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

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AGENCY:

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

ACTION:

Final rule.

SUMMARY:

This final rule sets forth payment parameters and provisions related to the risk adjustment and risk adjustment data validation programs; cost-sharing parameters; and user fees for Federally-facilitated Exchanges and State Exchanges on the Federal platform. It finalizes changes that provide additional flexibility to States to apply the definition of essential health benefits (EHB) to their markets, enhance the role of States regarding the certification of qualified health plans (QHPs); and provide States with additional flexibility in the operation and establishment of Exchanges, including the Small Business Health Options Program (SHOP) Exchanges. It includes 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:

Effective Date: These regulations are effective on June 18, 2018.

Start Further Info

FOR FURTHER INFORMATION CONTACT:

Lindsey Murtagh, (301) 492-4106, Rachel Arguello, (301) 492-4263, Alper Ozinal, (301) 492-4178, or Abigail Walker, (410) 786-1725, for general information.

Krutika Amin, (301) 492-5153, for matters related to risk adjustment, and user fees for Federally-facilitated Exchanges and State-Exchanges on the Federal platform.

Adrianne Patterson, (410) 786-0686, or Abigail Walker, (410) 786-1725, for matters related to sequestration.

Melissa Jaffe, (301) 492-4129, for matters related to risk adjustment data validation, cost-sharing reductions, and the premium adjustment percentage.

Lisa Cuozzo, (410) 786-1746, for matters related to rate review.

Jenny Chen, (301) 492-5156, for matters related to establishing a State Exchange, and State Exchanges on the Federal platform.

Emily Ames, (301) 492-4246, for matters related to Navigators and non-Navigator assistance personnel.

Elissa Dines, (301) 492-4388, for matters related to employer-sponsored coverage verification.

Kendra May, (301) 492-4477, for matters related to the requirement to file an income tax return and reconcile APTC and terminations.

Carolyn Kraemer, (301) 492-4197, for matters related to special enrollment periods under part 155.

Amanda Brander, (202) 690-7892, for matters related to exemptions from the individual shared responsibility payment.

Terence Kane, (301) 492-4449, for matters related to income inconsistencies.

Jacob Schnur, (410) 786-7703, for matters related to direct enrollment.

Laura Eldon, (301) 492-4372, for matters related to the Federally-facilitated SHOP.

Shilpa Gogna, (301) 492-4257, for matters related to SHOP in State 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.

Cam Moultrie Clemmons, (206) 615-2338, for matters related to minimum essential coverage.

Christina Whitefield, (301) 492-4172, for matters related to the medical loss ratio program.

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SUPPLEMENTARY INFORMATION:

Table of Contents

I. Executive Summary

II. Background

A. Legislative and Regulatory Overview

B. Stakeholder Consultation and Input

C. Structure of Final Rule

III. Provisions of the Proposed Rule and Analysis of and Responses to Public Comments

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 State Flexibility for Risk Adjustment

C. ICRs Regarding Risk Adjustment Data Validation

D. ICRs Regarding Health Insurance Issuer Rate Increases: Disclosure and Review Requirements—Applicability

E. ICRs Regarding Rate Increases Subject To Review

F. ICRs Regarding the Small Business Health Options Program

G. ICRs Regarding Essential Health Benefits

H. ICRs Regarding Medical Loss Ratio

I. Summary of Annual Burden Estimates for Final Requirements

J. Submission of PRA-Related Comments

V. 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 health care 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 premiums 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 final rule, we 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 Start Printed Page 16931on 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, health care providers, health insurers, patients, recipients of health care services, purchasers of health insurance, or makers of medical devices, products, or medications. In this rule, within the limitations of the current statute, we are finalizing policies to reduce fiscal and regulatory burdens across different program areas, and to support innovative health insurance models.

We are finalizing several changes that would significantly expand the role of States in the administration of the PPACA. We received comments on additional ways to support State Exchanges (SBEs) in adopting innovative approaches to operating and sustaining their Exchanges, and to make the State Exchange on the Federal platform (SBE-FP) model a more appealing and viable model for States. We finalize policies under which States assume a larger role in reviewing the QHP certification standards of network adequacy and essential community providers for the Federally-facilitated Exchanges (FFEs). This will 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 rule also finalizes several policies that will provide States with greater flexibility. For example, this rule provides States with additional flexibility in applying the definition of EHBs to their markets starting with the 2020 plan year. 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. This rule also provides States with significantly more flexibility in how they operate a Small Business Health Options Program (SHOP), permitting them to operate these Exchanges more efficiently, and therefore benefitting States, issuers, employers, and employees. These changes would allow for a more efficient SHOP, such that employers and employees could enroll in SHOP coverage by working with a QHP issuer or SHOP-registered agent or broker. Additionally, the finalized policies provide States more flexibility regarding risk adjustment transfers in their markets. We also 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 provides States with an additional tool to help stabilize, innovate and provide relief in their individual markets. Additionally, we make 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 are finalizing recalibrated parameters for the HHS risk adjustment methodology. We are also finalizing 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.

As we do every year in the HHS notice of benefit and payment parameters final rule, we are finalizing updated parameters applicable in the individual and small group markets. We are finalizing 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 are finalizing 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 Internal Revenue Code of 1986 (the Code), and the assessable payment amounts under section 4980H(a) and (b) of the Code. We are finalizing updates to the maximum annual limitations on cost sharing for the 2019 benefit year for cost-sharing reductions plan variations.

We are finalizing a number of changes related to rate review that are intended to reduce regulatory burden on States and issuers in regard to the rate filing process. Specifically, we are exempting student health insurance coverage from Federal rate review requirements, beginning with coverage effective on or after July 1, 2018. We are also modifying the 10 percent threshold for reasonableness review to a 15 percent default threshold.

Recognizing that Exchanges, including the FFEs, face resource constraints, we are changing the requirements regarding Navigators, and the requirements regarding non-Navigator assistance personnel subject to § 155.215, to enable Exchanges to more easily operate these programs with limited resources. Similarly, we are allowing an agent, broker or issuer participating in direct enrollment to have its selected third-party entity conduct operational readiness reviews, rather than requiring that those reviews be conducted by entities approved by HHS.

We also finalize relatively minor adjustments to our programs and rules as we do each year in the HHS notice of benefit and payment parameters. We are finalizing 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 the proposed rule, we sought 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 requested comment on any additional program integrity improvements that were not outlined in the proposed rule, but could be beneficial in a future rulemaking.

Finally, as noted in the proposed rule, we intend to consider proposals in future rulemaking that would help reduce drug costs and promote drug price transparency. We also 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 in order to help consumers avoid duplicate enrollments, and the appropriate manner of recalculating APTC following a midyear change in eligibility, and sought comments on each of these issues as we prepare rulemaking 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 Start Printed Page 16932receiving the amount of financial assistance for which they are eligible, 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 pre-enrollment verification for special enrollment periods; 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 final 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 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 the Health Insurance Portability and Accountability Act of 1996 (Pub. L. 104-191) (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 EHB package that includes coverage of EHB (as defined by the Secretary), cost-sharing limits, and actuarial value requirements. The law directs that EHBs be equal in scope to the benefits provided under a typical employer plan, and that they cover at least the following 10 general categories: Ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.

Section 1301(a)(1)(B) of the PPACA directs all issuers of QHPs to cover the EHB package described in section 1302(a) of the PPACA, including coverage of the services described in section 1302(b) of the PPACA, to adhere to the cost-sharing limits described in section 1302(c) of the PPACA and to meet the AV levels established in section 1302(d) of the PPACA. Section 2707(a) of the PHS Act, which is effective for plan or policy years beginning on or after January 1, 2014, extends the coverage of the EHB package to non-grandfathered individual and small group health insurance coverage, irrespective of whether such coverage is offered through an Exchange. In addition, section 2707(b) of the PHS Act directs non-grandfathered group health plans to ensure that cost sharing under the plan does not exceed the limitations described in sections 1302(c)(1) of the PPACA.

Section 1302(d) of the PPACA describes the various levels of coverage based on actuarial value (AV). Consistent with section 1302(d)(2)(A) of the PPACA, AV is calculated based on the provision of EHB to a standard population. Section 1302(d)(3) of the PPACA directs the Secretary to develop guidelines that allow for de minimis variation in AV calculations.

Section 1311(b)(1)(B) of the PPACA directs that the Small Business Health Options Program assist qualified small employers in facilitating the enrollment of their employees in QHPs offered in the small group market. Sections 1312(f)(1) and (2) of the PPACA define qualified individuals and qualified employers. Under section 1312(f)(2)(B) of the PPACA, beginning in 2017, States have the option to allow issuers to offer QHPs in the large group market through an Exchange.[3] Section 1312(a)(2) of the PPACA provides that in a SHOP, a qualified employer may select a level of coverage, and that employees may then, in turn, choose SHOP plans within the level selected by the qualified employer.

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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 things, the establishment and operation of Exchanges.

Sections 1313 and 1321 of the PPACA provide the Secretary with the authority to oversee the financial integrity of State Exchanges, their compliance with HHS standards, and the efficient and non-discriminatory administration of State Exchange activities. Section 1321 of the PPACA provides for State flexibility in the operation and enforcement of Exchanges and related requirements.

When operating an FFE under section 1321(c)(1) of the PPACA, HHS has the authority under sections 1321(c)(1) and 1311(d)(5)(A) of the PPACA to collect and spend user fees. In addition, 31 U.S.C. 9701 permits a Federal agency to establish a charge for a service provided by the agency. Office of Management and Budget (OMB) Circular A-25 Revised establishes Federal policy regarding user fees and specifies that a user charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public.

Section 1321(c)(2) of the PPACA authorizes the Secretary to enforce the Exchange standards using civil money penalties (CMPs) on the same basis as detailed in section 2723(b) of the PHS Act. Section 2723(b) of the PHS Act authorizes the Secretary to impose CMPs as a means of enforcing the individual and group market reforms contained in Part A of title XXVII of the PHS Act when a State fails to substantially enforce these provisions.

Section 1321(d) of the PPACA provides that nothing in title I of the PPACA should be construed to preempt any State law that does not prevent the application of title I of the PPACA. Section 1311(k) of the PPACA specifies that Exchanges may not establish rules that conflict with or prevent the application of regulations issued by the Secretary.

Section 1343 of the PPACA establishes a permanent risk adjustment program to provide payments to health insurance issuers that attract higher-risk populations, such as those with chronic conditions, funded by payments from those that attract lower-risk populations; thereby, reducing incentives for issuers to avoid higher-risk enrollees.

Section 1402 of the PPACA provides for, among other things, reductions in cost sharing for EHB 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. In addition, the HEALTHY KIDS Act amended section 5000A(f)(1)(A)(iii) of the Code to include in the definition of MEC CHIP look-alike plans, which are CHIP buy-in programs that provide benefits that are at least identical to the benefits provided by the title XXI CHIP program.[4] 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. Under tax reform legislation that was enacted on December 22, 2017, the individual shared responsibility payment is reduced to $0, effective for months beginning after December 31, 2018.[5]

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 [6]

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 Start Printed Page 16934the 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 30, 2013 Federal Register (78 FR 54069) and the “second Program Integrity Rule” published in the October 30, 2013 Federal Register (78 FR 65045).

3. Exchanges

We published a request for comment relating to Exchanges in the August 3, 2010 Federal Register (75 FR 45584). We issued initial guidance to States on Exchanges on November 18, 2010. We proposed a rule in the July 15, 2011 Federal Register (76 FR 41865) to implement components of the Exchanges, and a rule in the August 17, 2011 Federal Register (76 FR 51201) regarding Exchange functions in the individual market and SHOP, eligibility determinations, and Exchange standards for employers. A final rule implementing components of the Exchanges and setting forth standards for eligibility for Exchanges was published in the March 27, 2012 Federal Register (77 FR 18309) (Exchange Establishment Rule).

We established additional standards for SHOP in the 2014 Payment Notice and in the Amendments to the HHS Notice of Benefit and Payment Parameters for 2014 interim final rule, published in the March 11, 2013 Federal Register (78 FR 15541). The provisions established in the interim final rule were finalized in the second Program Integrity Rule. We also set forth standards related to Exchange user fees in the 2014 Payment Notice. We established an adjustment to the FFE user fee in the Coverage of Certain Preventive Services Under the Affordable Care Act final rule, published in the July 2, 2013 Federal Register (78 FR 39869) (Preventive Services Rule).

In a final rule published in the July 17, 2013 Federal Register (78 FR 42823), we established standards for Navigators and non-Navigator assistance personnel in FFEs and for non-Navigator assistance personnel funded through an Exchange establishment grant. This final rule also established a certified application counselor program for Exchanges and set standards for that program.

In an interim final rule, published in the May 11, 2016 Federal Register (81 FR 29146), we made amendments to the parameters of certain special enrollment periods (2016 Interim Final Rule). We finalized these in the 2018 Payment Notice final rule in the December 22, 2016 Federal Register (81 FR 94058). In the April 18, 2017 Market Stabilization final rule Federal Register (82 FR 18346), we amended standards relating to special enrollment periods and QHP certification.

4. Essential Health Benefits and Actuarial Value

On December 16, 2011, HHS released a bulletin [7] (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.[8] 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 time-limited. In the February 27, 2015 Federal Register (80 FR 10750), we designated State high risk pools established on or before November 26, 2014 as MEC.

6. Market Rules

A proposed rule relating to the 2014 health insurance market rules was published in the November 26, 2012 Federal Register (77 FR 70584). A final rule implementing the health insurance market rules was published in the February 27, 2013 Federal Register (78 FR 13406) (2014 Market Rules).

A proposed rule relating to Exchanges and Insurance Market Standards for 2015 and Beyond was published in the March 21, 2014 Federal Register (79 FR 15808) (2015 Market Standards Proposed Rule). A final rule implementing the Exchange and Insurance Market Standards for 2015 and Beyond was published in the May 27, 2014 Federal Register (79 FR 30240) (2015 Market Standards Rule). The 2018 Payment Notice final rule in the December 22, 2016 Federal Register (81 FR 94058) provided additional guidance on guaranteed availability and Start Printed Page 16935guaranteed 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 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 EHB, 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 final 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). We anticipate continuing to address comments in future rulemaking and guidance.

C. Structure of Final Rule

The regulations outlined in this final rule will be codified in 45 CFR parts 147, 153, 154, 155, 156, 157, and 158.

The final regulations in part 147 amend the rules regarding fair health insurance premiums and guaranteed availability to reflect final changes related to the SHOPs and special enrollment periods.

In connection with part 153, we are recalibrating 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. This final rule addresses the high-cost risk pooling adjustment, where we are finalizing the same parameters that applied to the 2018 benefit year for the 2019 benefit year risk adjustment. The finalized provisions related to part 153 include the risk adjustment user fee and modifications to risk adjustment data validation. We also finalize a policy to provide States flexibility to request reductions in risk adjustment transfers in the small group market starting for the 2020 benefit year and beyond.

The final regulations in part 154 finalize certain modifications to reduce regulatory burden and enhance State flexibility for the rate review program. We are finalizing an exemption for student health insurance coverage from Federal rate review requirements. We are finalizing a proposal to raise the default threshold for review of reasonableness in the rate review process from 10 percent to 15 percent. We also are finalizing a proposal 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 are finalizing the change to the notification period for States with Effective Rate Review Programs to provide advance notice to HHS prior to posting rate increases (from 30 days to 5 business days).

The final 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 will allow agents, brokers, and issuers to select their own third-party entities for conducting those reviews. We are finalizing modifications to the rules around verification of eligibility. We are also finalizing increased 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 by removing the standard requiring physical presence of the Navigator entity in the Exchange service area. We are modifying the parameters around certain special enrollment periods. We are modifying the effective date options for enrollee-initiated terminations, at the option of the Exchange, and amending 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 final regulations in part 156 include changes to EHB and the QHP certification process. The final regulations in part 156 set forth parameters 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. The regulations at part 156 also include finalized FFE and SBE-FP user fee rates for the 2019 benefit year for all issuers participating on the FFEs or SBE-FPs. The regulations at part 156 also include finalized policies related to actuarial value for stand-alone dental plans (SADPs).

The final amendments to the regulations in parts 155, 156, and 157 include finalized proposals that would provide SHOPs with additional operational flexibility, and would modify the requirements for issuers, employers, and employees interacting with SHOPs.

The final amendments to the regulations in part 158 include revisions related to reporting quality improvement activity expenses as part Start Printed Page 16936of the formula for calculating MLR, and revisions related to State requests for adjustment to the individual market MLR standard.

III. Provisions of the Proposed Rule and Analysis of and Responses to Public Comments

In the November 2, 2017 Federal Register (82 FR 51052), we published the “Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2019” proposed rule (proposed 2019 Payment Notice or proposed rule). We received 416 comments, including 99 comments that were substantially similar to one of four different letters, each regarding the proposals on EHBs, one addressing EHBs and the Navigator program, and one addressing proposals related to EHBs, Navigators, SHOPs and network adequacy. Comments were received from State entities, such as departments of insurance and State Exchanges; health insurance issuers; providers, both individuals and provider groups; consumer groups; industry groups; national interest groups; and other stakeholders. The comments ranged from general support of or opposition to the proposed provisions to specific questions or comments regarding proposed changes. We received a number of comments and suggestions that were outside the scope of the proposed rule that will not be addressed in this final rule.

In this final rule, we provide a summary of each proposed provision, a summary of those public comments received that directly related to the proposals, our responses to them, and a description of the provisions we are finalizing.

Comment: We received multiple comments criticizing the short comment period, stating that the comment period made it difficult for stakeholders to conduct an in-depth analysis of the proposed rule. Commenters suggested that HHS adopt a comment period of at least 30 days from rule publication, and to fully comply with notice-and-comment requirements under the Administrative Procedure Act.

Response: The timeline for publication of this final rule accommodates issuer filing deadlines for the 2019 benefit year. A longer comment period would have delayed the publication of this final rule, and created significant challenges for States, Exchanges, issuers, and other entities in meeting deadlines related to implementing these rules. We will continue to try to expand the comment period for the annual HHS notice of benefit and payment parameters while also providing industry and other stakeholders with more time to implement the final rule.

Comment: We received some comments generally supportive of State flexibility, stating that by removing existing regulatory barriers, issuers will be able to offer a more diverse selection of coverage options that meet both the financial and health coverage needs of consumers while meeting various State needs.

Response: We agree that State flexibility with respect to oversight of State insurance markets is an important goal, and recognize the traditional role States have as the primary regulators of their insurance markets. States are best positioned to address the specific needs of their consumers, and may be better able than the Federal government to develop policies that are tailored to allow issuers in their State to develop plans that address both the needs and cost concerns of beneficiaries in their State.

Comment: We received numerous comments cautioning us about making changes that would weaken the PPACA. Some commenters expressed concern that the proposed changes would remove some of the protections afforded by the PPACA, such as the certainty of EHBs.

Response: Our top priority at HHS is putting consumers first. While we have made great strides forward, there is still work to be done, including ensuring that coverage is affordable to all consumers. We have already taken important steps to streamline our regulations and our operations with the goal of reducing unnecessary burden, increasing efficiencies and improving the consumer experience. Yet, we have recently seen how regulations intended to protect consumers can, instead, undermine consumers' access to affordable health coverage. In this final rule, we finalize policies that are intended to help control costs of coverage in order to make coverage more affordable for consumers, particularly unsubsidized consumers. We will continue to find innovative ways to reduce costs and burdens while meeting the health needs of all Americans. We are continuing to address feedback we receive from stakeholders and the public, and in turn we are making changes that will better serve consumers and allow States to address the unique health needs of their populations.

Comment: Commenters responded to our request for comment on ideas for future rulemaking about ways to help reduce drug costs and promote drug price transparency. All commenters acknowledged the consumer benefits of lowering drug costs and having more transparent drug pricing; however, commenters cautioned that any changes be done in a thoughtful manner, that considers value in addition to cost, with input from all stakeholders.

Response: We appreciate the ideas for future rulemaking and will consider these suggestions.

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 final rule, we are finalizing 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 Federally-facilitated Small Business Health Options Program (FF-SHOP). As part of these changes and, as discussed in the preamble to §§ 156.285 and 156.286, we proposed that, effective on the effective date of this rule, 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 proposed 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 did not receive comments on this proposal, and are finalizing the change as proposed, with one minor typographical correction.

We also sought comment on whether issuers offering coverage through SHOPs should always be required to offer average enrollee premiums, or should be required to do so only if required under applicable State law.

Comment: Comments were mixed regarding whether issuers offering coverage through SHOPs should always be required to offer average enrollee premiums. One commenter stated that issuers offering coverage through SHOPs should always be required to offer average enrollee premiums, while others stated that issuers should be required to do so only if required by applicable State law. One of these commenters further recommended that average premium rating should be permitted only when a SHOP does not allow employees to choose plans among multiple issuers. The commenter stated that average enrollee premiums based Start Printed Page 16937on employees selecting a particular plan could result in illogical rates, such as a richer plan having lower rates than a leaner plan because only younger employees selected the richer plan. Another commenter stated that all issuers, regardless of whether they are offering coverage on or off SHOP, should be allowed to offer average enrollee premiums.

Response: For purposes of consistency, we believe that issuers offering coverage through a SHOP should be permitted to offer average enrollee premiums to the same extent that issuers may do so off SHOP under existing State rules. Also, given the decrease in issuer participation in the FF-SHOPs, some SHOP employers only have one issuer offering FF-SHOP plans in their area and will not be able to offer their employers a choice of plans across issuers. In addition, historically, a majority of employers have not offered employee choice across different issuers, thus mitigating the risk of variance in average premium rates across plans. Therefore, we do not believe Federal guidance or regulation is currently warranted in this area. Thus, issuers offering coverage through a SHOP may offer average enrollee premiums to the extent required or permitted by the applicable State, and will not be required under Federal law to do so, unless required by the State.

2. Guaranteed Availability of Coverage (§ 147.104)

i. SHOP

As discussed elsewhere in this final rule, we proposed and are finalizing substantial changes to the requirements applicable to SHOPs to provide them with the flexibility to operate in a leaner fashion, a flexibility that we will utilize in the FF-SHOPs. Among those changes, effective on the effective date of this rule, the requirements in § 156.285 will apply for plan years starting before January 1, 2018. New § 156.286 specifies those requirements contained in § 156.285 that, effective on the effective date of this rule, will 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 will be listed in new § 156.286(e). The marketwide regulations at § 147.104(b)(1)(i)(B) currently reference § 156.285(e), and we proposed to add a reference to § 156.286(e) to clarify that, effective on the effective date of this rule, for plan years that start on or 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. Because we are finalizing new § 156.286(e) as proposed, we are also finalizing the proposal to reference new § 156.286(e) in § 147.104(b)(1)(i)(B).

Comment: One commenter supported the proposal to add to § 147.104(b)(1)(i)(B) a reference to § 156.286(e). One commenter opposed permitting QHPs to restrict coverage availability when a group health plan cannot comply with group participation rules, while another commenter stated that an employer that fails to comply with such rules should not be afforded guaranteed availability of coverage, either generally or during an annual open enrollment period, either on or off-SHOP.

Response: As indicated in the section of the preamble discussing the SHOP rule, we are finalizing, as proposed, the proposal to add new § 156.286(e), which would apply, to plan years starting on or after January 1, 2018, the existing regulatory provision that allows QHPs offered in the SHOP to 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. Thus, we are also finalizing the proposal to reference new § 156.286(e) in § 147.104(b)(1)(i)(B).

We also proposed, and are finalizing, the removal of 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 this rule. However, there are currently requirements in § 147.104(b)(1)(i)(C) that, by cross-referencing § 155.725, apply those same requirements marketwide, and we did not propose to remove that marketwide requirement. We proposed changes to § 147.104 to reflect the SHOP changes. Specifically, we proposed to eliminate, from § 147.104(b)(1)(i)(C), the cross-reference to § 155.725. We proposed 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 are finalizing this proposal, but are modifying the language that will replace the cross-reference to clarify that it is permissible for issuers to apply an effective date of coverage that is before or on the specified dates. We are also modifying the proposed language so that the effective date of coverage is tied to the date a group enrollment is received, rather than to the date a plan selection is received.

Comment: All commenters supported in principle the proposal to eliminate, from § 147.104(b)(1)(i)(C), the cross reference to the effective dates of coverage in § 155.725, and in its place explicitly specify in § 147.104(b)(1)(i)(C) those effective dates for coverage in the small group market, and for the large group market if such coverage is offered through a SHOP. However, several commenters noted that our proposal did not import the provisions in § 155.725, describing the coverage effective dates, verbatim into § 147.104(b)(1)(i)(C). They observed that the proposed language in § 147.104(b)(1)(i)(C) tied the coverage effective date to the date a plan selection was received, rather than to the date a group enrollment was received, and that tying the coverage date to the date a group enrollment was received (as in the effective-date-of-coverage language currently set forth in § 155.725) would be more appropriate. Commenters also stated that the language we proposed to add in § 147.104(b)(1)(i)(C), unlike the language in current regulations in § 155.725, would prohibit issuers from applying a coverage effective date that falls before the first day of the following month, or before the first day of the second following month, as applicable, after the date a group enrollment is received.

Response: As commenters pointed out, in the language we proposed for § 147.104(b)(1)(i)(C), we tied the coverage effective date to the date a plan selection, rather than a group enrollment, was received. Given that the proposed language we added appears in a section of the rules (§ 147.104) that applies marketwide, and not just in SHOPs, we agree with the commenters that tying the coverage date to a group enrollment, which is a broader term than a plan selection (the latter is a SHOP-specific term), would be more appropriate. We also agree with the commenters that the existing language in § 155.725, which requires issuers to ensure a coverage effective date of, rather than on, the dates specified in the existing language, permits issuers to apply an enrollment date that falls before, rather than only on, the first day of the first month or the first day of the second month (as applicable) following the date a group enrollment is received, and that issuers should continue to have Start Printed Page 16938the flexibility to apply an enrollment date that falls before those dates. Therefore, in light of those comments, we are finalizing language in § 147.104(b)(1)(i)(C).

ii. Special Enrollment Periods

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 qualifying events including those listed in the exceptions in § 147.104(b)(2)(i). Therefore, we proposed 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. We received no comments on this proposal, and are finalizing it as proposed.

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 finalizing a change to § 155.420(a)(5) to exempt qualified individuals from the prior coverage requirement that applies to certain special enrollment periods if they lived in a service area where no qualified health plan was available through the Exchange for 1 or more days during the 60 days preceding the qualifying event or during their most recent preceding enrollment period, as specified in §§ 155.410 and 155.420. Section 155.420(a)(5) applies to qualifying individuals seeking off-Exchange coverage through an applicable special enrollment period, so we proposed that this exception for individuals living in a service area where there were no QHPs offered through an Exchange would also apply.[9] 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 proposed 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 are finalizing this change as proposed.

Comment: All commenters supported this proposal, while some commenters stated more generally that special enrollment periods should be the same, regardless of whether an individual is seeking coverage on or off-Exchange. One commenter suggested that we publish a list of bare counties so that the exemption to the prior-coverage requirement can be properly applied both on and off-Exchange.

Response: We are finalizing the proposal, consistent with the way in which the amendment to § 155.420(a)(5) is being finalized, and if there are ever any service areas in which no qualified health plans are offered through the Exchange, we will consider publishing a list of them, as the commenter suggested. For a more detailed response to comments regarding the amendment to § 155.420(a)(5), see the preamble to that section.

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. We sought comment on whether this special enrollment period should afford an individual's existing dependents an independent opportunity to enroll, off-Exchange, in new coverage or make changes to their existing coverage. As applied to on-Exchange coverage, when a qualified individual gains or becomes a new dependent under the circumstances described in § 155.420(d)(2)(i), the qualified individual is afforded a special enrollment period to enroll in or change Exchange coverage with his or her dependents, including his or her newly-gained dependent, in accordance with any applicable metal level restrictions outlined in § 155.420(a)(4)(i). The new dependent is also afforded an independent special enrollment period under which he or she can enroll in or change Exchange coverage as a subscriber, as opposed to as a dependent of the qualified individual. 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.[10] We sought comment on whether, in the off-Exchange individual market, the special enrollment periods for when an individual gains a dependent or becomes a new dependent under the circumstances described in § 147.104(b)(2), which cross-references § 155.420(d)(2)(i), should continue to operate in the same manner as they do on-Exchange, whether they should operate in a manner consistent with the HIPAA group market regulations, or whether we should adopt some other approach.

With respect to off-Exchange coverage, we are maintaining current policy under which an individual who qualifies for a special enrollment period for gaining a dependent through marriage, birth, adoption, placement for adoption, or placement in foster care, or through a child support order or other court order under § 147.104(b)(2) may enroll in or change coverage along with his or her dependents, including the newly-gained dependent(s) and any existing dependents. The new dependent is also afforded an independent special enrollment period under which he or she can enroll in or change coverage as a subscriber, as opposed to as a dependent of the Start Printed Page 16939individual. This off-Exchange special enrollment period does not otherwise provide to existing dependents an independent opportunity to enroll in new coverage or make changes to their existing coverage.

Comment: Some commenters stated that existing dependents should be entitled to enroll with other family members who have qualified for the special enrollment period when a qualified individual in their household 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, while others believed they should not, stating that allowing this practice would contribute to adverse selection. Some commenters stated that special enrollment periods should apply uniformly on-Exchange and off-Exchange.

Response: As stated previously, we are continuing to apply the parameters of the special enrollment period for those who have gained or become a new dependent through marriage, birth, adoption, foster care placement, or a child support or other court order off-Exchange in the same manner as applied on-Exchange. We believe the advantages and simplicity of uniformity between on-Exchange and off-Exchange coverage in this instance outweigh the concern about adverse selection.

iii. Technical Changes

We proposed to remove paragraph § 147.104(b)(1)(iii), along with the cross-reference 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. We received no comments regarding this proposal, and are finalizing these changes as proposed.

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,[11] 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 began October 1, 2017. Although the 2016 benefit year was 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 was 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, non-grandfathered plans to higher risk, non-grandfathered 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. Beginning with the 2017 benefit year, HHS is operating risk adjustment in every State, and did not receive any applications from States to operate risk adjustment for the 2019 benefit year.

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. Final Updates to the Risk Adjustment Model (§ 153.320)

For the 2019 benefit year, we proposed 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 enrollee-level EDGE data in the 2019 benefit year risk adjustment model recalibration.

i. Recalibration Using EDGE Data

To recalibrate the 2016, 2017 and 2018 benefit year risk adjustment models, we used the 3 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 enrollee-level EDGE data with MarketScan® data will provide stability within the risk Start Printed Page 16940adjustment program and minimize volatility in changes to risk scores from the 2018 to 2019 benefit years due to differences in the datasets' underlying populations. As such, we proposed blending 3 years of data to recalibrate the coefficients used in the risk adjustment models and, for the 2019 benefit year, blending separately solved coefficients from the 2016 benefit year enrollee-level EDGE data and the 2014 and 2015 MarketScan® data.

Given the timing of the proposed rule, we were not able to incorporate the 2016 benefit year enrollee-level EDGE data in the proposed rule. Instead, we used the 2014 and 2015 MarketScan® data for the coefficients displayed in the proposed rule. We proposed to finalize the 2019 benefit year blended coefficients with the separately solved models from the 2016 benefit year enrollee-level EDGE data, and the 2014 and 2015 MarketScan® data. This is similar to our approach in previous years, in which we updated the final coefficients using data from the most recently available benefit year.[12] We explained that we expected to publish the final risk adjustment model coefficients for the 2019 benefit year in the final rule. However, we sought 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, if we needed additional time to analyze the 2016 enrollee-level EDGE data. Under either approach, we proposed that the final risk adjustment model coefficients for the 2019 benefit year would be determined using the methodology that we would finalize in this rule, and would be published prior to the 2019 benefit year rate setting. Additionally, if we found significant demographic or distributional differences in the enrollee-level EDGE data compared to the MarketScan® data, we sought comment on whether we should make adjustments to the risk adjustment recalibration model age-sex, hierarchical condition categories (HCCs), and RXC categories for the 2019 benefit year. In such a case, we proposed we would make adjustments to the models to better align them with the enrollee-level EDGE data, to improve the prediction of plan liability.

We sought comment on our proposal to determine coefficients based on a blend of 2014 and 2015 MarketScan® data and 2016 enrollee-level EDGE data. We also sought 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 enrollee-level EDGE data to recalibrate the risk adjustment model coefficients for the 2019 benefit year.

We are finalizing the approach using equally blended coefficients from separately solved 2014 MarketScan®, 2015 MarketScan®, and 2016 enrollee-level EDGE data to recalibrate the risk adjustment model coefficients for the 2019 benefit year. We are not making any changes to age-sex or HCC categories, because we did not find significant distributional differences, and we will continue to assess whether to propose any specific changes to the categories for future benefit years in future rulemaking. We did not propose and are not making any changes to the enrollment duration categories. Please see the preamble section below on “Prescription Drugs” for a discussion of changes being finalized with respect to the RXC categories. The final risk adjustment model coefficients for the 2019 benefit year risk adjustment program are listed in Tables 2, 4 and 5 of this rule.

Comment: Commenters supported the use of enrollee-level EDGE data in model recalibration noting the data would more closely reflect the relative risk differences of individuals in the individual and small group markets compared to the MarketScan® data. Most commenters also supported equally blending coefficients from separately solved models using 3 years of data to promote stability year over year, thereby phasing in the use of enrollee-level EDGE data. A few commenters supported overweighting the 2016 enrollee-level EDGE data, with one commenter supporting overweighting of the 2016 data if sample sizes are adequate. A few commenters supported using only the 2016 enrollee-level EDGE data for recalibration, stating that MarketScan® data will have different utilization and risk patterns, and socioeconomic status for enrollees with employer-based coverage than the EDGE data, which directly reflects PPACA individual and small group market enrollees. These commenters also stated that these differences in the underlying data could cause the risk adjustment coefficients to over- or under-predict risk differences. One commenter stated that relying on older data to calibrate the model could lead to significant gaps in the risk adjustment methodology. One commenter requested clarification as to the volatility in changes to risk scores from the 2018 to 2019 benefit years that could occur due to differences in the datasets' underlying populations. Another commenter requested that recalibration using EDGE data be postponed until all States' data is available in the 2017 benefit year.[13] Some commenters requested separate publication of the coefficients from the 2016 enrollee-level EDGE data. One commenter requested clarification as to what weights would be applied in blending coefficients from the 3 years of data. Most commenters also supported HHS finalizing the 2019 benefit year coefficients prior to rate setting in guidance, while a few others requested the coefficients be finalized in the final rule. One commenter noted that delaying publication of the final coefficients past the publication of the final rule would pose challenges in issuers' rate setting timelines, while some commenters suggested that if HHS needs additional time beyond the publication of the final rule, the final coefficients for the 2019 benefit year should be published no later than February 28, 2018.

Response: For small sample sizes, year-to-year differences in spending due to data anomalies can cause significant differences in a particular solved coefficient. We agree that blending coefficients from multiple years of data can provide stability in changes in the recalibrated model coefficients and provide certainty to issuers, particularly where small sample sizes could lead to volatility in the solved coefficients from year-to-year. Additionally, while there are differences in total spending in MarketScan® compared to enrollee-level EDGE data, we have found that the relative risk differences for age-sex, HCC and RXC categories are generally similar to those in the MarketScan® data, and therefore, do not believe that blending the data will cause significant over- or under-prediction of relative risk scores on average. Enrollee-level EDGE data shows lower spending and relative risk patterns for shorter enrollment durations compared to the MarketScan® data, resulting in smaller enrollment duration coefficients for all 11 months. This result was expected, given that enrollees in large group coverage have longer enrollment duration and a higher proportion of individuals with a full-year of enrollment on average than enrollees in the individual and small group markets, and that the greater number of shorter average enrollment durations in the enrollee-level EDGE Start Printed Page 16941data account for lower relative risk on average.

Additionally, while Massachusetts is not included in the 2016 benefit year enrollee-level EDGE data, the relative risk differences for enrollees in Massachusetts are likely similar on average to those for enrollees in other States. The 2017 benefit year enrollee-level risk EDGE data will not be available until the end of summer 2018, after the 2019 benefit year risk adjustment factors need to be published to support 2019 benefit year benefit design and rate development, and therefore cannot be used for this recalibration effort. We believe that a national dataset of individual and small group market claims experience for the most recent benefit year is the preferable data source—even without the incorporation of one State—compared to only using commercial claims data for risk adjustment model recalibration and risk estimation in the individual and small group markets.

In all, we believe blending the coefficients promotes stability and certainty for issuers in rate setting, smoothing any significant differences as with the EDGE enrollment duration factors, while maintaining the relative average risk differences stakeholders have expected from the MarketScan®-only coefficients. Therefore, we are finalizing our proposal to equally weight coefficients from separately solved models using 2014 MarketScan®, 2015 MarketScan®, and 2016 enrollee-level EDGE data for the final 2019 benefit year risk adjustment model recalibration. We also were able to complete our analysis of the 2016 EDGE data in time to publish the final coefficients blended with 2016 enrollee-level EDGE data in this final rule. The final 2019 benefit year risk adjustment model coefficients listed in Tables 2, 4, and 5 are blended coefficients using equally weighted coefficients solved from the 2014 MarketScan®, 2015 MarketScan®, and 2016 enrollee-level EDGE data.

Comment: Commenters requested clarification on the analytical dataset development process using the 2016 enrollee-level EDGE data, sample size of the enrollee-level EDGE data, and differences in EDGE and MarketScan® data.

Response: We arrived at the 2016 enrollee-level EDGE analytical dataset using several criteria. We limited the sample to ages 0-64 to maintain the same age categories as those HHS has used in the MarketScan® data, with which the EDGE coefficients are blended. Currently, we use the age 60-64 factors for those over 65 years of age enrolled in individual and small group market coverage, and will continue to do so for the 2019 benefit year. We will consider whether to propose expanding the age and sex factors to include age groups and associated costs for enrollees ages 65 and above in future model recalibrations. We also excluded derived claims, any newborn diagnoses for infants older than one year of age, anomalous claims (for example, pregnancy diagnoses if sex is male) and those with sex unknown. There were approximately 47 million, 28 million and 31 million total unique enrollees in the 2014 MarketScan®, 2015 MarketScan®, and 2016 enrollee-level EDGE data, respectively. Relative risks were similar in the 2016 enrollee-level EDGE data for most categories in all three adult, infant and child samples. As mentioned above, enrollee-level EDGE data reflected lower spending and relative risk patterns for shorter enrollment duration enrollees compared to MarketScan® data.

Comment: In case of significant demographic or distributional differences in the EDGE data compared to the MarketScan® data, most commenters supported HHS making adjustments to give greater weight to the EDGE data when recalibrating the model coefficients. However, commenters did not support making changes to the age-sex, HCC, enrollment duration or RXC factors categorizations beyond what was in the proposed rule, and instead supported such changes to be implemented for the 2020 benefit year.

Response: We did not identify significant differences in the relative risk for enrollees over 65 compared to those in the 60-64 age group in the enrollee-level EDGE data compared to the MarketScan® data, and therefore, are finalizing the risk adjustment model categories as proposed. As noted above, we will continue to assess relative differences in demographic and spending patterns in the EDGE data and will consider amending the risk adjustment model categories in future recalibrations, particularly once we have multiple years of enrollee-level EDGE data.

Comment: A few commenters requested that HHS limit the scope of enrollee-level EDGE data collection and use, clarify the types of data elements collected in the enrollee-level EDGE data, proceed with caution given the data privacy and trade secret information, and prohibit any other use of the data.

Response: These comments are outside the scope of the proposed rule. As finalized in the 2018 Payment Notice, HHS is collecting enrollee-level EDGE data, which provides more granular claims data from the individual and small group markets, and is being used to improve the recalibration of HHS programs. Additionally, as noted in the 2018 Payment Notice, HHS recognizes the sensitivity of enrollee-level EDGE data, and is not collecting masked enrollee IDs from issuers' EDGE servers, plan or issuer IDs, rating areas, or State data elements to safeguard the privacy and security of protected health information (PHI) and minimize potential risks to issuers' proprietary information.

ii. Prescription Drugs

In the 2018 Payment Notice, we finalized the inclusion of 12 RXCs that interact with HCCs, or drug-diagnosis (RXC-HCC) pairs, in the adult risk adjustment models for the 2018 benefit year. Ten of the RXC-HCC pairs have three levels of incremental predicted costs (diagnosis-only, prescription drug-only, and both diagnosis and prescription drug), indicating that they can be used to impute a particular diagnosis. The 2018 benefit year risk adjustment adult models also included two RXC-HCC pairs that are used for severity-only—that is, they predict incremental costs for enrollees with the diagnosis-only, or with both the diagnosis and the prescription drug. For enrollees without the associated diagnoses documented for these severity-only RXC-HCC pairs, the presence of the drug alone would not lead to the attribution of additional plan liability costs to the plan.

For the 2019 benefit year, we proposed to remove the two severity-only RXCs (RXC 11: Ammonia Detoxicants, and RXC 12: Diuretics, Loop and Select Potassium-Sparing). Both have low average costs per enrollee per year and were constrained in the 2018 benefit year adult risk adjustment models final coefficients to the average cost of the drugs to avoid overcompensating issuers for these RXCs. Constraining these RXCs removed overprescribing and gaming incentives to prescribe a low-cost drug to receive a much larger risk adjustment payment. However, after constraints, these two severity-only RXCs have extremely small coefficients that no longer predict meaningful incremental plan risk associated with a severe health condition. Therefore, we proposed eliminating these two RXCs from the adult models beginning with the 2019 benefit year. As explained in the proposed rule, we believe the remaining RXCs do not engender significant gaming concerns due to the cost and side-effects of the drugs if prescribed Start Printed Page 16942without cause. As we noted in the 2018 Payment Notice, where the risk of unintended effects on provider prescribing behavior is low, we will continue to include a small number of prescription drug classes as predictors of risk and plan liability. For the remaining RXCs, we explained 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, we noted that we intend to monitor prescription drug utilization for unintended effects, and may propose to remove drug classes based on such evidence in future rulemaking. We are finalizing the removal of RXC11 and RXC12 from the adult risk adjustment models beginning with the 2019 benefit year. Table 1 contains the final list of prescription drug factors included in the 2019 benefit year risk adjustment adult models. We will continue to 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.

Comment: Most commenters supported the removal of the two severity-only RXCs due to their low impact in predicting meaningful differences in risk. Commenters also supported HHS's intention to evaluate the impact of incorporating the prescription drug factors in the model and adding or removing drugs in future model recalibrations as appropriate. Commenters generally supported the inclusion of prescription drug factors in the HHS risk adjustment model, noting the benefit in imputing missing diagnoses. Additionally, we note that commenters on the Request for Information also supported the inclusion of prescription drugs in the risk adjustment methodology. One commenter to the proposed rule suggested HHS should use the MedID for drug classification instead of the RXNorm Concept Unique Identifier (RXCUI) system. The commenter noted MedID would improve stability, accessibility and predictability of the RXCs, as acquiring RXCUI mapping, keeping it up to-date, anticipating changes and ensuring drug inclusion has been a challenge for issuers in determining formularies and often excludes some drugs. Another commenter sought clarification as to whether drugs administered through hospital, office-based or home health settings and found on medical claims would receive credit for the RXC factors, in addition to drugs found on pharmacy claims. One commenter requested HHS release a mapping of RXCUIs to RXC factors for issuers to adequately assess how inclusion and exclusion of drugs will impact risk adjustment, and suggested HHS provide a crosswalk with the RXCUIs mapped to the RXCs prior to January 1, 2018. The commenter also noted that since there is a lag in the data used for recalibration, HHS should consider how to incorporate newer drugs that are approved after the data years and before or during the benefit year. On the other hand, commenters who had a chance to review the draft RXC crosswalk HHS released in September 2017 for the 2018 benefit year risk adjustment adult models suggested that if a drug is included, then all strengths and formulations of that drug ought to be included in the drug class, including the generic or brand name drugs, or requested clarification as to why specific drugs were excluded. A few commenters requested that HHS consider including prescription drugs used by individuals with mental health and substance use disorders in the model, with one suggesting that adding drugs used by those with mental health and substance use disorders to the model may better capture the costs associated with these individuals, and citing a study suggesting that those costs may not be well captured in the associated HCCs in the current model.[14]

Response: We are finalizing our proposal to remove the two severity-only RXCs (RXC 11: Ammonia Detoxicants, and RXC 12: Diuretics, Loop and Select Potassium-Sparing) from the 2019 benefit year risk adjustment adult models. As we explained in the 2018 Payment Notice, we selected the RxNorm tool developed by the U.S. National Library of Medicine because it is frequently updated, reliable, and easily accessible, and issuers commented on the ease of the RxNorm tool in mapping drugs to RXCUIs. As such, we do not see a need to adopt another classification system at this time. HHS posted an RXC to RXCUI draft crosswalk on September 18, 2017,[15] to provide issuers an initial set of RXCUIs that would be included for 2018 benefit year risk adjustment adult models in the HHS-operated risk adjustment program. As we noted in the crosswalk, drugs were excluded based on expert or clinician input as to drugs' cross indications, empirical and statistical analyses that indicated a weak association between the drug and the diagnoses, or if drugs were older or discontinued. Drugs were also excluded in situations where drugs had substantially lower costs compared to other drugs included in the RXC, and therefore these drugs were less likely to be the focus of risk-selection behavior by health plans. In these instances, USP classes contained a mix of newer, more expensive drug treatments, and older, often generic, lower-cost drug treatments. For example, the combined USP classes Immune Suppressants and Immunomodulators encompass a wide range of drugs. They include expensive biologics costing several thousands of dollars each month and drugs like generic methotrexate, a month's supply of which can cost less than $100. Clinician review determined that many of the drugs in this class are substitutable and the general prescribing process would be to first prescribe a cheaper drug, and if the patient does not respond to that then move to a more expensive biologic. However, because concern over patient access and health plan selection behavior (reflected in formulary design) centers around the expensive biologics, the cheaper non-biologics were removed from RXC 9.

We review drugs in the United States Pharmacopeia (USP) classification and consult clinicians and experts to ensure relevant drugs are included. However, as some commenters noted in response to the proposed rule, new drugs have been released since we released the draft 2018 benefit year crosswalk and a few drugs that may be eligible under our other criteria were not classified by the USP classification version used for the draft crosswalk. We expect to publish the final 2018 benefit year crosswalk in the spring of 2019, after the conclusion of the 2018 benefit year, so that newly approved drugs released through the end of the year and the latest USP classification are evaluated and included, as appropriate. As such, we intend to make quarterly updates to the 2018 benefit year prescription drug crosswalk, to ensure we are capturing all new drug releases and drug class inclusions or modifications. We are also reviewing drugs administered through clinicians in hospital, office-based, or Start Printed Page 16943home health settings crosswalked to national drug codes (NDCs) to determine whether it is appropriate under our inclusion criteria to include these drugs in the 2018 benefit year crosswalk for 2018 benefit year risk adjustment risk score calculation. However, as these drugs are often more expensive when administered in hospital, office-based, or home health settings, we are not including such drugs in the recalibration of the adult models for the 2019 benefit year to limit gaming incentives. We anticipate the 2019 benefit year drug crosswalk will be published on a similar quarterly schedule, following the final 2018 benefit year crosswalk publication. We also intend to monitor the impact of the drugs included in the adult models on prescribing incentives and will evaluate adding or removing other RXCs as appropriate in future recalibrations for future benefit years. We had previously considered, but did not include, antimanic agents for depression and bipolar disorders due to their low imputation value in identifying the risk solely based on the RXC and low relative cost of the drugs. We are continuing to assess if mental health and substance use disorder treatments should be included in the adult models in future benefit years.

Comment: One commenter noted that pharmacy claims should not be included in the risk adjustment data validation process as no clinical documentation is available for pharmacy claims, and HHS should not include data that cannot be easily audited in risk adjustment. Another commenter sought clarification as to how HHS intends to conduct risk adjustment data validation for prescription drugs included in the risk adjustment adult models.

Response: As we noted in the 2018 Payment Notice, HHS does not perform risk adjustment data validation audits with the intent of determining whether a clinician correctly diagnosed a patient. Rather, the goal for the HHS-operated risk adjustment program is to ensure that enrollees' diagnoses on paid claims reflect the appropriately assigned HCCs, and were diagnosed by a licensed clinician. Likewise, in validating pharmacy claims, we intend to validate factors such as whether the prescription was filled and paid by the issuer, and whether the appropriate RXC interaction was assigned. We understand commenters' concerns regarding prescription drug data and intend to closely monitor prescribing behavior in the 2018 benefit year and beyond. We will consider whether additional adjustments to the risk adjustment data validation process are needed for the 2018 benefit year to ensure risk adjustment data validation appropriately audits pharmacy claims submitted to EDGE by issuers.

Table 1—Final Drug-Diagnosis (RXC-HCC) Pairs for the 2019 Adult Model

RXCRXC labelHCCHCC labelFinal RXC use
RXC 01Anti-HIV Agents001HIV/AIDSimputation/severity.
RXC 02Anti-Hepatitis C (HCV) Agents037C, 036, 035, 034Chronic Hepatitis C, Cirrhosis of Liver, End-Stage Liver Disease, and Liver Transplant Status/Complicationsimputation/severity.
RXC 03Antiarrhythmics142Specified Heart Arrhythmiasimputation/severity.
RXC 04Phosphate Binders184, 183, 187, 188End Stage Renal Disease, Kidney Transplant Status, Chronic Kidney Disease, Stage 5, Chronic Kidney Disease, Severe (Stage 4)imputation/severity.
RXC 05Inflammatory Bowel Disease Agents048, 041Inflammatory Bowel Disease, Intestine Transplant Status/Complicationsimputation/severity.
RXC 06Insulin019, 020, 021, 018Diabetes with Acute Complications; Diabetes with Chronic Complications; Diabetes without Complication, Pancreas Transplant Status/Complicationsimputation/severity.
RXC 07Anti-Diabetic Agents, Except Insulin and Metformin Only019, 020, 021, 018Diabetes with Acute Complications, Diabetes with Chronic Complications, Diabetes without Complication, Pancreas Transplant Status/Complicationsimputation/severity.
RXC 08Multiple Sclerosis Agents118Multiple Sclerosisimputation/severity.
RXC 09Immune Suppressants and Immunomodulators056, 057, 048, 041Rheumatoid Arthritis and Specified Autoimmune Disorders, Systemic Lupus Erythematosus and Other Autoimmune Disorders, Inflammatory Bowel Disease, Intestine Transplant Status/Complicationsimputation/severity.
RXC 10Cystic Fibrosis Agents159, 158Cystic Fibrosis, Lung Transplant Status/Complicationsimputation/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 Start Printed Page 16944market plans), or small group markets, which will be applied to the total transfer amount in that market, maintaining the balance of payments and charges within the risk adjustment program. In the 2018 Payment Notice, we finalized a threshold of $1 million and a coinsurance rate of 60 percent across all States for the individual (including catastrophic and non-catastrophic plans and merged market plans) and small group markets for the 2018 benefit year.

For the 2019 benefit year, we proposed to maintain the same parameters that apply to the 2018 benefit year. Therefore, we proposed to maintain a $1 million threshold and 60 percent coinsurance rate for the high-cost risk pool for the 2019 benefit year risk adjustment program. We explained that 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 sought comments on alternative methods for reimbursing issuers for exceptionally high-cost enrollees through the high-cost risk pool and improving the calculation of plan liability in the HHS-operated risk adjustment models for future benefit years. We also shared suggestions from stakeholders that the pool 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 are finalizing the high-cost risk pool adjustment parameters for the 2019 benefit year as proposed.

Comment: Most commenters supported our proposal to maintain the same high-cost risk pool adjustment parameters as those used for the 2018 benefit year and noted that keeping the parameters the same provides stability and certainty in the markets. One commenter questioned why the parameters are not trended for increasing medical costs. Some commenters noted that the $1 million threshold level may be too high to have any meaningful impact on premiums or provide stability in smaller State markets with low claims costs that would have additional charges assessed, which could cause volatility. A few commenters did not support the high-cost risk pool adjustment to transfers, yet one of these commenters supported the removal of these costs from the risk adjustment model recalibration. One commenter did not support the proposal based on what appears to be a misunderstanding that the high-cost risk pool adjustment requires individuals to pay 40 percent of costs above $1 million. Some commenters did not support tiering the high-cost risk pool adjustment program for the 2019 benefit year without the first year of experience with this adjustment, noting it would lead to additional complexity. One commenter supported a tiered approach in parameters with maximum coinsurance rates of 80 to 90 percent phased in over multiple years, and another commenter supported a tiered approach if the approach and parameters result in an equivalent cost and scope as the $1 million threshold and 60 percent coinsurance rate parameters.

Response: As we noted in the 2018 Payment Notice, removing extremely high costs improves the risk adjustment model's predictive ability. Additionally, the high-cost risk pool adjustment to the transfer formula mitigates issuers' risk selection incentives to avoid high-cost risk enrollees. Because high-cost enrollees are outliers and thus, unpredictable, they have the potential to significantly distort risk in smaller markets. Removing the high-cost risk from the recalibration model and separately adjusting transfers will allow for greater stability in risk scores to compensate issuers for predictable risk and transfers to compensate issuers for unpredictable risk. We will consider whether a tiered approach would improve model prediction and better compensate issuers for high-cost enrollees than the current approach for future benefit years. We are continuing to assess the market impact of tiered approaches nationally on the model's risk prediction and issuers' risk differences, and whether such an approach would meaningfully improve the model in accounting for high-cost enrollees' risk. We continue to believe a $1 million threshold and 60 percent coinsurance rate for the 2019 benefit year are appropriate to incentivize issuers to control costs while improving the risk adjustment model's risk prediction. Additionally, as we noted in the 2018 Payment Notice, if an issuer were to fail the data quality analysis for a risk adjustment transfer and be assessed a default charge under § 153.740(b) on that basis, we would perform additional data quality analysis to determine an issuer's eligibility for high-cost risk pool adjustments.

We are finalizing our proposal to maintain a $1 million threshold and 60 percent coinsurance rate for the high-cost risk pool for the 2019 benefit year risk adjustment program.

c. List of Factors To Be Employed in the Risk Adjustment Model (§ 153.320)

The final factors resulting from the equally weighted blended factors from the 2014 and 2015 MarketScan® data and the 2016 enrollee-level EDGE 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 Tables 2, 4, and 5. The adult, child and infant models have been truncated to account for the high-cost enrollee pool payment parameters by removing 60 percent of costs above the $1 million threshold as finalized in this rule. As discussed in the preceding section, we are finalizing our proposal to keep the 2019 benefit year high-cost enrollee risk pool payment parameters the same as those finalized for the 2018 benefit year. The final factors for the adult models also reflect the removal of the two severity-only RXCs (RXC 11: Ammonia Detoxicants, and RXC 12: Diuretics, Loop and Select Potassium-Sparing) discussed above in the preamble section on “Prescription Drugs.” Table 2 contains factors for each adult model, including the age-sex, HCCs, RXCs, HCC-RXC interaction, and enrollment duration coefficients. As we previously noted,[16] 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.

Comment: A few commenters requested for HHS to separately publish the coefficients solved only from the 2016 enrollee-level EDGE data.

Response: We are not separately publishing the coefficients from only 1 year of data to avoid any confusion that could be caused from publishing two sets of coefficients in the final rule. However, we note that stakeholders interested in coefficients from the 2016 enrollee-level EDGE data will be able to solve for them based on the proposed and finalized coefficients. We published the model coefficients using equally weighted coefficients solved from the Start Printed Page 169452014 and 2015 MarketScan® data in the proposed rule. The coefficients finalized in Tables 2, 4 and 5 include the coefficients solved from the 2016 enrollee-level EDGE data without changing the coefficients solved from the 2014 and 2015 MarketScan® data published in the proposed rule, and equally weighted coefficients solved from the 3 years of data.

Table 2—Final Adult Risk Adjustment Model Factors for 2019 Benefit Year

HCC or RXC No.FactorPlatinumGoldSilverBronzeCatastrophic
Demographic Factors
Age 21-24, Male0.1670.1330.0910.0510.048
Age 25-29, Male0.1530.1190.0780.0370.034
Age 30-34, Male0.1860.1440.0930.0430.039
Age 35-39, Male0.2360.1850.1250.0630.058
Age 40-44, Male0.2920.2330.1640.0930.088
Age 45-49, Male0.3460.2800.2020.1210.115
Age 50-54, Male0.4550.3780.2870.1920.184
Age 55-59, Male0.5110.4240.3240.2170.209
Age 60-64, Male0.5730.4730.3590.2350.225
Age 21-24, Female0.2690.2180.1530.0880.083
Age 25-29, Female0.3040.2450.1730.0980.092
Age 60-64, Female0.6160.5050.3790.2400.229
Diagnosis Factors
HCC001HIV/AIDS0.6260.5290.4340.3590.352
HCC002Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock8.0007.8127.6887.7317.737
HCC003Central Nervous System Infections, Except Viral Meningitis5.7505.6665.6045.6255.626
HCC004Viral or Unspecified Meningitis4.3964.1924.0603.9893.983
HCC006Opportunistic Infections6.1436.0606.0065.9725.968
HCC008Metastatic Cancer21.80621.37221.04021.08421.087
HCC009Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia12.39212.06811.82511.80711.804
HCC010Non-Hodgkin`s Lymphomas and Other Cancers and Tumors5.5755.3565.1895.1175.110
HCC011Colorectal, Breast (Age <50), Kidney, and Other Cancers4.2914.0743.9053.8313.823
HCC012Breast (Age 50+) and Prostate Cancer, Benign/Uncertain Brain Tumors, and Other Cancers and Tumors2.6402.4822.3562.2832.276
HCC013Thyroid Cancer, Melanoma, Neurofibromatosis, and Other Cancers and Tumors1.2111.0840.9760.8600.849
HCC018Pancreas Transplant Status/Complications4.4394.2464.1144.1224.122
HCC019Diabetes with Acute Complications0.6030.5310.4630.3890.381
HCC020Diabetes with Chronic Complications0.6030.5310.4630.3890.381
HCC021Diabetes without Complication0.6030.5310.4630.3890.381
HCC023Protein-Calorie Malnutrition11.43811.43011.41611.49411.502
HCC026Mucopolysaccharidosis2.3802.2802.2002.1372.132
HCC027Lipidoses and Glycogenosis2.3802.2802.2002.1372.132
HCC029Amyloidosis, Porphyria, and Other Metabolic DisordersNANANANANA
HCC030Adrenal, Pituitary, and Other Significant Endocrine Disorders2.3802.2802.2002.1372.132
HCC034Liver Transplant Status/Complications2.3802.2802.2002.1372.132
HCC035End-Stage Liver Disease10.51510.41810.35310.33410.331
HCC036Cirrhosis of Liver5.6965.4915.3495.3415.339
HCC037_1Chronic Viral Hepatitis C0.7070.6040.5450.5090.505
HCC037_2Chronic Hepatitis, Other/Unspecified0.7030.5840.5230.4740.469
HCC038Acute Liver Failure/Disease, Including Neonatal Hepatitis4.3004.1554.0554.0264.024
HCC041Intestine Transplant Status/Complications28.25328.20628.16928.20928.209
HCC042Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis9.7189.4889.3189.3289.329
HCC045Intestinal Obstruction5.5105.2745.1155.1045.102
HCC046Chronic Pancreatitis4.4394.2464.1144.1224.122
HCC047Acute Pancreatitis/Other Pancreatic Disorders and Intestinal Malabsorption2.2432.0851.9721.8961.888
HCC048Inflammatory Bowel Disease2.1922.0111.8681.7651.755
HCC054Necrotizing Fasciitis5.5075.3325.2005.2065.207
HCC055Bone/Joint/Muscle Infections/Necrosis5.5075.3325.2005.2065.207
HCC056Rheumatoid Arthritis and Specified Autoimmune Disorders3.3163.1302.9802.9232.918
HCC057Systemic Lupus Erythematosus and Other Autoimmune Disorders0.9930.8780.7800.6660.654
HCC061Osteogenesis Imperfecta and Other Osteodystrophies2.6542.4772.3372.2572.249
HCC062Congenital/Developmental Skeletal and Connective Tissue Disorders2.6542.4772.3372.2572.249
HCC063Cleft Lip/Cleft Palate1.4171.2661.1551.0711.065
HCC066Hemophilia53.09652.79552.54952.55352.553
HCC067Myelodysplastic Syndromes and Myelofibrosis12.45412.32612.22812.22712.227
HCC068Aplastic Anemia12.45412.32612.22812.22712.227
HCC069Acquired Hemolytic Anemia, Including Hemolytic Disease of Newborn7.8647.7387.6367.6047.602
HCC070Sickle Cell Anemia (Hb-SS)7.8647.7387.6367.6047.602
HCC071Thalassemia Major7.8647.7387.6367.6047.602
HCC073Combined and Other Severe Immunodeficiencies5.1985.0744.9824.9794.979
HCC074Disorders of the Immune Mechanism5.1985.0744.9824.9794.979
HCC075Coagulation Defects and Other Specified Hematological Disorders2.6572.5722.5032.4642.461
HCC081Drug Psychosis3.8043.5743.4013.2783.265
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HCC082Drug Dependence3.8043.5743.4013.2783.265
HCC087Schizophrenia3.0572.8222.6512.5592.550
HCC088Major Depressive and Bipolar Disorders1.6241.4721.3501.2311.219
HCC089Reactive and Unspecified Psychosis, Delusional Disorders1.6241.4721.3501.2311.219
HCC090Personality Disorders1.1241.0100.9010.7800.769
HCC094Anorexia/Bulimia Nervosa2.5492.3972.2752.2012.194
HCC096Prader-Willi, Patau, Edwards, and Autosomal Deletion Syndromes4.0193.9243.8473.7893.783
HCC097Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes1.0560.9630.8800.8020.795
HCC102Autistic Disorder1.1241.0100.9010.7800.769
HCC103Pervasive Developmental Disorders, Except Autistic Disorder1.1241.0100.9010.7800.769
HCC106Traumatic Complete Lesion Cervical Spinal Cord9.9899.8539.7529.7359.732
HCC107Quadriplegia9.9899.8539.7529.7359.732
HCC108Traumatic Complete Lesion Dorsal Spinal Cord7.5687.4207.3107.2787.274
HCC109Paraplegia7.5687.4207.3107.2787.274
HCC110Spinal Cord Disorders/Injuries5.2125.0084.8574.8164.812
HCC111Amyotrophic Lateral Sclerosis and Other Anterior Horn Cell Disease1.9651.7641.6201.5341.524
HCC112Quadriplegic Cerebral Palsy0.3020.1920.1200.0720.071
HCC113Cerebral Palsy, Except Quadriplegic0.2550.1760.1200.0720.071
HCC114Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies0.3550.3000.2650.2410.236
HCC115Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy5.2625.1375.0455.0275.025
HCC117Muscular Dystrophy2.0641.9221.8191.7201.708
HCC118Multiple Sclerosis8.4368.1447.9207.8957.892
HCC119Parkinson's, Huntington's, and Spinocerebellar Disease, and Other Neurodegenerative Disorders2.0641.9221.8191.7201.708
HCC120Seizure Disorders and Convulsions1.3901.2481.1381.0441.035
HCC121Hydrocephalus5.9225.8145.7245.6965.694
HCC122Non-Traumatic Coma, and Brain Compression/Anoxic Damage8.3108.1768.0678.0598.058
HCC125Respirator Dependence/Tracheostomy Status26.62626.59026.55526.63726.644
HCC126Respiratory Arrest8.0487.9007.7947.8647.872
HCC127Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes8.0487.9007.7947.8647.872
HCC128Heart Assistive Device/Artificial Heart28.42128.21928.07128.12028.125
HCC129Heart Transplant28.42128.21928.07128.12028.125
HCC130Congestive Heart Failure2.8002.7052.6352.6242.623
HCC131Acute Myocardial Infarction8.0777.7897.5777.6647.672
HCC132Unstable Angina and Other Acute Ischemic Heart Disease4.8204.5584.3884.3784.378
HCC135Heart Infection/Inflammation, Except Rheumatic5.4735.3565.2685.2375.235
HCC142Specified Heart Arrhythmias2.4672.3352.2332.1582.150
HCC145Intracranial Hemorrhage7.6217.3667.1867.1627.159
HCC146Ischemic or Unspecified Stroke2.1642.0121.9181.8961.894
HCC149Cerebral Aneurysm and Arteriovenous Malformation3.1672.9942.8692.8022.796
HCC150Hemiplegia/Hemiparesis4.5174.4224.3554.4024.407
HCC151Monoplegia, Other Paralytic Syndromes2.7342.6122.5252.4862.482
HCC153Atherosclerosis of the Extremities with Ulceration or Gangrene9.0568.9768.9159.0049.013
HCC154Vascular Disease with Complications6.7146.5566.4396.4246.422
HCC156Pulmonary Embolism and Deep Vein Thrombosis3.3523.2073.1013.0443.038
HCC158Lung Transplant Status/Complications25.56425.42125.31025.38425.391
HCC159Cystic Fibrosis14.10813.82513.59613.60113.601
HCC160Chronic Obstructive Pulmonary Disease, Including Bronchiectasis0.8780.7760.6860.5910.582
HCC161Asthma0.8780.7760.6860.5910.582
HCC162Fibrosis of Lung and Other Lung Disorders1.8691.7671.6931.6391.633
HCC163Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections6.2706.2236.1886.1946.195
HCC183Kidney Transplant Status7.4627.2607.1197.0707.064
HCC184End Stage Renal Disease29.90529.67829.49529.64129.654
HCC187Chronic Kidney Disease, Stage 51.3191.2631.2241.2331.235
HCC188Chronic Kidney Disease, Stage 41.3191.2631.2241.2331.235
HCC203Ectopic and Molar Pregnancy, Except with Renal Failure, Shock, or Embolism1.1561.0110.8790.6700.648
HCC204Miscarriage with Complications1.1561.0110.8790.6700.648
HCC205Miscarriage with No or Minor Complications1.1561.0110.8790.6700.648
HCC207Completed Pregnancy With Major Complications3.3292.9132.6902.4162.386
HCC208Completed Pregnancy With Complications3.3292.9132.6902.4162.386
HCC209Completed Pregnancy with No or Minor Complications3.3292.9132.6902.4162.386
HCC217Chronic Ulcer of Skin, Except Pressure1.9881.8881.8181.7981.796
HCC226Hip Fractures and Pathological Vertebral or Humerus Fractures8.8018.5878.4288.4578.460
HCC227Pathological Fractures, Except of Vertebrae, Hip, or Humerus3.8743.7443.6443.5793.575
HCC251Stem Cell, Including Bone Marrow, Transplant Status/Complications24.33424.33424.32924.35724.360
HCC253Artificial Openings for Feeding or Elimination8.2848.1988.1318.1648.168
HCC254Amputation Status, Lower Limb/Amputation Complications3.4863.3713.2903.3133.316
Interaction Factors
SEVERE x HCC006Severe illness x Opportunistic Infections7.6947.8978.0358.1808.193
SEVERE x HCC008Severe illness x Metastatic Cancer7.6947.8978.0358.1808.193
SEVERE x HCC009Severe illness x Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia7.6947.8978.0358.1808.193
SEVERE x HCC010Severe illness x Non-Hodgkin's Lymphomas and Other Cancers and Tumors7.6947.8978.0358.1808.193
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SEVERE x HCC115Severe illness x Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy7.6947.8978.0358.1808.193
SEVERE x HCC135Severe illness x Heart Infection/Inflammation, Except Rheumatic7.6947.8978.0358.1808.193
SEVERE x HCC145Severe illness x Intracranial Hemorrhage7.6947.8978.0358.1808.193
SEVERE x G06Severe illness x HCC group G06 (G06 is HCC Group 6 which includes the following HCCs in the blood disease category: 67, 68)7.6947.8978.0358.1808.193
SEVERE x G08Severe illness x HCC group G08 (G08 is HCC Group 8 which includes the following HCCs in the blood disease category: 73, 74)7.6947.8978.0358.1808.193
SEVERE x HCC035Severe illness x End-Stage Liver Disease1.4491.5411.5961.7221.733
SEVERE x HCC038Severe illness x Acute Liver Failure/Disease, Including Neonatal Hepatitis1.4491.5411.5961.7221.733
SEVERE x HCC153Severe illness x Atherosclerosis of the Extremities with Ulceration or Gangrene1.4491.5411.5961.7221.733
SEVERE x HCC154Severe illness x Vascular Disease with Complications1.4491.5411.5961.7221.733
SEVERE x HCC163Severe illness x Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections1.4491.5411.5961.7221.733
SEVERE x HCC253Severe illness x Artificial Openings for Feeding or Elimination1.4491.5411.5961.7221.733
SEVERE x G03Severe illness x HCC group G03 (G03 is HCC Group 3 which includes the following HCCs in the musculoskeletal disease category: 54, 55)1.4491.5411.5961.7221.733
Enrollment Duration Factors
1 month of enrollment0.4170.3650.3250.3060.305
2 months of enrollment0.3820.3330.2930.2750.273
3 months of enrollment0.3270.2820.2440.2270.225
4 months of enrollment0.2790.2400.2060.1890.188
5 months of enrollment0.2490.2160.1850.1690.168
6 months of enrollment0.2070.1810.1530.1380.137
7 months of enrollment0.1890.1650.1410.1260.125
8 months of enrollment0.1370.1200.1020.0910.091
9 months of enrollment0.0970.0850.0740.0670.067
10 months of enrollment0.0700.0650.0600.0570.057
11 months of enrollment0.0640.0600.0570.0550.055
Prescription Drug Factors
RXC 01Anti-HIV Agents7.8227.2576.8306.6056.580
RXC 02Anti-Hepatitis C (HCV) Agents39.88039.33738.90539.06239.075
RXC 03Antiarrhythmics0.1130.1130.1130.1130.113
RXC 04Phosphate Binders0.7300.7300.7300.7300.730
RXC 05Inflammatory Bowel Disease Agents2.0221.8421.7011.5091.487
RXC 06Insulin1.4981.3491.1850.9930.973
RXC 07Anti-Diabetic Agents, Except Insulin and Metformin Only0.4950.4300.3610.2720.264
RXC 08Multiple Sclerosis Agents21.14120.35019.75719.73119.721
RXC 09Immune Suppressants and Immunomodulators13.27312.68112.24012.27012.268
RXC 10Cystic Fibrosis Agents13.04512.71212.48512.56512.574
RXC 01 x HCC001Additional effect for enrollees with RXC 01 (Anti-HIV Agents) and HCC 001 (HIV/AIDS)2.4592.5602.6553.0103.046
RXC 02 x HCC037_1, 036, 035, 034Additional 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))2.6452.8382.9743.0203.025
RXC 03 x HCC142Additional effect for enrollees with RxC 03 (Antiarrhythmics) and HCC 142 (Specified Heart Arrhythmias)0.0000.0000.0000.0000.000
RXC 04 x HCC184, 183, 187, 188Additional 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))0.0000.0000.0000.0000.000
RXC 05 x HCC048, 041Additional effect for enrollees with RxC 05 (Inflammatory Bowel Disease Agents) and (HCC 048 (Inflammatory Bowel Disease) or 041 (Intestine Transplant Status/Complications))−1.192−1.096−0.997−0.888−0.878
RXC 06 x HCC018, 019, 020, 021Additional 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))0.4210.3950.4560.5330.538
RXC 07 x HCC018, 019, 020, 021Additional 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))−0.202−0.184−0.153−0.153−0.155
RXC 08 x HCC118Additional effect for enrollees with RxC 08 (Multiple Sclerosis Agents) and HCC 118 (Multiple Sclerosis)−5.507−4.981−4.597−4.422−4.399
RXC 09 x HCC056 or 057 and 048 or 041Additional 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))−0.337−0.352−0.336−0.370−0.375
RXC 09 x HCC056Additional effect for enrollees with RxC 09 (Immune Suppressants and Immunomodulators) and HCC 056 (Rheumatoid Arthritis and Specified Autoimmune Disorders)−2.862−2.632−2.452−2.323−2.307
RXC 09 x HCC057Additional effect for enrollees with RxC 09 (Immune Suppressants and Immunomodulators) and HCC 057 (Systemic Lupus Erythematosus and Other Autoimmune Disorders)−0.595−0.444−0.322−0.175−0.161
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RXC 09 x HCC048, 041Additional effect for enrollees with RxC 09 (Immune Suppressants and Immunomodulators) and (HCC 048 (Inflammatory Bowel Disease) or 041 (Intestine Transplant Status/Complications))1.1281.3921.5631.7641.788
RXC 10 x HCC159, 158Additional effect for enrollees with RxC 10 (Cystic Fibrosis Agents) and (HCC 159 (Cystic Fibrosis) or 158 (Lung Transplant Status/Complications))29.17029.39829.52829.58829.594

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—Final Child Risk Adjustment Model Factors for 2019 Benefit Year

FactorPlatinumGoldSilverBronzeCatastrophic
Demographic Factors
Age 2-4, Male0.2000.1490.0920.0420.038
Age 5-9, Male0.1380.1000.0550.0180.015
Age 10-14, Male0.1930.1520.1000.0600.058
Age 15-20, Male0.2580.2090.1510.0990.095
Age 2-4, Female0.1530.1090.0620.0250.022
Age 5-9, Female0.1020.0680.0310.0050.003
Age 10-14, Female0.1820.1420.0950.0590.056
Age 15-20, Female0.2810.2240.1550.0910.086
Diagnosis Factors
HIV/AIDS5.3684.9424.6224.5064.493
Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock13.80313.63313.52213.52913.530
Central Nervous System Infections, Except Viral Meningitis8.1798.0207.9057.9137.913
Viral or Unspecified Meningitis3.5633.3583.2253.0773.063
Opportunistic Infections16.93416.88716.84816.83216.829
Metastatic Cancer32.47932.27032.09232.10132.102
Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia10.0219.7859.5909.5099.501
Non-Hodgkin's Lymphomas and Other Cancers and Tumors7.8357.6017.4117.3047.292
Colorectal, Breast (Age <50), Kidney, and Other Cancers3.0512.8792.7372.6182.605
Breast (Age 50+) and Prostate Cancer, Benign/Uncertain Brain Tumors, and Other Cancers and Tumors3.0512.8792.7372.6182.605
Thyroid Cancer, Melanoma, Neurofibromatosis, and Other Cancers and Tumors1.1881.0570.9430.8180.805
Pancreas Transplant Status/Complications22.33722.07821.87521.90121.904
Diabetes with Acute Complications2.5502.2342.0321.7491.721
Diabetes with Chronic Complications2.5502.2342.0321.7491.721
Diabetes without Complication2.5502.2342.0321.7491.721
Protein-Calorie Malnutrition12.78312.69412.61812.65812.661
Mucopolysaccharidosis7.9487.7237.5367.4947.489
Lipidoses and Glycogenosis7.9487.7237.5367.4947.489
Congenital Metabolic Disorders, Not Elsewhere Classified7.9487.7237.5367.4947.489
Amyloidosis, Porphyria, and Other Metabolic Disorders7.9487.7237.5367.4947.489
Adrenal, Pituitary, and Other Significant Endocrine Disorders7.9487.7237.5367.4947.489
Liver Transplant Status/Complications22.33722.07821.87521.90121.904
End-Stage Liver Disease11.83411.68511.58411.58011.579
Cirrhosis of Liver5.7825.6465.5355.5075.507
Chronic Viral Hepatitis C6.2696.1145.9835.9665.967
Chronic Hepatitis, Other/Unspecified1.2001.0860.9830.9230.920
Acute Liver Failure/Disease, Including Neonatal Hepatitis11.63611.49411.39011.39211.391
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Intestine Transplant Status/Complications22.33722.07821.87521.90121.904
Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis11.57211.28311.06311.06011.061
Intestinal Obstruction4.5064.3104.1544.0574.049
Chronic Pancreatitis10.52110.31410.16310.16710.167
Acute Pancreatitis/Other Pancreatic Disorders and Intestinal Malabsorption2.2652.1482.0461.9481.938
Inflammatory Bowel Disease7.0556.6856.4026.2916.279
Necrotizing Fasciitis3.9073.7063.5443.4683.461
Bone/Joint/Muscle Infections/Necrosis3.9073.7063.5443.4683.461
Rheumatoid Arthritis and Specified Autoimmune Disorders4.2824.0523.8563.7623.754
Systemic Lupus Erythematosus and Other Autoimmune Disorders1.0920.9700.8540.7260.714
Osteogenesis Imperfecta and Other Osteodystrophies1.4021.2921.1931.1101.102
Congenital/Developmental Skeletal and Connective Tissue Disorders1.4021.2921.1931.1101.102
Cleft Lip/Cleft Palate1.4351.2601.1210.9920.980
Hemophilia61.18360.70560.32560.29960.296
Myelodysplastic Syndromes and Myelofibrosis14.71814.59614.50514.47414.470
Aplastic Anemia14.71814.59614.50514.47414.470
Acquired Hemolytic Anemia, Including Hemolytic Disease of Newborn6.9286.7146.5446.4566.448
Sickle Cell Anemia (Hb-SS)6.9286.7146.5446.4566.448
Thalassemia Major6.9286.7146.5446.4566.448
Combined and Other Severe Immunodeficiencies5.8495.7055.5925.5315.526
Disorders of the Immune Mechanism5.8495.7055.5925.5315.526
Coagulation Defects and Other Specified Hematological Disorders4.6624.5424.4394.3664.359
Drug Psychosis5.6485.3925.2115.1315.125
Drug Dependence5.6485.3925.2115.1315.125
Schizophrenia4.8194.4734.2174.0864.073
Major Depressive and Bipolar Disorders2.2142.0071.8331.6531.636
Reactive and Unspecified Psychosis, Delusional Disorders2.1291.9311.7621.5841.567
Personality Disorders0.6220.5170.4050.2570.243
Anorexia/Bulimia Nervosa2.6572.4712.3182.2382.228
Prader-Willi, Patau, Edwards, and Autosomal Deletion Syndromes2.1191.9611.8501.7961.790
Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes1.7851.6391.5261.4351.427
Autistic Disorder2.0171.8361.6771.5111.495
Pervasive Developmental Disorders, Except Autistic Disorder0.6860.5920.4840.3490.338
Traumatic Complete Lesion Cervical Spinal Cord11.52511.46311.42711.50711.514
Quadriplegia11.52511.46311.42711.50711.514
Traumatic Complete Lesion Dorsal Spinal Cord9.2659.0948.9488.9338.928
Paraplegia9.2659.0948.9488.9338.928
Spinal Cord Disorders/Injuries3.6783.4873.3393.2473.239
Amyotrophic Lateral Sclerosis and Other Anterior Horn Cell Disease4.9524.7544.5924.5064.499
Quadriplegic Cerebral Palsy2.9682.7682.6382.6422.642
Cerebral Palsy, Except Quadriplegic0.4960.3920.3220.2630.261
Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies1.4221.3031.2091.1371.130
Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy9.7499.5889.4619.4409.440
Muscular Dystrophy2.5842.4102.2802.1792.168
Multiple Sclerosis10.44710.1049.8359.8019.797
Parkinson's, Huntington's, and Spinocerebellar Disease, and Other Neurodegenerative Disorders2.5842.4102.2802.1792.168
Seizure Disorders and Convulsions2.0041.8521.7141.5671.553
Hydrocephalus4.2564.1464.0634.0444.042
Non-Traumatic Coma, and Brain Compression/Anoxic Damage5.7145.5905.4875.4445.440
Respirator Dependence/Tracheostomy Status31.95931.85231.77431.91231.924
Respiratory Arrest9.7769.5529.4019.3669.360
Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes9.7769.5529.4019.3669.360
Heart Assistive Device/Artificial Heart22.33722.07821.87521.90121.904
Heart Transplant22.33722.07821.87521.90121.904
Congestive Heart Failure5.7735.6745.5885.5455.540
Acute Myocardial Infarction5.1795.1045.0625.0485.046
Unstable Angina and Other Acute Ischemic Heart Disease3.8423.7653.7073.6763.675
Start Printed Page 16950
Heart Infection/Inflammation, Except Rheumatic11.89211.78611.70311.68411.683
Hypoplastic Left Heart Syndrome and Other Severe Congenital Heart Disorders4.7424.5844.4274.3114.301
Major Congenital Heart/Circulatory Disorders1.3451.2481.1301.0121.002
Atrial and Ventricular Septal Defects, Patent Ductus Arteriosus, and Other Congenital Heart/Circulatory Disorders0.8760.7870.6840.5910.584
Specified Heart Arrhythmias3.7343.5763.4383.3603.353
Intracranial Hemorrhage12.67412.46212.30812.30212.303
Ischemic or Unspecified Stroke5.4455.3675.3185.3285.331
Cerebral Aneurysm and Arteriovenous Malformation3.3743.1883.0562.9802.972
Hemiplegia/Hemiparesis4.1464.0413.9673.9333.927
Monoplegia, Other Paralytic Syndromes3.5013.3733.2843.2553.254
Atherosclerosis of the Extremities with Ulceration or Gangrene11.71711.48111.30511.23011.223
Vascular Disease with Complications14.16114.04913.95813.98013.981
Pulmonary Embolism and Deep Vein Thrombosis13.58213.47513.39613.43213.436
Lung Transplant Status/Complications22.33722.07821.87521.90121.904
Cystic Fibrosis22.33722.07821.87521.90121.904
Chronic Obstructive Pulmonary Disease, Including Bronchiectasis0.3750.3100.2250.1340.126
Asthma0.3750.3100.2250.1340.126
Fibrosis of Lung and Other Lung Disorders3.0732.9712.8722.8012.795
Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections8.1788.1228.0748.1058.108
Kidney Transplant Status12.43612.16611.96911.94311.938
End Stage Renal Disease36.07335.96335.87235.97635.985
Chronic Kidney Disease, Stage 54.1484.0173.9093.8123.806
Chronic Kidney Disease, Severe (Stage 4)4.1484.0173.9093.8123.806
Ectopic and Molar Pregnancy, Except with Renal Failure, Shock, or Embolism1.0610.9060.7610.5320.507
Miscarriage with Complications1.0610.9060.7610.5320.507
Miscarriage with No or Minor Complications1.0610.9060.7610.5320.507
Completed Pregnancy With Major Complications2.8972.5122.2941.9861.950
Completed Pregnancy With Complications2.8972.5122.2941.9861.950
Completed Pregnancy with No or Minor Complications2.8972.5122.2941.9861.950
Chronic Ulcer of Skin, Except Pressure2.3382.2472.1592.0862.079
Hip Fractures and Pathological Vertebral or Humerus Fractures5.4375.1634.9424.8304.822
Pathological Fractures, Except of Vertebrae, Hip, or Humerus1.6651.5351.4041.2621.248
Stem Cell, Including Bone Marrow, Transplant Status/Complications22.33722.07821.87521.90121.904
Artificial Openings for Feeding or Elimination11.37111.25811.18511.29411.305
Amputation Status, Lower Limb/Amputation Complications6.7376.4976.3226.2076.195

Table 5—Final Infant Risk Adjustment Model Factors for 2019 Benefit Year

GroupPlatinumGoldSilverBronzeCatastrophic
Extremely Immature * Severity Level 5 (Highest)253.927252.583251.467251.462251.464
Extremely Immature * Severity Level 4154.510153.094151.930151.820151.808
Extremely Immature * Severity Level 333.92032.88732.01731.76831.749
Extremely Immature * Severity Level 233.92032.88732.01731.76831.749
Extremely Immature * Severity Level 1 (Lowest)33.92032.88732.01731.76831.749
Immature * Severity Level 5 (Highest)159.462158.128157.021157.005157.004
Immature * Severity Level 472.47871.13270.01869.94669.937
Immature * Severity Level 332.91231.77730.84130.63330.613
Immature * Severity Level 224.33323.24522.35122.08222.055
Immature * Severity Level 1 (Lowest)24.33323.24522.35122.08222.055
Premature/Multiples * Severity Level 5 (Highest)115.833114.548113.499113.406113.398
Premature/Multiples * Severity Level 427.46026.23425.25325.04325.026
Premature/Multiples * Severity Level 314.21413.25512.48212.04412.001
Premature/Multiples * Severity Level 27.9927.2596.6386.0095.940
Premature/Multiples * Severity Level 1 (Lowest)5.3234.7904.2463.6523.600
Term * Severity Level 5 (Highest)91.59390.46389.52489.33589.320
Term * Severity Level 414.96214.04213.31512.83012.788
Term * Severity Level 35.8575.3004.7674.1504.092
Term * Severity Level 23.5743.1482.6661.9941.935
Term * Severity Level 1 (Lowest)1.5461.3210.9160.4490.423
Age1 * Severity Level 5 (Highest)253.927252.583251.467251.462251.464
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Age1 * Severity Level 4154.510153.094151.930151.820151.808
Age1 * Severity Level 333.92032.88732.01731.76831.749
Age1 * Severity Level 233.92032.88732.01731.76831.749
Age1 * Severity Level 1 (Lowest)33.92032.88732.01731.76831.749
Age 0 Male159.462158.128157.021157.005157.004
Age 1 Male72.47871.13270.01869.94669.937

Table 6—HHS HCCs Included in Infant Model Maturity Categories

Maturity categoryHCC/description
Extremely ImmatureExtremely Immature Newborns, Birth weight <500 Grams.
Extremely ImmatureExtremely Immature Newborns, Including Birth weight 500-749 Grams.
Extremely ImmatureExtremely Immature Newborns, Including Birth weight 750-999 Grams.
ImmaturePremature Newborns, Including Birth weight 1,000-1,499 Grams.
ImmaturePremature Newborns, Including Birth weight 1,500-1,999 Grams.
Premature/MultiplesPremature Newborns, Including Birth weight 2,000-2,499 Grams.
Premature/MultiplesOther Premature, Low Birth weight, Malnourished, or Multiple Birth Newborns.
TermTerm or Post-Term Singleton Newborn, Normal or High Birth weight.
Age 1All age 1 infants.

Table 7—HHS HCCs Included in Infant Model Severity Categories

Severity categoryHCC
Severity Level 5 (Highest)Metastatic Cancer.
Severity Level 5Pancreas Transplant Status/Complications.
Severity Level 5Liver Transplant Status/Complications.
Severity Level 5End-Stage Liver Disease.
Severity Level 5Intestine Transplant Status/Complications.
Severity Level 5Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis.
Severity Level 5Respirator Dependence/Tracheostomy Status.
Severity Level 5Heart Assistive Device/Artificial Heart.
Severity Level 5Heart Transplant.
Severity Level 5Congestive Heart Failure.
Severity Level 5Hypoplastic Left Heart Syndrome and Other Severe Congenital Heart Disorders.
Severity Level 5Lung Transplant Status/Complications.
Severity Level 5Kidney Transplant Status.
Severity Level 5End Stage Renal Disease.
Severity Level 5Stem Cell, Including Bone Marrow, Transplant Status/Complications.
Severity Level 4Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock.
Severity Level 4Lung, Brain, and Other Severe Cancers, Including Pediatric Acute Lymphoid Leukemia.
Severity Level 4Mucopolysaccharidosis.
Severity Level 4Major Congenital Anomalies of Diaphragm, Abdominal Wall, and Esophagus, Age <2.
Severity Level 4Myelodysplastic Syndromes and Myelofibrosis.
Severity Level 4Aplastic Anemia.
Severity Level 4Combined and Other Severe Immunodeficiencies.
Severity Level 4Traumatic Complete Lesion Cervical Spinal Cord.
Severity Level 4Quadriplegia.
Severity Level 4Amyotrophic Lateral Sclerosis and Other Anterior Horn Cell Disease.
Severity Level 4Quadriplegic Cerebral Palsy.
Severity Level 4Myasthenia Gravis/Myoneural Disorders and Guillain-Barre Syndrome/Inflammatory and Toxic Neuropathy.
Severity Level 4Non-Traumatic Coma, Brain Compression/Anoxic Damage.
Severity Level 4Respiratory Arrest.
Severity Level 4Cardio-Respiratory Failure and Shock, Including Respiratory Distress Syndromes.
Severity Level 4Acute Myocardial Infarction.
Severity Level 4Heart Infection/Inflammation, Except Rheumatic.
Severity Level 4Major Congenital Heart/Circulatory Disorders.
Severity Level 4Intracranial Hemorrhage.
Severity Level 4Ischemic or Unspecified Stroke.
Severity Level 4Vascular Disease with Complications.
Severity Level 4Pulmonary Embolism and Deep Vein Thrombosis.
Severity Level 4Aspiration and Specified Bacterial Pneumonias and Other Severe Lung Infections.
Severity Level 4Chronic Kidney Disease, Stage 5.
Severity Level 4Hip Fractures and Pathological Vertebral or Humerus Fractures.
Severity Level 4Artificial Openings for Feeding or Elimination.
Severity Level 3HIV/AIDS.
Severity Level 3Central Nervous System Infections, Except Viral Meningitis.
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Severity Level 3Opportunistic Infections.
Severity Level 3Non-Hodgkin's Lymphomas and Other Cancers and Tumors.
Severity Level 3Colorectal, Breast (Age <50), Kidney and Other Cancers.
Severity Level 3Breast (Age 50+), Prostate Cancer, Benign/Uncertain Brain Tumors, and Other Cancers and Tumors.
Severity Level 3Lipidoses and Glycogenosis.
Severity Level 3Adrenal, Pituitary, and Other Significant Endocrine Disorders.
Severity Level 3Acute Liver Failure/Disease, Including Neonatal Hepatitis.
Severity Level 3Intestinal Obstruction.
Severity Level 3Necrotizing Fasciitis.
Severity Level 3Bone/Joint/Muscle Infections/Necrosis.
Severity Level 3Osteogenesis Imperfecta and Other Osteodystrophies.
Severity Level 3Cleft Lip/Cleft Palate.
Severity Level 3Hemophilia.
Severity Level 3Disorders of the Immune Mechanism.
Severity Level 3Coagulation Defects and Other Specified Hematological Disorders.
Severity Level 3Prader-Willi, Patau, Edwards, and Autosomal Deletion Syndromes.
Severity Level 3Traumatic Complete Lesion Dorsal Spinal Cord.
Severity Level 3Paraplegia.
Severity Level 3Spinal Cord Disorders/Injuries.
Severity Level 3Cerebral Palsy, Except Quadriplegic.
Severity Level 3Muscular Dystrophy.
Severity Level 3Parkinson's, Huntington's, and Spinocerebellar Disease, and Other Neurodegenerative Disorders.
Severity Level 3Hydrocephalus.
Severity Level 3Unstable Angina and Other Acute Ischemic Heart Disease.
Severity Level 3Atrial and Ventricular Septal Defects, Patent Ductus Arteriosus, and Other Congenital Heart/Circulatory Disorders.
Severity Level 3Specified Heart Arrhythmias.
Severity Level 3Cerebral Aneurysm and Arteriovenous Malformation.
Severity Level 3Hemiplegia/Hemiparesis.
Severity Level 3Cystic Fibrosis.
Severity Level 3Fibrosis of Lung and Other Lung Disorders.
Severity Level 3Pathological Fractures, Except of Vertebrae, Hip, or Humerus.
Severity Level 2Viral or Unspecified Meningitis.
Severity Level 2Thyroid, Melanoma, Neurofibromatosis, and Other Cancers and Tumors.
Severity Level 2Diabetes with Acute Complications.
Severity Level 2Diabetes with Chronic Complications.
Severity Level 2Diabetes without Complication.
Severity Level 2Protein-Calorie Malnutrition.
Severity Level 2Congenital Metabolic Disorders, Not Elsewhere Classified.
Severity Level 2Amyloidosis, Porphyria, and Other Metabolic Disorders.
Severity Level 2Cirrhosis of Liver.
Severity Level 2Chronic Pancreatitis.
Severity Level 2Inflammatory Bowel Disease.
Severity Level 2Rheumatoid Arthritis and Specified Autoimmune Disorders.
Severity Level 2Systemic Lupus Erythematosus and Other Autoimmune Disorders.
Severity Level 2Congenital/Developmental Skeletal and Connective Tissue Disorders.
Severity Level 2Acquired Hemolytic Anemia, Including Hemolytic Disease of Newborn.
Severity Level 2Sickle Cell Anemia (Hb-SS).
Severity Level 2Drug Psychosis.
Severity Level 2Drug Dependence.
Severity Level 2Down Syndrome, Fragile X, Other Chromosomal Anomalies, and Congenital Malformation Syndromes.
Severity Level 2Spina Bifida and Other Brain/Spinal/Nervous System Congenital Anomalies.
Severity Level 2Seizure Disorders and Convulsions.
Severity Level 2Monoplegia, Other Paralytic Syndromes.
Severity Level 2Atherosclerosis of the Extremities with Ulceration or Gangrene.
Severity Level 2Chronic Obstructive Pulmonary Disease, Including Bronchiectasis.
Severity Level 2Chronic Ulcer of Skin, Except Pressure.
Severity Level 1 (Lowest)Chronic Hepatitis.
Severity Level 1Acute Pancreatitis/Other Pancreatic Disorders and Intestinal Malabsorption.
Severity Level 1Thalassemia Major.
Severity Level 1Autistic Disorder.
Severity Level 1Pervasive Developmental Disorders, Except Autistic Disorder.
Severity Level 1Multiple Sclerosis.
Severity Level 1Asthma.
Severity Level 1Chronic Kidney Disease, Severe (Stage 4).
Severity Level 1Amputation Status, Lower Limb/Amputation Complications.
Severity Level 1No Severity HCCs.
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d. Cost-Sharing Reductions Adjustments (§ 153.320)

We proposed to continue including an adjustment for the receipt of cost-sharing reductions in the model to account for increased plan liability due to increased utilization of health care services by enrollees receiving cost-sharing reductions (induced demand) in all States where HHS operates risk adjustment. The proposed cost-sharing reductions adjustment factors for the 2019 benefit year were unchanged from those finalized in the 2018 Payment Notice. 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 models). We are finalizing the cost-sharing reductions adjustment factors as proposed. See Table 8 for the list of final cost-sharing reductions adjustments for the 2019 benefit year.

Comment: Commenters supported our proposal to use the same cost-sharing reductions adjustment induced demand factors as prior years, noting that the use of these factors would promote stability and certainty in the markets, and supported making updates in 2020 to the induced demand factors based on EDGE enrollee-level data. One commenter requested that HHS maintain the induced demand factors of 1.12 for wrap-around, premium assistance plans for Massachusetts, as established in the 2014 Payment Notice and used by Massachusetts for the 2014, 2015 and 2016 benefit years.

Response: We are finalizing the cost-sharing reductions adjustment induced demand factors as proposed. We anticipate proposing adjustments to the cost-sharing reductions adjustment induced demand factors in the annual HHS notice of benefit and payment parameters for the 2020 benefit year based on enrollee-level EDGE data. Consistent with the approach outlined in the final 2017 Payment Notice, we will continue to use cost-sharing reductions adjustment factors of 1.12 for all Massachusetts wrap-around plans in the risk adjustment transfers calculation, as all of Massachusetts' cost-sharing plan variations have actuarial values above 94 percent.

Table 8—Cost-Sharing Reductions Adjustment

Household incomePlan AVInduced utilization factor
Silver Plan Variant Recipients
100-150% of FPLPlan Variation 94%1.12
150-200% of FPLPlan Variation 87%1.12
200-250% of FPLPlan Variation 73%1.00
>250% of FPLStandard Plan 70%1.00
Zero Cost-Sharing Recipients
<300% of FPLPlatinum (90%)1.00
<300% of FPLGold (80%)1.07
<300% of FPLSilver (70%)1.12
<300% of FPLBronze (60%)1.15
Limited Cost-Sharing Recipients
>300% of FPLPlatinum (90%)1.00
>300% of FPLGold (80%)1.07
>300% of FPLSilver (70%)1.12
>300% of FPLBronze (60%)1.15

e. Model Performance Statistics (§ 153.320)

To evaluate model performance, we examined each model's R-squared statistic and predictive ratios. The R-squared statistic, which calculates the percentage of individual variation explained by a model, measures the predictive accuracy of the model overall. The predictive ratios measure the predictive accuracy of a model for different validation groups or subpopulations. The predictive ratio for each of the HHS risk adjustment models is the ratio of the weighted mean predicted plan liability for the model sample population to the weighted mean actual plan liability for the model sample population. The predictive ratio represents how well the model does on average at predicting plan liability for that subpopulation. A subpopulation that is predicted perfectly would have a predictive ratio of 1.0. For each of the HHS risk adjustment models, the R-squared statistic and the predictive ratios are in the range of published estimates for concurrent risk adjustment models.[17] Because we are blending the coefficients from separately solved models based on 2014 and 2015 MarketScan® data and 2016 enrollee-level EDGE data, 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.

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Table 9—R-Squared Statistic for Final HHS Risk Adjustment Models

Risk adjustment modelR-squared statistic
2014 MarketScan®2015 MarketScan®2016 Enroll-level EDGE
Platinum Adult0.42210.42120.4283
Platinum Child0.2930.33140.3099
Platinum Infant0.32840.33290.3239
Gold Adult0.41790.41640.4228
Gold Child0.28830.32690.3053
Gold Infant0.32640.33090.3201
Silver Adult0.41430.41230.4181
Silver Child0.28410.32270.3013
Silver Infant0.3250.32950.317
Bronze Adult0.41170.40950.4152
Bronze Child0.28050.31880.2978
Bronze Infant0.32470.32920.3154
Catastrophic Adult0.41150.40940.4145
Catastrophic Child0.28030.31860.2971
Catastrophic Infant0.32470.32920.3151

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 high-cost risk pool payments and charges) 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 separate transfer amounts for each rating area in which a plan operates).

The risk adjustment transfer formula generally calculates the difference between the revenues required by a plan, based on the health risk of the plan's enrollees, and the revenues that a plan can generate for those enrollees. These differences are compared across plans in the State market risk pool and converted to a dollar amount based on the Statewide average premium. Thus, each plan in the risk pool receives a risk adjustment payment or charge designed to compensate for risk for a plan with average efficiency. Scaling the risk adjustment transfers by the Statewide average premium, as opposed to, for example, the plan's own premium, minimizes issuers' ability to manipulate their transfers by adjusting their own plan premiums, and results in a calculation of equal payments and charges, ensuring that risk adjustment transfers for the entire market sum to zero.

In the absence of additional funding, we established, through notice and comment rulemaking,[18] risk adjustment as a budget neutral program in order to provide certainty to issuers regarding risk adjustment payments and allow them to set rates based on those expectations. Adopting an approach that would not result in balanced payments and charges would create considerable uncertainty for issuers regarding the proportion of risk adjustment payments they could expect to receive from the Federal government. Additionally, in establishing the HHS-operated risk adjustment program, HHS could not have relied on the potential availability of general appropriation funds without creating uncertainty for issuers in the amount of risk adjustment payments they could expect, or reducing funding available for other programs. Relying on each year's budget would have required HHS to delay setting the parameters for any risk adjustment payment proration rates well after the plans were in effect for the applicable benefit year. HHS also would not have been able to rely on any potential State budget appropriations for States that elected to operate a State-based risk adjustment program as such funds would not have been available for purposes of administering the HHS-operated risk adjustment program. Without the adoption of a budget neutral framework, HHS would have needed to assess a charge, or otherwise collect additional funds, or prorate payments based on the charges collected to balance the risk adjustment transfers. This uncertainty would conflict with the overall goals of the risk adjustment program: to stabilize premiums and reduce incentives for issuers to avoid enrolling individuals with higher than average actuarial risk.

The State payment transfer formula in the HHS risk adjustment methodology is designed to provide a per member per month (PMPM) transfer amount. The PMPM transfer amount derived from the State payment transfer formula would be multiplied by each plan's total billable member months for the benefit year to determine the total payment due to 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 or payment assessed for an issuer in a State market risk pool based on plan liability risk scores, 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 high-cost risk pool. To account for costs associated with exceptionally high-risk enrollees, we added transfer terms (a payment term and a charge term) that would be calculated separately from the State transfer formula in the HHS risk adjustment methodology. Beginning for the 2018 benefit year, we added one term that reflects 60 percent of costs above $1 million (HRPi, in the total plan transfer calculation described below), and another term that reflects a percent of premium adjustment to fund the high-cost risk pool and maintain the Start Printed Page 16955balance of payment and charges within the risk adjustment program. The percent of premium adjustment factor applied to a plan's total premium amounts results in the same adjustment as a percent of PMPM premium adjustment factor applied to a plan's PMPM premium amount and multiplied by the plan's number of billable member months. For this calculation, we will use a percent of premium adjustment factor that is applied to each plan's total premium amounts, rather than the percent of PMPM premium adjustment factor described in 2018 Payment Notice and the proposed rule, for simplicity; and, as detailed above, we note that the mathematical outcome is the same. The percent of premium adjustment factor (HRPCm) is determined based on the sum of payments for the high-cost risk pool enrollees divided by the sum of premiums in the respective high-cost risk pool market (m), nationally—one for the individual market, including catastrophic, non-catastrophic and merged market plans, and another for the small group market. The percent of premium adjustment factor is multiplied by the plan's total premium (HRPCm · Pi).

For the 2019 benefit year, we are finalizing the proposed policy 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.

Comment: In addition to the comments discussed above, one commenter requested that the high-cost risk pool adjustment factors be included in the risk adjustment formula.

Response: We have included a calculation for the total plan transfer amount below to illustrate the inclusion of the high-cost risk pool adjustment terms in the HHS risk adjustment methodology. As noted above, these terms will be applied within the high-cost risk pool markets nationally—one for the individual market, including catastrophic, non-catastrophic and merged market plans, and another for the small group market. We are finalizing the high-cost risk pool adjustment parameters for the 2019 benefit year as proposed.

ii. Administrative Cost Reduction to Statewide Average Premium

Additionally, we proposed to continue the policy finalized in the 2018 Payment Notice to reduce the Statewide average premium, the cost scaling factor 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 have previously defined the cost scaling factor, or the Statewide average premium term, as the sum of average premium per member month of plan (Pi) multiplied by plan i' s share of Statewide enrollment in the market in the risk pool (si). For the 2019 benefit year, the Statewide average premium, which will also be used for the transfer calculation for the 2018 benefit year, will be adjusted to remove a portion of the administrative costs as follows:

S = (Σi (si · Pi)) * 0.86

Where:

si = plan i's share of Statewide enrollment in the market in the risk pool;

Pi = average premium per member month of plan i.

We are finalizing the policy to reduce the Statewide average premium in the risk adjustment formula by 14 percent, as proposed, for the 2019 benefit year and future benefit years until changed in rulemaking.

Comment: Most commenters supported our proposal to continue to remove a portion of the administrative costs from the Statewide average premium factor of the risk adjustment transfer formula. Other commenters requested HHS publish the methodology used to create the 14 percent reduction from the MLR data. One commenter suggested HHS increase the reduction to 16 percent and another commenter requested HHS set the 14 percent reduction as the floor. Another commenter suggested HHS should set the factor closer to the market average of administrative costs, or allow the level to vary with issuers' claims experience.

Response: As we noted in the 2018 Payment Notice, we analyzed administrative and other non-claims expenses, including quality improvement expenses, taxes and fees, and non-claims costs, in the MLR Annual Reporting Form, and estimated, by category, the extent to which the expenses varied with claims. We compared those expenses to the total costs that issuers finance through premiums, including claims, administrative expenses, and taxes, netting out claims costs financed through cost-sharing reductions payments. We compared these expenses to total costs, rather than directly to premiums, to ensure that the estimated administrative cost percentage was not distorted by under- or over-pricing during the years for which MLR data are available. Using this methodology, we determined that the mean administrative cost percentage that does not vary with claims is 14 percent. We continue to believe that this percentage represents the mean administrative cost percentage that does not vary with claims in the individual and small group markets, and represents a reasonable percentage of administrative costs on which risk adjustment transfers should not be calculated. Based on this analysis, we are finalizing the policy as proposed to reduce the Statewide average premium factor of the risk adjustment formula by 14 percent. Allowing the factor to vary with claims experience could lead to gaming and risk selection, as issuers with lower risk would receive lower charges if their administrative costs are relatively higher. Therefore, we will continue to reduce the Statewide average premium factor of the risk adjustment formula by the same percentage for all issuers.

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. Risk adjustment is widely used in health insurance markets, and is recognized as a critical measure in mitigating the effects of adverse selection, ensuring financial viability of plans that enroll a higher proportion of high-risk enrollees, and fostering competitive health insurance markets. The State transfer formula in the HHS-operated risk adjustment program is 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 that the Statewide average premium proves to be a more appropriate means of scaling the transfers for differences in relative actuarial risk, particularly in the context of a budget-neutral system. As noted in the above section, beginning with the 2018 benefit year, we also adopted 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.[19] We continue to believe the Statewide average premium, as adjusted, is a reasonable metric to measure the costs of adverse selection. Based on our experience operating the risk Start Printed Page 16956adjustment program, HHS has become aware that certain issuers, including some new, rapidly growing, or smaller issuers, owed substantial risk adjustment charges that they did not anticipate. HHS has had a number of discussions with issuers and State regulators on ways to encourage new participation in the health insurance markets and mitigate the effects of substantial risk adjustment charge amounts. We believe that a robust risk adjustment program that addresses concerns of risk selection is critical to the proper functioning of health insurance markets. However, we recognize that States are the primary regulators of their insurance markets. In the May 2016 Interim Final Rule,[20] HHS recognized some State regulators' belief that reducing the magnitude of risk adjustment charge amounts could be beneficial to the insurance markets in their States. For some States, an adjustment to risk adjustment transfers calculated under the HHS-operated risk adjustment program might more precisely account for cost differences attributable to adverse selection in the respective State market risk pools. We encouraged States to examine whether any local approaches under State legal authority are warranted to help ease the transition for new entrants to the health insurance markets and mitigate the effects of large risk adjustment charge amounts. 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 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. Certain States have opined that the HHS risk adjustment methodology, which is calibrated on a national dataset and does not take into account the effect of State-specific laws and rating rules, in some circumstances may not precisely account for risk differences for their particular State. We note that States have the statutory authority to operate their own State risk adjustment program under a Federally certified alternate risk adjustment methodology and are free to exercise that authority to develop a risk adjustment program tailored to the markets in their State. However, we also believe that allowing certain State-specific adjustments to the HHS risk adjustment methodology can account for the effect of State-specific rules without the necessity for States to undertake operation of their own risk adjustment program.

In the case of small group markets, where States can demonstrate that the differential risk profiles observed in the small group market plans in that State are attributable to factors other than systematic risk selection, and adverse selection risk is mitigated by the small group market dynamics, such as those described above, we proposed to permit States' primary insurance regulators to request a percentage reduction in the calculation of the risk adjustment transfer amounts in the small group market in their State, beginning for the 2019 benefit year.

We proposed that HHS would require any State that seeks 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. In order to promote transparency and solicit feedback from consumers and stakeholders on the proposed reductions to the HHS risk adjustment transfer formula, we proposed HHS would publish the requested State reduction percentages for public comment in guidance while it begins its initial review of the State requests. We proposed that HHS would then make final determinations on State requests by March 1 of the benefit year prior to the applicable benefit year, in time for issuers' initial rate setting deadline. The proposed timing of the State adjustment request, publication of HHS guidance setting forth the requested State reduction percentages, public notice and comment period and HHS approval process would permit plans to incorporate approved adjustments in their rates for the applicable benefit year.

Under the proposal, HHS would consider requests from State regulators to reduce the calculation of the Statewide average premium used in the HHS risk adjustment transfer formula in the small group market by up to 50 percent for the applicable benefit year. We sought comment on all aspects of this proposal for the small group market, including the size of the reduction, the timing of the request submission, what evidence States should be required to provide, and what procedural requirements should be established.

We also sought comment on whether we should establish a similar process through which States could request a reduction to the calculation of risk adjustment transfers in the individual market. Although adverse selection in the individual market is not mitigated by group enrollment or minimum participation requirements as is the selection in the small group market, we recognized that a State may believe the HHS risk adjustment methodology, which is calibrated on a national dataset, may not precisely account for relative actuarial risk differences in its individual market risk pool. We sought 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 sought comment on what individual market features would justify such a reduction, and what additional submissions a State should provide in order to justify such a departure for that market.

We recognize that it is possible the HHS risk adjustment methodology, which is calibrated on a national dataset and does not take into account State-specific rules or market dynamics, may not precisely account for relative actuarial risk differences in certain States' individual, small group or merged markets, and those State-specific rules or other relevant factors could support a reduction to transfers in that State's individual, small group or merged market. To accommodate situations where there may be such differences in State factors compared to the national norm, HHS is finalizing the policy to provide States the flexibility to request a reduction to the otherwise applicable risk adjustment transfers in the individual, small group or merged market by up to 50 percent with some modifications, outlined below, in response to comments. In States that request a reduction to transfers, the reduction percentage up to 50 percent, if approved by HHS, would be applied to the plan PMPM payment or charge transfer amount (Ti in the State transfer formula below), beginning with the 2020 benefit year. We are amending § 153.320 to add a new paragraph (d) to capture this State flexibility to request Start Printed Page 16957reduction to transfers in the individual, small group or merged market. States requesting such reductions must submit evidence and analysis to HHS identifying the State-specific rules or market dynamics that warrant an adjustment and demonstrating the actuarial risk differences in plans in the applicable State market are attributable to factors other than systematic risk selection, as well as substantiating the amount of the transfer reduction requested. For example, a State could submit evidence and analysis detailing the effect of a State rating rule that might lead to a portion of the State average premium that does not precisely reflect the cost of relative differences in actuarial risk in the individual, small group or merged market. The State request must specify in detail the State-specific rules or market dynamics that warrant an adjustment to the HHS risk adjustment methodology to more precisely account for the expected cost of relative risk differences in the State's individual, small group or merged market. Additionally, the State must submit evidence and analysis justifying the reduction percentage requested. To justify the amount of the transfer reduction requested, the State's evidence and analysis must explain how the requested transfer adjustment was determined by outlining the set of State-specific factors and the percentage reduction warranted to account for those factors in the State's market; or alternatively, it must demonstrate the requested reduction in risk adjustment payments would be so small for issuers who would receive risk adjustment payments, that the reduction would have a de minimis effect on the necessary premium increase to cover the affected issuer's or issuers' reduced payments. In the latter case, a State must demonstrate that the reduced risk adjustment payments would result in less than a 1 percent increase in the affected issuer's or issuers' premiums. We are adding paragraph (d)(1) to § 153.320 to specify the submission requirements for the State requests, as outlined above. We are also adding paragraph (d)(4) to specify that HHS will approve the State requests if, based on a review of the information submitted as part of the State request, along with other relevant factors, including the premium impact of the transfer reduction for the State market, and relevant public comments, HHS determines that the State-specific factors warrant an adjustment and the State request includes support justifying the percentage reduction requested or includes information demonstrating that the reduction to transfers would have a de minimis impact as described above. As reflected in paragraph (d)(4)(ii) to § 153.320, HHS may approve a reduction amount lower than that requested by the State if the supporting evidence and analysis do not fully support the percentage reduction requested. In response to commenters' concerns about market impacts on issuers with higher than average actuarial risk, HHS will assess other relevant factors, including the premium impact of the transfer reduction for the State market.

The approved reductions will be made on the calculated risk adjustment transfer amounts, rather than the Statewide average premium as proposed, prior to the application of the high-cost risk pool adjustments (high-cost risk pool payment and charge amounts). Applying the reduction is simply a mathematical operation and applying it on the otherwise calculated transfer amounts will result in the same final transfer amount mathematically as if the reduction was applied to the Statewide average premium, but will simplify the process for submission, review and calculation of the reductions to transfers.

We are finalizing modified timelines and adding paragraphs (d)(2) and (d)(3) at § 153.320 to capture the timeframe for submission and publication of State requests to reduce transfers in the individual, small group and merged markets in response to comments. We are not finalizing this proposed policy for the 2019 benefit year, in order to accommodate the evidence and analysis required and to provide more time for the development and review of such requests. Additionally, we believe the requests should be published in the relevant benefit year's proposed HHS notice of benefit and payment parameters to seek comment from relevant stakeholders. As such, consistent with paragraph (d)(2), beginning with 2020 and future benefit years, States must submit requests with the supporting evidence and analysis by August 1st, 2 calendar years prior to the beginning of the applicable benefit year (for example, August 1, 2018, for the 2020 benefit year) to RARIpaymentoperations@cms.hhs.gov with the subject “[Insert applicable benefit year] State request to reduce risk adjustment transfers.” This modified timeline responds to comment received and provides States the opportunity to review the most recent year of risk adjustment transfers data in determining the requested percentage reduction to transfers and when submitting the supporting evidence. As outlined in paragraph (d)(3), we will publish the 2020 and future benefit year requests in the respective benefit year's proposed HHS notice of benefit and payment parameters and make the supporting evidence available to the public in order to seek public comment, and will publish any approved State reduction requests or denied State reduction requests in the respective benefit year's final HHS notice of benefit and payment parameters.

Comment: A few commenters supported providing States the flexibility to request transfer reductions in the individual, small group and merged markets, noting that the risk adjustment program has been a barrier to entry for issuers in certain States. These commenters stated such a reduction to transfers could enable issuer participation in the individual, small group and merged markets. Additionally, these commenters noted the expense of operating a State-based risk adjustment program limits States from establishing their own risk adjustment methodologies. A few State regulators noted their intent to consider the reduction and potential impacts for future benefit years, and requested “off-cycle” dialogues with HHS to consider such reductions.

Several commenters supported the reduction to transfers only for the small group market, noting that the adverse selection in the individual market requires the risk adjustment program to ensure competitive and stable markets. These commenters noted such a reduction to transfers would be detrimental to market stability in the individual market, with one commenter noting that unexpectedly large charges were a risk for issuers in the early years of the program and the markets have since stabilized. A few commenters noted that HHS should allow States to permit reductions in merged markets as well, while others noted this policy should not be made available in merged markets given the impact on individual market dynamics in the merged market States. Yet a few commenters suggested the flexibility be allowed across the individual, small group and merged markets. One commenter noted that such a reduction would be appropriate in the individual market as well to reduce carrier-specific transfers to adjust for administrative costs, limit distortions due to how many family members are counted toward premiums, or prevent perverse incentives to avoid care management or network variations that lower costs.

Other commenters did not support a reduction to the risk adjustment transfers, stating the reduction to Start Printed Page 16958transfers would undermine affordability of plans with sicker patients. Commenters were also concerned that providing such reductions would encourage risk selection behavior by issuers, encourage risk segmentation in the markets, reduce effectiveness of the risk adjustment program, lead to higher premiums for small employers and consumers where issuers with higher than average risk are not adequately compensated for their risk, reduce choices for consumers even further, and destabilize the markets. Commenters stated the importance of the risk adjustment program in promoting competition in the individual, small group, and merged markets by mitigating the issuers' risk of adverse selection. Commenters noted that the risk adjustment methodology already adjusts for a multitude of State- and rating area-specific factors as the methodology calculates risk scores at the individual level, and transfers at the rating area level. A few commenters also noted that maintaining risk adjustment as is would become increasingly important, especially if HHS were to move forward with the EHB flexibilities discussed elsewhere in this rule, as issuers could enroll differential risk enrollees based on the EHBs offered. Commenters noted that if HHS finalizes the policy to permit requests for adjustments in the small group market, issuers would no longer have an incentive to enroll all types of employers and could target healthier employers in certain sized employers through marketing and other strategies. Additionally, commenters noted that if relative risk for health conditions in an individual State is substantially different than the national average, it is not clear that a reduction of 50 percent to risk adjustment transfers would be appropriate, and the State ought to consider developing its own risk adjustment model to address significant deviations in the State's risk profiles that deviate from the national average or use the section 1332 of PPACA waiver process to implement a reinsurance type program. Commenters agreed with HHS that the smaller magnitude of transfers in the small group market than in the individual market indicates the lower adverse selection risk in the small group market, but stated that the HHS risk adjustment program is properly calibrated for this lower risk of adverse selection in the small group market. Commenters noted that while employer contributions, employer choice of benefit plans, and participation rules mitigate selection in the small group market, the risk adjustment methodology appropriately accounts for these market differences because the lower adverse selection is reflected in the lower risk score differential. Commenters noted that Oliver Wyman, American Academy of Actuaries, and HHS's studies have all shown the risk adjustment program is working as intended in mitigating adverse selection. A few commenters also noted a study by Oliver Wyman [21] that suggested reducing transfers by up to 50 percent may make the risk adjustment program less effective in compensating plans with higher than average risk and would therefore increase issuers' risk selection incentives. Additionally, one commenter noted that the significant adjustments to the risk adjustment program being implemented for the 2017 and 2018 benefit years should be evaluated prior to making any additional changes.

Response: In certain State individual, small group or merged markets, it is possible that the HHS risk adjustment methodology, which is calibrated on a national dataset, may not reflect State-specific factors that could result in relative risk differences in the State's market(s) compared to the national norm. Such unique State rules or other relevant factors could support a reduction to the otherwise applicable risk adjustment transfers to more precisely account for the differences in relative actuarial risk in the State's individual, small group or merged market. We agree with commenters that, in such instances, allowing certain State-specific adjustments to the otherwise applicable transfers can tailor the HHS-operated risk adjustment program to the particularities of a State's individual, small group or merged market without requiring the State to undertake operation of its own risk adjustment program or pursue a section 1332 waiver to implement a reinsurance program. In those circumstances, in which States can provide evidence and analysis showing the State-specific rules or market dynamics that warrant an adjustment to the HHS risk adjustment methodology to more precisely account for the relative risk differences in the State's market, HHS will consider requests to reduce transfers beginning with the 2020 benefit year. We agree with commenters that the small group market features, such as employers' selection of plans, and minimum participation and contribution rules, that lead to lower risk of adverse selection compared to the individual market are addressed in the current HHS risk adjustment methodology. Therefore, a State requesting a reduction of up to 50 percent of transfers in its small group market must provide supporting evidence and analysis outlining the State-specific factors that warrant an adjustment to the HHS risk adjustment methodology to more precisely account for relative risk differences in that State market compared to the national norm, rather than demonstrating the factors that are addressed in the current methodology. States must also justify the amount requested by outlining how the percentage reduction would more precisely account for risk differences in the State's individual, small group or merged market or by demonstrating that the reduction in risk adjustment payments would have a de minimis effect on the necessary premium increase to cover the affected issuer or issuers' reduced payments. HHS will not approve State requests for reduction to transfers based on factors in the State's individual, small group or merged market that are addressed by the current HHS risk adjustment methodology.

We appreciate commenters' concerns about extending the flexibility to the individual or merged markets. We believe that those enrolled in the individual or merged markets typically have higher actuarial risk, risk selection, and risk segmentation in plan selection than those enrolled in the small group market, and risk adjustment transfers are particularly required in these markets to mitigate issuers' risk of adverse selection and incentives to avoid risk. However, we recognize that, just as with certain States' small group markets, it is possible that certain factors unique to the States' individual or merged market, such as State rating requirements, could support a reduction to transfers in that State market, and therefore are finalizing the State flexibility to request reduction to otherwise applicable risk adjustment transfers in the individual and merged markets as well. We note that guaranteed availability, guaranteed renewability, as well as the non-discrimination provisions at §§ 147.104(e), 147.110 and 156.125(a), provide protections against potential employment of marketing practices or benefit designs that have the effect of avoiding less healthy employer groups, discriminating based on health conditions, or otherwise discouraging enrollment of individuals with significant health needs. Finally, allowing for the State flexibility for the 2020 benefit year, will allow us to assess Start Printed Page 16959the impact of the changes made to the risk adjustment program beginning for the 2017 and 2018 benefit years, and we intend to monitor the impact of the changes to the risk adjustment program. States will also have the opportunity to assess the effects of the risk adjustment model changes implemented for the 2017 benefit year prior to submitting any State requests to reduce transfers for the 2020 benefit year.

Comment: A few commenters noted the extent of the reduction seemed arbitrary or too high, and requested HHS explain how it chose the 50 percent adjustment threshold. Commenters also suggested that HHS should finalize a smaller percentage reduction if it finalizes the proposal. One commenter stated that it is equally likely that a State needs to increase the risk adjustment transfers and HHS ought to allow for this type of a request as well.

Response: We are clarifying that the adjustment applicable to a State individual, small group or merged market would not necessarily be 50 percent, but would be the amount, up to 50 percent, justified by the State request. HHS reviewed transfers, the potential impact of such a reduction on market premiums and the proportion of the transfers as a percent of issuers' payments when considering the appropriate threshold. We believe that an adjustment of up to 50 percent, justified by State-specific factors, represents a reasonable balance between adjustment for actuarial risk based on a national methodology and recognition of unique State-specific factors that suggest that actuarial risk difference is not precisely accounted for by the national methodology. In instances where a State believes that an increase to risk adjustment transfers would be appropriate, State regulators under their own State authority could take actions outside of this flexibility to ease the transition for new entrants and/or mitigate the effects of large risk adjustment transfers. States can also elect to establish and operate the PPACA risk adjustment program. Additionally, we do not believe that an increase to the transfers could be deemed necessary as the current methodology would be sufficient to calculate the transfers necessary to compensate for the relative actuarial risk differences scaled to the average cost for the State market.

Comment: Some commenters noted that States should be required to submit an actuarially certified report demonstrating the extent to which the transfers overstate differentials in uncompensated predicted risk, the method of estimating the requested adjustment factor, an attestation that the percent reduction requested results in a risk adjustment methodology that complies with Actuarial Standard of Practice (ASOP) 12, Risk Classification, and an assessment of adverse selection effects that may result from the implementation of the payment transfer reduction. A few commenters also suggested HHS require States to provide evidence that issuers with large charges in the risk adjustment program did not have issues related to coding, operational data submission, incorrect rate setting, or suboptimal provider contracting and medical expenses that contributed to their risk adjustment results rather than differences in the State risk pool compared to the national average.

Response: We agree with commenters that States should be required to submit evidence and analysis supporting the requests for reductions to transfers in the individual, small group or merged market, and therefore, are requiring that States requesting a reduction in risk adjustment transfers submit supporting evidence and analysis to HHS. We are requiring States to submit supporting evidence and analysis demonstrating the State-specific rules or relevant factors that warrant an adjustment to more precisely account for risk differences in the State's individual, small group or merged market. Additionally, we are requiring the States to justify the percentage reduction requested based on supporting evidence and analysis that demonstrate how the adjustment would accommodate the State-specific factors and more precisely account for risk differences in the State's individual, small group or merged market or how the reduction would have a de minimis effect on the percent of premium increase necessary to cover the reduced payments to the affected issuers. We considered but are not requiring States to submit actuarially certified reports, an attestation, or simulation of the potential effects of the requested reduction as part of their requests. We determined that to ensure issuers are adequately compensated for the actuarial risk of their enrollees and do not have incentives to avoid higher risk enrollees, the State regulators need to submit evidence and analysis demonstrating the State-specific factors that warrant an adjustment to more precisely account for the differences in actuarial risk in the State's market, and justifying the percent reduction requested based on the State factors or a de minimis effect. Additionally, HHS will publish the requests in the proposed rulemaking for the respective benefit year and make the supporting evidence publicly available for comment, and consider the relevant comments in its review. We note that the data integrity issues flagged by commenters are assessed during the EDGE server data quality and quantity assessments, as well as through the risk adjustment data validation program.

Comment: Commenters generally requested additional time for States to submit requests. Commenters noted that if HHS were to move forward with this proposal, the agency should consider implementing the policy in 2020, as this policy will affect small group policies that are offered starting on and after January 1, 2018, as small group plans are not offered on a calendar year basis, and quarterly rate filings, which would already be in effect, would adversely affect these plans. One commenter suggested HHS set the State request deadline at 30 days after the June 30, 2018 risk adjustment summary report or request State submissions for the 2020 benefit year before August 2018. Other commenters suggested HHS allow States to provide the requests and any supporting material 60 days or 75 days from the publication of the proposed rule. Most commenters agreed that HHS should provide an opportunity for comment for the issuers and other stakeholders in the States that make such requests before approving or denying the reduction. One commenter also noted States require additional time to develop their respective requests and issuers require additional time to communicate their position with State regulators than that allowed by the timing in the proposed rule.

Response: We appreciate commenters' suggestions regarding timing, and are finalizing modified timelines for States to request a reduction to the risk adjustment transfers in response to these comments. As discussed above, States will be permitted to request these adjustments to transfers beginning for the 2020 benefit year. We agree with commenters that small group market issuers may have already begun policies that would be affected by a reduction to transfers for the 2019 benefit year, and issuers may need additional time to incorporate changes and reflect any reduction to transfers in their rates. Additionally, for the individual, small group and merged markets, we also considered the amount of time State regulators would require to assemble the supporting evidence and analysis to justify their requests and to consider the annual HHS June 30th risk adjustment transfers calculation results in determining the State reduction request. Start Printed Page 16960The timeframe we are adopting in response to comments requires States to submit the request by August 1st, 2 calendar years prior to the applicable benefit year which will allow States to submit documentation to satisfy the supporting evidence and analysis requirements in this rule and incorporate the most recent available year of HHS risk adjustment transfer results in the State's request. Additionally, we agree with commenters about the importance of providing issuers and stakeholders an opportunity to comment on the request and supporting evidence. As outlined in paragraph (d)(3) of § 153.320, HHS will publish the requests in the respective benefit year's proposed HHS notice of benefit and payment parameters and make the supporting evidence available to the public to seek comment from relevant stakeholders, and will publish any final approved or denied reduction amounts in the final HHS notice of benefit and payment parameters for the respective benefit year. The modified timelines and supporting evidence requirements finalized in this rule, including the delayed application of this policy until the 2020 benefit year, are intended to provide States, issuers and other stakeholders with sufficient opportunity to develop, submit and comment on these reduction requests prior to finalization of the HHS-operated risk adjustment methodology for the applicable benefit year.

Comment: A few commenters noted that New York has already taken action to reduce transfers under the State's authority, and requested clarification whether other States could continue to take steps under existing State authority. One commenter noted that the New York adjustment could be seen as permitting States to make adjustments without HHS approval and requested clarification that States making adjustments to the risk adjustment formula must first obtain approval from HHS under the risk adjustment program prior to implementing any State-specific adjustments.

Response: As we noted above, States are the primary regulators of their insurance markets, and as such, we encourage States to examine whether any local approaches under State legal authority are warranted to help ease the transition for new participants to the health insurance markets. States that take such actions and make adjustments do not generally need HHS approval as these States are acting under their own State authority and using State resources. However, the flexibility finalized in this rule involves a reduction to the risk adjustment transfers calculated by HHS and will require HHS review as outlined above.

iv. The Payment Transfer Formula

The finalized State payment transfer formula for the 2019 benefit year is 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. 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. The State payment transfer calculation that is part of the HHS risk adjustment payment transfer formula is:

Where:

P ̄S = 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 State payment transfer calculation determines whether a plan pays a risk adjustment charge or receives a risk adjustment payment. 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 the risk adjustment transfer calculation, not including the national high-cost risk pool payments and charges. This resulting PMPM plan payment or charge is multiplied by the number of billable member months to determine the plan payment or charge based on plan liability risk scores for a plan's geographic rating area for the risk pool market within the State.

Beginning with the 2018 benefit year, the high-cost risk pool adjustment amount will be added to the plan transfers (payment or charge) to account for: (1) The payment term, representing the portion of costs above the threshold reimbursed to the issuer for high-cost risk pool payments (HRPi), if applicable, and (2) the charge term, representing a percent of premium adjustment, which is the product of the high-cost risk pool adjustment factor (HRPCm) for the respective national high-cost risk pool m (one for the individual market, including catastrophic, non-catastrophic and merged market plans, and another for the small group market), and the plan's total premiums (Pi). As we noted above, the percent of premium adjustment factor applied to a plan's total premium amounts results in the same adjustment as a percent of PMPM premium adjustment factor applied to a plan's PMPM premium amount and multiplied by the plan's number of billable member months. For this calculation, we will use a percent of premium adjustment factor that is applied to each plan's total premium amounts, rather than the percent of PMPM premium adjustment factor for simplicity; and reiterate that the mathematical outcome is the same.

With the high-cost risk pool adjustment amount, the total plan transfers would be calculated as the product of the plan PMPM transfer amount (Ti) multiplied by the plan's billable member months (Mi), plus the high-cost risk pool adjustments. The total plan transfer (payment or charge) amounts under the HHS risk adjustment payment transfer formula would be calculated as follows:

Total transferi = (Ti · Mi) + HRPi − (HRPCm · Pi)

Where:

Ti = Plan i' s PMPM transfer amount;

Mi = Plan i' s billable member months;

HRPi = Plan i's total high-cost risk pool payment;

HRPCm = High-cost risk pool percent of premium adjustment factor for the respective national high-cost risk pool m;

Pi = Plan i' s total premium amounts.

In States that requested a reduction to transfers in the individual, small group or merged market, the reduction Start Printed Page 16961percentage up to 50 percent, if approved by HHS for the applicable benefit year beginning with the 2020 benefit year, would be applied to the plan PMPM payment or charge transfer amount (Ti). This potential reduction to the PMPM transfer amounts is not shown in the risk adjustment transfer formula above.

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.[22] 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 final 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. Under the original risk adjustment data validation payment adjustment approach, all issuers of risk adjustment covered plans would receive an adjustment to payment transfers in the subsequent benefit year based on risk adjustment data validation audit results and using the audit-confirmed, issuer-specific risk score error rate. However, 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.

To avoid adjusting all issuers' risk adjustment payments for expected variation and error, we proposed evaluating material statistical deviation in error rates beginning with 2017 benefit year risk adjustment data validation. In the proposed rule, we explained that we were 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. When an error rate materially deviates from the central tendency, we proposed 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 proposed to not apply any adjustments to issuers' risk scores for that benefit year in the respective State risk pool.

We also noted that alternatively, HHS could 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. In evaluating the “error rate” of HCCs, or groups of HCCs, we mean the probability of an assigned HCC being found to be incorrect based on the risk adjustment data validation audit, or a “failure rate.” The percent of the EDGE risk score that is incorrect due to audit findings (that is, due to HCCs that could not be validated through audit), we consider to be the issuer's risk score error rate. For example, an issuer could have a 50 percent failure rate for an HCC, in that two of four instances of the HCC on EDGE could not be validated. The impact of HCC failure rates on an issuer's error rate will then depend on the magnitude of the missing HCC's coefficient and the incidence of that HCC in the audit sample.

We believe the implementation of any of the alternative evaluations and subsequent adjustments we proposed would 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 are finalizing the approach described above of using failure rates specific to HCC groups and subsequently adjusting the issuer's risk score when the issuer's failure rate for a group of HCCs is statistically different from the weighted mean failure rate, or total failure rate, for that group of HCCs for all issuers that submitted initial validation audits. We are selecting this approach based on comments received, which generally were more supportive of the HCC or HCC-grouping methodology for evaluating failure rates than an approach under which we would calculate a national overall error rate. Additionally, we believe determining outlier failure rates based on HCC groups mitigates gaming concerns raised by commenters in using a national error rate, and mitigates commenters' sample size concerns in using HCC-specific failure rates. Our simulations of failure rates by HCC group suggest that such an approach yields a more equitable measure to evaluate statistically different HCC failure rates affecting an issuer's error rate than an approach based on an overall failure rate, which may overly adjust issuers with abnormal distributions of certain HCCs due to their underlying populations rather than differences due to errors in diagnoses codes. Illustrations of the methodology we will use to evaluate failure rate differences by HCC group, calculate error rates based on failure rates, and apply error rates to risk scores are provided below.

Using data from the 2017 benefit year risk adjustment data validation, HHS will first calculate the failure rate for each HCC in issuers' initial validation audit samples as:

Where:

Freq_EDGEh is the frequency of HCC code h occurring on EDGE, which is the number of sampled enrollees recording HCC code h on EDGE.

Freq_IVAh is the frequency of HCC code h occurring in IVA results, which is the number of sampled enrollees with HCC code h on in IVA results.

FRh is the failure rate of HCC code h.

HHS will then create three HCC groups based on the HCC failure rates derived in the calculation above. These HCC groups will be determined by first ranking all HCC failure rates and then dividing the rankings into three groups, weighted by total observations or frequencies, of that HCC across all issuers' initial validation audit samples, to assign each unique HCC in the initial validation audit samples to a high, medium, or low failure rate group with an approximately even number of observations in each group. That is, each HCC group may have an unequal number of unique HCCs, but the total Start Printed Page 16962observations in each group should be approximately equal based on total observations of HCCs reflected in EDGE data for all issuers' initial validation audit sample enrollees, to prevent small sample sizes for an HCC group for any issuer.

HHS will then compare each issuer's failure rate for each HCC group based on the number of HCCs validated in the initial validation audit, compared to the number of HCCs recorded on EDGE within that HCC group for the initial validation audit sample enrollees. The issuer's HCC group failure rate will be compared to the weighted mean failure rate, or total failure rate, for that HCC group. We calculate an issuer's HCC group failure rate as:

We will also calculate the weighted mean failure rate and the standard deviation of each HCC group as:

If an issuer's failure rate for an HCC group falls outside the confidence interval for the weighted mean failure rate for the HCC group, the failure rate for the issuer's HCCs in that group would be considered an outlier. We will use a 1.96 standard deviation cutoff, for a 95 percent confidence interval, to identify outliers. To calculate the thresholds to classify an issuer's group failure rate as outliers or not, the lower and upper limits are computed as:

LBG =μ(GFRG)sigma_cutoff * Sd(GFRG)

UBG = μ (GFRG) + sigma_cutoff * Sd(GFRG)

Where:

sigma_cutoff is the parameter used to set the threshold for the outlier detection as the number of standard deviations away from the mean.

LBG, UBG are the lower and upper thresholds to classify issuers as outliers or not outliers for group G.

When an issuer's HCC group failure rate is an outlier, we will reduce (or increase) each of the applicable initial validation audit sample enrollees' HCC coefficients by the difference between the outlier issuer's failure rate for the HCC group and the weighted mean failure rate for the HCC group. Specifically, this will result in the sample enrollees' applicable HCC risk score components being reduced (or increased) by a partial value, or percentage, calculated as the difference between the outlier failure rate for the HCC group and the weighted mean failure rate for the applicable HCC group. The adjustment amount for outliers will be the distance between issuer i' s Group Failure Rate GFRiG and the weighted mean μ(GFRG), calculated as:

Start Printed Page 16963

The adjustment to an enrollee's total risk score is calculated as the ratio of the total adjusted risk score for individual HCCs to the total risk score components for individual HCCs. For example, if an issuer has one enrollee with the HIV/AIDS HCC and the issuer's HCC group adjustment rate is 10 percent (the difference between the issuer's group failure rate and the weighted mean failure rate) for the HCC group that contains the HIV/AIDS HCC, the enrollee's HIV/AIDS coefficient would be reduced by 10 percent. We calculate the total adjustment amount across all HCCs per enrollee as:

The adjusted risk score for enrollee e of issuer i is calculated as:

AdjRSi,e = EdgeRSi,e * (1 − Adjustmenti,e)

Where:

EdgeRSi,e is the risk score for EDGE HCCs of enrollee e of issuer i.

AdjRSi,e is the adjusted risk score for sampled enrollee e of issuer i.

We will then calculate an issuer's error rate using the EDGE risk score and adjusted risk score for all enrollees in the sample (excluding enrollees with no HCCs). The weight we in the error rate calculation formula is obtained by the ratio of an enrollee's stratum size in the issuer's population to the number of sample enrollees in the same stratum as the enrollee, to extrapolate the sample adjusted risk scores and determine the issuer's risk score error rate. The formula to compute the error rate using the stratum weighted risk score for issuer i before and after the adjustment is shown as:

Start Printed Page 16964

The risk score error rate would then be applied to the subsequent benefit year calculated plan level risk scores, to adjust the issuer's plan level risk scores before risk adjustment transfers are calculated, unless the issuer exited the market during or at the end of the benefit year being audited.[23]

Comment: Most commenters supported the proposal to only adjust issuers' risk scores if their failure or error rates materially deviate from a statistical mean, with some noting that this approach could help streamline risk adjustment data validation and increase market stability. A few commenters noted the complexity of the approach and requested more information on various aspects of the proposed approach, such as the definitions of material deviation and statistically meaningful value, the methodology that HHS would use to evaluate material deviation, the calculation of national or HCC-level error rates, and the sufficiency of the sample sizes under the HCC or group of HCCs approach.

Response: As outlined above, for the purposes of risk adjustment data validation, we will determine that an issuer's failure rate is statistically different if the issuer's failure rate for a particular HCC group is more than 1.96 standard deviations away from the weighted mean failure rate for the high, medium, or low HCC group. Issuers with outlier failure rates in a particular HCC group will then have their sample enrollee risk scores adjusted by the difference between the issuer's failure rate and the mean failure rate for that HCC group for all applicable HCCs in their sample enrollees' risk scores. We will not use an overall mean failure rate or error rate to determine outliers under the approach finalized in this rule. We believe that the HCC grouping approach described above, which utilizes three large HCC groupings, will mitigate the risk of an issuer having a small sample size for a particular HCC group. We also note that we intend to propose updates to the sampling methodology for the 2018 benefit year HHS-operated risk adjustment data validation initial validation audit samples in the 2020 Payment Notice.

Comment: One commenter supported the proposed application of the difference between the calculated error rate and the statistically meaningful value, instead of the full error rate, to the issuer's subsequent year risk score when material deviation occurs. One commenter opposed the proposal due to concerns that if the average failure rate is exceedingly high or increasing, it could encourage issuers to be less accurate over time in their risk adjustment data, as long as they are not outliers relative to other issuers. Another commenter expressed concerns that issuers within the calculated confidence interval would receive no adjustments, while issuers outside of the confidence interval would receive substantial and punitive adjustments.

Response: The primary purpose of determining statistically meaningful differences is to avoid the unwarranted application of risk score adjustments—that is, risk scores would be adjusted only when the issuers' failure rates are outside a range of statistically acceptable errors. We believe that statistically meaningful errors should be adjusted to the weighted mean failure rate of each HCC group. We are finalizing an approach under which, when an issuer's failure rate for its associated HCCs in one of the HCC groupings is statistically different than the mean for that grouping, HHS will adjust the sample enrollees' risk score component for that HCC group by the difference between the issuer's failure rate for the HCCs in that group and the weighted mean failure rate for the HCC group for all issuers that submitted initial validation audits. We will continue to evaluate this approach; however, we expect that as issuers and initial validation auditors gain additional experience performing risk adjustment data validation, HCC failure rates should improve and stabilize, rather than grow.

Comment: Several commenters recommended that HHS provide issuers with more transparency about the calculation of error rates, as well as benchmark national and State-level error rate data against which issuers could evaluate their performance relative to other issuers and in the context of this proposal. Two commenters suggested that HHS apply the proposed approach to the 2016 benefit year pilot results to illustrate how issuers' risk scores and payment transfers might be affected in future years.

Response: We appreciate the recommendations, and we intend to publish benchmark failure and error rate data based on the results of the 2016 benefit year data validation second pilot year. We also intend to provide additional information to issuers about risk score error rates based on 2016 benefit year risk adjustment data validation results, prior to implementation in 2017 benefit year risk adjustment data validation. In addition, illustrations of the methodology we will use to evaluate failure rate differences by HCC group, calculate error rates based on failure rates and apply error rates to risk scores are provided above.

Comment: Two commenters recommended that HHS continue to study failure rates by HCCs or groups of HCCs for a longer period of time before proceeding with this approach, and another commenter opposed the calculation of failure rates at the HCC or HCC group-level.

Response: We evaluated the HCC group-level and other proposed approaches using a simulation with underlying Medicare risk adjustment data validation failure rates, and we agree with commenters that additional data from HHS-operated risk adjustment data validation results in a payment adjustment year would be preferable. However, under the current error rate estimation and application policy for HHS-operated risk adjustment data Start Printed Page 16965validation, all issuers' risk scores and payment transfers would be adjusted, for any identified error, regardless of issuer size or distribution of HCCs in its enrollee population beginning with the 2017 benefit year data validation. We believe the approach being finalized in this rule will increase predictability of risk adjustment transfers for issuers, and improve our ability to identify statistically meaningful data discrepancies in the data validation process. By focusing on issuer errors that are statistically meaningful, we can adjust issuers' risk scores with confidence, as opposed to adjusting all issuers for any difference, significant or not, from EDGE data. As such, we believe implementing this approach as soon as possible ensures the most accurate payment adjustments and promotes stability and predictability of risk adjustment transfers.

Comment: A few commenters raised concerns that the calculation of a national average error rate could fail to account for State or regional variations in provider coding practices, and therefore result in harmful adjustments that could discourage new entrants in some States.

Response: We agree with commenters and believe the evaluation of failure rate deviation by groups of HCCs, based on HCC failure rates outlined above, rather than a single, national average failure rate for all HCCs, will mitigate the risk of adjustments due to errors or differences that can be explained by regional variation in provider documentation of enrollee health status. We will evaluate the impact of this approach on issuers across regions and States and consider adjustments in future years if there is evidence of regional bias in payment adjustments resulting from this policy.

Comment: One commenter requested that HHS conduct another pilot year prior to implementing payment adjustments, since data validation is still new for issuers in the commercial market.

Response: While we will continue to educate issuers about the HHS risk adjustment data validation process, we believe that it is necessary to use the results of data validation to adjust risk scores beginning with 2017 benefit year data validation to encourage issuers to continue to improve the accuracy of data used to compile risk scores and to preserve confidence in the HHS-operated risk adjustment program.

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 risk adjustment data validation is to promote confidence in the budget-neutral payment transfer methodology by ensuring the integrity and quality of data provided from issuers. HHS believes that the prospect of not receiving payment adjustments based on the results of risk adjustment data validation results could undermine these goals by eliminating the incentive for an exiting issuer to carefully and accurately submit risk adjustment data for its final benefit year in the market. Not only could this type of inaccuracy result in overpayments to the exiting issuer, it could also cause the other issuers in the market to be over or undercompensated for the actual risk of their enrollee populations. Therefore, we proposed 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 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 (that is, post-transfer) 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.

We sought comment on this proposal to make these 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. We are finalizing this policy as proposed, and we clarify that it will be effective beginning with the 2017 benefit year risk adjustment data validation. Therefore, for an issuer that exited a State market during or at the end of the 2017 benefit year who had a statistically meaningful error rate under the revised approach to payment adjustments finalized above in this rule, HHS would apply the risk score error rate to the issuer's 2017 benefit year risk score, and recalculate 2017 benefit year risk adjustment transfers for the affected State market risk pools. We note that, under this timeline, issuers that exited a State market during or at the end of 2017 benefit year have ample opportunity to review and correct data submitted to their EDGE servers that will be used to calculate risk scores for the 2017 benefit year.

Comment: The majority of commenters supported using the error rate derived from data validation for the most recent benefit year in which an exited issuer participated in risk adjustment to make an adjustment to exited issuers' risk adjustment transfers for their final benefit year in the State market, and to reallocate the adjusted amount to the other issuers in the State market in that year. Commenters agreed that a post-transfer adjustment, based on results of data validation for the most recent benefit year for which the issuer participated in risk adjustment, would reduce the risk of gaming by an issuer leaving a State market and ensure that other issuers remaining in the State market are not harmed by an exited issuer's incorrect or incomplete data. One commenter expressed concern that the adjustments for exited issuers would complicate payment transfers and requested that HHS provide additional guidance or create a forum with issuers to discuss which method would result in the least disruption to the data validation process over multiple years.

Response: We agree with commenters who supported a post-transfer adjustment for issuers who exit the market during or at the end of a given benefit year, and we are finalizing the policy as proposed. Adjusting an exited issuer's payment transfer will help ensure that an issuer with inaccurate or incomplete data does not benefit from this error and that other issuers in the State market are not harmed by it. We acknowledge that adjustments to final benefit year payment transfers for issuers that exited a State market could complicate the calculation of transfers; however, we believe the revised policy for error rate payment adjustments finalized above will help mitigate the potential complexity, because only exited issuers with statistically meaningful failure rates will receive Start Printed Page 16966post-transfer adjustments. Furthermore, we believe the benefits associated with applying adjustments to exited issuers' payment transfers, based on the results of risk adjustment data validation for the most recent benefit year in which they participated in risk adjustment, outweigh the complexities. For State market risk pools where HHS determines that an issuer that exited the market will receive an adjustment to their risk adjustment transfer for their final benefit year in the market, we intend to provide all issuers in the affected prior year risk pool with the adjustments for exited issuers at the same time as adjustments for any issuers remaining in the market are made in the subsequent benefit year.

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. In the proposed rule, we proposed 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. We explained that 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 noted 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. We also explained that if the approach for payment adjustments for error rates outlined in the proposed rule were finalized, then it would be possible that no adjustment would occur for issuers below this threshold. We sought comments on the proposal, including the 500 billable member month threshold.

We are finalizing the exemption for issuers with 500 billable member months or fewer as proposed. We clarify that, consistent with the approach in the 2017 Payment Notice for the lower, separate risk adjustment default charge for small issuers, the determination of whether an issuer has 500 billable member months or fewer will be calculated Statewide (that is, combining an issuer's enrollment in a State's individual and small group markets in a benefit year).

Comment: A commenter agreed with the proposal, but suggested that issuers with 500 or fewer billable member months be excluded from risk adjustment data validation entirely. One commenter disagreed with the proposal stating that all issuers should be subject to audits for accountability. One commenter agreed with the proposal, but wanted an option for small issuers to be adjusted by a default error rate based on the issuer's parent company's aggregate or average error rate.

Response: HHS recognizes that issuers' company-level affiliations may vary in size considerably, but note that regardless of parent company size, issuers with 500 or fewer billable member months Statewide face a relatively large burden in complying with an initial validation audit where the initial validation audit sample would be the issuer's entire population. Consistent with the risk adjustment data validation error rate payment adjustment policy finalized above, we believe that only issuers with statistically meaningful errors should receive payment adjustments. We believe that the implementation of this policy provides similar relief to smaller issuers for whom audits would have a disproportionately high cost and who, due to small size, are unlikely to have a significant or material impact on adjustments to other issuers. We note that the risk adjustment data validation policies finalized in this rule result in issuers with 500 or fewer billable member months Statewide effectively being excluded from risk adjustment data validation, as they do not have to hire an initial validation auditor, submit initial validation audit results, or be subject to risk adjustment data validation payment adjustments.

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) would not be subject to annual initial validation audit requirements, beginning with the 2017 benefit year, but would 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 the 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,[24] in the proposed rule, we proposed 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 Statewide as discussed above. Beginning with the 2018 benefit year risk adjustment data validation, issuers below the $15 million premium materiality 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.[25] In addition, we explained that if the proposed approach for error rate payment adjustments outlined in the proposed rule were to be finalized, issuers below the $15 million threshold that are not selected for the random and targeted sampling might not have their risk adjustment transfers adjusted for a given benefit year.

We are finalizing the postponement of the materiality threshold to 2018 benefit year risk adjustment data validation, as proposed.

Comment: One commenter agreed with the proposal. Another commenter advocated for having a lower materiality threshold such as 12,000 or fewer billable member months. Some commenters stated that there should be no materiality threshold, and that all issuers should be subject to risk adjustment data validation.Start Printed Page 16967

Response: Although we appreciate the comments, we did not propose and are not modifying the level at which the materiality threshold is set in this rule. The proposal addresses the timing for implementation of the threshold and the applicability of potential adjustments to risk adjustment transfers for issuers at or below the $15 million threshold. All issuers of risk adjustment covered plans will 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 Statewide as discussed above. Beginning with the 2018 benefit year, issuers at or below the $15 million premium threshold will not be required to conduct an initial validation audit every year. HHS will 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. Under the policy finalized in this rule with respect to error rate payment adjustments, issuers below the $15 million materiality threshold that are not selected for the random and targeted sampling will not have their risk adjustment transfers adjusted.

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.[26] In the proposed rule, we explained that HHS would not calculate a risk 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. In addition, we proposed that the issuer would not be required 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. Therefore, we proposed to change the sampling methodology so that, beginning with the 2017 benefit year data validation, the initial data validation audit sample would only include enrollees from State risk pools in which there was more than one issuer.[27] We are finalizing this policy as proposed.

Comment: One commenter stated that the proposed approach to allow sole issuers to participate in another market in the State where it is not the sole issuer has the potential to create market instability, as non-similar plans are brought into the calculation.

Response: We clarify that, under the finalized policy, HHS would only sample from the issuer's risk pool where it is not the only issuer in the risk pool for the initial validation audit. Currently, the initial validation audit sample pulls from an issuer's population across a State, irrespective of risk pool. The finalized policy ensures that only enrollee data for which risk adjustment transfers were calculated in a risk pool are validated.

Comment: One commenter disagreed with our proposal due to concerns about accountability of sole issuers.

Response: For issuers that are the sole issuer in a risk pool, there is no risk adjustment transfer and thus, there is no payment or accountability to other issuers in that risk pool. As explained above, HHS will not calculate a risk score or risk adjustment payment transfers, on behalf of a State in a market and risk pool in which there is only one issuer, except for high-cost risk pool transfers beginning with the 2018 benefit year, and data submitted for high-cost risk pool transfers by all issuers will be subject to a separate audit. Therefore, we are finalizing the proposal to change the sampling methodology so that, beginning with 2017 benefit year risk adjustment data validation, the initial 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.

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. As we explained in the proposed rule, 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, and 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 § 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 proposed 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. We explained that, although HHS needs the full content of the mental or behavioral health record to ensure full validation of the accuracy of diagnosis codes, we believed 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) sex; [28] (iii) date of birth; (iv) current Start Printed Page 16968status of all mental or behavioral health diagnoses; and (v) dates of service. We noted 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.[29] We also noted 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 clarified 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 noted that certain substance use disorder patient records are subject to the Federal confidentiality law at 42 U.S.C. 290dd-2 and the regulations issued thereunder in 42 CFR part 2 and certain State laws, and generally require consent prior to disclosure. We stated that we believed 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 to comply with this proposal.

We noted the proposal would allow 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. Under the proposal, 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 complete mental or behavioral health record. We explained in the proposed rule that we also believed 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 noted our belief that the flexibility to use mental or behavioral health assessments would minimize the burden on providers of complying with this requirement because providers may be able to utilize records they routinely prepare and may already have, as opposed to preparing special summaries solely for the purpose of risk adjustment data validation.

Based on our review of the comments we received, we are generally finalizing the amendments to § 153.630(b)(6) to permit providers that are prohibited by State law from furnishing a full mental or behavioral health record to submit an assessment instead. We are making one clarification to convey that this flexibility will not apply to providers that are prohibited solely by Federal law from furnishing a full mental or behavioral health record. We recognize that other State and Federal laws, including the Federal confidentiality law at 42 U.S.C. 290dd-2 and associated regulations that govern certain patient substance use disorder records potentially apply to mental or behavioral health assessments, and would require a provider to obtain enrollee consent before disclosing the assessment if applicable. We reiterate that the proposal on mental or behavioral health assessments was not intended to provide an exception to any applicable enrollee consent requirement under State or Federal law.

Comment: Most commenters supported the proposal. These commenters stated that the proposal would reduce burden, ensure compliance with privacy rules, and assist with the chart retrieval process. Others supported the proposal with certain modifications. For example, one commenter requested a safe harbor if mental health diagnosis failure, or error rates, are high due to noncompliance from mental health providers. Similarly, another commenter requested that HHS avoid punitive payment adjustments for issuers whose production of records is constrained by compliance with State law. The commenter also requested that HHS acknowledge the existence of varying State-specific limitations on consent for disclosure of mental or behavioral health records, evaluate the extent to which State-specific rules can be appropriately incorporated into the data collection, and engage in a separate solicitation of input from stakeholders on this topic.

Response: Since we only have final results from the first pilot year of risk adjustment data validation thus far, we do not currently have adequate experience to be able to determine whether failure rates for mental health diagnoses are higher than other diagnoses, and whether those failure rates are consistent by State. The policy for error rate payment adjustments finalized in this rule mitigates the potential for punitive payment adjustments, because only issuers with statistically meaningful failure rates will receive risk score error rates resulting in payment transfer adjustments.[30] We will continue to evaluate whether additional relief is necessary, based on analysis of risk adjustment data validation results. Our policy to permit the use of mental or behavioral health assessments by providers that are prohibited by State law from furnishing a full record is intended to offer broadly applicable relief and flexibility to account for the variation in privacy laws in particular States. Therefore, we do not intend to solicit input on or otherwise engage in an evaluation of State-specific requirements.

Comment: Two commenters expressed concern that initial validation auditors may interpret or utilize mental or behavioral health assessments differently, and requested that HHS provide guidance or training to ensure consistent interpretation of the assessments.

Response: We agree that consistent interpretation and utilization of mental and behavioral health assessments is important, and seek to encourage it. For purposes of risk adjustment data validation, the assessment is limited to the five discrete elements specified in § 153.630(b)(6), most of which are straightforward, so HHS does not anticipate a material risk of disparate interpretation or utilization of mental or behavioral health assessments by initial validation auditors. HHS continues to work to leverage existing provider networks and communication channels to educate providers on the HHS-operated risk adjustment data validation requirements.

Comment: One commenter requested the extension of flexibility to the actual submission of documentation regarding treatment for mental or behavioral health conditions, expressing concern that there may not be an affected Start Printed Page 16969underlying record to identify in the first instance. The commenter also requested additional information regarding who bears responsibility for preparation of the mental or behavioral health assessment and how it differs from a full record.

Response: The provider is responsible for preparing the mental or behavioral health assessment, and the assessment is limited to the five elements specified in § 153.630(b)(6). When being used for risk adjustment data validation purposes, it should be accompanied by the provider's signature and an attestation that State privacy laws prohibit the provider from furnishing a complete medical record. This policy provides flexibility in cases where the State law prevents submission of the full record, but that flexibility does not extend to the provision of any documentation regarding mental or behavioral health conditions. HCCs without adequate documentation, whether through a full record or a mental or behavioral health assessment, would result in an error.

Comment: Several commenters did not support the proposal. For example, one commenter indicated that this policy of permitting mental or behavioral health assessments would not significantly reduce burden, and generally objected to the other State or Federal laws that may require the provider to obtain patient consent, indicating that doing so may not be possible. One commenter stated that requiring provider attestation or patient consent will add burden and reduce the likelihood of mental or behavioral health records being furnished by issuers in risk adjustment data validation. The commenter also expressed concern that there will likely be higher error rates for HCCs related to mental health or substance use disorders.

Response: HHS believes that the finalized policy to permit the use of existing mental or behavioral health assessments affords flexibility to providers to use an alternative source for the documentation that otherwise would be necessary under risk adjustment data validation to maintain the integrity of the risk adjustment program while complying with State and Federal privacy requirements. As discussed previously in this section and in the proposed rule, State and Federal privacy requirements may independently require a provider to obtain patient consent in order to furnish a mental or behavioral health assessment. In providing the flexibility to submit assessments for risk adjustment data validation purposes, HHS does not intend to limit or otherwise affect the application of any such consent requirements under State or Federal law, which provide important protections to enrollees.

HHS recognizes, however, that our policy to allow providers to furnish a mental or behavioral health assessment may impose a slight increase in the burden of compliance with risk adjustment data validation requirements because the assessment must be accompanied by an attestation from the provider. Attestations are necessary to demonstrate that the provider is prohibited from furnishing the complete medical record by State privacy laws, but we do not expect compliance with the attestation requirement to be difficult.

As noted above, HHS does not intend to exempt providers from any other applicable consent requirements under State or Federal law, and we do not yet have adequate experience as to whether failure rates will be higher for mental health conditions or substance use disorders. We reiterate that only issuers with statistically meaningful failure rates will receive risk score error rates and subsequent payment transfer adjustments pursuant to the policy finalized in this rule.[31] We will analyze risk adjustment data validation results to evaluate the impact of this policy on error rates, and will consider whether further refinements are appropriate.

Comment: Commenters expressed concern that enrollees could be waiving their HIPAA rights if their providers furnish medical records that include enrollees' diagnoses for risk adjustment data validation. The commenter suggested that if a diagnosis can be imputed by the presence of a prescription drug, HHS should include treatments for mental illness as a drug class in the risk adjustment models, to impute diagnoses for which a medical record cannot easily be obtained.

Response: As noted above and in the proposed rule, 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. The HIPAA Privacy Rule generally permits disclosures that are required by law (see 45 CFR 164.512(a)). 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, and may require that providers obtain patient consent before disclosing mental or behavioral health records or assessments. We do not view the risk adjustment data validation requirements to furnish a mental or behavioral health record or assessment as inconsistent with these consent requirements or involving any “waiver” of enrollee privacy rights.

As discussed in the 2018 Payment Notice, in specific instances, risk adjustment permits the use of prescription drugs to impute diagnoses. As noted elsewhere in this rule, HHS will continue to evaluate the inclusion of additional prescription drug classes in the risk adjustment model, including mental or behavioral health treatments, to potentially impute missing diagnoses for future benefit years.

Comment: One commenter requested that HHS provide issuers flexibility to develop standard language requiring the provider's signature to ease the administrative burden of creating mental or behavioral health assessments.

Response: The approach being finalized in this rule does not prevent an issuer from developing standard language for the provider attestation if the issuer believes it will help providers furnish mental or behavioral health assessments and other required documentation for risk adjustment data validation purposes.

Comment: Some commenters expressed concerns about the Federal rules governing confidentiality of substance use disorder patient records under 42 CFR part 2, or their alignment with the HIPAA Privacy Rule.

Response: The comments on the Federal rules governing confidentiality of substance use disorder patient records under 42 CFR part 2 and the HIPAA Privacy Rule concern regulations that are implemented and enforced by other agencies within HHS, the Substance Abuse and Mental Health Services Administration and the Office for Civil Rights, respectively. Although we appreciate these comments, we are not able to address them in this rulemaking.

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 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 Start Printed Page 16970adjustment 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 proposed 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. We are finalizing the amendment to § 153.630(b)(8) as proposed.

Comment: All commenters supported the addition of the 2016 benefit year as an initial year of risk adjustment data validation for which the initial validation auditor may meet an inter-rater reliability standard of 85 percent. One commenter noted that permitting the 85 percent standard for another year would allow issuers to gain an additional year of experience and process improvement before the standard is increased.

Response: We agree with commenters and are finalizing the amendment to § 153.630(b)(8) as proposed.

viii. Civil Money Penalties

An effective risk adjustment data validation program is essential to the proper functioning of the HHS-operated risk adjustment program. In order to enforce risk adjustment data validation standards when operating risk adjustment data validation on behalf of a State, we proposed 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 proposed 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 non-compliance with the risk adjustment data validation standards and requirements. Specifically, we proposed 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.[32] We clarified that the proposal to impose CMPs for (3) and (4) would apply to all issuers of risk adjustment covered plans, not just those issuers on an FFE. We noted 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 proposed 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 reserved the right to impose penalties up to the maximum amounts set forth in § 156.805(c), as a general principle, we explained that 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 are finalizing as proposed the amendments to § 153.630(b)(9) to clarify and strengthen HHS's CMP authority. We also clarify that HHS would not impose a CMP under § 153.630(b)(9) for a benefit year on an issuer that is not required to submit an initial validation audit for risk adjustment data validation for that benefit year.

Comment: Most of the comments received supported the proposal. One commenter requested definitions for misconduct, substantial noncompliance, and reckless misrepresentation, along with examples for each case under which an issuer could receive a CMP.

Response: The terms misconduct, substantial noncompliance, and reckless misrepresentation are incorporated from § 156.805(a)(1) and (5). Examples of issuer misconduct that could warrant imposition of a CMP under the amended § 153.630(b)(9) include knowingly hiring an initial validation auditor who has conflicts of interest, or failing to ensure confidentiality and security of data transmitted to the initial validation auditor or second validation auditors. Examples of substantial noncompliance include unreasonable delays in providing complete enrollment documentation, claims and encounter data, or medical records documentation to an auditor, or failing to properly oversee an initial validation auditor. However, the determination of whether conduct rises to the level of any of these terms in any specific case is highly fact sensitive, involving consideration of any mitigating or aggravating factors.

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,[33] describing the process by which HHS addresses instances of materially incorrect EDGE server data submissions. We reiterated this guidance on November 3, 2017, through the release of Evaluation of EDGE Data Submissions for the 2017 Benefit Year.[34] We proposed to include risk adjustment data validation as a Start Printed Page 16971method of discovering materially incorrect EDGE server data submissions and making adjustments pursuant to § 153.630(e), as described in the September 2, 2015 guidance.[35] We proposed 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 and demographic variables in the risk adjustment models. We explained that we believe the process of identifying demographic and enrollment errors is substantially similar to a discrepancy in the transfer formula, which is addressed in the current benefit year as part of the EDGE data discrepancy process 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.

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 risk adjustment 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 the market.[36] We explained that we believe this approach would allow 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 sought comment on this proposal.

We are finalizing this policy as proposed.

Comment: Commenters supported the proposal, or agreed with it but requested additional clarification. For example, one commenter requested examples of materially incorrect data submissions. Another commenter sought clarification on certain technical issues related to the proposal, including the definition of demographic and enrollment data errors, whether these errors will impact elements of the transfer formula, the error rate, or both, and the timing of any adjustments that HHS would make with respect to current year risk adjustment transfer amounts and related data transfer element errors. One commenter supported HHS's current approach of taking a subsample of 50 enrollees to verify demographic and enrollment information, but stressed that the subsample results should not be the sole basis for applying current year transfer adjustments. Rather, if errors are identified from the subsample, HHS should then investigate the issuer's data further to assess if there were materially incorrect EDGE data submissions.

Response: We clarify that significant errors found in the risk adjustment data validation demographic and enrollment subsample review will result in communications from HHS to the issuer regarding the issuer's underlying data before the potential application of any adjustments to risk adjustment transfers. The demographic and enrollment data elements collected for purposes of risk adjustment are date of birth, sex, plan identifier, enrollment start and end dates, premium amount, and rating area. In addition to the issues described above regarding incorrect premium, certain demographic or enrollment errors could indicate the presence of larger issues such as assignment of enrollees to the incorrect model or metal level, which would lead to incorrect risk scores and a miscalculation of the AVs and induced demand factors (IDF) in the transfer formula, or incorrect age factors. If this occurs, we would initiate a separate process outside of risk adjustment data validation to further evaluate the impact of the incorrect data submission, determine whether the market needs to be made whole due to the errors, and then make the necessary adjustments to affected issuers. Therefore, HHS will not be relying solely on subsample results as the basis for applying current year transfer adjustments. Whether an error has an effect on the transfer formula, error rate, or both amounts will depend on the specifics of the error. For example, if an error affects premiums alone, only the Statewide average premium would need to be adjusted. HHS intends to be in communication with affected issuers throughout the second validation audit process, and to resolve potential discrepancies in a manner similar to the EDGE data submission discrepancy process.

h. Risk Adjustment User Fee for the 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 will be 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 proposed to use the same methodology to estimate our administrative expenses to operate the program. These contract costs cover development of the model Start Printed Page 16972and 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 previously estimated 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. However, we now estimate the cost for HHS to operate the risk adjustment program on behalf of States for the 2019 benefit year to be approximately $40 million, and are finalizing a risk adjustment user fee of $1.80 per billable member per year, or $0.15 PMPM, to take account of eligible administrative and personnel costs related to the operation of the HHS-operated risk adjustment program that were previously excluded from the estimate.

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 non-grandfathered plans in the individual and small group markets. 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, which has included rate review. We proposed to modify § 154.103(b) to exempt student health insurance coverage from the Federal rate review requirements, effective for plan or policy years beginning on or after January 1, 2019. As we discussed in the proposed rule, and as commenters noted, student health insurance coverage is generally rated and administered differently from other forms of individual health insurance coverage.[37]

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. We are finalizing the exemption as proposed, except that we are modifying the applicability date to align with the timing of when student health insurance coverage typically begins, such that the exemption will be effective for student health rate filings for the next plan year. This change, effective for student health insurance coverage effective on or after July 1, 2018, will reduce the regulatory burden on States and issuers of student health insurance plans.

Comment: Most commenters supported the proposal to exempt student health insurance coverage from Federal rate review requirements. Commenters suggested that the exemption should apply to coverage effective on or after July 1, 2018, to coincide with the traditional school year. Some commenters expressed concern that exempting student health insurance coverage would result in minimal oversight and decreased affordability.

Response: We are finalizing the exemption and it will apply to student health insurance coverage, as defined in § 147.145, with an effective date on or after July 1, 2018. We note that States maintain the flexibility to review rate increases of any size and any other aspects of student health insurance coverage. In States that do not have an Effective Rate Review Program, we will continue to 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 will continue to review form filings for student health insurance coverage for compliance with applicable PHS Act individual market requirements.

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.

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 § 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 proposed 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.[38]

Section 154.200(a)(2) currently requires States to submit a proposal to the Secretary for approval of any State-specific threshold. We proposed 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 proposed this change to reduce burden and promote State flexibility.

We also proposed 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. For States that request a State-specific threshold above what is set by CMS, CMS noted it would continue to post information on its website beginning with requests submitted on or after January 1, 2019.

We proposed to redesignate paragraph (c) as paragraph (b) and revise that paragraph to delete the language related Start Printed Page 16973to rates filed for coverage beginning before January 1, 2017, currently captured in paragraph (c)(1) as this provision is no longer necessary.[39] We proposed to redesignate paragraph (d) as paragraph (c). Finally, we proposed conforming changes to update the cross references in § 154.200 to align with the changes described above.

We are finalizing these changes as proposed with one modification, described below. These changes will apply to single risk pool rate filings submitted by issuers for plan or policy years beginning on or after January 1, 2019.

Comment: Some commenters supported a threshold increase, noting that raising the threshold to 15 percent would allow regulators to focus their attention on higher rate increases and reduce the regulatory burden for both States and issuers. Other commenters supported raising the threshold, but did not specify an alternative to 10 percent. Many commenters opposed changing the reasonableness review threshold to 15 percent, concerned that the change may normalize excessive increases. Other commenters opposed the change because it would negatively affect transparency of rate setting, noting that the Consumer Justification Narrative (Part II of the Rate Filing Justification) is only required for increases that meet or exceed the review threshold. Some commenters suggested a 6 percent threshold would be appropriate because that would be in line with health expenditures and still above the general rate of inflation. A few commenters suggested there should be a 15 percent threshold at the product level and 20 percent threshold at the plan level.

Response: We note that the threshold set by HHS constitutes a minimum standard. By increasing the threshold trigger to 15 percent, we are providing an opportunity for States to reduce their review burden, although most States currently employ stricter rate review standards and may continue to do so. Additionally, increasing the Federal default threshold for review will reduce burden for issuers. After an analysis of all rates subject to review that were determined to be “unreasonable” since the inception of the review threshold, only one filing with this determination has fallen between the 10 to 15 percent range. For these reasons, we do not believe this change will normalize excessive increases.

We are not lowering the threshold to 6 percent, as doing so may increase the burden on issuers and States. We are not establishing two thresholds (one at the product level and one at the plan level). When determining whether an increase is subject to review, rate increases are calculated at the plan level. That ensures that a plan that experiences a significant rate increase does not avoid review simply because the average increase for the product did not meet or exceed the applicable threshold. Because consumers are affected by rate increases at the plan level, we believe that increases for the plan, not the product, should continue to be the trigger for determining whether an increase is subject to review.

We expect the change to have a minimal impact on transparency. All issuers must continue to 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 continue to submit an actuarial memorandum (Part III of the Rate Filing Justification). We are finalizing the proposal to change the Federal default review threshold to 15 percent beginning with single risk pool rate filings submitted by issuers for plan or policy years beginning on or after January 1, 2019.

Comment: Some commenters opposed CMS requiring submission of a proposal (and posting of that proposal) only if the State-specific threshold is higher than the Federal default threshold.

Response: The Federal review threshold is a minimum standard. States are able to apply a stricter standard, and many already do. Because States that apply a lower threshold meet the Federal minimum standard, we do not believe it is necessary or appropriate to require those States to submit a proposal to CMS. Therefore, we are finalizing the proposed changes to § 154.200(a)(2) with the following modification: We added language to clarify that these State proposals must be submitted in the form and manner specified by the Secretary. CMS will only require a proposal from States requesting a higher threshold. States that impose stricter standards will communicate those standards to their issuers as they currently do with many other aspects of State-specific requirements. CMS will post information from States that request a threshold higher than 15 percent and will issue further guidance on the process for submission and review of such State requests.

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 and 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 proposed 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. We are finalizing the change as proposed.

Comment: Some commenters opposed CMS's use of the Freedom of Information Act and requested issuer information be provided without any redaction.

Response: We proposed and are finalizing a technical correction to the regulatory reference. We did not propose any change to our interpretation of a trade secret and confidential commercial or financial information. The issuer may submit a redacted actuarial memorandum, but CMS does not make any redaction beyond what is submitted in the rate filing.

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. We have interpreted that section to require submission of all rate filings, for both QHPs and non-QHPs, at a uniform time.[40] We proposed to allow a State to set a later submission deadline for issuers who offer non-QHPs only, starting with the 2019 plan year. We are finalizing the change as proposed.

Comment: Some commenters expressed concern that the proposal provides an advantage to issuers offering only non-QHPs and may provide an opportunity for competitors to shadow price. Many commenters supported the proposal, in order to reduce State burden.

Response: We are finalizing the proposal. We remind issuers that offer both QHPs and non-QHPs in a market in a given State to submit its rate filing Start Printed Page 16974in accordance with the deadlines established for QHPs to support regulatory review of compliance with the single risk pool requirement. Establishing a later submission deadline for issuers that offer only non-QHPs is a State option, not a requirement. We believe it will reduce burden while empowering States to pick the timeframe that works best for their markets, and also accounts for market differences between States. We also remind States and issuers that even if the submission deadlines differ; all information must be submitted to CMS by the earlier of the State deadline or the Federal deadline. We also remind States and issuers that only submission deadlines may vary; uniform posting will still be required, as discussed below, to help mitigate the potential for shadow pricing and other anti-competitive behaviors.

5. Determinations of Effective Rate Review Programs (§ 154.301)

a. State Posting of Rate Increases

We proposed to modify § 154.301(b)(2), by reducing the advance notification required, so that a State with an Effective Rate Review Program must notify us in writing, no later than 5 business 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 are finalizing this change as proposed.

Comment: The majority of commenters supported this proposal. Some commenters requested that CMS require States to inform issuers prior to posting. Some commenters requested that CMS require States to post rate filing information on State websites even if the information is also posted on CMS's website. Two commenters opposed the proposal because they interpreted the proposal as a reduction to the public's opportunity to review and comment.

Response: We appreciate the importance of State communication with issuers, and we expect States to maintain satisfactory communication regarding posting deadlines to issuers, but decline to propose requirements related to such. We also did not propose and are not making changes to the requirements regarding States posting on their own website. States are permitted to use CMS's website because we are mindful of the burden and cost associated with such posting, but we encourage States to consider posting rate filing information directly on their respective websites, while also providing a link to the CMS website. We are finalizing the proposal. This change will reduce the amount of time prior to posting that the State must notify CMS, but does not reduce the public comment period.

b. Posting of Rate Increases

Section 154.301(b)(3) 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.

We proposed to eliminate the requirement for uniform posting so that States that have an Effective Rate Review Program would have the option to post proposed and final rate filing information on a rolling basis. We are not finalizing this proposal.

Comment: A few commenters supported the proposal, but the majority of commenters opposed the proposal, noting that uniform posting protects issuers from shadow pricing and ensures a level playing field in a fair competitive market. Those commenters were also concerned that posting on a rolling basis may promote manipulation by some market competitors, and could inadvertently contribute to market destabilization.

Response: We proposed to give States the option to post rate increase information on a rolling basis in order to accommodate a few States that have laws requiring immediate posting upon receipt. We did not receive overwhelming support for that change, as only two States supported it; the majority of commenters opposed the change. We agree with commenters' concerns that removing the requirement for uniform posting could have unintended, negative effects on competition in the markets. Some commenters also feared that posting on a rolling basis could cause confusion among consumers, and eliminate the likelihood of consumers easily comparing a rate increase across all products. We do not want to provide unfair advantages to issuers that file later in the filing season, or contribute to consumer confusion. Therefore, we are not finalizing the proposal. We are retaining § 154.301(b)(3) as it exists in our current regulations to require that a State with an Effective Rate Review Program ensure that the information in § 154.301(b)(1)(i) and (ii) 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.

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.

As noted in the proposed rule, 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 noted 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 finalizing our proposal to not specify any standardized options for the 2019 benefit year, and not to provide differential display for standardized options on HealthCare.gov. Agents, brokers, and issuers that assist consumers with QHP selection and enrollment as described in § 155.220(c)(3) and § 156.265(b), respectively, are also not required to provide differential display for standardized options on those third-party websites. We are finalizing the policies on standardized options as proposed.

Comment: Many commenters supported the proposed policy to discontinue standardized options for the 2019 plan year. Commenters noted that they believed standardized options Start Printed Page 16975stifled issuers' ability to develop innovative plan designs. Commenters also noted that because of the differential display, issuers may have offered and consumers may have purchased HHS-designed plans that did not best meet consumers' needs. Other commenters noted that consumers may have mistakenly thought that standardized options were superior to other plans; and that other tools, such as AV, EHB, and other HealthCare.gov plan filters were sufficient in assisting consumers in selecting and comparing plans. Other commenters questioned the benefits of standardized options.

Many other commenters supported HHS continuing to specify standardized options, noting that they are a useful consumer-support tool that aids in plan comparisons and selection and that withdrawing the standardized options could create confusion for consumers, especially those with low health literacy or certain health conditions. Others noted that removing the standardized option designation could make plan selection more difficult resulting in fewer people enrolling in QHPs.

Some commenters noted that the standardized cost sharing encourages issuers to innovate on other plan features and encourages issuers to compete on networks and formularies. Other commenters noted that the standardized plan designs ensure offerings had certain desirable features, such as fewer specialty drug tiers and first dollar coverage. Commenters noted that standardized options were voluntary and therefore could not stifle innovation. Another commenter noted that removing standardized options could result in issuers designing plans specifically for a healthy population. Another commenter supported making standardized options mandatory and expanding to include SADPs.

Response: As we noted in the proposed rule, we believe that not specifying standardized options for the 2019 plan year will remove disincentives for issuers to offer coverage with innovative plan designs. We agree that issuers are in the best position to design and offer innovative plan designs. We are similarly finalizing the removal of the differential display of standardized options.

As we noted in the 2017 Payment Notice final rule,[41] we designed the standardized options to be as similar as possible to the most popular (weighted by enrollment) QHPs in the FFEs in order to minimize market disruption and impact on premiums. Consequently, we believe that the plan design features, such as annual limitations on cost sharing and deductibles, previously specified as part of standardized options are mostly available to consumers in FFEs. Therefore, we do not believe it is necessary to mandate or otherwise further provide an incentive for issuers to offer plans that meet the characteristics of standardized options.

We agree with commenters that HealthCare.gov plan filters for other tools are sufficient to enable most consumers to make plan selections. However, we continue to explore strategies to make shopping on HealthCare.gov as easy as possible, and to better support consumers in choosing coverage that is best for them. Consumers are able to select a QHP based on metal level, and are generally offered coverage of a similar set of essential health benefits. We agree with commenters that certain populations with specific health conditions may not purchase a QHP that best meets their needs if they merely select based on a standardized option designation. Standardized options offer simple plan comparisons at a high level to assess comparability on cost sharing of certain services. However, consumers with specific health conditions may be better served by a different QHP that provides benefits better suited for their individual needs. By removing standardized options, we are mitigating the risk that consumers with special coverage needs choose a standardized option plan that may not provide the optimal mix of cost-sharing protections, benefits, and networks for their situation. We believe these benefits outweigh any potential additional difficulty in selecting a QHP that could result from the elimination of the standardized option designation.

For these reasons we are finalizing the policy as proposed.

Comment: One commenter requested clarification that if the proposal is finalized as proposed standardized options would not appear on HealthCare.gov or be designated in public use files. Another commenter requested that HHS release data related to standardized options offerings and enrollment publicly prior to making a decision about ceasing to specify standardized options.

Response: The proposal is being finalized as proposed. Therefore standardized options will not display as “Simple Choice Plans” on HealthCare.gov, nor will information be collected and reported in public use files for the 2019 benefit year. We have previously released data regarding standardized options offerings in public use files. We believe releasing data regarding recent enrollment in standardized options could cause competitive harm to issuers, but intend to continue to release historical enrollment data for all QHPs, including standardized options, in the future.

Commenter: A commenter noted that standardized options assist States in Federal and State review, certification, and oversight.

Response: States have previously been able to complete QHP certification, review, and oversight for issuers that are not offering standardized options, and therefore, we believe that they will be able to continue doing so without relying on standardized options.

2. General Standards Related to the Establishment of an Exchange

a. Flexibility for State Exchanges and State Exchanges on the Federal Platform (§ 155.106 and § 155.200)

While the PPACA allowed each State to operate its own State Exchange, 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 State Exchanges by providing opportunities for increased program flexibilities to help support the retention and financial self-sustainability of States that adopted the SBE model. In particular, we sought comment on how HHS can best support State Exchange 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 proposed 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 State Exchanges 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 information technology eligibility and enrollment platform. Accordingly, we seek to explore options for streamlining current requirements and leveraging private sector and Federal platform Start Printed Page 16976technologies and advances to increase opportunities for those States interested in remaining or becoming SBE-FPs. We also intend to continue to explore areas where current authority, technology, and operational capacities would permit HHS to provide additional options in operational functions to SBE-FPs and provide SBE-FPs with a greater role in decision-making. We sought comment on ways to strengthen and enhance the SBE-FP model.

Comment: Several commenters supported further actions by HHS to allow SBE-FPs greater access to enrollment data and consumer assistance tools, and supported efforts to customize the Federal platform to meet SBE-FP needs. Other commenters encouraged HHS to lower or eliminate the SBE-FP user fee, increase predictability of the user fee, or to tailor the user fee to an Exchange based on use of certain Federal platform options. One commenter proposed HHS consider new Federal grant funding for State Exchanges to purchase commercial technology platforms, while others requested HHS reduce market uncertainty and further streamline eligibility verification requirements to support the success of SBEs. Another commenter requested that HHS promote regional State Exchanges to mitigate financial sustainability challenges faced by smaller States. Several commenters encouraged the use of direct enrollment and enhanced direct enrollment capabilities and private and Federal platform technologies by State Exchanges and SBE-FPs. One commenter suggested State Exchanges consolidate into a single entity utilizing Federal platform technology while enabling private partnerships and non-profit entities to perform consumer facing functions. Two commenters suggested the Federal platform include functionality to support independent enrollment in dental plans in SBE-FPs.

Other commenters supported the concepts of innovation and increased customization of the Federal platform, but suggested HHS prioritize improvements to the overall HealthCare.gov system infrastructure before focusing on State-specific enhancements to HealthCare.gov. Some commenters emphasized the need for guardrails to protect patients and consumers as HHS explores flexibilities and innovations in Exchange models. One commenter expressed concern that HHS's support for expanding the SBE-FP model signaled an intent to reduce Federal support for small population States and requested assurance the FFE would continue to be available for small States.

Response: We appreciate the comments, and will consider them as we continue to explore incentives and program flexibilities for the SBE and SBE-FP models. The SBE-FP model was intended to improve States' ability to operate efficient Exchanges by providing the option for State Exchanges to agree to rely on the Federal eligibility and enrollment platform and information technology infrastructure to carry out certain functions in order for the State to fulfill requirements as a State Exchange. We continue to explore ways to make this a more appealing option to States that currently have FFEs. In 2017, at the request of the SBE-FPs, we shared new data with the SBE-FPs to enhance their consumer outreach functions, customer relationships, and fiscal planning activities. HHS intends to continue to enhance these data-sharing efforts with SBE-FPs to support their ability to fulfill their responsibilities. However, at this time, HHS is unable to offer a menu of Federal platform functionalities to an SBE-FP. Likewise, at this time, HHS is unable to offer State-specific customization of the Federal platform agreement, but will continue engaging with SBE-FPs to refine the agreement. We also note that § 155.140 permits States to participate in regional Exchanges spanning two or more States. This allows States interested in operating State Exchanges to partner with each other and leverage economies of scale by sharing a common information technology infrastructure or platform, and HHS encourages States to explore this as an option. States that are interested in this option would need to obtain HHS approval to operate as a regional Exchange, fulfill the requirements under § 155.140, and meet the functional requirements in 45 CFR part 155 that are applicable to States who wish to operate their own SBE. We also note that HHS has provided the authority and flexibility for SBEs to utilize the direct enrollment pathway as an alternative option for enrolling consumers into SBEs. HHS continues to encourage SBEs and SBE-FPs to explore this option in the context of evaluating options that best suit the needs of their Exchange, State, and consumers.

b. Election To Operate an Exchange After 2014 (§ 155.106)

Section 155.106 describes the process for a State electing to operate a State Exchange, terminating its State Exchange and transitioning to an FFE, or 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 functions.

As discussed more fully in section III.D.9 of this final rule, we proposed changes to required SHOP functionality, effective on the effective date of this rule, 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. As a result of the finalization of these proposals, many Federal platform functions currently available to a State operating an SBE-FP for SHOP will no longer exist, including employee eligibility, enrollment, and premium aggregation functions. Therefore, States operating an SBE-FP for SHOP will no longer be able to utilize the Federal platform for those functions.

We proposed 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 this rule, and are finalizing the policy as proposed. Nonetheless, States that are currently operating an SBE-FP for SHOP, which include Kentucky and Nevada, can choose to maintain their existing SBE-FPs for SHOP, using the Federal platform functionality that would remain, subject to the applicable requirements in § 155.200(f)(4), which we are amending to align with the changes to SHOP functionality requirements. Issuers in these SBE-FPs for SHOP will continue to be subject to § 156.350, which we are amending to align with the 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.

Comment: One commenter suggested HHS should consider continuing to permit States to elect to operate as an SBE-FP for SHOP, to increase the type of Exchange models available to States. Otherwise, we did not receive substantive comments regarding the proposed changes to § 155.106.

Response: As described above, as a result of the finalization of the SHOP proposals described in this rule, the SHOP Federal platform currently available to a State operating an SBE-FP for SHOP will essentially no longer exist, including the Federal platform functions of employee eligibility, enrollment, and premium aggregation Start Printed Page 16977on which SBE-FPs for SHOP currently rely. Therefore, States operating an SBE-FP for SHOP will no longer have an option to rely on the Federal platform for those functions. We are finalizing the policy as proposed, with a minor, non-substantive change to the regulatory text.

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 QHP issuers in a State must calculate the cost of those benefits.[42]

We made a number of proposals at § 156.111 related to State changes to EHB-benchmark plans beginning for the 2019 plan year. In light of those proposed changes, we stated that we were not proposing any changes to the policies governing State-required benefits at § 155.170. That is, whether a benefit mandated by State action could be considered EHB would continue to depend on when the State enacted the mandate (unless the benefit mandated was for the purposes of compliance with Federal requirements). Under any of the proposed methods for a State to select a new EHB-benchmark plan, benefits mandated by a State action prior to or on December 31, 2011 would be considered EHB in that State 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 even if embedded in the State's newly selected EHB-benchmark plan under the proposals at § 156.111. Therefore, their costs would be required to be defrayed by the State.

As discussed more fully in the preamble for § 156.111, we proposed 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 EHB-benchmark plan, would not remove the obligations required with regard to maximum allowed generosity for a State's EHB-benchmark plan. For further discussion of how the State mandate policy at § 155.170 would apply to EHB under the proposals at § 156.111 providing States with options to select a new EHB-benchmark plan for plan years beginning in 2020 and later, see the preamble to § 156.111.

We sought comments on this approach. Specifically, we were interested in comments on different applications of the State mandate policy to the proposed policy for EHB-benchmark plan selections at § 156.111 that would increase State flexibility while also being cost effective for States, consumers, and the Federal government, such as an approach that would allow States the flexibility to update benefits mandated by State action prior to or on December 31, 2011, that are considered EHB, so long as the State can prove that the update to the State mandate is budget neutral.

In this final rule, we are finalizing the approach described above of not making changes to the policy under § 155.170.

Comment: Many commenters requested changes to the policies governing State-required benefits at § 155.170 in light of new EHB-benchmark plan selection options established at § 156.111. Some of these commenters were concerned about States selecting a more generous benchmark plan under the proposed options at § 156.111(a) that could reduce affordability by allowing the selecting State to include another State's mandates in its benchmark plan and thereby allow the selecting State to indirectly adopt another State's mandates without defrayal. These commenters recommended that States be required to defray the costs of any additional required benefits that result from the selection of a new EHB-benchmark plan if those benefits are more generous than the State's previous EHB-benchmark plan, regardless of whether the additional benefits were put in place by the newly-selected EHB-benchmark plan or were the result of benefits mandated by State action in the selecting State. Other commenters were concerned that the current policy of requiring States to defray the costs of State-required benefits mandated after December 31, 2011, other than for purposes of compliance with Federal requirements, would prevent States from updating benefits in response to medical advances and their population's changing needs. These commenters requested that HHS create a public process for States to consider new State-required benefits as EHB without additional cost to the State. Other commenters opposed requiring States to defray mandated benefits at all, because the policy discourages States from ensuring access to key health care services for consumers—such as autism and opioid dependency disorder services. Several commenters supported the proposal to maintain the policies at § 155.170, noting that section 1302(b)(4)(H) of the PPACA grants the Secretary flexibility to update EHB benefit categories as it becomes necessary to do so. Other commenters believed that a stricter standard regarding defrayal is needed to ensure that States comply with the current defrayal requirement at § 155.170, and to ensure that a sufficient defrayal requirement is in place based on new State EHB-benchmark plan selection options at § 156.111.

Response: We understand the importance of benefit mandates to States under the policies described above. With the finalization of the State's new EHB-benchmark plan options at § 156.111, States will continue to have the authority to implement benefit mandates as part of EHB, in accordance with § 155.170.

Specifically, if a State selects a new EHB-benchmark plan under any of the options finalized in this rule at § 156.111, the benefits mandated by the selecting State's action prior to or on December 31, 2011 will continue to be considered EHB and will not be subject to defrayal, in accordance with § 155.170. If the State is selecting from another State's EHB-benchmark plan under the first or second option, as discussed in preamble to § 156.111, and the selected EHB-benchmark plan (or category of services) includes benefits mandated by the State from which the plan originated that are EHB, those benefits will also be incorporated into the selecting State's EHB-benchmark plan without a requirement that the selecting State defray their related costs, unless the selecting State has its own mandates regarding these same benefits and those mandates meet the requirements for defrayal in § 155.170.

Relatedly, our decision to maintain the policies governing State-required benefits at § 155.170 is motivated by our goal to provide States with more flexibility and reduce administrative burden for selecting a new EHB-benchmark plan under Option 1 or 2 described in § 156.111. Specifically, we believe that many benefits that are State mandates are likely already embedded Start Printed Page 16978in States' existing 2017 EHB-benchmark plans, and removing them would be complicated for a selecting State. In particular, we are concerned that this additional level of effort would create a barrier to States trying to select another State's 2017 EHB-benchmark plan under Options 1 or 2 being finalized at § 156.111(a)(1) and (2), particularly when several types of benefits mandated by State action overlap with one of the ten EHB categories. More specifically, because benefits mandated by State action are generally EHB if the mandates were enacted on or before December 31, 2011, and the 2017 EHB-benchmark plans that are used for the options under § 156.111 are based on base-benchmark plans that were available in 2014, we believe that the majority of benefits mandated by State action that are EHB in accordance with § 155.170 are already embedded in the originating State's EHB-benchmark plan documents.

We also note that we are finalizing that all options for a State to select a new EHB-benchmark plan described in § 156.111 are limited by a generosity standard. This generosity standard will limit the State's ability to increase the overall scope of benefits in its EHB-benchmark plan beyond the generosity of a set of comparison plans that includes a State's 2017 EHB-benchmark plan and any of the State's base-benchmark plan options for the 2017 plan year described in § 156.100(a)(1), supplemented as necessary under § 156.110. In practice, this requirement limits States' overall ability to select a new EHB-benchmark plan that transfers benefits that were previously only applied to the State's large group market, or that were mandated by other States' actions prior to 2012, into its new EHB-benchmark plan. As a result, we believe that this approach balances our goal to promote State flexibility with the need to preserve coverage affordability. For additional discussion on considerations related to § 155.170 for States that select a new EHB-benchmark plan using an option described at § 156.111, see the preamble to section § 156.111.

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 proposed 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 proposed that the SBE-FPs, like other State Exchanges, would have the flexibility to determine how to implement the network adequacy and essential community provider (ECP) 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 than 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 proposed 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 will 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 are finalizing these changes as proposed.

We also proposed 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 removal of § 156.298 described elsewhere in this rule. We are finalizing this change as proposed.

Comment: Several commenters opposed eliminating requirements for SBE-FPs to enforce FFE standards for network adequacy at § 155.200(f)(2)(ii) and ECPs at § 155.200(f)(2)(iii) for the 2019 benefit year and beyond. They urged HHS to continue requiring SBE-FPs to enforce these FFE standards, stating that some State Exchanges that do not currently use the Federal platform have adopted less robust network adequacy and ECP standards, which are critical to providing access to providers that serve vulnerable populations. Other commenters supported this proposal if the States have an adequate review process, and encouraged HHS to monitor State oversight of networks to ensure that the States in fact have the capacity to ensure health plan compliance. Other commenters supported this proposal, stating that they believe networks are best developed and regulated at the State level to allow for variations in State geography, demographics, and market conditions.

Response: We are finalizing the proposal to remove the requirement that SBE-FPs establish and oversee requirements for their issuers that are no less strict than the manner in which these regulatory requirements are applied to FFE issuers. We believe SBE-FPs are best positioned to determine these standards for the QHP certification process in their States, and elimination of this requirement would streamline certain aspects of the QHP certification process by reducing oversight burden on SBE-FPs.

Section 155.200(f)(4) describes requirements for States that operate an SBE-FP for SHOP. As discussed earlier in this preamble, although we proposed that States can no longer elect to operate SBE-FPs for SHOP after the effective date of this rule, which we are finalizing as proposed, Kentucky and Nevada are already approved to operate SBE-FPs for SHOP, and thus the requirements in § 155.200(f)(4) remain relevant for those SBE-FPs for SHOP. Therefore, we proposed to amend § 155.200(f)(4) to reflect the proposed amendments (described in section III.D.9 of this final 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 proposed to amend the introductory text to § 155.200(f)(4) to describe the requirement applicable, effective on the effective date of this rule 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 this rule applicable for only plan years beginning prior to January 1, 2018.

Specifically 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 this rule. Because under our amendments to § 155.705 and newly finalized § 155.706, for plan years beginning on or after January 1, 2018, the Federal platform for SHOP will no longer calculate premium rates or employer contributions, and will no longer aggregate premium payments (as of the effective date of the final rule), Start Printed Page 16979there will be no further need for such alignment for plan years beginning on or after January 1, 2018.

Because under the approach we are finalizing, the Federal platform will continue to include plan display with premium amounts, we did 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 proposed 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 this rule.

Additionally, because under the approach we are finalizing, for plan years beginning on or after January 1, 2018, the Federal platform will, effective on the effective date of this rule no longer calculate whether a qualified employer has met the applicable minimum participation rate, there will 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. Therefore, we proposed that this requirement would only apply for plan years beginning prior to January 1, 2018, effective on the effective date of this rule.

To align with our amendments at § 155.725 and newly finalized § 155.726, under which the FF-SHOPs, effective on the effective date of this rule, for plan years beginning on or after January 1, 2018, will no longer establish annual employee open enrollment periods, or establish effective dates of coverage for an initial group enrollment or group renewal, we also proposed 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 this rule. Finally, to align with our amendments at § 155.735, under which the FF-SHOP, effective on the effective date of this rule for plan years beginning on or after January 1, 2018, will no longer determine the timing, form, and manner in which coverage or enrollment in a SHOP QHP may be terminated, we proposed 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 this rule.

We are finalizing as proposed the changes to § 155.200. Substantive comments related to SHOP proposals are summarized in section III.D.9 of this final rule.

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 PTCs 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 proposed 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. As discussed further below, we are finalizing this amendment as proposed. We believe removing these requirements will provide Exchanges with improved flexibility to award funding to the number and type of entities that will be most effective for the specific Exchange. We believe that eliminating the requirement to have at least two Navigator entities will allow each Exchange to optimally use the funding amounts available to direct investments to effective and efficient Navigators, 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, particularly in an Exchange that opts under this final rule to have only one Navigator grantee and where the strongest applicant is not a community and consumer-focused nonprofit group. Keeping this requirement would effectively exclude any other type of statutorily eligible entities from becoming Navigators in an Exchange that opts to have only one Navigator grantee. Eliminating this requirement will 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) will also promote Exchange flexibility and autonomy to structure Navigator programs tailored to each Exchange. An Exchange could award a grant to a single Navigator entity from any of the permitted types. Alternatively, Exchanges could elect to continue awarding two or more grants, as they have been doing thus far, and include a community and consumer-focused nonprofit group among those grantees.

Section 155.210(e)(7) requires each Navigator entity to maintain a physical presence in the Exchange service area, so that face-to-face assistance can be provided to applicants and enrollees. We proposed to remove this requirement to provide more flexibility to each Exchange to structure its Navigator program to best serve the Exchange service area, and as discussed further below, are finalizing this amendment as proposed. 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 strong relationships in their FFE service areas tend to deliver the most effective outreach and enrollment Start Printed Page 16980results. However, we believe that each Exchange is best suited to determine 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 the PPACA and § 155.210(c)(1)(ii).

For reasons similar to those motivating our proposed changes to § 155.210(e)(7), as well as to promote consistency across programs, we proposed to remove the corresponding requirement at § 155.215(h) that requires maintenance of a physical presence in the Exchange service area by all non-Navigator entities subject to § 155.215. We are also finalizing this amendment as proposed.

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 did not propose to amend or remove that language, and it will remain in effect.

In addition to seeking comment on the proposed amendments described above, we also sought comment on statutorily acceptable alternative types of entities that could serve as Navigators and on possible new ways in which Navigators could carry out their duties.

Comment: We received comments in support of removing the requirement that each Exchange must have at least two Navigator entities. Several commenters believed that adopting this change could assist HHS with ensuring that Navigator grants are expended efficiently and effectively. Many commenters, however, expressed concern about reducing the number of required Navigator entities per Exchange, conveying that removing this requirement could potentially negatively affect consumer access to in-person assistance, and therefore make it harder for consumers to understand their coverage options and enroll in health coverage. Several commenters suggested that having two Navigator entities per Exchange ensures that an Exchange can have a general entity and one more tailored to specific needs within an Exchange, such as a focus on young adults, limited English proficient individuals, or other targeted populations.

Response: We agree with commenters who stated that removing these requirements will provide Exchanges with improved flexibility to award funding to the number and type of entities that would be most effective for each specific Exchange. We appreciate the importance of consumer access to experienced, in-person assistance, and believe this change will allow each Exchange to optimally use available funding amounts, such as by selecting a single, high-performing grantee in an Exchange. In this way, we do not believe this change will have a detrimental effect on the availability of professional, unbiased, in-person consumer assistance. Additionally, the proposal does not require an Exchange to have only one Navigator. It simply provides Exchanges with that option. We are finalizing this change as proposed.

Comment: We received comments in support of removing the requirement that each Exchange must have one Navigator entity that is a community and consumer-focused nonprofit. Several of these commenters supported HHS's promotion of Exchange flexibility with this change. However, many commenters expressed concern about removing this requirement, conveying that Navigators, and in particular independent, nonprofit Navigators, have proven to be a critical resource for helping consumers enroll in coverage that is appropriate for their needs in previous enrollment periods. Many commenters stated that nonprofit Navigator entities are unique among other types of Navigator groups because they typically have expertise with one or more hard-to-reach populations within their communities, such as veterans, limited English proficiency individuals, or other targeted populations, and have the trust of many community members. In addition, commenters suggested that this requirement was initially added to address concerns about fraud, abuse, and the difficulty that Exchanges faced overseeing other types of Navigator entities.

Response: We agree with commenters who emphasized the importance of funding nonprofit Navigator entities, and also agree that nonprofit Navigator entities often have expertise with one or more hard-to-reach populations within their communities. Nothing in this rule prevents an Exchange from selecting and funding a nonprofit Navigator entity if it determines that such an entity best meets the needs of the community served by the Exchange. However, we also recognize that there are circumstances in which another type of entity may be the strongest applicant. In these cases, an Exchange that chooses to have only one Navigator grantee (as permitted by the change finalized in this rule), would be unable to select its strongest applicant absent a change to the requirement that one Navigator grantee in each Exchange must be a community and consumer-focused nonprofit group. We also agree with commenters that removing this requirement will support Exchange flexibility and autonomy to structure Navigator programs tailored to each Exchange and target grants to the highest scoring and performing entities, regardless of organization type. We believe that Exchanges are well-situated to determine the proper use of the funding amounts available and are able to determine the type of entity or entities that will serve their Exchange service areas best. We are finalizing this change as proposed.

Comment: We received comments in support of removing the standard requiring Navigators to maintain a physical presence in the Exchange service area. Several commenters believed that removing this requirement will provide Exchanges with greater flexibility and enable them to expand options for consumer support. On the other hand, many commenters believed that entities not physically present in an Exchange service area may not be able to provide a full spectrum of local outreach, education, and assistance to support enrollment and post-enrollment activities. Many commenters suggested that removing this requirement would negatively affect hard-to-reach populations, as the in-person assistance provided by Navigator entities is often the only known resource and form of support for some low-income and other at-risk populations. In addition, some commenters believe that web or phone-based assistance is a poor substitute for in-person assistance delivered by a known and trusted community-based organization, and that this is particularly true for those living with significant health needs for whom remote assistance may prove inadequate and frustrating.

Response: We agree with commenters who emphasized the importance of providing more flexibility to each Exchange to structure its Navigator program to best serve the Exchange's service area. As we stated in the proposed rule, we believe that entities with a physical presence and strong relationships in their FFE service areas tend to deliver the most effective outreach and enrollment results. Nothing in this final rule prevents an Exchange from selecting grantees that are physically present and available to provide a spectrum of in-person, local outreach, education, and assistance, including directing these services Start Printed Page 16981towards vulnerable and hard-to-reach populations, if the Exchange elects to weight its selection process in that way and its selection process is consistent with section 1311(i)(2)(A) of PPACA and § 155.210(c)(1)(ii). Furthermore, we believe that there are various organizations that might prove to be promising partners in the delivery of both local and remote consumer assistance with regard to health coverage enrollment and education. While in-person assistance may be more helpful than remote services in some situations, we believe that determining which entities are well-situated to serve consumers within a particular Exchange is best left up to each Exchange. By allowing Exchanges greater flexibility, each Exchange will be better able to ensure that its service area can be assisted by the entity or entities that best fits the needs of its population. We are finalizing this change as proposed.

Comment: We received comments about the potential use of other entities to provide enrollment assistance or remote services to consumers, beyond Navigator entities. Some commenters conveyed that other types of organizations are well-situated to provide enrollment assistance, such as local agents and brokers and direct enrollment partners. Some commenters believe that an approach to consumer assistance that leverages experts from different types of organizations that have strong ties to the community is a comprehensive way to provide consumers with the best available expertise.

Response: We agree that local collaboration and leveraging community partnerships can help in reaching marginalized communities. For FFEs, we will take these comments into consideration when drafting Navigator selection criteria for Navigator funding opportunity announcements in future years. While agents, brokers, and direct enrollment partners might in many cases not be eligible to become Navigators due to statutory limitations on Navigator eligibility at section 1311(i)(4) of PPACA, we also agree that agents, brokers, and direct enrollment partners can be well situated to provide enrollment assistance or remote services to consumers, and we intend to continue to work with these stakeholders to ensure consumers in FFEs have access to a range of enrollment assistance, including Navigators.

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 final 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)

HHS proposed new standards in the proposed rule to replace the standards set forth in the 2018 Payment Notice for § 155.221 for third-party onboarding operational readiness reviews and audits for direct enrollment partners. HHS also proposed 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 proposed a conforming edit to § 156.1230(b)(2) to reflect this proposal.

HHS proposed to implement an approach wherein agents, brokers, and issuers that participate in direct enrollment and use their own internet website 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. As detailed in the proposed rule, HHS anticipates this approach would reduce the regulatory burden for agents, brokers, and issuers, and reduce duplicative HHS oversight. This approach will also reduce the burden on third-party entity reviewers.

Beginning with the open enrollment period for the 2019 benefit year, we proposed that an agent, broker, or issuer must 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 HHS-defined specifications and 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 website 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. As outlined in the last sentence of the new § 155.221(a), 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 will remain responsible for compliance with all applicable direct enrollment requirements.

We also proposed revisions to § 155.221(b), which establishes 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), beginning with the open enrollment period for the 2019 benefit year. The proposed new introductory language at § 155.221(b) aligns with the new approach where the agent, broker, or issuer selects the third-party entity to perform the audit under paragraph (a). As proposed, new § 155.221(b)(1) would 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. We proposed that auditors must also be capable of performing penetration testing on all interfaces that collect personally identifiable information or connect with HHS. We proposed to modify § 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, website design, or consumer disclosures). Under proposed § 155.221(b)(3), auditors would be required to collect, store, and share with HHS all data related to its audits of Start Printed Page 16982agents, brokers, and issuers under paragraph (a) in a manner, format, and frequency specified by HHS until 10 years from the date of creation, and would be required to comply with the privacy and security standards HHS adopts for agents, brokers, and issuers as required in accordance with § 155.260.

The proposed revisions to paragraph (b)(4) would 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. In addition, the third-party entity would be required, under § 155.221(b)(5), to comply with all applicable Federal and State requirements; under § 155.221(b)(6), 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; and, under § 155.221(b)(7), to permit access by the Secretary and the Office of the Inspector General (OIG), or their designees, in connection with their right to evaluate through audit, inspection, or other means, to the third-party entity's books, contracts, computers, or other electronic systems, relating to the third-party entity's audits of agents, broker's, or issuer's obligations in accordance with Federal standards under paragraph (a) of this section until 10 years from the date of creation. Finally, to provide flexibility, under § 155.221(c) an agent, broker, or issuer would be permitted to engage multiple third-party entities to perform the audits under paragraph (a) and each such third-party entity would need to separately comply with the standards under paragraph (b). We are finalizing these amendments as proposed, with a minor, non-substantive change described below.

Comment: Most commenters were concerned that enrollment through a non-governmental site would occur without proper oversight and controls. They expressed concern about the potential for fraud, or the possibility that agents, brokers, and issuers would unfairly direct consumers to QHPs with which the agent, broker, or issuer, had an existing relationship. Additionally, a number of commenters were concerned about the potential for conflicts of interest arising from relationships between the agents, brokers, and issuers and the third-party auditors they select to conduct their audits.

Response: We are finalizing the modifications to § 155.221 as proposed, with a minor non-substantive edit to paragraph (b)(7) to remove the acronym “OIG”. We have put in place guidelines and processes to oversee the activities of agents, brokers, and issuers participating in direct enrollment, and anticipate continuing to monitor enrollments through the direct enrollment pathway for evidence of fraud or abuse. While we acknowledge the potential for conflicts of interest, we believe the required disclosures, continuous monitoring and oversight, and standards established for third-party auditors will sufficiently mitigate these concerns. Furthermore, we believe the requirements being finalized in this rule will ensure that quality operational readiness reviews are conducted. Lastly, we agree that it is important that consumers enrolling using direct enrollment be able to make informed decisions about coverage. We believe § 155.220, which establishes standards that apply when Exchange consumers select an individual market QHP through an agent's or broker's website, including a requirement that agents and brokers engaged in direct enrollment display all QHP data provided by the Exchange, will help promote informed consumer choice about all available QHPs, not just those with which the agent or broker has an existing relationship.

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 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 used 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 paid on their behalf that year. Under the current regulation at paragraph (f)(4)(ii), Exchanges cannot discontinue APTC due to a failure to file and reconcile (FTR) 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 proposed 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).

We are finalizing this policy as proposed.

Comment: Nearly all commenters on this issue expressed concern that relying on a notice that is not explicit to inform consumers that APTC eligibility may be discontinued—without giving consumers the specific reason and clearly instructing them how to correct the issue—is insufficient to ensure those wishing to continue their eligibility have the necessary information to do so. A few commenters stated that FFE [43] notices are often difficult for consumers to understand, and consumers often bring their notices to assisters for help understanding them. One commenter stated that this confusion can be compounded for non-English or non-Spanish speakers, who often are unable to understand notices because they are unable to read them and may not take the notices to an enrollment assister or otherwise have the notice translated in time to take the appropriate action. One commenter recommended Exchanges send multiple notices regarding failure to file and reconcile to affected consumers and tax filers.

Response: We recognize that describing complex information about eligibility for APTC to consumers involves a complicated balance between providing complete and accurate information, and being clear and concise enough that the consumer is likely to read and understand the information. Understanding this information can be especially challenging for non-English speakers. Exchanges must notify consumers when they make eligibility determinations based on FTR, but rules on the disclosure of Federal tax information (FTI) present significant challenges in communicating with this population. Historically, all communications regarding FFE applicants and enrollees are addressed to the household contact, who in most cases is the tax filer for the applicants on the relevant application. Internal Revenue Service (IRS) rules generally prohibit the disclosure of FTI to anyone other than the tax filer, and FTI includes all information from a tax return, including information as to whether a tax return has been filed with IRS. Also considered FTI is any list that is generated based only on information that is FTI itself. For example, a list of consumers who have not filed a tax return is considered FTI. The FFE's current noticing infrastructure does not Start Printed Page 16983have FTI privacy safeguards built into its system to send notices to tax filers (as distinct from the household contact), to store notices in a manner compliant with required protections for FTI, or to establish user permissions for approved Exchange and Exchange contractor personnel only to access these notices for operationally necessary purposes, such as Call Center support, casework, or appeals.

To avoid unauthorized disclosure of FTI to individuals who are not the relevant tax filer, the FFE sends notices to FTR and non-FTR consumers that contain language regarding FTR, but also language that is broad enough to apply to all consumers who receive them; these notices are referred to as “combined notices.” For example, the FFE sends the same Marketplace Open Enrollment Notice to three groups of consumers at risk for APTC discontinuation in the upcoming coverage year: Those flagged as FTR, those for whom the FFE has received updated income information that suggests the consumers may have income too high to qualify for APTC, and those who did not permit the Exchange to check IRS data. Because the combined notices apply and are sent to some consumers who are currently unaffected by FTR, and not exclusively to individuals who are affected by FTR, these notices are not considered FTI under IRS rules and are able to be sent using the standard FFE notice functionality.

To supplement the combined notice, in November 2017, the FFE also mailed warning notices that complied with FTI rules to tax filers on whose behalf APTC was being paid but for whom the FFE had information the tax filer had not met the requirement to file and reconcile. These notices, which we refer to as “direct notices,” urged the tax filers to file and reconcile to avoid losing APTC starting in January 2018. To comply with FTI requirements, the direct notices were not generated by the FFE itself; rather, data was securely sent to an FTI-compliant print contractor for printing and mailing. In order to be FTI-compliant—including being accessible only to the tax filer—direct notices are not available through the online Exchange account for the application.

We intend for the FFE to continue sending two notices in advance of open enrollment where the Exchange has information that the tax filer on whose behalf APTC is being paid has failed to meet the requirement to file and reconcile: (1) A combined notice provided according to the communication preference set for the household contact (electronic or via U.S. mail) that will be available in consumers' online accounts and to the Exchange call center; and (2) a direct notice sent via U.S. mail to the tax filer that is not available electronically in the household's online account or to the Exchange call center, in order to protect FTI. The direct notice serves to unambiguously explain that the tax filer has been identified as having failed to meet the requirement to file and reconcile and must come into compliance to avoid termination of APTC. In 2018, the FFE will also send a combined notice and a direct notice in connection with its periodic check of tax data described in § 155.330(e)(2)(iii)(B). As commenters noted, we believe sending more than one notice may increase the likelihood that consumers identify and read the notices and ultimately take action.

Comment: Many commenters disagreed with our suggestion that a success rate of 60 percent of FFE household tax filers taking appropriate action to file and reconcile in response to the combined notices was sufficient and stated that 40 percent of households failing to take appropriate action demonstrates the lack of clarity the combined noticing approach creates among consumers.

Response: We agree that there is room for improvement on a success rate of 60 percent. We foresee this success rate rising as the Exchanges mature and consumers become more familiar with the requirement to file and reconcile, and as the FFE continues pairing the combined notices with direct notices to tax filers that more explicitly address the requirement to file and reconcile.

Comment: Many commenters were concerned that our proposal to remove § 155.305(f)(4)(ii) does not comply with constitutional due process rights—stating that when determining a tax filer ineligible to continue receiving APTC, Exchanges must issue a direct individual notice that contains a statement of the intended action, reasons for the action, specific legal support for the action, an explanation of the individual's hearing rights, and rights to representation and to continued benefits. They expressed concerns about consumer confusion given that neither the FFE's combined (non-FTI) notices nor follow-up through the call center can give consumers definitive guidance on their household tax filer's current tax filing status, whether they will be redetermined ineligible for APTC for the upcoming benefit year (and why), how to correct the problem, or how to challenge a redetermination of eligibility for APTC.

Response: We recognize there are limitations with the combined notices, which are unable to be explicit; however, this approach may be the only option available to many State Exchanges whose systems (including notice functionality) were not built for FTI compliance, and for which costly and time-consuming infrastructure upgrades are infeasible in the short term. As described previously, the FFE has begun mailing FTI-compliant direct notices to tax filers that contain a statement of the intended action, reasons for the action including regulatory support for the action, and an explanation of the individual's appeal rights if APTC is discontinued. While the FFE has been able to develop this workaround to provide FTI-compliant notices directly to tax filers, SBEs may have fewer options available to them. While some SBEs may be able to contract with the FFE's print contractor or another FTI-compliant contractor, we have heard that some are required to use only in-State contractors, which can create a significant barrier if there are no FTI-compliant contractors in the State.

We agree with commenters that it is important for all Exchanges to protect consumers' due process rights. Even in the case of an Exchange that cannot arrange to send direct notices that explicitly address FTR to the tax filer and that is limited to the combined notice approach, we believe there are adequate protections for due process. First, the tax filer still has an opportunity before the Exchange redetermines eligibility to file a tax return (or an amended tax return, as applicable) and reconcile APTC paid for the relevant benefit and tax year. We expect Exchanges to send appropriate notices to households affected by FTR that alert the tax filer that FTR may be the reason enrollees' eligibility for APTC is at risk. Second, for enrollees whose eligibility for APTC is terminated as a result of FTR, the enrollee will receive an updated eligibility determination notice that contains a full explanation of appeal rights. Enrollees who appeal may request to continue receiving financial assistance during the appeal, consistent with § 155.525. We believe these measures, including the option to maintain eligibility during an appeal, are consistent with due process.

Comment: Some commenters stated that tax filers have a property interest in the continued receipt of APTC for which they are eligible, and challenged our belief that the financial and operational burden for the Exchange of establishing a mechanism to notify tax filers without making an unauthorized disclosure of protected FTI would be Start Printed Page 16984out of proportion with the limited need for FTI handling in Exchange operations, including generating notices. Some referenced a Federal judicial decision [44] stating that the “public interest in assuring that health benefits will not be erroneously terminated or denied outweighs the State's competing fiscal and administrative concerns. Any inconvenience the State might suffer is out-balanced by the State's and the recipient's interest in providing health benefits to those who cannot otherwise afford them.”

One SBE supported the proposal to remove the direct notification provision in § 155.305(f)(4)(ii), citing significant implementation challenges to communicate with consumers without violating IRS's FTI security protections. It stated that current FTR processes and notifications being implemented by most Exchanges provide adequate notice to consumers.

Response: HHS is committed to ensuring consumers eligible for APTC maintain that important benefit; however, we also believe that ensuring consumers are not receiving APTC improperly is necessary for program integrity. Additionally, it is important to reduce burden on Exchanges, which have varying capacities. Establishing a mechanism through which to notify tax filers without making an unauthorized disclosure of protected FTI is a heavy undertaking for an Exchange if its notification system was not originally designed with that capability in mind. For the FFE, it would involve not only changes to its notice generation and storage infrastructure, including enhancements to segregate and secure FTI data, but also substantial modification to its entire account creation framework.[45] For a number of SBEs, upgrading their systems to be FTI compliant represents an undertaking that may be infeasible to implement in the short term. SBEs may also be unable to take the FFE's dual noticing approach because of limited print contracting options, as discussed above. The FFE plans to continue sending direct notices to tax filers to supplement the combined notices; we encourage SBEs to take a similar noticing approach, where feasible. We are available to provide technical assistance, as needed.

Comment: A few commenters recommended more research be done prior to the rule change. One commenter suggested we learn more about why taxes are not being filed in a timely way, suggesting there may be many reasons for non-compliance, and that this additional understanding could inform appropriate Exchange and IRS policies. Other commenters recommended we retain the current rule until we understand the impact of the new direct notice mailed in November 2017 to FFE enrollee tax filers affected by FTR. They suggested that, following the open enrollment period for 2018, we should assess whether there was an increase in the proportion of tax filers who took the necessary action to file their tax return and reconcile APTC, and a decrease in consumer confusion (for example, evidenced by the number of FTR-related call center questions), and consider whether any change is due to the cumulative impact of the two notices before finalizing any regulatory changes related to FTR procedures.

Response: We agree that gathering data on the effectiveness of FTR notices is a worthwhile endeavor, and we look forward to analyzing the numbers as suggested by the commenter, now that the open enrollment period for 2018 coverage is closed, to determine if recent messaging increased compliance and reduced the discontinuation of APTC as a result of FTR. However, we believe this regulatory change must be implemented in the short term in the interest of program integrity and to reduce burden on Exchanges.

Comment: A few commenters discussed the limitations when the household tax filer (to whom the FFE sent the direct notice in November 2017) does not reside with the household contact on the application (to whom the FFE sent the combined Marketplace Open Enrollment Notice in October 2017), which could hinder the affected individual's ability to understand the totality of the circumstances, and disagreed with our assumption that the household contact is likely to share the combined notice with the tax filer, since not all household contacts and tax filers on an application can readily and easily communicate with one another, including during medical or other emergency situations, death, separation or divorce, domestic abuse, or spousal abandonment. One commenter suggested that the combined notice sent to the household contact explain that the specific reason for the potential discontinuation of APTC will be contained in the direct notice to the tax filer. This commenter further suggested that the mailing addresses be verified against the United States Postal Service National Change of Address Database to help ensure deliverability, and that the envelopes be conspicuous to signify their importance (for example, red in color).

Response: We recognize there are household circumstances in which the tax filer and the household contact on the application do not live together. However, our data show that for 2017 and 2018 applications for which any amount of APTC was paid, 99.8 percent of household contacts listed on the application were also the tax filer. We agree that adding language to the combined notice pointing to the direct notice for additional specifics may help increase the likelihood that the tax filer fully understands the risk to continued APTC eligibility for enrollees in the household, and we may explore this approach through discussions with IRS regarding any potential FTI concerns. The FTI-compliant print contractor used by the FFE in November 2017 does verify addresses against the USPS National Change of Address Database, and we acknowledge that making envelopes more conspicuous could help ensure FTR notices are opened and read by consumers.

When consumers submit an FFE application, the filer of the application must agree to a statement that he or she has obtained consent for all people listed on the application for their information to be used for eligibility determination purposes, including verifying this information using the Exchange's trusted electronic data sources. In addition, following application submission and when selecting a plan and choosing the amount of APTC to apply to the monthly premium, the tax filer is required to agree to a statement that he or she must file a tax return for the year during which APTC is paid on his or her behalf (or on behalf of his or her spouse) and to reconcile those payments with IRS. The filer of the application specifies the contact person for Exchange communications (the household contact), as well as the method of communication they prefer—either electronic or via U.S. mail to the address they enter on the application. Because this household contact is designated as the point of contact for the enrollee(s) on the application, we Start Printed Page 16985believe it is reasonable to assume he or she intends to receive communications about enrollees' eligibility for and enrollment in health coverage through the Exchange. Further, as this designated point of contact for Exchange enrollees, we believe this household contact would likely read these communications, and if their content discussed risk for financial assistance loss, share with the tax filer in the rare case that he or she is not the tax filer. We further believe it is reasonable to assume that the tax filer—if not the household contact—would be in contact with the Exchange enrollees for whom he or she is responsible with respect to tax filing, managing communications related to health coverage through the Exchange, or both.

We are finalizing these provisions as proposed, but remain committed to improving the clarity and effectiveness of the FTR notification process in circumstances where the Exchange has information that the tax filer has failed to file and reconcile.

b. Verification Process Related to Eligibility for Insurance Affordability Programs (§ 155.320)

i. Income Inconsistencies (§ 155.320(c))

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 (data matching issues) 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 proposed to revise § 155.320(c)(3)(iii) to specify that the Exchange will 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 makes 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 to protect against overpayment of APTC, 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. Accordingly, we proposed 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 proposed 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 in a manner consistent with other inconsistency adjustments laid out in paragraph (c)(3)(vi)(F).

We proposed to allow the Exchange to set the threshold for setting a data matching issue similar to § 155.320(c)(3)(vi). We proposed 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 addition to a percentage threshold.

We are finalizing this policy as proposed, with two changes. First, after considering the intended purpose of this new program integrity measure, we have decided to add additional regulatory language to § 155.320(c)(3)(iii)(D) that exempts from this additional verification check non-citizen applicants who are lawfully present and ineligible for Medicaid by reason of immigration status.[46] These applicants do not have the same incentive to inflate their reported household income to qualify for APTC, since they are also able to qualify for APTC with a household income under 100 percent FPL. Additionally, if these applicants inflate their income, they will receive less APTC than they are eligible for, and, therefore, performing the additional verification check is not necessary to prevent overpayment of APTC. Second, we also removed the proposed regulatory language that clarified that non-citizens who attested to projected income under 100 percent FPL are not subject to this verification, because the policy only applies to consumers who attested to projected annual income between 100 percent and 400 percent of the FPL, and therefore would not apply to any applicant (either citizen or lawfully present non-citizen), making this clarifying language unnecessary.

At § 155.320(c)(3)(vi)(D), we proposed 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 are finalizing this change as proposed.

In the proposed rule, we also noted our interest in providing further guidance on the appropriate thresholds for the generation of data matching issues generally. We intend to reconsider and provide further guidance Start Printed Page 16986on these thresholds in the near future, and in anticipation of that effort, we sought comment on the appropriate thresholds to use at various income levels and in various circumstances. In particular, we welcomed 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 address consumers who may be enrolled in duplicative coverage, and our rules around recalculation of eligibility for APTC following a mid-year change in eligibility. In anticipation of these actions, we sought comment generally on these and other program integrity topics.

Comment: Several SBEs expressed concerns over the cost and time needed to implement the change in their IT systems to accommodate the proposed new verification process. They also stated that State Exchanges should have the flexibility to not conduct this verification. One commented that there is no incentive for applicants to inflate their income in a State that expanded Medicaid.

Response: HHS understands that Exchanges may need additional time to implement this proposal in order to update their information technology systems to incorporate new logic. However, we believe this is a critical program integrity measure. This process is primarily intended as a program integrity safeguard with respect to States that did not expand Medicaid. However the verification check could also help identify some applicants who inaccurately attested to too high an income amount and were therefore inaccurately determined or assessed not to be eligible for Medicaid. This check could help applicants identify potential eligibility through their State Medicaid program and encourage them to disenroll from their Exchange plan.

Comment: Many commenters were concerned that this new verification process would disadvantage households with lower household incomes, since these households often have income amounts that fluctuate more regularly and by a larger percentage margin than higher income households. Additionally, many commenters expressed concern that low-income consumers have difficulty in providing documentation to resolve their annual income data matching issues and that this proposal would exacerbate that problem. Commenters also suggested that HHS should more strongly consider providing notice to applicants that they should update their application with any income changes, rather than creating annual income data matching issues for this population.

Response: We recognize that households with lower income might experience higher relative levels of variance in their income from year-to-year. This policy recognizes the need to have a reasonable threshold for income discrepancies to allow for normal variations in income, which may include a dollar threshold amount. HHS believes that the alternate verification process has improved significantly since the program has launched. The calculator used by HHS to calculate income submitted by applicants has been specifically modified to handle instances where income fluctuates, or is seasonal in nature. We released a consumer guide to households to help them provide the correct documentation to verify their income in the event of an inconsistency. We also released a worksheet for households to help them verify their attested income amount. HHS supports encouraging applicants to continue to update their income throughout the year, as needed, through notices and other appropriate consumer outreach and educational materials. We are also exploring strategies to promote more timely and accurate reporting of changes in circumstances by consumers.

Comment: Several commenters expressed concern that HHS did not provide evidence or data that this issue was sufficiently problematic to require a change in the regulation.

Response: HHS acknowledges that it does not have firm data on the number of applicants that might be inflating their income to gain APTC, but believes that it is reasonable to design an appropriate program integrity check, particularly when incentives may exist for applicants to do so.

Comment: Commenters also suggested that instead of generating annual income data matching issues for this population, HHS should instead closely assess the eligibility for loss of MEC special enrollment periods involving the loss of Medicaid.

Response: HHS currently monitors and verifies eligibility for special enrollment periods due to loss of MEC, including the loss of eligibility for Medicaid/CHIP.

Comment: Several commenters expressed concern that applicants who could not successfully verify their income in States that have not expanded Medicaid would be left with no practical ability to purchase health insurance.

Response: HHS understands the concern regarding these consumers and believes the alternate verification process will be able to verify income information for applicants who accurately reported their income information. Applicants who inflate their income to gain access to APTC would not be able to produce documentation required to verify their income attestation, which would properly result in the inconsistency process under the proposed policy determining these applicants ineligible for APTC. This proposal is designed to provide a program integrity check that helps protect taxpayers from the overpayment of APTC.

Comment: One commenter stated that the proposal would not result in the Treasury recouping excess APTC paid for applicants who inflated their income to gain access to APTC because applicants with household income under 100 percent FPL are exempted from repaying APTC through the reconciliation process at tax time under current regulations.

Response: We view this policy as a critical program integrity measure, notwithstanding any liability that the tax filer may have when filing income taxes and reconciling APTC paid during the inconsistency period. As observed by the U.S. Government Accountability Office, without proper procedures for verifying incomes and family sizes, the risk of providing APTC on behalf of individuals who do not meet the minimum income eligibility requirements—including those who may purposefully misstate their incomes in order to gain access for APTC—is increased.[47] Particularly to the extent funds paid for APTC cannot be recouped through the tax reconciliation process, it is important to ensure these funds are not paid out inappropriately in the first instance.

Comment: One commenter suggested that the proposed policy could result in increased churn between Medicaid and coverage through the Exchange for Start Printed Page 16987consumers whose household income fluctuates near the 100 percent FPL level if they are unable to verify their income for APTC eligibility. The commenter was concerned that in States that expanded Medicaid, the applicants that lost their APTC would not necessarily know that their income may make them eligible for Medicaid.

Response: HHS acknowledges this concern and will explore ways to provide helpful information in any notice provided to these applicants that lose APTC because of their inability to verify their income and may be eligible for Medicaid.

We are finalizing the changes as proposed.

ii. Verification of Eligibility for Employer Sponsored Coverage (§ 155.320(d))

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 the PTC 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 proposed 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.[48] When we first introduced this option, 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. We noted in the proposed rule that 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 stated 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 employer-sponsored coverage from as many non-Federal and non-SHOP employers as possible. We found that a comprehensive database does not currently exist and building such a database would be a resource-intensive endeavor. In addition, employers are not required to provide information to Exchanges or HHS regarding the coverage they offer, potentially limiting the completeness of such a database.

Because of the current challenges associated with building an HHS-approved database that is sufficiently complete and accurate to satisfy requirements under paragraph (d)(2)(i), we stated we anticipate many Exchanges will fulfill verification requirements using an alternate process, as described under paragraph (d)(4). In recognition of the challenges that Exchanges may encounter with conducting sampling, as explained below, we proposed 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 FFEs 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. Since the FFE does not have access to relevant data from employers across the 38 States for which the FFE operates Exchanges, this effort provided an attempt to collect information on each sampled employee by contacting employers' human resources personnel. The FFE found that this approach was not a cost-effective way for the FFE to fulfill verification requirements using an alternate process.

We acknowledged that sampling may be a more cost-effective 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 make verifying consumers' attestations more efficient and reliable, or may have existing channels through which they can communicate with in-State employers. Therefore, we proposed to maintain the option to use sampling as an alternate method of verification under paragraph (d)(4) to allow SBEs maximum Start Printed Page 16988flexibility. We stated that 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.[49] 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 noted that to the extent an Exchange believes an alternate process to verification through data sources or methods other than those described under paragraph (d) 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 noted that HHS received support for providing flexibility for the use of alternate data sources by Exchanges in comments to the Request for Information. For example, we received comments indicating that, for some Exchanges, due to the limited number of Federal employees in their State, connecting to the database containing data on Federal employment provides little utility in Exchange verification of applicants' eligibility for employer-sponsored coverage. One commenter encouraged HHS to consider removing the regulatory requirement to connect to this database for purposes of employer-sponsored coverage verification. We have also received feedback from some Exchanges noting challenges and limitations connecting to a SHOP database. These Exchanges noted that, given the limited enrollment in SHOP in many States and that many States do not have a SHOP database with 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.

Additionally, we sought information and suggestions on ways to improve verification of whether an applicant reasonably expects to be enrolled in an eligible employer-sponsored plan or is eligible for qualifying coverage in an eligible employer-sponsored plan for the benefit year for which coverage is requested.

We are finalizing this policy as proposed.

Comment: All commenters supported the proposal 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. Most commenters noted the continued need to perform verification through an alternate process under paragraph (d)(4), and supported the flexibility to perform alternative methods of verification to sampling under paragraph (d)(4)(ii).

Response: We acknowledge the continuing need Exchanges may have to use an alternate verification process and the flexibility to perform an alternative verification procedure to sampling. We are finalizing this provision as proposed.

Comment: Most commenters indicated that challenges remain in performing verification through some or all of the databases described under paragraph (d)(2). One commenter questioned the value of verifying based on Federal employment data and through data based on the State's SHOP Exchange due to the low number of applicants offered eligible coverage from those sources in the relevant State. Several commenters supported the flexibility provided under § 155.315(h) for Exchanges to request HHS approval to perform verification through data sources or methods other than those specified in paragraph (d) where an Exchange believes alternate data sources or methods may result in a more efficient verification procedure for that Exchange.

Response: We agree that challenges remain to performing verification through databases described under paragraph (d)(2), and that an Exchange may believe verification through alternate data sources would be a more appropriate method of verification for their Exchange. While we believe that verification through databases described under paragraph (d)(2) remains a viable option for some Exchanges, we continue to provide Exchanges the flexibility afforded under § 155.315(h), and support Exchanges in considering this option for verification.

c. Eligibility Redetermination During a Benefit Year (§ 155.330)

We sought comment on ways to better encourage enrollees to report changes in circumstance occurring during the benefit year that may affect their eligibility for Exchange coverage or for APTC or CSRs. 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 changes in circumstance, such as changes in household income or size, remain unknown by the Exchanges until reported by the enrollee.

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 based on their current eligibility for financial assistance, and would improve program integrity.

Comment: Commenters supported finding ways to better encourage Exchange enrollees to report changes in circumstance during the benefit year so that they receive updated eligibility determinations, including with respect to any APTC they are receiving. Commenters acknowledged the benefit of timely updates to an enrollee's household income or family size as a way to help minimize any large APTC reconciliation payments due to the Federal government upon filing a Federal income tax return. Commenters also acknowledged the benefit to the program integrity of the Exchanges, so that they may continue to have updated and accurate enrollee information, as well as the benefit to the Federal government to minimize the amount of financial assistance being paid on behalf of enrollees who are not eligible (or are eligible for a lesser amount).

Commenters recommended increasing Exchange outreach efforts, through mail, email, and social media networks, to periodically remind consumers to report any life changes that may have occurred. One commenter recommended that Exchanges use more distinct envelopes when an enrollee action is required to improve the rate at Start Printed Page 16989which these mailings are recognized, read, and acted upon. Commenters acknowledged the benefit of personal interactions as a way to encourage consumer behavior and recommended that Exchanges engage Navigators who have personal relationships with many Exchange enrollees to keep in contact with the enrollees throughout the year and remind them that they should timely report changes in circumstance to the Exchange.

Commenters recommended that Exchanges make it easier for enrollees to report changes in circumstance online. One State Exchange stated they have information about reporting changes in circumstance on the main page of their Exchange website outside of open enrollment, and that enrollees are asked about whether they need to report a change either over the phone if they call the Exchange call center, or online upon logging into their Exchange accounts.

Response: We appreciate comments received on this topic and will take them into consideration for FFE operations and possibly in future rulemaking.

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 5 years based on a single authorization.

We sought comment on whether 5 years is an appropriate duration for this type of an authorization, 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 affect 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).

Comment: Many commenters opposed changing the length of time that individuals may authorize Exchanges to obtain their updated tax information. Many commenters agreed that 5 years is the appropriate length of time for this type of authorization, and that this period accurately balances the Exchanges' need for updated information with the consumer burden of actively authorizing Exchanges to access this information. One commenter recommended that we consider extending the authorization period past 5 years, and another recommended that Exchanges be able to access this information indefinitely. In addition, several commenters questioned how shortening this authorization window would improve Exchange program integrity.

Response: We appreciate the comments and will take them into consideration in future rulemaking.

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 that 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 proposed to modify how paragraph (a)(4)(iii) treats dependents to align more closely with paragraph (a)(4)(i) which addresses when an existing enrollee gains a new dependent. To do this, we proposed 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 proposed 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 proposed to revise the policy for these qualified individuals to align with paragraph (a)(4)(i) of this section. We proposed 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 he or she continues to qualify for it, or enroll the new dependent in a separate QHP at any metal level.Start Printed Page 16990

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).

We are finalizing this policy as proposed.

Comment: The majority of commenters supported the proposal to align plan options for a dependent of an Exchange enrollee who qualifies for a special enrollment period to newly enroll in Exchange coverage along with the existing Exchange enrollee, regardless of the special enrollment period the dependent qualifies for, thereby aligning the dependent policies in paragraphs (a)(4)(i) and (a)(4)(iii)(B). Commenters appreciated the simplification of plan option rules for enrollees who seek to newly enroll a dependent in Exchange coverage after that dependent has qualified for a special enrollment period, and stated that this simplification will benefit Exchange enrollees, as well as those providing enrollment assistance, such as Navigators, agents, and brokers, by making it easier for them to understand and explain the enrollee's enrollment options. In addition, some commenters supported aligning the plan option rules out of fairness, to ensure that all similarly situated dependents who are newly enrolling in Exchange coverage should have the same enrollment options available to them.

A few commenters supported this proposal, but also requested that changes to the plan option restrictions in paragraph (a)(4) be amended to give affected enrollees and dependents the option to enroll in a QHP at a lower level of coverage, alongside the option to enroll in either the same QHP or another QHP at the same level of coverage, as applicable. Commenters stated that this increased flexibility is especially necessary for situations where enrollees are gaining or become a new dependent, in accordance with paragraph (d)(2)(i) of this section, because changes in household composition, especially the addition of a new infant or child to a household, likely change a household's health care needs and what level of coverage is best suited to meet those needs. Other special enrollment periods included in paragraph (a)(4)(iii)(B), such as the special enrollment periods for loss of minimum essential coverage in paragraph (d)(1) of this section and for being determined ineligible for Medicaid or the Children's Health Insurance Program, may similarly change a household's health care needs if, for example, dependents had been previously enrolled in Medicaid or CHIP and are losing that coverage for the first time.

Several commenters expressed concern about the technical impact the proposed changes would have on State Exchanges, especially those States that had already been working toward implementing the plan option restrictions as finalized in the 2017 Market Stabilization Rule. States cautioned that finalizing this proposal would delay their ability to implement this policy and several States requested State flexibility with respect to this proposal.

Other commenters expressed opposition to this proposed change because it would further restrict plan options available to enrollees and dependents newly enrolling in QHP coverage. These commenters stated that imposing restrictions of individuals' choice of QHPs to enroll in after he or she qualifies for a special enrollment period contradicts the intent of special enrollment periods. One commenter stated that limiting plan options for enrollees or dependents upon qualifying for a special enrollment period is prohibited by the guaranteed issue provision of the PPACA statute. The guaranteed issue provision requires that issuers accept every individual in the State who applies for such coverage and, while issuers may restrict enrollment periods, they stated, restrictions on the type of plan the individual enrolls in is not permitted.

Response: We agree that there is a benefit to aligning the plan options available to enrollees who are adding a dependent newly enrolling in Exchange coverage through a special enrollment period. We appreciate commenters' concerns about the impact household changes may have on a family's health coverage needs, but believe that maintaining these restrictions is necessary in order to continue to avoid adverse selection. We continue to encourage enrollees to explore all available QHPs during open enrollment, and to change plans if another QHP better meets their or their family's needs.

We understand that the proposed changes may delay State Exchanges' ability to implement the plan option restrictions, especially in those States where this proposal will require a change to Exchange system functionality, and, therefore, we believe it is appropriate for States to take additional time, as needed, in order to comply with this change.

Lastly, as we noted in the 2017 Market Stabilization Rule, we considered the concerns regarding conflicts of this policy with the statute, but believe that limiting enrollees' ability to change QHPs or metal levels is consistent with the requirements in section 1311(c)(6)(C) of the PPACA directing the Secretary to require Exchanges to establish special enrollment periods as specified in section 9801 of the Code and under circumstances similar to such periods under Part D of title XVIII of the Act, as well as the Secretary's authority under section 2702(b)(3) of the PHS Act to promulgate regulations for the individual market with respect to special enrollment periods for qualifying events under section 603 of the Employee Retirement Income Security Act of 1974. Given that the PPACA itself called for one annual open enrollment period and additional enrollment opportunities only in the case of special circumstances, we believe it is reasonable to interpret the special enrollment period and guaranteed issue provisions of the PPACA in this manner.

We proposed 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 are finalizing the policy as proposed.

Comment: Commenters supported the proposal to exempt from the plan option restrictions in paragraph (a)(4)(iii) the special enrollment period in paragraph (d)(12) for when a qualified individual, enrollee, or his or her dependent adequately demonstrates to the Exchange that a material error related to plan benefits, service area, or premium influenced the qualified individual's or enrollee's decision to purchase a QHP through the Exchange. Such a material plan error may have impacted not only the specific QHP an individual enrolled in, but also the level of coverage the individual decided to purchase. One commenter requested that we provide additional guidance regarding the types Start Printed Page 16991of errors that we would consider material for purposes of being excluded from the plan option restrictions in paragraph (a)(4)(iii).

Response: We are finalizing this policy as proposed. We also clarify that, while we are finalizing an amendment to exempt this special enrollment period from the plan option restrictions in paragraph (a)(4)(iii), we are not amending the criteria for qualifying for the special enrollment period in paragraph (d)(12), which is intended for when an enrollee adequately demonstrates to the Exchange that a material error related to plan benefits, service area, or premium influenced the qualified individual's or enrollee's decision to purchase a QHP through the Exchange and refer the commenter to the preamble discussion of the 2018 Payment Notice where we discuss this special enrollment period.

ii. Exception to Prior Coverage Requirement for Qualified Individuals Who Have Lived in Service Areas Where No QHP Is Offered Through an Exchange

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 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 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 proposed 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 noted 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 are finalizing the policy as proposed, except that we are amending the regulatory text to ensure the exception applies to individuals who lived in a service area where no QHPs were offered through an Exchange during their most recent Exchange enrollment period, regardless of whether that enrollment period was an Exchange open enrollment period or a special enrollment period. This change will address situations where no QHPs were available to an individual during their enrollment window, but later became available in the individual's service area prior to his or her marriage or move.

Comment: Commenters supported the proposal 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. Several commenters added that HHS should continue to implement procedures currently in place to verify other aspects of the applicable special enrollment period qualifying event, such as a move, within the required 60-day window. Commenters also requested, if this exception to the prior coverage requirement becomes necessary, that HHS publish a list of service areas in which no QHPs are offered through an Exchange, in part to ensure that issuers can apply the exception accurately in the off-Exchange individual market.

One commenter raised the concern that our proposed criteria for the exception, in particular that a person only have lived for 1 of the 60 days prior to their qualifying event in a service area where there were no QHPs offered through an Exchange, was not stringent enough. This commenter suggested that such a brief residency requirement could lead individuals to move to an affected service area on a transitional basis in order to avoid the prior coverage requirement. To reduce the likelihood that individuals who did not qualify would be able to take advantage of this exception, the commenter recommended that we require individuals to have been residents in a service area without QHPs for the entire 60 day period prior to their qualifying event.

Response: We will consider publishing a list of service areas in which no QHPs are offered by the Exchange, so that this exception can be applied consistently and accurately off-Exchange. In addition, we may release additional guidance if a service area is left without QHP coverage and it becomes necessary to implement this exception.

We understand concerns that individuals may seek to fraudulently claim this exception in order to avoid the prior coverage requirement, and we remain committed to promoting continuity of coverage and ensuring that only eligible consumers may access coverage through special enrollment periods. However, we believe that this exception for individuals who have lived in a service area where no QHPs are offered by the Exchange for at least 1 of the 60 days before a qualifying event or during their most recent preceding enrollment period is important, because it takes into account the potential for a service area to temporarily be without a QHP, such as in the case of a temporary QHP suppression or mid-year QHP decertification, and the need to protect individuals who may be affected by this lack of availability. Additionally, we note the need to ensure that individuals are not prevented from accessing coverage through a special enrollment period mid-year because of having lived in a service area where no QHPs were offered through the Exchange during their most recent enrollment period (open enrollment or special enrollment period) when they could have otherwise enrolled in affordable coverage, even if during the 60 days before a subsequent qualifying event a QHP is available in their service area. Therefore, we are finalizing this exception to the prior coverage requirement that currently applies to certain special enrollment periods to include consumers who lived Start Printed Page 16992in a service area where no QHP was available through the Exchange during their most recent preceding enrollment period.

We also note that concerns that individuals will fraudulently claim eligibility for an exception to the prior coverage requirement are addressed in part because the FFE will continue to require document-based verification of the individual's eligibility for the special enrollment period and, in order to qualify for the special enrollment period due to a permanent move, individuals will continue to be required to meet the residency requirements for their new and former addresses, in accordance with § 155.305(a)(3) and as explained in the January 2016 FAQs on the Marketplace Residency Requirement and the Special Enrollment Period due to a Permanent Move.[50] Finally, we anticipate that this exception will be granted extremely rarely, which minimizes the risk that it will be used inappropriately.

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 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, as described in paragraph (d)(2)(i), with a retroactive coverage effective date back to the date of the qualifying event. It also gives Exchanges 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 also described in paragraph (d)(2)(i). It requires Exchanges to ensure that coverage takes effect on the date of the court order, and it permits Exchanges to allow qualified individuals to elect an effective date based on paragraph (b)(1). However, it does not provide Exchanges with the option to allow qualified individuals to elect that their coverage begin the first of the month following the date of the event.

We proposed 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 and redesignate current paragraph (b)(2)(vi) as paragraph (b)(2)(v). These revisions would 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 also proposed 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.

Therefore, 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, or through a child support or other court order, will be able to elect from the same alternate coverage effective date options, if offered by their Exchange.

We are finalizing this policy as proposed.

Comment: Commenters supported the proposal to align the coverage effective date options for those who gain or become a dependent through birth, adoption, or foster care placement with those who gain or become a dependent through a child support or other court order. Commenters agreed that aligning special enrollment period coverage effective date options for most situations where individuals are gaining or becoming a dependent would result in a simpler rule and more intuitive operational processes, both reducing administrative burden on issuers and on agents and brokers and helping individuals better understand their coverage effective date options. One commenter opposed this proposal due to concerns that it would reduce State flexibility, could increase burden on Exchanges due to costs associated with updating their systems to reflect new effective date options in States that offer this optional alternate coverage effective date option to consumers, and limit individuals' access to retroactive coverage options.

Response: We agree that these changes will promote the goals of providing the same alternate coverage effective date options to consumers who qualify for a special enrollment period due to gaining or becoming a dependent through a birth, adoption, foster care placement, or court order, and of streamlining Exchange operations by revising the “first of the month” coverage effective date option so that it can be operationalized in the same way for all special enrollment periods for which it is an option. We note that this proposal does not remove or alter the requirement at § 155.420(b)(2) that Exchanges ensure that coverage is effective retroactive to the date of the qualifying event for consumers who qualify for a special enrollment period due to gaining or becoming a dependent through a birth, adoption, foster care placement, or court order.

We acknowledge that allowing Exchanges to permit individuals to elect that their coverage take effect on the first of the month following plan selection instead of on the first of the month after the date of their qualifying event will mean that consumers only have one option for their coverage to take effect retroactively—back to the date of their qualifying event—whereas prior to the change, they could request that coverage take effect retroactive to the first of the month after their qualifying event if their Exchange allowed this option. However, we also note that the proposed change adds an accelerated prospective option that is not currently available to these consumers.

Additionally, we believe that, while some Exchanges may need to make system updates based on this change, they will have the flexibility that they need in order to manage the potential impact because Exchanges are not required to offer these alternate coverage effective date options and may delay implementation if necessary. Finally, the alignment of this effective date option with the “first of the month” effective date that also applies to other types of special enrollment periods (in particular the special enrollment period due to gaining or becoming a dependent through a marriage), will also likely generate efficiencies for Exchanges in the long term.Start Printed Page 16993

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 health care needs are not left without the option to enroll in a QHP through an Exchange after they lose access to those services.

We proposed to revise paragraph (d)(1)(iii) to include women who lose access to health care 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 health care 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 are finalizing this policy as proposed.

Comment: We received overwhelming support for this proposal; commenters did not raise any concerns, and noted that it would help streamline Exchange operations and ensure that women losing access to CHIP coverage for their unborn child are able to maintain continuous coverage.

Response: We are finalizing this provision as proposed.

iv. Technical Amendment (§ 155.420(d)(10)(i))

We proposed 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. This technical correction would not alter the parameters of this special enrollment period.

Commenters supported this proposal; we are finalizing this change as proposed.

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, 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 (BHP) as the day before the individual is determined eligible for Medicaid, CHIP, or BHP.

We proposed to remove paragraphs (d)(1)(i) and (d)(2)(i) through (d)(2)(iii) to 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. We also proposed removing existing paragraph (d)(2)(iv), which states that the QHP termination date for an enrollee newly determined eligible for Medicaid, CHIP or a BHP is the date before the Medicaid, CHIP, or BHP eligibility determination. We invited 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.

We are not finalizing this policy as proposed. Rather, we are restructuring paragraph (d)(2) to improve its readability, and, in response to comments from Exchanges responding to our solicitation of comments, providing additional flexibility to allow Exchanges to retain the current policy or operate under the proposed policy.

Comment: Supporters of our proposal to eliminate the “reasonable notice” requirement referenced the more streamlined and straightforward approach to terminations for consumers and its ability to reduce duplicate or overlapping coverage when enrollees obtain other coverage. Many supporters cited challenges consumers face transitioning into Medicare and stated that being able to choose the date of their QHP termination would alleviate the need to reach out to the Exchange multiple times to ensure the proper termination date to avoid having dual coverage.

Response: We agree that allowing enrollees to terminate their coverage immediately or on a future date of their choosing will provide consumers with greater control over ending their QHP coverage and will help minimize or eliminate overlaps in coverage, for example, when aging into Medicare. Such flexibility will 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 termination dates to effectuate in less than 14 days.

Comment: Some commenters requested that we provide flexibility in the implementation of this rule, citing technical and operational challenges with premium proration, in addition to the common consumer desire to terminate plans at the end of the month.Start Printed Page 16994

Response: We acknowledge that not all Exchanges have the same system capabilities, and are providing Exchanges flexibility to implement this change at their discretion.

Comment: Several commenters opposed the rule, stating that 14 days is a reasonable industry practice for issuers, while others expressed concerns that same-day terminations are not feasible for issuer processing, due to the timing of Exchange-sent 834 transactions. Some urged HHS to work with issuers to determine a more realistic timeframe—ranging from next-day to 5 days—and implement a default end-of-month termination effective date. One commenter discussed the importance of coordination between issuers and Exchanges to synchronize enrollment and termination effective dates to reduce adverse downstream effects on payment reconciliation processes.

Response: Issuers already process a significant number of same-day terminations when removing less than the whole enrollment group from QHP coverage, and they have reported no difficulties in doing so. While we expect the vast majority of enrollees will want their coverage to end at the end of month, this option for a more precise termination date is necessary for consumers because retroactive terminations are only available in very limited circumstances.

Comment: One commenter urged us to allow issuers to transmit 834 files to the Exchange with consumer-initiated terminations, stating that most consumers notify their issuers first when terminating coverage.

Response: We recognize that many enrollees reach out to their issuers to initiate terminations. However, terminations must be triggered through the Exchange so enrollees remaining on the application can receive an updated eligibility determination.

Comment: Supporters of the proposal to remove the current Medicaid/CHIP/BHP termination rule—which allows for retroactive QHP terminations based on new Medicaid/CHIP/BHP eligibility determinations—described the current rule as a source of confusion for issuers, States, Exchanges and consumers, and noted challenges coordinating with State Medicaid agencies, as well as the volume of complex casework the rule currently triggers. One commenter recommended that HHS permit retroactive QHP terminations if the Medicaid, CHIP or BHP determination was less than 30 days in the past because it is more difficult for plans to reverse claims after 30 days.

A few commenters encouraged flexibility to maintain existing policy and business operations, and others encouraged HHS to allow States to determine how the change would impact their populations, given their Medicaid eligibility processing times, as well as their ability to reach and inform consumers about their need to take action.

Response: We agree that the current Medicaid/CHIP/BHP rule causes unnecessary confusion, given that we do not provide QHP termination dates according to eligibility for other forms of coverage, such as Medicare or employer-sponsored coverage. We also recognize that eligibility determinations conducted through the State Medicaid agency, instead of the Exchange, can result in challenges coordinating effective dates through the State agency, the Exchange, and its issuers; and can result in consumer complaints and subsequent casework. We recognize issuer challenges with retroactive terminations and appreciate willingness to process limited retroactive terminations. However, because we recognize that Exchanges' coordination with their Medicaid and CHIP programs varies, we are providing Exchanges flexibility to implement this change at their discretion.

Comment: Most commenters who opposed the proposal to remove the Medicaid/CHIP/BHP rule cited adverse consumer impact, and were primarily concerned about placing the burden to terminate QHP coverage on the Medicaid/CHIP/BHP enrollee who may not understand the need to terminate. One commenter stated it was important for QHP enrollees to continue to be able to recoup premium payments made when in fact eligible for Medicaid due to Medicaid's 90-day retroactive eligibility rules. Others stated that the QHP should terminate automatically with Medicaid eligibility.

Response: We recognize there may be some consumer impacts with the implementation of this rule. We also recognize that the removal of this rule may limit enrollees' ability to retroactively terminate QHP coverage when it overlaps with Medicaid/CHIP/BHP coverage, 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/CHIP/BHP. However, these types of retroactive terminations can lead to major challenges for consumers as Medicaid/CHIP/BHP providers may not cover claims reversed by the QHP—leading to unexpected out-of-pocket costs for consumers. Finally, we agree that automatic transition from QHP coverage to Medicaid/CHIP/BHP coverage without consumer intervention is a worthy goal, but we recognize that many Exchanges do not have real-time coordination with their Medicaid/CHIP/BHP agencies in order to do so.

Comment: A few commenters expressed concerns about possible downstream effects on eligibility for future QHP coverage from putting the full responsibility for QHP termination on the Medicaid/CHIP/BHP consumer. For example, if a consumer fails to terminate QHP coverage for which APTC are paid, he may stop paying premiums because he is enrolled in Medicaid and the issuer will terminate his coverage for nonpayment. At the end of the grace period, he will still owe premium for one month of coverage after the Medicaid determination.[51] Under certain circumstances set forth in the Market Stabilization final rule,[52] the QHP issuer could then attribute payments made toward subsequent enrollments to the premium amount owed, and deny enrollment in the new coverage for failure to pay the binder payment. In regions with only one issuer, this could leave consumers who rise above the Medicaid income threshold without access to coverage options.

Response: We acknowledge there may be downstream effects on eligibility for future QHP coverage due to non-payment of premiums for those who do not terminate their coverage timely and enter a grace period. The FFEs continue to make IT improvements and enhance consumer education and outreach with the purpose of making it easier and clearer for an individual to terminate QHP coverage in a timely manner.

6. Definitions (§ 155.500)

This section defines terms that are relevant to this subpart. We proposed to amend the definitions of “Appeal request” and “Appeals entity” by adding a cross reference to proposed section § 155.716(e)” to align with other proposals discussed throughout the proposed rule, and finalized in this rule, regarding SHOP. We did not receive substantive comments specific to this proposal, and are finalizing as proposed.Start Printed Page 16995

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. Although tax reform legislation enacted in December 2017 reduces to $0 the individual shared responsibility payment for months beginning after December 31, 2018, individuals may still have a need to seek a hardship exemption for 2019 and future years due to a lack of affordable coverage based on projected income. For example, individuals may continue to seek a hardship exemption after 2018 to be eligible for catastrophic coverage.

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 that, among other things, specify 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 county 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 county without a bronze plan. Under the current regulation, the Exchange would not be able to make a determination as to whether an individual not eligible for employer-sponsored coverage who lives in a rating area without a bronze plan is eligible for the exemption due to lack of affordable coverage based on projected income. We proposed 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, excluding catastrophic plans, available in the individual market through the Exchange in the State in the county in which the individual resides if there is no bronze level plan sold through the Exchange in that county. 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 county. 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.

Comment: All commenters supported the proposed change to use the lowest cost metal level plan when calculating whether a plan is affordable in the instances when no bronze plan is available. Commenters suggested that the regulatory text clarify that the determination of the lowest‐cost plan is made at the county level rather than the rating area level, and that the determination of the “lowest‐cost Exchange plan” on which to base eligibility for an exemption should be made without consideration of catastrophic plans. Some commenters supported the proposal, but asked that the exemption not be interpreted broadly so that the exemption would weaken the risk pool. One commenter recommended that HHS bring forward the effective date of the rule to plan year 2018.

Response: We are finalizing this policy, and are clarifying that eligibility for an exemption should be made at the county level and without consideration of catastrophic plans. We appreciate the concerns about the risk pool, but believe that this change is targeted specifically to handle the issue of when no bronze plans are available to the individual. This change will be effective on the effective date of this rule, which occurs during the 2018 plan year.

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 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. Although tax reform legislation enacted in December 2017 reduces to $0 the individual shared responsibility payment for months beginning after December 31, 2018, individuals may continue to seek a hardship exemption based on the required contribution amount after 2018 to obtain catastrophic coverage. Further, 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. As such, we are continuing to finalize the excess of the rate of premium growth over the rate of income growth and the required contribution percentage for the 2019 benefit year below.

Section 5000A of the Code 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.[53]

Start Printed Page 16996

As the measure of premium growth for a calendar year, we established in the 2015 Market Standards Rule that we would use the premium adjustment percentage. The premium adjustment percentage is based on projections of average per enrollee employer-sponsored insurance premiums from the National Health Expenditure Accounts (NHEA), which are calculated by the CMS Office of the Actuary.[54] (As discussed elsewhere in this preamble, we are finalizing the proposed 2019 premium adjustment percentage of 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 the 2019 Payment Notice final rule.

Thus, using the 2019 premium adjustment percentage finalized 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 required contribution percentage for 2019 of 8.00 * 1.0379471610 or 8.30 percent, when rounded to the nearest one-hundredth of one percent, an increase of 0.25 percentage point from 2018 (8.30358-8.05317).

We sought comment on whether there are other measures of premium growth or income growth that we could use to calculate the required contribution percentage.

Comment: We received no comments on other measures of premium growth or income growth that we could use to calculate the required contribution percentage. One commenter supported the current methodology, saying it provides consistency and stability, given highly volatile premiums.

Response: We are finalizing the required contribution percentage as proposed.

8. Eligibility Process for Exemptions

Section 155.610(h)(2) describes the timeframe during which the Exchange will accept an individual's application for a hardship exemption. We proposed to make a technical correction to § 155.610(h)(2) to reflect the prior redesignation of paragraph § 155.605(g)(1), which describes the criteria for a hardship exemption, to § 155.605(d)(1) in the 2017 Payment Notice.[55]

Commenters did not oppose this correction, and we are finalizing as proposed.

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 functions.

As we have stated in previously released guidance,[56] the FF-SHOPs and the SBE-FPs for SHOPs have seen lower than expected enrollment, to date. As of January 1, 2017, approximately 7,554 employer groups were enrolled in the FF-SHOPs, covering 38,749 lives. Further, we recognize that many SHOPs, including FF-SHOPs, continue to face challenges and, to accommodate those challenges and to provide SHOPs with more flexibility in operating their programs, we proposed to allow SHOPs to operate in a leaner fashion beginning for plan years beginning on or after January 1, 2018. We are generally finalizing the policies as proposed, and describe changes to certain of the regulations later in this section of the preamble. These changes will be effective as of the effective date of this 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 expected a significant decrease in the number of issuers in the FF-SHOPs in the 2018 plan year and fewer enrollments in the FF-SHOPs and SBE-FPs for SHOP. With the significant decreases in SHOP QHP issuer participation and enrollment for plan year 2018, and, due to lower than expected enrollment in the FF-SHOPs and SBE-FPs for SHOP to date, 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 website and payment platform, generate enrollment and payment transaction files, and perform enrollment reconciliation.

We proposed 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 the proposals, employer groups that are currently enrolled in a SHOP QHP for plan years that began prior to January 1, 2018, would not be affected by the proposed changes to enrollment through a SHOP. We are generally finalizing this rule as proposed, and describe changes to certain of the regulations later in this section of the preamble. The changes will take effect for plan years beginning on or after January 1, 2018, as of the effective date of this rule.

Under the approach we proposed and are finalizing, SHOPs will 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 this rule. The FF-SHOPs, and SBE-FP for SHOPs, will take advantage of these flexibilities. Despite the removal of several regulations on SHOPs, State Exchanges will continue to have the flexibility to operate their SHOPs as 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, a few State Exchanges currently utilize a similar enrollment approach as is being finalized as a transitional measure that was expected to extend through plan years beginning in 2018. These SBEs have already inquired about continuing to permit enrollment of their SHOP Start Printed Page 16997consumers through a participating QHP SHOP issuer, or a SHOP-registered agent or broker, for plan years beginning in 2019 and beyond.[57] 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.

We are finalizing the modifications throughout the requirements applicable in the SHOPs for plan years beginning on or after January 1, 2018, effective on the effective date of this rule. However, because some groups' plan years that begin prior to the effective date of this final rule will continue beyond the effective date of this rule, both the existing requirements applicable to plans beginning before January 1, 2018, and the new requirements applicable to plans beginning after January 1, 2018 will need to be in place simultaneously. For this reason, we are finalizing our proposal to make many of the existing regulatory sections regarding SHOP applicable for plan years beginning prior to January 1, 2018 only, and 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 the plans started prior to the effective date of the rule. Except as described in this rule, we proposed and now finalize that these new regulatory sections will mirror the existing regulatory sections.

Specifically, we proposed 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 proposed 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 did not propose a new section mirroring current § 155.735, as further explained later in this preamble. We also proposed minor changes to § 155.700. These are described in the sections that follow. We also proposed 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 an SBE-FP for SHOP will take when this rule becomes effective. In light of the substantial changes, we have made conforming amendments and updated applicable cross references in these and other regulations, including §§ 147.102, 147.104, 155.500, 156.200, and 156.340.

We are finalizing the following policies as proposed. SHOPs that opt to operate in a leaner fashion, such as the FF-SHOPs, will 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 will still be provided. SHOPs will continue to be required to certify plans for sale through a SHOP, and the following features will still be available: An internet website 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 will continue to obtain an eligibility determination from the SHOP website but will 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 in the SHOPs that decide to operate in a leaner fashion, like the FF-SHOPs, will be considered to be an enrollment through a SHOP, and an employer will 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 will be required to conduct enrollment with all applicable SHOP rules and policies.

Because SHOPs will be required to determine employer eligibility to participate in a SHOP only, and will not be required to determine employer group members' eligibility to enroll, SHOPs will only be required to handle appeals as they relate to an employer's eligibility in a 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 will 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 enrolled in coverage though a SHOP operating under the flexibilities outlined in this rule and believes 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 will investigate. SHOP special enrollment periods will continue to be available to enrollees who experience specified qualifying events. SHOPs that use the new flexibilities, such as the FF-SHOPs, will 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 will be required to administer special enrollment periods.

SHOPs opting to operate in a leaner fashion, like the FF-SHOPs, will 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 will be able to see the SHOP plans available, by coverage level and issuers, in their area using the plan comparison tool available on a SHOP website. Employers who choose to offer a choice of plans to employees would contact the participating QHP issuers whose plans they would like to offer to their employees to obtain the application information necessary in order to enroll in coverage.

Once the necessary information required to enroll is obtained from the QHP issuer or issuers or from the SHOP-registered agent or broker, the employer could disseminate the application information to its employees. The employer could later collect the information from its employees and send it to the applicable QHP issuer or issuers or the SHOP-registered agent or broker. Employers generally will 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 functions are not a function mandated by the PPACA and therefore may be altered or removed, as previously proposed and now finalized with this rule. SHOP-registered agents and brokers will be able to assist employers in performing these tasks, if Start Printed Page 16998the 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 proposals we are finalizing, an employer's minimum participation rate will continue to be calculated at the employer level, though the SHOPs will not be required to calculate it, and the FF-SHOPs will no longer calculate it. No changes were proposed to the way in which an employer's minimum participation rate is calculated or to the 70 percent minimum participation rate default in FF-SHOPs. Participating QHP issuers will 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 approach we proposed and are finalizing, SHOPs will 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 flexibilities being finalized, issuers will be expected to rely on the determination of eligibility to reflect the employer's ongoing eligibility to participate in the SHOP, and the IRS will have the option to follow up with an employer for additional information if necessary.

HHS understands that the changes outlined in this final rule will allow SHOPs to adopt changes (and that the FF-SHOPs will adopt such changes) that result in a substantial departure from current operations for participating SHOP QHP issuers, employers, and enrollees. It is important to note that employer groups enrolled in a SHOP plan that began in 2017 in a SHOP that will opt to operate in a leaner fashion, like the FF-SHOPs, will 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. We recognize that some employers have already completed an enrollment that took effect on or after January 1, 2018. 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 this rule. But, after the effective date of this rule, the finalized regulations pertaining to plan year 2018 will be effective for all plans that begin or began in 2018, regardless of whether the enrollment occurred prior to the effective date. HHS acknowledged that this transition would create challenges and was concerned about employers enrolling between when rates become available for plan years beginning in 2018 and when the flexibilities in this rule will go into effect. We sought comment on how to best ease this transition and did not receive any comments on this point. In addition, we released guidance on this issue in conjunction with the release of the proposed rule.[58]

Because many comments focused on the general approach we had proposed for SHOPs, we have summarized comments related to SHOP proposals here, with a few exceptions, rather than after summarizing the proposed amendments to each section.

Comment: Many commenters supported our proposal to remove many of the regulatory requirements imposed upon SHOPs. Some commenters expressed concern over our proposal to remove the regulatory burden on SHOPs, stating that removing such requirements does not address the reasons the SHOP Exchanges have been unattractive to small employers. We received a comment specifically noting that SHOPs saw low enrollment for reasons other than a poor enrollment system. Some commenters requested that HHS should require that State Exchanges either operate entirely under the SHOP regulations prior to them being amended or otherwise identically to how the FF-SHOP will operate. We also received a comment stating that removing many of the requirements on SHOPs will also do away with a centralized system for free and impartial information for small employers looking for coverage. One commenter noted that the proposals would impose an additional burden on agents, brokers, and issuers without providing additional compensation.

Response: We are finalizing the policies as proposed, with minor, mostly non-substantive adjustments further described in the following sections of the preamble. The primary purpose of these regulatory changes was not to increase the attractiveness of SHOPs to small employers, but to remove the regulatory burden on SHOPs to give Exchanges the flexibility to operate their SHOPs in a cost-effective way that best meets the needs of their State's small group market. We believe this rule achieves that primary purpose. Nonetheless, under this rule, SHOPs will continue to offer a centralized system that will provide certain free and impartial information to small employers looking for coverage. For example, all SHOPs, including FF-SHOPs, will still be required to make a premium calculator available. This calculator will provide small employers seeking SHOP coverage with free and impartial information about the SHOP QHP and stand-alone dental plan QHP options available in their area. With regard to any burden on agents, brokers, and issuers, we believe that the proposed changes will reduce, rather than increase, the burden for agents, brokers and issuers. For example, in SHOPs that use the finalized flexibilities, issuers will no longer be required to maintain the infrastructure to connect with SHOPs, and agents and brokers who assist small groups in enrolling in SHOP coverage will use the issuer enrollment channels they are most familiar with, not a SHOP website. As previously noted, given the reduction in issuer participation in the SHOPs, HHS believes the impact of removing the requirement to maintain premium aggregation functions, which the FF-SHOPs and SBE-FPs for SHOP will no longer have, will be minimal. HHS also notes that State Exchanges are encouraged to continue to operate their SHOPs as they do today, or design a SHOP within the bounds of the flexibilities being finalized within this final rule.

Comment: We received comments seeking clarification on the applicability of other Exchange requirements to SHOPs where we did not explicitly propose changes. Specifically, we received comments requesting clarification on whether HHS will collect SHOP enrollment data under § 155.1200(b)(2) from either States or issuers, in States where the Exchange pursues the flexibilities outlined herein, such as the FF-SHOP States. We also received a comment seeking clarification on whether States that operate under the flexibilities described herein would be required to perform enrollee satisfaction surveys, as described under § 155.200(d).

Response: HHS recognizes that Exchanges that operate under these Start Printed Page 16999SHOP flexibilities may not have records of SHOP enrollments, and as such, does not expect these Exchanges to submit SHOP enrollment data to HHS under § 155.1200(b)(2). QHP issuers are required to contract with an HHS-approved enrollee satisfaction survey vendor to administer the enrollee satisfaction survey of QHPs' enrollees, and Exchanges, including SHOPs, are merely required to continue overseeing implementation of the enrollee satisfaction surveys, as described at § 155.200(d).

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 proposed 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 proposed 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 will 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 process the enrollment of qualified employees into QHPs, as is required by the current 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 will still be provided for under our proposals. We sought comment on this proposal.

We are finalizing as proposed; these changes will be effective as of the effective date of this rule. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.

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 proposed 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 will apply only for plan years beginning before January 1, 2018, we proposed 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 new § 155.706 below.

We are finalizing this policy as proposed. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.

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 proposed several changes to the required functions of a SHOP to become effective as of the effective date of this rule. Under these proposals, which we proposed 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. We proposed 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 proposed to codify that State Exchanges may, as the FF-SHOPs have, offer employers a choice of SADPs in their SHOPs. To reflect the proposals described in § 156.150(b) of this document, we proposed that State Exchanges could, and FF-SHOPs would, allow employers to offer a choice of SADPs in their SHOP. If no SADP coverage levels are available, employers would be able to offer a choice of all SADPs offered in an area. We also proposed conforming amendments to the structure of this paragraph.

Because, as discussed earlier in this preamble, premium aggregation functions are not mandated by the PPACA and to maximize the flexibilities associated with operating a SHOP, we proposed to remove required functions related to premium aggregation. Specifically, we proposed 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 Exchanges would be permitted to continue providing remaining premium aggregation functions in their SHOPs currently described at § 155.705(b)(4) if they choose to do so. SHOPs electing not to provide premium aggregation functions, 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 functions, we stated that we expected that employers generally would receive premium bills from each of the plans or issuers with which an employee enrolls and will pay premiums to each such plan or issuer. Section 155.705(b)(4)(ii)(A) (which we proposed 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 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 proposed 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 proposed 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 proposed 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.

Paragraph (b)(10) of § 155.705 establishes requirements related to minimum participation rates and SHOP coverage; we proposed 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 Start Printed Page 17000minimum 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 FF-SHOPs calculate a group's minimum participation rate based on the information provided by the employer and the employees during online enrollment. Under the approach we proposed, SHOPs would not be required to collect the enrollment information needed to calculate a group's minimum participation rate. 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). We did not propose to make any changes to the way in which the minimum participation rate in SHOPs is calculated or the default 70 percent minimum participation rate used in the FF-SHOPs unless otherwise determined by a State. 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 offering QHPs in State Exchanges would be subject to any minimum participation rate established by the SHOP, consistent with this provision. We also proposed that § 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 proposed 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, if 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 proposed 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. 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 proposed 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, 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 proposed 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 proposed in paragraph (e) that the provisions of the section would be applicable for plan years beginning on or after January 1, 2018.

We are finalizing these policies as proposed, except that we are finalizing minor changes to reflect the changes to the actuarial value requirements for SADP QHPs in § 156.150 of this rule, and small, nonsubstantive changes to the regulatory text for clarity and consistency; these policies will be effective as of the effective date of this rule.

Comment: We received a few comments regarding the minimum participation rate in SHOPs. One commenter requested that we maintain the 70 percent minimum participation rate in FF-SHOPs, and another requested that the 70 percent minimum participation rate be lowered. We also received a comment disagreeing with the intent of the proposals within this section. A commenter noted that groups that do not meet the minimum participation rate should not be permitted to enroll in coverage. Finally, a commenter requested that HHS continue to promote the annual 1-month window in which the minimum participation rate does not apply.

Response: In our proposed changes to SHOPs, we did not propose to change the applicable minimum participation rate, or the way in which the minimum participation rate is calculated. The FF-SHOPs will continue to maintain a minimum participation rate of 70 percent unless otherwise specified by the State. This percentage is consistent with industry standards. The annual 1-month window from November 15-December 15, when employers can enroll in a SHOP QHP without meeting any minimum participation rate for their State, will remain in place. This window aligns with the guaranteed availability standards outlined in the PPACA.

Comment: We received a comment in support of our proposal to codify an employer's ability to offer a choice of SADPs and our proposal to allow employers to offer a choice of all SADPs offered through a SHOP, in accordance with the proposals made elsewhere in this rule to remove actuarial values for SADPs.

Response: We are finalizing this policy as proposed, with revisions to the regulation text to reflect the changes to the actuarial value requirements for SADP QHPs, as noted in the proposed rule, and to clarify that the third option refers to all SADPs offered in an area by a single issuer. We also added a title for paragraph (b)(4) that was inadvertently omitted in the proposed rule.

Comment: We received a comment requesting that the option for States to submit an annual letter opting out of the third method of employee choice, a choice of all plans offered by a single issuer, be removed.

Response: We did not propose to remove this option in the proposed rule, and are finalizing this section as described earlier in the preamble for this section. We continue to believe it is important for States to have a choice regarding whether employee choice of all QHPs offered by a single issuer applies in their markets.

Comment: One commenter noted that without premium aggregation, it is difficult or impossible for small businesses to offer a choice of multiple Start Printed Page 17001insurers and plans to their employees. The commenter recommended that HHS provide data on the number of employers currently offering employee choice in the FF-SHOPs and provide annual updates on that data, so that HHS, stakeholders, and policymakers can monitor the impact of this change on employee choice in SHOP.

Response: As discussed throughout this preamble, HHS believes that the PPACA does not have to be interpreted to require SHOPs to provide premium aggregation functions and thus is finalizing the proposals to allow SHOPs to not provide premium aggregation functions other than those related to continuation of coverage under finalized § 155.706(b)(4). State SHOPs are permitted to continue offering premium aggregation functionality. While we recognize that the elimination of premium aggregation in the FF-SHOPs could increase the administrative burden on employers, we believe that potential increased burden is outweighed by the other benefits to the SHOPs and, ultimately, to the employers described throughout this preamble regarding the changes to the SHOPs. Under the proposals being finalized in this rule, SHOPs will not be required to have access to ongoing enrollment information, and the FF-SHOPs will not require issuers to report SHOP employee choice enrollment information to HHS.

d. Eligibility Determination Process for SHOP for Plan Years Beginning Prior to January 1, 2018 (§ 155.715)

As discussed in the following section, we proposed 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 this rule, and to introduce those requirements in a new § 155.716. To reflect that the requirements currently in § 155.715 will apply only for plan years beginning before January 1, 2018, we proposed to amend the heading of § 155.715 and add paragraph (h), to state that the section applies only for plan years that begin prior to January 1, 2018.

We are finalizing this section as proposed. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.

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 proposed 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 changes to the process described here, the process will remain the same as in § 155.715. However, this new section will modify and remove some of the requirements in § 155.715. The proposals described in this section will be effective on the effective date of this rule.

Section 155.715(a) requires that before permitting the purchase of coverage in a QHP, a SHOP must determine that the employer or individual who requests coverage is eligible. This requirement means that employers and employees must complete an application to participate in a SHOP. Accordingly, the FF-SHOPs have established certain operational requirements related to submitting an application through the FF-SHOP website, including 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 proposed 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. We encouraged employers to obtain an eligibility determination from a SHOP as close to the date in which they purchase a SHOP QHP as possible. We considered 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 solicited comments on whether to establish such a limit, and how long it should be. Ultimately, we are finalizing this policy as proposed, and are not establishing a timeline under which employers must obtain an eligibility determination from a SHOP for their enrollments to be considered through the SHOP.

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 proposed to provide SHOPs flexibility to forgo providing for employee eligibility determinations and related functionality and obligations (and the FF-SHOPs will pursue this flexibility). We proposed 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 will 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 have updated and made available a single employer application that SHOPs can use to determine employer eligibility to participate in the SHOP to reflect the new rule at § 155.731, described elsewhere in this preamble. Currently, employee information is primarily collected for purposes of enrollment, and therefore will not be necessary for SHOPs to collect under the approach we are finalizing, allowing SHOPs to operate in a leaner fashion. State Exchanges that intend to maintain more robust SHOP functionalities, in lieu of the flexibilities adopted in this rule, will 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 proposed to include in § 155.716(d) these requirements as they relate to eligibility for employers. However, Start Printed Page 17002because SHOPs will not be required to accept applications from employees, we proposed not to include the requirements in § 155.715(d)(2), relating to eligibility for employees, in new § 155.716. We also proposed 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 will not be requiring SHOPs to determine employee eligibility for plan years beginning on or after January 1, 2018, we proposed not to include this requirement in § 155.716. SHOPs that continue to provide employee eligibility functionality should continue notifying employees of their eligibility. In the SHOPs that operate in a leaner fashion, like the FF-SHOPs, we anticipate that the participating QHP issuer or employer will 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 proposed not including these requirements in § 155.716.

We further proposed 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 full-time status, growing to be a large employer without having maintained continuous SHOP coverage, or moving its principal business address or eligible employee worksites out of the SHOP service area. The employer will be required under new regulations being finalized 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 considered requiring SHOPs to acknowledge an employer's withdrawal from participation in the SHOP within a reasonable time. Alternatively, we considered requiring that employers reapply to determine their SHOP eligibility on an annual basis. We sought comment on these proposals, and ultimately are moving to finalize our proposal without requiring employers to reapply to determine their SHOP eligibility on an annual basis or requiring SHOPs to acknowledge such a withdrawal.

We proposed to specify in paragraph (g) that the provisions in § 155.716 will be applicable for plan years beginning on or after January 1, 2018.

We are finalizing these policies as proposed. These changes will become effective as of the effective date of this rule.

Comment: We received several comments urging us not to establish a 30-day timeline on employers to obtain an eligibility determination because the timeframe would be burdensome on employers. We received comments from State Exchanges also recommending that no timeline should be established for SHOP. These State Exchanges do not impose such a timeline in their SHOPs and have found success with the model.

Response: We are finalizing this section as proposed, and no timeline will be imposed on employers to obtain an eligibility determination from a SHOP. We note that issuers may require employers to obtain an eligibility determination from the SHOP as a condition of enrollment when there is a legal basis for restricting enrollment to enrollment through the SHOP. Further, the IRS may request to see an employer's eligibility determination from the SHOP if the employer chooses to apply for the Small Business Health Care Tax Credit.

Comment: We received one comment regarding whether employers should be required to notify a SHOP of their intent to withdraw from a SHOP, and if a SHOP should acknowledge an employer's withdrawal. The commenter recommended that we not require employers to notify the SHOP of their intent to withdraw their participation from a SHOP and, therefore not require SHOPs to acknowledge an employer's withdrawal.

Response: Although we appreciate the commenter's suggestion as another way to ease burden on employers, for SHOPs to be able to determine which employers remain eligible to participate, the rules must impose some obligation on employers to notify the SHOP when their eligibility ends. As such, as further described in the preamble to § 157.206, we are finalizing our proposal that requires employers to 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. As noted above, SHOPs will not be required to acknowledge an employer's withdrawal.

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, we proposed to amend the heading of § 155.720 and add paragraph (j), to state that the section will apply only for plan years that begin prior to January 1, 2018.

Specifically, we proposed 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. State Exchanges that choose to maintain their current operations may continue establishing enrollment timelines, as State law and SHOP technology permit. We also proposed 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 proposed 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 Start Printed Page 17003for plan years beginning on or after January 1, 2018 because SHOPs may not have the enrollment information necessary to enforce this requirement. We anticipated QHP issuers will notify employees in accordance with applicable State law. Additionally, after plan year 2017 plans have ended, we proposed not to require SHOPs to reconcile enrollment information as described in paragraph (g), as SHOPs may not have enrollment files to reconcile with issuers. We also proposed 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. Under the proposed approach, SHOPs may not have that information to communicate to the qualified employee's employer.

We are finalizing these policies as proposed. These changes will become effective as of the effective date of the final rule. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.

g. Record Retention and IRS Reporting for Plan Years Beginning on or After January 1, 2018 (§ 155.721)

The approach we are finalizing will not require SHOPs to provide functionality related to enrollment of employees for plan years beginning on or after January 1, 2018, and therefore, we proposed that § 155.720 be inapplicable for those plan years, effective on the effective date of this rule. However, there are requirements in that section related to record retention and IRS reporting that will continue to be applicable with some modifications. We proposed 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 proposed that all SHOPs 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 did not propose to continue requiring that SHOPs maintain information on employees.

Section 155.720(i) describes the information a SHOP is currently required to communicate to the IRS for purposes of the Small Business Health Care Tax Credit. We proposed to modify the reporting requirement for SHOPs such that for plan years beginning on or after January 1, 2018, effective on the effective date of this final rule, SHOPs would be required to send the IRS information about the employers determined eligible to purchase a SHOP QHP only upon the request of the IRS. We stated that 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. As mentioned earlier in this document, employers in all States must be able to provide sufficient evidence to the IRS 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, we stated that 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.

We are finalizing these policies as proposed.

Comment: Commenters were generally supportive of these proposals. One commenter disagreed with the premise of this section, citing their lack of support for the overall proposed approach to allow SHOPs to operate in a leaner fashion. We also received a comment supporting the proposals to require SHOPs to only report information to the IRS as requested. This commenter sought clarification on whether HHS will continue to collect SHOP enrollment data per § 155.1200, which was addressed earlier in this rule at the beginning of section III.D.9. Finally, one commenter expressed concern about an employer's access to claim the Small Business Health Care Tax Credit if an employer is in a county where no SHOP plans are available. The commenter noted that in the past, the IRS has granted flexibility to employers in counties that had no SHOP plans available and allowed employers to still claim the Small Business Health Care Tax Credit, if otherwise applicable.

Response: We are finalizing this section as proposed. As noted above, we believe that the information being collected under our proposals and communicating that information only as requested by the IRS is sufficient for the purposes of their administration of the Small Business Health Care Tax Credit. The Treasury Department and the IRS have jurisdiction over the Small Business Health Care Tax Credit.

h. Enrollment Periods Under SHOP for Plan Years Beginning Prior to January 1, 2018 (§ 155.725)

As discussed in the following section, we proposed 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 proposed 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. These changes would become effective as of the effective date of the final rule. We discuss the proposed new § 155.726 below.

We are finalizing these policies as proposed. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.

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 proposed 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 proposed. The policies described in this section were proposed to be effective on the effective date of this rule.

Section § 155.725(a) requires that SHOPs ensure that enrollment transactions are sent to QHP issuers and that issuers adhere to coverage effective dates in accordance with this section. We proposed that many previously required enrollment and election periods would no longer apply for plan years beginning on or after January 1, 2018. State Exchanges that continue to provide online enrollment functionality for their SHOP will 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 Start Printed Page 17004previously specified requirements. In SHOPs that pursue the full extent of the proposed approach, like the FF-SHOPs, we anticipated 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 stated that we did, 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 proposed 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. 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 proposed that these requirements would not apply for plan years beginning on or after January 1, 2018. We anticipated 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 proposed 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 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, the amendments we proposed at § 155.716 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 not to include paragraphs (c) and (d) of § 155.725 in § 155.726 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 proposed that the requirements in § 155.725(g) would not apply for plan years beginning on or after January 1, 2018. Instead, we anticipated 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 proposed 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 stated that we believed it was more appropriate to permit QHP issuers in SHOPs to set their own enrollment timelines. However, State Exchanges would be permitted to continue establishing these effective dates for their SHOPs. We also proposed 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 would utilize the proposed flexibilities. We anticipated 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 proposed 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 proposed to include these in § 155.726(c). We also proposed 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 proposed to modify the SHOPs' responsibilities with respect to special enrollment periods. As stated earlier in this preamble, under the new flexibilities 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 this flexibility, like the FF-SHOPs, issuers will preliminarily be responsible for completing enrollments, and so we expected issuers would implement enrollment periods. Therefore, we proposed to modify the requirements to reflect that the SHOP's revised role would not be to provide special enrollment periods, but to ensure that QHP issuers offering coverage through the SHOP provide the special enrollment periods set forth in regulation.

We are finalizing these policies as proposed, with one minor non-substantive change to correct the placement of numbering in the regulation text.

Comment: Some commenters requested clarification on our proposals at § 155.726(c), and recommended that the proposals better align with § 155.420, while another recommended that issuers be permitted to provide the same special enrollment periods as they provide outside the SHOP.

Response: Special enrollment periods offered through a SHOP are aligned with the special enrollment periods available in the individual market FFEs unless the special enrollment periods offered in the FFEs do not practically apply in the SHOP. We did not propose any changes to special enrollment periods in SHOPs and finalize this section as proposed.

j. Application Standards for SHOP for Plan Years Beginning Prior to January 1, 2018 (§ 155.730)

As discussed in the following section, we proposed 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 proposed 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.

We are finalizing these policies as proposed; the policies will be effective on the effective date of the final rule. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.Start Printed Page 17005

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 proposed 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.

In accordance with our approach allowing SHOPs to operate in a leaner fashion for plan years beginning on or after January 1, 2018, effective as of the effective date of this rule, QHP issuers would complete the process of enrolling qualified employees into coverage in SHOPs that will operate in a leaner fashion, like the FF-SHOPs. In those SHOPs it would not be necessary for a SHOP to collect information necessary for purchasing coverage. Therefore, we proposed 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 proposed 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 proposed 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 be required to 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 proposed to maintain these options, but for consistency with the new approach to SHOP, we proposed not to reference a model single employee application. The model single employer application with the elements described in proposed § 155.731(b) has been updated to reflect these changes.[59]

Paragraph (g) of § 155.730 describes additional application safeguards for SHOP employer and employee applications, which we proposed to maintain in § 155.731(f) with minor amendments to reflect the proposal to eliminate the requirement to collect a single employee application. We also proposed in new paragraph (g) to state that § 155.731 would only be applicable for plan years beginning on or after January 1, 2018.

We are finalizing these policies as proposed. These changes will become effective as of the effective date of this rule.

Comment: One commenter expressed concern that our proposals to approve alternative applications will be burdensome, since applications are reviewed by the State.

Response: Section 155.731(b) discusses the application an employer submits to the SHOP for the purposes of determining eligibility to participate in a SHOP. No State review is required under § 155.731(b) (although a State Exchange could perform such a review, at its option, for its SHOP). The information that SHOPs are required to collect under these rules is minimal. HHS does not believe that additional information to determine an employer's eligibility to participate in a SHOP is necessary, and therefore maintains the ability to review any alternate application a SHOP may use to determine an employer's eligibility to participate in a SHOP. This section is being finalized as proposed.

Comment: We received one comment requesting clarification that State Exchanges can meet § 155.731(e)(2) by making an application available for download on a website as opposed to implementing an interactive web application portal.

Response: Section 155.730(e)(2) does not currently distinguish whether an employer application be available for download on an internet website as opposed to through an interactive web application portal on an internet website, so long as the tools to file an application be available on an internet website. We did not make any changes to this language in § 155.731(e)(2).

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 final 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 SHOPs operating in a leaner fashion under the flexibilities provided for in this rule, like the FF-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 proposed 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 this rule. SHOPs maintaining current enrollment functions were 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 new §§ 155.716 and 157.206 sufficiently address terminations of eligibility for participation in a SHOP.

We are finalizing these policies as proposed. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.

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 proposed 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 this rule, we proposed to amend the heading of § 155.740 and add paragraph (p), to state that the section would apply only Start Printed Page 17006for plan years that begin prior to January 1, 2018.

We are finalizing these policies as proposed. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.

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 employees' rights to appeal an eligibility determination from the SHOP.

To continue to provide for employer eligibility appeals, we proposed to add new § 155.741, mirroring § 155.740, with the following exceptions. Because we proposed 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 proposed not to include a paragraph mirroring § 155.740(d), which describes employees' rights to appeal. We also proposed to omit other references to employee appeal rights, to add references to provide for appeals of terminations of eligibility to participate in a SHOP, and to update cross-references as applicable.

We proposed 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 this rule.

We are finalizing these policies as proposed. Comments related to the proposed approach for SHOP are discussed at the beginning of section III.D.9 of this rule.

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 proposed to maintain the 2019 benefit year user fee rate for all participating FFE issuers at 3.5 percent of total monthly premiums. We sought comment on this proposal.

State Exchanges on the Federal platform enter into an 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 functions, and allocating a share of those costs to issuers in the relevant SBE-FPs. A significant portion of expenditures for FFE functions 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 proposed 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 functions described above. We sought comment on this proposal.

We are finalizing the FFE and SBE-FP user fees rates at 3.5 and 3.0 percent Start Printed Page 17007of monthly premiums, respectively, as proposed.

As we describe elsewhere in this rule, for plan years beginning on or after January 1, 2018, effective on the effective date of this rule, we are removing 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 will not provide these special benefits through the FF-SHOPs or SBE-FP SHOPs after the effective date of the rule. Therefore, we proposed that HHS would not assess a user fee on issuers offering QHPs through FF-SHOPs or SBE-FP SHOPs because these user fees are only charged to issuers who receive special benefits from enrolling individuals through the Federal 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. We are finalizing this policy as proposed.

Comment: Commenters noted the FFE user fee rate should decrease over time, particularly given the reduction in outreach and education activities that HHS conducts. Additionally, commenters noted that the collection and allocation of the user fees should be made more transparent. Other commenters also noted that HHS should allocate a greater portion of the user fees to outreach and education programs.

Response: The FFE and SBE-FP user fee rates for the 2019 benefit year are based on expected total costs to offer the special benefits to issuers offering plans on FFEs or SBE-FPs and evaluation of expected enrollment and premiums for the 2019 benefit year. These estimates yielded an FFE user fee rate of 3.5 percent of premiums and an SBE-FP user fee rate of 3.0 percent of premiums. We reiterate that under OMB Circular No. A-25R, collections are only spent on user fee eligible activities. We will continue to examine cost estimates for the special benefits provided to issuers offering QHPs on the FFEs and SBE-FPs for future benefit years. Additionally, outreach and education efforts will be evaluated annually and funded at the appropriate level.

Comment: Some commenters did not support the proposed SBE-FP user fee rate, stating the proportion of FFE costs allocated to SBE-FP functions do not represent market value, the fee is overstated particularly in context of reduced outreach and education functions by the Federal platform, and increased premiums due to cost-sharing reductions amounts loaded to silver premiums ought to also reduce the user fee rate. Some of these commenters also stated that HHS has not provided SBE-FPs with enrollment data or access to HealthCare.gov back-end customer tools that the SBE-FPs could use to improve outreach and enrollment activities at the State level. Commenters suggested that HHS maintain the 2018 benefit year SBE-FP user fee rate of 2 percent given the impact of user fee rates on market premiums.

Response: The final SBE-FP user fee rate for the 2019 benefit year of 3.0 percent of premiums is based on HHS's calculation of the percent of contract costs of the total FFE functions utilized by SBE-FPs—the costs associated with the information technology, call center infrastructure, and eligibility determinations for enrollment in QHPs and other applicable State health subsidy programs. We have calculated the total costs allocated to SBE-FP functions and enrollment and premium estimates to yield a user fee rate of 3.0 percent for SBE-FP issuers benefiting from functions provided by the Federal platform. We believe issuers offering QHPs through the Federal platform, either the FFEs or SBE-FPs, ought to be charged proportionally for the special benefits provided by the Federal platform. HHS has provided SBE-FPs 2 years to transition to the full rate. Additionally, although HHS reduced its outreach and education costs, we do not charge SBE-FPs for these costs as outreach and education activities are SBE-FPs' responsibility, and therefore the proportion of Federal platform costs associated with SBE-FP functions increased slightly compared to prior years. We also continuously collaborate with our SBE-FP partners to share data within our information disclosure agreements, and welcome continued conversations with SBE-FPs on their data needs.

Comment: Commenters also noted that HHS setting the SBE-FP user fee rate at 3 percent requires State entities to operate a referral hotline, consumer assistance, QHP rate review and certification, legal and finance operations, auditing and other functions with collections based on a State user fee rate of 0.5 percent of premiums, which would not be feasible, or require SBE-FPs to increase assessments on carriers. Commenters noted keeping a lower user fee rate for the SBE-FP model would likely increase States' take-up of these models and enrollment due to the resulting slightly lower increase in premiums.

Response: As we have previously stated, we are not requiring SBE-FPs to allocate a certain share of the State's assessments on various functions, and we are not requiring the SBE-FPs to set the State assessment at any specific rate. If SBE-FP States require more than 0.5 percent of premiums to carry out State functions for the 2019 benefit year, one option for the SBE-FP States could be to assess a higher State charge on issuers, and another option is for the SBE-FP States to assess a charge more broadly on issuers rather than just on issuers offering QHPs on the respective SBE-FPs. We are setting the 2019 SBE-FP user fee rate at 3.0 percent of premiums charged on participating issuers in SBE-FPs to recover the proportion of costs to the Federal government for the benefits associated with SBE-FPs, as required under OMB Circular No. A-25R. We continue to encourage and support States in pursuing the SBE-FP model, in assessing charges on participating issuers, or otherwise, to recover the costs associated with the State's functions and most effectively carry out those functions. We do not believe the total Federal charge assessed on FFE issuers are appropriately compared to the total State and Federal charge assessed on SBE-FP issuers because SBE-FPs provide the benefit of more proximately engaging issuers and consumers.

2. Essential Health Benefits Package

Section 2707(a) of the PHS Act, as added by the PPACA, directs health insurance issuers that offer non-grandfathered health insurance coverage in the individual or small group market to ensure that such coverage includes the EHB package, which is defined under section 1302(a) of the PPACA to include coverage that provides for the EHB defined by the Secretary under section 1302(b) of the PPACA; limits cost sharing in accordance with section 1302(c) of the PPACA; and provides either the bronze, silver, gold, or platinum level of coverage, or is a catastrophic plan under sections 1302(d) and (e) of the PPACA. Section 1302(b) of the PPACA states that the Secretary is to define EHB, except that EHB must include at least the following general categories and the items and services covered within the categories: (1) Ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance use disorder services including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and habilitative services and devices; (8) laboratory services; (9) preventive and wellness services and chronic disease Start Printed Page 17008management; 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 and the public 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 health care 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 base-benchmark plans, including the largest health plan by enrollment in any of the three largest small group insurance products by enrollment, any of the largest three employee health benefit plan options by enrollment offered and generally available to State employees in the State, any of the largest three 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 proposed 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 believed 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 proposed 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.

In the preamble of the proposed rule, we stated that we were considering establishing a Federal default definition of EHB for plan years further in the future that would allow States continued flexibility to adopt their own EHB-benchmark plans, provided they defray costs that exceed the Federal default. We understood that in developing this type of default definition there are trade-offs in adjusting benefits and services. We gave an example of establishing a national benchmark plan standard for prescription drugs that could balance these tradeoffs and provide a consistent prescription drug default standard across States. We solicited initial comments on this type of long-term approach and the trade-offs in adjusting benefits from the current EHBs with a plan to solicit further comments in the future.

Comment: Many commenters requested more detail on a Federal default definition of EHB, with some commenters suggesting the publication of a white paper to discuss such a policy in more detail.

Most commenters opposed a Federal default definition of EHB. Many commenters were concerned that a Federal default definition of EHB would be implemented in the pursuit of seeking arbitrary benefit limits, even at the cost of inferior health outcomes.

Some commenters expressed concern over diminishing the State's flexibility in defining their own EHB, especially since other proposals with regard to EHB concentrated on giving additional flexibility to the States. These commenters also expressed concern over requiring States to defray the costs of benefits in excess of a Federal standard.

Many commenters expressed support for a Federal default EHB definition if such a standard represented a minimum level of benefits required in an EHB-benchmark plan, rather than a maximum level of benefits. Commenters noted that plans should include a wide array of benefits to account for the diverse needs of the population at large. Other commenters supported a Federal default EHB definition to the extent that certain benefits would be included in such a definition.

Most commenters opposed a Federal default definition of EHB as it pertains to a national prescription drug benefit, noting that States and issuers are best positioned to evaluate and respond to prescription drug needs. Many of these commenters expressed concerns similar to those raised regarding a general Federal default EHB definition: Concerns that such a standard would, in the pursuit of arbitrary benefit limits, have a negative impact on health outcomes by inhibiting the availability of needed drugs; establish a maximum level of benefits for EHB-benchmark plans; diminish the States' flexibility to define EHB; and increase the defrayals required by States.

Some commenters noted that a national prescription drug benefit standard would require continuous and frequent updating to account for changes in clinical guidelines and drug innovation. These commenters supported a national prescription drug benefit standard that uses a qualitative approach reliant upon Pharmacy & Therapeutics Committees to respond to such rapid changes, rather than a standard based on providing a minimum number of drugs per category or class.

A few commenters supported a national prescription drug benefit, noting that multi-State issuers face complexity dealing with minimum drug counts which vary widely across EHB-benchmark plans, with no rational medical justification for the variation.

Some commenters expressed concern about the impact of a Federal prescription drug benefit on the ability Start Printed Page 17009of entities to negotiate drug prices. One commenter noted that a Federal default EHB definition for prescription drugs would stifle innovation due to uncertainty over whether a new drug would be covered.

Response: Our intention is to better align medical risk in insurance products by balancing costs to the scope of benefits. We will take these comments under consideration as we consider this policy. In order to avoid market instability and inefficiencies for States that have used the expanded flexibilities regarding EHB that we are finalizing in this rule and issuers in those States, it is our intent that any Federal default standard would not require a State to make immediate changes to its EHB-benchmark plan within 3 years following a State change.

a. State Selection of Benchmark Plan for Plan Years Beginning Prior to January 1, 2020 (§ 156.100)

To reflect the proposed options in § 156.111 for States to adopt new EHB-benchmark plans for plan years 2019 and later, we proposed to make conforming changes to § 156.100 to explicitly state that the selection process in § 156.100 applies only through plan years beginning in 2018, and § 156.111 applies for plan years beginning after 2018. Because we are finalizing § 156.111 to apply for plan years 2020 and later, we are not finalizing these conforming changes as proposed, but are instead making changes to § 156.100 to state that the selection process in § 156.100 applies only through plan years beginning in 2019, and § 156.111 applies for plan years beginning on or after January 1, 2020.

Comment: A few commenters commented on the proposal to make conforming changes to § 156.100 as a result of our proposed changes to § 156.111. These commenters generally did not support the proposed policy of § 156.111 and supported retaining the current benchmark plan options at § 156.100 that provided benchmark plan options at the State level.

Response: Since we are finalizing the new options for a State's EHB-benchmark plan at § 156.111 starting for plan year 2020, we are finalizing conforming changes to § 156.100, to reflect § 156.111.

b. State Selection of EHB-Benchmark Plan for Plan Years Beginning on or After January 1, 2020 (§ 156.111)

i. States' EHB-Benchmark Plan Options (§ 156.111(a))

We proposed to add new § 156.111, which would provide States with the flexibility to update their EHB-benchmark plans more frequently and to select among more options. Specifically, we proposed 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 [60] under § 156.100 and § 156.110; (2) replacing one or more EHB categories of benefits under § 156.110(a) in its EHB-benchmark plan used for the 2017 plan year with the same categories of benefits from another State's EHB-benchmark plan used for the 2017 plan year under § 156.100 and § 156.110; or (3) otherwise selecting a set of benefits that would become the State's EHB-benchmark plan, provided that the EHB-benchmark plan does not exceed the generosity of the most generous plan 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 base-benchmark plan options.[61] Under any of the available three options, we proposed that a State could change its EHB-benchmark plan in any given year, not only in the years that HHS specified. 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 EHB-Benchmark Plan

Under the first option, we proposed that a State be permitted to select one of the EHB-benchmark plans used for the 2017 plan year by another State. We did not propose to change the State mandate policy at § 155.170 under this option. Under this proposed policy, we proposed 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. Conversely, if a State selects an EHB-benchmark plan 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.[62] 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 solicited 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.

Option 2: Replace Category or Categories From Another State's EHB-Benchmark Plan

Under the second option, we proposed that a State be allowed to partially replace its current EHB-benchmark plan, using EHB-benchmark plans used by other States for the 2017 plan year. Under this option, we proposed that a State may replace any EHB category or categories of benefits in its EHB-benchmark plan from the 10 required EHB categories with the same category or categories of benefits from another State's EHB-benchmark plan used for the 2017 plan year. For example, a State may select the prescription drug coverage from another State's EHB-benchmark plan (which might include a different formulary drug count) and a third State's EHB-benchmark plan hospitalization category. Similar to the first option, we proposed 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 EHB-benchmark plan used for the 2017 plan year with a category or categories of benefits from another State's EHB-benchmark plan used for the 2017 plan year, the selecting State would be required to defray the cost of any benefits included in the categories of benefits from the other State's EHB-benchmark plan that are mandated by the selecting State's action after Start Printed Page 17010December 31, 2011 and that are subject to defrayal under current regulations. For example, if State A replaces a category of benefits in its EHB-benchmark plan with a category of benefits from State B's EHB-benchmark plan, State A must defray the cost of any benefits in that category mandated by State A after December 31, 2011 that are included in the replacement category of benefits and that are subject to defrayal under current regulations.

Option 3: Select a Set of Benefits To Become the State's EHB-Benchmark Plan

Lastly, under the third option, we proposed that a State be permitted to select a set of benefits that would become its EHB-benchmark plan using a different process, so long as the new EHB-benchmark plan does not exceed the generosity of the most generous among a set of comparison plans. Under this option, the set of comparison plans would be the State's EHB-benchmark plan used for the 2017 plan year and the plans described in § 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 proposed 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 proposed that the State could determine generosity in the same manner as we would use to measure whether the plan provides benefits that are equal in scope of benefits provided under a typical employer plan, described later in this section.

We also recognized that the increased flexibility offered to States under this proposed option to define an EHB-benchmark plan could allow a State to embed any desired benefit mandate into the EHB-benchmark plan, without any requirement to defray the obligation. For this reason, we proposed to apply the benefit mandate defrayal policy under § 155.170 to this option. Specifically, we proposed 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.

We solicited comments on all of the proposals, including on whether to allow a State to select its EHB-benchmark plan from any of the 10 previous base-benchmark plan options available to the State or other States under § 156.100, supplemented as necessary under § 156.110, on whether a different approach is needed to defray the cost of any benefits mandated by State action, on whether other flexibilities are needed by States under the proposed options, on our proposed approach to limit a State's new EHB-benchmark plan under Option 3, 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. We are finalizing these new EHB-benchmark plan options as proposed, with one amendment. As further discussed in the comments and responses below, we are extending the proposed requirements at § 156.111(a)(3)(i) and (ii) that ensure that the State's new EHB-benchmark plan does not exceed the generosity of the most generous among a set of comparison plans to all of the State's options to select a new EHB-benchmark plan at § 156.111(a). We are finalizing these requirements at § 156.111(b)(2)(ii).

Comment: Some commenters supported the proposed EHB-benchmark plan options for States because they offer increased State flexibility through additional options for States. Many commenters did not support the proposed EHB-benchmark plan policy or supported retaining the current policy, and noted that it already allows State flexibility. Many of these commenters were concerned that States would decrease EHB benefits as a result of the proposed policy, or that issuers would not cover benefits that are not EHB. Some commenters were concerned that the options would create a patchwork of benefit designs that could diminish care, increase or shift costs or affect issuer competition.

Other commenters believed that the proposed policy was inconsistent with the statutory requirements that the Secretary define EHB and that the Secretary ensure other EHB consumer protections under section 1302(b)(2), (3), and (4) of the PPACA are incorporated into the definition of EHB. These commenters believed that the Secretary has no authority to delegate defining EHB or its parameters to States or issuers. Commenters also believed that the proposed options allowed States to select an EHB-benchmark plan from among an endless set of options, whereas the prior policy allowed a preset list of 10 plan options per State, with most options being from the State in which the plan was applying. Some commenters also believed that the proposed policy was inconsistent with the statutory requirement that the Secretary update EHB based on gaps in coverage or changes in the evidence identified in the Secretary's report to Congress as established at section 1302(b)(4)(H) of PPACA. Some of these commenters also noted that this report has not been completed.

Response: As described in the EHB Final Rule, we originally established the benchmark plan policy to ensure that EHB is equal to the scope of benefits provided under a typical employer plan and in recognition that the typical employer plans differ by State. Specifically, the Secretary balanced these directives, and minimized market disruption, by directing plans to offer the 10 statutory EHB categories while allowing the State to select the specific details of their EHB coverage from a set of reference plans. Accordingly, States maintained their traditional role in defining the scope of insurance benefits and exercised that authority by selecting a plan that reflects the benefit priorities of that State, within the bounds of the definition of EHB set by the Secretary.[63] This deference to States within the definition established by the Secretary continues under the policies finalized in this rule.

We believe that States should have additional choices with respect to benefits, which may foster innovation in plan design and greater access to coverage, and provide States with a mechanism for affecting affordability. This approach may balance these considerations in manners different from the balance achieved under the previous benchmark plans. The Secretary is defining an expanded set of options from which the State can select Start Printed Page 17011its EHB-benchmark plan, allowing the State to select the specific details of that plan. This policy recognizes the need for increased State flexibility beyond that which the original policy allowed.

For this reason, we are finalizing the new options for a State's EHB-benchmark plan, along with additional requirements for the State's selection as detailed later in this preamble. We believe these requirements, when taken together, provide States with significant flexibility while appropriately limiting the range of choices, thereby fulfilling the Secretary's obligation to define EHB. Specifically, the requirement that a State's EHB-benchmark plan provide a scope of benefits that is equal to, or greater than, to the extent any supplementation is required to provide coverage within each EHB category at § 156.110(a), the scope of benefits provided under a typical employer plan, as defined at § 156.111(b)(2), establishes a minimum scope of benefits that is required to be covered as EHB. Furthermore, the requirement that the EHB-benchmark plan cannot exceed the generosity of the most generous among a set of comparison plans, which are those group market plans that comprise the basis for the scope of benefits under the current definition of EHB, further limits the range of benefits that can be considered EHB. Together with the other requirements specified at § 156.111(b)(2), these requirements provide States with flexibility to adjust their States' EHB-benchmark plan within a limited range.

At the same time, this policy also allows a State to retain its current EHB-benchmark plan. This flexibility was not afforded under the previous policy. In fact, the previous default option, which was the largest plan by enrollment in the largest product by enrollment in the State's small group market, could vary between benchmark plan selection years, creating unnecessary disruption for States that were unable to select a benchmark plan. Under the new policy, these States, as well as States that do not wish to make changes, will not be required to do so, and will not need to take action to prevent the disruption caused by a change to the State's EHB-benchmark plan.

We are not completing the report to Congress and the public on the periodic review of EHB under section 1302(b)(4)(G) of the PPACA at this time. We do not believe that a report on EHB at this time will provide conclusive results on the assessments required under section 1302(b)(4)(G) of the PPACA, as a large portion of plans required to comply with EHB are QHPs offered both on and off of the Exchanges. These QHP markets have seen significant changes from year to year since their inception, with the number of issuers offering plans in each market changing on an annual basis and the number of enrollees in these plans fluctuating. Furthermore, the frequent modifications to EHB policies and other related Federal benefit policies, such as guidance on complying with the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA) and preventive services regulations, have not allowed these plans' benefit structures to stabilize enough for conclusive analysis. Since the PPACA only requires this report to Congress to be conducted periodically, and we do not believe that conducting this report at this time will establish meaningful conclusions, this report will not be completed at this time. We intend to conduct this report once the market has stabilized, which we believe will be furthered by the policy we are finalizing in this rule.

Comment: Many commenters were concerned that the proposed EHB-benchmark plan options would create a race to the bottom among States' scope of benefits for their EHB-benchmark plans. These commenters were especially concerned that these benefit designs would not meet the needs of vulnerable populations, would increase costs to consumers, and would reduce the value of coverage. Some commenters were concerned that benchmark plans selected under one of the first two options would not reflect plans in the State or meet the needs of beneficiaries in that State. Some commenters were concerned that these proposed options discourage States from selecting more generous coverage, with some commenters stating that if the true goal of the policy was to increase State flexibility, the State should also have the option to increase benefits.

Other commenters were concerned that the first two options allow States to pick more generous plans, and some commenters recommended preventing States from being able to select an option without being responsible for the costs of the additional benefits. In general, these commenters were concerned that the proposed policy would allow States to select benchmark plans with more generous State mandates. Other commenters were concerned that there is significant variation in benchmark plan coverage of particular services, and some commenters stated that the goal of allowing State flexibility should be secondary to ensuring comprehensiveness of the benefit package.

Other commenters noted that the second option allows the State to define EHB by selecting the least generous benefits for each category, thus creating a standard that does not resemble any existing plan in the market today. Commenters were similarly concerned that the third option could allow a State to greatly reduce the generosity of coverage, even though the definition would still require the coverage of the 10 EHB categories. Some commenters were concerned that the third option was too broad and did not ensure consumer protections to ensure the comprehensive scope of benefits.

Response: We are not persuaded that the new options will create a race for States to establish the least generous plan possible because all States' EHB-benchmark plans will be required to include coverage for all 10 EHB categories of benefits, and the State will be required to confirm its EHB-benchmark plan includes coverage for each EHB category in accordance with § 156.111(e)(1). Section 156.111(e)(1) also requires States to confirm that its new EHB-benchmark plan meets the applicable requirements of § 156.111(b) on scope of benefits, including that the State's EHB-benchmark plan provide a scope of benefits that is equal to, or greater than, to the extent any supplementation is required to provide coverage within each EHB category at § 156.110(a), the scope of benefits provided under a typical employer plan in accordance with § 156.111(e)(2).[64] Through those requirements, the options at § 156.111(a) do not allow a State to substantially reduce the level of coverage, and instead allow a State the option to adjust its EHB-benchmark Start Printed Page 17012plan to use benefit structures that have worked well in other States or other parts of the employer markets, or otherwise innovate benefits within the range of plans in the employer market. Because each State has different market conditions and demographic distributions, a plan that may be the least generous plan in one State may not be the least generous plan in another State, and for that reason, we are not concerned that this policy is going to create a race to establish the least generous plan.

In short, this flexibility established under § 156.111(a) is not intended to reduce benefits, but to allow for more innovative benefits within the current benefit requirements. This means that a State's EHB-benchmark plan may not have the exact same benefits and limits as the typical employer plan the State identifies under this policy, but this policy will still result in the State's EHB-benchmark plan providing a scope of benefits equal to, or greater than, to the extent any supplementation is required to provide coverage within each EHB category at § 156.110(a), the scope of benefits provided under a typical employer plan, satisfying the Secretary's obligations at section 1302(b) of the PPACA. Furthermore, as described later in this rule, we are finalizing a definition of a typical employer plan that requires the plan have enrollment and be sold in the State. This definition ensures that regardless of the benchmark plan option selected by the State under this rule, that benchmark plan will be at least equal to the scope of benefits to a popular employer plan that was previously offered in the State's employer plan market.

Furthermore, we encourage States to select EHB-benchmark plans that foster innovation in plan design that would provide greater access to coverage that would ultimately improve affordability. As discussed in the proposed rule, in addition to granting States more flexibility in regulating their markets, one of the goals with this policy was to permit States to modify EHB to increase affordability of health insurance in the individual and small group markets.[65] As we also note in our discussion of benefits mandated by State action at § 155.170, we want to ensure that States do not select EHB in a manner that decreases affordability of coverage. Therefore, in response to commenters' concerns about ensuring that the options under § 156.111(a) do not undermine the goal of affordability, we are incorporating into the regulation protections to ensure that a State's EHB-benchmark plan selections take into account affordability of coverage, by applying the generosity test proposed in connection with the third option to all three EHB-benchmark plan selection options for States. Accordingly, § 156.111(b)(2)(ii) provides that a State may not select a new EHB-benchmark plan that exceeds the most generous among a set of comparison plans, no matter the option used to generate the EHB-benchmark plan. These comparison plans include 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.[66] We recognize that it may be possible for a State's EHB-benchmark plan to provide a scope of benefits that is equal to (or greater than, to the extent any supplementation is required to provide coverage within each EHB category at § 156.110(a)) the scope of benefits provided under a typical employer plan at § 156.111(b)(2)(i), and not meet the generosity standard at § 156.111(b)(2)(ii) (for example, a proposed EHB-benchmark plan could satisfy the typical employer plan requirement but exceed the generosity standard because of the way supplementation was performed). However, we believe that by extending this generosity limit to all selection options, we are minimizing the opportunity for a State to select EHB in a manner that would make coverage unaffordable for patients and increase Federal costs, while still helping to ensure that States are ensuring that benefits are equal to the scope of benefits provided under a typical employer plan.

Comment: Some commenters were concerned that a State would have difficulty knowing what another State's EHB-benchmark plan was covering, because the benefits or benchmark plan documentation were not broken into separate EHB categories. Some commenters were generally concerned about using the 2017 EHB-benchmark plans. These commenters noted that States are only supplementing categories of benefits in those plans when those categories are missing and are not considering the scope of benefits within the category, leading to inadequate coverage. Other commenters wanted to understand how supplementation would work under the options.

Response: Additional supplementation of the EHB-benchmark plans generally should not be required under the three State EHB-benchmark plan selection options being finalized at § 156.111(a). For the first option at § 156.111(a)(1), the selecting State would be selecting another State's EHB-benchmark plan, which already would be supplemented, as necessary.[67] For the second option at § 156.111(a)(2), the State would replace a category or categories of benefit from its current EHB-benchmark plan with another State's EHB-benchmark plan's category or categories of benefits, which already would have been supplemented, if necessary, by that other State.

A State using the third option will need to ensure that its EHB-benchmark plan satisfies the requirements being finalized at § 156.111(b), such as the requirements to cover items and services in each of the ten statutory categories of EHB; to not have benefits unduly weighted towards any of those categories of benefits; and to provide a scope of benefits equal to (or greater than, to the extent any supplementation is required to provide coverage within each EHB category at § 156.110(a)), the scope of benefits provided under a typical employer plan. Since States have been supplementing their EHB-benchmark plans since the inception of the EHB policy, we expect States to be familiar with categorizing benefits.

Comment: Various commenters supported coverage of specific services within an EHB category, with some commenters noting that many of the services that might be considered for reduction are only a small portion of spending. They stated that not covering these services would not meaningfully reduce premiums and would increase or shift costs for the services for the consumers who need them. Other commenters noted that all of the options are linked in part to the 2017 EHB-benchmark plans (including the generosity standard under Option 3), and that these are in fact 2014 plans. Certain commenters were concerned Start Printed Page 17013that these 2014 plans do not comply with new requirements, such as the applicability of requirements under MHPAEA or noted that using 2014 plans in the long term means that EHB would still be linked to 2014 plans. Comments varied on whether States that are selecting an EHB-benchmark plan should be allowed to select from any States' previous EHB-benchmark plans for options § 156.111(a)(1) or (2). A few commenters recommended that HHS give States additional technical assistance. For example, one commenter sought clarification on which State entity would be authorized to select the State's EHB-benchmark plan. Certain commenters also had concerns about provider discrimination under the proposed policy.

Response: Because § 156.111 continues to define EHB based on a “benchmark plan” approach, we are continuing the policy of not requiring that a State's EHB-benchmark plan cover a specific service or services or use particular providers. We are limiting the policy to the 2017 EHB-benchmark plans under Options 1 and 2 at § 156.111(a)(1) and (2) to ensure that the set of plans available for States to select from under Option 1 and 2 are clearly defined and reflect an EHB-benchmark plan that was used by another State. We believe that this policy balances providing flexibility to States to select from more options for their EHB-benchmark plans while at the same time providing simplification of choice within a defined set of plan options. Furthermore, this policy will not overly limit State flexibility, as the third option would permit a State to select from any of the other 10 previous base-benchmark plan options. While the 2017 EHB-benchmark plans and the benchmark plans selected by States under § 156.111(a)(3) may not comply with all of the market reforms and consumer protections applicable to plans offered in the individual and small group markets, this is not a departure from the benchmarks that have been used to date. We reiterate the policy that non-grandfathered insurance plans in the individual and small group markets that are required to comply with EHB must not only provide benefits that are substantially equal to the EHB-benchmark plan, but must also comply with all Federal requirements applicable to plans offered in those markets, such as those benefit requirements at §§ 156.115, 156.122, 156.125, and 156.130(g).

We also recognize that States have different processes for selecting a benchmark plan and as a result, the State needs discretion in determining what entity has the authority to select the State's EHB-benchmark plan. We therefore will not dictate which State entity must act to select a State's EHB-benchmark plan, but we may consider providing States with additional technical assistance to aid in their selection under the policy finalized in this rule.

Comment: Many commenters were concerned about the impact of the proposed policy on the determination of which benefits are subject to the prohibition of annual and lifetime dollar limits in section 2711 of the PHS Act, as added by the PPACA, and the annual limitation on cost sharing at section 1302(c) of the PPACA (which is incorporated into section 2707(b) of the PHS Act). Some commenters were particularly concerned about the impact of this policy on markets beyond the Exchanges, particularly the large group market and self-insured group health plans. These plans are not required to provide coverage of EHB but must use a definition of EHB to determine which benefits apply to the prohibition of annual and lifetime dollar limits and the annual limitation on cost sharing. These commenters were generally concerned about increased or shifting costs to consumers for benefits that are no longer EHB, particularly for vulnerable populations. Some commenters were concerned that since large group market and self-insured group health plans could use any State's definition of EHB for purposes of the annual and lifetime dollar limit prohibition and the annual limitation on cost sharing, any State's definition could have the potential to impact plans nationwide. Other commenters wanted additional information and evaluation of the impact on how the change in definition would be implemented.

Response: As discussed in more detail earlier in this section, the flexibility established under § 156.111(a) is not intended to reduce benefits, but to allow for more innovative benefits within the current benefit requirements. This means that a State's EHB-benchmark plan may not have the exact same benefits and limits as the typical employer plan the State identifies under this policy, but this policy will still result in the State's EHB-benchmark plan providing a scope of benefits that is equal to, or greater than, the scope of benefits provided under a typical employer plan in accordance with § 156.111(b)(2)(i), satisfying the Secretary's obligations at section 1302(b) of the PPACA. Accordingly, we do not expect that there will be a substantial change to the scope of the protections afforded under the annual and lifetime dollar limit prohibition or the annual limitation on cost sharing.

ii. The Requirements for States' EHB-Benchmark Plans (§ 156.111(b) Through (d))

Under the proposed options for States to select a new EHB-benchmark plan, we proposed 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. First, under paragraph (b)(1), we proposed 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. Second, we proposed at paragraph (b)(2) to define requirements regarding the scope of benefits that must be provided by a State's EHB-benchmark plan. Specifically, we proposed at paragraph (b)(2)(i) 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 proposed 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 sought comment on many parts of this definition, including:

  • Whether the definition of a typical employer plan should reflect in substantial part a plan that would be typical in the State in question;
  • 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;
  • 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;
  • Whether the definition of a typical employer plan for this purpose should be limited to plans that already cover all 10 EHB categories;Start Printed Page 17014
  • 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; and
  • 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 be 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.

Given that the proposed definition of a typical employer plan was a plan with enrollment of at least 5,000 enrollees in one or more States, we believed that the State's option to select another State's EHB-benchmark plan at proposed § 156.111(a)(1) would automatically meet the typical employer plan requirement because each of the available options is an employer plan that had substantial enrollment.

We also solicited 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 the third option under proposed § 156.111(a)(3). We specifically sought comment on our 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.[68]

In addition to meeting the typical employer plan requirements, we proposed at paragraph (b)(2)(ii) that the State's EHB-benchmark plan must also 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. Furthermore, we proposed at paragraph (b)(2)(iii) 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.

At paragraph (c), we proposed 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 proposed that this process would apply whenever a State changes its EHB-benchmark plan in accordance with proposed § 156.111(a).

Lastly, we proposed 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 proposed 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 were intended to align with statutory requirements. We affirmed that §§ 156.115, 156.122, and 156.125 would continue to apply to all plans subject to the EHB requirements.

We are finalizing the requirements for a State's EHB-benchmark plan with certain amendments to: (1) Clarify that the State's EHB-benchmark must provide coverage of items and services for at least the 10 EHB categories; (2) add a codification of the currently applicable requirement at § 156.110(d) that the State's EHB-benchmark plans must not include discriminatory benefit designs that contravene the non-discrimination standards defined in § 156.125; (3) modify the definition of a typical employer plan; (4) add a requirement that the State must post a notice of its opportunity for public comment with associated information on a relevant State website; (5) provide that any State EHB-benchmark plan may be no more generous than the most generous among a set of comparison plans, as described above; and (6) codify in regulation text the proposed standard in the preamble of the proposed rule that if a State's benchmark plan selection does not meet the requirements of this section and section 1302 of the PPACA, the State's EHB-benchmark plan will be the State's EHB-benchmark plan applicable for the prior year, as further described under the data collection section below. To reflect the application of the generosity standard to all three options under this regulation, we moved that provision from § 156.111(a)(3) to § 156.111(b)(2), and have renumbered parts of § 156.111(b)(2) for clarity.

Comment: Many commenters stated that the definition of EHB provides important protection to consumers, particularly with regard to various populations. Some commenters appreciated the codification of certain EHB protections under section 1302(b) of the PPACA into the regulation text, with some requesting the non-discrimination provisions from section 1302(b) of the PPACA be included, too. Some commenters wanted strong Federal enforcement of EHB requirements, such as non-discrimination. Some commenters believed that the standards were too vague or wanted additional guardrails on States' EHB-benchmark plans. A few commenters wanted certain clarifications to § 156.111(b)(1), such as the inclusion of items and services or on requiring coverage of the 10 EHB categories.

Response: In the proposed rule, we did not propose to eliminate the EHB-benchmark plan standards under § 156.110. However, we recognize based on comments that the applicability of that section to benchmark plans selected under the proposed § 156.111 was not as clear as it could have been. Therefore, in response to commenters, we are finalizing § 156.111(b) with certain amendments that align with the statute and that clarify the applicability of EHB-benchmark plan standards. We are amending § 156.111(b)(1) to more explicitly state that the EHB-benchmark plan must not only provide an appropriate balance of coverage of the 10 statutory categories of EHB, but also cover items and services in all 10 categories.

We are also adding a new § 156.111(b)(2)(v) to codify the continuing applicability of the currently applicable benchmark plan non-discrimination provisions under § 156.110(d) to the EHB-benchmark plan selection options under § 156.111(a). Specifically, a State's EHB-benchmark plan may not violate the non-discrimination standards defined in § 156.125, which reflects the non-discrimination provisions of section 1302(b)(4) of the PPACA.

Comment: Many commenters opposed allowing States to annually update their EHB-benchmark plans. These commenters had a variety of concerns about annual updates to the benchmark plans, such as annual updating would be administratively and financially burdensome to issuers, confusing for consumers, lack predictability, or would create instability that would not allow issuers to assess the effectiveness of previous changes before new changes are implemented. Some commenters recommended limiting the changes to every few years, with some supporting every 3 years, which aligns with the Start Printed Page 17015frequency with which the benchmark plans have previously been updated. Some commenters recommended timeframes for the State's annual submission process, such as requiring the EHB-benchmark plans to be finalized 18 months prior to the benefit year, to help ensure that issuers have sufficient time to design products in advance of the filing deadlines for the upcoming benefit year.

Response: As discussed in the proposed rule, we recognize the burden on States and issuers of making changes to a State's EHB-benchmark plan. Specifically, we anticipated most States would need to invest resources to analyze the three new EHB-benchmark plan selection options to make an informed selection, even if a State defaults. We also anticipated that 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.[69] Because of the level of effort needed by the State and its issuers to make changes to a State's EHB-benchmark plan, we believe that in only very limited cases will a State choose to make EHB-benchmark plan changes on an annual basis. We believe that if a State does decide to make changes annually, there may be a specific reason for needing an annual change such as for a medical innovation where such benefits would outweigh any potential for consumer confusion. We also do not believe that such changes would rise to the level of creating market instability. The purpose of this policy is to allow for State flexibility in selecting an EHB-benchmark plan, and we believe it is important for States to retain the flexibility to choose when the State wants to make changes to its EHB-benchmark plan. Therefore, we are finalizing the policy as proposed.

As described in the next section, we are finalizing the 2020 deadline for submission of a State's EHB-benchmark plan under § 156.111(a). For plan years after 2020, we intend to announce the annual EHB-benchmark plan selection deadline to States in the annual notice of benefits and payment parameters. Because we expect that the number of submissions for each plan year will vary, we will not be providing a specific date as to when the State's EHB-benchmark plans for a given plan year will be finalized.

Comment: Many commenters opposed allowing the definition of typical employer plan to include self-insured plans, as these plans can have unique benefit designs, and are not directly regulated by States, and because it would be difficult to obtain plan information for such plans. Some commenters stated that the lack of specificity in the definition of a typical employer plan could allow rare, outlier plans with extremely limited coverage to become the typical employer plan, or they requested that there be additional requirements on the typical employer plan to prevent outlier plans from being the typical employer plan. Commenters were concerned that the definition could jeopardize adequate coverage of the 10 EHB categories, lowering the threshold for minimum coverage, or allowing insurers to offer plans with less generous benefits, weakening the PPACA protections for individuals with disabilities and complex medical needs.

Some commenters were particularly concerned that the policy in the proposed rule generally focused on using the definition of EHB to create a ceiling for the scope of benefits. They expressed concern that the generosity standard limits the scope of benefits to certain previous benchmark plan options, instead of providing the floor for the scope of benefits, as they stated PPACA intended the definition of EHB to be. These commenters were concerned that decreased benefits would result in high costs for consumers to access those services.

Some commenters wanted more specificity in the definition of typical employer plan, such as wanting the plan to be specific to the State to ensure compatibility in the State or meet State requirements, be required to cover all 10 EHB categories or minimum benefit standards, be from a recent plan year, constitute MEC, provide minimum value (or some other actuarial value standard), not be an account-based plan, not be a preventive-services-only plan or an excepted benefit plan or not be an indemnity plan. Some commenters supported the definition of a typical employer plan for its flexibility or supported aspects of the proposed definition. Another commenter noted that if a State-specific enrollment requirement is added, current EHB-benchmark plans under the first option may not automatically meet the definition.

Commenters recommended different enrollment thresholds for the typical employer plan, with some commenters noting that substantial enrollment varies by State or the lack of justification for the 5,000 enrollee threshold. Other commenters believed that the proposed policy disregarded the concept of typicality as being the scope of coverage typically seen in employer-based plans or did not believe enrollment should be an indicator for typicality (as typicality is about comparability and enrollment is about size).

Response: We agree with commenters that the definition of EHB should establish a minimum level of benefits. In response to commenters' concerns with the proposed definition of typical employer plan, we are finalizing two sets of typical employer plans from which a State may choose for purposes of ensuring a minimum scope of benefits for the State's EHB-benchmark plan, which establishes the State's EHB definition.

First, we are finalizing that the typical employer plan may be one of the selecting State's 10 base-benchmark plan options established at § 156.100 from which the State could select for the 2017 plan year. This definition, which allows the selecting State to continue to select from its previous options, will allow a selecting State to modify its previous base-benchmark plan options to innovate those benefits to better meet the needs of consumers in its market.

Second, we are finalizing that a typical employer plan also may be the largest health insurance plan by enrollment in any of the five largest large group health insurance products by enrollment in the selecting State, as product and plan are defined at § 144.103, provided that: (1) The product has at least 10 percent of the total enrollment of the five largest large group health insurance products by enrollment in the selecting State; (2) the plan provides minimum value, as defined under § 156.145; (3) the benefits are not excepted benefits, as established under § 146.145(b) and § 148.220; and (4) the benefits in the plan are from a plan year beginning after December 31, 2013.

For purposes of this definition, we are applying the Federal definitions of plan and product at § 144.103.[70] Under these definitions, the product comprises all plans offered with the same covered benefits and as a result, each plan within a product must have the same benefit package. To ensure that these plans are typical within the selecting State, the determination of each product's enrollment numbers is based on enrollment in the selecting State. Start Printed Page 17016Also, to ensure that none of these products are outliers within the State, only plans from products that have at least 10 percent of the total enrollment of the five largest large group health insurance products can be selected. For example, if a selecting State's three largest large group health insurance products under the second definition at § 156.111(b)(2)(ii) have 92 percent of the enrollment in the selecting State among the five largest large group health insurance products in the State, the fourth and fifth largest large group health insurance products in the selecting State will not have at least 10 percent of the enrollment and therefore, will not be an option under the second prong of the typical employer plan definition. The use of enrollment size in defining the typical employer plan aligns with the previous policy where the base-benchmark plan options were also determined based on the enrollment in those markets. Furthermore, by using the largest products by enrollment in the selecting State, rather than on a specified enrollment size, we ensure that any variation in population size by the selecting State is taken into account. We believe this second prong of the definition provides States with important additional flexibility, as it expands the comparison options available to States when comparing their selected EHB-benchmark plan to a typical employer plan, while simultaneously ensuring the statutory requirement that the definition of EHB be equal in scope to a typical employer plan is met.

We agree with commenters that self-insured plans have a significantly greater likelihood of being plans with atypical benefit designs. Therefore, this definition for typical employer plan does not include self-insured plans, including health reimbursement arrangements. We also recognize that States would have challenges obtaining information about these other types of plans, especially at the level of detail needed for the plan to be used as a comparison to the State's EHB-benchmark plan. To limit the burden on States to determine which plans in the State would be included in the second set of plans, we are limiting the second set under the definition of typical employer plan to large group market health insurance plans and products.

In response to commenters who recommended that the typical employer plan be required to provide minimum value (MV), we are also finalizing as part of the second prong of the definition of the typical employer plan that the plan must meet MV requirements under § 156.145. Under § 156.145, an employer-sponsored plan provides minimum value only if the percentage of the total allowed costs of benefits provided under the plan is greater than or equal to 60 percent, and the benefits under the plan must include substantial coverage of inpatient hospital services and physician services, characteristics that we believe are reflective of typical employer plans. For example, by requiring the typical employer plan meet MV, outlier plans, such as preventive-services-only plans, which do not provide substantial coverage of inpatient hospital and physician services in accordance with the MV requirement, could not satisfy the second definition of typical employer plan.

To further respond to comments recommending that we ensure that outlier plans are excluded from the definition of typical employer plan, we are finalizing as part of the second prong of the definition a requirement that the plan's benefits are not excepted benefits, as defined under § 146.145(b), and § 148.220. For example, a worker's compensation plan would not meet the second prong of the definition of a typical employer plan. This requirement specifically ensures that the typical employer plan is a major medical plan. Lastly, we are requiring that the benefits in the plan are from a plan year beginning after December 31, 2013. This requirement is consistent with the options under the first prong of the typical employer plan definition, which references plans originally offered in 2014.

In applying the typical employer plan definition, we recognize that States may find that the plans that meet the definition of a typical employer plan may not provide coverage for items and services within each EHB category at § 156.110(a). Therefore, we are finalizing that the State's EHB-benchmark plan must provide a scope of benefits that is equal to, or greater than, to the extent any supplementation is required to provide coverage within each EHB category at § 156.110(a), the scope of benefits provided under a typical employer plan. The purpose of this approach is to permit States' EHB-benchmark plans' scope of benefits not to be equal to the benefits under the typical employer plan definition, only by exceeding the scope of benefits provided by the typical employer plan, and only if necessary to ensure that all EHB categories of benefits are being covered. We believe that these requirements, when taken together, ensure outlier plans are excluded from the definition of a typical employer plan, respond to commenters' concerns regarding the risk that the definition of typical employer plan would include atypical plans and ensure that the requirement for the EHB-benchmark plans' scope of benefits to be equal to that of a typical employer plan can account for benefits within each EHB category at § 156.110(a).

Comment: Some commenters believed that the statute requires that the scope of benefits for the typical employer plan be informed by the Department of Labor report [71] required under section 1302(b)(2)(A) of PPACA. These commenters did not believe that the proposed typical employer plan definition was informed by the 2011 DOL report and were concerned that defining the typical employer plan using enrollment instead of typicality of benefits allows skimpier benefits, which would have a detrimental effect on the most vulnerable enrollees in a way that contravenes the PPACA requirement and implicates the Americans with Disabilities Act. Some commenters were particularly concerned about the impact of the proposed typical employer plan definition under the third option and some commenters expressed concern about the potential scope of coverage under plans that meet the proposed definition. Some commenters expressed concern about coverage of benefits for specific groups, such as those with opioid use disorders.

Response: As required by section 1302(b)(2)(A) of the PPACA, the Department of Labor conducted a survey of employer-sponsored coverage and published a report on the survey on April 15, 2011. In determining what constitutes a typical employer plan, HHS reviewed and considered the findings of this survey. As discussed in more detail earlier in this section, the flexibility established under § 156.111(a) is not intended to reduce benefits, but to allow for more innovative benefits within the current benefit requirements. Similarly, with regard to comparing the scope of benefits of an EHB-benchmark plan to a typical employer plan, we note that the scope of benefits refers to the overall extent of benefits covered, not to the inclusion of any particular benefits. A State's EHB-benchmark plan is not required to cover a particular benefit because that benefit is part of the typical employer plan the State uses to assess the scope of benefits in its EHB-benchmark plan. Rather, the particular Start Printed Page 17017benefits and limitations in a State's EHB-benchmark plan are established through one of the options defined in §§ 156.100, 156.110 or 156.111 and the resulting EHB-benchmark plan provides a scope of benefits that is equal to, or greater than the scope of benefits that typical employer plan, as explained earlier in this preamble.

We encourage States to consider, as they select their EHB-benchmark plans, the potential impact on vulnerable populations, and the need to educate consumers on benefit design changes. Specifically, as States work to address the opioid crisis, we urge States to consider whether and how selecting a new EHB-benchmark plan could help address the crisis in their State.

Comment: Commenters generally supported requiring States to provide public notice and an opportunity for public comment on its selection of an EHB-benchmark plan, with some commenters supporting State flexibility to determine the process. Most commenters, on the other hand, wanted minimum or standardized requirements for the public comment process, such as requiring the solicitation of input from certain groups, a public hearing, a comment period of 30 days or 60 days, the posting of usable and understandable data, analysis and plan documents (such as the documentation to be submitted to HHS under § 156.111(e)), posting of any changes, a requirement that the State submit documentation on its public hearing process to HHS, or some combination of these standards. These commenters typically wanted a transparent process to ensure meaningful and equal participation of consumers, or wanted to reduce the burden of having a different process for each State. One commenter wanted the regulation to at least reference the State's applicable public comment period under the State's administrative procedure act or department of insurance rules while another was concerned that the rule assumes that a State has in place a reasonable public comment process. Some commenters supported requiring the State to post public notice while other comments wanted a process to identify inadequacies or appeal a State's decision.

Response: We agree with commenters that the State public notice and comment period is important for transparency to allow consumers to provide feedback on the States' proposed changes to their EHB-benchmark plans. However, we believe that States have varying processes for soliciting and receiving comments and may have used varying processes previously to provide public notice and an opportunity for public comment on their EHB-benchmark plan selections.

Therefore, in an effort to retain State flexibility under this requirement, with one exception, we are finalizing a policy under which States must provide reasonable public notice and opportunity for public comment, but will look to States to reasonably interpret that requirement. In response to comments, we are finalizing a requirement that the State, regardless of the public comment process it uses to select its EHB-benchmark plan, must post a notice on a relevant State website regarding the opportunity for public comment with associated information.

For States that do not have a public notice and comment process for these purposes, these States should consider using a similar process for public comment to the one established at § 155.1312(a)-(c). We also remind States that any public participation processes must continue to comply with applicable Federal civil rights laws, including those that require covered entities to provide meaningful access for individuals with limited English proficiency, and those that require effective communications for individuals with disabilities, including web accessibility requirements. The public notice process at § 156.111(c) applies whenever a State changes its EHB-benchmark plan in accordance with § 156.111(a).

iii. Data Collection for State's EHB-Benchmark Plans for 2020 Plan Year and Later (§ 156.111(e))

We proposed data collection requirements at § 156.111(e) for a State that opts to select a new EHB-benchmark plan under § 156.111(a) in any given year, beginning with the 2019 plan year. We proposed that a State must submit documents in a format and manner specified by HHS by a date determined by HHS and proposed four areas of documentation. First, at paragraph (e)(1), we proposed to 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 EHB-benchmark 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.

Second, in paragraph (e)(2), we proposed, for a State selecting an EHB-benchmark plan under § 156.111(a)(2) or (3), that the State's documentation must include 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 proposed that if the State is selecting its EHB-benchmark plan using § 156.111(a)(3), which allows the State considerable flexibility to otherwise select a set of benefits that would become its EHB-benchmark plan, that the actuarial certification and associated report would also 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). For the actuarial certification, we proposed that these documents, in accordance with generally accepted actuarial principles and methodologies, would include complying with all applicable Actuarial Standards of Practice (ASOP) (including but not limited to ASOP 41 on actuarial communications). We also sought comment on a draft methodology for comparing benefits of a State's EHB-benchmark plan selection to the benefits of a typical employer plan for the actuarial certification and associated actuarial report [72] and on whether the draft methodology should be the required approach for the State's actuarial certification and associated actuarial report.

Third, we proposed at paragraph (e)(3) that the State would be required to submit an EHB-benchmark plan document that reflects the benefits and limitations in the benchmark plan, 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), a formulary drug list in a format and manner specified by HHS similar to current § 156.120. 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 Start Printed Page 17018State could create a combined plan document by assembling parts of the plan documents from the other State's or States' benchmark plan documents. We acknowledged that States may need to make conforming edits in the other States' plan documents to align language and terminology. For a State that chooses the option proposed at § 156.111(a)(3), the State may need to develop a plan document. Additionally, under proposed § 156.111(e)(3), if the State is selecting its EHB-benchmark plan using the option in § 156.111(a)(3), we proposed 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. We also proposed that for a benefit, such as the pediatric dental benefit, that is defined by another program under the State's EHB-benchmark plan, the State may submit a separate document that reflects the benefits and limitations, including the medical management requirements and a schedule of benefits comparable to how States that defined their dental coverage using their State's CHIP programs have done previously. Otherwise, regardless of which option the State is using to select a new EHB-benchmark plan, the State would be expected to submit one comprehensive plan document for the entire State's EHB-benchmark plan selection.

Lastly, we proposed under paragraph (e)(4) to require the State to submit documentation specified by HHS, which is necessary to operationalize the State's EHB-benchmark plan. This documentation would be used to provide public resources on a State's EHB-benchmark plan and support related templates and tools. We proposed that this documentation would include 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. 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.[73]

We proposed that HHS would post the State's EHB summary document and the State's EHB-benchmark plan document on the Center for Consumer Information and Insurance Oversight (CCIIO) website. We also considered posting the State's EHB-benchmark plan confirmations proposed at § 156.111(e)(1).

We proposed that in order for a State's selection of a new EHB-benchmark plan from the proposed options to be accepted, the State's new EHB-benchmark plan must comply with the associated EHB regulatory and statutory requirements, including those under this final rule. If a State's EHB-benchmark plan selection does not meet these regulatory and statutory requirements, the State's current EHB-benchmark plan would continue to apply. We solicited comments on the proposed processes and deadlines for the 2019 and 2020 plan years.[74] We also solicited comments on the proposed data collection and associated documents and whether other specifications for these documents are needed. We are finalizing the provisions at § 156.111(e) with an amendment to § 156.111(e)(2) to reflect the changes to § 156.111(b)(2)(i) and (ii) described above. We are finalizing that the policy will begin applying for the 2020 plan year.

Comment: Commenters generally supported transparency in EHB-benchmark plan documents and making these documents publicly available. Some commenters noted concerns about the completeness and accuracy of current EHB-benchmark plan documents and the inconsistent level of detail among EHB summary charts, encouraging accuracy in plan information to limit confusion.

Response: Section 156.111(e) is designed to ensure that the State's EHB-benchmark plan meets the requirements at § 156.111(b), (c), and (d) and to ensure that the State's EHB-benchmark plan has a clearly defined set of covered benefits. In an effort to support transparency, we will post all documents [75] that a State submits pertaining to its EHB-benchmark plan selection on CCIIO's website with the exception of the drug list. These documents will include the State's confirmations (§ 156.111(e)(1)), any actuarial certification and associated actuarial report (§ 156.111(e)(2)), the plan documents (§ 156.111(e)(3)), and the documents necessary to operationalize the State's EHB-benchmark plan (§ 156.111(e)(4)). The State's EHB-benchmark plan drug list will be posted in the category and class count format in the EHB summary chart as the current drug counts are currently posted.[76]

Because EHB-benchmark plan benefits are based on plans that were sold in 2014, some of the benchmark plan documents may not comply with current Federal requirements. For this reason, the State confirmations require the State to confirm that its EHB-benchmark plan meets the requirements to be an EHB-benchmark plan. Since States are typically the primary enforcer of EHB policy, States may take varying approaches to the level of details included in the EHB Summary Chart, as we believe the manner in which the State displays the EHB-benchmark plan in the EHB Summary Chart may be reflective of the State's EHB enforcement strategies.

Furthermore, we also recognize that the States' 2017 EHB-benchmark plans may need conforming edits to comply with other laws and regulations, and to account for any benefits considered EHB under § 155.170. For these reasons, we clarified in the proposed rule that benefits and limits described in the available benchmark plan documents on our website 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 lifetime or annual dollar limits on EHBs. When lifetime or annual dollar limits are specified in available EHB-benchmark plan documents, States would have removed the dollar limits or converted them to non-dollar limits when interpreting and applying EHB policy. HHS recognizes most States as the primary enforcers of EHB policy. Thus, when a State would use an EHB-benchmark plan that originated in another State under any proposals under § 156.111, we would generally 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. Where possible, States should provide clarity on benefits and limits in the documents collected under § 156.111(e) or note differences in the States' EHB summary chart.

Lastly, we are codifying in regulation text at § 156.111(d)(1) a proposed standard that we discussed in the preamble of the proposed rule, under which the State's new EHB-benchmark plan must comply with the regulatory Start Printed Page 17019and statutory requirements, including those under this final rule, in order for HHS to accept a State's selection of a new EHB-benchmark plan from the options under § 156.111(a). If a State's EHB-benchmark plan selection does not meet these regulatory and statutory requirements, the State's current EHB-benchmark plan would continue to apply.

Comment: Some commenters on the Draft Example of an Acceptable Methodology for Comparing Benefits of a State's EHB-benchmark Plan Selection to Benefits of a Typical Employer Plan As Proposed under the HHS Notice of Benefit and Payment Parameters for 2019 (CMS-9930-F) did not support parts of the proposed methodological approach. Comments generally did not support the use of small group index rates or wanted an upper-bound limit of 98 percent to 102 percent for the category comparison, with some commenters, noting the difficulty in conducting this type of calculation or recommending additional input or more detail. Others wanted to require actuarial data from the States to justify adoption of a benchmark plan that varies significantly from their current benchmarks in any category. Comments on the actuarial certification and associated actuarial report requirements varied on which EHB-benchmark selection options it should apply to.

Response: To account for the application of the typical employer plan definition at § 156.111(b)(2)(i) and the generosity standard at § 156.111(b)(2)(ii) to all selection options, we are finalizing § 156.111(e)(2) with certain changes. Specifically, we are finalizing the requirement that States provide an actuarial certification and an associated report from an actuary from the American Academy of Actuaries, in accordance with generally accepted actuarial principles and methodologies, that affirms: (1) That the State's EHB-benchmark plan provides a scope of benefits that is equal to, or greater than, to the extent any supplementation is required to provide coverage within each EHB category at § 156.110(a), the scope of benefits provided under a typical employer plan as defined at § 156.111(b)(2)(i); and (2) the State's EHB-benchmark plan does not exceed the generosity of the most generous among the set of comparison plans at § 156.111(b)(2)(ii)(A) and (B). States will be required to submit an actuarial certification and an associated report under § 156.111(e)(2) to affirm that both of the standards at § 156.111(b)(2)(i) and § 156.111(b)(2)(ii) are met, regardless of which selection option under § 156.111(a) they use.

The purpose of the policy being finalized at § 156.111 is to strike a balance between providing flexibility to allow States' additional options to select their EHB-benchmark plans and ensuring that States' EHB-benchmark plans meet the associated statutory requirements. To that end, the actuarial certification and associated actuarial report are intended to ensure that the scope of EHB is equal in scope to the 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. Section 1302(b)(2)(B) of the PPACA requires that the Chief Actuary of CMS certify that the scope of EHB as defined by the Secretary is equal to the scope of benefits provided under a typical employer plan. Through this rule, the Secretary is determining that the actuarial certification and associated actuarial report at § 156.111(e)(2) ensures any EHB-benchmark plan selection is meeting the requirements at section 1302(b)(2)(A) of PPACA; therefore, we are finalizing these requirements.

This includes the requirement that the actuarial certification and associated actuarial report be prepared in accordance with generally accepted actuarial principles and methodologies. This includes all applicable ASOPs. For example, ASOP 41 contains disclosure requirements, including those that apply to the disclosure of information on the methods and assumptions being used and ASOP 50 contains information on determining MV and AV. In accordance with ASOP 41, we would expect that the actuarial report is based on a data analysis that is reflective of an appropriate population.

State actuaries may need flexibility in developing the actuarial certification and report depending on the type of changes that the State is interested in making to its EHB-benchmark plan and depending on the typical employer plan that the State is using for the certification and report. For these reasons, we are finalizing an example methodology with several changes.[77] First, to provide clarification for actuaries, we expanded the methodology to address the determination of the plan generosity under § 156.111(b)(2)(ii) in parallel to the determination of the typical employer plan, and further explained how an actuary could use a typical employer plan or a comparison plan for this certification and associated report.

Second, we are finalizing the definition of a typical employer plan to establish the minimum level of benefits for the State's EHB-benchmark plan and the generosity standard to establish the maximum level of benefits for a State's EHB-benchmark plan selection. By tying the maximum level of benefits, in part, to certain previous States' EHB-benchmark plan options, the new State EHB-benchmark plan selections are tied to generosity of the current EHB-benchmark plans in the States, which is not what a 102 percent upper bound limit would provide. For these reasons, we believe that creating an additional upper-bound limit under the typical employer plan in the example methodology is not necessary, would be duplicative, and would be difficult to implement with the generosity standard at § 156.111(b)(2)(ii).

Lastly, to support the use of more appropriate data for the actuarial certification and associated actuarial report, we removed the use of small group index rates from the calculation of the expected value. Instead, we provide other examples of acceptable data that an actuary may use, including data acquired from issuers in the State for a recent plan year, and weighted the services and benefits provided in each EHB category. We believe that the changes to the methodology will help inform actuaries on how to approach the actuarial certification and associated report at § 156.111(e)(2).

Comment: Commenters generally opposed implementing the new EHB-benchmark plan options for the 2019 benefit year. Some of these commenters were concerned about operational and administrative feasibility and burden to implement an EHB change for 2019, as well as the lack of adequate time to design products and meet 2019 rate and form filing deadlines. Other commenters were concerned about the ability for States and issuers to evaluate options, or the impact of the policy leading to market instability, increased costs, or consumer confusion. Some commenters noted that the goal of market stability was more important than the goal of providing States with added flexibility. Another commenter was concerned about the potential for data errors due to short timeframes.

Commenters generally supported making EHB-benchmark plan changes for the 2020 plan year at the earliest, with some noting that the 2020 timelines aligns with previous Start Printed Page 17020benchmark plan timelines. Certain commenters wanted additional analysis or information before implementing any change. Other commenters wanted to ensure that States provide outreach to consumers on the EHB-benchmark plan changes. A commenter wanted to understand how guaranteed renewability might affect changes to plans being made to reflect changes from a new State EHB-benchmark plan selection.

Response: We acknowledge the operational and administrative difficulties for States, issuers and consumers with implementing a changing benefit design under the timeframes for the 2019 benefit year, and believe that a 2020 implementation date would provide these stakeholders with additional time to ensure a smooth implementation of any benefit design changes. For these reasons, we will make § 156.111 effective for the 2020 plan year. We are also finalizing the deadline for State submission of its EHB-benchmark plan as July 2, 2018, for the 2020 plan year.[78] This deadline aligns with the timing of HHS's previous updates to the benchmark plans.

As for guaranteed renewability, under some circumstances, issuers may be permitted to change their products to reflect new requirements for providing EHB as uniform modifications of their products. Otherwise, if the changes to products are deemed to result in the removal of products from the market, issuers would be required to meet the product discontinuance requirements under § 147.106, which generally require at least 90 days advanced notice to the enrollees of the discontinuance.

c. Provision of EHB (§ 156.115)

Currently, to provide EHB, plans are required to provide benefits that are substantially equal to the EHB-benchmark plan. However, an issuer of a plan offering EHB may 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.[79] In the EHB Rule, we finalized a policy at § 156.115(b)(1) under which substitution may not occur between different benefit categories.

In an effort to promote greater flexibility, consumer choice, and plan innovation through coverage and plan design options, we proposed modifying paragraph (b)(1)(ii) to allow States to permit issuers to substitute benefits 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 would still be required to provide benefits that are substantially equal to the EHB-benchmark plan, to provide an appropriate balance among the EHB categories such that benefits are not unduly weighted towards any category, and to provide benefits for diverse segments of the population. It is generally the State's responsibility to assess that plans required to provide EHB adhere to these requirements.

We noted that nothing in this proposal would prohibit plans required to provide EHB from imposing non-dollar limits, unless otherwise prohibited by Federal law.[80] In addition, we noted that we would continue to defer to States, which have the option to set criteria for benefit substitution, to enforce a stricter standard on benefit substitution, or to prohibit it altogether consistent with paragraph (b) of this section. We sought comment on examples of substitution that issuers would be interested in pursuing.

We are finalizing the proposal with amendments to clarify when issuers may substitute benefits and States' roles in permitting or prohibiting substitution. Specifically, we are finalizing the change to allow issuers to substitute benefits between EHB categories, beginning with plan year 2020, if the State in which the plan will be offered permits such substitution and notifies HHS of its decision to allow substitution between categories. We also add a clarification at § 156.115(b)(3)(i) that plans with substitutions are not relieved of their requirements under § 156.115(a), including the requirement to cover preventive health services, as required under 45 CFR part 147.

We are finalizing 2020 as the first plan year in which issuers, with the permission of the State, may substitute benefits between categories to align with the first year for which States may update their EHB-benchmark plans under § 156.111.

We believe States are best positioned to weigh the benefits of innovative plan design with any effects on State risk pools, and therefore, will only permit substitution between EHB categories in States that have notified HHS that substitution between EHB categories is permitted by the State. Further, because States are generally the primary enforcers of EHB requirements, including the prohibition on discrimination at § 156.125, we believe States can best assure that plan designs meet the needs of their State residents. We anticipate that States will notify HHS of their decision, if any, to allow substitution between EHB categories through the same means States use to notify HHS of an updated EHB-benchmark plan selection under § 156.111. If a State wishes to permit between-category substitution, it will notify HHS, and that notification will be in effect unless and until the State notifies HHS otherwise. States that permit between-category substitution should work with their issuers to ensure they are aware of this option. We plan to post on CCIIO's website a list of States that allow substitution between EHB categories.

Comment: The majority of commenters to this proposal expressed concerns about this proposed policy, and many commenters to this proposal raised concerns about this policy's potential impact on the risk pool. Specifically, commenters were concerned that the proposal would permit issuers to design products that are intended to be unattractive to higher-cost populations to discourage enrollment from these populations. Some of these commenters were concerned about resulting adverse selection, and were concerned that finalizing the policy could ultimately interfere with the stability of the individual and small group market risk pools. Several commenters were concerned that the requirement that substituted benefits be actuarially equivalent does not address this concern, because actuarial equivalence is based on a standard population and cannot take into account the potential effects of adverse selection. Commenters were concerned that this type of “gaming” to deter enrollment from members of certain groups could undermine State risk adjustment programs. Additionally, many commenters requested that if we chose to finalize this proposal, we publish additional guidance clarifying how issuers could utilize substitution between EHB categories without violating antidiscrimination Start Printed Page 17021requirements. Some commenters stated that they could not conceive of a situation in which cross-category substitution would be useful, and notwithstanding our request for such examples, we did not receive any.[81]

Response: We seek to promote issuer flexibility and consumer choice with this proposal, but recognize that there are potential trade-offs with regard to the risk pool and risk adjustment programs. We believe that States are more attuned to the needs of their issuers and consumers than HHS and can better assess the proper balance between flexibility in plan benefits and risk pool stability. Because issuers are required under the rule to provide benefits that are substantially equal to the EHB-benchmark plan, provide an appropriate balance among the EHB categories such that benefits are not unduly weighted towards any category, and provide benefits for diverse segments of the population, we expect that effects on the risk pool will be limited and can be appropriately managed through State regulation. Because States are generally the primary enforcers of the prohibition on discrimination in the provision of EHB, we defer to States to provide guidance to issuers on how to utilize substitution while meeting anti-discrimination requirements.

Comment: While commenters generally supported efforts to provide States and issuers with additional flexibility, a majority of commenters expressed strong concerns that this specific policy would put undue burden on multiple stakeholders due to increased plan design complexity. For example, many commenters wrote that regulators in States that choose to permit substitution between EHB benefit categories would face additional challenges due to the difficulty of determining whether plans that substituted benefits between EHB offered an adequate distribution of benefits across all EHB categories. One commenter added that evaluating plans that incorporated substitution between EHB categories would be more difficult for States than evaluating plans with substitution within EHB categories, because when comparing the allowed cost associated with particular types of services and limits on those services with other services in the same EHB category, the same dollar amount represents the same proportion of all services in that EHB category. However, this equivalence of dollar amounts and proportionality does not apply when comparing between different categories, making a comparison more difficult. Relatedly, another commenter noted that the lack of uniformity among plans this policy could produce could increase administrative burden on issuers, as well as States, by making it more difficult for issuers to conform plans to filing templates related to QHP certification.

Due to concerns including additional burden on State regulators, commenters also requested that if we were to finalize this proposal, States be permitted to bar substitution between EHB categories.

Almost all commenters asked that we consider the increased burden that consumers would face when comparing plans due to plan complexity related to a possible lack of uniformity across EHB benefit categories and across available plans. In particular, commenters noted that it would become more difficult for consumers in States that chose to permit this option to make meaningful comparisons between plans due to the difficulty in determining whether benefits had been substituted between EHB categories and, if so, whether the resulting coverage package adequately met their needs. One commenter added that these difficulties could also undermine the value of the market signals that consumers' choices currently generate to issuers and other key stakeholders.

Finally, in addition to concerns about consumer burden due to increased plan complexity, many commenters also objected to this proposal due to the possibility that it could undermine coverage for services that are crucial for vulnerable consumers and prevent coverage of chronic conditions.

Response: We agree that permitting substitution between EHB categories could make it more difficult for State regulators to review plans. However, we believe States should have the flexibility to determine whether allowing such a policy will in fact create challenges for State regulators, and if so, whether those challenges are offset by the benefits of allowing more innovation in plan design in the form of between-category substitution. Under the policy we are finalizing, States that determine that allowing substitution between EHB categories would pose excessive burden on regulators have the authority to withhold permission and avoid such burden.

In response to comments, we are finalizing that substitution between categories would only be permitted if the State in which the plan will be offered has notified HHS that substitution between EHB categories is permitted in the State. We recognize that State legislative cycles may make it challenging for States to adopt legislative requirements allowing or prohibiting substitution between categories in time for plan year 2020. By finalizing this notification approach, we seek to make it easier for States to immediately exercise the flexibility provided in this rule.

We appreciate the comment about increased burden on issuers. 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 will create additional burden for issuers. However, if it does, issuers have the discretion to avoid additional burden by choosing not to substitute benefits between EHB categories, even if allowed by their State. If a State chooses, we believe issuers should be permitted to decide whether the additional flexibility in plan design provided by substitution between categories is worth any additional required effort. We also encourage States to consider the impact on issuers as they weigh whether to allow substitution between categories.

We recognize that consumers may face some additional burden in comparing plans when States allow between-benefit substitution and one or more issuers in the State utilize such substitution. However, we believe permitting substitution between categories could offer significant benefit to consumers in the form of more choices, particularly those actively engaged in shopping for health plans. Some consumers are likely to find plans that better meet their needs under this change, because issuers are likely to make substitutions that fulfill consumer demands. Further, we believe States are best positioned to weigh the benefits of innovative plan design with the potential for increased burden for consumers in their individual and small group markets.

We believe that this change will not undermine coverage for vulnerable consumers or prevent coverage of chronic conditions, because issuers will still be required to offer benefits substantially equal to the EHB-benchmark plan, cover each EHB category without undue weight toward any, provide benefits for diverse segments of the population, and refrain from discrimination based on an individual's age, expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health conditions.Start Printed Page 17022

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; [82] and the assessable payment amounts under section 4980H(a) and (b) of the Code. Section 156.130(e) provides that the premium adjustment percentage is the percentage (if any) by which the average per capita premium for health insurance coverage for the preceding calendar year exceeds such average per capita premium for health insurance for 2013, and that this percentage will be published in the annual HHS notice of benefit and payment parameters.

Under the methodology established in the 2015 Payment Notice and amended in the 2015 Market Standards Rule for estimating average per capita premium for purposes of calculating the premium adjustment percentage, the premium adjustment percentage is calculated based on the estimates and projections of average per enrollee employer-sponsored insurance premiums from the NHEA, which are calculated by the CMS Office of the Actuary. Accordingly, using the employer-sponsored insurance data, the premium adjustment percentage for 2019 is the percentage (if any) by which the most recent NHEA projection of per enrollee employer-sponsored insurance premiums for 2018 ($6,396) exceeds the most recent NHEA estimate of per enrollee employer-sponsored insurance premiums for 2013 ($5,110).[83] Using this formula, the premium adjustment percentage for 2019 is 1.2516634051 or approximately 25 percent. We are finalizing this index as proposed. Based on the proposed 2019 premium adjustment percentage, we proposed the following cost-sharing parameters for calendar year 2019.

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. 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,[84] we proposed that the 2019 maximum annual limitation on cost sharing would be $7,900 for self-only coverage and $15,800 for other than self-only coverage. This represents an approximately 7 percent increase above the 2018 parameters of $7,350 for self-only coverage and $14,700 for other than self-only coverage.

Comment: Several commenters supported the 7 percent increase in the maximum limitation on cost sharing, saying it permits flexible plan design. Many other commenters objected to the 2019 maximum limitation on cost sharing noting it is the highest increase since 2014, saying the HHS methodology no longer works when paired with plan designs that offer less generous EHBs and asked HHS to revisit factors including the premium adjustment percentage used in the methodology.

Commenters noted that while many people with high health needs benefit from a maximum limitation on cost sharing, the percentage increase in 2019 is more than twice the rate of medical inflation and wage growth and far higher than general inflation. Two commenters asked HHS to spread the maximum limitation over the benefit year to reduce the financial burden on chronically ill enrollees whose medical conditions require them to meet the limitation during the first month or quarter of the year.

Response: The annual maximum limitation on cost sharing reflects changes in the underlying economic data, as stated above. We are sympathetic to the hardship faced by those whose health needs require them to meet their maximum limitation on cost sharing early in the year, but the indexing of this parameter is required by statute, and a payment plan for the maximum annual limitation is inconsistent with industry practice. We are finalizing the 2019 maximum limitation on cost sharing as proposed.

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 cost-sharing structures for each eligibility category. 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 cost-sharing limits to ensure that the resulting limits do not cause the AVs of the health plans to exceed the levels specified in section 1402(c)(1)(B)(i) of the PPACA (that is, 73 percent, 87 percent, or 94 percent, depending on the income of the enrollee). Accordingly, we propo