for certain SADPs. Issuers may choose to 
offer more SADPs at varying premiums and levels of coverage. The 
offering of more SADPs and SADPs with lower premiums may lead to 
increased enrollment in SADPs. Because certain eligible taxpayers could 
use premium tax credit to pay for the portion of SADP premiums 
attributable to EHB, a reduction in premiums would likely reduce the 
benchmark premium for purposes of the premium tax credit, leading to a 
small transfer from credit recipients to the government. If enrollment 
increases due to potentially lower premiums there could be an overall 
increase in the total premium tax credit payments by the government. 
The net effect is uncertain. We seek comment on the impact of this 
proposed change.
16. Qualified Health Plan Certification
    For plan years 2019 and later, we propose to further expand the 
role of States in the QHP certification process for FFEs, including 
FFEs where the State performs plan management functions. Specifically, 
we propose to defer to States for additional review areas, including 
accreditation requirements at Sec.  156.275, compliance reviews at 
Sec.  156.715, minimum geographic area of the plan's service area at 
Sec.  155.1055, and quality improvement strategy reporting at Sec.  
156.1130, if feasible and appropriate. We also propose to extend, for 
the 2019 benefit year and beyond, the QHP certification review 
standards related to network adequacy and essential community providers 
that we finalized in the Market Stabilization rule. We do not 
anticipate these proposals would increase burden on States because we 
believe these reviews are already being performed by States. We 
anticipate a slight reduction in burden for issuers due to not needing 
to undergo duplicative reviews and a reduction in costs to the Federal 
government. We seek comment on whether there are burdens we are not 
considering.
    In Sec.  156.298, we propose to remove the meaningful difference 
standard. If the meaningful difference standard is removed, issuers 
would have a potential reduction in administrative costs since they 
would no longer have to implement their internal assessments as to 
whether their plan offerings meet this standard. Consumers may have 
more QHPs to select from. However, we do not have evidence from any 
Exchange that removing the meaningful difference standard would create 
any new burden on consumers.
    We also anticipate that the proposal to remove the meaningful 
difference standard would reduce the regulatory burden on SBE-FPs. 
Under Sec.  155.200(f)(2)(iv), SBE-FPs are required to establish and 
oversee requirements for their issuers that are no less stringent than 
the meaningful difference standard as it applies to issuers 
participating in the FFEs. Under our proposal, SBE-FPs would no longer 
need to establish such a standard or oversee it.
17. Provisions Related to Cost Sharing (Sec.  156.130)
    The PPACA provides for the reduction or elimination of cost sharing 
for certain eligible individuals enrolled in QHPs offered through the 
Exchanges. This assistance helps many low- and moderate-income 
individuals and families obtain health insurance--for many people, cost 
sharing is a barrier to obtaining needed health care.\80\
---------------------------------------------------------------------------

    \80\ Brook, Robert H., John E. Ware, William H. Rogers, Emmett 
B. Keeler, Allyson Ross Davies, Cathy D. Sherbourne, George A. 
Goldberg, Kathleen N. Lohr, Patricia Camp and Joseph P. Newhouse. 
The Effect of Coinsurance on the Health of Adults: Results from the 
RAND Health Insurance Experiment. Santa Monica, CA: RAND 
Corporation, 1984. Available at http://www.rand.org/pubs/reports/R3055.
---------------------------------------------------------------------------

    We set forth in this proposed rule the reductions in the maximum 
annual limitation on cost sharing for silver plan variations. 
Consistent with our analysis in previous Payment Notices, we developed 
three model silver level QHPs and analyzed the impact on their AVs of 
the reductions described in the PPACA to the estimated 2019 maximum 
annual limitation on cost sharing for self-only coverage. We do not 
believe these changes will result in a significant economic impact. 
Therefore, we do not believe the provisions related to cost-sharing 
reductions in this proposed rule will have an impact on the program 
established by and described in past Payment Notices.
    We also proposed the premium adjustment percentage for the 2019 
benefit year. Under Sec.  156.130(e), and under the methodology 
established in the 2015 Payment Notice and amended in the 2015 Market 
Standards Rule for estimating average per capita premium for purposes 
of calculating the premium adjustment percentage, the premium 
adjustment percentage is the percentage (if any) by which the average 
per enrollee premium for employer-sponsored health insurance coverage 
for the preceding calendar year exceeds such average per enrollee 
premium for employer-sponsored health insurance for 2013. The annual 
premium adjustment percentage sets the rate of increase for three 
parameters detailed in the PPACA: The annual limitation on cost sharing 
(defined at Sec.  156.130(a)), the required contribution percentage 
used to determine eligibility for certain exemptions under section 
5000A of the Code, and the assessable payments under sections 4980H(a) 
and 4980H(b) of the Code. We believe that the proposed 2019 premium 
adjustment percentage is well within the parameters used in the 
modeling of the PPACA, and we do not expect that these proposed 
provisions will alter CBO's March 2016 baseline estimates of the budget 
impact.
18. Minimum Essential Coverage (Sec.  156.602, Sec.  156.604)
    We propose to designate CHIP buy-in programs that provide identical 
coverage to the CHIP program under title XXI of the Act in the 
applicable State as minimum essential coverage. Currently very few 
States offer CHIP buy-in plans and such plans in two states have 
applied for and been recognized as minimum essential coverage. This 
proposed provision would reduce burden on sponsors of such programs 
that might otherwise have had to electronically submit to HHS 
information regarding their plans and certify that their plans meet 
substantially all of the requirements of Title I of the PPACA, as 
applicable to non-grandfathered, individual coverage (including 
reviewing and updating documents), make changes to their program to 
obtain recognition as minimum essential coverage, and provide a notice 
to enrollees informing them that the plan has been recognized as 
minimum essential coverage for the purposes of the individual shared 
responsibility provision. If CHIP buy-in programs that provide greater 
coverage and government-sponsored buy-in programs, such as Medicaid 
buy-in programs are categorically recognized as minimum essential 
coverage, sponsors of such programs would also experience a similar 
reduction in burden. The sponsor of any type of coverage recognized as 
minimum essential coverage would continue to be required to provide the 
annual information reporting to the IRS specified in section 6055 of 
the Code and furnish statements to individuals enrolled in such 
coverage to assist them in establishing that they are not subject to 
the individual shared responsibility provision of section 5000A of the 
Code.

[[Page 51133]]

19. Medical Loss Ratio (Part 158)
    We propose to amend Sec.  158.221(b) to allow issuers the option to 
report a single quality improvement activity expense amount equal to 
0.8 percent of earned premium in the relevant State and market, in lieu 
of reporting the actual QIA amounts in five separate categories 
described in Sec.  158.150(b)(2)(i)-(v). Based on MLR data for the 2015 
MLR reporting year, HHS estimates that the proposed amendment would 
decrease rebate payments from issuers to consumers by approximately $23 
million.
    We also propose to amend several sections of 45 CFR part 158, 
subpart C (Sec. Sec.  158.301, 158.321-158.322, 158.330, 158.341, 
158.350) to modify the process and criteria for the Secretary to 
determine whether to adjust the 80 percent MLR standard in the 
individual market in a State. While it is uncertain what specific 
adjustments States may request, most adjustments previously granted by 
the Secretary have ranged from 70 to 75 percent. Based on MLR data for 
the 2015 MLR reporting year, and assuming that 22 States would request 
an adjustment (including 17 States that previously requested 
adjustments), HHS estimates that the proposed amendments would decrease 
rebate payments from issuers to consumers or increase premiums paid by 
consumers to issuers by approximately $52 million (assuming a reduction 
of the 80 percent MLR standard to 75 percent for all 22 States) to $64 
million (assuming a reduction of the MLR standard to 70 percent for all 
22 States) annually, for up to 3 years at a time. This represents an 
estimated 74 percent to 91 percent reduction, respectively, in rebates 
payable in those 22 States, which together accounted for $70 million 
out of the nationwide total $107 million in rebates that issuers owed 
to individual market consumers for 2015. The actual reduction in 
rebates may be lower or higher depending on which States apply for an 
adjustment, and whether and how much the Secretary may adjust the 
individual market MLR standard in each State.
20. Regulatory Review Costs
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the rule, we assume that the total number of unique 
commenters on last year's proposed rule will be the number of reviewers 
of this proposed rule. We acknowledge that this assumption may 
understate or overstate the costs of reviewing this rule. It is 
possible that not all commenters reviewed last year's rule in detail, 
and it is also possible that some reviewers chose not to comment on the 
proposed rule. For these reasons we thought that the number of past 
commenters would be a fair estimate of the number of reviewers of this 
rule. We welcome any comments on the approach in estimating the number 
of entities which will review this proposed rule.
    We are required to promulgate a substantial portion of this rule 
each year under our regulations and we estimate that approximately half 
of the remaining provisions would cause additional regulatory review 
burden that stakeholders do not already anticipate. We also recognize 
that different types of entities are in many cases affected by mutually 
exclusive sections of this proposed rule, and therefore for the 
purposes of our estimate we assume that each reviewer reads 
approximately 50 percent of the rule, excluding the portion of the rule 
that we are required to promulgate each year.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this rule is $105.16 per hour, including overhead and fringe 
benefits.\81\ Assuming an average reading speed, we estimate that it 
would take approximately 1 hour for the staff to review the relevant 
portions of this proposed rule that causes unanticipated burden. For 
each entity that reviews the rule, the estimated cost is $105.16. 
Therefore, we estimate that the total cost of reviewing this regulation 
is approximately $70,247 ($105.16 x 668 reviewers).
---------------------------------------------------------------------------

    \81\ https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

D. Regulatory Alternatives Considered

    In developing the policies contained in this proposed rule, we 
considered numerous alternatives to the presented proposals. Below we 
discuss the key regulatory alternatives that we considered.
    For the 2019 benefit year, we considered using only the 2016 
benefit year enrollee-level EDGE data to recalibrate the risk 
adjustment model coefficients. However, this could lead to uncertainty 
in issuers' expectation of risk adjustment transfers due to the sole 
use of a new dataset for recalibrating the model coefficients. We 
believe that blending multiple years of data will promote stability for 
the risk adjustment coefficients year-to-year, particularly for rare 
conditions with small sample sizes. Therefore, we are proposing to 
blend coefficients calculated from the 2016 benefit year enrollee-level 
EDGE data with 2014 and 2015 MarketScan[supreg] data. Additionally, 
given the timing of the proposed rule, we are unable to analyze the 
enrollee-level EDGE data in time to publish the coefficients calibrated 
using the EDGE data in the proposed rule. Similar to the 2018 benefit 
year final risk adjustment coefficients, we considered publishing the 
2019 benefit year final risk adjustment coefficients in guidance after 
the publication of the final rule with more recent MarketScan[supreg] 
data that will become available at the end of this year. However, we 
expect the 2016 benefit year enrollee-level risk adjustment data will 
be available in time for the final rule. Additionally, we are not 
proposing to use the 2016 MarketScan[supreg] data that will become 
available at the end of this year for the 2019 benefit year risk 
adjustment model recalibration. As such, we are proposing to finalize 
the 2019 benefit year model coefficients blended with 2016 EDGE data, 
and 2014 and 2015 MarketScan[supreg] data in the final rule.
    With respect to the risk adjustment data validation program, HHS 
considered an alternate policy under which HHS would not adjust payment 
transfers for an issuer that exited a market within a State during or 
after the benefit year being audited, unless the error rate for the 
exited issuer was egregiously high relative to the error rates of other 
issuers in the State and market. We would define the error rate 
threshold for triggering a payment adjustment as 2 or 3 standard 
deviations from a benchmark negative error rate. For exited issuers 
that have error rates above the established threshold, we would make a 
retroactive adjustment to their final benefit year payment transfer in 
the same manner as outlined above. While this alternative approach may 
provide returning issuers in the State and market with more certainty 
about their risk adjustment transfers for a given benefit year, it does 
not offer as much protection against gaming as the proposed policy, and 
could result in exited issuers that do not have egregiously high error 
rates being overpaid relative to the risk of their enrollee 
populations.
    We considered maintaining the current applicability of rate review, 
and continuing to review student health insurance coverage rate 
increases. However, the proposed rule would provide States with greater 
flexibility to meet the needs of their markets and reduce the burden 
associated with review of plans that are not part of the

[[Page 51134]]

single risk pool. As a practical matter, student health insurance 
coverage has generally been given the same plan design flexibility as 
plans in the large group market. Just like purchasers of large group 
plans, purchasers in the student market are viewed as more 
sophisticated, with greater leverage and ability to avoid the 
imposition of unreasonable rate increases. Single risk pool pricing, 
the primary focus of the rate review program, does not apply to student 
health insurance coverage.
    We considered maintaining the current 30-day notice requirement for 
States to notify HHS prior to posting proposed and final rate 
increases. However, such advanced notice may be impractical in some 
States so we have decreased the notice requirement to 5 business days.
    In adding standards for Sec.  155.221, HHS considered making no 
changes to the existing rule and retaining the existing standard for 
agents and brokers to contract with a third-party entity approved by 
HHS for conducting audits under the section. We believe, however, that 
changes to this section are necessary to include issuers and to provide 
the necessary flexibility in oversight that both protects consumers and 
encourages enrollment pathway innovation for agents, brokers, and 
issuers using direct enrollment.
    For the proposed amendments to Sec.  155.320, we considered 
developing a comprehensive database using information from employers on 
the plans they offer to their employees and their family members that 
could satisfy verification requirements under paragraph (d)(2) for all 
Exchanges. This approach would be resource-intensive for Exchanges, and 
would produce a database with limited utility due to data limitations. 
Developing a database; recruiting and educating employers to 
participate in voluntarily submitting the data; and providing technical 
assistance to employers for the first year of implementation on how to 
input the data is estimated to cost at least $38 million. Building such 
a database would also rely on the voluntary participation of 
substantially all employers. This participation would be onerous for 
employers. Employers would need to provide individual employee level 
data regarding plans the employer will offer, information that may not 
be available in time to populate a comprehensive database prior to the 
Exchange's plan year. In addition, since the PPACA does not require 
employers to provide to the Exchange the relevant information on what 
coverage they offer, Exchanges and HHS would not receive data from all 
employers. After weighing our options, we decided that this approach 
would be overly costly and burdensome, and of limited value due to gaps 
in the data Exchanges and HHS would be able to collect. We also 
considered removing the requirement to connect to an HHS-approved data 
source, and the requirement to use an alternative method if the 
Exchange does not connect to the required data sources, but were 
concerned about the potential impact on program integrity.
    In developing the proposal related to the SHOP enrollment process, 
we considered maintaining the status quo, but believe that the increase 
in flexibility, cost savings and reduction in burden resulting from the 
proposed enrollment approach, would have a positive impact on small 
businesses across the country and provide States with needed 
flexibility.
    In developing the proposal for the new EHB-benchmark plan selection 
options described at Sec.  156.111, we considered a variety of 
alternatives, including maintaining the current EHB-benchmark policy 
without modification. Although maintaining the current policy would 
promote stability by preserving the current EHB-benchmarks across all 
States, we do not believe it would offer the additional flexibility 
that States have requested in selecting an EHB-benchmark plan to best 
meet the needs of their consumer population. We also considered whether 
it was feasible to offer States increased flexibility by allowing them 
to set a range of acceptable EHB within their State, such that issuers 
could offer plans within that range with more limited EHB coverage or 
more robust EHB coverage. However, we determined that this option did 
not meet statutory requirements. To balance stability, flexibility, and 
statutory requirements, we instead propose to offer States the expanded 
EHB-benchmark plan selection options at Sec.  156.111 as well as the 
option to default to the State's current EHB-benchmark plan. We believe 
this approach would provide States with the opportunity to take 
advantage of greater flexibility in selecting an EHB-benchmark plan 
while also providing those States that value stability with the option 
to retain their current benchmark plan. We solicit comments on proposed 
options at Sec.  156.111.
    With respect to the provision regarding removing the AV requirement 
for SADPs, we considered making no change or proposing an expansion to 
the de minimis range to mirror the expanded de minimis range for QHPs 
(-4/+2 percentage points) or of +/-3 percentage points. We determined 
that these alternatives were less desirable because they do not provide 
issuers with as much flexibility to offer a range of SADPs as the 
proposed removal of the AV standards for SADPs.
    For the QHP certification standard regarding meaningful difference, 
we considered maintaining the requirement on issuers, but we believe 
that removing this provision would promote the offering of a variety of 
affordable QHPs that will meet consumers' needs, would provide issuers 
with more flexibility, and would remove an unnecessary regulatory 
requirement.
    We considered maintaining the current policy requiring all CHIP 
buy-in programs that wish to be recognized as minimum essential 
coverage, to comply with the requirements for recognition as MEC 
outlined in Sec.  156.604. However, this proposed rule would help 
reduce burden on plan sponsors of such programs, while ensuring the 
enrollees have a basic standard of coverage that satisfies the 
individual shared responsibility provision. In the preamble to Sec.  
156.602, we solicit comments on whether CHIP buy-in programs that are 
not identical to the State's CHIP program but provide similar or 
greater coverage for enrollees should also be designated as MEC or 
whether such programs must submit an application so that HHS can 
evaluate any differences with the title XXI program to ensure that the 
program substantially resembles the title XXI program.
    For the proposed amendments to Sec.  158.221(b), we considered 
retaining the current quality improvement activity reporting 
requirements, since giving issuers the option to report a standardized 
rate for QIA expenditures may inhibit HHS from being able to analyze 
trends in issuers' investment in improving the quality of healthcare in 
the future, and reduce rebates to consumers by allowing issuers to 
effectively increase their MLRs by 0.8 percent even if those issuers 
engaged in and spent only trivial amounts on QIA. However, this change 
would also potentially level the playing field among issuers to a 
certain extent and lead to more accurate rebate payments, since many 
issuers likely do engage in QIA but forego reporting that spending 
because the burden of analyzing, documenting, tracking, allocating, and 
reporting QIA expenses exceeds the benefits for MLR purposes. Because 
the proposed approach of giving issuers the option to report a minimal, 
standardized rate would reduce unwarranted regulatory and economic 
burdens for issuers that do not want to track and report the exact QIA 
amounts for their MLR calculation, we believe that the

[[Page 51135]]

proposed approach would be more effective and objective than the 
current requirements.
    For the proposed amendments to part 158, subpart C, we considered 
retaining the current requirements for States to request an adjustment 
to the 80 percent MLR standard in the individual market in a State. 
However, HHS recognizes that many of the current State application 
requirements are burdensome and less relevant in the post-2014 reformed 
environment, and may preclude or discourage States from proposing 
innovative solutions to help stabilize their individual markets. 
Therefore, we believe this proposal would reduce regulatory burdens on 
States, and provide States with an additional tool to promote stability 
in their markets.

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act, (5 U.S.C. 601, et seq.), requires 
agencies to prepare an initial regulatory flexibility analysis to 
describe the impact of the proposed rule on small entities, unless the 
head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA), 
(2) a not-for-profit organization that is not dominant in its field, or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are not included in the definition of 
``small entity.'' HHS uses a change in revenues of more than 3 to 5 
percent as its measure of significant economic impact on a substantial 
number of small entities. In this proposed rule, we propose standards 
for the risk adjustment and risk adjustment data validation programs, 
which are intended to stabilize premiums as insurance market reforms 
are implemented and Exchanges facilitate increased enrollment. Because 
we believe that insurance firms offering comprehensive health insurance 
policies generally exceed the size thresholds for ``small entities'' 
established by the SBA, we do not believe that an initial regulatory 
flexibility analysis is required for such firms.
    For purposes of the RFA, we expect the following types of entities 
to be affected by this proposed rule:
    <bullet> Health insurance issuers.
    <bullet> Group health plans.
    We believe that health insurance issuers and group health plans 
would be classified under the North American Industry Classification 
System code 524114 (Direct Health and Medical Insurance Carriers). 
According to SBA size standards, entities with average annual receipts 
of $38.5 million or less would be considered small entities for these 
North American Industry Classification System codes. Issuers could 
possibly be classified in 621491 (HMO Medical Centers) and, if this is 
the case, the SBA size standard would be $32.5 million or less.\82\ We 
believe that few, if any, insurance companies underwriting 
comprehensive health insurance policies (in contrast, for example, to 
travel insurance policies or dental discount policies) fall below these 
size thresholds.
---------------------------------------------------------------------------

    \82\ ``Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes'', effective February 
26, 2016, U.S. Small Business Administration, available at https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-smallbusiness-size-standards.
---------------------------------------------------------------------------

    In this proposed rule, we proposed to allow enrollment through a 
SHOP-registered agent or broker, or through a participating QHP issuer. 
The SHOPs are generally limited by statute to employers with at least 
one but not more than 50 employees, unless a State opts to provide that 
employers with from 1 to 100 employees are ``small employers.'' For 
this reason, we expect that many employers who would be affected by the 
proposals would meet the SBA standard for small entities. We do not 
believe that the proposals impose requirements on employers offering 
health insurance through a SHOP that are more restrictive than the 
current requirements on small businesses offering employer sponsored 
insurance. We believe the processes that we have established constitute 
the minimum amount of requirements necessary to implement the SHOP 
program and accomplish our policy goals, and that no appropriate 
regulatory alternatives could be developed to further lessen the 
compliance burden.
    Based on data from MLR annual report submissions for the 2015 MLR 
reporting year, approximately 92 out of over 530 issuers of health 
insurance coverage nationwide had total premium revenue of $38.5 
million or less. This estimate may overstate the actual number of small 
health insurance companies that may be affected, since almost 50 
percent of these small companies belong to larger holding groups, and 
many if not all of these small companies are likely to have non-health 
lines of business that would result in their revenues exceeding $38.5 
million. We estimate that 57 of these 92 potentially small entities 
would experience a decrease in the rebate amount owed to consumers 
under the proposed amendments to the quality improvement activity 
reporting provisions in part 158, and 27 of these 57 entities are part 
of larger holding groups. In addition, we estimate that no small 
entities would be impacted by the proposed amendments to 45 CFR part 
158, subpart C. Therefore, we believe that the provisions of this 
proposed rule regarding MLR would not affect a substantial number of 
small entities, and further, the impact of the proposed QIA provisions 
on small entities would be positive.

F. Unfunded Mandates

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a proposed rule that includes any 
Federal mandate that may result in expenditures in any 1 year by a 
State, local, or Tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. Currently, that threshold is approximately $148 million. 
Although we have not been able to quantify all costs, we expect the 
combined impact on State, local, or Tribal governments and the private 
sector to be below the threshold.

G. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule that imposes 
substantial direct costs on State and local governments, preempts State 
law, or otherwise has Federalism implications.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have Federalism 
implications or limit the policy making discretion of the States, HHS 
has engaged in efforts to consult with and work cooperatively with 
affected States, including participating in conference calls with and 
attending conferences of the National Association of Insurance 
Commissioners, and consulting with State insurance officials on an 
individual basis.
    While developing this rule, HHS attempted to balance the States' 
interests in regulating health insurance issuers with the need to 
ensure market stability. By doing so, it is HHS's view that we have 
complied with the requirements of Executive Order 13132.
    Because States have flexibility in designing their Exchange and 
Exchange-related programs, State decisions will ultimately influence 
both administrative

[[Page 51136]]

expenses and overall premiums. States are not required to establish an 
Exchange or risk adjustment program. For States that elected previously 
to operate an Exchange, or risk adjustment program, much of the initial 
cost of creating these programs was funded by Exchange Planning and 
Establishment Grants. After establishment, Exchanges must be 
financially self-sustaining, with revenue sources at the discretion of 
the State. Current State Exchanges charge user fees to issuers.
    In HHS's view, while this proposed rule would not impose 
substantial direct requirement costs on State and local governments, 
this regulation has Federalism implications due to direct effects on 
the distribution of power and responsibilities among the State and 
Federal governments relating to determining standards relating to 
health insurance that is offered in the individual and small group 
markets. For example, we propose to provide States with substantially 
more flexibility in selecting an EHB-benchmark plan, to explore ways to 
make it easier for States to establish and maintain a State Exchange, 
to expand the role of States in QHP certification in FFEs, to provide 
States with substantially more flexibility in how they operate a SHOP, 
to provide States with the option to request an adjustment in the risk 
adjustment program for their small group market; and to make it easier 
for States to apply for and be granted an adjustment to the MLR 
standard in their State. This rule also proposes to return flexibility 
to States in their review of rate increases. We propose to give States 
the choice to review rate increases for student health insurance 
coverage. We propose to eliminate the requirement that proposed and 
final rate increases must be posted uniformly, instead allowing States 
with an Effective Rate Review program to publish proposed and final 
rate increases on a rolling basis if they so choose. We also propose to 
reduce the advance notification that States must give HHS about the 
posting of rate increases from 30 days to 5 business days. Finally, we 
propose that States would no longer be required to seek approval if the 
State-specific threshold for reasonableness review is lower than the 
Federal default rate review threshold.

H. Congressional Review Act

    This proposed rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801, et seq.), which specifies that before a rule can 
take effect, the Federal agency promulgating the rule shall submit to 
each House of the Congress and to the Comptroller General a report 
containing a copy of the rule along with other specified information, 
and has been transmitted to Congress and the Comptroller for review.

I. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017. Section 2(a) of 
Executive Order 13771 requires an agency, unless prohibited by law, to 
identify at least two existing regulations to be repealed when the 
agency publicly proposes for notice and comment, or otherwise 
promulgates, a new regulation. In furtherance of this requirement, 
section 2(c) of Executive Order 13771 requires that the new incremental 
costs associated with new regulations shall, to the extent permitted by 
law, be offset by the elimination of existing costs associated with at 
least two prior regulations. This proposed rule, if finalized as 
proposed, is expected to be an EO 13771 deregulatory action.

List of Subjects

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 153

    Administrative practice and procedure, Health care, Health 
insurance, Health records, Intergovernmental relations, Organization 
and functions (government agencies), Reporting and recordkeeping 
requirements.

45 CFR Part 154

    Administrative practice and procedure, Claims, Health care, Health 
insurance, Penalties, Reporting and recordkeeping requirements.

45 CFR Part 155

    Administrative practice and procedure, Advertising, Brokers, 
Conflict of interests, Consumer protection, Grants administration, 
Grant programs--health, Health care, Health insurance, Health 
maintenance organizations (HMO), Health records, Hospitals, Indians, 
Individuals with disabilities, Intergovernmental relations, Loan 
programs--health, Medicaid, Organization and functions (government 
agencies), Public assistance programs, Reporting and recordkeeping 
requirements, Technical assistance, Women and youth.

45 CFR Part 156

    Administrative practice and procedure, Advertising, Advisory 
committees, Conflict of interests, Consumer protection, Grant 
programs--health, Grants administration, Health care, Health insurance, 
Health maintenance organization (HMO), Health records, Hospitals, 
Indians, Individuals with disabilities, Loan programs--health, 
Medicaid, Organization and functions (government agencies), Public 
assistance programs, Reporting and recordkeeping requirements, State 
and local governments, Sunshine Act, Technical assistance, Women, 
Youth.

45 CFR Part 157

    Employee benefit plans, Health insurance, Health maintenance 
organizations (HMO), Health records, Hospitals, Indians, Individuals 
with disabilities, Medicaid, Organization and functions (government 
agencies), Public assistance programs, Reporting and recordkeeping 
requirements, Technical assistance, Women and youth.

45 CFR Part 158

    Administrative practice and procedure, Claims, Health care, Health 
insurance, Penalties, Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR parts 147, 153, 154, 155, 
156, 157 and 158 as set forth below.

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
1. The authority citation for part 147 continues to read as follows:

    Authority:  Secs. 2701 through 2763, 2791, and 2792 of the 
Public Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-
91, and 300gg-92), as amended.

0
2. Section 147.102 is amended by revising paragraph (c)(3)(iii)((D) to 
read as follows:


Sec.  147.102  Fair health insurance premiums.

* * * * *
    (c) * * *
    (3) * * *
    (iii) * * *
    (D) To the extent permitted by applicable state law and, in the 
case of coverage offered through a SHOP, as permitted by the SHOP, 
apply this paragraph (c)(3)(iii) uniformly among group health plans 
enrolling in that product, giving those group health plans

[[Page 51137]]

the option to pay premiums based on average enrollee premium amounts.
* * * * *
0
3. Section 147.104 is amended by--
0
a. Revising paragraphs (b)(1)(i)(B), (b)(1)(i)(C) and (b)(1)(ii);
0
b. Removing paragraph (b)(1)(iii); and
0
c. Revising paragraphs (b)(2)(i) introductory text and (ii).
    The revisions read as follows:


Sec.  147.104  Guaranteed availability of coverage

* * * * *
    (b) * * *
    (1) * * *
    (i) * * *
    (B) In the case of a group health plan in the small group market 
that cannot comply with employer contribution or group participation 
rules for the offering of health insurance coverage, as allowed under 
applicable State law, and in the case of a QHP offered in the SHOP, as 
permitted by Sec.  156.285(e) or Sec.  156.286(e) of this subchapter, a 
health insurance issuer may restrict the availability of coverage to an 
annual enrollment period that begins November 15 and extends through 
December 15 of each calendar year.
    (C) With respect to coverage in the small group market, and in the 
large group market if such coverage is offered through a SHOP in a 
State, for a plan selection received on the first through the fifteenth 
day of any month, the coverage effective date must be the first day of 
the following month. For a plan selection received on the 16th through 
last day of any month, the coverage effective date must be the first 
day of the second following month. In either such case, a small 
employer may instead opt for a later effective date within a quarter 
for which small group market rates are available.
    (ii) Individual market. A health insurance issuer in the individual 
market must allow an individual to purchase health insurance coverage 
during the initial and annual open enrollment periods described in 
Sec.  155.410(b) and (e) of this subchapter. Coverage must become 
effective consistent with the dates described in Sec.  155.410(c) and 
(f) of this subchapter.
    (2) * * *
    (i) A health insurance issuer in the individual market must provide 
a limited open enrollment period for the triggering events described in 
Sec.  155.420(d) of this subchapter, excluding, with respect to 
coverage offered outside of an Exchange, the following:
* * * * *
    (ii) In applying this paragraph (b)(2), a reference in Sec.  
155.420 (other than in Sec.  155.420(a)(5)) of this subchapter to a 
``QHP'' is deemed to refer to a plan, a reference to ``the Exchange'' 
is deemed to refer to the applicable State authority, and a reference 
to a ``qualified individual'' is deemed to refer to an individual in 
the individual market.
* * * * *

PART 153--STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND 
RISK ADJUSTMENT UNDER THE AFFORDABLE CARE ACT

0
4. The authority citation for part 153 continues to read as follows:

    Authority: Secs. 1311, 1321, 1341-1343, Pub. L. 111-148, 24 
Stat. 119.

0
5. Section 153.630 is amended by revising paragraphs (b)(6), (8), and 
(9) to read as follows:


Sec.  153.630  Data validation requirements when HHS operates risk 
adjustment.

* * * * *
    (b) * * *
    (6) An issuer must provide the initial validation auditor and the 
second validation auditor with all relevant source enrollment 
documentation, all claims and encounter data, and medical record 
documentation from providers of services to each enrollee in the 
applicable sample without unreasonable delay and in a manner that 
reasonably assures confidentiality and security in transmission. 
Notwithstanding any other provision of this section, a qualified 
provider that is licensed to diagnose mental illness by the State and 
that is prohibited from furnishing a complete medical record by 
applicable Federal or State privacy laws concerning any enrollee's 
treatment for one or more mental or behavioral health conditions may 
furnish a signed mental or behavioral health assessment that, to the 
extent permissible under such laws, should contain: the enrollee's 
name; gender; date of birth; current status of all mental or behavioral 
health diagnoses; and dates of service. The mental or behavioral health 
assessment should be signed by the provider and submitted with an 
attestation that the provider is prohibited from furnishing a complete 
medical record by applicable State or Federal privacy laws.
* * * * *
    (8) The initial validation auditor must measure and report to the 
issuer and HHS, in a manner and timeframe specified by HHS, its inter-
rater reliability rates among its reviewers. The initial validation 
auditor must achieve a consistency measure of at least 95 percent for 
his or her review outcomes, except that for validation of risk 
adjustment data for the 2015 and 2016 benefit years, the initial 
validation auditor may meet an inter-rater reliability standard of 85 
percent for review outcomes.
    (9) HHS may impose civil money penalties in accordance with the 
procedures set forth in Sec.  156.805(b) through (e) of this subchapter 
if an issuer of a risk adjustment covered plan--
    (i) Fails to engage an initial validation auditor;
    (ii) Fails to submit the results of an initial validation audit to 
HHS;
    (iii) Engages in misconduct or substantial non-compliance with the 
risk adjustment data validation standards and requirements applicable 
to issuers of risk adjustment covered plans; or
    (iv) Intentionally or recklessly misrepresents or falsifies 
information that it furnishes to HHS.
* * * * *

PART 154--HEALTH INSURANCE ISSUER RATE INCREASES: DISCLOSURE AND 
REVIEW REQUIREMENTS

0
6. The authority citation for part 154 continues to read as follows:

    Authority: Section 2794 of the Public Health Service Act (42 
U.S.C. 300gg-94).

0
7. Section 154.103 is amended by revising paragraph (b) to read as 
follows:


Sec.  154.103  Applicability.

* * * * *
    (b) Exceptions. The requirements of this part do not apply to--
    (1) Grandfathered health plan coverage as defined in Sec.  147.140 
of this subchapter;
    (2) Excepted benefits as described in section 2791(c) of the PHS 
Act; and
    (3) For plan years beginning on or after January 1, 2019, student 
health insurance coverage as defined in Sec.  147.145 of this 
subchapter.
0
8. Revise Sec.  154.200 to read as follows:


Sec.  154.200  Rate increases subject to review.

    (a) A rate increase filed in a State, or effective in a State that 
does not require a rate increase to be filed, is subject to review if:
    (1) The rate increase is 15 percent or more applicable to a 12-
month period that begins on January 1, as calculated under paragraph 
(b) of this section; or
    (2) The rate increase meets or exceeds a State-specific threshold 
applicable to a 12-month period that begins on January 1, as calculated 
under paragraph (b) of this section, determined by the Secretary. A 
State-specific threshold shall be based on factors

[[Page 51138]]

impacting rate increases in a State to the extent that the data 
relating to such State-specific factors are available by August 1 of 
the preceding year. States interested in proposing a State-specific 
threshold greater than the Federal default stated in paragraph (a)(1) 
of this section are required to submit a proposal for approval of such 
threshold to the Secretary by August 1 of the preceding year.
    (b) A rate increase meets or exceeds the applicable threshold set 
forth in paragraph (a) of this section if the average increase, 
including premium rating factors described in Sec.  147.102 of this 
subchapter, for all enrollees weighted by premium volume for any plan 
within the product meets or exceeds the applicable threshold.
    (c) If a rate increase that does not otherwise meet or exceed the 
threshold under paragraph (b) of this section meets or exceeds the 
threshold when combined with a previous increase or increases during 
the 12-month period preceding the date on which the rate increase would 
become effective, then the rate increase must be considered to meet or 
exceed the threshold and is subject to review under Sec.  154.210, and 
such review shall include a review of the aggregate rate increases 
during the applicable 12-month period.
0
9. Section 154.215 is amended by revising paragraph (h)(2) to read as 
follows:


Sec.  154.215  Submission of rate filing justification.

* * * * *
    (h) * * *
    (2) CMS will make available to the public on its Web site the 
information contained in Parts I and III of each Rate Filing 
Justification that is not a trade secret or confidential commercial or 
financial information as defined in HHS's Freedom of Information Act 
regulations, 45 CFR 5.31(d).
* * * * *
0
10. Section 154.301 is amended by revising paragraph (b)(2), and 
removing paragraph (b)(3) to read as follows:


Sec.  154.301   CMS's determinations of Effective Rate Review Programs.

* * * * *
    (b) * * *
    (2) If a State intends to make the information in paragraph 
(b)(1)(i) of this section available to the public prior to the date 
specified by the Secretary, or if it intends to make the information in 
paragraph (b)(1)(ii) of this section available to the public prior to 
the first day of the annual open enrollment period in the individual 
market for the applicable calendar year, the State must notify CMS in 
writing, no later than five (5) business days prior to the date it 
intends to make the information public, of its intent to do so and the 
date it intends to make the information public.
* * * * *

PART 155--EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED 
STANDARDS UNDER THE AFFORDABLE CARE ACT

0
11. The authority citation for part 155 continues to read as follows:

    Authority: Title I of the Affordable Care Act, sections 1301, 
1302, 1303, 1304, 1311, 1312, 1313, 1321, 1322, 1331, 1332, 1334, 
1402, 1411, 1412, 1413, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 
18021-18024, 18031-18033, 18041-18042, 18051, 18054, 18071, and 
18081-18083).

0
12. Section 155.106 is amended by revising paragraph (c) introductory 
text to read as follows:


Sec.  155.106  Election to operate an Exchange after 2014.

* * * * *
    (c) Process for State Exchanges that seek to utilize the Federal 
platform for select functions. States may seek approval to operate a 
State Exchange utilizing the Federal platform for only the individual 
market. A State seeking approval to operate a State Exchange utilizing 
the Federal platform for the individual market to support select 
functions through a Federal platform agreement under Sec.  155.200(f) 
must:
* * * * *
0
13. Section 155.200 is amended by removing and reserving paragraphs 
(f)(2)(ii) through (iv); and revising paragraph (f)(4) introductory 
text to read as follows;


Sec.  155.200  Functions of an Exchange.

* * * * *
    (f) * * *
    (2) * * *
    (ii) [Reserved]
    (iii) [Reserved]
    (iv) [Reserved]
* * * * *
    (4) A State Exchange on the Federal platform that utilizes the 
Federal platform for SHOP functions, for plan years beginning on or 
after January 1, 2018, must require its QHP issuers to make any changes 
to rates in accordance with the timeline applicable in a Federally-
facilitated SHOP under Sec.  155.706(b)(6)(i)(A). A State Exchange on 
the Federal platform that utilizes the Federal platform for SHOP 
functions, as set forth in paragraphs (f)(4)(i) through (vii) of this 
section, for plan years beginning prior to January 1, 2018, must--
* * * * *
0
14. Section 155.210 is amended by revising paragraphs (c)(2) 
introductory text and (e)(7) to read as follows:


Sec.  155.210  Navigator program standards.

* * * * *
    (c) * * *
    (2) The Exchange must include an entity from at least one of the 
following categories for receipt of a Navigator grant:
* * * * *
    (e) * * *
    (7) In a Federally-facilitated Exchange, no individual or entity 
shall be ineligible to operate as a Navigator solely because its 
principal place of business is outside of the Exchange service area;
* * * * *
0
15. Section 155.215 is amended by revising paragraph (h) to read as 
follows:


Sec.  155.215  Standards applicable to Navigators and Non-Navigator 
Assistance Personnel carrying out consumer assistance functions under 
Sec. Sec.  155.205(d) and (e) and 155.210 in a Federally-facilitated 
Exchange and to Non-Navigator Assistance Personnel funded through an 
Exchange Establishment Grant.

* * * * *
    (h) In a Federally-facilitated Exchange, no individual or entity 
shall be ineligible to operate as a non-Navigator entity or as non-
Navigator assistance personnel solely because its principal place of 
business is outside of the Exchange service area.
* * * * *
0
16. Section 155.221 is revised to read as follows:


Sec.  155.221  Standards for third-parties to perform audits of agents, 
brokers, and issuers participating in direct enrollment.

    (a) An agent, broker, or issuer participating in direct enrollment 
must engage a third-party entity to conduct an annual review to 
demonstrate operational readiness in accordance with Sec.  
155.220(c)(3)(i)(K) and with Sec.  156.1230(b)(2) of this subchapter. 
The third-party entity will be a downstream or delegated entity of the 
agent, broker or issuer that participates or wishes to participate in 
direct enrollment.
    (b) An agent, broker, or issuer participating in direct enrollment 
must satisfy the requirement to demonstrate operational readiness under 
paragraph (a) of this section by engaging a third-party entity that 
meets each of the following standards:
    (1) Has experience conducting audits or similar services, including 
experience

[[Page 51139]]

with relevant privacy and security standards;
    (2) Adheres to HHS specifications for content, format, privacy, and 
security in the conduct of an operational readiness review, which 
includes ensuring that agents, brokers, and issuers are in compliance 
with the applicable privacy and security standards and other applicable 
requirements;
    (3) Collects, stores, and shares with HHS all data related to the 
third-party entity's audit of agents, brokers, and issuers in a manner, 
format, and frequency specified by HHS until 10 years from the date of 
creation, and complies with the privacy and security standards HHS 
adopts for agents, brokers, and issuers as required in accordance with 
Sec.  155.260;
    (4) Discloses to HHS any financial relationships between the entity 
and individuals who own or are employed by an agent, broker, or issuer 
for which it is conducting an operational readiness review.
    (5) Complies with all applicable Federal and State requirements;
    (6) Ensures, on an annual basis, that appropriate staff 
successfully complete operational readiness review training as 
established by HHS prior to conducting audits under paragraph (a) of 
this section;
    (7) Permits access by the Secretary and the Office of the Inspector 
General (OIG) or their designees in connection with their right to 
evaluate through audit, inspection, or other means, to the third-party 
entity's books, contracts, computers, or other electronic systems, 
relating to the third-party entity's audits of agent's, broker's, or 
issuer's obligations in accordance with Federal standards under 
paragraph (a) of this section until 10 years from the date of creation; 
and
    (8) Complies with other minimum business criteria as specified in 
guidance by HHS.
    (c) An agent, broker or issuer may engage multiple third-party 
entities to conduct the audit under paragraph (a) of this section and 
each third-party entity must satisfy the standards outlined under 
paragraph (b) of this section.
0
17. Section 155.305 is amended by revising paragraph (f)(4) to read as 
follows:


Sec.  155.305  Eligibility standards.

* * * * *
    (f) * * *
    (4) Compliance with filing requirement. The Exchange may not 
determine a tax filer eligible for APTC if HHS notifies the Exchange as 
part of the process described in Sec.  155.320(c)(3) that APTC were 
made on behalf of the tax filer or either spouse if the tax filer is a 
married couple for a year for which tax data would be utilized for 
verification of household income and family size in accordance with 
Sec.  155.320(c)(1)(i), and the tax filer or his or her spouse did not 
comply with the requirement to file an income tax return for that year 
as required by 26 U.S.C. 6011, 6012, and implementing regulations and 
reconcile the advance payments of the premium tax credit for that 
period.
* * * * *
0
18. Section 155.320 is amended by--
0
a. Revising paragraphs (c)(3)(iii) introductory text, and paragraph 
(c)(3)(iii)(A);
0
b. Adding paragraphs (c)(3)(iii)(D) through (F);
0
c. Revising paragraph (c)(3)(vi)(C), (D), (F) and (G); and
0
d. Revising paragraph (d)(4) introductory text.
    The revisions and additions read as follows:


Sec.  155.320  Verification process related to eligibility for 
insurance affordability programs.

* * * * *
    (c) * * *
    (3) * * *
    (iii) Verification process for changes in household income. (A) 
Except as specified in paragraph (c)(3)(iii)(B), (C), and (D) of this 
section, if an applicant's attestation, in accordance with paragraph 
(c)(3)(ii)(B) of this section, indicates that a tax filer's annual 
household income has increased or is reasonably expected to increase 
from the data described in paragraph (c)(3)(ii)(A) of this section for 
the benefit year for which the applicant(s) in the tax filer's family 
are requesting coverage and the Exchange has not verified the 
applicant's MAGI-based income through the process specified in 
paragraph (c)(2)(ii) of this section to be within the applicable 
Medicaid or CHIP MAGI-based income standard, the Exchange must accept 
the applicant's attestation regarding a tax filer's annual household 
income without further verification.
* * * * *
    (D) If an applicant's attestation to projected annual household 
income, as described in paragraph (c)(3)(ii)(B) of this section, is 
greater than or equal to 100 percent but not more than 400 percent of 
the FPL for the benefit year for which coverage is requested and is 
more than a reasonable threshold above the annual household income 
computed in accordance with paragraph (c)(3)(ii)(A) of this section, 
the data described in paragraph (c)(3)(ii)(A) of this section indicates 
that projected annual household income is under 100 percent FPL, and 
the Exchange has not verified the applicant's MAGI-based income through 
the process specified in paragraph (c)(2)(ii) of this section to be 
within the applicable Medicaid or CHIP MAGI-based income standard, the 
Exchange must proceed in accordance with Sec.  155.315(f)(1) through 
(4). For the purposes of this paragraph, a reasonable threshold is 
established by the Exchange in guidance and approved by HHS, but must 
not be less than 10 percent, and can also include a threshold dollar 
amount. Applicants that would otherwise be eligible for APTC based on 
Sec.  155.305(f)(2) are not subject to the verification described in 
this paragraph.
    (E) If, at the conclusion of the period specified in Sec.  
155.315(f)(2)(ii), the Exchange remains unable to verify the 
applicant's attestation, the Exchange must determine the applicant's 
eligibility based on the information described in paragraph 
(c)(3)(ii)(A) of this section, notify the applicant of such 
determination in accordance with the notice requirements specified in 
Sec.  155.310(g), and implement such determination in accordance with 
the effective dates specified in Sec.  155.330(f).
    (F) If, at the conclusion of the period specified in Sec.  
155.315(f)(2)(ii), the Exchange remains unable to verify the 
applicant's attestation and the information described in paragraph 
(c)(3)(ii)(A) of this section is unavailable, the Exchange must 
determine the tax filer ineligible for advance payments of the premium 
tax credit and cost-sharing reductions, notify the applicant of such 
determination in accordance with the notice requirements specified in 
Sec.  155.310(g), and discontinue any advance payments of the premium 
tax credit and cost-sharing reductions in accordance with the effective 
dates specified in Sec.  155.330(f).
* * * * *
    (vi) * * *
    (C) Increases in annual household income. If an applicant's 
attestation, in accordance with paragraph (c)(3)(ii)(B) of this 
section, indicates that a tax filer's annual household income has 
increased or is reasonably expected to increase from the data described 
in paragraph (c)(3)(vi)(A) of this section to the benefit year for 
which the applicant(s) in the tax filer's family are requesting 
coverage and the Exchange has not verified the applicant's MAGI-based 
income through the process specified in paragraph (c)(2)(ii) of this 
section to be within the applicable Medicaid or CHIP MAGI-based income 
standard, the Exchange must accept the applicant's attestation

[[Page 51140]]

for the tax filer's family without further verification, unless:
    (1) The Exchange finds that an applicant's attestation of a tax 
filer's annual household income is not reasonably compatible with other 
information provided by the application filer, or
    (2) The data described in paragraph (c)(3)(vi)(A) of this section 
indicates that projected annual household income is under 100 percent 
FPL and the applicant's attestation to projected household income, as 
described in paragraph (c)(3)(ii)(B) of this section, is greater than 
or equal to 100 percent but not more than 400 percent of the FPL for 
the benefit year for which coverage is requested and is more than a 
reasonable threshold above the annual household income as computed 
using data sources described in paragraph (c)(3)(vi)(A) of this 
section, in which case the Exchange must follow the procedures 
specified in Sec.  155.315(f)(1) through (4). The reasonable threshold 
used under this paragraph must be equal to the reasonable threshold 
established in accordance with paragraph (c)(3)(iii)(D) of this 
section.
    (D) Decreases in annual household income and situations in which 
electronic data is unavailable. If electronic data are unavailable or 
an applicant's attestation to projected annual household income, as 
described in paragraph (c)(3)(ii)(B) of this section, is more than a 
reasonable threshold below the annual household income as computed 
using data sources described in paragraphs (c)(3)(vi)(A) of this 
section, the Exchange must follow the procedures specified in Sec.  
155.315(f)(1) through (4). The reasonable threshold used under this 
paragraph must be equal to the reasonable threshold established in 
accordance with paragraph (c)(3)(vi) of this section.
* * * * *
    (F) If, at the conclusion of the period specified in Sec.  
155.315(f)(2)(ii), the Exchange remains unable to verify the 
applicant's attestation, the Exchange must determine the applicant's 
eligibility based on the information described in paragraph 
(c)(3)(ii)(A) of this section, notify the applicant of such 
determination in accordance with the notice requirements specified in 
Sec.  155.310(g), and implement such determination in accordance with 
the effective dates specified in Sec.  155.330(f).
    (G) If, at the conclusion of the period specified in Sec.  
155.315(f)(2)(ii), the Exchange remains unable to verify the 
applicant's attestation for the tax filer and the information described 
in paragraph (c)(3)(ii)(A) of this section is unavailable, the Exchange 
must determine the tax filer ineligible for advance payments of the 
premium tax credit and cost-sharing reductions, notify the applicant of 
such determination in accordance with the notice requirement specified 
in Sec.  155.310(g), and discontinue any advance payments of the 
premium tax credit and cost-sharing reductions in accordance with the 
effective dates specified in Sec.  155.330(f).
* * * * *
    (d) * * *
    (4) Alternate procedures. For any benefit year for which it does 
not reasonably expect to obtain sufficient verification data as 
described in paragraphs (d)(2)(i) through (iii) of this section, the 
Exchange must follow the procedures specified in paragraph (d)(4)(i) of 
this section or, for benefit years 2016 through 2019, the Exchange may 
follow the procedures specified in paragraph (d)(4)(ii) of this 
section. For purposes of this paragraph (d)(4), the Exchange reasonably 
expects to obtain sufficient verification data for any benefit year 
when, for the benefit year, the Exchange is able to obtain data about 
enrollment in and eligibility for qualifying coverage in an eligible 
employer-sponsored plan from at least one electronic data source that 
is available to the Exchange and that has been approved by HHS, based 
on evidence showing that the data source is sufficiently current, 
accurate, and minimizes administrative burden, as described under 
paragraph (d)(2)(i) of this section.
* * * * *
0
19. Section 155.420 is amended by:
0
a. Revising paragraphs (a)(4)(iii), (a)(5) and (b)(2)(i);
0
b. Removing paragraph (b)(2)(v);
0
c. Redesignating paragraph (b)(2)(vi) as paragraph (b)(2)(v);
0
d. Revising paragraph (d)(1)(iii); and
0
e. Revising paragraph (d)(10)(i).
    The revisions read as follows:


Sec.  155.420  Special enrollment periods.

    (a) * * *
    (4) * * *
    (iii) For the other triggering events specified in paragraph (d) of 
this section, except for paragraphs (d)(2)(i), (d)(4), (d)(6)(i) and 
(ii) for becoming newly eligible for CSRs, (d)(8), (d)(9), (d)(10) and 
(d)(12) of this section:
    (A) If an enrollee qualifies for a special enrollment period, the 
Exchange must allow the enrollee and his or her dependents to change to 
another QHP within the same level of coverage (or one metal level 
higher or lower, if no such QHP is available), as outlined in Sec.  
156.140(b) of this subchapter; or
    (B) If a dependent qualifies for a special enrollment period, and 
an enrollee is adding the dependent to his or her QHP, the Exchange 
must allow the enrollee to add the dependent to his or her current QHP; 
or, if the QHP's business rules do not allow the dependent to enroll, 
the Exchange must allow the enrollee and his or her dependents to 
change to another QHP within the same level of coverage (or one metal 
level higher or lower, if no such QHP is available), as outlined in 
Sec.  156.140(b) of this subchapter, or enroll the new qualified 
individual in a separate QHP.
    (5) Prior coverage requirement. Qualified individuals who are 
required to demonstrate coverage in the 60 days prior to a qualifying 
event can either demonstrate that they had minimum essential coverage 
as described in 26 CFR 1.5000A-1(b) for 1 or more days during the 60 
days preceding the date of the qualifying event; lived in a foreign 
country or in a United States territory for 1 or more days during the 
60 days preceding the date of the qualifying event; are an Indian as 
defined by section 4 of the Indian Health Care Improvement Act; or 
lived in a service area for 1 or more days during the 60 days preceding 
the date of the qualifying event where no qualified health plan was 
offered through the Exchange.
    (b) * * *
    (2) * * *
    (i) In the case of birth, adoption, placement for adoption, 
placement in foster care, or child support or other court order as 
described in paragraph (d)(2)(i) of this section, the Exchange must 
ensure that coverage is effective for a qualified individual or 
enrollee on the date of birth, adoption, placement for adoption, 
placement in foster care, or effective date of court order; or it may 
permit the qualified individual or enrollee to elect a coverage 
effective date of the first of the month following plan selection; or 
in accordance with paragraph (b)(1) of this section. If the Exchange 
permits the qualified individual or enrollee to elect a coverage 
effective date of either the first of the month following the date of 
plan selection or in accordance with paragraph (b)(1) of this section, 
the Exchange must ensure coverage is effective on the date duly 
selected by the qualified individual or enrollee.
* * * * *
    (d) * * *
    (1) * * *
    (iii) Loses pregnancy-related coverage described under section 
1902(a)(10)(A)(i)(IV) and

[[Page 51141]]

(a)(10)(A)(ii)(IX), of the Act (42 U.S.C. 1396a(a)(10)(A)(i)(IV), 
(a)(10)(A)(ii)(IX)) or loses access to health care services through 
coverage provided to a pregnant woman's unborn child, based on the 
definition of a child in 42 CFR 457.10. The date of the loss of 
coverage is the last day the qualified individual would have pregnancy-
related coverage or access to health care services through the unborn 
child coverage; or
* * * * *
    (10) * * *
    (i) Is a victim of domestic abuse or spousal abandonment as defined 
by 26 CFR 1.36B-2 or a dependent or unmarried victim within a 
household, is enrolled in minimum essential coverage, and seeks to 
enroll in coverage separate from the perpetrator of the abuse or 
abandonment; or
* * * * *
0
20. Section 155.430 is amended by:
0
a. Revising paragraph (d)(1);
0
b. Removing paragraphs (d)(2)(i) through (iv);
0
c. Adding new paragraph (d)(2)(i); and
0
d. Redesignating paragraph (d)(2)(v) as (d)(2)(ii).
    The revisions and additions read as follows:


Sec.  155.430  Termination of Exchange enrollment or coverage.

    (d) * * *
    (1) For purposes of this section, changes in eligibility for 
advance payments of the premium tax credit and cost sharing reductions, 
including terminations, must adhere to the effective dates specified in 
Sec.  155.330(f).
    (2) * * *
    (i) On the date on which the termination is requested by the 
enrollee or on another prospective date selected by the enrollee; or
* * * * *
0
21. Section 155.500 is amended by revising the definitions of ``Appeal 
request'' and ``Appeals entity'' to read as follows:


Sec.  155.500   Definitions.

* * * * *
    Appeal request means a clear expression, either orally or in 
writing, by an applicant, enrollee, employer, or small business 
employer or employee to have any eligibility determination or 
redetermination contained in a notice issued in accordance with Sec.  
155.310(g), Sec.  155.330(e)(1)(ii), Sec.  155.335(h)(1)(ii), Sec.  
155.610(i), Sec.  155.715(e) or (f), or Sec.  155.716(e) reviewed by an 
appeals entity.
    Appeals entity means a body designated to hear appeals of 
eligibility determinations or redeterminations contained in notices 
issued in accordance with Sec.  155.310(g), Sec.  155.330(e)(1)(ii), 
Sec.  155.335(h)(1)(ii), Sec.  155.610(i), Sec.  155.715(e) and (f), or 
Sec.  155.716(e).
* * * * *
0
22. Section 155.605 is amended by revising paragraph (d)(2)(iv) to read 
as follows:


Sec.  155.605  Eligibility standards for exemptions.

* * * * *
    (d) * * *
    (2) * * *
    (iv) For an individual who is ineligible to purchase coverage under 
an eligible employer-sponsored plan, the Exchange determines the 
required contribution for coverage in accordance with section 
5000A(e)(1)(B)(ii) of the Code, inclusive of all members of the family, 
as defined in 26 CFR 1.36B-1(d), who have not otherwise been granted an 
exemption through the Exchange and who are not treated as eligible to 
purchase coverage under an eligible employer-sponsored plan, in 
accordance with paragraph (d)(4)(ii) of this section. If there is not a 
bronze level plan offered through the Exchange in the individual's 
rating area, the Exchange must use the annual premium for the lowest 
cost Exchange metal level plan available in the individual market 
through the Exchange in the State in the rating area in which the 
individual resides to determine whether coverage exceeds the 
affordability threshold specified in section 5000A(e)(1) of the Code; 
and
* * * * *
0
23. Section 155.610 is amended by revising paragraph (h)(2) to read as 
follows:


Sec.  155.610   Eligibility process for exemptions.

* * * * *
    (h) * * *
    (2) The Exchange will only accept an application for an exemption 
described in Sec.  155.605(d)(1) during one of the 3 calendar years 
after the month or months during which the applicant attests that the 
hardship occurred.
0
24. Section 155.700 is amended by revising paragraph (a) to read as 
follows:


Sec.  155.700  Standards for the establishment of a SHOP.

    (a) General requirement. (1) For plan years beginning before 
January 1, 2018, an Exchange must provide for the establishment of a 
SHOP that meets the requirements of this subpart and is designed to 
assist qualified employers and facilitate the enrollment of qualified 
employees into qualified health plans.
    (2) For plan years beginning on or after January 1, 2018, an 
Exchange must provide for the establishment of a SHOP that meets the 
requirements of this subpart and is designed to assist qualified 
employers in facilitating the enrollment of their employees in 
qualified health plans.
* * * * *
0
25. Section 155.705 is amended by revising the section heading and 
adding paragraph (e) to read as follows:


Sec.  155.705   Functions of a SHOP for plan years beginning prior to 
January 1, 2018.

* * * * *
    (e) Applicability date. The provisions of this section apply for 
plan years beginning prior to January 1, 2018. Section 155.706 is 
applicable for plan years beginning on or after January 1, 2018.
0
26. Section 155.706 is added to read as follows:


Sec.  155.706  Functions of a SHOP for plan years beginning on or after 
January 1, 2018.

    (a) Exchange functions that apply to SHOP. The SHOP must carry out 
all the required functions of an Exchange described in this subpart and 
in subparts C, E, K, and M of this part, except:
    (1) Requirements related to individual eligibility determinations 
in subpart D of this part;
    (2) Requirements related to enrollment of qualified individuals 
described in subpart E of this part;
    (3) The requirement to issue certificates of exemption in 
accordance with Sec.  155.200(b); and
    (4) Requirements related to the payment of premiums by individuals, 
Indian tribes, tribal organizations and urban Indian organizations 
under Sec.  155.240.
    (b) Unique functions of a SHOP. The SHOP must also provide the 
following unique functions:
    (1) Enrollment and eligibility functions. The SHOP must adhere to 
the requirements outlined in subpart H.
    (2) Employer choice requirements. The SHOP must allow a qualified 
employer to select a level of coverage as described in section 
1302(d)(1) of the Affordable Care Act, in which all QHPs within that 
level are made available to the qualified employees of the employer.
    (3) SHOP options with respect to employer choice requirements. (i) 
For plan years beginning on or after January 1, 2018, SHOP:
    (A) Must allow an employer to make available to qualified employees 
all QHPs at the level of coverage selected by the employer as described 
in paragraph (b)(2) of this section, and
    (B) May allow an employer to make one or more QHPs available to 
qualified

[[Page 51142]]

employees by a method other than the method described in paragraph 
(b)(2) of this section.
    (ii) For plan years beginning on or after January 1, 2018, a 
Federally-facilitated SHOP will provide a qualified employer a choice 
of two methods to make QHPs available to qualified employees:
    (A) The employer may choose a level of coverage as described in 
paragraph (b)(2) of this section, or
    (B) The employer may choose a single QHP.
    (iii) For plan years beginning on or after January 1, 2018, a SHOP 
may, and a Federally-facilitated SHOP will provide a qualified employer 
a choice of two methods to make stand-alone dental plans available to 
qualified employees:
    (A) The employer may choose to make available a single stand-alone 
dental plan.
    (B) The employer may choose to make available all stand-alone 
dental plans offered through the SHOP at a level of coverage as 
described in Sec.  156.150(b)(2) of this subchapter.
    (iv) A SHOP may also provide a qualified employer with a choice of 
a third method to make QHPs available to qualified employees by 
offering its qualified employees a choice of all QHPs offered through 
the SHOP by a single issuer across all available levels of coverage, as 
described in section 1302(d)(1) of the Affordable Care Act and 
implemented in Sec.  156.140(b) of this subchapter. A State with a 
Federally-facilitated SHOP may recommend that the Federally-facilitated 
SHOP not make this additional option available in that State, by 
submitting a letter to HHS in advance of the annual QHP certification 
application deadline, by a date to be established by HHS. The State's 
letter must describe and justify the State's recommendation, based on 
the anticipated impact this additional option would have on the small 
group market and consumers.
    (v) A SHOP may also provide a qualified employer with a choice of a 
third method to make stand-alone dental plans available to qualified 
employees by offering its qualified employees a choice of all stand-
alone dental plans offered through the SHOP by a single issuer across 
all available levels of coverage, as described in Sec.  156.150(b)(2) 
of this subchapter, if such levels are available. If levels of coverage 
are not available, a SHOP may make a choice of all stand-alone dental 
plans available. A State with a Federally-facilitated SHOP may 
recommend that the Federally-facilitated SHOP not make this additional 
option available in that State, by submitting a letter to HHS in 
advance of the annual QHP certification application deadline, by a date 
to be established by HHS. The State's letter must describe and justify 
the State's recommendation, based on the anticipated impact this 
additional option would have on the small group market and consumers.
    (vi) States operating a State-based Exchange utilizing the Federal 
platform for SHOP enrollment functions will have the same employer 
choice models available as States with a Federally-facilitated SHOP, 
except that a State with a State-based Exchange utilizing the Federal 
platform for SHOP enrollment functions may decide against offering the 
employer choice models specified in paragraphs (b)(3)(iv) and (b)(3)(v) 
of this section in that State, provided that the State notifies HHS of 
that decision in advance of the annual QHP certification application 
deadline, by a date to be established by HHS.
    (4) The SHOP may, upon an election by a qualified employer, enter 
into an agreement with a qualified employer to facilitate the 
administration of continuation coverage by collecting premiums for 
continuation coverage enrolled in through the SHOP directly from a 
person enrolled in continuation coverage through the SHOP consistent 
with applicable law and the terms of the group health plan, and 
remitting premium payments for this coverage to QHP issuers.
    (5) QHP Certification. With respect to certification of QHPs in the 
small group market, the SHOP must ensure each QHP meets the 
requirements specified in Sec.  156.285 of this subchapter.
    (6) Rates and rate changes. The SHOP must--
    (i) Require all QHP issuers to make any change to rates at a 
uniform time that is no more frequently than quarterly.
    (A) In a Federally-facilitated SHOP, rates may be updated quarterly 
with effective dates of January 1, April 1, July 1, or October 1 of 
each calendar year. The updated rates must be submitted to HHS at least 
60 days in advance of the effective date of the rates.
    (B) [Reserved]
    (ii) Prohibit all QHP issuers from varying rates for a qualified 
employer during the employer's plan year.
    (7) QHP availability in merged markets. If a State merges the 
individual market and the small group market risk pools in accordance 
with section 1312(c)(3) of the Affordable Care Act, the SHOP may permit 
employer groups to enroll in any QHP meeting level of coverage 
requirements described in section 1302(d) of the Affordable Care Act.
    (8) QHP availability in unmerged markets. If a State does not merge 
the individual and small group market risk pools, the SHOP must permit 
employer groups to enroll only in QHPs in the small group market.
    (9) SHOP expansion to large group market. If a State elects to 
expand the SHOP to the large group market, a SHOP must allow issuers of 
health insurance coverage in the large group market in the State to 
offer QHPs in such market through a SHOP beginning in 2017 provided 
that a large employer meets the qualified employer requirements other 
than that it be a small employer.
    (10) Participation rules. Subject to Sec.  147.104 of this 
subchapter, the SHOP may authorize a uniform group participation rate 
for the offering of health insurance coverage in the SHOP, which must 
be a single, uniform rate that applies to all groups and issuers in the 
SHOP. If the SHOP authorizes a minimum participation rate, such rate 
must be based on the rate of employee participation in the SHOP, not on 
the rate of employee participation in any particular QHP or QHPs of any 
particular issuer.
    (i) Subject to Sec.  147.104 of this subchapter, a Federally-
facilitated SHOP must use a minimum participation rate of 70 percent, 
calculated as the number of full-time employees accepting coverage 
offered by a qualified employer plus the number of full-time employees 
who, at the time the employer submits the SHOP group enrollment, are 
enrolled in coverage through another group health plan, governmental 
coverage (such as Medicare, Medicaid, or TRICARE), coverage sold 
through the individual market, or in other minimum essential coverage, 
divided by the number of full-time employees offered coverage.
    (ii) Notwithstanding paragraphs (b)(10)(i) of this section, a 
Federally-facilitated SHOP may utilize a different minimum 
participation rate in a State if there is evidence that a State law 
sets a minimum participation rate or that a higher or lower minimum 
participation rate is customarily used by the majority of QHP issuers 
in that State for products in the State's small group market outside 
the SHOP.
    (11) Premium calculator. In the SHOP, the premium calculator 
described in Sec.  155.205(b)(6) must facilitate the comparison of 
available QHPs.
    (c) Coordination with individual market Exchange for eligibility 
determinations. A SHOP that collects employee eligibility or enrollment 
data

[[Page 51143]]

must provide data related to eligibility and enrollment of a qualified 
employee to the individual market Exchange that corresponds to the 
service area of the SHOP, unless the SHOP is operated pursuant to Sec.  
155.100(a)(2).
    (d) Duties of Navigators in the SHOP. In States that have elected 
to operate only a SHOP pursuant to Sec.  155.100(a)(2), at State option 
and if State law permits the Navigator duties described in Sec.  
155.210(e)(3) and (4) may be fulfilled through referrals to agents and 
brokers.
    (e) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2018.
0
27. Section 155.715 is amended by revising the section heading and 
adding paragraph (h) to read as follows:


Sec.  155.715   Eligibility determination process for SHOP for plan 
years beginning prior to January 1, 2018.

* * * * *
    (h) Applicability date. The provisions of this section apply for 
plan years beginning prior to January 1, 2018. Sec.  155.716 is 
applicable for plan years beginning on or after January 1, 2018.
0
28. Section 155.716 is added to read as follows:


Sec.  155.716   Eligibility determination process for SHOP for plan 
years beginning on or after January 1, 2018.

    (a) General requirement. The SHOP must determine whether an 
employer requesting a determination of eligibility to participate in a 
SHOP is eligible in accordance with the requirements of Sec.  155.710.
    (b) Applications. The SHOP must accept a SHOP single employer 
application form from employers, in accordance with the relevant 
standards of Sec.  155.730.
    (c) Verification of eligibility. For the purpose of verifying 
employer eligibility, the SHOP--
    (1) May establish, in addition to or in lieu of reliance on the 
application, additional methods to verify the information provided by 
the applicant on the applicable application;
    (2) Must collect only the minimum information necessary for 
verification of eligibility in accordance with the eligibility 
standards described in Sec.  155.710; and
    (3) May not perform individual market Exchange eligibility 
determinations or verifications described in subpart D of this part.
    (d) Eligibility adjustment period. When the information submitted 
on the SHOP single employer application is inconsistent with 
information collected from third-party data sources through the 
verification process described in paragraph (c)(1) of this section or 
otherwise received by the SHOP, the SHOP must--
    (1) Make a reasonable effort to identify and address the causes of 
such inconsistency, including through typographical or other clerical 
errors;
    (2) Notify the employer of the inconsistency;
    (3) Provide the employer with a period of 30 days from the date on 
which the notice described in paragraph (d)(2) of this section is sent 
to the employer to either present satisfactory documentary evidence to 
support the employer's application, or resolve the inconsistency; and
    (4) If, after the 30-day period described in paragraph (d)(2) of 
this section, the SHOP has not received satisfactory documentary 
evidence, the SHOP must--
    (i) Notify the employer of its denial or termination of eligibility 
in accordance with paragraph (e) of this section and of the employer's 
right to appeal such determination; and
    (ii) If the employer was enrolled pending the confirmation or 
verification of eligibility information, discontinue the employer's 
participation in the SHOP at the end of the month following the month 
in which the notice is sent.
    (e) Notification of employer eligibility. The SHOP must provide an 
employer requesting eligibility to purchase coverage through the SHOP 
with a notice of approval or denial or termination of eligibility and 
the employer's right to appeal such eligibility determination.
    (f) Validity of Eligibility Determination. An employer's 
determination of eligibility to participate in SHOP remains valid until 
the employer makes a change that could end its eligibility under Sec.  
155.710(b) or withdraws from participation in the SHOP.
    (g) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2018.
0
29. Section 155.720 is amended by revising the section heading and 
adding paragraph (j) to read as follows:


Sec.  155.720   Enrollment of employees into QHPs under SHOP for plan 
years beginning prior to January 1, 2018.

* * * * *
    (j) Applicability date. The provisions of this section apply for 
plan years beginning prior to January 1, 2018. Section 155.721 is 
applicable for plan years beginning on or after January 1, 2018.
0
30. Section 155.721 is added to read as follows:


Sec.  155.721   Record retention and IRS Reporting for plan years 
beginning on or after January 1, 2018.

    (a) Records. The SHOP must receive and maintain for at least 10 
years records of qualified employers participating in the SHOP.
    (b) Reporting requirement for tax administration purposes. The SHOP 
must, at the request of the IRS, report information to the IRS about 
employer eligibility to participate in SHOP coverage.
    (c) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2018.
0
31. Section 155.725 is amended by revising the section heading and 
adding paragraph (l) to read as follows:


Sec.  155.725   Enrollment periods under SHOP for plan years beginning 
prior to January 1, 2018.

* * * * *
    (l) Applicability date. The provisions of this section apply for 
plan years beginning prior to January 1, 2018. Section 155.726 is 
applicable for plan years beginning on or after January 1, 2018.
0
32. Section 155.726 is added to read as follows:


Sec.  155.726   Enrollment periods under SHOP for plan years beginning 
on or after January 1, 2018.

    (a) General requirements. The SHOP must ensure that issuers 
offering QHPs through the SHOP adhere to applicable enrollment periods, 
including special enrollment periods.
    (b) Rolling enrollment in the SHOP. The SHOP must permit a 
qualified employer to purchase coverage for its small group at any 
point during the year. The employer's plan year must consist of the 12-
month period beginning with the qualified employer's effective date of 
coverage, unless the plan is issued in a State that has elected to 
merge its individual and small group risk pools under section 
1312(c)(3) of the Affordable Care Act, in which case the plan year will 
end on December 31 of the calendar year in which coverage first became 
effective.
    (c)(1) Special enrollment periods. The SHOP must ensure that 
issuers offering QHPs through the SHOP provide special enrollment 
periods consistent with the section, during which certain qualified 
employees or dependents of qualified employees may enroll in QHPs and 
enrollees may change QHPs.
    (2) The SHOP must ensure that issuers offering QHPs through a SHOP 
provide a special enrollment period for a qualified employee or a 
dependent of a qualified employee who;

[[Page 51144]]

    (i) Experiences an event described in Sec.  155.420(d)(1) (other 
than paragraph (d)(1)(ii)), or experiences an event described in Sec.  
155.420(d)(2), (4), (5), (7), (8), (9), (10), (11), or (12);
    (ii) Loses eligibility for coverage under a Medicaid plan under 
title XIX of the Social Security Act or a State child health plan under 
title XXI of the Social Security Act; or
    (iii) Becomes eligible for assistance, with respect to coverage 
under a SHOP, under such Medicaid plan or a State child health plan 
(including any waiver or demonstration project conducted under or in 
relation to such a plan).
    (3) A qualified employee or dependent of a qualified employee who 
experiences a qualifying event described in paragraph (j)(2) of this 
section has:
    (i) Thirty (30) days from the date of a triggering event described 
in paragraph (c)(2)(i) of this section to select a QHP through the 
SHOP; and
    (ii) Sixty (60) days from the date of a triggering event described 
in paragraph (c)(2)(ii) or (iii) of this section to select a QHP 
through the SHOP;
    (4) A dependent of a qualified employee is not eligible for a 
special enrollment period if the employer does not extend the offer of 
coverage to dependents.
    (5) The effective dates of coverage for special enrollment periods 
are determined using the provisions of Sec.  155.420(b).
    (6) Loss of minimum essential coverage is determined using the 
provisions of Sec.  155.420(e).
    (d) Limitation. Qualified employees will not be able to enroll 
unless the employer group meets any applicable minimum participation 
rate implemented under Sec.  155.706(b)(10).
    (e) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2018.
0
33. Section 155.730 is amended by revising the section heading and 
adding paragraph (h) to read as follows:


Sec.  155.730   Application standards for SHOP for plan year beginning 
prior to January 1, 2018.

* * * * *
    (h) Applicability date. The provisions of this section apply for 
plan years beginning prior to January 1, 2018. Section 155.731 is 
applicable for plan years beginning on or after January 1, 2018.
0
34. Section 155.731 is added to read as follows:


Sec.  155.731   Application standards for SHOP for plan years beginning 
on or after January 1, 2018.

    (a) General requirements. Application forms used by the SHOP must 
meet the requirements set forth in this section.
    (b) Single employer application. The SHOP must use a single 
application to determine employer eligibility. Such application must 
collect the following--
    (1) Employer name and address of employer's locations;
    (2) Information sufficient to confirm the employer is a small 
employer;
    (3) Employer Identification Number (EIN); and
    (4) Information sufficient to confirm that the employer is 
offering, at a minimum, all full-time employees coverage in a QHP 
through a SHOP.
    (c) Model application. The SHOP may use the model single employer 
application provided by HHS.
    (d) Alternative employer application. The SHOP may use an 
alternative application if such application is approved by HHS and 
collects the information described in paragraph (b).
    (e) Filing. The SHOP must:
    (1) Accept applications from SHOP application filers; and
    (2) Provide the tools to file an employer eligibility application 
via an Internet Web site.
    (f) Additional safeguards. (1) The SHOP may not provide to the 
employer any information collected on an employee application with 
respect to spouses or dependents other than the name, address, and 
birth date of the spouse or dependent.
    (2) The SHOP is not permitted to collect information on the single 
employer or on an employee application unless that information is 
necessary to determine SHOP eligibility or effectuate enrollment 
through the SHOP.
    (g) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2018.
0
35. Section 155.735 is amended by revising the section heading and 
adding paragraph (h) to read as follows:


Sec.  155.735   Termination of SHOP enrollment or coverage for plan 
years beginning prior to January 1, 2018.

* * * * *
    (h) Applicability date. The provisions of this section apply for 
plan years beginning before January 1, 2018.
0
36. Section 155.740 is amended by revising the section heading and 
adding paragraph (p) to read as follows:


Sec.  155.740   SHOP employer and employee eligibility appeals 
requirements for plan years beginning prior to January 1, 2018.

* * * * *
    (p) Applicability date. The provisions of this section apply for 
plan years beginning prior to January 1, 2018. Section 155.741 is 
applicable for plan years beginning on or after January 1, 2018.
0
37. Section 155.741 is added to subpart H to read as follows:


Sec.  155.741   SHOP employer and employee eligibility appeals 
requirements for plan year beginning on or after January 1, 2018.

    (a) Definitions. The definitions in Sec. Sec.  155.20, 155.300, and 
155.500 apply to this section.
    (b) General requirements. (1) A State, establishing an Exchange 
that provides for the establishment of a SHOP pursuant to Sec.  155.100 
must provide an eligibility appeals process for the SHOP. Where a State 
has not established an Exchange that provides for the establishment of 
a SHOP pursuant to Sec.  155.100, HHS will provide an eligibility 
appeals process for the SHOP that meets the requirements of this 
section and the requirements in paragraph (b)(2) of this section.
    (2) The appeals entity must conduct appeals in accordance with the 
requirements established in this section and Sec. Sec.  155.505(e) 
through (h) and 155.510(a)(1) and (2) and (c).
    (c) Employer right to appeal. An employer may appeal--
    (1) A notice of denial or termination of eligibility under Sec.  
155.716(e); or
    (2) A failure by the SHOP to provide a timely eligibility 
determination or a timely notice of an eligibility determination in 
accordance with Sec.  155.716(e).
    (d) Appeals notice requirement. Notices of the right to appeal a 
denial of eligibility under Sec.  155.716(e) must be written and 
include--
    (1) The reason for the denial or termination of eligibility, 
including a citation to the applicable regulations; and
    (2) The procedure by which the employer may request an appeal of 
the denial or termination of eligibility.
    (e) Appeal request. The SHOP and appeals entity must--
    (1) Allow an employer to request an appeal within 90 days from the 
date of the notice of denial or termination of eligibility to--
    (i) The SHOP or the appeals entity; or
    (ii) HHS, if no State Exchange that provides for establishment of a 
SHOP has been established;
    (2) Accept appeal requests submitted through any of the methods 
described in Sec.  155.520(a)(1);
    (3) Comply with the requirements of Sec.  155.520(a)(2) and (3); 
and
    (4) Consider an appeal request valid if it is submitted in 
accordance with paragraph (e)(1) of this section.

[[Page 51145]]

    (f) Notice of appeal request. (1) Upon receipt of a valid appeal 
request, the appeals entity must--
    (i) Send timely acknowledgement to the employer of the receipt of 
the appeal request, including--
    (A) An explanation of the appeals process; and
    (B) Instructions for submitting additional evidence for 
consideration by the appeals entity.
    (ii) Promptly notify the SHOP of the appeal, if the appeal request 
was not initially made to the SHOP.
    (2) Upon receipt of an appeal request that is not valid because it 
fails to meet the requirements of this section, the appeals entity 
must--
    (i) Promptly and without undue delay, send written notice to the 
employer that is appealing that--
    (A) The appeal request has not been accepted,
    (B) The nature of the defect in the appeal request; and
    (C) An explanation that the employer may cure the defect and 
resubmit the appeal request if it meets the timeliness requirements of 
paragraph (e) of this section, or within a reasonable timeframe 
established by the appeals entity.
    (ii) Treat as valid an amended appeal request that meets the 
requirements of this section.
    (g) Transmittal and receipt of records. (1) Upon receipt of a valid 
appeal request under this section, or upon receipt of the notice under 
paragraph (f)(2) of this section, the SHOP must promptly transmit, via 
secure electronic interface, to the appeals entity--
    (i) The appeal request, if the appeal request was initially made to 
the SHOP; and
    (ii) The eligibility record of the employer that is appealing.
    (2) The appeals entity must promptly confirm receipt of records 
transmitted pursuant to paragraph (g)(1) of this section to the SHOP 
that transmitted the records.
    (h) Dismissal of appeal. The appeals entity--
    (1) Must dismiss an appeal if the employer that is appealing--
    (i) Withdraws the request in accordance with the standards set 
forth in Sec.  155.530(a)(1); or
    (ii) Fails to submit an appeal request meeting the standards 
specified in paragraph (e) of this section.
    (2) Must provide timely notice to the employer that is appealing of 
the dismissal of the appeal request, including the reason for 
dismissal, and must notify the SHOP of the dismissal.
    (3) May vacate a dismissal if the employer makes a written request 
within 30 days of the date of the notice of dismissal showing good 
cause why the dismissal should be vacated.
    (i) Procedural rights of the employer. The appeals entity must 
provide the employer the opportunity to submit relevant evidence for 
review of the eligibility determination.
    (j) Adjudication of SHOP appeals. SHOP appeals must--
    (1) Comply with the standards set forth in Sec.  155.555(i)(1) and 
(3); and
    (2) Consider the information used to determine the employer's 
eligibility as well as any additional relevant evidence submitted 
during the course of the appeal by the employer or employee.
    (k) Appeal decisions. Appeal decisions must--
    (1) Be based solely on--
    (i) The evidence referenced in paragraph (j)(2) of this section;
    (ii) The eligibility requirements for the SHOP under Sec.  
155.710(b), as applicable.
    (2) Comply with the standards set forth in Sec.  155.545(a)(2) 
through (5)
    (3) Be effective as follows:
    (i) If an employer is found eligible under the decision, then at 
the employer's option, the effective date of coverage or enrollment 
through the SHOP under the decision can either be made retroactive to 
the effective date of coverage or enrollment through the SHOP that the 
employer would have had if the employer had been correctly determined 
eligible, or prospective to the first day of the month following the 
date of the notice of the appeal decision.
    (ii) If the employer is found ineligible under the decision, then 
the appeal decision is effective as of the date of the notice of the 
appeal decision.
    (l) Notice of appeal decision. The appeals entity must issue 
written notice of the appeal decision to the employer and to the SHOP 
within 90 days of the date the appeal request is received.
    (m) Implementation of SHOP appeal decisions. The SHOP must promptly 
implement the appeal decision upon receiving the notice under paragraph 
(l) of this section.
    (n) Appeal record. Subject to the requirements of Sec.  155.550, 
the appeal record must be accessible to the employer in a convenient 
format and at a convenient time.
    (o) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2018.

PART 156--HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE 
CARE ACT, INCLUDING STANDARDS RELATED TO EXCHANGES

0
38. The authority citation for part 156 continues to read as follows:

    Authority: Title I of the Affordable Care Act, sections 1301-
1304, 1311-1313, 1321-1322, 1324, 1334, 1342-1343, 1401-1402, Pub. 
L. 111-148, 124 Stat. 119 (42 U.S.C. 18021-18024, 18031-18032, 
18041-18042, 18044, 18054, 18061, 18063, 18071, 18082, 26 U.S.C. 
36B, and 31 U.S.C. 9701).

0
39. Section 156.100 is amended by revising the section heading and the 
introductory text and by adding paragraph (d) to read as follows:


Sec.  156.100  State selection of benchmark plan for plan years 
beginning prior to January 1, 2019.

    For plan years beginning before January 1, 2019, each State may 
identify a single EHB-benchmark plan according to the selection 
criteria described below:
* * * * *
    (d) Applicability date: For plan years beginning on or after 
January 1, 2019, Sec.  156.111 applies in place of this section.
0
40. Section 156.111 is added to Subpart B to read as follows:


Sec.  156.111  State selection of EHB-benchmark plan for plan years 
beginning on or after January 1, 2019.

    (a) Subject to paragraphs (b), (c), (d) and (e) of this section, 
for plan years beginning on or after January 1, 2019, a State may 
change its EHB-benchmark plan by:
    (1) Selecting the EHB-benchmark plan that another State used for 
the 2017 plan year under Sec.  156.100 and Sec.  156.110 of this 
subpart;
    (2) Replacing one or more categories of EHBs under Sec.  156.110(a) 
of this subpart under its EHB-benchmark plan used for the 2017 plan 
year with the same category or categories of EHB from the EHB-benchmark 
plan that another State used for the 2017 plan year under Sec.  156.100 
and Sec.  156.110 of this subpart; or
    (3) Otherwise selecting a set of benefits that would become the 
State's EHB-benchmark plan, provided that the new EHB-benchmark plan 
does not exceed the generosity of the most generous among a set of 
comparison plans, including:
    (i) The State's EHB-benchmark plan used for the 2017 plan year, and
    (ii) Any of the State's base-benchmark plan options for the 2017 
plan year described in Sec.  156.100(a)(1) of this subpart, 
supplemented as necessary under Sec.  156.110 of this subpart.

[[Page 51146]]

    (b) A State's EHB-benchmark plan must:
    (1) EHB coverage. Provide an appropriate balance of coverage for 
the categories of benefits at Sec.  156.110(a) of this subpart.
    (2) Scope of benefits. (i) Be equal in scope of benefits to what is 
provided under a typical employer plan, defined as:
    (A) An employer plan within a product (as these terms are defined 
in Sec.  144.103 of this subchapter) with substantial enrollment in the 
product of at least 5,000 enrollees sold in the small group or large 
group market, in one or more States; or
    (B) A self-insured group health plan with substantial enrollment of 
at least 5,000 enrollees in one or more States;
    (ii) Not have benefits unduly weighted towards any of the 
categories of benefits at Sec.  156.110(a) of this subpart; and
    (iii) Provide benefits for diverse segments of the population, 
including women, children, persons with disabilities, and other groups.
    (c) The State must provide reasonable public notice and an 
opportunity for public comment on the State's selection of an EHB-
benchmark plan.
    (d) A State must notify HHS of the selection of a new EHB-benchmark 
plan by a date to be determined by HHS for each applicable plan year.
    (1) If the State does not make a selection by the annual selection 
date, the State's EHB-benchmark plan for the applicable plan year would 
be that State's EHB-benchmark plan applicable for the prior year.
    (2) [Reserved]
    (e) A State changing its EHB-benchmark plan under this section must 
submit documents in a format and manner specified by HHS by a date 
determined by HHS. These must include:
    (1) A document confirming that the State's EHB-benchmark plan 
definition complies with the requirements under paragraphs (a), (b) and 
(c) of this section, including information on which selection option 
under paragraph (a) of this section the State is using, and whether the 
State is using another State's EHB-benchmark plan;
    (2) If the State is selecting its EHB-benchmark plan using the 
options in paragraph (a)(2) or (3) of this section, an actuarial 
certification and an associated actuarial report from an actuary, who 
is a member of the American Academy of Actuaries, in accordance with 
generally accepted actuarial principles and methodologies that affirms:
    (i) That the State's EHB-benchmark plan definition is equal in 
scope to benefits provided under a typical employer plan; and
    (ii) If the State is selecting its EHB-benchmark plan using the 
option in paragraph (a)(3) of this section, that the new EHB-benchmark 
plan does not exceed the generosity of the most generous among the 
plans listed in paragraph (a)(3)(i) and (ii) of this section;
    (3) The State's EHB-benchmark plan document that reflects the 
benefits and limitations, including medical management requirements, a 
schedule of benefits and, if the State is selecting its EHB-benchmark 
plan using the option in paragraph (a)(3) of this section, a formulary 
drug list in a format and manner specified by HHS; and
    (4) Other documentation specified by HHS, which is necessary to 
operationalize the State's EHB-benchmark plan.
0
41. Section 156.115 is amended by revising paragraph (b)(1)(ii) to read 
as follows:


Sec.  156.115  Provision of EHB.

* * * * *
    (b) * * *
    (1) * * *
    (ii) Is substituted within the same essential health benefit 
category or between essential health benefit categories, as long as the 
plan with substitutions still provides benefits that are substantially 
equal to the EHB-benchmark plan, provides an appropriate balance among 
the EHB categories such that benefits are not unduly weighted towards 
any category, and provides benefits for diverse segments of the 
population; and
* * * * *
0
42. Section 156.150 is amended by removing and reserving paragraph (b) 
to read as follows:


Sec.  156.150   Application to stand-alone dental plans inside the 
Exchange.

* * * * *
    (b) [Reserved]
* * * * *
0
43. Section 156.200 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  156.200   QHP issuer participation standards.

* * * * *
    (b) * * *
    (2) Comply with Exchange processes, procedures, and requirements 
set forth in accordance with subpart K of part 155 and, in the small 
group market, Sec.  155.705 and Sec.  155.706 of this subchapter;
* * * * *
0
44. Section 156.285 is amended by revising the section heading and 
adding paragraph (f) to read as follows:


Sec.  156.285   Additional standards specific to SHOP for plan years 
beginning prior to January 1, 2018.

* * * * *
    (f) Applicability date. The provisions of this section apply for 
plan years beginning prior to January 1, 2018. Additional standards 
specific to SHOP for plan years beginning on or after January 1, 2018 
are in Sec.  156.286.
0
45. Section 156.286 is added to read as follows:


Sec.  156.286  Additional standards specific to SHOP for plan years 
beginning on or after January 1, 2018.

    (a) SHOP rating and premium payment requirements. QHP issuers 
offering a QHP through a SHOP must:
    (1) Accept payment from a qualified employer or an enrollee, or a 
SHOP on behalf of a qualified employer or enrollee
    (2) Adhere to the SHOP timeline for rate setting as established in 
Sec.  155.706(b)(6) of this subchapter;
    (3) Charge the same contract rate for a plan year; and
    (4) Adhere to the premium rating standards described in Sec.  
147.102 of this subchapter regardless of whether the QHP being sold 
through the SHOP is sold in the small group market or the large group 
market.
    (b) Enrollment periods and processes for the SHOP. QHP issuers 
offering a QHP through the SHOP must adhere to enrollment periods and 
processes established by the SHOP, consistent with Sec.  155.726 of 
this subchapter, and establish a uniform enrollment timeline and 
process for enrolling qualified employers and employer group members.
    (c) Enrollment process for the SHOP. A QHP issuer offering a QHP 
through the SHOP must:
    (1) Provide new enrollees with the enrollment information package 
as described in Sec.  156.265(e); and
    (2) Enroll all qualified employees consistent with the plan year of 
the applicable qualified employer.
    (d) Participation rules. QHP issuers offering a QHP through the 
SHOP may impose group participation rules for the offering of health 
insurance coverage in connection with a QHP only if and to the extent 
authorized by the SHOP in accordance with Sec.  155.706 of this 
subchapter.
    (e) Employer choice. QHP issuers offering a QHP through the SHOP 
must accept enrollments from groups in accordance with the employer 
choice

[[Page 51147]]

policies applicable to the SHOP under Sec.  155.706(b)(3) of this 
subchapter.
    (f) Identification of SHOP enrollments. QHP issuers offering a QHP 
through the SHOP must use a uniform enrollment form, maintain processes 
sufficient to identify whether a group market enrollment is an 
enrollment through the SHOP, and maintain records of SHOP enrollments 
for a period of 10 years following the enrollment.
    (g) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2018.


Sec.  156.298  [Removed]

0
46. Section 156.298 is removed.
0
47. Section 156.340 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  156.340  Standards for downstream and delegated entities.

    (a) * * *
    (2) Exchange processes, procedures, and standards in accordance 
with subparts H and K of part 155 and, in the small group market, Sec.  
155.705 and Sec.  155.706 of this subchapter;
* * * * *
0
48. Section 156.350 is amended by revising paragraphs (a)(1) and (a)(2) 
to read as follows:


Sec.  156.350  Eligibility and enrollment standards for Qualified 
Health Plan issuers on State-based Exchanges on the Federal platform.

    (a) * * *
    (1) Section 156.285(a)(4)(ii) regarding the premiums for plans 
offered on the SHOP, for plan years beginning prior to January 1, 2018;
    (2) Section 156.285(c)(5) and (c)(8)(iii) regarding the enrollment 
process for SHOP, for plan years beginning prior to January 1, 2018; 
and
* * * * *
0
49. Section 156.602 is amended by redesignating paragraph (e) as 
paragraph (f) and adding new paragraph (e) to read as follows:


Sec.  156.602  Other coverage that qualifies as minimum essential 
coverage.

* * * * *
    (e) CHIP buy-in programs. Coverage under a Children's Health 
Insurance Program (CHIP) buy-in program that provides identical 
coverage to that State's CHIP program under title XXI of the Social 
Security Act.
* * * * *
0
50. Section 156.1230 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  156.1230  Direct enrollment with the QHP issuer in a manner 
considered to be through the Exchange.

* * * * *
    (b) * * *
    (2) The QHP issuer must engage a third party entity in accordance 
with Sec.  155.221 of this subchapter to demonstrate operational 
readiness and compliance with applicable requirements prior to the QHP 
issuer's Internet Web site being used to complete a QHP selection.
* * * * *

PART 157--EMPLOYER INTERACTIONS WITH EXCHANGES AND SHOP 
PARTICIPATION

0
51. The authority citation for part 157 continues to read as follows:

    Authority: Title I of the Affordable Care Act, Sections 1311, 
1312, 1321, 1411, 1412, Pub. L. 111-148, 124 Stat. 199.

0
52. Section 157.205 is amended by revising the section heading and 
adding paragraph (h) to read as follows:


Sec.  157.205  Qualified employer participation process in a SHOP for 
plan years beginning prior to January 1, 2018.

* * * * *
    (h) Applicability date. The provisions of this section apply for 
plan years beginning prior to January 1, 2018. Section 157.206 is 
applicable for plan years beginning on or after January 1, 2018.
0
53. Section 157.206 is added to read as follows:


Sec.  157.206  Qualified employer participation process in a SHOP for 
plan years beginning on or after January 1, 2018.

    (a) General requirements. When joining the SHOP, a qualified 
employer must comply with the requirements, processes, and timelines 
set forth by this part and must remain in compliance for the duration 
of the employer's participation in the SHOP.
    (b) Selecting QHPs. During an election period, a qualified employer 
may make coverage in a QHP available through the SHOP in accordance 
with the processes developed by the SHOP in accordance with Sec.  
155.706 of this subchapter.
    (c) Information dissemination to employees. A qualified employer 
participating in the SHOP must disseminate information to its qualified 
employees about the process to enroll in a QHP through the SHOP.
    (d) Employees hired outside of the initial or annual open 
enrollment period. Qualified employers must provide employees hired 
outside of the initial or annual open enrollment period with 
information about the enrollment process.
    (e) Participation in the SHOP and termination of coverage or 
enrollment through the SHOP. (1) Changes affecting participation. 
Employers must submit a new single employer application to the SHOP or 
withdraw from participating in the SHOP if the employer makes a change 
that could end its eligibility under Sec.  155.710 of this subchapter.
    (2) If an employer receives a determination of ineligibility to 
participate in the SHOP or the SHOP terminates its eligibility to 
participate in the SHOP, the employer must notify the issuer or issuers 
of QHPs in which their group members are enrolled in coverage of its 
ineligibility or termination of eligibility within 5 business days of 
the end of any applicable appeal process under Sec.  155.741, which 
could include when the time to file an appeal lapses without an appeal 
being filed, when the appeal is rejected or dismissed, or when the 
appeal process concludes with an adjudication by the appeals entity, as 
applicable.
    (3) Employers must promptly notify the issuer or issuers of QHPs in 
which their group members are enrolled in coverage if it wishes to 
terminate coverage or enrollment through the SHOP.
    (f) Applicability date. The provisions of this section apply for 
plan years beginning on or after January 1, 2018.

PART 158--ISSUER USE OF PREMIUM REVENUE: REPORTING AND REBATE 
REQUIREMENTS

0
54. The authority citation for part 158 continues to read as follows:

    Authority: Section 2718 of the Public Health Service Act (42 
U.S.C. 300gg-18), as amended.

0
55. Section 158.170 is amended by revising paragraph (b) introductory 
text to read as follows:


Sec.  158.170  Allocation of expenses.

* * * * *
    (b) Description of the methods used to allocate expenses. The 
report required in Sec.  158.110 must include a detailed description of 
the methods used to allocate expenses, including incurred claims, 
quality improvement expenses (unless the report utilizes the percentage 
of premium option described in Sec.  158.221(b)(8), in which case the 
allocation method description should state so), Federal and State taxes 
and licensing or regulatory fees, and other non-claims costs, to each 
health insurance market in each State. A detailed description of each 
expense element must be provided, including how each specific expense 
meets the criteria for the type of expense in which

[[Page 51148]]

it is categorized, as well as the method by which it was aggregated.
* * * * *
0
56. Section 158.221 is amended by adding paragraph (b)(8) to read as 
follows:


Sec.  158.221  Formula for calculating an issuer's medical loss ratio.

* * * * *
    (b) * * *
    (8) Beginning with the 2017 MLR reporting year, an issuer has the 
option of reporting an amount equal to 0.8 percent of earned premium in 
the relevant State and market in lieu of reporting the issuer's actual 
expenditures for activities that improve health care quality, as 
defined in Sec. Sec.  158.150 and 158.151.
* * * * *
0
57. Section 158.301 is revised to read as follows:


Sec.  158.301  Standard for adjustment to the medical loss ratio.

    The Secretary may adjust the MLR standard that must be met by 
issuers offering coverage in the individual market in a State, as 
defined in section 2791 of the PHS Act, for a given MLR reporting year 
if, in the Secretary's discretion, the Secretary determines that there 
is a reasonable likelihood that an adjustment to the 80 percent MLR 
standard of section 2718(b)(1)(A)(ii) of the Public Health Service Act 
will help stabilize the individual market in that State.
0
58. Section 158.321 is revised to read as follows:


Sec.  158.321  Information regarding the State's individual health 
insurance market.

    (a) Subject to Sec.  158.320, the State must provide, for each 
issuer who actively offers coverage in the individual market in the 
State, the following information, in accordance with paragraph (b) of 
this section, for the preceding calendar year and, at the State's 
option, for the current year:
    (1) Total earned premium and incurred claims;
    (2) Total number of enrollees (life-years and covered lives);
    (3) Total agents' and brokers' commission expenses;
    (4) Net underwriting gain;
    (5) Risk-based capital level; and
    (6) Whether the issuer has provided notice to the State's insurance 
commissioner, superintendent, or comparable State authority that the 
issuer will cease or begin offering individual market coverage on the 
Exchange, certain geographic areas, or the entire individual market in 
the State.
    (b) The information required in paragraphs (a)(1) through (4) and 
(6) of this section must be provided separately for the issuer's 
individual market plans grouped by the following categories, as 
applicable: On-Exchange, off-Exchange, grandfathered health plans as 
defined in Sec.  147.140 of this subchapter, coverage that meets the 
criteria for transitional policies outlined in applicable guidance, and 
non-grandfathered single risk pool coverage. The information required 
in paragraph (a)(1) through (5) of this section must be provided at the 
issuer level.
    (c) The State must also provide information regarding whether any 
issuer other than those described in paragraph (a) of this section has 
provided notice to the State's insurance commissioner, superintendent, 
or comparable State authority that the issuer will cease or begin 
offering individual market coverage on the Exchange, certain geographic 
areas, or the entire individual market in the State.
0
59. Section 158.322 is revised to read as follows:


Sec.  158.322  Proposal for adjusted medical loss ratio.

    A State must provide its own proposal as to the adjustment it seeks 
to the MLR standard. This proposal must include an explanation of how 
an adjustment to the MLR standard for the State's individual market 
will help stabilize the State's individual market.
0
60. Section 158.330 is revised to read as follows:


Sec.  158.330  Criteria for assessing request for adjustment to the 
medical loss ratio.

    The Secretary may consider the following criteria in assessing 
whether an adjustment to the 80 percent MLR standard, as calculated in 
accordance with this subpart, would be reasonably likely to help 
stabilize the individual market in a State that has requested such 
adjustment:
    (a) The number and financial performance (based on data provided by 
a State under Sec.  158.321) of issuers actively offering individual 
health insurance coverage on- and off-Exchange, grandfathered health 
plans as defined in Sec.  147.140 of this subchapter, coverage that 
meets the criteria for transitional policies outlined in applicable 
guidance, and non-grandfathered single risk pool coverage; the number 
of issuers reasonably likely to cease or begin offering individual 
market coverage in the State; and the likelihood that an adjustment to 
the 80 percent MLR standard could help increase competition in the 
individual market in the State, including in underserved areas.
    (b) Whether an adjustment to the 80 percent MLR standard for the 
individual market may improve consumers' access to agents and brokers.
    (c) The capacity of any new issuers or issuers remaining in the 
individual market to write additional business in the event one or more 
issuers were to cease offering individual market coverage on the 
Exchange, in certain geographic areas, or in the entire individual 
market in the State.
    (d) The impact on premiums charged, and on benefits and cost 
sharing provided, to consumers by issuers remaining in or entering the 
individual market in the event one or more issuers were to cease or 
begin offering individual market coverage on the Exchange, in certain 
geographic areas, or in the entire individual market in the State.
    (e) Any other relevant information submitted by the State's 
insurance commissioner, superintendent, or comparable official in the 
State's request.
0
61. Section 158.341 is revised to read as follows:


Sec.  158.341  Treatment as a public document.

    A State's request for an adjustment to the MLR standard, and all 
information submitted as part of its request, will be treated as a 
public document. Instructions for how to access documents related to a 
State's request for an adjustment on the MLR standard will be made 
available on the Secretary's Web site.
0
62. Section 158.350 is revised to read as follows:


Sec.  158.350  Subsequent requests for adjustment to the medical loss 
ratio.

    A State that has made a previous request for an adjustment to the 
MLR standard must, in addition to the other information required by 
this subpart, submit information as to what steps the State has taken 
since its prior requests, if any, to improve the stability of the 
State's individual market.

    Dated: October 12, 2017.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: October 23, 2017.
Eric D. Hargan,
Acting Secretary, Department of Health and Human Services.
[FR Doc. 2017-23599 Filed 10-27-17; 4:15 pm]
 BILLING CODE 4120-01-P


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