Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act, 76574-76594 [2011-31289]

Agencies

• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 76, Number 235 (Wednesday, December 7, 2011)]
[Rules and Regulations]
[Pages 76574-76594]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-31289]



[[Page 76573]]

Vol. 76

Wednesday,

No. 235

December 7, 2011

Part IV





Department of Health and Human Services





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45 CFR Part 158





Medical Loss Ratio Requirements Under the Patient Protection and 
Affordable Care Act; Final Rule

Federal Register / Vol. 76, No. 235 / Wednesday, December 7, 2011 / 
Rules and Regulations

[[Page 76574]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 158

[CMS-9998-FC]
RIN 0938-AQ71


Medical Loss Ratio Requirements Under the Patient Protection and 
Affordable Care Act

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

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period revises the regulations 
implementing medical loss ratio (MLR) requirements for health insurance 
issuers under the Public Health Service Act in order to address the 
treatment of ``mini-med'' and expatriate policies under these 
regulations for years after 2011; modify the way the regulations treat 
ICD-10 conversion costs; change the rules on deducting community 
benefit expenditures; and revise the rules governing the distribution 
of rebates by issuers in group markets.

DATES: Effective date. This rule is effective on January 3, 2012.
    Comment date. We will consider comments on Sec.  
158.150(b)(2)(i)(A)(6) and (c)(5) regarding the treatment of ICD-10 
conversion costs, and Sec.  158.242(b) and Sec.  158.260 regarding the 
process for providing rebates to group enrollees and reporting of 
rebates that are received at one of the addresses provided in the 
ADDRESSES section of this rule no later than 5 p.m. EST on January 6, 
2012.
    Applicability Date. The amendments to Part 158 generally apply 
beginning January 1, 2012, to health insurance issuers offering group 
or individual health insurance coverage.

ADDRESSES: In commenting please refer to file code CMS-9998-FC. Because 
of staff and resource limitations, we cannot accept comments by email 
or facsimile (Fax) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-9998-FC, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-9998-FC, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments only to the following addresses prior to 
the close of comment period:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will be also available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone (800) 743-3591.

FOR FURTHER INFORMATION CONTACT: Carol Jimenez, (301) 492-4457.

SUPPLEMENTARY INFORMATION: 
    Comment Subject Areas: We will consider comments on the treatment 
of ICD-10 conversion costs, and the process for providing rebates to 
group enrollees, as discussed in this final rule with comment period 
that are received by the date and time indicated in the DATES section 
of this final rule with comment period.

I. Background

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010; the Health Care and Education 
Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. In 
this preamble, we refer to the two statutes collectively as the 
Affordable Care Act. The Affordable Care Act reorganizes, amends, and 
adds 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.
    A request for information relating to the medical loss ratio (MLR) 
provisions of PHS Act section 2718 was published in the Federal 
Register on April 14, 2010 (75 FR 19297). On December 1, 2010, HHS 
published an interim final rule (75 FR 74864) with 60 day public 
comment period, entitled ``Health Insurance Issuers Implementing 
Medical Loss Ratio (MLR) Requirements Under the Patient Protection and 
Affordable Care Act,'' that added a new 45 CFR Part 158. A technical 
correction to the interim final rule was issued on December 30, 2010 
(75 FR 82277).

II. Provisions of the Interim Final Rule and Responses to Comments

    We received approximately 90 public comments on the December 1, 
2010 interim final rule with comment period. Commenters included 
consumer and patient organizations, insurance regulators, health 
insurance issuers, provider groups, actuarial professional group, and 
others. In this final rule, we do not address all of the comments we 
received on the interim final rule, but only those comments that 
pertain to the provisions in this final rule: (1) Rules regarding the 
treatment of ``mini-med'' and expatriate policies; (2) rules governing 
how ICD-10 conversion costs, fraud reduction expenses, and community 
benefit expenditures are accounted for; and (3) rules regarding

[[Page 76575]]

the distribution of rebates in group markets. In this section of the 
preamble, we summarize the provisions of the interim final rule and 
respond to the public comments received on these subjects.

A. ``Mini-med'' Policies (45 CFR 158.110(b)(2), 158.120(d)(3), and 
158.221(b)(3))

    For purposes of the MLR requirements, the interim final rule 
provided separate treatment for mini-med policies with total annual 
benefit limits of $250,000 or less by requiring issuers to report mini-
med experience separately from other experience, by State and by 
market, for the 2011 MLR reporting year. Issuers of mini-med policies 
with total annual benefit limits of $250,000 or less were also directed 
to use a special methodology for calculating the MLR numerator for 
calendar year 2011 reporting and rebate purposes. Specifically, 
incurred claims and activities that improve health care quality are 
multiplied by 2.00 in calculating the MLR for mini-med policies. 
Issuers of mini-med policies were directed to submit a report for each 
of the first three quarters of the 2011 MLR reporting year as provided 
under Sec.  158.110(b), in addition to the annual report required of 
all issuers subject to MLR standards. The authority for this treatment 
of special circumstances is provided under section 2718(c) of the PHS 
Act, which directs HHS to ``take into account the special circumstances 
of smaller plans, different types of plans, and newer plans.''
    The preamble to the interim final rule notes that, after reviewing 
the quarterly filings of the mini-med policies' 2011 experience, CMS 
would make a determination as to whether this treatment of special 
circumstances should continue and, if so, whether it should be modified 
beyond the 2011 MLR reporting year.
    Comment: We received comments that both support and oppose an 
adjustment for issuers of mini-med policies. Commenters that supported 
a special methodology for mini-med experience generally claimed that 
the unique cost structure of mini-med policies make issuers unable to 
meet the statutory MLR without an adjustment to the reporting 
methodology. Specifically, issuers of mini-med policies asserted that 
such plans have higher administrative costs relative to benefits paid, 
as compared to other more comprehensive coverage, as a result of--(1) 
Higher enrollee turnover; (2) shorter enrollment periods; and (3) lower 
incurred claims due to high deductibles and limited coverage. Two 
commenters asserted that an adjustment is necessary to preserve access 
to mini-med policies for employers and participants.
    Three commenters requested that HHS extend until 2014 the 2011 
special circumstances methodology of a multiplier of 2.00 for mini-med 
policies. These commenters stated that the unique structure of these 
plans would remain consistent between 2011 and 2014, after which a 
total prohibition on annual dollar limits under PHS Act section 2711 
will be in effect, other than for grandfathered plans in the individual 
market. These commenters asserted that without this MLR treatment for 
the interim years, before new coverage options and premium tax credits 
are available through the Affordable Insurance Exchanges, issuers may 
withdraw from the market. This withdrawal could leave employers unable 
to afford other health care coverage for their employees, leaving some 
consumers without affordable health care coverage that will be 
available to them in 2014.
    Many commenters, however, opposed any continuation of this 
methodology for issuers of mini-med policies. Consumer advocates, 
healthcare organizations, and a labor organization asserted that mini-
med policies do not need a special circumstances adjustment. They noted 
that issuers did not request such an adjustment during the public 
comment period of the National Association of Insurance Commissioners 
(NAIC) model rule making process and that the NAIC did not recommend 
such an adjustment. They also asserted that issuers of mini-med 
policies should be required to operate with the same efficiency as more 
robust policies and to meet the statutory MLR standard. Two commenters 
did not support extending the adjustment for mini-med policies any 
longer than 2014.
    Response: In determining the appropriate treatment for mini-med 
policies with total annual benefit limits of $250,000 or less with 
respect to MLR, we considered commenters' concerns about loss of 
coverage if issuers of mini-med policies exit the market absent 
separate MLR treatment. We also considered commenters' concerns about 
the need for issuers to operate efficiently and provide valuable 
coverage.
    In the interim final rule, we requested three quarters of data, 
including amount of premium spent on claims, quality improving 
activities, non-claims costs, and taxes. This final rule is being 
issued after receiving and analyzing two quarters of this data. We 
believe it is necessary to determine the final MLR policy as to the 
treatment of mini-med policies, despite the fact that we have not yet 
analyzed the third quarter data, because otherwise we could not issue 
rules in time for the special circumstances adjustment to be effective 
for 2012 and to minimize the chance that issuers may withdraw these 
policies due to uncertainty about MLR requirements. After analyzing the 
first and second quarter data, seeking to strike a balance that ensures 
continued access for consumers while ensuring that they receive value 
for their premium dollar, we have determined that in 2012, the 
appropriate multiplier for mini-med policy experience is 1.75, in 2013, 
the appropriate multiplier is 1.50, and in 2014, the appropriate 
multiplier is 1.25.
    The Department only addresses mini-med policy experience for the 
2012, 2013, and 2014 MLR reporting years. Section 2711 of the PHS Act 
provides that for policy years beginning on and after January 1, 2014, 
when the Affordable Insurance Exchanges will be in place to provide 
consumers with better, more affordable coverage options, non-
grandfathered plans in all markets and grandfathered plans in the large 
and small group markets will no longer be permitted to have annual 
dollar limits. Thus, policies with annual limits under Sec.  
158.110(d)(3) will no longer exist in those markets. We have applied a 
multiplier through the 2014 MLR reporting year to account for mini-med 
policies with a plan year that begins after January 1, 2013 and ends 
sometime in 2014.
    Based upon the data we received from the first and second quarterly 
reports of 2011, without any multiplier, in 2011, seven of the 12 
issuers in the individual market, and six of the 15 issuers in the 
large group market would not meet the MLR of 80 and 85 percent, 
respectively. With the multiplier of 2.00, three of the 12 issuers in 
the individual market would not meet the MLR standard \1\, and all 
issuers in the small group or large group market would meet the MLR 
standard.
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    \1\ This analysis takes into consideration issuers that operate 
in States which have been granted an adjustment to the MLR standard 
for the individual market, pursuant to Sec.  158.301.
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    A graduated allowance for an adjustment of 1.75 in 2012, 1.50 in 
2013 and 1.25 in 2014 will incentivize issuers to reduce their 
administrative expenses and operate more efficiently to ensure that 
they meet the MLR standard while minimizing issuer market withdrawal, 
maintaining access to coverage for consumers and ensuring that they 
receive greater value from these policies

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until 2014. We plan on publishing the data used in this analysis in the 
spring of 2012.

B. ``Expatriate'' Policies (45 CFR 158.110(b)(2), 158.120(d)(4), and 
158.221(b)(4))

    The interim final rule defines expatriate policies as ``group 
policies that provide coverage for employees working outside their 
country of citizenship, employees working outside of their country of 
citizenship and outside the employer's country of domicile, and non-
U.S. citizens working in their home country * * *'' (45 CFR 
158.120(d)(4)). Several public comments were received regarding the 
definition of expatriate policies. In this final rule, we are amending 
the definition of expatriate policies to read ``group policies that 
provide coverage to employees, substantially all of whom are: Working 
outside their country of citizenship; working outside of their country 
of citizenship and outside the employer's country of domicile; or non-
U.S. citizens working in their home country * * *.'' We add the phrase 
``substantially all of whom are'' to ensure that issuers do not 
classify a policy as an expatriate policy when expatriates account for 
only a limited proportion of the covered population.
    The preamble to the interim final rule states that expatriate 
policies issued by non-U.S. issuers for services rendered outside the 
United States are not subject to the MLR regulation, nor are expatriate 
policies written on a form not filed with and approved by a State 
insurance department. Issuers must report expatriate policy experience 
separately from other experience for the 2011 MLR reporting year and 
must aggregate that experience on a national level for the large group 
market and the small group market. The definition of expatriate 
policies does not include policies issued in the individual market.
    Section 158.221(b)(4) directs issuers of expatriate policies to use 
a separate methodology for calculating the MLR numerator for reporting 
and rebate purposes for the 2011 MLR reporting year. Specifically, 
incurred claims and activities that improve health care quality are to 
be multiplied by a factor of 2.00 in calculating the MLR. The interim 
final rule directs issuers to submit a report for each of the first 
three quarters of the 2011 MLR reporting year. The preamble to the 
interim final rule notes that, after reviewing the quarterly filings of 
the expatriate policies based on 2011 experience, we will make a 
determination as to whether this treatment should continue or be 
modified beyond the 2011 MLR reporting year.
    Comment: CMS received six comments regarding the treatment of 
expatriate policies in the interim final rule. The majority of the 
commenters supported the interim final rule's treatment of expatriate 
policies for the 2011 MLR reporting year. Specifically, issuers and 
trade associations supported the special methodology for calculating 
the MLR numerator for expatriate policies, noting that these policies 
have higher administrative costs as a result of (1) Providing 
international access to providers; (2) maintaining emergency evacuation 
services; and (3) navigating health care and legal systems in different 
countries. These policies may also have unpredictable experience 
depending on the location of the enrollees. One issuer stated that a 
large portion of international policies are sold through brokers, and 
high broker fees contribute to the increased administrative cost. We 
received no comments opposing a special circumstances adjustment for 
expatriate policies.
    Other issuers and commenters suggested that the interim final 
rule's adjustment to the MLR numerator does not do enough to relieve 
expatriate issuers from the MLR standards provided in the Affordable 
Care Act. One issuer claimed that the MLR reporting requirement creates 
an unlevel playing field because U.S. issuers must disclose proprietary 
cost structure information under the MLR reporting requirements, while 
foreign issuers would not be required to do so. Two commenters 
specifically suggested that the adjustment for expatriate policies 
should extend beyond the 2011 MLR reporting year, either temporarily or 
permanently.
    Response: We recognize the unique administrative costs associated 
with expatriate policies as evidenced from the public comments and the 
first two quarterly reports of 2011.\2\ Commenters asserted that the 
costs of: (1) Identifying and credentialing providers worldwide in 
countries with different licensing and other requirements; (2) 
processing claims submitted in various languages; (3) standardizing 
billing procedures; (4) providing translation and other services to 
enrollees; and (5) helping subscribers locate qualified providers 
internationally justify a separate methodology that takes into account 
these special circumstances. After reviewing the first and second 
quarter data, we have determined that continuing a special 
circumstances adjustment of a multiplier of 2.00 to the numerator of 
the MLR is appropriate for expatriate policies.
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    \2\ CMS is basing its determination on two quarters of data for 
the same reasons set forth above with respect to mini-med policies.
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    According to the year-to-date second quarter data provided by 
issuers of expatriate policies, without applying the special 
circumstances adjustment provided in the interim final rule, the 
majority of issuers in the large group market \3\ reported credibility-
adjusted MLRs significantly below 85 percent MLR standard. However, 
with the multiplier of 2.00, we estimate that issuers' credibility-
adjusted MLRs will meet the MLR standards, thus ensuring that Americans 
working abroad will still have access to U.S.-based coverage.
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    \3\ No issuers of expatriate policies in the small group market 
had credible experience in 2011. However, they may become credible 
in 2012, when issuers' MLRs will generally be calculated based on 
multiple years of experience and data.
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    Based on the reported data and on information from stakeholders 
concerning this unique market, we believe that a multiplier of two is 
appropriate to ensure that issuers remain in the expatriate market. As 
discussed previously, expatriate policies have significantly different 
and additional administrative costs than do policies that provide 
primarily domestic coverage. In addition, the experience of expatriate 
policies is subject to more variability than other types of policies, 
due to the fact that they primarily cover care in all parts of the 
world in a wide variety of health care systems, which also makes 
pricing to a particular MLR standard much more difficult. Due to this 
inherent uncertainty in pricing and their unique administrative costs, 
we have determined that it is appropriate to provide this special 
circumstances multiplier to expatriate policies. We understand that the 
experience of expatriate policies is significantly more variable than 
the experience of other types of policies, warranting a larger 
adjustment to account for this. This multiplier of two applies to 
expatriate policies beginning in the 2012 MLR reporting year, and 
applies indefinitely.
    We believe that the MLR standards do not materially affect U.S. 
issuers' ability to compete with foreign issuers, in part because U.S. 
employers want to provide their employees who are working abroad and 
their dependents with comprehensive health insurance that meets the 
unique needs of expatriates and provides benefits that are comparable 
to the coverage of their U.S.-based employees. Also, U.S.-based issuers 
generally will not be required to disclose any proprietary financial 
structure information that is not already

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being provided to the States through the NAIC's Supplemental Health 
Care Exhibit (SHCE).

C. Fraud Reduction Expenses (45 CFR 158.140(b)(2)(iv) and 
158.150(c)(8))

    The interim final rule describes the types of expenses that are 
adjustments to claims under the MLR disclosure and reporting 
requirements. Specifically, under Sec.  158.140(b)(2)(iv), the amount 
of claim payments recovered through fraud reduction efforts, not to 
exceed the amount of fraud reduction expenses, can be included in 
incurred claims. Fraud reduction efforts include fraud prevention as 
well as fraud recovery. In addition, the interim final rule provides 
that fraud prevention activities are excluded from quality improvement 
activities (QIA).
    Comment: We received 12 comments on the treatment of fraud 
prevention activities in the interim final rule. Eleven of the 
commenters supported the inclusion of fraud prevention activities as 
QIA. Specifically on this point, issuers argued that fraud prevention 
activities improve patient safety, and deter the use of medically 
unnecessary services, thus providing a higher level of health care 
quality. Commenters asserted that, by not including all fraud reduction 
efforts as QIA, issuers would reduce their fraud reduction efforts, 
which would decrease patient safety and quality of care. Two commenters 
added that by prohibiting plans from including the costs they incur for 
fraud prevention activities as QIA, the rule likens the costs to wages, 
overhead, and advertising expenses. Two trade associations asserted 
that HHS should be consistent with the Administration's efforts to 
prevent fraud in government programs, stating that excluding fraud 
prevention as QIA undermines the federal government's efforts to 
prevent, detect, and prosecute fraud. Two commenters provided 
information regarding the savings that fraud prevention programs can 
provide issuers. This information suggested that among large issuers 
surveyed, the net savings from anti-fraud operations were more than $3 
per enrollee in 2008, that medium sized issuers reported $1 savings per 
enrollee, and that small issuers estimated $2.70 savings per enrollee.
    Not all commenters supported characterizing fraud prevention 
activities as QIA. A provider association expressed concerns that 
Pharmacy Benefit Managers may improperly try to categorize certain 
activities as fraud detection due to the lack of a clear definition for 
fraud detection and recovery. This commenter asserted that excluding 
fraud prevention activities from QIA is an appropriate way to apportion 
medical costs versus administrative costs, and urged HHS to allow only 
those efforts to reduce fraud, as defined by Medicare, to be allowed to 
be deducted from an issuer's administrative costs.
    Response: We considered the comments regarding fraud reduction 
expenses, and are maintaining the MLR treatment of fraud reduction 
expenses provided in the interim final rule. We will continue to 
exclude fraud prevention activities from QIA. The current treatment of 
fraud reduction efforts under the MLR rule is consistent with the 
NAIC's position and adequately addresses the concerns of issuers, while 
still recognizing that many fraud prevention efforts are not directly 
targeted towards quality improvement. We recognize the importance of 
fraud reduction expenses and the disincentive it could create if these 
expenses were treated solely as non-claims and non-quality improving 
expenses. Thus, allowing payments recovered through fraud reduction 
efforts as adjustments to incurred claims gives issuers the opportunity 
to recoup monies invested to deter fraud. Modifying the interim final 
rule to allow an unlimited adjustment would undermine the purpose of 
requiring issuers to meet the MLR standard in the Affordable Care Act.
    We believe that issuers will continue to invest in fraud reduction, 
including fraud prevention, regardless of the MLR treatment and 
encourage issuers to do so. Issuers have incentives to reduce fraud 
regardless of how this expense is classified within the MLR, as 
demonstrated from the comments and data provided by issuers. By 
allowing fraud reduction expenses as an adjustment to incurred claims, 
up to the amount of fraudulent claims recovered, the interim final rule 
mitigates any disincentive issuers may have to invest in these 
programs. We appreciate the comments from the industry regarding the 
savings that result from fraud reduction efforts, which support the MLR 
policy in the interim final rule that the amount of claims payments 
recovered through fraud reduction efforts, not to exceed the amount of 
fraud reduction expenses, should be included in incurred claims.

D. ICD-10 Conversion Expenses (45 CFR 158.150(b)(2)(i)(A)(6) and 
(c)(5))

    Under Sec.  158.150(a), health insurance issuers are required to 
submit an annual report to the Secretary documenting their expenditures 
for activities that improve health care quality. As provided by Sec.  
158.150(b), in order for an activity to be considered a QIA, it must be 
designed, among other things, to improve health quality and increase 
the likelihood of desired health outcomes in ways that are capable of 
being objectively measured and of producing verifiable results and 
achievements. In addition, the activity must be primarily designed to--
(1) Improve health outcomes; (2) prevent hospital readmissions; (3) 
improve patient safety; or (4) implement, promote and increase wellness 
and health activities. Health Information Technology (HIT) expenditures 
that meet the requirements under Sec.  158.150 are considered QIA. The 
list of activities excluded as QIA includes--(1) Those activities 
designed primarily to control or contain costs; and (2) those that 
establish or maintain a claims adjudication system, including costs 
directly related to upgrades in HIT that are designed primarily or 
solely to improve claims payment capabilities or to meet regulatory 
requirements for processing claims (for example, costs of implementing 
new administrative simplification standards and code sets adopted 
pursuant to the Health Insurance Portability and Accountability Act 
(HIPAA), 42 U.S.C. 1320d-2, as amended, including ICD-10 requirements). 
The preamble to the interim final rule stated that CMS would examine 
the reported conversion costs of ICD-10 to determine whether the policy 
to exclude these costs from QIA should be revisited. In addition, the 
interim final rule specifically requested comments on whether ICD-10 
should be included as a QIA.
    Comment: Provider associations and advocacy groups supported the 
interim final rule's treatment of ICD-10. Specifically, provider 
associations contended that ICD-10 does not have any bearing on the 
treatment that an enrollee receives, and that there is no direct impact 
on patient outcomes, even if it benefits the medical community as a 
whole. Commenters also noted that issuers will achieve greater 
administrative efficiency with ICD-10's more detailed coding, allowing 
claims to be paid more efficiently. For these reasons, such commenters 
asserted that these costs are administrative in nature and should be 
excluded from QIA. A consumer advocate further suggested that excluding 
ICD-10 costs from QIA would prevent issuers from reclassifying 
administrative tasks as QIAs.
    Issuers opposed the interim final rule's treatment of ICD-10 
conversion costs, asserting that ICD-10 costs are a QIA because they 
are meant to improve data collection for diagnoses and medical 
procedure coordination, patient

[[Page 76578]]

safety, health outcomes, and medical research. They also stated that 
ICD-10 conversion allows for alignment of quality and wellness 
programs, which are QIA. In support of classifying ICD-10 expenses as 
QIA, a health insurance issuer stated that ICD-10 coding can improve 
health plans' ability to share data among clinicians for the purpose of 
quality improvement and care coordination activities, thereby allowing 
for a better understanding of diagnoses and better treatment. An issuer 
and an industry association asserted that because ICD-10 implementation 
is a legal requirement, the burden of cost should not be on the 
issuers.
    Finally, issuers acknowledged that conversion costs can be tracked 
and separated from maintenance costs through current accounting 
processes, and most supported excluding ICD-10 maintenance costs 
occurring after October 1, 2013 from QIA.
    Response: In response to the comments highlighting the dual nature 
of ICD-10, we considered the impact of ICD-10 on improving data 
collection for diagnoses and medical procedure coordination, patient 
safety, health outcomes, and medical research. In addition, we 
consulted with the Office of E-Health Standards and Services (OESS) 
within CMS. OESS oversees ICD-10 and considers some of the impact of 
ICD-10 to be QIA, and supports the treatment of ICD-10 set forth in 
this final rule.
    We also recognize that ICD-10 has some claims processing functions 
as well. This final rule recognizes the dual nature of ICD-10 and 
includes as QIA ICD-10 conversion costs incurred in 2012 and 2013 up to 
0.3 percent of an issuer's earned premium in the relevant State market 
in each of those years. Analysis of the 2010 SHCE filings reveals that 
ICD-10 expenses, as a percent of earned premium, account for less than 
0.02 percent of issuer spending in each market (individual, small group 
and large group). However, significant ICD-10 conversion efforts will 
be made in 2012 and 2013, as issuers cannot convert to ICD-10 until 
after January 1, 2012, when the new version 5010 standards for 
electronic health care transactions will be upgraded. Federal HIPAA 
regulations direct that the ICD-10 transition must be completed by 
October 2013. The industry provided a range of percentages using their 
projected expenditures of ICD-10 conversion costs on their MLRs, if 
allowed as a QIA. After reviewing the data provided by issuers and 2010 
SHCE filings, we chose a cap that allows as QIA amounts that issuers 
projected spending on ICD-10 conversion, without permitting issuers to 
include claims adjudication systems costs in QIA.
    In addition, ICD-10 maintenance costs are excluded from QIA in this 
final rule, based on the industry's collective comments stating that 
separating conversion costs from maintenance costs is feasible, and 
based on their support for excluding ICD-10 maintenance costs from QIA.
    We request further comment on the treatment of ICD-10 conversion 
costs adopted in this final rule. Specifically, we are soliciting 
comments on whether including as QIA ICD-10 conversion costs as a QIA 
is appropriate, and if the cap set at up to 0.3 percent of an issuer's 
earned premium is an appropriate amount based on past and future ICD-10 
conversion expenses.

E. Community Benefit Expenditures (45 CFR 158.160(b)(2)(vi) and 
158.162(b)(1)(vii), (c)(1))

    In the interim final rule, we requested comment on the treatment of 
community benefit expenditures. The interim final rule allows a not-
for-profit, tax-exempt issuer to deduct from earned premium the amount 
of its community benefit expenditures, limited to the State premium tax 
rate applicable to for-profit issuers. The interim final rule also 
requires a not-for-profit issuer to report community benefit 
expenditures ``in lieu of taxes * * * but not to exceed the amount of 
taxes [it] would otherwise be required to pay.'' (45 CFR 
158.162(c)(1)).
    Comment: CMS received nine comments on the treatment of community 
benefit expenditures, including from six issuers, a labor union, a law 
firm, and an issuer coalition organization. Seven commenters agreed 
that the MLR rule should not discourage not-for-profit issuers from 
providing services and financial support to the community. Three 
commenters expressed concern that limiting community benefit 
expenditures deductibility would discourage community benefit 
expenditures and community investment. Two commenters suggested that 
the definition of community benefit expenditures be expanded to include 
expenses not specifically targeted at increasing access to health care. 
Another commenter suggested that community benefit expenditures be 
considered QIA.
    Some commenters expressed concern that the treatment of community 
benefit expenditures in the interim final rule would result in unequal 
treatment among not-for-profit issuers, and between not-for-profit and 
for-profit issuers, for several reasons. Five commenters noted that the 
community benefit expenditures deduction would not be uniformly 
available to a not-for-profit issuer because State premium tax rates 
vary by State, and within some States, vary by issuer type (for 
example, PPO or HMO). They also suggested that the varying premium tax 
rates by type of issuer within a State would result in confusion when 
determining which premium tax rate to apply to the community benefit 
expenditures limit. The commenters asserted that in States without a 
premium tax, a not-for-profit issuer's community benefit expenditures 
would not be deductible and therefore its MLR would be relatively lower 
than an issuer in a State with a premium tax.
    Six commenters suggested that a flat national community benefit 
expenditures deduction limit would result in a more even playing field, 
as well as simplify the administrative burden in determining community 
benefit expenditures deduction limits. Five commenters proposed a flat 
deduction limit ranging from three to five percent of earned premium. 
Another commenter proposed allowing not-for-profit issuers to deduct 
all community benefit expenditures from earned premium.
    Four commenters asserted that because of the different corporate 
structures, business plans, missions, and tax liabilities of not-for-
profit and for-profit issuers, it would be speculative and burdensome 
to determine what a not-for-profit issuer's hypothetical tax liability 
would be if it were a for-profit issuer. Finally, issuers expressed 
concern that not-for-profit issuers have fundamentally different 
missions than for-profit issuers, that tax liability is determined 
based on a series of credits and adjustments built into a taxable 
issuer's business plan, and that it would be too burdensome and 
speculative for a tax-exempt or not-for-profit issuer to estimate its 
``but for'' tax liability.
    Response: Although we share the concern that the MLR standard 
should not discourage a not-for-profit issuer from spending on 
community benefit expenditures, we are not persuaded that the 
definition of community benefit expenditures should generally be 
expanded and maintain the definition currently in Sec.  158.160(c)(2). 
We note that existing laws pertaining to not-for-profit issuer status 
and the benefits associated with this status continue to apply. 
However, based on the comments regarding the variance of State premium 
tax rates by type of issuer, in this final rule the community benefit 
expenditures deduction is revised to

[[Page 76579]]

help ameliorate such disparate effects. Currently, 48 States have 
premium taxes, but tax rates in many States differ for different kinds 
of plans and in some States they differ for not-for-profit and for-
profit issuers. Several States do not tax HMOs or not-for-profit 
issuers at all. In this final rule, we modify Sec.  158.162(b)(1)(vii) 
to allow an issuer to deduct either the amount it paid in State premium 
taxes, or the amount of its community benefit expenditures up to a 
maximum of the highest State premium tax rate in the State, whichever 
is greater. This treatment does not create a disincentive against 
community benefit expenditures, while equalizing some of the 
disparities that were identified in comments to the interim final rule.
    We also considered the comments regarding a hypothetical tax 
reporting requirement in Sec.  158.162(c)(1) and agree that it is not 
necessary. Because of the modification to the community benefit 
expenditures deduction limit, it is no longer necessary for an issuer 
to report community benefit expenditures limited by its hypothetical 
tax liability, and thus this final rule removes that requirement. By 
removing Sec.  158.162(c)(1) of the interim final rule, this final rule 
simplifies the reporting requirement.
    Section 158.160(b)(2)(vi) of the interim final rule directs issuers 
to report non-claims costs by type, including all community benefit 
expenditures. This reporting standard applies regardless of whether an 
issuer elects to adjust earned premium for community benefit 
expenditures, as permitted by Sec.  158.162(b)(1)(vii) in this final 
rule.

F. Rebates to Enrollees in Group Markets (45 CFR 158.241(b), 
158.242(b), 158.243(a)(1), 158.250, and 158.260(c))

    In Sec.  158.242(b), the interim final rule directs issuers in the 
large and small group markets that have not met the applicable MLR 
standard to provide any owed rebate to the policyholder and each 
subscriber, ``in amounts proportionate to the amount of premium each 
paid.'' The interim final rule also allows an issuer to enter into an 
agreement with the group policyholder to distribute the rebates on 
behalf of the issuer if the policyholder agrees to distribute it 
proportionately as directed and provide detailed documentation 
regarding the distribution to each subscriber. However, under the 
interim final rule, the issuer remains liable for complying with all of 
its obligations under the statute and for maintaining records that 
demonstrate rebates were provided accurately to individual enrollees.
    Comment: CMS received several comments regarding rebate 
distribution in the group market. Generally, commenters supported the 
pro rata distribution of rebates to the policyholder and each 
subscriber. Many commenters, however, expressed significant concern 
about the logistical and tax problems inherent in the interim final 
rule's mechanism for providing rebates in the group markets. For 
example, several issuers expressed concern that the issuer lacks access 
to the information needed to distribute rebates to individual enrollees 
covered under a group policy, asserting that the policyholder (and not 
the issuer) has information regarding the premium contribution amount 
from the employer and the employee. A few commenters expressed their 
concern that it is unfair for issuers to remain liable under the 
interim final rule, even when the issuer enters into an agreement with 
a policyholder, since issuers are unable to monitor or control the 
actions of the policyholder.
    Issuers, trade associations, and a State regulator recommended that 
issuers be allowed to distribute rebates to policyholders, and that the 
policyholder should become responsible for distributing rebates to 
enrollees. Two commenters noted that the proposed distribution 
treatment should be governed by the Employee Retirement Income Security 
Act of 1974, as amended (ERISA). However, one commenter asserted that 
rebates should not be considered plan assets under ERISA for which plan 
administrators owe a fiduciary duty.
    A few commenters also recommended allowing issuers to rely on the 
representations made by policyholders that they calculated and 
disbursed rebates as required and that making a good faith effort to 
obtain the information from policyholders should fulfill issuers' 
reporting obligations under the interim final rule.
    Subsequent to the closing of the public comment period on the 
interim final rule, CMS received several inquiries to our public email 
address asking about the tax implications to issuers, employers, and 
consumers, as a result of the mechanism for providing rebates 
established in the interim final rule.
    Response: In response to the comments we received and the inquiries 
to our public email address, we examined the issue in consultation with 
the Departments of Labor and Treasury. Requiring issuers to apportion 
and pay rebates directly to policyholders and each of their subscribers 
(who are generally employees) in the group health plan context, as 
provided by the interim final rule, has unintended administrative 
consequences as well as potential tax consequences for issuers, 
employers, and consumers. For the portion of the premiums that were 
paid with pre-tax dollars (that is, through an Internal Revenue Code 
section 125 cafeteria plan), which is the case for a significant 
proportion of group enrollees, rebates paid to enrollees may be treated 
as wages, raising issues as to the application of employment taxes and 
the potential that an issuer may have to administer any applicable 
withholding obligations.
    While the above burdens and logistical problems could be avoided by 
simply providing for rebates to be paid to the policyholder (for 
example, employer), the statute directs that enrollees receive the 
benefit of rebates and we are committed to ensuring that this is the 
case. Having considered the tax and other logistical implications of 
providing rebates to enrollees in a group health plan, the effect on 
consumers, and the burden on issuers and employers, this final rule 
directs issuers in the group markets to provide rebates to the group 
policyholder but, as discussed below, includes protections designed to 
satisfy, in a practical way, the objective of benefitting subscribers 
and their related enrollees. In providing rebates to the group 
policyholder, the final rule maintains the definition of enrollee for 
purposes of the rebate provisions, found in Sec.  158.240(b), which 
states that ``enrollee'' means the subscriber, policyholder, and/or 
government entity that paid the premium for health care coverage 
received by an individual during the relevant MLR reporting year. 
Issuers must provide rebates, if any, to policyholders covered during 
the MLR reporting year on which the rebate is based.
    The final rule establishes separate standards for ERISA-covered 
group health plans and plans that are neither covered by ERISA nor are 
governmental plans (for example, church plans). The handling of rebates 
by ERISA-covered plans and church plans are not subject to direct CMS 
regulation. Thus, the separate standards for such plans in the final 
rule are designed to acknowledge the different legal and regulatory 
frameworks that apply to those plans while still establishing, either 
directly or through reliance on other applicable legal standards, such 
as ERISA, a requirement that is consistent with the statutory directive 
that MLR rebates benefit enrollees. Non-Federal governmental plans are 
subject to direct regulation by CMS and we are issuing

[[Page 76580]]

an interim final rule contemporaneous with this final rule that 
addresses rebates to such plans.
    Many group health plans are employee benefit plans that are subject 
to ERISA. Through consultation regarding this final rule, the 
Department of Labor has advised CMS that, in the context of ERISA-
covered group health plan coverage, rebates paid to the policyholder in 
accordance with Sec.  158.242(b) of this final rule may have plan 
asset, fiduciary responsibility, and prohibited transaction 
implications under Title I of ERISA. Distributions from insurance 
companies to their policyholders, including employee benefit plans, 
take a variety of forms, including refunds, dividends, demutualization 
payments and excess surplus distributions. ERISA, Department of Labor 
rulings, and other authority currently provide guidance on the proper 
handling of such distributions to employee benefit plans covered under 
Title I of ERISA. To the extent MLR rebates constitute plan assets of 
an ERISA-covered group health plan, decisions regarding the handling 
and allocation of the rebate would have to be made by a plan fiduciary 
consistent with ERISA. The Department of Labor has also advised that it 
is publishing guidance on its Web site at https://www.dol.gov/ebsa/healthreform, contemporaneously with this final rule, regarding the 
duties of employers/plan sponsors and other fiduciaries responsible 
under sections 403, 404 and 406 of ERISA for decisions relating to MLR 
rebates. Accordingly, rebates paid in connection with policies for 
ERISA-covered employee benefit plans may constitute plan assets that 
are required to be handled in accordance with the requirements of 
ERISA.
    With respect to non-Federal governmental plans, there currently is 
no similar legal framework set forth in Federal law governing 
distributions from issuers to their plan policyholders. Accordingly, 
under the authority in section 2792 of the PHS Act to promulgate 
regulations determined ``appropriate'' to ``carry out'' the provisions 
of part A of title XXVII of the PHS Act, which include PHS Act section 
2718, we are, in a separate interim final rule being published 
contemporaneously with this final rule, directing that the portion of 
rebates attributable to the amount of premium paid by subscribers of 
non-Federal governmental plans be used for the benefit of subscribers, 
which ensures that enrollees in such plans similarly receive the 
benefit of rebates.
    With respect to rebates paid to a policyholder that is a group 
health plan but is not a governmental plan and not subject to ERISA, 
for example a church plan, this final rule provides that an issuer may 
make rebate payment to the policyholder if the issuer receives written 
assurance from the policyholder that the rebate will be used for the 
benefit of current subscribers using one of the options prescribed for 
non-Federal governmental plans. Without such written assurance, the 
issuer must pay directly the policyholder's subscribers covered by the 
policy during the MLR reporting year on which the rebate is based.
    The purpose of the MLR is to provide enrollees value for their 
premium dollar, and issuers must meet the applicable MLR standard or 
pay rebates based upon aggregated market data in each State. The law 
does not provide for a group health plan MLR or an individual enrollee 
MLR. Thus, rebates are not based upon a particular group health plan's 
experience or a particular subscriber's experience. We believe that 
distributing rebates to subscribers in the manner prescribed by this 
final rule and the interim final rule published contemporaneously with 
this final rule accomplishes the purpose of the MLR requirement, while 
streamlining the rebate process for consumers, employers, and issuers. 
Because the final rule and the interim final rule published 
contemporaneously with this final rule provide that rebates are to be 
distributed to the policyholder for subscribers of group health plans, 
the final rule modifies Sec.  158.241(b) regarding rebates to former 
enrollees, so that Sec.  158.241(b) now applies only to former 
enrollees in the individual market.
    The final rule also provides that issuers must provide notice of 
rebates, if any, to current group health plan subscribers as well as 
group policyholders, and to subscribers in the individual market. The 
notice of rebates to policyholders and subscribers of group health 
plans will be prescribed by the Secretary of Health and Human Services, 
in consultation with the Secretary of Labor.
    The notice must include information about the MLR and its purpose, 
the MLR standard, the issuer's MLR, and the rebate being provided. In 
addition, the notice to policyholders and current subscribers in plans 
that are not subject to ERISA must contain an explanation as to how the 
rebate will be handled. If the plan is subject to ERISA, the notice to 
policyholders and subscribers must contain an explanation that the 
policyholder may have obligations under ERISA's fiduciary 
responsibility provisions with respect to the handling and allocation 
of the rebate and contact information for questions concerning the 
handling and allocation of the rebate under their plan. As noted above, 
the Department of Labor is publishing guidance on its Web site 
contemporaneously with the publication of this final rule that provides 
guidance on the duties of policyholders under ERISA with respect to the 
handling and allocation of rebates in the case of policies that cover 
an employee benefit plan subject to ERISA.
    If the policyholder is a non-Federal governmental plan, the notice 
to the policyholder and subscribers must contain an explanation that 
the policyholder must use the portion of the rebate attributable to 
subscribers' contribution to premium in certain ways for the benefit of 
current subscribers. If the policyholder is not a governmental plan and 
not subject to ERISA, the notice must contain an explanation that the 
policyholder must agree to use the portion of the rebate attributable 
to subscribers' contribution to premium for the benefit of current 
subscribers or the issuer will pay the rebate directly to the 
policyholder's subscribers.
    We believe that the above notice requirement will not only provide 
policyholders and subscribers with information on rebates to be paid, 
and how they will benefit from them, but greater transparency on how 
premium dollars are used by issuers, and how the issuer's MLR compares 
to the standard set by Congress. We believe that these latter two 
purposes would also be served by a notice to policyholders and 
subscribers with MLR information from issuers that do not owe rebates. 
In addition to providing policyholders and subscribers with material 
information on how their premium dollars are used, the provision of 
such a notice would create an incentive to spend as high a percentage 
of premium dollars on care and quality improvement as possible, rather 
than just enough to avoid paying rebates.
    Because the interim final rule did not discuss the possibility of a 
notice requirement for issuers that do not owe rebates, and the public 
has not had an opportunity to comment on such a requirement, we have 
not included it in this final rule but intend to amend this rule 
pursuant to comments. We invite comment on the fact that the current 
notice requirement only applies to issuers that owe rebates, and that 
as a result, policyholders and subscribers of issuers not owing rebates 
would not receive MLR information. We also invite comment on the idea 
of the provision of notices to subscribers and policyholders not 
receiving rebates at the same time

[[Page 76581]]

that subscribers and policyholders receiving notices of rebates get 
theirs in 2012 and beyond.
    We also are considering whether it would be useful to include 
information in notices about the issuer's prior year MLR, so that 
enrollees could see whether the issuer is doing a better or worse job 
than the year before of efficiently using premium revenue. Information 
showing a less favorable MLR in the current year than that from the 
year before could be useful to policyholders and subscribers in 
predicting what might be expected to happen the next year, and thus in 
making plan choices. Again, because we did not discuss or seek comment 
on such a requirement in the interim final rule, we invite public 
comment on whether we should impose a requirement that it be included 
for all MLR notices in 2012 and/or subsequent years.
    Under Sec.  158.242(b)(4) of the final rule, if a group health 
plan, regardless of whether it is subject to ERISA, has been terminated 
at the time of rebate payment and the issuer cannot, despite reasonable 
efforts, locate the policyholder or employer whose employees were 
enrolled in the group health plan, the issuer must distribute the 
entire rebate (both the policyholder and subscriber's portions of the 
rebate) to the subscribers of the group health plan enrolled during the 
MLR reporting year on which the rebate was calculated by dividing the 
rebate equally among all subscribers entitled to a rebate. Since 
issuers do not know how much of a group health plan premium was paid by 
the policyholder and how much each subscriber contributed, issuers 
would not be able to divide rebates based upon each subscriber's 
contribution.
    The final rule also modifies the minimum threshold for issuer 
payments of rebates in the group market from $5.00 per subscriber to a 
total of $20.00 for the policyholder portion and subscriber portion of 
the rebate combined when the rebate is paid directly to the 
policyholder. When an issuer pays the rebate directly to each 
subscriber in a group health plan, as provided in Sec.  158.242(b)(3) 
and (4), or pays rebates in the individual market, the minimum rebate 
threshold remains at $5.00 per subscriber. Finally, in Sec.  
158.260(c), the final rule modifies issuers' rebate reporting 
requirements to conform to changes in how rebates are provided in group 
markets, which we believe also simplifies the reporting requirements.
    We request comment on the treatment of rebates in group markets. We 
request comments specifically on whether the mechanism provided in this 
final rule solves or meaningfully reduces the logistical challenges of 
providing rebates to group health plans and their subscribers and on 
other potential solutions to these challenges while ensuring that 
enrollees benefit when rebates are paid.

III. Provisions of the Final Rule

    Those provisions of this final rule that differ from the interim 
final rule are:
     Mini-med Plans. Issuers of policies with total annual 
benefit limits of $250,000 or less must continue for 2012, 2013 and 
2014 to report mini-med experience separately from other experience and 
must continue to aggregate it by State and by (individual, small group, 
or large group) market. Issuers of mini-med policies must apply a 
special circumstances adjustment to the numerator of their MLR by 
multiplying the total of the incurred claims plus expenditures for 
activities that improve health care quality by a factor of 1.75 for the 
2012 MLR reporting year, 1.50 for the 2013 MLR reporting year and 1.25 
for the 2014 MLR reporting year. For the 2012, 2013 and 2014 MLR 
reporting years, mini-med experience will be reported annually, but not 
quarterly.
     Expatriate Plans. Issuers of expatriate plans must 
continue to aggregate and report the experience from these policies on 
a national basis, separately for the large group market and small group 
market, and separately from other policies. Issuers of expatriate 
policies must apply a special circumstances adjustment to the numerator 
of their MLR by multiplying the total of the incurred claims plus 
expenditures for activities that improve health care quality by a 
factor of 2.0 beginning with the 2012 MLR reporting year. This applies 
indefinitely. Expatriate experience will be reported annually, but not 
quarterly. The definition of expatriate policies is amended to read 
``group policies that provide coverage to employees, substantially all 
of whom are: Working outside their country of citizenship; working 
outside of their country of citizenship and outside the employer's 
country of domicile; or non-U.S. citizens working in their home 
country.''
     ICD-10 Conversion Expenses. Activities that are considered 
quality improvement activities (QIA) include, for each of the 2012 and 
2013 MLR reporting years, ICD-10 conversion costs up to 0.3 percent of 
an issuer's earned premium in the relevant State market. Comments are 
solicited on this issue.
     Community Benefit Expenditures. The amount an issuer may 
deduct from earned premium is the higher of either the total amount 
paid in State premium tax, or actual community benefit expenditures up 
to the highest premium tax rate in the State. In addition, not-for-
profit issuers are no longer required to estimate the amount of taxes 
they would have paid if they were for-profit.
     Recipients of Rebates. The rebate distribution process for 
group markets provides that issuers generally distribute rebates to 
group policyholders. Comments are solicited on this issue. With respect 
to policyholders that are a group health plan but not a governmental 
plan or subject to ERISA, issuers must obtain written assurance from 
the policyholder that rebates will be used for the benefit of current 
subscribers or otherwise must pay the rebates directly to subscribers 
covered by the policy during the MLR reporting year on which the rebate 
is based. Issuers must distribute the entire rebate directly to 
subscribers if the group health plan has been terminated. In addition, 
the amount for a de minimis rebate in the group market is less than 
$20.00 per group health plan for rebates that are distributed to the 
policyholder. There are conforming changes made to the reporting 
requirements. Enrollees are required to receive a rebate notification.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. In 
order to fairly evaluate whether an information collection should be 
approved by OMB, section 3506(c)(2)(A) of the Paperwork Reduction Act 
of 1995 requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency;
     The accuracy of our estimate of the information collection 
burden;
     The quality, utility, and clarity of the information to be 
collected; and
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this document that contain information collection 
requirements (ICRs):

[[Page 76582]]

ICRs Regarding MLR and Rebate Reporting and Notice Requirement (Sec.  
158.101 Through Sec.  158.170, and Sec.  158.250)

    For purposes of MLR and rebate reporting under Part 158, this final 
rule does not impose any new reporting requirements and generally 
conforms to the requirements under the interim final regulation. 
However, CMS plans to publish for public comment, in accordance with 
the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 35), the annual 
MLR reporting form that issuers will be required to submit to CMS 
starting in June 2012 for the 2011 reporting year as well as the notice 
of rebates that issuers will be required to send to policyholders and 
subscribers starting in August 2012 for the 2011 report year, in the 
near future.
    One exception is that mini-med and expatriate issuers are no longer 
required to submit quarterly reports, beginning in MLR reporting year 
2012. The quarterly report information collection requirements are 
currently approved under OMB control number 0938-1132. Due to the 
elimination of the quarterly reporting requirement for mini-med and 
expatriate issuers, it is estimated that annual reporting costs for 
such issuers will be reduced by a total of approximately $2.8 million.
    CMS has submitted a copy of these final regulations to OMB in 
accordance with 44 U.S.C. 3507(d) for review of the information 
collections. If you comment on this information collection and 
recordkeeping requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this final rule with comment period; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
9998-FC, Fax: (202) 395-6974; or Email: OIRA_submission@omb.eop.gov.

V. Response to Comments

    Because of the large number of public comments CMS receives on 
Federal Register documents, CMS is not able to acknowledge or respond 
to them individually. A discussion of the comments CMS received is 
included in the preamble of this document.

VI. Regulatory Impact Statement

A. Summary

    This final rule is designed to address several specific issues that 
have arisen regarding section 2718 of the PHS Act, which sets forth 
standards for reporting of certain medical loss ratio (MLR) related 
data to the Secretary on an annual basis by issuers offering coverage 
in the individual and group markets, and calculating and providing 
rebates to policyholders in the event that an issuer's MLR fails to 
meet or exceed the statutory standard. This final rule establishes 
standardized methodologies designed to take into account the special 
circumstances of mini-med policies and expatriate policies in the 
methodologies for calculating measures of the activities that are used 
to calculate an issuer's MLR. This final rule also addresses ICD-10 
conversion costs, expenses related to fraud reduction activities, 
community benefit expenditures and the distribution of rebates in the 
group market. These provisions are generally effective beginning 
January 1, 2012.
    CMS is publishing this final rule to implement the protections 
intended by Congress in the most economically efficient manner 
possible. CMS has examined the effects of this rule as