51052 Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 

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. 

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 costsharing 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 Statebased Exchange, and State-based 

Exchanges on the Federal platform. 

Emily Ames, (301) 492–4246, for 

matters related to Navigators and nonNavigator 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 Federallyfacilitated 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, 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 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 Federallyfacilitated 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 SHOPregistered 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 nonNavigator assistance personnel subject 

to § 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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Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51055 

1Before 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. 

2The 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). 

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

section 2701 of the PHS Act and its implementing 

regulations will apply to all coverage offered in 

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

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

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

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. 

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. 

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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4By premium stabilization program, we are 

referring to the risk adjustment, risk corridors and 

reinsurance programs established by the PPACA. 

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 nondiscriminatory 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 lowerrisk populations; thereby, reducing 

incentives for issuers to avoid higherrisk 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

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 


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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. 

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 nonNavigator 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. 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 timelimited. 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 


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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®

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 

(§ 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 §§ 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 § 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 

§ 147.102(c)(3)(iii)(D) a reference to 

§ 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 

(§ 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 


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7As stated in the preamble to § 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. 

8See § 146.117(b). 

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 § 156.285 would apply for plan years 

starting before January 1, 2018. We also 

propose a new § 156.286, which 

specifies those requirements contained 

in § 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 

§ 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 § 156.286(e). The 

marketwide regulations at 

§ 147.104(b)(1)(i)(B) currently reference 

§ 156.285(e), and we propose to add a 

reference to § 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 § 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 

§ 147.104(b)(1)(i)(C) that, by crossreferencing § 155.725, apply those same 

requirements marketwide, and we do 

not propose to remove that marketwide 

requirement. We propose changes to 

§ 147.104 to reflect these proposed 

changes. Specifically, we propose to 

eliminate, from § 147.104(b)(1)(i)(C), the 

cross-reference to § 155.725. We propose 

in place of the cross-reference to 

explicitly specify in § 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 

§ 155.725. 

We propose to remove paragraph 

§ 147.104(b)(1)(iii), along with the crossreference to it in § 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 § 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 

§ 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 

§ 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 § 155.420 that 

apply off-Exchange, current regulations 

at § 147.104(b)(2)(ii) state that, in 

applying § 147.104(b)(2), a reference in 

§ 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 

§ 155.420, we are proposing a change to 

§ 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 § 147.104(b)(2). 

Therefore, we propose to amend 

§ 147.104(b)(2)(ii) to state that a 

reference in § 155.420 (other than in 

§ 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. 

We seek comment on these proposals. 

Among the special enrollment periods 

in § 155.420 that apply off-Exchange are 

those specified in § 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 

§ 155.420(d)(2)(i) and the requirement in 

§ 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 offExchange individual market, the special 

enrollment periods for when an 

individual gains a dependent or 


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9Available at https://www.whitehouse.gov/sites/

whitehouse.gov/files/omb/sequestration_reports/

2018_jc_sequestration_report_may2017_potus.pdf. 

becomes a new dependent under the 

circumstances described in 

§ 155.420(d)(2)(i) should apply to new 

and existing dependents (as is the case 

in the Exchanges when the requirement 

in § 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. 

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). 

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, nongrandfathered plans to higher risk, nongrandfathered plans in the individual 

and small group markets, inside and 

outside the Exchanges. In accordance 

with § 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 (§ 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 (§ 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® 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®

data will provide stability within the 

risk adjustment program and minimize 


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10See, for example, 2018 Payment Notice final 

rule, 81 FR 94058 (December 22, 2016). 

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® 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® 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® 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® data. 

We seek comment on our proposal to 

determine coefficients based on a blend 

of 2014 and 2015 MarketScan® 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®, 2015 

MarketScan®, and 2016 enrollee-level 

EDGE data for the final coefficients, 

instead of using only the 2016 enrolleelevel 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 (diagnosisonly, 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®

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 (HCV) Agents 037C, 036, 035, 034 ...... Chronic Hepatitis C, Cirrhosis of Liver, End-Stage Liver Disease, and Liver Transplant Status/Complications.imputation/severity. 

RXC 03 ........... Antiarrhythmics ......................... 142 .................................. Specified Heart Arrhythmias ........................................................ imputation/severity. 


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11 2018 Benefit Year Final HHS Risk Adjustment 

Model Coefficients. April 18, 2017. Available at 

https://www.cms.gov/CCIIO/Programs-andInitiatives/Premium-Stabilization-Programs/Downloads/2018-Benefit-Year-Final-HHS-RiskAdjustment-Model-Coefficients.pdf. 

TABLE 1—PROPOSED DRUG-DIAGNOSIS (RXC–HCC) PAIRS FOR THE 2019 ADULT MODEL—Continued 

RXC RXC label HCC HCC label Proposed RXC use 

RXC 04 ........... Phosphate Binders ................... 184, 183, 187, 188 ......... End Stage Renal Disease, Kidney Transplant Status, Chronic 

Kidney Disease, Stage 5, Chronic Kidney Disease, Severe 

(Stage 4).

imputation/severity. 

RXC 05 ........... Inflammatory Bowel Disease 

Agents.

048, 041 ......................... Inflammatory Bowel Disease, Intestine Transplant Status/Complications.imputation/severity. 

RXC 06 ........... Insulin ........................................ 019, 020, 021, 018 ......... Diabetes with Acute Complications; Diabetes with Chronic 

Complications; Diabetes without Complication, Pancreas 

Transplant Status/Complications.

imputation/severity. 

RXC 07 ........... Anti-Diabetic Agents, Except Insulin and Metformin Only.019, 020, 021, 018 ......... Diabetes with Acute Complications, Diabetes with Chronic 

Complications, Diabetes without Complication, Pancreas 

Transplant Status/Complications.

imputation/severity. 

RXC 08 ........... Multiple Sclerosis Agents ......... 118 .................................. Multiple Sclerosis ......................................................................... imputation/severity. 

RXC 09 ........... Immune Suppressants and 

Immunomodulators.

056, 057, 048, 041 ......... Rheumatoid Arthritis and Specified Autoimmune Disorders, 

Systemic Lupus Erythematosus and Other Autoimmune Disorders, Inflammatory Bowel Disease, Intestine Transplant 

Status/Complications.

imputation/severity. 

RXC 10 ........... Cystic Fibrosis Agents .............. 159, 158 ......................... Cystic Fibrosis, Lung Transplant Status/Complications .............. imputation/severity. 

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 noncatastrophic 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 highcost 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 highcost 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 highcost risk pool and improving the 

calculation of plan liability in the HHSoperated risk adjustment models for 

future benefit years. 

c. List of Factors To Be Employed in the 

Risk Adjustment Model (§ 153.320) 

The proposed factors resulting from 

the blended factors from the 2014 and 

2015 MarketScan® 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 highcost 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. 

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. 


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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, Systemic Inflammatory Response Syndrome/Shock .. 8.152 7.980 7.865 7.920 7.924 

HCC003 .......................... Central Nervous System Infections, Except Viral Meningitis ...................... 5.518 5.438 5.379 5.405 5.407 

HCC004 .......................... Viral or Unspecified Meningitis .................................................................... 4.063 3.867 3.741 3.677 3.676 

HCC006 .......................... Opportunistic Infections ............................................................................... 5.606 5.522 5.468 5.439 5.438 

HCC008 .......................... Metastatic Cancer ........................................................................................ 21.369 20.985 20.694 20.753 20.756 

HCC009 .......................... Lung, Brain, and Other Severe Cancers, Including Pediatric Acute 

Lymphoid Leukemia.

12.190 11.902 11.689 11.686 11.687 

HCC010 .......................... Non-Hodgkin’s Lymphomas and Other Cancers and Tumors .................... 5.316 5.119 4.971 4.910 4.907 

HCC011 .......................... Colorectal, Breast (Age < 50), Kidney, and Other Cancers ........................ 4.295 4.100 3.948 3.888 3.885 

HCC012 .......................... Breast (Age 50+) and Prostate Cancer, Benign/Uncertain Brain Tumors, 

and Other Cancers and Tumors.

2.528 2.386 2.275 2.212 2.209 

HCC013 .......................... Thyroid Cancer, Melanoma, Neurofibromatosis, and Other Cancers and 

Tumors.

1.195 1.076 0.976 0.869 0.864 

HCC018 .......................... Pancreas Transplant Status/Complications ................................................. 4.522 4.340 4.216 4.238 4.239 

HCC019 .......................... Diabetes with Acute Complications ............................................................. 0.624 0.555 0.490 0.416 0.412 

HCC020 .......................... Diabetes with Chronic Complications .......................................................... 0.624 0.555 0.490 0.416 0.412 

HCC021 .......................... Diabetes without Complication .................................................................... 0.624 0.555 0.490 0.416 0.412 

HCC023 .......................... Protein-Calorie Malnutrition ......................................................................... 11.390 11.380 11.365 11.434 11.438 

HCC026 .......................... Mucopolysaccharidosis ................................................................................ 2.122 2.025 1.949 1.887 1.884 

HCC027 .......................... Lipidoses and Glycogenosis ........................................................................ 2.122 2.025 1.949 1.887 1.884 

HCC029 .......................... Amyloidosis, Porphyria, and Other Metabolic Disorders ............................. 2.122 2.025 1.949 1.887 1.884 

HCC030 .......................... Adrenal, Pituitary, and Other Significant Endocrine Disorders .................... 2.122 2.025 1.949 1.887 1.884 

HCC034 .......................... Liver Transplant Status/Complications ........................................................ 10.018 9.924 9.866 9.856 9.856 

HCC035 .......................... End-Stage Liver Disease ............................................................................. 5.862 5.675 5.548 5.558 5.559 

HCC036 .......................... Cirrhosis of Liver .......................................................................................... 2.158 2.040 1.962 1.918 1.916 

HCC037_1 ...................... Chronic Viral Hepatitis C ............................................................................. 0.430 0.327 0.283 0.259 0.258 

HCC037_2 ...................... Chronic Hepatitis, Other/Unspecified ........................................................... 0.430 0.327 0.283 0.259 0.258 

HCC038 .......................... Acute Liver Failure/Disease, Including Neonatal Hepatitis ......................... 4.242 4.105 4.008 3.986 3.985 

HCC041 .......................... Intestine Transplant Status/Complications .................................................. 29.207 29.126 29.062 29.112 29.112 

HCC042 .......................... Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis ................. 9.688 9.465 9.302 9.321 9.323 

HCC045 .......................... Intestinal Obstruction ................................................................................... 5.465 5.238 5.087 5.089 5.090 

HCC046 .......................... Chronic Pancreatitis ..................................................................................... 4.522 4.340 4.216 4.238 4.239 

HCC047 .......................... Acute Pancreatitis/Other Pancreatic Disorders and Intestinal Malabsorption.2.204 2.054 1.947 1.882 1.880 

HCC048 .......................... Inflammatory Bowel Disease ....................................................................... 2.094 1.926 1.795 1.702 1.698 

HCC054 .......................... Necrotizing Fasciitis ..................................................................................... 5.492 5.329 5.207 5.219 5.220 

HCC055 .......................... Bone/Joint/Muscle Infections/Necrosis ........................................................ 5.492 5.329 5.207 5.219 5.220 

HCC056 .......................... Rheumatoid Arthritis and Specified Autoimmune Disorders ....................... 3.393 3.217 3.077 3.031 3.029 

HCC057 .......................... Systemic Lupus Erythematosus and Other Autoimmune Disorders ........... 1.032 0.923 0.831 0.726 0.720 

HCC061 .......................... Osteogenesis Imperfecta and Other Osteodystrophies ............................... 2.586 2.421 2.290 2.217 2.213 

HCC062 .......................... Congenital/Developmental Skeletal and Connective Tissue Disorders ...... 2.586 2.421 2.290 2.217 2.213 

HCC063 .......................... Cleft Lip/Cleft Palate .................................................................................... 1.108 0.963 0.856 0.777 0.773 

HCC066 .......................... Hemophilia ................................................................................................... 43.857 43.613 43.412 43.412 43.412 

HCC067 .......................... Myelodysplastic Syndromes and Myelofibrosis ........................................... 11.329 11.211 11.123 11.130 11.132 

HCC068 .......................... Aplastic Anemia ........................................................................................... 11.329 11.211 11.123 11.130 11.132 

HCC069 .......................... Acquired Hemolytic Anemia, Including Hemolytic Disease of Newborn ..... 7.452 7.322 7.217 7.188 7.187 

HCC070 .......................... Sickle Cell Anemia (Hb-SS) ......................................................................... 7.452 7.322 7.217 7.188 7.187 

HCC071 .......................... Thalassemia Major ....................................................................................... 7.452 7.322 7.217 7.188 7.187 

HCC073 .......................... Combined and Other Severe Immunodeficiencies ...................................... 5.031 4.913 4.827 4.827 4.827 

HCC074 .......................... Disorders of the Immune Mechanism .......................................................... 5.031 4.913 4.827 4.827 4.827 

HCC075 .......................... Coagulation Defects and Other Specified Hematological Disorders ........... 2.419 2.339 2.274 2.237 2.235 

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 Bipolar Disorders ..................................................... 1.545 1.407 1.297 1.191 1.186 

HCC089 .......................... Reactive and Unspecified Psychosis, Delusional Disorders ....................... 1.545 1.407 1.297 1.191 1.186 

HCC090 .......................... Personality Disorders ................................................................................... 1.055 0.948 0.846 0.736 0.731 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
51064 Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 

TABLE 2—PROPOSED ADULT RISK ADJUSTMENT MODEL FACTORS FOR 2019 BENEFIT YEAR A—Continued 

HCC or RXC No. Factor Platinum Gold Silver Bronze Catastrophic 

HCC094 .......................... Anorexia/Bulimia Nervosa ............................................................................ 2.381 2.241 2.130 2.064 2.061 

HCC096 .......................... Prader-Willi, Patau, Edwards, and Autosomal Deletion Syndromes ........... 2.057 1.952 1.870 1.810 1.807 

HCC097 .......................... Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes.0.845 0.758 0.679 0.599 0.595 

HCC102 .......................... Autistic Disorder ........................................................................................... 1.055 0.948 0.846 0.736 0.731 

HCC103 .......................... Pervasive Developmental Disorders, Except Autistic Disorder ................... 1.055 0.948 0.846 0.736 0.731 

HCC106 .......................... Traumatic Complete Lesion Cervical Spinal Cord ....................................... 9.063 8.932 8.834 8.822 8.821 

HCC107 .......................... Quadriplegia ................................................................................................. 9.063 8.932 8.834 8.822 8.821 

HCC108 .......................... Traumatic Complete Lesion Dorsal Spinal Cord ......................................... 7.368 7.239 7.144 7.121 7.120 

HCC109 .......................... Paraplegia .................................................................................................... 7.368 7.239 7.144 7.121 7.120 

HCC110 .......................... Spinal Cord Disorders/Injuries ..................................................................... 5.019 4.833 4.698 4.663 4.662 

HCC111 .......................... Amyotrophic Lateral Sclerosis and Other Anterior Horn Cell Disease ........ 2.107 1.911 1.772 1.707 1.705 

HCC112 .......................... Quadriplegic Cerebral Palsy ........................................................................ 0.433 0.289 0.181 0.108 0.107 

HCC113 .......................... Cerebral Palsy, Except Quadriplegic ........................................................... 0.364 0.264 0.181 0.108 0.107 

HCC114 .......................... Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies.0.016 0.000 0.000 0.000 0.000 

HCC115 .......................... Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy.5.116 4.991 4.900 4.882 4.881 

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, Huntington’s, and Spinocerebellar Disease, and Other 

Neurodegenerative Disorders.

2.109 1.970 1.873 1.783 1.778 

HCC120 .......................... Seizure Disorders and Convulsions ............................................................ 1.423 1.288 1.183 1.100 1.096 

HCC121 .......................... Hydrocephalus ............................................................................................. 4.823 4.717 4.628 4.597 4.596 

HCC122 .......................... Non-Traumatic Coma, and Brain Compression/Anoxic Damage ................ 8.085 7.965 7.866 7.861 7.860 

HCC125 .......................... Respirator Dependence/Tracheostomy Status ............................................ 27.074 27.045 27.016 27.096 27.100 

HCC126 .......................... Respiratory Arrest ........................................................................................ 8.400 8.265 8.168 8.241 8.245 

HCC127 .......................... Cardio-Respiratory Failure and Shock, Including Respiratory Distress 

Syndromes.

8.400 8.265 8.168 8.241 8.245 

HCC128 .......................... Heart Assistive Device/Artificial Heart ......................................................... 27.593 27.404 27.268 27.331 27.336 

HCC129 .......................... Heart Transplant .......................................................................................... 27.593 27.404 27.268 27.331 27.336 

HCC130 .......................... Congestive Heart Failure ............................................................................. 2.847 2.758 2.693 2.686 2.686 

HCC131 .......................... Acute Myocardial Infarction ......................................................................... 8.501 8.214 8.005 8.114 8.120 

HCC132 .......................... Unstable Angina and Other Acute Ischemic Heart Disease ....................... 4.515 4.281 4.129 4.132 4.133 

HCC135 .......................... Heart Infection/Inflammation, Except Rheumatic ........................................ 5.135 5.022 4.938 4.908 4.907 

HCC142 .......................... Specified Heart Arrhythmias ........................................................................ 2.365 2.241 2.148 2.080 2.077 

HCC145 .......................... Intracranial Hemorrhage .............................................................................. 7.686 7.448 7.279 7.270 7.270 

HCC146 .......................... Ischemic or Unspecified Stroke ................................................................... 2.324 2.176 2.085 2.079 2.079 

HCC149 .......................... Cerebral Aneurysm and Arteriovenous Malformation .................................. 3.171 3.011 2.895 2.840 2.837 

HCC150 .......................... Hemiplegia/Hemiparesis .............................................................................. 4.396 4.314 4.257 4.306 4.309 

HCC151 .......................... Monoplegia, Other Paralytic Syndromes ..................................................... 2.634 2.522 2.444 2.414 2.413 

HCC153 .......................... Atherosclerosis of the Extremities with Ulceration or Gangrene ................. 9.113 9.051 9.004 9.096 9.101 

HCC154 .......................... Vascular Disease with Complications .......................................................... 6.411 6.255 6.143 6.133 6.133 

HCC156 .......................... Pulmonary Embolism and Deep Vein Thrombosis ...................................... 3.132 2.995 2.895 2.850 2.848 

HCC158 .......................... Lung Transplant Status/Complications ........................................................ 25.523 25.380 25.270 25.354 25.358 

HCC159 .......................... Cystic Fibrosis .............................................................................................. 11.222 10.969 10.767 10.781 10.782 

HCC160 .......................... Chronic Obstructive Pulmonary Disease, Including Bronchiectasis ............ 0.859 0.766 0.683 0.595 0.591 

HCC161 .......................... Asthma ......................................................................................................... 0.859 0.766 0.683 0.595 0.591 

HCC162 .......................... Fibrosis of Lung and Other Lung Disorders ................................................ 1.724 1.629 1.562 1.510 1.507 

HCC163 .......................... Aspiration and Specified Bacterial Pneumonias and Other Severe Lung 

Infections.

5.920 5.866 5.827 5.835 5.836 

HCC183 .......................... Kidney Transplant Status ............................................................................. 7.636 7.438 7.304 7.276 7.276 

HCC184 .......................... End Stage Renal Disease ........................................................................... 31.427 31.237 31.086 31.232 31.238 

HCC187 .......................... Chronic Kidney Disease, Stage 5 ................................................................ 1.369 1.313 1.276 1.285 1.286 

HCC188 .......................... Chronic Kidney Disease, Stage 4 ................................................................ 1.369 1.313 1.276 1.285 1.286 

HCC203 .......................... Ectopic and Molar Pregnancy, Except with Renal Failure, Shock, or Embolism.1.219 1.074 0.947 0.745 0.733 

HCC204 .......................... Miscarriage with Complications ................................................................... 1.219 1.074 0.947 0.745 0.733 

HCC205 .......................... Miscarriage with No or Minor Complications ............................................... 1.219 1.074 0.947 0.745 0.733 

HCC207 .......................... Completed Pregnancy With Major Complications ....................................... 3.243 2.827 2.608 2.399 2.398 

HCC208 .......................... Completed Pregnancy With Complications ................................................. 3.243 2.827 2.608 2.399 2.398 

HCC209 .......................... Completed Pregnancy with No or Minor Complications .............................. 3.243 2.827 2.608 2.399 2.398 

HCC217 .......................... Chronic Ulcer of Skin, Except Pressure ...................................................... 1.958 1.865 1.801 1.788 1.788 

HCC226 .......................... Hip Fractures and Pathological Vertebral or Humerus Fractures ............... 8.626 8.433 8.291 8.324 8.326 

HCC227 .......................... Pathological Fractures, Except of Vertebrae, Hip, or Humerus .................. 2.240 2.124 2.033 1.957 1.954 

HCC251 .......................... Stem Cell, Including Bone Marrow, Transplant Status/Complications ........ 23.527 23.526 23.520 23.544 23.544 

HCC253 .......................... Artificial Openings for Feeding or Elimination ............................................. 8.149 8.067 8.005 8.041 8.043 

HCC254 .......................... Amputation Status, Lower Limb/Amputation Complications ........................ 3.928 3.819 3.740 3.770 3.772 

Interaction Factors 

SEVERE × HCC006 ....... Severe illness × Opportunistic Infections ..................................................... 8.221 8.406 8.532 8.658 8.663 

SEVERE × HCC008 ....... Severe illness × Metastatic Cancer ............................................................. 8.221 8.406 8.532 8.658 8.663 

SEVERE × HCC009 ....... Severe illness × Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia.8.221 8.406 8.532 8.658 8.663 

SEVERE × HCC010 ....... Severe illness × Non-Hodgkin’s Lymphomas and Other Cancers and Tumors.8.221 8.406 8.532 8.658 8.663 

SEVERE × HCC115 ....... Severe illness × Myasthenia Gravis/Myoneural Disorders and GuillainBarre Syndrome/Inflammatory and Toxic Neuropathy.8.221 8.406 8.532 8.658 8.663 

SEVERE × HCC135 ....... Severe illness × Heart Infection/Inflammation, Except Rheumatic .............. 8.221 8.406 8.532 8.658 8.663 

SEVERE × HCC145 ....... Severe illness × Intracranial Hemorrhage ................................................... 8.221 8.406 8.532 8.658 8.663 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51065 

TABLE 2—PROPOSED ADULT RISK ADJUSTMENT MODEL FACTORS FOR 2019 BENEFIT YEAR A—Continued 

HCC or RXC No. Factor Platinum Gold Silver Bronze Catastrophic 

SEVERE × G06 .............. Severe illness × HCC group G06 (G06 is HCC Group 6 which includes 

the following HCCs in the blood disease category: 67, 68).

8.221 8.406 8.532 8.658 8.663 

SEVERE × G08 .............. Severe illness × HCC group G08 (G08 is HCC Group 8 which includes 

the following HCCs in the blood disease category: 73, 74).

8.221 8.406 8.532 8.658 8.663 

SEVERE × HCC035 ....... Severe illness × End-Stage Liver Disease .................................................. 1.816 1.916 1.979 2.088 2.092 

SEVERE × HCC038 ....... Severe illness × Acute Liver Failure/Disease, Including Neonatal Hepatitis 1.816 1.916 1.979 2.088 2.092 

SEVERE × HCC153 ....... Severe illness × Atherosclerosis of the Extremities with Ulceration or 

Gangrene.

1.816 1.916 1.979 2.088 2.092 

SEVERE × HCC154 ....... Severe illness × Vascular Disease with Complications ............................... 1.816 1.916 1.979 2.088 2.092 

SEVERE × HCC163 ....... Severe illness × Aspiration and Specified Bacterial Pneumonias and 

Other Severe Lung Infections.

1.816 1.916 1.979 2.088 2.092 

SEVERE × HCC253 ....... Severe illness × Artificial Openings for Feeding or Elimination .................. 1.816 1.916 1.979 2.088 2.092 

SEVERE × G03 .............. Severe illness × HCC group G03 (G03 is HCC Group 3 which includes 

the following HCCs in the musculoskeletal disease category: 54, 55).

1.816 1.916 1.979 2.088 2.092 

Enrollment Duration Factors 

One month of enrollment ............................................................................. 0.491 0.431 0.385 0.363 0.363 

Two months of enrollment ........................................................................... 0.439 0.384 0.337 0.317 0.316 

Three months of enrollment ......................................................................... 0.356 0.308 0.264 0.245 0.244 

Four months of enrollment ........................................................................... 0.302 0.261 0.222 0.204 0.204 

Five months of enrollment ........................................................................... 0.263 0.229 0.195 0.179 0.178 

Six months of enrollment ............................................................................. 0.220 0.193 0.164 0.148 0.147 

Seven months of enrollment ........................................................................ 0.217 0.191 0.164 0.148 0.147

Eight months of enrollment .......................................................................... 0.160 0.141 0.121 0.109 0.109 

Nine months of enrollment ........................................................................... 0.121 0.107 0.095 0.088 0.088 

Ten months of enrollment ............................................................................ 0.106 0.098 0.090 0.086 0.086 

Eleven months of enrollment ....................................................................... 0.097 0.091 0.085 0.083 0.083

Prescription Drug Factors 

RXC 01 ........................... Anti-HIV Agents ........................................................................................... 7.903 7.394 7.016 6.869 6.863 

RXC 02 ........................... Anti-Hepatitis C (HCV) Agents .................................................................... 42.192 41.724 41.357 41.522 41.530 

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 Disease Agents ........................................................... 1.926 1.751 1.620 1.446 1.437 

RXC 06 ........................... Insulin ........................................................................................................... 1.520 1.384 1.235 1.059 1.049 

RXC 07 ........................... Anti-Diabetic Agents, Except Insulin and Metformin Only ........................... 0.499 0.437 0.369 0.282 0.277 

RXC 08 ........................... Multiple Sclerosis Agents ............................................................................. 20.967 20.276 19.754 19.796 19.801 

RXC 09 ........................... Immune Suppressants and Immunomodulators .......................................... 12.856 12.303 11.895 11.956 11.959 

RXC 10 ........................... Cystic Fibrosis Agents ................................................................................. 10.619 10.340 10.149 10.250 10.255 

RXC 01 × HCC001 ......... Additional effect for enrollees with RxC 01 (Anti-HIV Agents) and HCC 

001 (HIV/AIDS).

2.849 2.926 2.995 3.292 3.306 

RXC 02 × HCC037_1, 

036, 035, 034.

Additional effect 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)).

3.993 4.162 4.267 4.300 4.301 

RXC 03 × HCC142 ......... Additional effect for enrollees with RxC 03 (Antiarrhythmics) and HCC 

142 (Specified Heart Arrhythmias).

0.000 0.000 0.000 0.000 0.000 

RXC 04 × HCC184, 183, 

187, 188.

Additional effect 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)).

0.000 0.000 0.000 0.000 0.000 

RXC 05 × HCC048, 041 Additional effect for enrollees with RxC 05 (Inflammatory Bowel Disease 

Agents) and (HCC 048 (Inflammatory Bowel Disease) or 041 (Intestine 

Transplant Status/Complications)).

¥1.002 ¥0.915 ¥0.829 ¥0.721 ¥0.715 

RXC 06 × HCC018, 019, 

020, 021.

Additional effect 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)).

0.444 0.410 0.463 0.550 0.555 

RXC 07 × HCC018, 019, 

020, 021.

Additional effect 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)).

¥0.174 ¥0.161 ¥0.129 ¥0.129 ¥0.130 

RXC 08 × HCC118 ......... Additional effect for enrollees with RxC 08 (Multiple Sclerosis Agents) 

and HCC 118 (Multiple Sclerosis).

¥4.718 ¥4.268 ¥3.935 ¥3.822 ¥3.819 

RXC 09 × HCC056 or 

057 and 048 or 041.

Additional effect 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)).

¥0.505 ¥0.528 ¥0.536 ¥0.574 ¥0.576 

RXC 09 × HCC056 ......... Additional effect for enrollees with RxC 09 (Immune Suppressants and 

Immunomodulators) and HCC 056 (Rheumatoid Arthritis and Specified 

Autoimmune Disorders).

¥2.712 ¥2.470 ¥2.285 ¥2.173 ¥2.168 

RXC 09 × HCC057 ......... Additional effect for enrollees with RxC 09 (Immune Suppressants and 

Immunomodulators) and HCC 057 (Systemic Lupus Erythematosus 

and Other Autoimmune Disorders).

¥0.434 ¥0.272 ¥0.144 0.012 0.020 

RXC 09 × HCC048, 041 Additional effect for enrollees with RxC 09 (Immune Suppressants and 

Immunomodulators) and (HCC 048 (Inflammatory Bowel Disease) or 

041 (Intestine Transplant Status/Complications)).

1.311 1.573 1.744 1.909 1.917 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
51066 Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 

TABLE 2—PROPOSED ADULT RISK ADJUSTMENT MODEL FACTORS FOR 2019 BENEFIT YEAR A—Continued 

HCC or RXC No. Factor Platinum Gold Silver Bronze Catastrophic 

RXC 10 × HCC159, 158 Additional effect for enrollees with RxC 10 (Cystic Fibrosis Agents) and 

(HCC 159 (Cystic Fibrosis) or 158 (Lung Transplant Status/Complications)).

29.675 29.853 29.949 29.967 29.967 

A The proposed risk adjustment model factors for the 2019 benefit year include blended coefficients based on separately solved 2014 and 2015 MarketScan® 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® 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 Inflammatory Response 

Syndrome/Shock .............................................................. 13.174 13.022 12.922 12.938 12.940 

Central Nervous System Infections, Except Viral Meningitis ................................................................................... 7.345 7.194 7.085 7.094 7.095 

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 Cancers, Including Pediatric Acute Lymphoid Leukemia ....................................... 9.654 9.442 9.264 9.190 9.186 

Non-Hodgkin’s Lymphomas and Other Cancers and Tumors .................................................................................. 8.104 7.883 7.707 7.615 7.611 

Colorectal, Breast (Age <50), Kidney, and Other Cancers 2.866 2.706 2.572 2.460 2.454 

Breast (Age 50+) and Prostate Cancer, Benign/Uncertain 

Brain Tumors, and Other Cancers and Tumors .............. 2.866 2.706 2.572 2.460 2.454 

Thyroid Cancer, Melanoma, Neurofibromatosis, and Other 

Cancers and Tumors ........................................................ 1.218 1.090 0.977 0.858 0.852 

Pancreas Transplant Status/Complications ......................... 21.519 21.274 21.082 21.114 21.116 

Diabetes with Acute Complications ..................................... 2.422 2.129 1.939 1.683 1.672 

Diabetes with Chronic Complications .................................. 2.422 2.129 1.939 1.683 1.672 

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, Not Elsewhere Classified 8.584 8.361 8.176 8.141 8.139 

Amyloidosis, Porphyria, and Other Metabolic Disorders ..... 8.584 8.361 8.176 8.141 8.139 

Adrenal, Pituitary, and Other Significant Endocrine Disorders ............................................................................... 8.584 8.361 8.176 8.141 8.139 

Liver Transplant Status/Complications ................................ 21.519 21.274 21.082 21.114 21.116 

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/Unspecified ................................... 1.679 1.571 1.470 1.385 1.381 

Acute Liver Failure/Disease, Including Neonatal Hepatitis 10.719 10.579 10.476 10.479 10.480 

Intestine Transplant Status/Complications .......................... 21.519 21.274 21.082 21.114 21.116 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51067 

TABLE 4—PROPOSED CHILD RISK ADJUSTMENT MODEL FACTORS FOR 2019 BENEFIT YEAR—Continued 

Factor Platinum Gold Silver Bronze Catastrophic 

Peritonitis/Gastrointestinal Perforation/Necrotizing 

Enterocolitis ...................................................................... 10.481 10.202 9.989 9.995 9.996 

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 Pancreatic Disorders and Intestinal Malabsorption ........................................................... 2.107 1.992 1.891 1.793 1.788 

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/Necrosis ................................ 3.868 3.678 3.524 3.459 3.456 

Rheumatoid Arthritis and Specified Autoimmune Disorders 4.271 4.056 3.872 3.782 3.778 

Systemic Lupus Erythematosus and Other Autoimmune 

Disorders .......................................................................... 1.227 1.111 0.999 0.872 0.867 

Osteogenesis Imperfecta and Other Osteodystrophies ...... 1.364 1.258 1.162 1.079 1.075 

Congenital/Developmental Skeletal and Connective Tissue 

Disorders .......................................................................... 1.364 1.258 1.162 1.079 1.075 

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 Myelofibrosis ................... 12.015 11.906 11.825 11.801 11.800 

Aplastic Anemia ................................................................... 12.015 11.906 11.825 11.801 11.800 

Acquired Hemolytic Anemia, Including Hemolytic Disease 

of Newborn ....................................................................... 6.603 6.387 6.217 6.130 6.126 

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 Immunodeficiencies .............. 6.007 5.869 5.759 5.696 5.693 

Disorders of the Immune Mechanism .................................. 6.007 5.869 5.759 5.696 5.693 

Coagulation Defects and Other Specified Hematological 

Disorders .......................................................................... 4.186 4.074 3.976 3.905 3.902 

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 Disorders ............................. 1.809 1.621 1.462 1.283 1.275 

Reactive and Unspecified Psychosis, Delusional Disorders 1.681 1.507 1.356 1.179 1.171 

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, and Autosomal Deletion 

Syndromes ....................................................................... 2.339 2.176 2.067 2.032 2.031 

Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes ................ 1.838 1.693 1.582 1.491 1.487 

Autistic Disorder ................................................................... 1.513 1.364 1.228 1.070 1.063 

Pervasive Developmental Disorders, Except Autistic Disorder ................................................................................. 0.737 0.640 0.528 0.382 0.375 

Traumatic Complete Lesion Cervical Spinal Cord .............. 12.154 12.087 12.058 12.138 12.142 

Quadriplegia ......................................................................... 12.154 12.087 12.058 12.138 12.142 

Traumatic Complete Lesion Dorsal Spinal Cord ................. 10.641 10.489 10.347 10.348 10.348 

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 and Other Anterior Horn 

Cell Disease ..................................................................... 7.137 6.947 6.796 6.711 6.706 

Quadriplegic Cerebral Palsy ................................................ 3.125 2.921 2.787 2.797 2.797 

Cerebral Palsy, Except Quadriplegic ................................... 0.730 0.588 0.484 0.395 0.391 

Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies ............................................................. 1.219 1.108 1.019 0.949 0.946 

Myasthenia Gravis/Myoneural Disorders and Guillain-Barre 

Syndrome/Inflammatory and Toxic Neuropathy ............... 8.961 8.809 8.687 8.653 8.652 

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 Spinocerebellar Disease, 

and Other Neurodegenerative Disorders ......................... 2.675 2.515 2.397 2.310 2.307 

Seizure Disorders and Convulsions .................................... 1.887 1.743 1.611 1.470 1.463 

Hydrocephalus ..................................................................... 3.800 3.697 3.620 3.605 3.605 

Non-Traumatic Coma, and Brain Compression/Anoxic 

Damage ............................................................................ 5.359 5.248 5.156 5.116 5.114 

Respirator Dependence/Tracheostomy Status .................... 31.233 31.127 31.052 31.184 31.190 

Respiratory Arrest ................................................................ 9.997 9.799 9.667 9.653 9.653 

Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes ............................................ 9.997 9.799 9.667 9.653 9.653 

Heart Assistive Device/Artificial Heart ................................. 21.519 21.274 21.082 21.114 21.116 

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 Ischemic Heart Disease 4.541 4.481 4.446 4.422 4.421 

Heart Infection/Inflammation, Except Rheumatic ................ 11.390 11.285 11.206 11.181 11.179 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
51068 Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 

TABLE 4—PROPOSED CHILD RISK ADJUSTMENT MODEL FACTORS FOR 2019 BENEFIT YEAR—Continued 

Factor Platinum Gold Silver Bronze Catastrophic 

Hypoplastic Left Heart Syndrome and Other Severe Congenital Heart Disorders .................................................... 5.172 5.012 4.857 4.735 4.729 

Major Congenital Heart/Circulatory Disorders ..................... 1.451 1.360 1.244 1.128 1.122 

Atrial and Ventricular Septal Defects, Patent Ductus 

Arteriosus, and Other Congenital Heart/Circulatory Disorders ............................................................................... 0.894 0.810 0.707 0.612 0.609 

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 Arteriovenous Malformation ......... 3.425 3.247 3.122 3.047 3.043 

Hemiplegia/Hemiparesis ...................................................... 3.713 3.626 3.568 3.555 3.555 

Monoplegia, Other Paralytic Syndromes ............................. 2.871 2.748 2.664 2.635 2.635 

Atherosclerosis of the Extremities with Ulceration or Gangrene ................................................................................ 10.177 9.954 9.794 9.715 9.712 

Vascular Disease with Complications .................................. 15.267 15.144 15.047 15.063 15.063 

Pulmonary Embolism and Deep Vein Thrombosis .............. 12.509 12.400 12.319 12.358 12.360 

Lung Transplant Status/Complications ................................ 21.519 21.274 21.082 21.114 21.116 

Cystic Fibrosis ...................................................................... 21.519 21.274 21.082 21.114 21.116 

Chronic Obstructive Pulmonary Disease, Including 

Bronchiectasis .................................................................. 0.364 0.303 0.220 0.128 0.123 

Asthma ................................................................................. 0.364 0.303 0.220 0.128 0.123 

Fibrosis of Lung and Other Lung Disorders ........................ 3.740 3.635 3.537 3.471 3.469 

Aspiration and Specified Bacterial Pneumonias and Other 

Severe Lung Infections .................................................... 8.744 8.694 8.652 8.688 8.690 

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 (Stage 4) ......................... 1.895 1.768 1.660 1.557 1.555 

Ectopic and Molar Pregnancy, Except with Renal Failure, 

Shock, or Embolism ......................................................... 1.049 0.899 0.765 0.553 0.542 

Miscarriage with Complications ........................................... 1.049 0.899 0.765 0.553 0.542 

Miscarriage with No or Minor Complications ....................... 1.049 0.899 0.765 0.553 0.542 

Completed Pregnancy With Major Complications ............... 2.784 2.404 2.197 1.961 1.958 

Completed Pregnancy With Complications ......................... 2.784 2.404 2.197 1.961 1.958 

Completed Pregnancy with No or Minor Complications ...... 2.784 2.404 2.197 1.961 1.958 

Chronic Ulcer of Skin, Except Pressure .............................. 2.025 1.939 1.854 1.785 1.781 

Hip Fractures and Pathological Vertebral or Humerus 

Fractures .......................................................................... 5.331 5.100 4.905 4.806 4.802 

Pathological Fractures, Except of Vertebrae, Hip, or Humerus ................................................................................ 1.417 1.296 1.168 1.028 1.019 

Stem Cell, Including Bone Marrow, Transplant Status/

Complications ................................................................... 21.519 21.274 21.082 21.114 21.116 

Artificial Openings for Feeding or Elimination ..................... 11.532 11.432 11.368 11.481 11.487 

Amputation Status, Lower Limb/Amputation Complications 7.235 7.007 6.844 6.738 6.734 

TABLE 5—PROPOSED INFANT RISK ADJUSTMENT MODEL FACTORS FOR 2019 BENEFIT YEAR

Group Platinum Gold Silver Bronze Catastrophic 

Extremely Immature * Severity Level 5 (Highest) ............... 268.917 267.690 266.660 266.665 266.666 

Extremely Immature * Severity Level 4 ............................... 164.057 162.851 161.848 161.805 161.804 

Extremely Immature * Severity Level 3 ............................... 34.929 34.068 33.319 33.095 33.090 

Extremely Immature * Severity Level 2 ............................... 34.929 34.068 33.319 33.095 33.090 

Extremely Immature * Severity Level 1 (Lowest) ................ 34.929 34.068 33.319 33.095 33.090 

Immature * Severity Level 5 (Highest) ................................ 163.691 162.498 161.499 161.501 161.503 

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 (Lowest) ................................. 24.515 23.529 22.711 22.500 22.490 

Premature/Multiples * Severity Level 5 (Highest) ................ 118.666 117.511 116.565 116.511 116.512 

Premature/Multiples * Severity Level 4 ............................... 26.998 25.884 24.983 24.819 24.815 

Premature/Multiples * Severity Level 3 ............................... 13.865 13.000 12.294 11.914 11.898 

Premature/Multiples * Severity Level 2 ............................... 7.702 7.015 6.435 5.861 5.832 

Premature/Multiples * Severity Level 1 (Lowest) ................ 5.180 4.663 4.139 3.538 3.508 

Term * Severity Level 5 (Highest) ....................................... 94.243 93.167 92.263 92.087 92.080 

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 (Highest) ....................................... 49.506 48.891 48.377 48.287 48.283 

Age1 * Severity Level 4 ....................................................... 8.229 7.779 7.399 7.151 7.141 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51069 

TABLE 5—PROPOSED INFANT RISK ADJUSTMENT MODEL FACTORS FOR 2019 BENEFIT YEAR—Continued 

Group Platinum Gold Silver Bronze Catastrophic 

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. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
51070 Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 

TABLE 7—HHS HCCS INCLUDED IN INFANT MODEL SEVERITY CATEGORIES—Continued 

Severity category HCC 

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. 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51071 

12Winkleman, Ross and Syed Mehmud. ‘‘A 

Comparative Analysis of Claims-Based Tools for 

Health Risk Assessment.’’ Society of Actuaries. 

April 2007. 

d. Cost-Sharing Reductions Adjustments 

(§ 153.320) 

We propose to continue including an 

adjustment for the receipt of costsharing reductions in the model to 

account for increased plan liability due 

to increased utilization of healthcare 

services by enrollees receiving costsharing 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

Household income Plan AV 

Induced 

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 

(§ 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 Rsquared 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®

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. 

TABLE 9—R-SQUARED STATISTIC FOR PROPOSED HHS RISK ADJUSTMENT MODELS

Risk adjustment model 

R-squared statistic 

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 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
51072 Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 

13 81 FR 94099, 94100. (December 22, 2016). 

Available at https://www.gpo.gov/fdsys/pkg/FR2016-12-22/pdf/2016-30433.pdf. 

14 91 FR 29146, 29152. (May 11, 2016). Available 

at https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/

pdf/2016-11017.pdf. 

TABLE 9—R-SQUARED STATISTIC FOR PROPOSED HHS RISK ADJUSTMENT MODELS—Continued 

Risk adjustment model 

R-squared statistic 

2014 2015 

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 (§ 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: 

Where: 

si = 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. 

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. 

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 


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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 Statespecific 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: 


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15Starting with the 2017 benefit year, no State has 

elected to operate a risk adjustment program. 

Therefore, HHS operates risk adjustment in all 

States. 

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 (§ 153.630) 

HHS will conduct risk adjustment 

data validation under § 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 § 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. 

i. Payment Adjustments for Error Rates 

Under § 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 budgetneutral 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 


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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. 

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. 

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 


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17For 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. 

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. 

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. 

vi. Mental and Behavioral Health 

Records 

Under § 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 § 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. 

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 § 153.630(b)(8), the initial 

validation auditor must measure and 

report to the issuer and HHS, in a 

manner and timeframe specified by 


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Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51077 

19Pursuant to § 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. 

20Available at https://www.cms.gov/CCIIO/

Resources/Regulations-and-Guidance/Downloads/

RA-Adjustment-Guidance-9-2-15.pdf. 

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 § 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 § 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 noncompliance with the risk adjustment 

data validation standards and 

requirements. Specifically, we propose 

to amend § 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 § 156.805(b) 

through (e). We note that § 153.630(b)(9) 

already addresses the possible 

imposition of CMPs for (1) and (2) 

above, and provides a cross-reference to 

§ 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 

§ 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 § 153.350(c). 

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 § 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 

§ 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 § 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 

§ 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. 

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 


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21Calculation of the dollar value will include 

adjustment to the statewide premium average and, 

to the extent possible, adjustment to the geographic 

cost factor. 

22See Rate Increase Disclosure and Review; Final 

Rule, 76 FR 29964, 29966 (May 23, 2011). 

23See Student Health Insurance Coverage Final 

Rule 77 FR 16453 (March 21, 2012). 24A 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 schoolrelated 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). 

26 45 CFR 147.145. 

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. 

h. Risk Adjustment User Fee for 2019 

Benefit Year (§ 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 (§ 154.103) 

Since July 18, 2011, issuers have been 

required to submit rate filing 

justifications for rate increases for nongrandfathered 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

We propose to modify § 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 

§ 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 


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27See preamble discussion in the proposed rule, 

‘‘Rate Increase Disclosure and Review’’ 75 FR 

81004, 81009 (December 23, 2010). 28See preamble discussion in the final rule, 

‘‘Health Insurance Market Rules; Rate Review’’ 78 

FR 13406, 13424 (February 27, 2013). 

29The 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. 

30https://www.cms.gov/CCIIO/Resources/Files/

Downloads/dwnlds/rrjssptguidance.pdf. 

31https://www.cms.gov/CCIIO/Programs-andInitiatives/Health-Insurance-Market-Reforms/

sst.html. 

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

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 

(§ 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

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 Statespecific threshold. We propose to 

amend § 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. 

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 


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32This 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. 

33 80 FR 10782. 

34See, 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-timelinebulletin-4-13-17.pdf. 

not post information on States where 

the Federal default or a stricter Statespecific 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. 

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 § 154.200 to align with the 

changes described above. 

We seek comment on these proposals. 

3. Submission of Rate Filing 

Justification (§ 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 § 154.215(h)(2) to refer to 45 CFR 

5.31(d) because 45 CFR 5.65 no longer 

exists and § 5.31(d) now lists the 

reasons a record may be withheld. 

4. Timing of Providing the Rate Filing 

Justification (§ 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 nonQHPs, 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

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 

§ 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 nonQHPs. 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 nonQHPs 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 

§ 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 (§ 154.301) 

a. State Posting of Rate Increases 

We propose to modify § 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 


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public comments on proposed rate 

increases subject to review and must 

post the required rate filing information 

by the applicable deadlines established 

under § 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 § 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 (§ 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 § 155.220(c)(3) and 

§ 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 (§ 155.106 and 

§ 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 selfsustainability 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 decisionmaking. 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 Statespecific 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 (§ 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 § 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 


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35See 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. 

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 § 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 § 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 

§ 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 

(§ 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

At § 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 Staterequired benefits at § 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 EHBbenchmark plan under the proposals at 

§ 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 

§ 156.111, we propose that § 155.170 

would continue to apply in the same 

manner as it currently applies to 

§ 156.110 and that the proposed 

§ 156.111, which offers States the 

flexibility to select a new EHBbenchmark plan, would not remove the 

obligations required under the proposed 

§ 156.111(a)(3) with regard to maximum 

allowed generosity for a State’s EHBbenchmark plan. For further discussion 

of how the State mandate policy at 

§ 155.170 would apply to EHB under the 

proposals at § 156.111 supplying States 

with options to select a new EHBbenchmark plan for plan years 

beginning in 2019 and later, see the 

preamble to § 156.111. 

We solicit comments regarding State 

mandates and our proposal to apply 

§ 155.170 in the same manner as it 

currently applies to § 156.110 to the 

options proposed at § 156.111, which 

would allow States to select new EHBbenchmark plans. Specifically, we are 

interested in comments on different 

applications of the State mandate policy 

to the proposed policy for EHBbenchmark plan selections at § 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 (§ 155.200) 

The 2017 Payment Notice finalized 

requirements at § 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 § 155.200(f)(2)(ii) and 

essential community providers at 

§ 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 § 155.200(f)(2)(iv) that 

QHP issuers in SBE–FPs comply with 

the Federal meaningful difference 

standard to reflect the proposal to 

remove § 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 


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approved to operate SBE–FPs for SHOP, 

and thus the requirements in 

§ 155.200(f)(4) could remain relevant for 

those SBE–FPs for SHOP. We therefore 

propose to amend § 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 § 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 § 155.705 and proposed 

introduction of § 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 § 155.705(b)(6)(i)(A), which 

regulation is mirrored in our proposed 

introduction of § 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 § 155.725 and proposed 

new section § 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 

§ 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 

§ 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 § 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 

(§ 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, § 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 

§ 155.210(c)(2), including other public 

or private entities or individuals that 

meet the requirements of § 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 § 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 consumerfocused 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 

§ 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 


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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 consumerfocused 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 § 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 

§ 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 

§ 155.210(e)(7), as well as to promote 

consistency across programs, we 

propose to remove the corresponding 

requirement at § 155.215(h) that requires 

maintenance of a physical presence in 

the Exchange service area by all nonNavigator entities subject to § 155.215. 

In addition to the requirement to 

maintain a physical presence in the 

Exchange service area, §§ 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 § 155.225(b)(3). We are 

not proposing changes to these 

provisions. We codified these 

provisions due to concerns about nonFederal 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 

§§ 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 (§ 155.215) 

For a discussion of the provisions of 

this proposed rule related to standards 

applicable to non-Navigator Assistance 

Personnel subject to § 155.215, please 

see the preamble to § 155.210. 

d. Standards for Third-Party Entities To 

Perform Audits of Agents, Brokers, and 

Issuers Participating in Direct 

Enrollment (§ 155.221) 

In the 2018 Payment Notice, we 

implemented an approach for an HHSapproved third party to conduct 

onboarding operational readiness 

reviews and audits authorized by 

§ 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 § 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 § 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 thirdparty 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 § 155.221(b), such as privacy and 

security experience, to perform a review 

to demonstrate operational readiness as 

required under § 155.220(c)(3)(i)(K) and 

§ 156.1230(b)(2). 

We propose to replace § 155.221(a) 

with a new paragraph to require agents, 

brokers, and issuers to select a thirdparty entity that meets the proposed 

standard outlined in the new 

§ 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, § 155.221(a) would require 

that the agent, broker, or issuer engage 

a third-party entity that meets the 

standards outlined in the new 

§ 155.221(b) to conduct an annual 

operational readiness review prior to 

participating in direct enrollment. 

Consistent with § 155.220(c)(3)(i)(K) and 

§ 156.1230(b)(2), the operational 

readiness review would be performed 

using the third parties’ own audit 

processes and methods subject to HHSdefined specifications and 


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requirements. The third-party entity’s 

review would verify compliance by the 

agent, broker, or issuer with the 

applicable requirements in §§ 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 § 155.221(b) to 

modify the standards that third-party 

entities must satisfy to perform the 

reviews to demonstrate operational 

readiness under § 155.220(c)(3)(i)(K) 

and § 156.1230(b)(2). HHS proposes 

replacing the introductory language at 

§ 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 § 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 § 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 

§ 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 § 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 

§ 155.221(b)(5) to require compliance by 

the third-party entity with all applicable 

Federal and State requirements, and to 

add § 155.221(b)(6) to require the thirdparty 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 § 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 thirdparty 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 § 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 § 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 

§ 155.221(d) (regarding a list of HHSapproved 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 (§ 155.305) 

Section § 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 

§ 155.305. 

We propose to amend § 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 


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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 

§ 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 § 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 (§ 155.320) 

i. Income Inconsistencies 

Section § 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, 

§ 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 

§ 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 § 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 

§ 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 

§ 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 


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36 81 FR 12203, 12269 (March 8, 2016). 

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 § 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, 

§ 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 § 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 § 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 § 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. 

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 

§ 155.320(d)(2)(i). Such a database 

would be most useful and cost-effective 

if it contained information on employersponsored coverage from as many nonFederal 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 HHSapproved 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. 


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37 81 FR 94058, 94125 (December 22, 2016). 

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 inState 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. 

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 §§ 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 employersponsored 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 employersponsored 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 (§ 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 § 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 

(§ 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 § 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 

(§ 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 


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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 § 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 § 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 § 155.420(d)(7), and the 

special enrollment period for gaining or 

becoming a dependent through 

marriage, described in § 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 § 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 § 155.420(d) in 

§ 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. 


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iii. Effective Date Options for Special 

Enrollment Periods Relating to Gaining 

or Becoming a Dependent 

Paragraph (b)(2)(i) of § 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 (§ 155.420(d)(1)(iii)) 

Section § 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 

(§ 155.420(d)(10)(i)) 

We propose to make a technical 

amendment to update the cross 

reference to 26 CFR 1.36B–2T in 

§ 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 

(§ 155.430) 

Section 155.430 specifies the 

termination dates for Exchange 

enrollees. Paragraph (d)(1)(i) of 

§ 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, 


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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 enrolleeinitiated 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 employersponsored 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 (§ 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 § 155.716(e)’’ to align with the 

other proposals discussed throughout 

this proposed rule. 

7. Eligibility Standards for Exemptions 

(§ 155.605) 

a. Hardship Exemptions (§ 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 employersponsored 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 

§ 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 § 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 

(§ 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 

§ 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 § 155.605(d)(2)(iv), certain 


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38We also defined the required contribution 

percentage at § 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. 

39For 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. 40 81 FR 12346, March 8, 2016. 

41Centers 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. 

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

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 employersponsored 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). 

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 onehundredth 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

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 


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42Extension of state-based SHOP Direct 

Enrollment Transition (April 18, 2016), available at 

https://www.cms.gov/CCIIO/Resources/Regulationsand-Guidance/Downloads/1332-and-SHOPGuidance-508-FINAL.pdf. 

changes would take effect for plan years 

beginning on or after January 1, 2018 as 

of the effective date of the final rule. 

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. 

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 

§§ 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 

§§ 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 § 155.735, as further 

explained later in this preamble. We 

also propose minor changes to 

§ 155.700. These are described in the 

sections that follow. We also propose 

additional changes related to the 

proposed new approach to SHOP in 

§§ 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 

§§ 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 

§ 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 


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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 SHOPregistered 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 § 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 § 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 (§ 155.700) 

Section 155.700 outlines the general 

requirements to establish a SHOP and 

defines certain terms specific to SHOPs. 

We propose to amend § 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 


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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 (§ 155.705) for 

Plan Years Beginning Prior to January 1, 

2018. (§ 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 § 155.706. 

To reflect the proposal that the 

requirements currently in § 155.705 

would apply only for plan years 

beginning before January 1, 2018, we 

propose to amend the heading of 

§ 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 

§ 155.706 below. 

c. Functions of a SHOP for Plan Years 

Beginning on or After January 1, 2018 

(§ 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 

§ 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 § 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 

§ 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 § 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 

§ 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 

§ 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 § 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 

§ 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 § 155.706(b)(4) would mirror 

§ 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 § 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 § 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 § 155.705 

establishes requirements related to 

minimum participation rates and SHOP 

coverage; we propose to include these 

requirements in § 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, 

§ 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 § 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 § 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 § 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 


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§ 155.706(b)(10) would not include the 

language in § 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 § 155.706. We also propose to clarify 

that, under the proposed approach, the 

reference in proposed § 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 § 155.706(b)(11). 

Specifically, § 155.706 (b)(11) would 

specify that the premium calculator 

described in § 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 § 155.705(b)(11)(i) or 

(ii) in § 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 § 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 (§ 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 § 155.716. To reflect the proposal 

that the requirements currently in 

§ 155.715 would apply only for plan 

years beginning before January 1, 2018, 

we propose to amend the heading of 

§ 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 (§ 155.716) 

Section 155.715 describes the SHOP 

eligibility determination process for 

employers and employees. We propose 

to add new § 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 § 155.715. 

However, this new section would 

modify and remove some of the 

requirements in § 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 

§ 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 § 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 

§ 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 


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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 § 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 § 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 § 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 § 155.715 describes 

the eligibility adjustment period. We 

propose to include in § 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 § 155.715(d)(2), relating to eligibility 

for employees, in new § 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 

§ 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 § 157.205, and our 

proposal not to include a section 

mirroring § 155.735 regarding 

terminations, we are adding a 

requirement in the paragraphs mirroring 

paragraphs (d)(3)(i) and (e) of § 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 § 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 § 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 § 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 

§ 155.716. 

We further propose in paragraph (f) of 

§ 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 § 155.710(b). 

This could include terminating offers of 

coverage to employees maintaining fulltime 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 § 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 (§ 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 

§ 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 

§ 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 


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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 (§ 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 § 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 § 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 § 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 (§ 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 § 155.726. To reflect the proposal 

that the requirements currently in 

§ 155.725 would apply only for plan 

years beginning before January 1, 2018, 

we propose to amend the heading of 

§ 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 § 155.726 below. 

i. Enrollment Periods Under SHOP for 

Plan Years Beginning on or After 

January 1, 2018 (§ 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 § 155.726, 

which would retain the rolling 

enrollment and minimum participation 

rate provisions of § 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 § 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 § 155.726(a). 

Paragraph (c) of § 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 § 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 §§ 147.104 and 147.106. 

For similar reasons, we propose that the 

requirements in § 155.725(e), which 

requires the SHOP to set a standard 

open enrollment period for qualified 

employees, and § 155.725(f), which 

requires the SHOP to send a notice to 

the employee about the open enrollment 


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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 § 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 

§ 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 

§ 155.725(g). To align with these 

proposed amendments, we propose that 

the requirements in § 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 § 147.116. Further, as noted 

above, issuers offering plans in SHOPs 

would still be required to adhere to the 

guaranteed availability requirements set 

in § 147.104(b)(1)(i) and the special 

enrollment period requirements in 

proposed § 155.726(c). 

We also propose that the requirement 

in § 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 

§§ 147.104 and 147.106, and otherwise 

applicable State law. 

We propose that the special 

enrollment periods specified in 

§ 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 

§ 155.726(c). We also propose that the 

requirements regarding special 

enrollment periods in § 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 (§ 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 § 155.731. To reflect the proposal 

that the requirements currently in 

§ 155.730 would apply only for plan 

years beginning before January 1, 2018, 

we propose to amend the heading of 

§ 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 (§ 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 § 155.731. With the exception of the 

proposed changes to the requirements 

described here, the requirements would 

remain the same as in § 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 § 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 § 155.716(c)(2) and 

§ 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 § 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 § 155.731(b). 

Paragraph (g) of § 155.730 describes 

additional application safeguards for 

SHOP employer and employee 

applications, which we propose to 


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maintain in § 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 § 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 (§ 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 

§§ 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 §§ 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 (§ 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 

§ 155.741. To reflect the proposal that 

the requirements currently in § 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 

§ 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 (§ 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 § 155.741, mirroring § 155.740, 

with the following exceptions. Because 

we propose elsewhere that the 

requirement to provide employees with 

eligibility determinations and the 

requirement in § 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 § 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 crossreferences as applicable. 

We propose in paragraph (o) that the 

provisions of § 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 (§ 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 § 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: 

• Provision of consumer assistance 

tools; 

• Consumer outreach and education; 

• Management of a Navigator 

program; 

• Regulation of agents and brokers; 

• Eligibility determinations; 

• Enrollment processes; and 

• 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 


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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 § 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 § 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 

§ 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 nongrandfathered 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 § 156.100 for the States’ 

selection from one of 10 basebenchmark 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 


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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-andCost.aspx. 

44The 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. 

45The 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’ EHBbenchmark 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. 

46Benefits 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 § 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 § 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. 

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 § 156.110 to 

supplement their base-benchmark plan 

from § 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 longerterm 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. 

a. State Selection of Benchmark Plan for 

Plan Years Beginning Prior to January 1, 

2019 (§ 156.100) 

To reflect the proposed options in 

§ 156.111 for States to adopt new EHBbenchmark plans for plan years 2019 

and later, we propose to make 

conforming changes to § 156.100 to 

explicitly state that this selection 

applies only through plan years 

beginning in 2018, and § 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 (§ 156.111) 

i. States’ EHB-Benchmark Plan Options 

(§ 156.111(a)) 

We propose adding new § 156.111, 

which would provide States with the 

flexibility to update their EHBbenchmark 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 § 156.100 and § 156.110; (2) 

replacing one or more EHB categories of 

benefits under § 156.110(a) in its EHBbenchmark 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 

§ 156.100 and § 156.110; or (3) 

otherwise selecting a set of benefits that 

would become the State’s EHBbenchmark plan, provided that the EHBbenchmark 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 § 156.100(a)(1) for 

the 2017 plan year, supplemented as 

necessary under § 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 EHBbenchmark 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. 

Option 1: Select Another State’s EHBBenchmark 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 

§ 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 

§ 155.170, and would not require the 

State to defray the costs. However, if a 

State selects an EHB-benchmark plan 


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47Pursuant 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. 

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 EHBbenchmark plan from any of the 10 

previous base-benchmark plan options 

available to the State or other States 

under § 156.100, supplemented as 

necessary under § 156.110. 

Option 2: Replace Category or 

Categories From Another State’s EHBBenchmark Plan 

Paragraph (a)(2) would allow a State 

to partially replace its current EHBbenchmark 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 EHBbenchmark 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 

§ 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 EHBbenchmark plan used for the 2017 plan 

year with a category or categories of 

benefits from another State’s EHBbenchmark 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 EHBbenchmark 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 EHBbenchmark 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 § 156.100, supplemented as 

necessary under § 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 EHBbenchmark plan using a different 

process, so long as the new EHBbenchmark 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 § 156.100(a)(1) that 

were available as base-benchmark plan 

options for the 2017 plan year, 

supplemented as necessary under 

§ 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 

§ 156.122(a)(1), which could be more 

labor intensive for the State than 

selecting another State’s EHBbenchmark 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 EHBbenchmark plan for 2019 and later years 

could allow a State to embed any 

desired benefit mandate into the EHBbenchmark plan, without any 

requirement to defray the obligation. For 

this reason, we propose to apply the 

benefit mandate defrayal policy under 

§ 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 

§ 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. 


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48The 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 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’ EHBBenchmark Plans (§ 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 § 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 § 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 

§ 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 

§ 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 

§ 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 § 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. 

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 § 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 EHBbenchmark 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 


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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 EHBbenchmark plan. Under the current version of the 

USP Medicare Model Guidelines (MMG) drug 

classification system used for the EHB drug count 

at § 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-theFederally-facilitated-Marketplaces-and-February17-Addendum.pdf. 

50The 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. 

51The 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. 

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 § 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 § 156.115(b), we intend to 

retain the current issuer requirements 

related to EHB at §§ 156.115, 156.122,49

and 156.125 and those requirements 

would continue to apply to all plans 

subject to the EHB requirements. 

In addition to these proposed 

requirements in selecting the State’s 

EHB-benchmark plan, States may also 

wish to consider the impact of the EHBbenchmark 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 costsharing reductions provide reduced cost 

sharing for EHB only.50 We solicit 

comments on these proposals and 

whether other requirements are needed. 

iii. Data Collection for State’s EHBBenchmark Plans for 2019 Plan Year 

and Later (§ 156.111(e)) 

For States that opt to select a new 

EHB-benchmark plan under § 156.111(a) 

in any given year, we propose to 

establish the data collection 

requirements under proposed 

§ 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 § 156.111(a), (b) and (c), 

which includes the requirement that the 

10 EHB categories of benefits are 

covered under the State’s EHBbenchmark plan. This documentation 

would also include information on 

which selection option under proposed 

§ 156.111(a) the State is using, including 

whether the State is using another 

State’s EHB-benchmark plan. 

For a State selecting an EHBbenchmark plan under proposed 

§ 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 § 156.111(a)(1). Additionally, 

we also propose that if the State is 

selecting its EHB-benchmark plan using 

§ 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. 

Paragraph (e)(3) would require the 

State to submit the State’s EHBbenchmark 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 § 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 § 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 § 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 


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52All States’ current benchmark plan documents 

are posted on CCIIO’s Web site at https://

www.cms.gov/CCIIO/Resources/Data-Resources/

ehb.html. 

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 EHBbenchmark plan. 

55For 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. 

56See § 156.115(b)(1)(iii), as established in the 

EHB Rule. Additionally, § 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 § 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. 

57Essential 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. 

at § 156.111(a)(3), the State may need to 

develop a plan document for this 

purpose. Additionally, under proposed 

§ 156.111(e)(3), if the State is selecting 

its EHB-benchmark plan using the 

option in § 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 EHBbenchmark 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 EHBbenchmark 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 EHBbenchmark 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 

§ 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

Like our current approach to the EHBbenchmark 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 EHBbenchmark plan confirmations proposed 

at § 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 EHBbenchmark 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. 

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 EHBbenchmark plan must comply with the 

associated EHB regulatory and statutory 

requirements, including those under 

this proposed rule. If a State’s EHBbenchmark plan selection does not meet 

these regulatory and statutory 

requirements, the State’s current EHBbenchmark 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. 

c. Provision of EHB (§ 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 EHBbenchmark 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 § 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. 

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 EHBbenchmark 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 

§ 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 


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Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51107 

58See 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 

§ 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. 

59We 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/ResearchStatistics-Data-and-Systems/Statistics-Trends-andReports/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-andSystems/Statistics-Trends-and-Reports/

NationalHealthExpendData/Downloads/

proj2016.pdf. 

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

25.pdf. 

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 nondollar 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. 

d. Premium Adjustment Percentage 

(§ 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 § 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 employersponsored 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 employersponsored insurance premiums for 2018 

($6,396) exceeds the most recent NHEA 

estimate of per enrollee employersponsored 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. 

i. Maximum Annual Limitation on Cost 

Sharing for Calendar Year 2019 

Under § 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 § 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 selfonly coverage and $14,700 for other 

than self-only coverage. 

e. Reduced Maximum Annual 

Limitation on Cost Sharing (§ 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 costsharing structures for each eligibility 

category that change how the cost 

sharing required under the QHP is to be 

shared between the enrollee and the 

Federal government. At § 156.420(a), we 

detailed the structure of these plan 

variations and specified that QHP 

issuers must ensure that each silver plan 

variation has an annual limitation on 

cost sharing no greater than the 

applicable reduced maximum annual 

limitation on cost sharing specified in 

the annual HHS notice of benefit and 

payment parameters. Although the 

amount of the reduction in the 

maximum annual limitation on cost 

sharing is specified in section 

1402(c)(1)(A) of the PPACA, section 

1402(c)(1)(B)(ii) of the PPACA states 

that the Secretary may adjust the costsharing 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 costsharing 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 


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61 2014 Payment Notice, 78 FR at 15481; Market 

Stabilization Rule. 82 FR at 18370–18371. 

62The 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. 

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

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 

§ 156.135(d), States are permitted to 

submit for approval by HHS Statespecific datasets for use as the standard 

population to calculate AV.62 No State 

submitted a dataset by the September 1, 

2017 deadline. 

TABLE 10—REDUCTIONS IN MAXIMUM ANNUAL LIMITATION ON COST SHARING FOR 2019 

Eligibility category 

Reduced maximum 

annual limitation 

on cost sharing 

for self-only 

coverage for 2019 

Reduced maximum 

annual limitation on 

cost sharing 

for other than 

self-only coverage 

for 2019 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(i) (that is, 100–150 percent of FPL) ............................................................................................................................. $2,600 5,200 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(ii) (that is, 150–200 percent of FPL) ............................................................................................................................. 2,600 5,200 

Individuals eligible for cost-sharing reductions under § 155.305(g)(2)(iii) (that is, 200–250 percent of FPL) ............................................................................................................................. 6,300 12,600 

f. Application to Stand-Alone Dental 

Plans Inside the Exchange (§ 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, § 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 ± 2 percentage points. 

We are proposing to remove the 

requirement for SADP issuers to meet 


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63Recognition 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). 

64https://www.cms.gov/CCIIO/Resources/

Regulations-and-Guidance/Downloads/QHPCertifcation-Reviews-Guidance-41317.pdf. 

the low (70 percent ± 2 percentage 

points) and high (80 percent ± 2 

percentage points) AV levels specified 

in § 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 § 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 (§ 156.230) 

and essential community providers 

(§ 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 § 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 § 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. 

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 § 156.200(b)(4), and for 

network adequacy standards required at 

§ 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 § 156.420 

and annual re-enrollment at § 155.335(j). 

We do not propose any changes to the 

approach described in this guidance. 

To further streamline QHP 

certification by avoiding duplicative 


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65https://www.regtap.info/uploads/library/QHP_

RateOutlier_FAQ_5CR_071017.pdf. 

66This 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. 

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. 

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 § 156.275, compliance 

reviews at § 156.715, minimum 

geographic area of the plan’s service 

area at § 155.1055, and quality 

improvement strategy reporting at 

§ 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 § 156.200(b)(2) by 

adding a cross reference to proposed 

§ 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 (§ 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 § 156.286. To 

reflect the proposal that the 

requirements currently in § 156.285 

would apply only for plan years 

beginning before January 1, 2018, we 

propose to amend the heading of 

§ 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 (§ 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 § 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 § 156.286. New 

§ 156.286 would include only those 

standards that have been applicable 

under § 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 § 156.285(a) as 

§ 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 

§ 156.285(a)(4)(ii), as the Federallyfacilitated SHOPs would no longer be 

involved in premium payments. For the 

same reason, we also propose a 

narrower version of § 156.285(b) as 

§ 156.286(b), requiring only that issuers 

adhere to the enrollment periods and 

processes established by the SHOP 

consistent with § 155.726, and establish 

uniform enrollment timelines and 

processes for qualified employers and 

group members. We also propose in 

§ 156.286(c) to include only those 

requirements from § 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 

§ 156.285. This would reflect our 

proposal to remove the requirements 

contained in current § 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 

§ 155.285(e) as § 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 § 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 

§ 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 § 155.716, we 

intend to update the single employer 

application to reflect our proposed 

changes in § 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 § 156.286 are only applicable for 

plan years beginning on or after January 


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67For 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. 

68Under 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. 

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 FederallyFacilitated Exchanges (§ 156.298) 

We propose to remove § 156.298 to 

eliminate meaningful difference 

standards for QHPs offered through a 

Federally-facilitated Exchange or StateBased 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 

§ 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, personcentered 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. 

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 (§ 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 

§ 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 (§ 156.350) 

Section 156.350 describes the 

eligibility and enrollment standards for 

issuers that offer QHP coverage in the 

SBE–FPs. Currently, § 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 

§ 156.285(a)(4)(ii) and § 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 

§ 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 

§ 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 

(§ 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. 

In considering whether to recognize 

coverage as minimum essential coverage 

under the application process provided 

for in § 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. 


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69Office of the Assistant Secretary for Planning 

and Evaluation. Report to Congress: Social Risk 

Factors and Performance under Medicare’s Valuebased Purchasing Programs. (December 21, 2016). 

Available at https://aspe.hhs.gov/pdf-report/reportcongress-social-risk-factors-and-performanceunder-medicares-value-based-purchasingprograms. 

70National 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-medicarepayment-5.aspx. 

71National Quality Forum socioeconomic status 

(SES) trial period Web site at http://

www.qualityforum.org/

ProjectDescription.aspx?projectID=80124. 

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 buyin 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 

(§ 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 

§ 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 § 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 § 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 

§ 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 (§ 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. 

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 


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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 (§ 156.1230) 

We propose to amend paragraph (b)(2) 

of § 156.1230 to conform with the 

proposed amendments to § 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 

§ 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 § 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 

(§ 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 § 157.206. 

To reflect the proposal that the 

requirements currently in § 157.205 

would apply only for plan years 

beginning before January 1, 2018, we 

propose to amend the heading of 

§ 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. 

(§ 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 

§ 157.206. With the exception of the 

proposed changes to the process 

described here, the process would 

remain the same as in § 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 § 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 

§ 155.705. Because we are proposing 

that the requirements in § 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 

§ 157.705(d) would not apply for those 

plan years. 

Paragraph (e)(1) of § 157.205 describes 

obligations of qualified employers to 

employees hired outside of the initial or 

annual open enrollment periods. We 

propose in § 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 

§ 157.705, which requires qualified 

employers to provide these employees 

with an enrollment period in 

accordance with § 155.725(g), would not 

be included in § 157.206, as we are 

proposing that the requirement in 

§ 155.725(g) would not be applicable for 

plan years beginning on or after January 

1, 2018. We also propose that the 

requirement in § 157.205(e)(2) to 

provide information about the 

enrollment process in accordance with 

§ 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 § 155.725 would not apply 

for those plan years. 

We also propose that the requirements 

in § 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 § 157.205(g) that 

qualified employers adhere to the 

annual employer election period under 

§ 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 § 155.725(c) would not 

apply for those plan years, and this 

proposal would reflect that removal. 

Finally, we propose in paragraph (e) 

of § 157.206 to include new 

requirements for qualified employers 

reflective of the proposed approach for 

SHOPs generally. First, since we 

propose in § 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 

§ 155.710(b), we propose in 

§ 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 § 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 

§ 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 

§ 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. 


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72National 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. 

73National 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. 

G. Part 158—Issuer Use of Premium 

Revenue: Reporting and Rebate 

Requirements 

1. Reporting of Federal and State Taxes 

(§ 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 

§ 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 § 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 § 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

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 (§ 158.170) 

For a discussion of the proposed 

amendment to § 158.170(b) regarding 

the description of the allocation method 

for quality improvement activity (QIA) 

expenses, please see the preamble to 

§ 158.221. 

3. Formula for Calculating an Issuer’s 

Medical Loss Ratio (§ 158.221) 

We propose amending § 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 § 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 

§ 158.150(b)(2)(i)–(v). Additionally, 

§ 158.170 requires issuers to use and 

disclose specific allocation methods to 

report expenses, including QIA 

expenditures. 

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 § 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 § 158.150 and § 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 

§ 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 § 158.150(b)(2)(i)–(v), as 

well as comply with the allocation of 

expenses requirements established 

under § 158.170. We seek comment on 

this proposal. 


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Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 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 (§ 158.301) 

Currently, § 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 § 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 

(§ 158.321) 

We propose to amend § 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, § 158.321 requires the State 

to describe the State MLR standard and 

formula for assessing compliance 

(§ 158.321(a)), its market withdrawal 

requirements (§ 158.321(b)), and the 

mechanisms available to the State to 

provide consumers with options for 

alternate coverage (§ 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 

§ 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 

(§ 158.321(d)(1)). We consider this 

requirement unduly burdensome and 

propose to replace it at § 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 § 158.321(d)(1) 

to submit product-level premium data 

in favor of the total earned premium 

data in the proposed § 158.321(a)(1) as 

described below, and to eliminate the 

§ 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 

(§ 158.321(d)(2)(i)), agent and broker 

commissions (§ 158.321(d)(2)(iv)), and 

risk-based capital (RBC) level 

(§ 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 

§ 158.321(a)(1)) and total agent and 

broker commission expenses (proposed 

§ 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 § 158.321(a)(5)), which, due 

to the manner in which RBC is 

calculated, would only be appropriate to 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
51116 Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 

74See, 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-andGuidance/Downloads/Extension-TransitionalPolicy-CY2018.pdf. 

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 § 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 (§ 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 § 158.321(b) to require that a State 

request include the individual market 

data required in the proposed new 

§ 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, offExchange, grandfathered health plans as 

defined in § 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 

§ 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 § 147.145 or individual 

market excepted benefits as defined in 

§ 148.220. 

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 (§ 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 

§ 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 

(§ 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 

§ 158.321(d)(2)(ix), proposed to be 

redesignated at § 158.321(a)(6), to 

require the State to provide information 

not only on notices by issuers covered 

in § 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 § 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 § 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 (§ 158.322) 

To reduce the burden on States, we 

propose to remove paragraphs (a), (c) 

and (d) of § 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 § 158.301, we propose to revise 

§ 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 

(§ 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 

§ 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 § 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 § 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 § 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 onExchange, off-Exchange, grandfathered 

health plans as defined in § 147.140, 

coverage that meets the criteria for 

transitional policies outlined in 

applicable guidance, and nongrandfathered 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 

§ 158.330(a)). We propose to delete the 

existing criteria captured at § 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 


asabaliauskas on DSKBBXCHB2PROD with PROPOSALS
Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51117 

75See 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. 

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 § 158.330(c), proposed to be 

redesignated at § 158.330(b), regarding 

whether an adjustment might improve 

consumers’ access to agents and brokers. 

Similar to the proposed amendments to 

§ 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 

§ 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 § 158.330(c)). We 

propose to retain and modify the 

existing criteria at § 158.330(e), 

proposed to be redesignated at 

§ 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 § 158.330(f), proposed to be 

redesignated at § 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 

(§ 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 § 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 (§ 158.350) 

We propose to make conforming 

amendments to § 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 § 158.301 and 

§ 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: 

• The need for the information 

collection and its usefulness in carrying 

out the proper functions of our agency. 

• The accuracy of our estimate of the 

information collection burden. 

• The quality, utility, and clarity of 

the information to be collected. 

• Recommendations to minimize the 

information collection burden on the 

affected public, including automated 

collection techniques. 

We 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. 

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

Occupation title Occupational 

code 

Mean 

hourly 

wage 

($/hr) 

Fringe 

benefits and 

overhead 

($/hr) 

Adjusted 

hourly 

wage 

($/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 


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TABLE 11—ADJUSTED HOURLY WAGES USED IN BURDEN ESTIMATES—Continued 

Occupation title Occupational 

code 

Mean 

hourly 

wage 

($/hr) 

Fringe 

benefits and 

overhead 

($/hr) 

Adjusted 

hourly 

wage 

($/hr) 

Financial Manager * ......................................................................................... 11–3031 45.83 45.83 91.66 

Lawyer * ........................................................................................................... 23–1011 44.87 44.87 89.74 

Secretaries and Administrative Assistants, Except Legal, Medical, and Executive .......................................................................................................... 43–6014 17.38 17.38 34.76 

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 (§ 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 (§ 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 

(§ 154.103) 

We propose to modify § 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 


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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 (§ 154.200) 

We propose to amend § 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 SHOPregistered 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 

§ 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 § 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 § 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 § 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 

§ 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 

§ 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 


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76The 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. 

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 

§§ 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 (§ 156.111(e)) 

We propose at § 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 § 156.111(e) would replace the 

current data collection requirements at 

§ 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 EHBbenchmark plan. Under the previous 

benchmark plan selection policy, 29 

States selected one of the 10 basebenchmark 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 EHBbenchmark 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 § 156.111(e)(1) 

would require the State to provide 

confirmation that the State’s EHBbenchmark plan selection complies with 

certain requirements, including those 

under proposed § 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 § 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 

§ 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. 

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 

§ 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 § 156.111(a)(3). The 

option proposed at § 156.111(a)(3) 

would also require the actuary to affirm 


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that the State’s selected EHB-benchmark 

plan does not exceed the generosity of 

the most generous among a set of 

comparison plans proposed 

§ 156.111(a)(3), including the State’s 

EHB-benchmark plan used for the 2017 

plan year and any of the State’s basebenchmark plan options for the 2017 

plan year described in § 156.100(a)(1), 

supplemented as necessary under 

§ 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 

§ 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 EHBbenchmark 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 

§ 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 § 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 § 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 § 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 § 156.111(e)(3) where the 

State would also be required to submit 

a formulary drug list for the State’s EHBbenchmark 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 § 156.111(e)(4) 

would require the State to submit the 

documentation necessary to 

operationalize the State’s EHBbenchmark 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 

(§§ 158.170, 158.221, 158.320–323, 

158.340, 158.346, and 158.350) 

We are proposing to amend § 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 § 158.170. We do not 

anticipate that implementing this 

provision would require significant 

changes to the MLR annual reporting 


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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 §§ 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 Paperwork@

cms.hhs.gov; 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 (§ 158.321(a)), its 

market withdrawal requirements 

(§ 158.321(b)), and the mechanisms 

available to the State to provide 

consumers with options for alternate 

coverage (§ 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 (§ 158.321(d)(2)(vii)), and the 

estimated rebate (§ 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 (§ 158.321(d)(1)) and the reported 

and estimated MLRs (§ 158.321(d)(2)(ii) 

and (iii)) for issuers with at least 1,000 

enrollees, with total enrollment (lifeyears 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, offExchange plans, grandfathered health 

plans as defined in § 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 § 147.145 or excepted 

benefits as defined in § 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 § 158.321(d)(2)(iv) 

and (vi) to § 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 

§ 158.321(d)(2)(viii) to § 158.321(a)(5)) at 

the issuer level. While this proposal 

would require more breakdown of the 

data than § 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 

§ 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 

(§ 158.322(a), (c), and (d)); as well as to 

replace what information a State must 

provide pursuant to § 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 § 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 


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TABLE 12—PROPOSED ANNUAL RECORDKEEPING AND REPORTING REQUIREMENTS

Regulation section(s) OMB control 

No. Respondents Responses 

Burden per 

response 

(hours) 

Total annual 

burden 

(hours) 

Labor cost 

of reporting 

($) 

Total cost 

($) 

§ 153.320 ............................................................................... 0938–1155 25 25 48 1,200 97,504.00 97,504.00 

§ 156.111(e)(1) ...................................................................... 0938–1174 * 10 10 4 40 2,641.60 2,641.60 

§ 156.111(e)(2) ...................................................................... 0938–1174 * 7 7 17 119 9,514.12 9,514.12 

§ 156.111(3)(3) ...................................................................... 0938–1174 * 10 10 12 120 7,924.80 7,924.80 

§ 156.111(e)(4) ...................................................................... 0938–1174 * 10 10 12 120 7,924.80 7,924.80 

§§ 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 


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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 employersponsored coverage or governmentsponsored 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-enrolleeper-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. 


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TABLE 13—ACCOUNTING TABLE

Benefits 

Qualitative: 

• Greater market stability resulting from improvements to the risk adjustment methodology. 

• 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

• More informed Exchange QHP certification decisions. 

• Increased coverage options for small businesses and employees with less adverse selection. 

• Cost savings to consumers and issuers due to reduced administrative costs for issuers. 

• Reduced costs and burden for States with CHIP buy-in plans automatically recognized as recognized as MEC.b

• Potential decreases in premiums associated with States opting to select a new EHB-benchmark plan. 

• 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 § 155.215) maintain a physical presence in the Exchange service area. 

• 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. 

• Reduction in administrative costs to issuers due to the removal of the meaningful difference standard, and proposed changes to the 

SHOPs. 

• Reduction in costs and burden to issuers by establishing a 15 percent default threshold for rate increase reasonableness review. 

Costs Estimate 

(million) 

Year 

dollar 

Discount rate 

(percent) 

Period 

covered 

Annualized Monetized ($/year) ¥$28 2016 7 2018–2022 

¥26.75 2016 3 2018–2022 

Quantitative: 

• 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. 

• Reduction in costs to issuers due to changes to the requirements for risk adjustment data validation. 

• 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. 

• Regulatory familiarization costs. 

Qualitative: 

• Costs due to increases in providing medical services (if health insurance enrollment increases). 

• Costs to issuers of redesigning SADPs to account for the removal of actuarial value standards for SADPs. 

• Potential increases in out of pocket costs associated with States opting to select a new EHB-benchmark plan. 

Transfers Estimate 

(million) 

Year 

dollar 

Discount rate 

(percent) 

Period 

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: 

• 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). 

• 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. 

• 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. 

• 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: 

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

• 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. 

• Potential increases in premiums associated with adjustments to MLR. 

• Potential decreases in premiums associated with removal of AV standards for SADPs. 

• 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.


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bThe reduction in burden and costs associated with student health insurance and CHIP buy-in plans could result in lower premiums for these 

groups. cFor 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 Corridors Program Payments ............................... 5 5 5 6 6 27 

Risk Adjustment, Reinsurance, and Risk Corridors Program Collections * ............................ 5 5 6 6 6 28 

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® 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. 


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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 § 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 § 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 noncompliance 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 § 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 § 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 

(§ 155.170) 

In the preamble to § 155.170, we 

propose to extend the applicability of 

the policies governing State-required 

benefits to the proposals described at 

§ 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 § 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 

(§§ 155.210 and 155.215) 

We propose to amend § 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 §§ 155.210(e)(7) 

and 155.215(h) to remove the 

requirements that Navigators and nonNavigator assistance personnel entities 

subject to those regulations maintain a 

physical presence in the Exchange 

service area. The proposed amendments 

to § 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 nonNavigator 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 (§ 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 § 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 preapproval 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 


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precision. We seek comment on the 

impact of this policy. 

7. Eligibility Standards (§ 155.305) 

The requirement in § 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 noncompliance, 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 

§ 155.305(f)(4)(ii). We do not believe 

that Exchanges have built an FTIcompliant noticing infrastructure since 

the publication of the final rule 

establishing § 155.305(f)(4)(ii) that they 

would need to dismantle if this proposal 

is finalized. However, if 

§ 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 (§ 55.320) 

Verification Requirements in this 

proposed rule would also amend 

§ 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 samplesize 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 

§ 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 § 155.315(h) and 

referenced in § 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 

(§ 155.420) 

We do not anticipate that the 

revisions to § 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. 


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10. Effective Dates for Terminations 

(§ 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 

(§ 155.605) 

We do not anticipate that the 

proposed amendment to § 155.605(d) 

would create additional costs or 

burdens. The proposed amendment to 

§ 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, § 155.200, 

§§ 156.285 and 156.286, § 156.350, 

§§ 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 


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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 § 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 SHOPregistered 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 (§ 156.50) 

To support the operation of FFEs, we 

require in § 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 § 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 EHBbenchmark plan. We recognize that, to 

the extent that States take advantage of 

the proposed EHB-benchmark plan 

selection options at § 156.111, States, 

issuers, and consumers would 

experience an increase in burden to 

develop new policies and implement 

new plan designs. We anticipate that 


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77For certain States, taking action on the EHBbenchmark plan may require legislature action or 

other high level state approval. 

78Consumers generally must maintain minimum 

essential coverage or obtain an exemption to avoid 

the individual shared responsibility payment. As 

noted in the preamble to § 156.602 in this proposed 

rule, in considering whether to recognize coverage 

as MEC under the application process provided for 

in § 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. 

79The 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. 

most States would need to invest 

resources to analyze the three new EHBbenchmark 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 EHBbenchmark 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 EHBbenchmark 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. 

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 EHBcompliant 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

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-ofpocket 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 § 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 

§ 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. 


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80Brook, 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. 

15. Application to Stand-Alone Dental 

Plans Inside the Exchange (§ 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 § 156.275, compliance 

reviews at § 156.715, minimum 

geographic area of the plan’s service 

area at § 155.1055, and quality 

improvement strategy reporting at 

§ 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 § 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 

§ 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 

(§ 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

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 costsharing 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 § 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 employersponsored 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 § 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 

(§ 156.602, § 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. 


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

19. Medical Loss Ratio (Part 158) 

We propose to amend § 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 

§ 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 

(§§ 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). 

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® 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®

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® 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®

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 


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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 § 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 

§ 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 HHSapproved 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 § 156.111, we 

considered a variety of alternatives, 

including maintaining the current EHBbenchmark 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 EHBbenchmark 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 EHBbenchmark plan selection options at 

§ 156.111 as well as the option to 

default to the State’s current EHBbenchmark plan. We believe this 

approach would provide States with the 

opportunity to take advantage of greater 

flexibility in selecting an EHBbenchmark 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 § 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 § 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 § 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 

§ 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 


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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/tablesmallbusiness-size-standards. 

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-forprofit organization that is not dominant 

in its field, or (3) a small government 

jurisdiction with a population of less 

than 50,000. States and individuals are 

not included in the definition of ‘‘small 

entity.’’ HHS uses a change in revenues 

of more than 3 to 5 percent as its 

measure of significant economic impact 

on a substantial number of small 

entities. In this 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: 

• Health insurance issuers. 

• 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. 

In this proposed rule, we proposed to 

allow enrollment through a SHOPregistered 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 nonhealth 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 Exchangerelated programs, State decisions will 

ultimately influence both administrative 


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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 

■ 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. 

■ 2. Section 147.102 is amended by 

revising paragraph (c)(3)(iii)((D) to read 

as follows: 

§ 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 


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the option to pay premiums based on 

average enrollee premium amounts. 

* * * * * 

■ 3. Section 147.104 is amended by— 

■ a. Revising paragraphs (b)(1)(i)(B), 

(b)(1)(i)(C) and (b)(1)(ii); 

■ b. Removing paragraph (b)(1)(iii); and 

■ c. Revising paragraphs (b)(2)(i) 

introductory text and (ii). 

The revisions read as follows: 

§ 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 § 156.285(e) or § 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 

§ 155.410(b) and (e) of this subchapter. 

Coverage must become effective 

consistent with the dates described in 

§ 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 

§ 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 § 155.420 (other than in 

§ 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 

■ 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. 

■ 5. Section 153.630 is amended by 

revising paragraphs (b)(6), (8), and (9) to 

read as follows: 

§ 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 § 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 

■ 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). 

■ 7. Section 154.103 is amended by 

revising paragraph (b) to read as follows: 

§ 154.103 Applicability. 

* * * * * 

(b) Exceptions. The requirements of 

this part do not apply to— 

(1) Grandfathered health plan 

coverage as defined in § 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 

§ 147.145 of this subchapter. 

■ 8. Revise § 154.200 to read as follows: 

§ 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 


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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 § 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 § 154.210, and 

such review shall include a review of 

the aggregate rate increases during the 

applicable 12-month period. 

■ 9. Section 154.215 is amended by 

revising paragraph (h)(2) to read as 

follows: 

§ 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). 

* * * * * 

■ 10. Section 154.301 is amended by 

revising paragraph (b)(2), and removing 

paragraph (b)(3) to read as follows: 

§ 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 

■ 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). 

■ 12. Section 155.106 is amended by 

revising paragraph (c) introductory text 

to read as follows: 

§ 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 § 155.200(f) must: 

* * * * * 

■ 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; 

§ 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 

§ 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— 

* * * * * 

■ 14. Section 155.210 is amended by 

revising paragraphs (c)(2) introductory 

text and (e)(7) to read as follows: 

§ 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; 

* * * * * 

■ 15. Section 155.215 is amended by 

revising paragraph (h) to read as 

follows: 

§ 155.215 Standards applicable to 

Navigators and Non-Navigator Assistance 

Personnel carrying out consumer 

assistance functions under §§ 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 nonNavigator entity or as non-Navigator 

assistance personnel solely because its 

principal place of business is outside of 

the Exchange service area. 

* * * * * 

■ 16. Section 155.221 is revised to read 

as follows: 

§ 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 § 155.220(c)(3)(i)(K) and with 

§ 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 thirdparty entity that meets each of the 

following standards: 

(1) Has experience conducting audits 

or similar services, including experience 


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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 § 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. 

■ 17. Section 155.305 is amended by 

revising paragraph (f)(4) to read as 

follows: 

§ 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 § 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 

§ 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. 

* * * * * 

■ 18. Section 155.320 is amended by— 

■ a. Revising paragraphs (c)(3)(iii) 

introductory text, and paragraph 

(c)(3)(iii)(A); 

■ b. Adding paragraphs (c)(3)(iii)(D) 

through (F); 

■ c. Revising paragraph (c)(3)(vi)(C), (D), 

(F) and (G); and 

■ d. Revising paragraph (d)(4) 

introductory text. 

The revisions and additions read as 

follows: 

§ 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 MAGIbased 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 § 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 

§ 155.305(f)(2) are not subject to the 

verification described in this paragraph. 

(E) If, at the conclusion of the period 

specified in § 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 

§ 155.310(g), and implement such 

determination in accordance with the 

effective dates specified in § 155.330(f). 

(F) If, at the conclusion of the period 

specified in § 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 

§ 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 § 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 MAGIbased income standard, the Exchange 

must accept the applicant’s attestation 


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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 

§ 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 § 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 § 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 

§ 155.310(g), and implement such 

determination in accordance with the 

effective dates specified in § 155.330(f). 

(G) If, at the conclusion of the period 

specified in § 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 

§ 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 § 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. 

* * * * * 

■ 19. Section 155.420 is amended by: 

■ a. Revising paragraphs (a)(4)(iii), (a)(5) 

and (b)(2)(i); 

■ b. Removing paragraph (b)(2)(v); 

■ c. Redesignating paragraph (b)(2)(vi) 

as paragraph (b)(2)(v); 

■ d. Revising paragraph (d)(1)(iii); and 

■ e. Revising paragraph (d)(10)(i). 

The revisions read as follows: 

§ 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 

§ 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 

§ 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 


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(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 

* * * * * 

■ 20. Section 155.430 is amended by: 

■ a. Revising paragraph (d)(1); 

■ b. Removing paragraphs (d)(2)(i) 

through (iv); 

■ c. Adding new paragraph (d)(2)(i); and 

■ d. Redesignating paragraph (d)(2)(v) as 

(d)(2)(ii). 

The revisions and additions read as 

follows: 

§ 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 § 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 

* * * * * 

■ 21. Section 155.500 is amended by 

revising the definitions of ‘‘Appeal 

request’’ and ‘‘Appeals entity’’ to read as 

follows: 

§ 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 § 155.310(g), 

§ 155.330(e)(1)(ii), § 155.335(h)(1)(ii), 

§ 155.610(i), § 155.715(e) or (f), or 

§ 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 § 155.310(g), 

§ 155.330(e)(1)(ii), § 155.335(h)(1)(ii), 

§ 155.610(i), § 155.715(e) and (f), or 

§ 155.716(e). 

* * * * * 

■ 22. Section 155.605 is amended by 

revising paragraph (d)(2)(iv) to read as 

follows: 

§ 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 

* * * * * 

■ 23. Section 155.610 is amended by 

revising paragraph (h)(2) to read as 

follows: 

§ 155.610 Eligibility process for 

exemptions. 

* * * * * 

(h) * * * 

(2) The Exchange will only accept an 

application for an exemption described 

in § 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. 

■ 24. Section 155.700 is amended by 

revising paragraph (a) to read as follows: 

§ 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. 

* * * * * 

■ 25. Section 155.705 is amended by 

revising the section heading and adding 

paragraph (e) to read as follows: 

§ 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. 

■ 26. Section 155.706 is added to read 

as follows: 

§ 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 § 155.200(b); and 

(4) Requirements related to the 

payment of premiums by individuals, 

Indian tribes, tribal organizations and 

urban Indian organizations under 

§ 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 


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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 Federallyfacilitated 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 § 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 § 156.140(b) of this 

subchapter. A State with a Federallyfacilitated 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 

§ 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 Federallyfacilitated 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 Federallyfacilitated 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 § 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 

§ 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 § 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 fulltime employees offered coverage. 

(ii) Notwithstanding paragraphs 

(b)(10)(i) of this section, a Federallyfacilitated 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 § 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 


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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 § 155.100(a)(2). 

(d) Duties of Navigators in the SHOP. 

In States that have elected to operate 

only a SHOP pursuant to 

§ 155.100(a)(2), at State option and if 

State law permits the Navigator duties 

described in § 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. 

■ 27. Section 155.715 is amended by 

revising the section heading and adding 

paragraph (h) to read as follows: 

§ 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. 

§ 155.716 is applicable for plan years 

beginning on or after January 1, 2018. 

■ 28. Section 155.716 is added to read 

as follows: 

§ 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 

§ 155.710. 

(b) Applications. The SHOP must 

accept a SHOP single employer 

application form from employers, in 

accordance with the relevant standards 

of § 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 

§ 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 § 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. 

■ 29. Section 155.720 is amended by 

revising the section heading and adding 

paragraph (j) to read as follows: 

§ 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. 

■ 30. Section 155.721 is added to read 

as follows: 

§ 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. 

■ 31. Section 155.725 is amended by 

revising the section heading and adding 

paragraph (l) to read as follows: 

§ 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. 

■ 32. Section 155.726 is added to read 

as follows: 

§ 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; 


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(i) Experiences an event described in 

§ 155.420(d)(1) (other than paragraph 

(d)(1)(ii)), or experiences an event 

described in § 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 

§ 155.420(b). 

(6) Loss of minimum essential 

coverage is determined using the 

provisions of § 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 § 155.706(b)(10). 

(e) Applicability date. The provisions 

of this section apply for plan years 

beginning on or after January 1, 2018. 

■ 33. Section 155.730 is amended by 

revising the section heading and adding 

paragraph (h) to read as follows: 

§ 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. 

■ 34. Section 155.731 is added to read 

as follows: 

§ 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. 

■ 35. Section 155.735 is amended by 

revising the section heading and adding 

paragraph (h) to read as follows: 

§ 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. 

■ 36. Section 155.740 is amended by 

revising the section heading and adding 

paragraph (p) to read as follows: 

§ 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. 

■ 37. Section 155.741 is added to 

subpart H to read as follows: 

§ 155.741 SHOP employer and employee 

eligibility appeals requirements for plan 

year beginning on or after January 1, 2018. 

(a) Definitions. The definitions in 

§§ 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 § 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 

§ 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 §§ 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 § 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 

§ 155.716(e). 

(d) Appeals notice requirement. 

Notices of the right to appeal a denial 

of eligibility under § 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 

§ 155.520(a)(1); 

(3) Comply with the requirements of 

§ 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. 


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(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 § 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 § 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 § 155.710(b), as 

applicable. 

(2) Comply with the standards set 

forth in § 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 § 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 

■ 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). 

■ 39. Section 156.100 is amended by 

revising the section heading and the 

introductory text and by adding 

paragraph (d) to read as follows: 

§ 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, 

§ 156.111 applies in place of this 

section. 

■ 40. Section 156.111 is added to 

Subpart B to read as follows: 

§ 156.111 State selection of EHBbenchmark 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 § 156.100 and § 156.110 of 

this subpart; 

(2) Replacing one or more categories 

of EHBs under § 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 

§ 156.100 and § 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 § 156.100(a)(1) of this 

subpart, supplemented as necessary 

under § 156.110 of this subpart. 


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(b) A State’s EHB-benchmark plan 

must: 

(1) EHB coverage. Provide an 

appropriate balance of coverage for the 

categories of benefits at § 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 

§ 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 § 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 EHBbenchmark 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 EHBbenchmark 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 EHBbenchmark 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 EHBbenchmark plan. 

■ 41. Section 156.115 is amended by 

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

follows: 

§ 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 EHBbenchmark 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 

* * * * * 

■ 42. Section 156.150 is amended by 

removing and reserving paragraph (b) to 

read as follows: 

§ 156.150 Application to stand-alone 

dental plans inside the Exchange. 

* * * * * 

(b) [Reserved] 

* * * * * 

■ 43. Section 156.200 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 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, 

§ 155.705 and § 155.706 of this 

subchapter; 

* * * * * 

■ 44. Section 156.285 is amended by 

revising the section heading and adding 

paragraph (f) to read as follows: 

§ 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 § 156.286. 

■ 45. Section 156.286 is added to read 

as follows: 

§ 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 

§ 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 § 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 § 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 § 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 § 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 


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Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 51147 

policies applicable to the SHOP under 

§ 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. 

§ 156.298 [Removed] 

■ 46. Section 156.298 is removed. 

■ 47. Section 156.340 is amended by 

revising paragraph (a)(2) to read as 

follows: 

§ 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, § 155.705 and 

§ 155.706 of this subchapter; 

* * * * * 

■ 48. Section 156.350 is amended by 

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

read as follows: 

§ 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 

* * * * * 

■ 49. Section 156.602 is amended by 

redesignating paragraph (e) as paragraph 

(f) and adding new paragraph (e) to read 

as follows: 

§ 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. 

* * * * * 

■ 50. Section 156.1230 is amended by 

revising paragraph (b)(2) to read as 

follows: 

§ 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 

§ 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 

■ 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. 

■ 52. Section 157.205 is amended by 

revising the section heading and adding 

paragraph (h) to read as follows: 

§ 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. 

■ 53. Section 157.206 is added to read 

as follows: 

§ 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 § 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 § 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 § 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 

■ 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. 

■ 55. Section 158.170 is amended by 

revising paragraph (b) introductory text 

to read as follows: 

§ 158.170 Allocation of expenses. 

* * * * * 

(b) Description of the methods used to 

allocate expenses. The report required 

in § 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 

§ 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 


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51148 Federal Register / Vol. 82, No. 211 / Thursday, November 2, 2017 / Proposed Rules 

it is categorized, as well as the method 

by which it was aggregated. 

* * * * * 

■ 56. Section 158.221 is amended by 

adding paragraph (b)(8) to read as 

follows: 

§ 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 

§§ 158.150 and 158.151. 

* * * * * 

■ 57. Section 158.301 is revised to read 

as follows: 

§ 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. 

■ 58. Section 158.321 is revised to read 

as follows: 

§ 158.321 Information regarding the 

State’s individual health insurance market. 

(a) Subject to § 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 (lifeyears 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 

§ 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. 

■ 59. Section 158.322 is revised to read 

as follows: 

§ 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. 

■ 60. Section 158.330 is revised to read 

as follows: 

§ 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 § 158.321) of issuers 

actively offering individual health 

insurance coverage on- and offExchange, grandfathered health plans as 

defined in § 147.140 of this subchapter, 

coverage that meets the criteria for 

transitional policies outlined in 

applicable guidance, and nongrandfathered 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. 

■ 61. Section 158.341 is revised to read 

as follows: 

§ 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. 

■ 62. Section 158.350 is revised to read 

as follows: 

§ 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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