Patient Protection and Affordable Care Act; Standards Related to Reinsurance, Risk Corridors and Risk Adjustment, 17220-17252 [2012-6594]
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Federal Register / Vol. 77, No. 57 / Friday, March 23, 2012 / Rules and Regulations
HIPAA Health Insurance Portability and
Accountability Act of 1996 (Pub. L. 104–
191)
MLR Medical Loss Ratio
PCIP Pre-existing Condition Insurance Plan
PHS Act Public Health Service Act (42
U.S.C. 201 et seq.)
QHP Qualified Health Plan
DEPARTMENT OF HEALTH AND
HUMAN SERVICES
45 CFR Part 153
[CMS–9975–F]
RIN 0938–AR07
Patient Protection and Affordable Care
Act; Standards Related to
Reinsurance, Risk Corridors and Risk
Adjustment
Department of Health and
Human Services.
ACTION: Final rule.
AGENCY:
This final rule implements
standards for States related to
reinsurance and risk adjustment, and for
health insurance issuers related to
reinsurance, risk corridors, and risk
adjustment consistent with title I of the
Patient Protection and Affordable Care
Act as amended by the Health Care and
Education Reconciliation Act of 2010,
referred to collectively as the Affordable
Care Act. These programs will mitigate
the impact of potential adverse selection
and stabilize premiums in the
individual and small group markets as
insurance reforms and the Affordable
Insurance Exchanges (‘‘Exchanges’’) are
implemented, starting in 2014. The
transitional State-based reinsurance
program serves to reduce uncertainty by
sharing risk in the individual market
through making payments for high
claims costs for enrollees. The
temporary Federally administered risk
corridors program serves to protect
against uncertainty in rate setting by
qualified health plans sharing risk in
losses and gains with the Federal
government. The permanent State-based
risk adjustment program provides
payments to health insurance issuers
that disproportionately attract high-risk
populations (such as individuals with
chronic conditions).
DATES: Effective Date: These regulations
are effective on May 22, 2012.
FOR FURTHER INFORMATION CONTACT:
Sharon Arnold at (301) 492–4415 or
Laurie McWright at (301) 492–4372
for general information.
Wakina Scott at (301) 492–4393 for
matters related to reinsurance.
Grace Arnold at (301) 492–4272 for
matters related to risk adjustment.
Jeff Wu at (301) 492–4416 for matters
related to risk corridors.
SUPPLEMENTARY INFORMATION:
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SUMMARY:
Abbreviations
CMS Centers for Medicare & Medicaid
Services
HHS U.S. Department of Health and Human
Services
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Table of Contents
I. Background
A. Legislative Overview
B. Introduction
II. Provisions of the Proposed Regulations
and Analysis of and Responses to Public
Comments
A. Subpart A—General Provisions
B. Subpart B—State Notice of Benefit and
Payment Parameters
C. Subpart C—State Standards Related to
the Reinsurance Program
D. Subpart D—State Standards Related to
the Risk Adjustment Program
E. Subpart E—Health Insurance Issuer and
Group Health Plan Standards Related to
the Reinsurance Program
F. Subpart F—Health Insurance Issuer
Standards Related to the Risk Corridors
Program
G. Subpart G—Health Insurance Issuer
Standards Related to the Risk
Adjustment Program
III. Provisions of the Final Regulations
IV. Collection of Information Requirements
V. Summary of Regulatory Impact Analysis
VI. Regulatory Flexibility Act
I. Background
A. Legislative Overview
Starting in 2014, individuals and
small businesses will be able to
purchase private health insurance
through State-based competitive
marketplaces called Affordable
Insurance Exchanges, or ‘‘Exchanges.’’
Exchanges will offer Americans
competition, choice, and clout.
Insurance companies will compete for
business on a level playing field, driving
down costs. Consumers will have a
choice of health plans to fit their needs.
In addition, Exchanges will give
individuals and small businesses the
same purchasing power as big
businesses. The Departments of Health
and Human Services, Labor, and the
Treasury are working in close
coordination to release guidance related
to Exchanges in several phases. A
Request for Comment relating to
Exchanges was published in the Federal
Register on August 3, 2010. An Initial
Guidance to States on Exchanges was
issued on November 18, 2010. A
proposed rule for the application,
review, and reporting process for
waivers for State innovation was
published in the Federal Register on
March 14, 2011. Two proposed rules,
including the proposed form of this
rule, were published in the Federal
Register on July 15, 2011 to implement
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components of Exchanges and health
insurance premium stabilization
programs (that is, reinsurance, risk
corridors, and risk adjustment) from the
Affordable Care Act. A proposed rule
regarding eligibility for Exchanges was
published in the Federal Register on
August 17, 2011. A proposed rule on the
Health Insurance Premium Tax Credit
was published in the Federal Register
on August 17, 2011. A proposed rule
making changes to eligibility for the
Medicaid program was published in the
Federal Register on August 17, 2011.
The final versions of the Exchange
Establishment and Eligibility rules were
made available for public inspection at
the Office of the Federal Register on
March 12, 2012. A final version of the
Medicaid rule is being made available
for public inspection at the Office of the
Federal Register on the same date as this
rule.
Section 1341 of the Affordable Care
Act provides that each State must
establish a transitional reinsurance
program to help stabilize premiums for
coverage in the individual market
during the first three years of Exchange
operation (2014 through 2016). Section
1342 provides that HHS must establish
a temporary risk corridors program that
will apply to QHPs in the individual
and small group markets for the first
three years of Exchange operation (2014
through 2016). Section 1343 provides
that each State must establish a
permanent program of risk adjustment
for all non-grandfathered plans in the
individual and small group markets
both inside and outside of the
Exchanges. These risk-spreading
mechanisms, which will be
implemented by HHS and the States, are
designed to mitigate the potential
impact of adverse selection and provide
stability for health insurance issuers in
the individual and small group markets.
If a State chooses not to establish a
transitional reinsurance program or a
risk adjustment program, this final rule
provides that HHS will do so on its
behalf.
Section 1321(a) also provides broad
authority for HHS to establish standards
and regulations to implement the
statutory requirements related to
reinsurance, risk adjustment, and the
other components of title I of the
Affordable Care Act. Section 1321(a)(2)
requires, in issuing such regulations,
HHS to engage in stakeholder
consultation in a way that ensures
balanced representation among
interested parties. We describe the
consultation activities HHS has
undertaken later in this introduction.
Section 1321(c)(1) authorizes HHS to
establish and implement reinsurance,
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risk adjustment, and the other
components of title I of the Affordable
Care Act in States that have not done so.
B. Introduction
Underpinning the goals of highquality, affordable health insurance
coverage is the need to minimize the
possible negative effects of adverse
selection. Adverse selection results
when a health insurance purchaser
understands his or her own potential
health risk better than the health
insurance issuer does, resulting in a
health plan having higher costs than
anticipated.
To protect themselves from adverse
selection, issuers may include a margin
in their pricing (that is, set premiums
higher than necessary) in order to offset
the potential expense of high-cost
enrollees. The uncertainty resulting
from adverse selection could also lead
an issuer to be more cautious about
offering certain plan designs in the
Exchange. This risk will likely be
greatest in the first years of the
Exchange; however, the risk should
decrease as the new market matures and
issuers gain actual claims experience
with this new population.
As experience in States has shown,
offsetting the adverse selection from
insurance reforms may be best
accomplished by broadening the risk
pool: Making coverage affordable
through lower premiums and targeted
financial assistance and making
coverage a responsibility so that people
pay premiums regardless of their
current need for health care. In addition,
to further minimize the negative effects
of adverse selection and foster a stable
marketplace from year one of
implementation, the Affordable Care
Act establishes transitional reinsurance
and temporary risk corridors programs,
and a permanent risk adjustment
program to provide payments to health
insurance issuers that cover higher-risk
populations and to more evenly spread
the financial risk borne by issuers.
The transitional reinsurance program
and the temporary risk corridors
program, which begin in 2014, are
designed to provide issuers with greater
payment stability as insurance market
reforms are implemented. The
reinsurance program, which is a Statebased program, will reduce the
uncertainty of insurance risk in the
individual market by partially offsetting
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risk for high-cost enrollees. By limiting
issuers’ exposure to high-cost enrollees,
this program will attenuate individual
market rate increases that might
otherwise occur because of the
immediate enrollment of individuals
with unknown health status. The risk
corridors program, which is a Federally
administered program, will protect
against uncertainty in rates for QHPs by
limiting the extent of issuer losses (and
gains). On an ongoing basis, the risk
adjustment program is intended to
provide increased payments to health
insurance issuers that attract higher-risk
populations (such as those with chronic
conditions) and reduce the incentives
for issuers to avoid higher-risk
enrollees. Under this program, funds are
transferred from issuers with lower-risk
enrollees to issuers with higher-risk
enrollees. Section 1343 of the
Affordable Care Act authorizes HHS to
utilize criteria and methods similar to
those utilized under Parts C or D of title
XVIII of the Social Security Act to
implement risk adjustment. Standards
for the reinsurance, risk corridors, and
risk adjustment programs are addressed
in this final rule. The following chart
summarizes these programs:
Program
Reinsurance
Risk corridors
Risk adjustment
What .................................
Limits issuer losses (and gains) ........
Transfers funds from lower risk plans
to higher risk plans.
State option to operate if the State
establishes an Exchange.
Why ..................................
Provides funding to issuers that incur
high claims costs for enrollees.
State option to operate, regardless of
whether the State establishes an
Exchange.
All issuers and third party administrators on behalf of group health
plans contribute funding; nongrandfathered individual market
plans (inside and outside the Exchange) are eligible for payments.
Offsets high cost outliers ...................
When ................................
Throughout the year ..........................
Time Frame .....................
3 years (2014–2016) .........................
Program Operation ..........
Who Participates ..............
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II. Provisions of the Proposed
Regulations and Analysis of and
Responses to Public Comments
As indicated in our proposed rule,
HHS published a Request for Comment
(RFC) on August 3, 2010, inviting the
public to provide input regarding the
rules that will govern the Exchanges.
The comment period closed on October
4, 2010. Comments were submitted by
consumer advocacy organizations,
medical and health care professional
trade associations and societies, medical
and health care professional entities,
health insurance issuers, insurance
trade associations, members of the
general public, and employer
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HHS ...................................................
Qualified health plans ........................
Non-grandfathered individual and
small group market plans, inside
and outside the Exchange.
Protects against inaccurate rate-setting.
After reinsurance and risk adjustment.
3 years (2014–2016) .........................
Protects against adverse selection.
organizations. The RFC comments were
considered in the development of the
proposed rule.
Leading up to the issuance of the
Premium Stabilization proposed rule,
HHS consulted with stakeholders
through weekly meetings with the
National Association of Insurance
Commissioners (NAIC), regular contact
with States through the Exchange grant
process, and meetings with tribal
representatives, health insurance
issuers, trade groups, consumer
advocates, employers, and other
interested parties. We continue to
consult with these stakeholders on the
development of guidance related to the
reinsurance, risk adjustment, and risk
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Before June 30 of the calendar year
following the benefit year.
Permanent.
corridors programs. In this final rule, we
have responded to comments submitted
in response to the Premium
Stabilization proposed rule and the
RFC, where relevant.
On July 15, 2011, we published in the
Federal Register (76 FR 41950–41956)
the proposed Standards related to
Reinsurance, Risk Corridors, and Risk
Adjustment. We received approximately
700 comments on the proposed rule. Of
the comments received, approximately
200 were submitted as part of letter
campaigns related to women’s and
mental health services, or were general
comments on the Affordable Care Act
and the government’s role in health
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care, but were not specific to the
proposed rule.
Comments that were specific to the
proposed rule represented a wide
variety of stakeholders, including States
and tribal organizations, health
insurance issuers, consumer groups,
healthcare providers, industry experts,
and members of the public. Many
commenters emphasized the importance
of the premium stabilization programs
as Exchanges and insurance reforms are
implemented and addressed the balance
between flexibility for States and
standardization and predictability for
consumers nationwide.
A. Subpart A—General Provisions
1. Basis and Scope (§ 153.10)
Section 153.10(a) of subpart A
specified that the general statutory
authority for the standards proposed in
part 153 are based on the following
sections of title I of the Affordable Care
Act: sections 1321 and 1341–1343.
Section 153.10(b) specified that this part
establishes standards for the
establishment and operation of a
transitional reinsurance program, a
temporary risk corridors program, and a
permanent risk adjustment program. We
received a number of supportive
comments on these provisions and we
are finalizing them without
modification.
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2. Definitions (§ 153.20)
In § 153.20, § 153.200, § 153.300, and
§ 153.600 of the proposed rule, we set
forth definitions for terms that are
critical to the reinsurance, risk
adjustment, and risk corridors programs.
Many of the definitions presented in
§ 153.20 were taken directly from the
Affordable Care Act or from existing
regulations. New definitions were
created to carry out the regulations in
part 153. When a term is defined in part
153 other than in subpart A, the
definition of the term is applicable only
to the relevant subpart or section. The
application of the terms defined in
§ 153.20 is limited to part 153.
Considering the comments received,
we are finalizing this section as
proposed, with the following
modifications:
We are moving a number of
definitions that previously appeared in
subparts C, D, and G of the proposed
rule to subpart A of this final rule. We
are revising the definition of
‘‘attachment point’’ to clarify that
reinsurance payments will apply to
claims costs accumulated on an
incurred basis in a benefit year, and to
specify that reinsurance payments are
payable on all covered benefits. We are
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making conforming revisions to the
definitions of ‘‘coinsurance rate’’ and
‘‘reinsurance cap.’’ We are revising the
definition of ‘‘contribution rate’’ to be a
per capita amount payable with respect
to reinsurance contribution enrollees
who reside in a State. We are adding a
new defined term, ‘‘reinsurance
contribution enrollee,’’ which means an
individual covered by a plan for which
reinsurance contributions must be made
pursuant to § 153.400(b). We are
removing the definition of ‘‘percent of
premium’’ because this definition is no
longer used.
We are modifying the definition of
‘‘risk adjustment methodology’’ to mean
all parts of the risk adjustment
process—the risk adjustment model, the
calculation of plan average actuarial
risk, the calculation of payments and
charges, the risk adjustment data
collection approach, and the schedule
for the risk adjustment program. We are
doing so to clarify the distinct parts of
the risk adjustment process. The risk
adjustment model calculates individual
risk scores. The calculation of plan
average actuarial risk adjusts those
individual risk scores for rating
variation, and calculates average
actuarial risk at the plan level. The plan
average actuarial risk is used for the
calculation of payments and charges for
risk adjustment covered plans. The risk
adjustment data collection approach
specifies how risk adjustment data will
be stored, collected, accessed,
transmitted, and validated, and the
timeframes, data format, and privacy
and security standards associated with
each. The schedule for the risk
adjustment program is the schedule for
calculating payments and charges,
invoicing issuers for charges, and
disbursing payments. We are modifying
the definition of ‘‘risk adjustment data’’
to mean all data that are used in a risk
adjustment model, the calculation of
plan average actuarial risk, or the
calculation of payments and charges, or
that are used for validation or audit of
such data. We have added several new
definitions—‘‘individual risk score,’’
‘‘calculation of plan average actuarial
risk,’’ ‘‘calculation of payments and
charges,’’ and ‘‘risk adjustment data
collection approach.’’
Finally, we are making a number of
clarifying modifications throughout this
section.
Comment: We received one comment
suggesting that HHS define the benefit
year as a calendar year and that the
reinsurance program would be best
operated on a calendar year basis.
Response: The benefit year was
defined as the calendar year in the
Exchange Establishment rule. We have
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cross-referenced this definition in this
final rule.
Comment: Although a few
commenters supported the proposal that
reinsurance be payable only on essential
health benefits, the majority of
commenters urged that reinsurance be
payable on all covered benefits, with
several citing the administrative
complexity of distinguishing between
claims for essential health benefits and
claims for other covered benefits.
Response: Because it would be
administratively burdensome for issuers
to distinguish claims for covered
essential health benefits from other
claims, we are revising the definitions
so that reinsurance is payable on all
covered benefits.
Comment: We received several
comments disagreeing with the
inconsistency in the proposed definition
of percent of premium, which would
include administrative costs for the
fully insured market, but not the selfinsured market.
Response: We believe that the statute
intended for self-insured plans also to
pay administrative costs. However,
since we have modified the policy for
the collection of contributions as
discussed in the preamble to § 153.220,
we are no longer proposing a definition
for percent of premium.
Comment: We received a number of
comments requesting clarification of the
definition of a contributing entity for the
reinsurance program. Several
commenters suggested that HHS clarify
that third-party administrators are not
financially liable for contributions to be
made by group health plans for which
they administer benefits.
Response: The Affordable Care Act
requires that health insurance issuers
and third party administrators on behalf
of group health plans make
contributions. We are including text in
§ 153.400 that clarifies which issuers
must make reinsurance contributions
and which are exempt.
Comment: A few commenters
expressed support for the differentiation
between the defined terms ‘‘risk
adjustment model’’ and ‘‘risk
adjustment methodology.’’ Another
commenter suggested an expanded set
of definitions to capture more of the
steps in the risk adjustment process,
including a term to define the
methodology for transferring money
between plans, and a term to describe
an individual enrollee’s relative cost
compared to that of an average enrollee.
Response: We are adding a definition
of ‘‘individual risk score’’ to describe a
relative measure of predicted health
care costs for a particular enrollee. We
are adding a definition of ‘‘calculation
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of plan average actuarial risk’’ to
describe the specific calculations used
to determine plan average actuarial risk
from individual risk scores for a risk
adjustment covered plan, including the
specification of the risk pool from
which average actuarial risk will be
calculated. We are adding a definition of
‘‘calculation of payments and charges’’
to describe the specific procedures used
to determine plan average actuarial risk
from individual risk scores for a risk
adjustment covered plan, including
adjustment for variable rating factors
and the specification of the risk pool
from which average actuarial risk is to
be calculated. We are adding a
definition of ‘‘risk adjustment data
collection approach’’ to describe the
specific procedures by which risk
adjustment data is to be stored,
collected, accessed, and transmitted,
and the timeframes, data format, and
privacy and security standards with
respect thereto.
Comment: We received two comments
about the definition of ‘‘risk adjustment
data.’’ One commenter suggested that
the definition be expanded to
encompass all aspects of the risk
adjustment process. Another commenter
requested that HHS not adopt language
that would curtail the use of a
prospective risk adjustment model.
Response: We are aligning the
definition with a number of the other
new definitions encompassed in ‘‘risk
adjustment methodology.’’ We do not
intend to curtail the use of a prospective
risk adjustment model.
Comment: We received a few
comments requesting clarification as to
the types of plans that are subject to risk
adjustment. Commenters asked
specifically about Medicaid managed
care plans and multi-State plans.
Response: Section 1343 of the
Affordable Care Act requires that health
plans (except grandfathered plans) in
the individual or small group markets
participate in the risk adjustment
program. We are modifying the
definition of ‘‘risk adjustment covered
plan’’ in response to comments. This
modification clarifies that all health
insurance coverage, including multiState plans and Consumer Operated and
Oriented Plans, are risk adjustment
covered plans. The risk adjustment
program does not apply to Medicare
Advantage plans or Medicare
Prescription Drug Plans, under which
private health plans contract with
Medicare to provide Medicare-covered
benefits, or to contracts with State
Medicaid agencies to provide Medicaid
benefits, as payments for such coverage
are regulated under provisions of the
Social Security Act.
Insurance coverage solely for
excepted benefits under title XXVII of
the PHS Act will be excluded from risk
adjustment. Excepted benefit plans
cover a specific set of services, such as
vision benefits, while ‘‘major medical’’
plans cover a broader set of benefits
such as physician and hospital visits.
These differences make fair enrollee risk
comparison between excepted benefit
plans and major medical plans difficult.
We are modifying the definition of risk
adjustment covered plan to exclude
plans determined not to be risk
adjustment covered plans in the annual
HHS notice of benefit and payment
parameters.
B. Subpart B—State Notice of Benefit
and Payment Parameters
In this subpart, we proposed a process
by which the States that are operating a
risk adjustment program or establishing
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a reinsurance program issue an annual
notice of benefit and payment
parameters to disseminate information
to issuers and other stakeholders about
specific requirements to support
payment-related functions. This
provides a practical way to update
certain payment and benefit parameters
that may change annually, such as
reinsurance contribution rates that are
based on annually changing thresholds.
This notice will also serve as a
mechanism to address other Exchangerelated provisions.
1. State Notice of Benefit and Payment
Parameters (§ 153.100)
In § 153.100(a), we proposed that a
State operating an Exchange, as well as
a State establishing a reinsurance
program, be required to issue a notice to
describe the specific parameters that the
State will employ if that State intends
to utilize any reinsurance or risk
adjustment parameters that differ from
those specified in the annual HHS
notice of benefit and payment
parameters. In paragraph (b) (now
paragraph (c)), we proposed specific
deadlines for the State notice of benefit
and payment parameters. We proposed
that those deadlines be tied to the
publication of the annual HHS notice of
benefit and payment parameters, upon
which the public will have an
opportunity to comment. Below is a
chart detailing the schedules for the
annual HHS notice of benefit and
payment parameters for benefit year
2014 and subsequent years, with the
first two milestones occurring in the
calendar year two years before the
effective date.
ANNUAL HHS NOTICE OF BENEFIT AND PAYMENT PARAMETERS
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HHS publishes advance notice .................................................................
Comment period ends ..............................................................................
HHS publishes final notice ........................................................................
We proposed that a State that plans to
modify Federal parameters issue its
notice by early March in the calendar
year before the benefit year. We
proposed that this requirement set an
outer bound for the date by which the
final notice is to be issued by a State
that intends to utilize any reinsurance
or risk adjustment parameters that differ
from those specified in the annual HHS
notice of benefit and payment
parameters.
We also proposed in paragraph (c)
(now paragraph (d)), that if a State
operating an Exchange or establishing a
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Mid-October two calendar years before the benefit year.
Mid-November two calendar years before the benefit year.
Mid-January of the calendar year before the benefit year.
reinsurance program does not provide
public notice of its intent to have Statespecific parameters within the period
specified, the parameters set forth in the
annual HHS notice of benefit and
payment parameters will serve as the
State parameters.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
the provisions proposed in § 153.100 of
the proposed rule, with the following
modifications: We are clarifying that a
State must publish a notice of benefit
and payment parameters if it intends to
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modify the data requirements for
reinsurance payments, collect
reinsurance contributions, use more
than one applicable reinsurance entity,
or modify any reinsurance parameters.
We are directing a State that operates a
risk adjustment program to publish a
notice of benefit and payment
parameters setting forth the risk
adjustment methodology and data
validation standards it will use. We are
specifying that State notices be issued
by March 1 of the calendar year prior to
the first benefit year for which the
notice applies. We are clarifying that a
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State that does not publish a notice of
benefit and payment parameters forgoes
its right to modify the data requirements
for reinsurance payments, collect
reinsurance contributions, use more
than one applicable reinsurance entity,
or use any risk adjustment methodology
or data validation standards other than
those published in the annual HHS
notice of benefit and payment
parameters for use by HHS when
operating risk adjustment on behalf of a
State. We are also making a number of
clarifying modifications throughout this
section.
Comment: We received a number of
comments in support of a requirement
that States publish a State notice of
benefit and payment parameters. One
commenter suggested that we include a
requirement that all notices be made
public with a period for comment.
Another commenter proposed that
States be required to justify deviation
from any methodologies or parameters
set forth in the annual HHS notice of
benefit and payment parameters.
Response: While we recognize the
value of requiring a public comment
period for State notices, we believe that
such a requirement should be left to
State law and practice. HHS will
provide an opportunity for public
comment when HHS administers risk
adjustment or reinsurance. State law
will govern what administrative process
is necessary when a State adopts a risk
adjustment methodology, or modifies
reinsurance parameters, subject to the
limits of this final rule and the HHS
notice of benefit and payment
parameters. We are clarifying the
content of the justification to be
published by a State that seeks to use a
risk adjustment methodology other than
the methodology used by HHS when
operating risk adjustment on behalf of a
State. However, we are not requiring
that a State must provide justification
for changes to reinsurance payment
parameters. As discussed in the
preamble in subpart C, we believe a
State may have many reasons to make
adjustments to the HHS reinsurance
payment parameters. As such, we
believe that each State should have the
flexibility to determine the parameters
that best suit the administration of its
reinsurance program.
Comment: A number of commenters
expressed support for the timing of
notice releases as proposed. However,
we received a number of comments
stating that the proposed timeframe did
not allow sufficient time for issuers to
prepare their applications for
certification for participation in the
Exchange in time for the October 2013
open enrollment period. Commenters
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proposed alternative timeframes for the
release of the HHS notice that ranged
from January 2012 to June 30, 2012. A
number of commenters also stated that,
particularly in the initial years, more
advanced notice of Federal and State
program parameters will be necessary in
order for issuers to prepare premiums
for the 2014 benefit year.
Response: The timeframe for
implementation of the Affordable Care
Act makes it difficult for the Federal
and State governments to provide more
notice than was proposed in the
proposed rule. To accommodate States’
and issuers’ desire for further
information with respect to risk
adjustment, HHS is planning a number
of working sessions with issuers and
States. We believe these sessions will
provide sufficient information to issuers
and States, while providing HHS the
time necessary to more fully develop the
Federal parameters for the reinsurance
and risk adjustment programs. For these
reasons, we are clarifying and finalizing
the proposed requirement that State
notices of benefit and payment
parameters be published by March 1 of
the calendar year prior to the benefit
year.
Comment: We received a comment
supporting the requirement that, if a
State establishing a reinsurance program
does not provide public notice of its
intent to have State-specific parameters,
the parameters set forth in the annual
HHS notice of benefit and payment
parameters will serve as the State
parameters.
Response: We are finalizing our
policy that a State that elects to
establish a reinsurance program that
does not publish a State notice of
benefit and payment parameters by
March 1 must adhere to the parameters
set forth in the HHS notice of benefit
and payment parameters.
2. Standards for the State Notice of
Benefit and Payment Parameters
(§ 153.110)
We proposed in paragraph (a)(1) (now
paragraph (a)), that content related to
the reinsurance program include the
data requirements and data collection
frequency for health insurance issuers to
receive reinsurance payments. In
paragraph (a)(2) (now paragraph (e)), we
proposed that a State that establishes a
reinsurance program must specify the
attachment point, reinsurance cap, and
coinsurance rate if the State plans to use
values different from those set forth in
the annual HHS notice of benefit and
payment parameters. In paragraph (a)(3)
(now paragraph (d)), we proposed that
if a State plans to use more than one
applicable reinsurance entity, the State
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must include in its State notice of
benefit and payment parameters
information related to the geographic
boundaries of each applicable
reinsurance entity and estimates related
to the number of enrollees, payments,
and premiums available for
contributions in each region.
In paragraph (b) (now paragraph (f)),
we proposed content related to the risk
adjustment program if the State intends
to modify the risk adjustment
parameters set forth in the annual HHS
notice of benefit and payment
parameters, including a detailed
description of and rationale for any
modification.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
the provisions proposed in § 153.110
with the following modifications: We
are specifying that a State establishing a
reinsurance program that elects to
collect reinsurance contributions from
the fully insured market must announce
its intention to do so, and must set forth
the data requirements for reinsurance
payments in the State notice of benefit
and payment parameters. We are
clarifying that a State must apply any
modified reinsurance parameters
uniformly throughout the State.
However, as discussed in Subpart C, a
State must inform HHS by December 1,
2012, of its intent to collect reinsurance
contributions for the 2014 benefit year,
and by September 1 of the calendar year
that is two years prior to the applicable
benefit year if the State elects to collect
reinsurance contributions for any
benefit year after 2014. A State that
elects to collect additional reinsurance
contributions must describe the purpose
of the additional collection and the
additional contribution rate. We are
making a number of clarifying
modifications throughout this section.
Comment: One commenter supported
affording States the flexibility to provide
higher reinsurance payments to plans.
Response: We believe that States
should have the flexibility to vary
reinsurance payments, so long as the
reinsurance parameters are uniform
throughout the State. However, a State
electing to change reinsurance
parameters must publish those changed
parameters in the State notice of benefit
and payment parameters. A State
electing to make higher reinsurance
payments will be required to collect any
additional reinsurance contributions
required to fund those higher payments
through a State applicable reinsurance
entity.
Comment: We received a comment
asking that States be provided the
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flexibility to use multiple coinsurance
rates.
Response: We believe that States
generally should have flexibility in
setting payment parameters, but we do
not believe that the Affordable Care Act
intended for a State to allow an
applicable reinsurance entity to set
multiple payment parameters in the
State, or for multiple applicable
reinsurance entities in a State to set
different payment parameters. We
believe that payment parameters set by
the State or HHS on behalf of the State
should be uniform throughout the State.
Comment: Several commenters
supported the requirement that if there
are multiple applicable reinsurance
entities in a State, these entities must be
required to operate in distinct
geographic areas.
Response: We are finalizing that
requirement in § 153.210(a)(2).
Comment: Several commenters asked
for clarification or changes in the
content that a State must provide in its
notice of benefit and payment
parameters. In particular, commenters
stated that the proposed rule did not
define the term ‘‘risk adjustment data
validation methodology.’’
Response: We believe our proposed
rule struck a balance between providing
minimal baselines for States and
providing States with flexibility for their
State notices. We are clarifying the
provisions related to risk adjustment
data validation by requiring that
§ 153.110(f) align with § 153.330(a) and
§ 153.350.
C. Subpart C—State Standards Related
to the Reinsurance Program
Section 1341 of the Affordable Care
Act directs that a transitional
reinsurance program be established in
each State to help stabilize premiums
for coverage in the individual market
during the benefit years 2014 through
2016. Under this provision, all health
insurance issuers, and third-party
administrators on behalf of self-insured
group health plans, must make
contributions to support reinsurance
payments to non-grandfathered plans of
individual market issuers that cover
high-cost individuals. As a basis for
reinsurance payments, the law directs
HHS to develop a list of 50 to 100
medical conditions to identify high-cost
individuals, or to identify alternative
methods for payment in consultation
with the American Academy of
Actuaries.
In subpart C of the proposed rule, we
proposed to codify in regulation section
1341 of the Affordable Care Act as it
relates to establishing a reinsurance
program. Related standards on health
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insurance issuers with respect to
reinsurance were proposed in subpart E
of the proposed rule.
1. Reserved (§ 153.200)
Section 153.200 of the proposed rule
defined a number of terms used in this
subpart. Those definitions have been
moved to subpart A. We are reserving
this section for future use.
2. State Establishment of a Reinsurance
Program (§ 153.210)
In § 153.210 of the proposed rule, we
described standards for States regarding
the establishment of a reinsurance
program. We proposed in paragraph (a)
that each State that elects to operate an
Exchange must also establish a
reinsurance program as required by the
law. In paragraph (a)(1), we proposed to
codify in regulation section 1341(a) of
the Affordable Care Act, which requires
that States must either enter into a
contract with an existing applicable
reinsurance entity or establish an
applicable reinsurance entity to carry
out the provisions for the reinsurance
program. We believe the statute allows
State flexibility in selecting an
applicable reinsurance entity and did
not propose more specific guidelines.
The Affordable Care Act also allows
States to set up more than one
reinsurance entity, although this option
may increase administrative costs. We
proposed in paragraph (a)(2) that, for
any State that chooses to have more
than one reinsurance entity, the State
must publish in a State notice of benefit
and payment parameters, described in
subpart B, information regarding the
geographic divisions between the
applicable entities. We further interpret
the statute to imply that the geographic
divisions of the applicable reinsurance
entities must be distinct and together
cover the entire individual market in the
State and not just certain areas or
populations. In paragraph (a)(3), we
proposed to allow the State to permit a
reinsurance entity to subcontract for
administrative functions, provided that
the State reviews and approves these
subcontracted arrangements as
described in paragraph (a)(4). We
interpreted the statute to allow
flexibility in the performance of
administrative functions, with the
understanding that the responsible party
must be the applicable reinsurance
entity.
We proposed in paragraph (a)(5) that
the establishment of, or contract with,
an applicable reinsurance entity must
extend for a sufficient period to ensure
that the entity can fulfill all reinsurance
requirements for the benefit years 2014
through 2016, and any activities
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required to be undertaken in subsequent
periods. Any State in which
contributions remain to be disbursed for
benefit years beyond 2016 must ensure
that an applicable reinsurance entity is
available for required payment activities
for such additional periods. Section
1341(b)(4) of the Affordable Care Act
requires that these payments be
completed by December 31, 2018.
We clarified in paragraph (b) that
there may be situations in which an
applicable reinsurance entity operates a
reinsurance program for more than one
State. In such cases, we consider each
contract to be an individual reinsurance
arrangement between a specific State
and the applicable reinsurance entity.
We proposed in paragraph (c) to allow
a State that does not elect to establish
an Exchange to operate its own
reinsurance program. Under this
circumstance, the State will be required
to carry out the provisions of this
subpart. In paragraph (d), we proposed
that if a State does not elect to establish
an Exchange and does not elect to
establish its own reinsurance program,
HHS will establish the reinsurance
program and will perform all the
reinsurance functions for that State.
These functions would include the
collection of all contributions described
in § 153.220, including funds required
to operate and administer the applicable
reinsurance functions. In paragraph (e),
we proposed that each State that
establishes a reinsurance program must
ensure that each applicable reinsurance
entity within the State complies with all
provisions of this subpart and with
subpart E.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
these provisions with the following
modifications:
In paragraph (a), we are clarifying that
because reinsurance is no longer a
required Exchange function, each State
is eligible to establish a reinsurance
program regardless of whether the State
establishes an Exchange; we are
removing proposed paragraph (c) to
conform to this change. We are
clarifying in paragraph (a)(2) that each
State is required to notify HHS in the
manner and timeframe specified by
HHS of the percentage of reinsurance
contributions received by HHS for the
State to be allocated to each applicable
reinsurance entity, if applicable. We are
moving the requirement that a State
publish the geographic boundaries for
each applicable reinsurance entity, if it
elects to have more than one, to subpart
B. Finally, we are making a number of
clarifying modifications to this section.
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Comment: We received a comment
suggesting a number of entities that
could serve as a not-for-profit
reinsurance entity for a State. We
received a few comments urging that we
provide more guidance on entities
eligible to be State applicable
reinsurance entities. One commenter
suggested that the State reinsurance
entity be subject to both Federal and
State oversight.
Response: We believe that a State
should have the discretion to select the
entity that will administer its
reinsurance program, and do not
establish specific standards for that
selection. We understand the
commenter’s concern about oversight,
and note that § 153.210(d) requires
States to ensure compliance with
subpart C when the State is operating
the reinsurance program. When HHS is
operating a reinsurance program on
behalf of the State, HHS will also ensure
such compliance. Because we believe
that States should have flexibility in
selection and oversight over the
applicable reinsurance entity, we are
not proposing further guidance on those
matters.
Comment: We received a comment
suggesting that HHS provide options for
States to terminate an entity for cause.
Response: We believe that nothing in
this final rule precludes States from
terminating a contract with an
applicable reinsurance entity in a
manner consistent with State law
(including regulations governing
contracting). In such an event, the State
should ensure a seamless transition of
reinsurance functions to another
applicable reinsurance entity to prevent
any disruption in the program.
Comment: We received many
comments suggesting that a State
establishing an Exchange not be
required to operate a reinsurance
program. Commenters stated that it
would be difficult for a State to identify
a not-for-profit entity to operate the
transitional reinsurance program. One
commenter suggested that HHS execute
a master contract with a single
reinsurance entity that satisfies all of the
requirements in this final rule and
permit States to use that entity. Another
commenter stated that a State’s options
for establishing a reinsurance program
should be similar to those it has with
respect to establishing a risk adjustment
program.
Response: We are no longer requiring
that States that establish an Exchange
also establish a reinsurance program.
We believe that this flexibility is
appropriate because some States have
previously established reinsurance
programs, and may feel they are
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prepared to operate a reinsurance
program for their State. If a State
chooses not to establish a reinsurance
program, HHS will establish a
reinsurance program for that State.
Comment: We received one comment
asking HHS to publish a white paper on
draft methodologies for reinsurance.
Response: We are describing the
general methodology for collecting
reinsurance contributions and making
reinsurance payments in subpart C of
this final rule. We plan to provide
further details on this methodology,
including the national rate for
contributions and State-based
reinsurance payment parameters, in the
HHS notice of benefit and payment
parameters.
Comment: We received a comment
seeking clarification on the use of
unexpended contribution funds
collected in calendar years 2014 through
2016, and funds that may remain after
2016.
Response: We believe that unused
reinsurance funds should be used by the
State until expended or by December 31,
2018, whichever date comes first, to
make reinsurance payments. States are
not prohibited from continuing a
reinsurance program, but may not use
reinsurance contribution funds
collected under the reinsurance program
in calendar years 2014 through 2016 to
fund the program in years after 2018. If
contribution funds collected for a
calendar year between 2014 and 2016
remain unspent by December 31 of the
year, those funds may be carried into
the next year to make payments for the
next year or to make retroactive
payments for prior years.
Comment: We received a comment
asking that existing State reinsurance
programs be permitted to serve as a
combined reinsurance program. The
commenter further suggested permitting
the use of reinsurance contributions
collected under the transitional
reinsurance program for an existing
State reinsurance program.
Response: We believe that a State
with an existing reinsurance program in
place can modify that program to
comply with the standards for the
transitional reinsurance program. The
State would be required to contract with
a not-for-profit reinsurance entity to
administer the program, and the
applicable reinsurance entity must
comply with the standards.
Contributions collected for the
transitional reinsurance program must
be used to make reinsurance payments
pursuant to the transitional reinsurance
program based on the payment
parameters established by the State or
HHS on behalf of the State, and may not
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be used to fund a separate State
reinsurance program.
3. Collection of Reinsurance
Contribution Funds (§ 153.220)
In § 153.220 of the proposed rule, we
described standards for the collection of
reinsurance contribution funds. In
paragraph (a)(1) (now paragraph (c)), we
proposed to codify in regulation the
aggregate contribution amounts required
under the Affordable Care Act for
reinsurance. The Affordable Care Act
requires that the reinsurance entity
collect specified additional contribution
funds for deposit into the general fund
of the U.S. Treasury. In paragraph (a)(2),
we proposed to codify in regulation
these additional contribution amounts.
Although the transitional reinsurance
program is State-based, section
1341(b)(3) sets contribution amounts for
the program on a national basis. We
considered two approaches to collecting
contribution funds: (1) Use of a national
uniform contribution rate, and (2) use of
a State-level allocation, both set by HHS
to ensure that the sum of all
contribution funds equals the national
amounts set forth in the Affordable Care
Act. In paragraph (b), we proposed
using a national contribution rate. Use
of a national contribution rate is a
simpler approach. Further, since there is
significant uncertainty about individual
market enrollment, the overall health of
the enrolled population, and the cost of
care for new enrollees, we believed that
a national contribution rate would be
the less ambiguous approach of the two.
All contribution funds collected by a
State establishing a reinsurance program
under the national contribution rate
would stay in that State and be used to
make reinsurance payments on valid
claims submitted by reinsurance-eligible
plans in that State. There are two
methods we considered for determining
contributions using a national rate: (1) A
percent of premium amount applied to
all contributing entities, and (2) a flat
per capita amount applied to all covered
enrollees of contributing entities. In
paragraph (b)(1) (now paragraph (e)), we
proposed the percent of premium
method as the fairest method by which
to collect these contributions.
In paragraph (b)(2) (now paragraph
(e)), we also proposed requiring that all
contribution funds collected for
reinsurance payments be used for
reinsurance, and all contribution funds
collected for the U.S. Treasury be paid
to the U.S. Treasury. In paragraph
(b)(3)(i), we proposed that a State may
collect more than would be collected
under the national rate, if the State
believes that these amounts are not
sufficient to cover the payments it will
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make under the payment formula. In
paragraph (b)(3)(ii) (now paragraph (g)),
we proposed permitting a State to
collect more than the amount collected
at the national rate to cover the
administrative costs of the applicable
reinsurance entity.
We also considered the frequency
with which applicable reinsurance
entities should collect contribution
funds from contributing entities. For
example, applicable reinsurance entities
could collect contribution funds
intended for reinsurance payments and
payments to the U.S. Treasury on a
monthly basis beginning in January
2014 so that reinsurance payments
could begin in February 2014.
Considering the comments received,
we are finalizing these provisions with
the following modifications:
In paragraph (a), we are revising the
proposed provisions so that HHS would
collect contribution funds from selfinsured plans and third-party
administrators on their behalf, whether
or not a state elects to establish a
reinsurance program. This policy is
consistent with traditional Federal
oversight of self-insured plans. States
that establish a reinsurance program
would have the option, but not the
obligation, to collect contributions from
issuers in the fully insured market. If a
State does not elect to collect from the
fully insured market, HHS would collect
contributions from both fully insured
and self-insured plans.
In paragraph (b), we are clarifying that
a State that elects to establish a
reinsurance program must generally
notify HHS by September 1 of the
calendar year that is two years prior to
the applicable benefit year if the State
plans to collect reinsurance
contributions from fully insured plans.
However, due to States’ anticipated
workload in establishing Exchanges in
the fall of 2012, we are postponing the
deadline for notifying HHS of a State’s
intent to collect reinsurance
contributions from fully insured plans
to December 1, 2012, for the 2014
benefit year (with the notification being
required by September 1 of the calendar
year two years prior to the applicable
benefit year for any benefit year after
2014). The State’s notification will be
effective for the applicable benefit year
and each subsequent benefit year during
which reinsurance-related activities
continue.
Paragraph (d) describes how
contribution funds collected by HHS
will be distributed: HHS will distribute
the reinsurance contributions collected
to the applicable reinsurance entity for
a State, net of the State’s share of the
U.S. Treasury contribution and
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administrative expenses incurred when
performing reinsurance functions under
this subpart.
In paragraph (e), we are clarifying that
HHS will set the national contribution
rate in the annual HHS notice of benefit
and payment parameters along with the
proportion of the national contribution
rate that will be allocated to reinsurance
payments, payments to the U.S.
Treasury, and administrative expenses
of the applicable reinsurance entity for
the State or HHS when performing
reinsurance functions under this
subpart.
In paragraph (g), we are clarifying that
a State may elect to collect more than
the amounts that would be collected
based on the contribution rate to
provide funding for administrative
expenses or additional reinsurance
payments. This policy was proposed in
paragraph (b)(3) of the proposed rule. In
paragraph (h), we describe the
administration of additional State
collections. If a State establishes a
reinsurance program and elects to
collect more than the amounts that
would be collected based on the
national contribution rate for
administrative expenses, then the State
must notify HHS within 30 days after
publication of the proposed annual HHS
notice of benefit and payment
parameters of the additional
contribution rate that it elects to collect
for administrative expenses. Further, the
State must ensure that the State’s
applicable reinsurance entity collects
any additional amount for
administrative expenses, or accepts
additional amounts from HHS in
accordance with the State’s election
under paragraph (a)(1). For reinsurance
payments, notwithstanding paragraphs
(a)(1) and (a)(2), the State must ensure
that the State applicable reinsurance
entity collects all additional reinsurance
contributions from contributing entities
for the purpose of reinsurance
payments. In sum, HHS will only collect
additional amounts for administrative
expenses for a State, and will not collect
additional amounts for reinsurance
payments for a State. The collection of
additional amounts for reinsurance
payments must be carried out by the
State’s applicable reinsurance entity.
We are also making a number of
clarifying modifications throughout this
section.
Comment: We received many
comments expressing concern that
States may lack the ability to collect
contributions from self-insured plans,
due to the States’ lack of authority and
oversight of self-insured plans.
Response: We are revising the
proposed collection process so that HHS
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collects from the self-insured market in
all States. We believe that this change in
collection process will create a more
efficient, centralized collection from
self-insured plans that is beneficial to
both States and third party
administrators on behalf of group health
plans. This collection is authorized
under HHS’ authority under section
1321(c)(1) of the Affordable Care Act to
‘‘take such actions as are necessary to
implement’’ the requirements of title I of
the Affordable Care Act.
Comment: We received overwhelming
support for the proposed use of a
national uniform contribution rate.
However, one commenter expressed
concern with this approach, and
suggested a State-level allocation to
make the redistribution of contribution
funds proportional to the size of the
State’s individual market.
Response: Consistent with the
majority of comments, we believe that a
national uniform contribution rate is the
better approach because it is simpler
and more easily implemented for a
transitional program. The statute does
not specify the approach for collection
of contributions, but requires HHS to
consult with the NAIC in determining
provisions for the reinsurance program.
NAIC supported the use of a national
contribution rate because it minimizes
the burden on States and issuers and is
more equitable. NAIC also stated in its
official response to the proposed rule
that a State-level allocation would be
more administratively burdensome for
issuers and States and would not
guarantee fairness in the collection of
contributions. While one commenter
expressed concern that use of a national
contribution rate would result in
underfunding of reinsurance, we believe
that a State’s right to increase the
contribution rate addresses this concern.
Comment: Many commenters
supported the proposed percent of
premium method, arguing that a percent
of premium method better allocates
contributions to States with higher
premium and healthcare costs. A few
commenters opposed use of a percent of
premium method due to its complexity
and a concern that it could adversely
impact the market.
Response: HHS has considered the
advantages and disadvantages of both
methods, along with the overarching
goals for the transitional reinsurance
program, which are to (1) Stabilize
premiums by offering protection to
health insurance issuers against medical
cost overruns for high-cost enrollees in
the individual market; (2) provide early
and prompt payment of reinsurance
funds during the benefit year; (3)
minimize administrative burden; and (4)
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allow contributions collected by or on
behalf of a State to remain in that State.
Given these goals and the time-limited
nature of the program, we believe that
the per capita approach will be less
complex to administer, particularly with
regard to the self-insured market.
Further, the per capita approach will
better enable us to maintain the goals of
the reinsurance program by providing
issuers with a more straightforward
approach in making contributions to the
reinsurance program with minimal
administrative burden. A State would
still be allowed to collect additional
contributions towards reinsurance
payment.
While several commenters expressed
support for our original proposal of a
percent of premium method, these same
stakeholders also support timely
collection and payment in the
reinsurance program, which is an
important component of the premium
stabilization provided by the
reinsurance program. We believe that
the per capita approach will best
achieve this goal.
4. Calculation of Reinsurance Payments
(§ 153.230)
In § 153.230 of the proposed rule, we
set the payment policy for the
reinsurance program based upon
consultation with the American
Academy of Actuaries. The reinsurance
payment policy must address two basic
issues: (1) How to determine the
individuals who are covered by
reinsurance, and (2) how to determine
appropriate payment amounts. Given
the short-term nature of the program,
our primary objective is to select an
implementation approach that is
administratively and operationally
simple, but satisfies the goals of the
program. Therefore, we prefer to use
reliable and readily accessible data
sources that will allow health insurance
issuers to receive prompt payment. We
proposed in paragraph (a) that coverage
be based on items and services within
the essential health benefits for an
individual enrollee that exceeds an
attachment point.
In paragraph (b), we proposed to
announce the reinsurance payment
formula and State-specific values for the
attachment point, reinsurance cap, and
coinsurance rate in the annual HHS
notice of benefit and payment
parameters. We believe that publishing
this information in a Federal notice is
the best approach for announcing the
attachment point and reinsurance cap,
as these values may change in calendar
years 2015 and 2016. The Affordable
Care Act does not suggest that the threeyear reinsurance program should
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replace commercial reinsurance or
internal risk mitigation strategies. There
will be a continued need for ongoing
commercial reinsurance. Therefore, we
proposed establishing a reinsurance cap
set at a level approximately equal to the
attachment point for traditional
commercial reinsurance.
In paragraph (b)(1) (now paragraph
(c)), we proposed that the reinsurance
payment amount be a percentage of
those costs above an attachment point
and below a reinsurance cap. However,
we believe States may have unique
situations, and will permit a State that
establishes a reinsurance program to
establish its own payment formula by
varying the attachment point,
coinsurance rate, and reinsurance cap.
The preamble to the proposed rule
contains a further discussion of the
reasoning and background behind the
policy proposed in paragraph (b)(1).
We proposed using medical cost
experience to identify eligible enrollees
for which health insurance issuers
would receive reinsurance. This
approach for calculating reinsurance
payments considers costs only for highrisk individuals. However, use of a
reinsurance cap, as well as the fact that
a health insurance issuer pays only a
portion of costs above the attachment
point and below the cap, may
incentivize health insurance issuers to
control costs.
We proposed in paragraph (b)(2) (now
moved to § 153.220(f)(2)(ii)), that all
payments to the general fund of the U.S.
Treasury be made on a frequency to be
determined by HHS. We have also
considered the frequency with which
payments should be made to the U.S.
Treasury. For example, the applicable
reinsurance entities could remit
payment on a monthly or quarterly basis
commencing February 28, 2014 and
continuing through January 31, 2017 or
until States have remitted the full
amount of all payments. We proposed in
paragraph (c) (now paragraph (d)), to
allow some degree of State variation
from the reinsurance parameters
proposed by HHS. We proposed in
paragraph (c)(1) (now paragraph (d)(1)),
that the State may alter the attachment
point, reinsurance cap, including
elimination of the cap, and coinsurance
rate. We proposed in paragraph (c)(2)
(now paragraph (d)(2)), that States must
publish any modification to the
reinsurance payment formula and
parameters in a State notice of benefit
and payment parameters as described in
subpart B of this part. We proposed in
paragraph (c)(3) (now paragraph (d)(3)),
that the State must ensure that all
proposed alterations to the reinsurance
formulas proposed by HHS, including
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payments and contributions, result in
the applicable reinsurance entity having
sufficient contributions to meet all of its
obligations for payments. These
alterations to reinsurance parameters do
not require HHS approval.
We believe that a State may have
many reasons to make adjustments to
the HHS reinsurance payment formula.
First, the State may decide to increase
reinsurance payments above the levels
established by HHS. Second, the State
may have additional unexpended funds
from a prior contribution period and
may seek to adjust the reinsurance
formulas to disburse the unexpended
funds. Finally, the State may elect to
pay the same amounts recommended by
HHS, but may wish to modify the
frequency of those payments.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
these provisions, with the following
modifications:
In paragraph (a), we are no longer
requiring that payment be linked to the
coverage of essential health benefits. In
paragraph (b), we are clarifying that the
States must use, subject to any
modifications made pursuant to
paragraph (d), the payment formula and
values for the attachment point,
reinsurance cap, and coinsurance rate
for each year commencing in 2014 and
ending in 2016, established in the
annual HHS notice of benefit and
payment parameters for the applicable
benefit year. We are removing paragraph
(b)(2) due to the new policy on
collections and payments to the U.S.
Treasury set forth in § 153.220. We are
revising paragraph (c)(3) (now
paragraph (d)(3)), to clarify that any
State modification to the reinsurance
payment formula pursuant to paragraph
(d)(1) must be reasonably calculated to
ensure that contributions received
toward reinsurance are sufficient to
cover payments that the applicable
reinsurance entity is obligated to make
under that State formula for the given
benefit year for the reinsurance
program. We are making a number of
clarifying modifications throughout this
section.
Comment: We received a number of
comments that emphasized that
reinsurance programs typically are tied
not to underlying conditions that lead to
high enrollee medical costs, but to
claims costs beyond a specific dollar
threshold within a coverage period,
regardless of enrollees’ health condition.
Several commenters stated that coverage
of specific conditions under a
reinsurance program could lead to
discriminatory practices toward certain
individuals, with one commenter noting
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that identifying medical conditions as a
basis for reinsurance payments would
require more extensive verification than
usually required by traditional
reinsurance. Another commenter stated
that reinsurance that makes payments
based solely on incurred costs does not
encourage efficient and effective care.
Response: We are finalizing the
provisions that base reinsurance
payments on total claims costs, rather
than specific diagnoses. We believe that
because reinsurance payments are likely
to only reimburse a portion of claims
costs above the attachment point and
will pay no costs above the reinsurance
cap, there will still be incentives for an
issuer to encourage efficient and
effective care.
Comment: We received a few
comments suggesting that States be
permitted to use one of the other
approaches proposed by the American
Academy of Actuaries for determining
eligible individuals for reinsurance.
Response: In consultation with HHS,
the American Academy of Actuaries
proposed four approaches for
determining eligible individuals for the
reinsurance program, described in the
preamble to the proposed rule. From
those proposals, we selected the
approach based on total claims costs.
We believe that permitting States the
flexibility to select one of the other
American Academy of Actuaries
approaches would unnecessarily burden
issuers operating in multiple States.
Because reinsurance is a transitional
program, we wish to avoid that
additional burden on issuers, and are
finalizing the proposed policy that uses
total claims cost.
Comment: We received many
comments supporting our proposed
approach for calculating reinsurance
payments based on the use of an
attachment point, coinsurance rate, and
reinsurance cap. One commenter
expressed concern that the proposed
approach may reduce the incentive to
control costs.
Response: We understand the
concerns regarding cost control.
However, since issuers are likely to not
be fully reimbursed under the
reinsurance program for claims costs
above the attachment point, we believe
that they will continue to have an
incentive to control costs.
Comment: We received a comment
asking for clarification on whether
reinsurance payments are made on an
incurred basis.
Response: As indicated in the
proposed definitions for ‘‘attachment
point,’’ ‘‘coinsurance rate,’’ and
‘‘reinsurance cap,’’ we intend for claims
costs to be measured on an incurred
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basis for purposes of calculating
reinsurance payments.
5. Disbursement of Reinsurance
Payments (§ 153.240)
In § 153.240, we proposed parameters
for the timing of reinsurance payments.
In paragraph (a) of this section, we
proposed that States must ensure that
the applicable reinsurance entity
collects from health insurance issuers of
reinsurance-eligible plans data required
to calculate payments described in
§ 153.230, according to the data
requirements and data collection
frequency specified by the State in the
State notice of benefit and payment
parameters described in subpart B, or in
the annual HHS notice of benefit and
payment parameters.
In paragraph (b), we proposed that a
State must ensure that each applicable
reinsurance entity makes payments that
do not exceed contributions and makes
payments to health insurance issuers of
reinsurance-eligible plans according to
§ 153.230. We also proposed in
paragraph (b)(2) (now paragraph (b)(1)),
to allow a State to reduce payments on
a pro rata basis to match the amount of
contributions received by the State in a
given reinsurance year, and to require
that pro rata reductions made by the
State be made in a fair and equitable
manner for all health insurance issuers
in the individual market.
In paragraph (b)(3) (now paragraph
(b)(2)), we proposed that a State be
required to ensure that an applicable
reinsurance entity make payments as
specified in § 153.410(b) to the issuer of
a reinsurance-eligible plan after
receiving a valid claim for payment.
Finally, in paragraph (c), we proposed
that for each benefit year, the State be
required to maintain all records related
to the reinsurance program for 10 years,
consistent with requirements for record
retention under the False Claims Act.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
these provisions with the following
modifications:
We are clarifying in paragraph (b) that
the State must ensure that each
applicable reinsurance entity does not
make reinsurance payments that exceed
contributions received to date. We are
removing paragraph (b)(1) because those
requirements are covered in § 153.230
and paragraph (b)(2) (formerly
paragraph (b)(3)). We are clarifying in
paragraph (b)(1) (formerly paragraph
(b)(2)), that if a State, or HHS on behalf
of the State, determines that reinsurance
payments requested for a calendar year
will likely exceed the reinsurance
contributions that will be received for
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the year, the State, or HHS on behalf of
the State, may reduce reinsurance
payments, so long as the manner in
which payments are reduced is fair and
equitable for all health insurance issuers
in the individual market. We are making
a number of clarifying modifications
throughout this section.
Comment: We received many
comments related to the timing of
reinsurance payments. Some
commenters asked that States be
provided flexibility in determining
payment timeframes. A few commenters
suggested that contributions be
collected monthly, but that payments be
made quarterly. One commenter
suggested providing early funds to small
carriers to cover potential cash flow
shortfalls.
Response: We recognize the
importance of providing issuers with
reinsurance payments in a timely
manner, but we believe it is prudent to
maintain flexibility in payment timing
to ensure that sufficient contributions
are available to fund those payments.
We are finalizing the proposal
permitting States to establish the
payment timeframe in the State notice
of benefit and payment parameters
described in subpart B. For reinsurance
programs established by HHS on behalf
of the State, HHS will publish the
payment timeframe in the HHS notice of
benefit and payment parameters. We
anticipate that States will take into
account the cash flow needs of small
issuers in setting the reinsurance
payment timeframes.
Comment: We received several
comments suggesting that HHS prohibit
health insurance issuers from passing
reinsurance payment shortfalls on to
providers.
Response: We understand the concern
raised by the commenters, and we
encourage providers to work with plan
issuers concerning this matter.
Comment: We received several
comments on the duration of the record
maintenance requirement. Commenters
suggested retention requirements
ranging from two to fifteen years, with
many commenters suggesting a five-year
period.
Response: We believe that the record
retention requirements for reinsurance
should be consistent with other Federal
record retention requirements, and are
finalizing the proposed provision that
requires records to be retained for ten
years, as explained above.
6. Coordination With High-Risk Pools
(§ 153.250)
In § 153.250(a) of the proposed rule,
we proposed to codify in regulation
section 1341(d) of the Affordable Care
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Act, which requires that States
eliminate or modify high-risk pools to
the extent necessary to carry out the
reinsurance program. In paragraph (a),
we proposed to codify in regulation the
above-referenced section. In paragraph
(b), we proposed to permit a State that
continues its high-risk pool to
coordinate its high-risk pool with its
reinsurance program to the extent it
conforms with the provisions of this
subpart.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
these provisions with no modifications.
Comment: We received several
comments recommending that high-risk
pools be permitted to be offered as
individual market plans eligible for
reinsurance. One commenter requested
that reinsurance contributions be used
to fund the costs of operating State highrisk pools during the three-year period.
Several commenters suggested not
combining reinsurance funds with
funds for high-risk pools, and opposed
permitting high-risk pools to receive
reinsurance payments.
Response: We clarify in § 153.400 that
State high-risk pools are excluded from
contributions and payments. We clarify,
as we did in the proposed rule, that
none of the funds collected for
reinsurance can be used for any purpose
other than for making payments under
the reinsurance program or for
administering that program. We
understand the concerns of some
commenters regarding the transition of
high-risk pool participants and point
out that the Exchanges will work with
State high-risk pools to ensure a smooth
transition and continuity of care for
these enrollees. We believe that the
reinsurance program, along with the risk
adjustment and risk corridors programs,
were designed in anticipation of new
high-cost enrollees, some of whom may
currently be receiving coverage through
State high-risk pools.
Comment: We received a comment
suggesting coordination between PCIP
and the transitional reinsurance
program.
Response: Section 1101 of the
Affordable Care Act requires
coordination between PCIP and the
Exchanges. To the extent that
individuals previously enrolled in PCIP
enroll in reinsurance-eligible plans,
issuers will have access to the
reinsurance program for these enrollees.
D. Subpart D—State Standards Related
to the Risk Adjustment Program
In subpart D, we proposed standards
for States with respect to the risk
adjustment program required under
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section 1343 of the Affordable Care Act.
Parallel provisions for health insurance
issuers were proposed in subpart G of
this part. Section 1343 provides for a
program of risk adjustment for all nongrandfathered plans in the individual
and small group market both inside and
outside of the Exchange. The risk
adjustment program is intended to
reduce or eliminate premium
differences between plans based solely
on expectations of favorable or
unfavorable risk selection or choices by
higher risk enrollees in the individual
and small group market. The risk
adjustment program also serves to level
the playing field inside and outside of
the Exchange, reducing the potential for
excessive premium growth or instability
within the Exchange. We interpret
section 1343 to mean that risk pools
must be aggregated at the State level,
even if a State decides to utilize regional
Exchanges. Furthermore, section 1343(c)
indicates that risk adjustment applies to
individual and small group market
health insurance issuers of nongrandfathered plans within a State, both
inside and outside of the Exchange.
Accordingly, similar to our approach in
reinsurance, if multiple States contract
with a single entity to administer risk
adjustment, risk may not be combined
across State lines, but must be pooled
within each State.
1. Reserved (§ 153.300)
Section 153.300 of the proposed rule
defined a number of terms used in this
subpart. Those definitions have been
moved to subpart A. We are reserving
this section for future use.
2. Risk Adjustment Administration
(§ 153.310)
In this section, in paragraph (a)(1), we
specified that any State electing to
establish an Exchange is eligible to
establish a risk adjustment program.
Pursuant to section 1321(c)(1) of the
Affordable Care Act, we proposed in
paragraph (a)(2) that for States that do
not operate an Exchange, HHS will
establish a risk adjustment program. We
also clarified in paragraph (a)(3) that
HHS will administer all of the risk
adjustment functions for any State that
elects to establish an Exchange but does
not elect to administer risk adjustment.
We are finalizing this provision, with a
number of clarifying modifications.
Comment: Many commenters
supported permitting States to defer
operation of a risk adjustment program
to HHS. One commenter recommended
that any State should be eligible to
operate a risk adjustment program,
whether or not the State is establishing
an Exchange.
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Response: An effective risk
adjustment program is critical to
prevent adverse selection and stabilize
premiums inside and outside the
Exchanges. Developing a risk
adjustment program is methodologically
and operationally complex. We believe
that, particularly in the initial years,
States may wish to defer risk adjustment
operation to HHS in order to focus
resources on establishing Exchanges.
We are therefore finalizing these
provisions to provide States the option
to operate risk adjustment if they
establish Exchanges. Because we believe
that the Federally Facilitated Exchange
should be operated in coordination with
a risk adjustment program that is closely
tied to its implementation, States not
operating Exchanges and States entering
into a partnership with or relying
entirely on the Federally Facilitated
Exchange will not be permitted to
operate a risk adjustment program. We
will clarify in future guidance the
process through which a State will
notify HHS of its choice to operate risk
adjustment if it establishes an Exchange
beginning in 2014 or any subsequent
year.
In paragraph (b), we clarified that a
State may elect to have an entity other
than the Exchange perform the risk
adjustment functions of this subpart,
provided that the selected entity meets
the requirements for eligibility to serve
as an Exchange set forth in § 155.110 of
the proposed Exchange Establishment
rule. Considering the comments
received, we are finalizing this
provision, noting that the definition of
an entity eligible to serve as an
Exchange has been modified from the
proposed definition.
Comments: Commenters offered
varying opinions regarding the
requirements for entities to be eligible to
administer risk adjustment. Several
commenters urged HHS to include
stronger provisions prohibiting conflicts
of interest. Those commenters stated
that all members of the board of a risk
adjustment entity should be free of
financial ties to issuers, and that
consumer representation on the board
should be required. One commenter
believed that an entity’s eligibility to be
a risk adjustment entity should be based
on the entity’s experience, and not on
the requirements governing entities
carrying out Exchange functions. Other
commenters stated that the
requirements on entities eligible to
administer risk adjustment and carry
out Exchange functions were overly
restrictive, noting that the requirements
would exclude State regulators, such as
a State Department of Insurance. This
commenter asked that the regulator in
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each State be eligible to administer risk
adjustment. Two commenters suggested
that entities be eligible to administer
both risk adjustment and reinsurance.
Response: We believe that a State may
have a single entity administer
reinsurance and risk adjustment,
provided that the entity meets the
separate requirements to administer
both programs. We note that to be
eligible to administer reinsurance, an
entity must meet the definition outlined
in § 153.20. We also appreciate concerns
that risk adjustment entities may have
board members with conflicts of interest
and, further, that because risk
adjustment involves the transfer of
money between plans, these concerns
may be especially relevant for this
program. We encourage States to weigh
these concerns when establishing a risk
adjustment entity. However, we seek, to
the extent possible, consistency between
the requirements to serve as a risk
adjustment entity and the requirements
to serve as an entity performing other
Exchange functions.
In paragraph (c), we proposed
timeframes for the risk adjustment
process. We proposed that all payment
calculations commence with the 2014
benefit year. We sought comment on the
appropriate deadline by which risk
adjustment must be completed each
year. In response to comments, we are
finalizing the standard that risk
adjustment be implemented beginning
with the 2014 benefit year, and are
including a requirement that each issuer
be notified of risk adjustment payments
owed to, or charges owed by, the issuer
by June 30 of the year following the
benefit year. We believe that this
deadline best balances the need to
coordinate risk adjustment payments
and charges with other programs, and
the need to ensure that high quality risk
adjustment data is available to support
the program.
Comments: We received a number of
comments recommending that risk
adjustment be performed before
completion of the MLR calculation
process. Two commenters specified that
risk adjustment should be completed by
late May of the year following the
benefit year in order to accommodate
the Federal MLR reporting deadline of
June 1. Other commenters stated that it
would be difficult to coordinate risk
adjustment payments with MLR
reporting. Two commenters suggested
extending the MLR deadline for 2014
through 2016. One commenter
suggested delaying the implementation
of risk adjustment until 2016.
Response: The risk adjustment
process relies in part on high quality
claims data. Allowing for claims run-out
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after the benefit year increases the
amount and quality of claims data
because issuers will have more time to
receive, review and pay claims made
during the benefit year. Better quality
data will lead to more accurate risk
scores, which ultimately feed into the
calculation of plan average actuarial risk
and the calculation of payments and
charges.
In the preamble to the proposed rule,
we discussed requiring that States
complete the risk adjustment process by
June 30 of the year following the benefit
year, or June 30, 2015 for the benefit
year 2014. States would be free to set a
payment schedule (including interim
payments throughout the benefit year),
but would be required to comply with
the June 30 deadline. Many commenters
agreed that June 30 was a reasonable
deadline for completion of the risk
adjustment process. We have included
in the final rule a June 30 deadline for
the completion of the risk adjustment
process. We believe that 6 months
following the benefit year is a
reasonable timeframe to complete the
risk adjustment process.
The deadline to submit MLR reports
to the Federal government is June 1 of
the year following the calendar year
experience being reported. MLR
calculations must take into account risk
adjustment payments and charges. We
recognize that our proposed deadline is
inconsistent with the current Federal
MLR reporting deadline, but believe that
allowing sufficient time to collect
quality data to support risk adjustment
is extremely important and would be
extremely difficult to complete within
current MLR timeframes. We will work
to resolve this issue prior to 2014.
Comments: A few commenters
suggested that risk adjustment payments
be made quarterly, with the final
payment to be made after the first
quarter of the year following the benefit
year.
Response: We believe that States
should have the flexibility to set a
payment schedule that best suits their
program administration. Therefore, we
did not include a requirement that
States adhere to a specific payment
schedule.
In the preamble to the proposed rule,
we discussed our belief that States
should provide HHS with a summary
report of risk adjustment activities for
each benefit year in the year following
the calendar year covered in the report.
The final rule directs States to submit an
annual summary report of their
program. We believe that this report will
permit States to learn from other States’
experience and will help HHS evaluate
the implementation of the risk
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adjustment program. We will specify the
contents of the report in future
guidance, but expect the report would
include information such as plan
average actuarial risk score and the risk
adjustment payment or charge for each
risk adjustment covered plan in the
State, trends in risk scores over time,
evidence of upcoding, and other risk
adjustment-related elements. We expect
that States will make summary reports
publicly available. We believe this
report will facilitate periodic evaluation,
oversight, and continuous improvement
of the risk adjustment program.
Comment: Several commenters
supported the concept of providing
summary reports. However, one
commenter was unwilling to fully
support the requirement until knowing
the content that would be required in
the report. Two commenters suggested
that the report include the average
actuarial risk for each plan, the risk
adjustment charge or payment for each
plan, and information on risk scores and
cost trends, including evidence of
upcoding and error rates determined
under the most recently completed risk
adjustment data validation audits. We
also received comments requesting that
HHS require that State risk adjustment
entities report information about their
States’ risk adjustment program to
issuers. Finally, we received one
comment suggesting that all funds
collected by the risk adjustment entity
be required to be used only in
connection with the risk adjustment
program.
Response: Annual summary reports
can serve as a tool for States and HHS
to monitor and evaluate State programs
across the country. HHS will also be
able to use the reports to provide
technical assistance to States
administering risk adjustment programs
when needed. The technical assistance
will serve not only to improve a State’s
risk adjustment program, but will
reduce the burden on each State to
evaluate and improve its risk
adjustment program. The information in
the annual reports will also be useful in
evaluating the implementation of the
Federally developed risk adjustment
methodology and other Federally
certified risk adjustment methodologies.
For these reasons, we have added
paragraph (d) to this final rule to ensure
that States submit annual risk
adjustment program reports to HHS.
3. Federally Certified Risk Adjustment
Methodology (§ 153.320)
Section 1343(b) of the Affordable Care
Act requires HHS to establish criteria
and methods for risk adjustment in
coordination with the States. We
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interpret this provision to mean that
HHS will establish a baseline
methodology to be used by a State, or
HHS on behalf of the State, in
determining plan average actuarial risk.
In § 153.300 of the proposed rule, we
defined the risk adjustment
methodology as encompassing the risk
adjustment model, the calculation of
plan average actuarial risk, and the
calculation of payments and charges.
We proposed in paragraph (a)(1) that
a Federally certified risk adjustment
methodology be developed by HHS. We
proposed in paragraph (a)(2) that a
State-submitted alternate risk
adjustment methodology may become a
Federally certified risk adjustment
methodology through HHS certification.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
these provisions, with certain clarifying
modifications.
Comments: One commenter requested
clarification on when State alternate
methodologies would be required to be
submitted and would be evaluated.
Multiple commenters expressed a
preference that State and Federal
methodologies be announced early
enough to give sufficient time for issuers
to incorporate anticipated risk
adjustment payments or charges into
their rates.
Response: While the proposed timing
necessitates a short window for
submission and evaluation of the
alternate risk adjustment methodologies,
the timeframe permits a State to
evaluate the methodology proposed by
HHS in the proposed annual HHS notice
of benefit and payment parameters. This
timeframe also permits HHS to publish
all certified methodologies at one time
in the final annual HHS notice of benefit
and payment parameters. In future
years, HHS will evaluate whether it
should accept and evaluate applications
for alternate risk adjustment
methodologies on an earlier timeframe.
However, in the initial year, the HHS
methodology will likely not have been
fully developed in time to benchmark
alternate risk adjustment methodologies
on an earlier timeframe.
We proposed in paragraph (b)(1) of
this section that a State that is operating
a risk adjustment program must use one
of the Federally certified risk
adjustment methodologies that HHS
will publish in an annual HHS notice of
benefit and payment parameters. We
proposed that State notices of benefit
and payment parameters include a full
description of the risk adjustment
model, including, but not limited to: (1)
Demographic factors, diagnostic factors,
and utilization factors (if any); (2) the
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qualifying criteria for establishing that
an individual is eligible for a specific
factor; (3) the weights assigned to each
factor; and (4) the schedule for the
calculation of individual risk scores. We
sought comments on other information
that should be included in this notice.
In paragraph (b)(2), we proposed that
the risk adjustment methodology will
also describe any adjustments made to
the risk adjustment model weights when
calculating average actuarial risk,
including premium rating variation.
Considering the comments received,
we are finalizing this provision, with
the following modifications: We are
clarifying that notices must also include
a description of the calculation of plan
average actuarial risk, a description of
the calculation of payments and
charges, and a description the risk
adjustment data collection approach.
We are also including a number of other
clarifying modifications.
Comments: We received several
comments supporting a structure in
which HHS will develop a risk
adjustment methodology but States have
the option to submit alternate
methodologies for approval by HHS.
Several commenters preferred that HHS
establish one national methodology.
Other commenters suggested that States
be required to justify deviation from the
methodology developed by HHS. Two
commenters believed that HHS approval
of State methodologies was
unnecessary, and that any State
alternate methodology should be
deemed certified and available to all
States. Some commenters suggested that
all methodologies be subject to notice
and comment.
Response: We recognize that States
may wish to employ alternate risk
adjustment methodologies, and believe
that alternate approaches could achieve
results similar to those that will be
achieved by the methodology developed
by HHS. We agree that States should
submit a rationale for their proposed
alternate methodology for certification.
We are therefore finalizing the proposed
rule, which required publication of a
rationale, with a number of clarifying
modifications. HHS will develop a
Federal risk adjustment methodology,
and States that wish to deviate from that
methodology may submit an alternate
methodology to HHS for approval.
States must specify in their State notice
of benefit and payment parameters
which of the Federally certified
methodologies published in the annual
HHS notice of benefit and payment
parameters they will use. We believe
that the publication of the Federal
methodology in a notice of benefit and
payment parameters addresses certain
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commenters’ desire that interested
parties be given opportunity to
comment on the methodology proposed
by HHS. HHS will provide an
opportunity for public comment when it
administers risk adjustment on behalf of
a State. State law will govern what
administrative process is necessary
when a State adopts a risk adjustment
methodology, subject to the limits of
this final rule and the annual HHS
notice of benefit and payment
parameters.
In paragraph (c), we proposed that
HHS will specify in the annual HHS
notice of benefit and payment
parameters the Federally certified risk
adjustment methodology that will apply
when HHS operates the risk adjustment
program. We are finalizing this
provision, with a number of clarifying
modifications.
The statute is not specific with
respect to the method by which States
are expected to determine the precise
value of payments and charges, so we
requested comment on two payments
and charges methodologies and whether
there are alternate methodologies that
might be used. We received a number of
comments requesting consistency in
methodology from State to State.
Therefore, we plan to establish a
national method for the calculation of
payments and charges that States may
not vary. A national method for the
calculation of payments and charges
ensures a degree of consistency in the
risk adjustment program from State to
State while allowing States to vary
certain elements of the program.
Comments: Many commenters
recommended that HHS establish one
national methodology or limit States’
ability to deviate from the methodology
developed by HHS. Other commenters
supported giving States the flexibility to
propose alternate methodologies so long
as those methodologies are as robust as
the one proposed by HHS.
Response: The calculation of
payments and charges requires selection
of a baseline premium, for example, a
plan average or State average premium.
That premium basis is multiplied by the
plan average actuarial risk to calculate
risk adjustment payments or charges,
and requires balancing if payments do
not equal charges. Thus, the calculation
of payments and charges affects the
amount of funds transferred from lowrisk to high-risk plans, and can affect
premiums in low-risk and high-risk
plans.
Although a national standard
methodology for calculating payments
and charges provides a degree of
consistency from State to State, we
recognize it may also limit States’ ability
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to implement novel methodologies. We
believe that there may be potential to
introduce State variation in the
calculation of payments and charges in
the future. We also believe that
requiring a national methodology for
calculating payments and charges
initially, and leaving open the
possibility of permitting State variation
in later years, relieves States from the
burden of developing such a
methodology in the first year, and
provides a starting point for States
seeking to create alternate
methodologies in later years.
4. State Alternate Risk Adjustment
Methodologies (§ 153.330)
We proposed allowing States to
utilize alternate risk adjustment
methodologies, provided that States
taking advantage of this flexibility
submit their proposed alternate risk
adjustment methodologies for HHS
review and certification. We proposed
in paragraph (a)(1) the information
about the State’s proposed risk
adjustment methodology that the State
must include in its request for
certification. In paragraph (a)(2), we
proposed that all requests include
information relating to certain criteria to
be used in the evaluation of the request.
For the reasons described in the
proposed rule, and considering the
comments received, we are finalizing
these provisions with the following
modifications: We are including new
language requiring States to provide a
description of the risk adjustment
methodology. This change aligns this
provision with changes made to
§ 153.320 discussed above. We are also
making a number of clarifying
modifications throughout this section.
Comments: Several commenters
requested greater specificity about the
validation requirements for the
proposed alternate risk adjustment
methodologies. One commenter
requested that HHS permit States to
vary payments based on whether a plan
participates in the Exchange or the
Small Business Health Options Program.
Another commenter suggested that
States be permitted to vary payments
based on whether the issuer implements
programs to improve population health.
Other commenters suggested other
requirements for certification of
alternate risk adjustment methodologies.
For example, one commenter
recommended requiring that an
alternate methodology include either a
separate model for pediatrics or
demonstrate the model’s effectiveness in
pediatric populations. Another
commenter recommended requiring
States to specify how they will move
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from a retrospective to a prospective
risk adjustment approach. A number of
commenters supported use of a
prospective approach, while others
favored a retrospective approach. Some
commenters supported a diagnosisbased risk adjustment model, while
others favored a demographic approach.
One commenter suggested that a surveybased approach be utilized.
Response: We anticipate that a
number of different approaches could
receive Federal certification. HHS will
provide further details on the process
for receiving Federal certification for
alternate risk adjustment methodologies
in the draft annual HHS notice of
benefit and payment parameters. State
alternate methodology requests will be
accepted up to 30 days after publication
of the draft annual HHS notice of benefit
and payment parameters, and alternate
methodologies that are certified by HHS
will be published in the final HHS
notice of benefit and payment
parameters.
In paragraph (b), we proposed that a
State that operates a risk adjustment
program must renew HHS certification
of alternate risk adjustment
methodologies whenever changes occur,
including at the time of recalibration,
which the State must identify when
initially requesting certification for the
alternate risk adjustment model.
Considering the comments received, we
are finalizing this provision with the
following modifications: We are
including language clarifying that the
need to obtain recertification of a
recalibrated risk adjustment model
applies to any alteration to the Federally
certified risk adjustment methodology.
Comment: We received two comments
supporting a requirement that States
wishing to recalibrate or otherwise
change their methodology submit that
change to HHS for approval.
Response: We are finalizing this
policy.
5. Data Collection Under Risk
Adjustment (§ 153.340)
As described above, a robust risk
adjustment process requires data to
support the determination of an
individual’s risk score and the plan and
State average actuarial risk. In paragraph
(a), we proposed that a State, or HHS on
behalf of the State, be responsible for
collecting data for use in the risk
adjustment program. HHS considered
three possibilities for data collection: (1)
A centralized approach in which issuers
submit raw claims data sets to HHS; (2)
an intermediate State-level approach in
which issuers submit raw claims data
sets to the State government or the
entity responsible for administering the
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risk adjustment process at the State
level; and (3) a distributed approach in
which each issuer must reformat its own
data to map correctly to the risk
assessment database, and then pass on
individual risk scores to the entity
responsible for assessing risk
adjustment charges and payments.
Considering the comments received,
we are modifying this paragraph as
follows: Rather than specify an
intermediate risk adjustment data
collection approach, we are permitting
States that elect to operate a risk
adjustment program to choose the risk
adjustment data collection approach
that best suits their program. HHS will
use a distributed approach when
operating risk adjustment on behalf of a
State. Because a distributed approach to
data collection has not been
implemented on this scale, we plan to
evaluate the implementation and may
make changes to the approach based on
that evaluation. We are including a
requirement that States operating risk
adjustment collect or calculate, at a
minimum, individual risk scores. This
requirement minimizes the collection of
sensitive data while allowing States to
calculate rating variation adjustments
and payments and charges. We are
modifying the privacy and security
standards applicable when a State is
operating risk adjustment. Protecting the
privacy and confidentiality of an
individual’s personal health information
continues to be among HHS’ highest
priorities. Under a distributed approach,
issuers will need to format risk
adjustment data, maintain that data in a
manner that complies with State or HHS
specifications, and in some cases run
risk adjustment software. In addition, a
State, or HHS on behalf of the State, will
not be required to collect claims data;
however, the data validation and audit
process will be more involved.
Comments: We received a large
number of comments on the collection
of risk adjustment data, including many
comments supporting HHS’ proposed
collection of risk adjustment data at the
State level. A number of other
commenters expressed concern for
patient privacy under the proposed
method of data collection. Some of
those concerned about patient privacy
did not explicitly oppose the proposed
risk adjustment data collection
approach, but encouraged HHS to
collect de-identified data or carefully
consider privacy and security standards,
such as techniques to mask or encrypt
data. We received many comments in
favor of a distributed approach to risk
adjustment data collection. These
comments focused on the administrative
complexity of transmitting claims data
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to HHS and the risk of exposing private
information and competitively sensitive
data, such as unit prices for medical
services. Another commenter suggested
that States be given flexibility to choose
which risk adjustment data collection
approach to use when operating risk
adjustment.
Response: The transmission by issuers
to HHS and the storage by HHS of large
amounts of sensitive data pose potential
risks to consumer privacy. A distributed
approach would leverage the existing
data infrastructure of issuers, potentially
saving Federal and issuer resources. For
these reasons, HHS will utilize a
distributed approach to collecting risk
adjustment data when operating risk
adjustment on behalf of a State.
We considered requiring that all
States utilize a distributed approach to
risk adjustment data collection, as HHS
will do. However, we believe that
requiring a particular approach runs
counter to the flexibility generally
afforded States by the Affordable Care
Act and HHS.
We proposed in paragraph (b) that the
State, or HHS on behalf of the State, use
standard HIPAA transaction standards
when collecting data. We proposed in
paragraphs (b)(1) and (b)(2) to require
States to utilize two specific HIPAA
transaction standards for risk
adjustment data collection. In paragraph
(b)(3), to address consumer privacy
concerns, we proposed that States must
utilize specific privacy standards in
their data collection risk adjustment
procedures.
Considering the comments received,
we are modifying this paragraph as
follows: We are including a requirement
that States require issuers to comply
with the data privacy and security
standards set forth in the State’s notice
of benefit and payment parameters.
Because we maintain the flexibility
for States that operate risk adjustment
programs to choose their data collection
approaches, we are including a
requirement that States limit their
collection to the information reasonably
necessary to operate the risk adjustment
program. For example, a State could not
collect an enrollee’s name, because that
information would not be reasonably
necessary to operate the risk adjustment
program. We are prohibiting a State
from collecting or storing any personally
identifiable information for use as a
unique identifier for an enrollee’s data,
unless that information is masked or
encrypted by the issuer, with the key to
that masking or encryption withheld
from the State. The term ‘‘personally
identifiable information’’ is a broadly
used term across Federal agencies, and
has been defined in the Office of
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Management and Budget Memorandum
M–07–16. In order to reduce duplicative
guidance or potentially conflicting
regulatory language, we are not defining
personally identifiable information in
this final rule, and incorporate the
aforementioned definition into this final
rule.
The privacy and security standards
outlined above reflect the changes in the
risk adjustment data collection
approach in paragraph (a) of this
section. We note that these standards
should be read to represent a minimum
standard to be used in the risk
adjustment program. We expect that
States will build on these minimum
privacy and security standards when
establishing a risk adjustment data
collection program.
Comment: We received a number of
comments about privacy concerns
associated with the proposed collection
of risk adjustment data. Some
commenters believed that HHS should
finalize a requirement that any risk
adjustment data collected be deidentified. Others preferred that data not
be collected.
Response: We are committed to
applying strong privacy and security
standards to risk adjustment data
collected by States or HHS on behalf of
a State. We are amending the proposed
privacy and security standards so that
States that limit their collection of
personally identifiable information to
that which is reasonably necessary to
carry out their risk adjustment
methodology. In paragraph (b)(4), we
require States to implement security
standards that provide administrative,
technical, and physical safeguards
consistent with the standards described
in the HIPAA Security Rule at 45 CFR
164.308, 164.310, and 164.312. We
recognize that the specific requirements
for data collection may vary depending
on the amount and type of data States
choose to collect, and thus we decided
to permit States to design security
requirements to accommodate these
requirements. This final rule does not
preclude States from implementing
stricter security standards, particularly
if they choose to collect additional risk
adjustment data. HHS will not be
collecting the claims data from issuers
needed to run the risk adjustment
methodology when HHS runs risk
adjustment on behalf of a State. HHS
will issue further guidance regarding the
privacy and security standards
applicable when HHS is operating risk
adjustment on behalf of a State.
In paragraph (c), we proposed that
States with existing all-payer claims
databases may request an exception
from the minimum standards for data
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collection. In paragraph (d), we
proposed that the State must make
certain risk adjustment data available to
support other activities, including:
recalibrating Federally certified risk
adjustment models; verifying risk
corridor submissions; and verifying and
auditing reinsurance claims. We have
removed paragraphs (c) and (d) because
these requirements are not compatible
with flexibility with regard to risk
adjustment data collection. In the
proposed rule and preamble, we
discussed a number of ways risk
adjustment data could be used to
support other programs such as
verifying risk corridor submissions,
reinsurance payments, cost-sharing
reductions, and quality improvement
efforts. We are continuing to explore
how to obtain the data needed to
support these programs. We anticipate
working closely with States and issuers
to efficiently gather or access the data
needed to support these programs.
Comments: We received a few
comments requesting that existing data
collection initiatives such as all-payer
claims databases be utilized to the
fullest extent possible to support risk
adjustment.
Response: A State operating a risk
adjustment program may choose to
utilize all-payer claims databases,
provided that the State complies with
the requirements set forth in this
paragraph.
Comments: We received several
comments supporting the use of risk
adjustment data for other Affordable
Care Act purposes. Two commenters
were wary of permitting access to data
for uses beyond risk adjustment because
they view the data as sensitive and wish
to limit Federal access to it.
Response: We believe that HHS’ use
of a distributed approach for risk
adjustment addresses many concerns
regarding centralized data collection of
risk adjustment data. We are currently
exploring options to collect the
information needed for other purposes.
We believe that States administering a
risk adjustment program should, to the
extent possible, seek efficiencies in data
collection across programs.
6. Risk Adjustment Data Validation
Standards (§ 153.350)
In § 153.350, we proposed that States
have a reliable data validation process,
which is essential to the establishment
of a credible risk adjustment program. In
paragraph (a), we proposed that the
State, or HHS on behalf of the State,
validate a statistically valid sample of
all issuers that submit data for risk
adjustment every year. In paragraph (b),
we proposed that the State, or HHS on
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behalf of the State, be permitted to
adjust the average actuarial risk for each
plan based on the error rate found in the
validation. In paragraph (c), we
proposed that the State, or HHS on
behalf of the State, be permitted to
adjust payments and charges based on
the changes to average actuarial risk.
Finally, in paragraph (d), we proposed
that the State, or HHS on behalf of the
State, be required to provide an appeals
process for issuers.
Considering the comments received,
we are finalizing this provision, with
the following modifications: We are
expanding the data validation
requirements to include requirements
applicable to a distributed risk
adjustment data collection approach,
and are making a number of clarifying
modifications throughout this section.
Comments: We received several
comments on data validation. We
received a number of comments
supporting the proposed data validation
requirements. For the most part,
commenters supported data validation
requirements for every issuer offering
risk adjustment covered plans in a State.
A few commenters suggested that HHS
add requirements on States, establish a
national validation methodology, or
perform the validation itself.
One commenter suggested that States
be allowed to establish minimum
values, under which annual data
validation would not be required. For
example, issuers with fewer than 5,000
members and less than 1 percent of the
overall market would not be required to
validate data annually; instead, these
issuers would be required to validate
data every 2 or 3 years.
Response: We believe that the data
validation standards we are finalizing
represent appropriate minimum
standards. We believe that annual data
validation for all issuers is necessary to
ensure a robust risk adjustment
program, and so do not believe that
minimum values for annual data
validation or data validation that occurs
less frequently are appropriate.
Comment: We also received a number
of comments about the specific data
validation methodology or process.
Several commenters suggested that data
validation be completed throughout the
year and certified at the end of the year.
One commenter suggested including a
requirement that data validation be
maintained for the duration of risk
adjustment operation. One commenter
suggested that diagnoses identified by
health care providers apply even if,
upon subsequent audit, HHS determines
that the patient’s medical records did
not support the provider’s diagnosis.
One commenter urged that States be
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required to design risk adjustment data
validation standards using a
methodology similar to that used under
the CMS-Hierarchical Condition
Category system.
Response: We believe that a State
should have the discretion to design its
risk adjustment program, including the
method for data validation. Given that
risk adjustment occurs at the State level,
the possibility of differences from State
to State do not present a significant
problem. For this reason, we are
finalizing the data validation
requirements with the modifications
described above.
Comment: We received one comment
suggesting that we insert the phrase ‘‘or
HHS on behalf of the State’’ in
paragraph (c).
Response: In the preamble to the
proposed rule, we proposed ‘‘that the
State, or HHS on behalf of the State,
adjust payments and charges based on
the changes to average actuarial risk.’’
However, the phrase ‘‘or HHS on behalf
of the State’’ was omitted from the
proposed regulation text in paragraph
(c). We are amending the final rule text
to be consistent with § 153.350(a) and
(b) of, and the preamble to, the proposed
rule.
E. Subpart E—Health Insurance Issuer
and Group Health Plan Standards
Related to the Reinsurance Program
In subpart E of the proposed rule, we
proposed standards for health insurance
issuers that complemented the
standards for the transitional
reinsurance program more fully
described in the preamble to subpart C
of the proposed rule. Subpart C
discussed standards of the program
applicable to States. In subpart E, we
discussed the standards applicable to
health insurance issuers and selfinsured group health plans.
1. Reinsurance Contribution Funds
(§ 153.400)
In § 153.400, we proposed to codify in
regulation section 1341 of the
Affordable Care Act, which requires that
the reinsurance program be funded by
contribution funds from contributing
entities. In paragraph (a), we proposed
that all contributing entities make
contributions, in a frequency and
manner to be determined by the State or
HHS, to the applicable reinsurance
entity in the State. In paragraph (b), we
proposed that if the State establishes
multiple applicable reinsurance entities,
the contributing entity must contribute
an appropriate payment to each
applicable reinsurance entity. We
proposed in paragraph (c) (now
paragraph (d)), that contributing entities
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be required to provide the data
necessary for the applicable reinsurance
entity to calculate the amounts due from
each contributing entity.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
these provisions, with the following
modifications:
We are clarifying in paragraph (a) that
a contributing entity must make
contributions for all reinsurance
contribution enrollees who reside in a
State at the national rate and any
additional contribution rate if a State
elects to collect additional
contributions. We are adding paragraph
(a)(1), which clarifies that all
contributing entities must make
reinsurance contributions on behalf of
all group health plans and health
insurance coverage they represent
except those set forth in paragraph
(a)(2). For example, contributing entities
are required to make reinsurance
contributions on behalf of plans in the
Federal Employee Health Benefit
Program, State and local government
employee plans, and grandfathered
health plans. The Affordable Care Act
requires these issuers and third-party
administrators on behalf of self-insured
plans to make reinsurance
contributions.
In paragraph (a)(2), we are clarifying
that contributing entities are not
required to make contributions on
behalf of plans or health insurance
coverage that consists solely of excepted
benefits within the meaning of section
2791(c) of the PHS Act. Section
1341(b)(3)(B)(i) of the Affordable Care
Act requires the contribution amount for
an issuer to be based on the issuer’s
fully insured commercial book of
business for all major medical products.
Issuers of certain plans are excluded
from making reinsurance contributions
because those plans are not
‘‘commercial books of business’’ or
‘‘major medical’’ products. Thus, private
Medicare and Medicaid plans and
Federal and certain State high-risk pools
are exempt from making reinsurance
contributions because they are not a
‘‘commercial book of business.’’ Further,
stand-alone vision and dental plans and
other plans defined as excepted benefits
within the meaning of section 2791(c) of
the PHS Act are exempt because they
are not ‘‘major medical’’ products.
In a new paragraph (c), we are
requiring that each contributing entity
submit contributions due to the Federal
applicable reinsurance entity on a
quarterly basis beginning January 15,
2014. We believe this timeframe is
consistent with industry practice and
will allow for timely transfer of
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contribution funds to States and the
U.S. Treasury. We believe that States
should have the flexibility to set the
frequency of collections by the
applicable reinsurance entity.
In a new paragraph (d), we are
clarifying that each contributing entity
must submit to HHS and each
applicable reinsurance entity, if the
State elects to collect reinsurance
contributions, data required to
substantiate contribution amounts, in
the format and with the timing specified
by the State or HHS. For example, HHS
may request this data in the form of a
report that specifies the number of
reinsurance contribution enrollees
covered by a plan in each State in a
month.
Comment: We received a number of
comments requesting clarification as to
whether certain types of plans, such as
multi-State plans and CO–OP plans, are
contributing entities.
Response: We believe that section
1341(b)(1)(A) of the Affordable Care Act
directs a broad cross-section of issuers
and self-insured plans to make
reinsurance contributions, given the
uncertainty of the size and
characteristics of the population that
will participate in the Exchanges. We
discuss whether certain plans are
required to make reinsurance
contributions in the preamble above.
Comment: One commenter suggested
that HHS clarify whether the Basic
Health Plans described in Section 1331
of the Affordable Care Act will be
subject to reinsurance contributions or
eligible for reinsurance payments.
Response: Since guidance and
regulations regarding the Basic Health
Plans have not yet been issued by HHS,
we are unable to provide direction at
present on whether these plans are
subject to the reinsurance program.
Comment: We received several
comments recommending that
reinsurance contributions be collected
on a quarterly basis. One commenter
recommended an annual collection.
Response: We have included a
provision that requires that
contributions to HHS be submitted
quarterly in paragraph (c). A State that
elects to collect contributions may set
its own timeframe for collection.
However, we encourage States to adopt
a timeframe similar to the one adopted
by HHS to minimize the burden on
issuers in multiple States.
2. Requests for Reinsurance Payment
(§ 153.410)
The reinsurance program as proposed
in subpart C will make payments to
reinsurance-eligible plan issuers. In
paragraph (a) of the proposed rule, we
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proposed that reinsurance-eligible plan
issuers be required to submit a request
for reinsurance payment to the
applicable reinsurance entity. We
proposed in paragraph (b) that this
request be made according to the
method specified in the annual HHS
notice of benefit and payment
parameters.
For the reasons described in the
proposed rule and considering the
comments received, we are finalizing
these provisions, with certain clarifying
changes.
Comment: We received a comment
requesting that HHS provide standards
for issuers to request payment.
Response: Issuers of reinsuranceeligible plans will make requests for
payment in accordance with the
procedures set forth in the annual HHS
notice of benefit and payment
parameters. If a State establishes a
reinsurance program, then it will
publish guidance regarding data
requirements for reinsurance payment
in its State notice of benefit and
payment parameters.
Comment: We received a few
comments regarding the frequency of
reinsurance payments. One commenter
suggested a monthly reinsurance
payment cycle. The commenter
suggested that the reinsurance entity
pay claims at 75 percent of the eligible
amounts, with the remaining 25 percent
of eligible claims becoming payable at
the end of the year to the extent funds
are available. One commenter suggested
a payment process at the end of the
benefit year. Another commenter
suggested that reinsurance payment
requests be permitted to be submitted
whenever an individual claim causes a
beneficiary’s accumulated claims costs
for the plan year to exceed the
attachment point, and that adjustments
be permitted to be submitted as the
claim fully develops.
Response: Further guidance on the
reinsurance claim and payment process
will be provided in the HHS notice of
benefit and payment parameters.
Comment: We received comments
regarding the deadline for reinsurance
payment requests and late claims. One
commenter suggested that reinsuranceeligible claims be required to be
submitted no more than six months after
the plan year, and that claims not filed
within that timeframe become ineligible
for reinsurance payment. Another
commenter suggested that the ability to
submit late claims be restricted to
ensure that late claims do not delay
MLR rebates to consumers or risk
corridors payments to insurers.
Response: We will provide further
guidance on the deadline for requests
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and on late claims in the annual HHS
notice of benefit and payment
parameters.
F. Subpart F—Health Insurance Issuer
Standards Related to the Temporary
Risk Corridors Program (§ 153.500–
§ 153.530)
In this subpart, we proposed
requirements on health insurance
issuers related to the temporary risk
corridors program which section 1342 of
the Affordable Care Act established for
the first three years of Exchange
operation (2014–2016). Risk corridors
create a mechanism for sharing risk for
allowable costs between the Federal
government and QHP issuers. QHP
issuers with allowable costs that are less
than 97 percent of the QHP’s target
amount will remit charges for a
percentage of those savings to HHS,
while QHP issuers with allowable costs
greater than 103 percent of the QHP’s
target amount will receive payments
from HHS to offset a percentage of those
losses.
1. Definitions (§ 153.500)
In § 153.500, we proposed a number
of definitions for purposes of
administering risk corridors. We
proposed to define ‘‘allowable
administrative costs’’ as the total nonmedical costs as defined in § 158.160(b),
including costs for the administration
and operation incurred by the plan as
set forth in § 158.160(b)(2). We proposed
to define ‘‘allowable costs’’ as an
amount equal to the total medical costs,
which include clinical costs, excluding
allowable administrative costs, paid by
the QHP issuer in providing benefits
covered by the QHP. ‘‘Charge’’ was
defined as the flow of funds from QHP
issuers to HHS. ‘‘Direct and indirect
remuneration’’ was defined by reference
to the definition used for Medicare Part
D purposes. ‘‘Payment’’ was defined as
the flow of funds from HHS to QHP
issuers. ‘‘Qualified health plan’’ was
defined by reference to the definition for
the term included in the proposed
Exchange Establishment rule. ‘‘Risk
corridors’’ was defined as any payment
adjustment system based on the ratio of
allowable costs of a plan to the plan’s
target amount. ‘‘Target amount’’ was
defined as an amount equal to the total
premiums incurred by a QHP, including
any premium tax credit under any
governmental program, reduced by the
allowable administrative costs of the
plan.
Considering the comments received
and other considerations discussed
below, we are finalizing this section
with the following modifications:
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We are adding the defined term,
‘‘administrative costs,’’ meaning total
non-claims costs for a QHP as defined
in § 158.160(b). We are revising the
defined term, ‘‘allowable administrative
costs,’’ to mean administrative costs,
capped at 20 percent of premiums
earned. We are revising the definition of
‘‘allowable costs’’ to reference the MLR
term ‘‘incurred claims’’ and to include
quality improvement and health
information technology expenditures, as
defined in the MLR rule. We are also
referencing the after-the-fact
adjustments described in § 153.530(b)
for reinsurance and risk adjustment
amounts paid or received by a QHP
issuer.
We are revising the definition of
‘‘direct and indirect remuneration’’ to
mean prescription drug rebates received
by the issuer within the meaning of
§ 158.140(b)(1)(i). This definition
matches the concept from the MLR rule,
which takes into account rebates, but
not other forms of remuneration, such as
price concessions and discounts.
We are adding the defined term,
‘‘premiums earned,’’ meaning monies
paid by or for enrollees with respect to
a QHP as a condition of receiving
coverage under that plan, including any
fees or other contributions paid by or for
enrollees. This defined term references
the equivalent definition in the MLR
rule, and is intended to clarify that
premiums are to be determined in a
manner consistent with the MLR rule, a
consistency we seek with respect to the
risk corridors program when
practicable. We are revising the defined
term, ‘‘target amount,’’ to reference the
new defined term ‘‘premiums earned.’’
We are moving the definition of
‘‘qualified health plan’’ to subpart A.
We are not modifying the definitions of
‘‘charge,’’ ‘‘payment,’’ or ‘‘risk
corridors.’’ Finally, we are making a
number of clarifying modifications
throughout this section. Many of the
revisions we are making to defined
terms in this subpart are intended to
parallel terms used in the MLR rule, to
the extent feasible. These revised
definitions are used in the risk corridors
calculation in a manner that is
mathematically identical to the statutory
formulation in section 1342 of the
Affordable Care Act.
Comment: In the preamble of the
proposed rule, we discussed the
possibility of imposing a 20 percent
limitation on allowable administrative
costs. A number of commenters
supported this limitation. Some
commenters supported the 20 percent
limitation because it would prevent an
issuer with high administrative costs
from receiving risk corridors payments,
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and then using those payments to pay
the required MLR rebates. Other
commenters stated that imposing a
limitation would be consistent with the
MLR rule—a consistency that could
reduce the need for issuers to maintain
data for two different formulas.
Response: We are revising the
definition of allowable administrative
costs accordingly.
Comment: We received a number of
comments that supported including
quality improvement expenditures in
allowable costs. Some commenters also
suggested including health information
technology expenses, which the MLR
rule also takes into account. The
commenters stated that including
quality improvement expenses and
health information technology
expenditures in allowable costs would
ensure consistency with MLR
requirements, and would incentivize
issuers to make these investments,
which could inure to the benefit of
enrollees. Some commenters requested
that we adopt certain modifications to
those MLR definitions. For example,
two commenters suggested that HHS
adopt a standard-based ‘‘functional
approach’’ for determining whether an
activity or function is a quality
improvement activity similar to that
employed by MLR. Under this
approach, the function of the activity
would dictate whether it was a quality
improvement activity that issuers could
include in allowable costs. Another
commenter recommended that quality
improvement activity expenditures be
based on projections.
Response: We viewed the proposed
rule as including these costs in
allowable costs, because they are not
among the administrative costs in
§ 158.160(b). We are revising the
definition of allowable costs to make
clear that it includes both expenditures
to improve health care quality and
expenditures related to health
information technology and meaningful
use requirements. However, we are not
modifying those MLR definitions for
purposes of risk corridors, in order to
retain consistency with the MLR
calculation.
Comment: A few commenters
requested that the risk corridors
program not utilize the Medicare Part D
formulation of direct and indirect
remuneration. They stated that the Part
D formulation is too broad for the risk
corridors program, and that a narrower
construct is appropriate here.
Commenters contrasted the formulation
applicable to Medicare, a governmental
program, with the formulation that in
their view should be applicable to
commercial plans. Commenters
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recommended including a number of
different definitions of rebates,
discounts, and price concessions. One
commenter recommended using the
formulation used in the retiree drug
subsidy program under subpart R of the
Medicare Modernization Act regulations
at 42 CFR 423.880 et seq.
Response: We acknowledge the
breadth of the proposed definition of
direct and indirect remuneration, and
are revising the definition to be
consistent with the approach adopted
by the MLR rule. The MLR rule requires
deduction of prescription drug rebates
received by an issuer for both reporting
and calculation purposes. We intend
that MLR rules for defining and
determining when prescription drug
rebates are received by an issuer apply
for risk corridors purposes.
Comment: One commenter
recommended that allowable costs be
defined as the sum of claims incurred
during the risk corridors reporting year
and paid through March 31 of the
following year plus unpaid claims
liabilities associated with claims
incurred during the risk corridors
reporting year.
Response: We agree that the
calculation of allowable costs should
include a run-out period and unpaid
claims liabilities, and are clarifying that
allowable costs should be calculated in
accordance with the MLR rule.
Comment: We received four
comments about the definition of
‘‘QHP.’’ Three commenters stated that a
plan offered by an issuer outside of the
Exchange that is identical to a QHP
should be subject to the risk corridors
program. Those commenters cited
administrative simplicity, and stated
that ‘‘the pricing of QHPs is supposed
to be the same whether offered on or off
an Exchange.’’ A fourth commenter
requested guidance on the issue.
Response: The Affordable Care Act
provides that the risk corridors program
applies to QHPs. For risk corridors
purposes, the QHP definition set forth
in the Exchange Establishment rule
applies. A QHP issuer is not precluded
from offering a QHP outside an
Exchange. If a QHP issuer does so, the
QHP offered outside an Exchange is
subject to the risk corridors program.
We believe that, in keeping with the
discussion of the same premium
provision in the preamble of the
Exchange Establishment rule, this
generally means that health plans that
are substantially the same as a QHP will
be subject to the risk corridors program.
HHS may clarify this standard in future
rulemaking or guidance.
Comment: A number of commenters
requested that the risk corridors
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calculation take into account profits in
a manner similar to the MLR rule. Some
commenters requested that allowable
administrative costs include profits,
margin, or underwriting gain. This
inclusion would be consistent with the
MLR rule, which permits an issuer in
certain circumstances to have
administrative expenses and profits up
to 20 percent of after-tax premium
revenues before a rebate is due.
Commenters also noted that section
1342(a) of the Affordable Care Act states
that risk corridors calculations are to be
based on a similar program under
Medicare Part D, which includes return
on investment, an analog to profits, in
the definition of target amount.
Response: The proposed rule did not
address profits in the risk corridors
calculation. In the HHS notice of benefit
and payment parameters, we intend to
propose that profits be included within
administrative costs for purposes of the
risk corridors calculation, consistent
with MLR.
Comment: A number of commenters
requested that the risk corridors
calculation take into account taxes in a
manner similar to the MLR rule. The
MLR rule requires reporting of a broad
range of taxes, and deduction of certain
taxes from premiums in the MLR
denominator. One commenter noted
that taxes may either be subtracted from
premiums or added to allowable
administrative costs.
Response: The proposed rule did not
address taxes in the risk corridors
calculation. In the HHS notice of benefit
and payment parameters, we intend to
propose that taxes and other expenses
be included within administrative costs
for purposes of the risk corridors
calculation, with those Federal and
State taxes and licensing and regulatory
fees described in § 158.161(a),
§ 158.162(a)(1), and § 158.162(b)(1)
exempt from the 20 percent cap on
allowable administrative expenses.
Comments: Several commenters
sought clarification as to whether any of
the risk corridors elements were
projections. Various commenters
suggested that premiums or
administrative costs should reflect
projections. One commenter requested a
clarification to confirm the intent to use
projected costs as the targeted amount.
Response: Section 1342 of the
Affordable Care Act does not allow the
use of projections. Furthermore, because
the temporary risk corridors program is
designed to limit the extent of actual
issuer losses (and gains) with respect to
QHPs, the program will use actual data,
not projected data.
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2. Risk Corridors Establishment and
Payment Methodology (§ 153.510)
In § 153.510 of the proposed rule, we
proposed to establish risk corridors by
specifying risk percentages above and
below the target amount. In § 153.510(a),
we proposed to require a QHP issuer to
adhere to the requirements set by HHS
for the establishment and
administration of a risk corridors
program for calendar years 2014 through
2016. The preamble to the proposed rule
stated that we would issue guidance in
the annual HHS notice of benefit and
payment parameters for QHPs regarding
reporting and the administration of
payments and charges. The preamble
also stated that risk corridors guidance
will be plan-specific, and not issuerspecific, as is the case with respect to
the MLR rule, and that we interpreted
the risk corridors provisions to apply to
all QHPs offered in the Exchange.
In § 153.510, we also established the
payment methodology for the risk
corridors program, using the thresholds
and risk-sharing levels specified in
statute. In § 153.510(b), we described
the method for determining payment
amounts to QHP issuers. For a QHP
with allowable costs in excess of 103
percent but not more than 108 percent
of the target amount, HHS will pay the
QHP issuer 50 percent of the amount in
excess of 103 percent of the target
amount. For a QHP with allowable costs
that exceed 108 percent of the target
amount, the Affordable Care Act directs
HHS to pay the QHP issuer an amount
equal to 2.5 percent of the target amount
plus 80 percent of the amount in excess
of 108 percent of the target amount.
In § 153.510(c), we described the
circumstances under which QHP issuers
will remit charges to HHS, as well as the
means by which HHS will determine
those charge amounts. We proposed that
QHP issuers will begin to remit charges
to HHS for the first dollar of allowable
charges less than 97 percent of the target
amount. For a QHP with allowable costs
that are less than 97 percent of the target
amount but greater than 92 percent of
the target amount, HHS will charge the
QHP issuer an amount equal to 50
percent of the difference between 97
percent of the target amount and the
actual value of allowable costs. For a
QHP with allowable costs below 92
percent of the target amount, the QHP
issuer will remit charges to HHS in an
amount equal to 2.5 percent of the target
amount plus 80 percent of the difference
between 92 percent of the target amount
and the actual value of allowable costs.
While we did not propose deadlines
in the proposed rule, we discussed in
the preamble timeframes for QHP
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issuers to remit charges to HHS. We
suggested, for example, that a QHP
issuer required to make a risk corridors
payment may be required to remit
charges within 30 days of receiving
notice from HHS, and that HHS would
make payments to QHP issuers that are
owed risk corridors amounts within a
30-day period after HHS determines that
a payment should be made to the QHP
issuer. QHP issuers who are owed these
amounts will want prompt payment,
and payment deadlines should be the
same for HHS and QHP issuers. We
sought comment on these proposed
payment deadlines in the preamble to
the proposed rule.
Considering the comments received,
we are finalizing this section as
proposed, with a few clarifying
modifications.
Comments: We received a number of
comments suggesting that the risk
corridors calculation should be
performed at a less granular level than
the plan level. The most common
suggestion was aggregation at the issuer
level, although other alternatives were
suggested. One commenter suggested
aggregation at the carrier, State and
business line level, while another
recommended applying the risk
corridors calculation separately to an
issuer’s aggregate non-group QHP
business and aggregate small group QHP
business. One reason advanced for these
alternatives was consistency with the
MLR rules, which apply at the issuer
level. Commenters also noted that
issuers do not currently accumulate data
at the plan level. Some commenters
stated that issuer-level data would be
more credible and reliable.
Response: We have carefully
considered the commenters’
suggestions, but are not making the
requested change. The statutory
language governing risk corridors does
not afford the necessary flexibility. The
statutory provision that governs risk
corridors at section 1342(a) of the
Affordable Care Act describes the risk
corridors program as one in which ‘‘a
qualified health plan offered in the
individual or small group market shall
participate * * *’’. By contrast, section
2718 of the PHS Act, which governs the
MLR program, requires the calculation
of a ratio with respect to an issuer.
Comment: One commenter requested
that the risk corridors program may be
based on targeted medical costs (net
premiums) in addition to the premium
rates.
Response: We are not making the
changes proposed by the commenter
because section 1342 of the Affordable
Care Act does not provide the flexibility
necessary to do so. That section requires
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that the risk corridors program be based
upon the ratio of a plan’s total costs,
other than administrative costs, to its
total premiums, reduced by the
administrative costs. In codifying that
section in regulation, we have sought to
define the relevant terms in a manner
consistent with those used in the MLR
calculation.
Comments: A number of commenters
addressed the risk corridors payment
deadline. Three commenters agreed that
30 days was a reasonable timeframe for
both payments and charges, and one
commenter recommended that
payments and charges be paid once per
year. One commenter suggested
requiring issuers of QHPs to submit risk
corridors data within 30 days after
submission of a request for payment to
HHS or receipt of demand for payment
from HHS.
Response: We plan to address the risk
corridors payment deadline in the HHS
notice of benefit and payment
parameters.
3. Attribution and Allocation of
Revenue and Expense Items (§ 153.520)
In § 153.520(a)(3) of the proposed rule
(now § 153.530(d)), we proposed rules
for accounting for reinsurance claims
submitted on a date to be determined by
HHS for a given reinsurance benefit
year. Specifically, we proposed that a
QHP issuer be required to attribute
reinsurance payments to risk corridors
based on the date on which the valid
reinsurance claim was submitted. For
example, if the QHP issuer were to
submit a reinsurance claim on or before
the deadline for a benefit year, that QHP
issuer would attribute the claim
payment to the risk corridors
calculation for the benefit year in which
the costs were accrued. Conversely, if
the QHP issuer were to submit a claim
after the deadline for a benefit year, that
QHP issuer would attribute the claim
payment to the risk corridors
calculation for the following benefit
year.
We are finalizing this provision as
proposed, with the following
modifications:
We are revising § 153.520(d) to clarify
that an issuer must attribute not only
reinsurance payments, but also
reinsurance contributions and risk
adjustment payments and charges to the
benefit year for which the contributions,
charges, or payments apply, not the year
in which the claim was submitted.
In addition, we are including the new
paragraphs § 153.520(a), § 153.520(b),
§ 153.520(c), and § 153.520(e) to clarify
the attribution of items, such as quality
improvement and health information
technology expenditures, that are
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typically not plan-specific. Paragraph
153.520(a) requires that each item of
revenue and expense in allowable costs
and target amount for a QHP must be
reasonably attributable to that QHP’s
operations. Paragraph 153.520(b) states
that each item must be reasonably
allocated across the issuer’s plans (that
is, QHPs and non-QHPs). Thus,
§ 153.520(a) and § 153.520(b) require an
issuer to allocate shared revenue and
expense items between its health plans
and its other business lines, and then to
attribute its shared items within its
health plans to each plan. To the extent
that the issuer is utilizing a method for
allocating expenses for MLR purposes,
the method used for risk corridors
purposes under § 153.520 must be
consistent. Paragraph 153.520(c)
requires an issuer to disclose to HHS a
detailed description of the methods and
bases for the attribution and allocation.
We plan to specify the timing and
method of disclosure in future guidance.
Finally, § 153.520(e) requires an issuer
to maintain the supporting records for
the attribution and allocation for 10
years, and to make the records available
to HHS upon request.
Comments: We received a few
comments to the proposed provision
attributing reinsurance payments to the
applicable benefit year. One commenter
stated that the rule was inconsistent
with issuers’ pricing practices, the MLR
calculation, and financial reporting
practices. The commenter stated that
issuers could manipulate risk corridors
payments by delaying claims
submissions, and that claims not
submitted in time for the 2016
calculation would not be eligible for risk
corridors, since the program would have
terminated. Another commenter
recommended that reinsurance amounts
be on a ‘‘basis other than a paid basis’’
in order to be consistent with the MLR
calculation. Another commenter
recommended attribution of reinsurance
claims to the year of submission, even
if the claims were incurred in a prior
benefit year.
Response: We are clarifying in the
rule that reinsurance and risk
adjustment payments, contributions,
and charges are attributed to the benefit
year with respect to which the
reinsurance or risk adjustment amounts
apply. For example, reinsurance
payments received in 2015 for claims
costs incurred in 2014 (even if the
reinsurance claim was properly
submitted in 2015) would be attributed
to 2014 for purposes of risk corridors
calculations.
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4. Risk Corridors Data Requirements
(§ 153.530)
To support the risk corridors program
calculations, we proposed in § 153.520
of the proposed rule that all QHP issuers
submit data needed to determine actual
performance relative to their target
amounts, to be collected in standard
formats specified by HHS. We proposed
in § 153.520(a) to require that QHP
issuers submit data related to actual
premium amounts collected, including
premium amounts paid by parties other
than the enrollee in a QHP, and
specifically, advance premium tax
credits paid by the government. We also
proposed that risk adjustment and
reinsurance be regarded as after-the-fact
adjustments to premiums for purposes
of determining risk corridors amounts.
Therefore, § 153.520(a)(1) of the
proposed rule required that the reported
premium amounts be increased by the
amounts paid to the QHP issuer for risk
adjustment and reinsurance, and
§ 153.520(a)(2) required that reported
premium amounts be reduced for any
risk adjustment charges the QHP issuer
pays on behalf of the plan, reinsurance
contributions that the QHP issuer makes
on behalf of the plan, and Exchange user
fees that the QHP issuer pays on behalf
of the plan. We sought comment on this
issue in the preamble.
We proposed in § 153.520(b) that QHP
issuers be required to submit allowable
cost data to calculate the risk corridors
in a format to be specified by HHS, and
that allowable costs be reduced for any
direct and indirect remuneration
received. Finally, we proposed that
allowable costs be reduced by the
amount of any cost-sharing reductions
received from HHS.
Considering the comments received,
we are finalizing this provision, with
the following modifications:
In order to more clearly reflect section
1342(c)(1)(B) of the Affordable Care Act,
we are revising this section so that the
adjustments for reinsurance and risk
adjustment are made to allowable costs.
We are also making a number of
clarifying modifications throughout this
section.
Comments: Commenters generally
agreed that reinsurance and risk
adjustment payments and charges
should be treated as after-the-fact
adjustments to risk corridors. One
commenter noted the inconsistency
between the proposed rule’s treatment
of reinsurance and risk adjustment
payments and charges as adjustments to
premium revenue, and section 1342 of
the Affordable Care Act, which requires
that those adjustments be made to
allowable costs. Another commenter
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noted that under the MLR rule, these
adjustments are made to premium
revenue, and urged that the risk
corridors program handle these
adjustments in the same manner. One
commenter requested clarification that
the attribution of reinsurance payments
‘‘received’’ be determined on an accrual
rather than cash basis. Another
commenter, who requested that the risk
adjustment program be delayed until at
least 2016 because of the complexity of
implementing the risk adjustment,
reinsurance, and risk corridors programs
simultaneously, requested that, for
consistency, HHS only take into account
reinsurance for purposes of the
temporary risk corridors program during
those initial years.
Response: In order to more clearly
reflect the requirements of the
Affordable Care Act, we are revising the
section so that those payments and
charges are adjustments to allowable
costs, rather than premium revenue. We
agree with the commenter that
reinsurance and risk adjustment
payments and charges should be
reflected in risk corridors on an accrual
basis, and are reflecting that
requirement in § 153.520(d) of this final
rule. Since all three programs will play
important and different roles in
stabilizing premiums beginning in 2014,
we believe that both the risk adjustment
and reinsurance programs should be
taken into account as after-the-fact
adjustments for purposes of the risk
corridors calculation, as required by the
statute.
Comments: Commenters expressed
concern about the interaction of risk
corridors, reinsurance, and risk
adjustment with the MLR calculation.
Commenters discussed the need for the
MLR timeline to take into account those
other calculations, payments, and
charges. One commenter discussed the
challenges faced by publicly held
issuers who must also comply with
Federal securities laws’ disclosure
requirements. Two commenters
included detailed timelines
encompassing proposed due dates for
reinsurance, risk adjustment, risk
corridors and MLR.
Commenters also supported our
efforts to use, where practicable, MLR
definitions and concepts in the risk
corridors rules, but noted difficulties in
using data collected for MLR purposes
for premium stabilization purposes
because MLR data is compiled at the
issuer level, while risk corridors data
will be required to be collected at the
plan level.
Response: We will provide additional
details on timeline-related issues in
future guidance. We anticipate that the
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accounting profession will take
appropriate measures to guide issuers,
as it has in past analogous
circumstances, such as with the retiree
drug subsidy program under the
Medicare Modernization Act, which
was first effective in 2006. We will
continue efforts to minimize reporting
burden by seeking to utilize data already
collected for MLR.
Comments: We received a comment
on the issue of how to determine the
allowable costs for a QHP if the issuer
fails to comply with the reporting
requirements in § 153.530. The
commenter recommended that HHS use
quarterly reports to determine a final
payment liability using the lowest HHS
payment liability minus a certain
percentage of withhold (penalty) of
either the premium payments or risk
corridors payment.
Response: We interpret the comment
as suggesting that HHS determine a
baseline amount of allowable costs or
payment liability reflecting experience
of other issuers. The approach is one of
several reasonable methods. We will
consider it along with other approaches.
We are evaluating measures we could
take to address non-compliance.
G. Subpart G—Health Insurance Issuer
Standards Related to the Risk
Adjustment Program
Section 1343 of the Affordable Care
Act provides for a program of risk
adjustment for all non-grandfathered
plans in the individual and small group
markets both inside and outside of the
Exchanges. We noted in the
introduction to subpart D of this part
that the risk adjustment program
described in section 1343 is intended to
reduce or eliminate premium
differences between plans based solely
on expectations of favorable or
unfavorable risk selection or choices by
higher risk enrollees in the individual
and small group markets. The foregoing
is relevant for this subpart as well,
which finalizes the health insurance
issuer standards that are necessary to
carry out risk adjustment as described in
subpart D.
1. Reserved (§ 153.600)
Section 153.600 of the proposed rule
defined a number of terms used in this
subpart. Those definitions have been
moved to subpart A. We are reserving
this section for future use.
2. Risk Adjustment Issuer Requirements
(§ 153.610)
We proposed in paragraph (a) that all
issuers of risk adjustment covered plans
be required to submit risk adjustment
data according to the timetable and
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format prescribed by the State, or HHS
on behalf of the State. Considering the
comments received, we are finalizing
this definition, with the following
modifications: We are modifying the
requirement that issuers submit risk
adjustment data to the State, or HHS on
behalf of the State, to align with the
changes to § 153.340(a) and (b)
discussed above. We are adding a
requirement that issuers that offer risk
adjustment covered plans store required
risk adjustment data in accordance with
the risk adjustment data collection
approach established by HHS or the
State. We note that use of a distributed
model may require issuers to format risk
adjustment data and maintain that data
in a manner that complies with
specifications promulgated by the State,
or HHS on behalf of the State, and to
run risk adjustment software.
Comment: We received many
comments supporting the requirement
that issuers submit risk adjustment data
to the State, or HHS on behalf of the
State. A number of commenters
requested that HHS expand the
definition of risk adjustment data to
include rate setting data that may not be
available from State Departments of
Insurance. Other commenters stated that
the amount and type of data envisioned
in the proposed rule was appropriate.
Response: We are making only minor
changes to this provision, to align with
changes made to § 153.340(a).
Comment: One commenter suggested
that participation in risk adjustment
should be voluntary. Two other
commenters urged HHS to delay risk
adjustment until sufficient data is
available. We received several
comments suggesting that the timeframe
for data submission be left to States.
Response: The Affordable Care Act
requires that issuers of risk adjustment
covered plans participate in the risk
adjustment program. We believe that
there will be sufficient data to
administer the risk adjustment program,
even in the initial years. Therefore, we
are finalizing the policy that all issuers
offering risk adjustment covered plans
must participate in the program by
providing the specified information to
the State, or HHS on behalf of the State,
on a timeframe determined by that
State.
In paragraph (b) of the proposed rule,
we proposed to permit contractual
arrangements between issuers and
providers, suppliers, physicians, and
other practitioners to ensure that issuers
receive the necessary risk adjustment
data. Considering the comments
received, we are finalizing this
paragraph as paragraph (c).
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Comments: We received a number of
comments in response to this provision.
Two commenters supported a
requirement permitting issuers to
require providers, suppliers, physicians,
and other practitioners to submit risk
adjustment data to those issuers. We
received two comments expressing
reservations about the requirement on
the grounds that it would place
additional burdens on practitioners.
Response: We believe that the risk
adjustment program is highly dependent
on high quality risk adjustment data.
Issuers depend on providers, suppliers,
physicians, and other practitioners to
submit this data to them. Because
issuers will receive or be required to
make risk adjustment payments based in
part on the amount and quality of this
risk adjustment data, we believe it is fair
to permit issuers to require suppliers,
physicians, and other practitioners to
submit that data to them in their
contracts. We are therefore finalizing
this paragraph.
In paragraph (c) of the proposed rule,
we proposed that risk adjustment
covered plan issuers who owe a net
balance of risk adjustment charges will
be assessed those net charges upon
completion of the risk adjustment
process. Additionally, we requested
comment as to whether issuers should
have a 30-day timeframe in which to
pay net charges to the State that
assessed those charges, or to HHS on
behalf of the State. Considering the
comments received, we are finalizing
this paragraph, clarifying that charges
include any adjustments made pursuant
to data validation described in
§ 153.350.
Comment: We received a few
comments supporting the requirement
that issuers remit charges to the State,
or HHS on behalf of the State.
Response: In response to comments,
we are finalizing the requirement that
issuers pay risk adjustment charges to
the State, or HHS on behalf of the State.
We are clarifying that charges include
any adjustments made pursuant to data
validation described in § 153.350.
Comment: We received one comment
supporting a requirement that issuers be
required to pay net charges within 30
days of the assessment of those charges
by a State, or HHS on behalf of a State.
Response: In response to the
comment, we are adding a provision
that issuers must pay net charges to the
State, or HHS on behalf of the State,
within 30 days of the assessment of
those charges.
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3. Compliance With Risk Adjustment
Standards (§ 153.620)
The credibility of risk adjustment is
important to stabilizing health
insurance premiums in the Exchanges.
Consistent with § 153.350 of the
proposed rule, we proposed in § 153.620
that risk adjustment covered plan
issuers must make available data to HHS
or the State to support validation of the
risk adjustment data that they have
submitted. In paragraph (b), we
proposed that risk adjustment covered
plan issuers retain the risk adjustment
data that they have reported for a period
of ten years. For the reasons described
in the proposed rule and considering
the comments received, we are
finalizing these provisions as proposed
with a few modifying clarifications.
Comment: We received several
comments supporting the requirement
that issuers make data required for
validation of risk adjustment data
available to States or HHS on behalf of
the State. Two commenters suggested
that HHS establish sanctions for issuers
that do not comply with the data
validation and records maintenance
requirements. One commenter opposed
this requirement, suggesting that the
requirement would force issuers to
disclose sensitive data.
Response: We believe that the data
validation and records maintenance
standards are necessary to support the
credibility of the risk adjustment
program. After consideration of the
comments received, we are finalizing
the proposed provision with a minor
drafting change to § 153.610(b) to clarify
that the provision applies when the
State, or HHS on behalf of the State,
requests the data.
Comment: We received several
comments suggesting that a ten-year
record retention requirement was too
long and would impose a significant
burden on issuers.
Response: We believe that the record
retention requirements should be
consistent with other Federal record
retention requirements, and are
finalizing the proposed provision.
III. Provisions of the Final Regulations
For the most part, this final rule
incorporates the provisions of the
proposed rule. Those provisions of the
final rule that differ from the proposed
rule are as follows:
Subpart A—General Provisions
(§ 153.10 and § 153.20)
• We have moved a number of
reinsurance-related definitions to
subpart A. We have made technical
changes to the definition of ‘‘attachment
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17241
point,’’ ‘‘coinsurance rate,’’
‘‘contribution rate,’’ and ‘‘reinsurance
cap’’ to reflect comments received.
• We have moved a number of risk
adjustment-related definitions to
subpart A. We have added several new
definitions—‘‘individual risk score,’’
‘‘calculation of plan average actuarial
risk,’’ ‘‘calculation of payments and
charges,’’ ‘‘risk adjustment data
collection approach,’’ and ‘‘risk
adjustment data.’’ We also modified the
definition of ‘‘risk adjustment
methodology’’ to mean all parts of risk
adjustment—the risk adjustment model,
the calculation of plan average actuarial
risk, the calculation of payments and
charges, the risk adjustment data
collection approach, and the schedule
for the risk adjustment program. We
have modified the definition of ‘‘risk
adjustment data’’ to mean all data that
are used in a risk adjustment model, or
the calculation of plan average actuarial
risk, or the calculation of payments and
charges, or that are used for validation
or audit of such data.
Subpart B—State Notice of Benefit and
Payment Parameters (§ 153.100 and
§ 153.110)
• We have clarified that a State that
establishes a reinsurance program must
publish a notice of benefit and payment
parameters if it intends to modify the
data requirements for reinsurance
payments, collect reinsurance
contributions, use more than one
applicable reinsurance entity, or modify
any reinsurance parameters. We have
clarified that States have the flexibility
to establish a reinsurance entity
regardless of whether or not they
establish a State Exchange.
• We have clarified that a State
operating a risk adjustment program
must publish a notice of benefit and
payment parameters setting forth the
risk adjustment methodology and data
validation that it will use.
• We have specified that State notices
of benefit and payment parameters be
issued by March 1 of the calendar year
prior to the first benefit year for which
the notice applies.
• We have clarified that a State that
does not publish a notice of benefit and
payment parameters forgoes its right to
modify the data requirements for
reinsurance payments, collect
reinsurance contributions, use more
than one applicable reinsurance entity,
modify any reinsurance parameters, or
use any risk adjustment methodology or
data validation standards other than
those published in the HHS notice of
benefit and payment parameters for use
by HHS when operating risk adjustment
on behalf of the State.
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• We have specified that a State that
elects to collect additional reinsurance
contributions must describe the purpose
of the additional collection and the
additional contribution rate.
• We have clarified that a State that
modifies the reinsurance parameters
from those published in the annual HHS
notice of benefit and payment
parameters must apply those parameters
uniformly throughout the State.
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Subpart C—State Standards Related to
the Reinsurance Program (§ 153.200–
§ 153.250)
• We have clarified that States that
establish an Exchange are not required
to establish a reinsurance program.
• We have revised the process for
collection of contributions so that HHS
will collect contributions from selfinsured plans, while the State has the
option to collect from fully insured
plans. We have required States to notify
HHS by December 1, 2012, if they elect
to collect reinsurance contributions
from fully insured plans for the 2014
benefit year, and by September 1 of the
calendar year that is two years prior to
the applicable benefit year if they elect
to collect reinsurance contributions
from fully insured plans for any benefit
year after 2014.
• We have directed each State to
notify HHS of the percentage of
reinsurance contributions received by
HHS allocated to each applicable
reinsurance entity, if applicable.
• We have added provisions
specifying that if a State elects to collect
additional reinsurance contributions,
HHS will only collect additional
amounts for administrative expenses,
and will not collect additional amounts
for reinsurance payments.
• We are no longer requiring that
reinsurance payments be linked to
essential health benefits.
Subpart D—State Standards Related to
the Risk Adjustment Program
(§ 153.300–§ 153.350)
• We have added a deadline for States
to notify issuers of payments and
charges.
• We have added a provision that
States must submit annual risk
adjustment program summary reports to
HHS.
• We have clarified the standards for
publication of risk adjustment
methodology in HHS and State notices
of benefit and payment parameters.
• We have modified the proposed
approach to risk adjustment data
collection, as follows: When HHS
operates a risk adjustment program, it
will use a distributed approach so that
individual data remains with the issuer.
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When a State operates a risk adjustment
program, it may choose the approach
that best suits its program.
• We have modified the privacy and
security standards applicable when a
State is operating risk adjustment.
• We have adjusted the data
validation standards to account for the
new approach to risk adjustment data
collection.
Subpart E—Health Insurance Issuer and
Group Health Plan Standards Related to
the Reinsurance Program (§ 153.400 and
§ 153.410)
• We have clarified that contributing
entities must make reinsurance
contributions to HHS and the applicable
reinsurance entity, if the State elects to
collect reinsurance contributions.
• We have clarified which
contributing entities must make
reinsurance contributions.
• We have clarified issuer standards
for States that elect to collect additional
funds.
• We have specified a collection
timeframe for submission of reinsurance
contributions to HHS.
• We have clarified that reinsurance
contributions data must be submitted to
HHS and each applicable reinsurance
entity, if the State elects to collect
reinsurance contributions.
Subpart F—Health Insurance Issuer
Standards Related to the Risk Corridors
Program (§ 153.500–§ 153.530)
• We added the defined terms
‘‘administrative costs’’ and ‘‘premiums
earned’’ to be consistent with the MLR
regulations.
• We revised the defined term
‘‘allowable administrative costs’’ to
include a 20 percent cap on such costs.
• We revised the defined term
‘‘allowable costs’’ to include quality
improvement and health information
technology expenditures under the MLR
regulations.
• We revised the defined term ‘‘direct
and indirect remuneration’’ to conform
with the MLR regulations.
• We revised the provision regarding
attribution of reinsurance payments
based on the date on which the
reinsurance claim was submitted. The
final rule specifies that reinsurance
payments and contributions and risk
adjustment payments and charges be
allocated to the benefit year for which
they apply.
• We added a number of provisions
clarifying how revenue and expense
items not typically plan-specific are to
be allocated and attributed to plans.
• We revised the provisions
concerning after-the-fact adjustments to
allowable costs to more clearly reflect
the relevant statutory requirements.
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Subpart G—Health Insurance Issuer
Standards Related to the Risk
Adjustment Program (§ 153.610 and
§ 153.620)
• We have modified issuers’ data
submission standards to reflect the
flexibility afforded to States in
collecting risk adjustment data.
• We have included a requirement
that issuers that offer risk adjustment
covered plans store all required risk
adjustment data in accordance with the
risk adjustment data collection
approach established by HHS, or the
State.
• We have specified that issuers remit
risk adjustment charges within 30 days.
IV. Collection of Information
Requirements
This final rule includes requirements
that differ from those included in the
proposed rule. The following provisions
of provisions this final rule involve
changes from the information collection
requirements set forth in the proposed
rule:
• As described in § 153.210(a), we
have added a new provision to the final
rule under which a State that contracts
with more than one applicable
reinsurance entity must notify HHS of
the percentage of reinsurance
contributions received from HHS for the
State to be allocated to each applicable
reinsurance entity.
• As described in § 153.220(b), we
have added a new standard to the final
rule under which a State electing to
collect reinsurance contributions from
issuers in the fully insured market must
notify HHS of its intention to do so.
• As described in § 153.310(d), we
have added a new standard to the final
rule under which a State operating a
risk adjustment program must submit
annual summary reports of risk
adjustment operations to HHS.
• As described in § 153.340(b)(1), we
have modified the risk adjustment data
collection standards from the proposed
rule. A State operating a risk adjustment
program must collect or calculate
individual risk scores generated by the
risk adjustment model in the Federally
certified risk adjustment methodology.
• As described in § 153.400(d), we
have modified the data standards
applicable to contributing entities with
respect to contribution amounts so that
a contributing entity in the individual
and fully insured market is no longer
required to submit enrollment and
premium data and a contributing entity
in the self-insured market is no longer
required to submit data on covered lives
and total expenses. Instead, a
contributing entity is required to submit
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data necessary to substantiate the
contribution amounts for the
contributing entity.
• As described in § 153.520(c), we
have added a new standard to the final
rule under which a QHP issuer must
submit to HHS a report with detailed
description of the methods and specific
bases used to attribute revenues and
expenses in allowable costs and target
amount to each QHP and across plans.
• As described in § 153.520(e), we
have added a new standard to the final
rule under which a QHP issuer must
maintain for ten years and make
available to HHS upon request the data
used to make certain attributions and
allocations of items of revenue or
expenses, together with all supporting
information required to determine that
these methods and bases were
accurately implemented.
In addition, this final rule describes
some information collections for which
HHS plans to seek approval at a later
date. For these information collections,
HHS will issue future Federal Register
notices to seek comments on those
information collections, as required by
the Paperwork Reduction Act. Included
among such information collections for
which HHS plans to seek later approval
are the following requirements:
• As described in § 153.310(d), a State
operating a risk adjustment program
must submit annual summary reports of
risk adjustment operations to HHS.
• As described in § 153.400(d), a
contributing entity must submit data
required to substantiate the contribution
amounts for the contributing entity.
• As described in § 153.410(b),
issuers of reinsurance-eligible plans, in
order to receive reinsurance payments,
must make requests for payment in
accordance with the standards of the
annual HHS notice of benefit and
payment parameters for the applicable
benefit year or the applicable State
notice of benefit and payment
parameters.
• As described in § 153.520(c), a QHP
issuer must submit to HHS a report with
a detailed description of the methods
and specific bases used to attribute
revenues and expenses in allowable
costs and target amount to each QHP
and across plans.
• As described in § 153.530, a QHP
issuer must submit to HHS data on
premiums earned, allowable costs, and
allowable administrative costs with
respect to each QHP that the QHP issuer
offers.
• As described in § 153.610(a)–(b)
and § 153.620(b), an issuer that offers
risk adjustment covered plans must
submit or make accessible, and must
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store, all risk adjustment data for those
risk adjustment covered plans.
• As described in § 153.620, an issuer
that offers risk adjustment covered plans
must comply with data validation
requests by the State or HHS on behalf
of the State.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a control number
assigned by OMB.
V. Summary of Regulatory Impact
Analysis
The following section focuses on the
benefits and costs of the requirements
included in this final rule, summarizing
analysis from the detailed Regulatory
Impact Analysis, available at https://
cciio.cms.gov under ‘‘Regulations and
Guidance.’’ That Regulatory Impact
Analysis evaluates the impacts of this
final rule and a second final rule, titled
‘‘Patient Protection and Affordable Care
Act; Establishment of Exchanges and
Qualified Health Plans; Exchange
Standards for Employers.’’ The second
final rule was made available for public
inspection at the Office of the Federal
Register on March 12, 2012.
A. Introduction
HHS has examined the impacts of the
final rule under Executive Orders 12866
and 13563, the Regulatory Flexibility
Act (5 U.S.C. 601–612), and the
Unfunded Mandates Reform Act of 1995
(Pub. L. 104–4). Executive Orders 12866
and 13563 direct agencies to assess all
costs and benefits (both quantitative and
qualitative) of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Executive Order 13563
emphasizes the importance of
quantifying both costs and benefits, of
reducing costs, of harmonizing rules,
and of promoting flexibility. This rule
has been designated an ‘‘economically’’
significant rule, under section 3(f)(1) of
Executive Order 12866. Accordingly,
the rule has been reviewed by the Office
of Management and Budget.
The Regulatory Flexibility Act
requires agencies to analyze regulatory
options that would minimize any
significant impact of a rule on small
entities. Few insurance issuers offering
comprehensive health insurance
policies fall below the size thresholds
for ‘‘small’’ business established by the
SBA. HHS concludes that this rule will
not have a significant impact on a
substantial number of small entities.
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Section 202(a) of the Unfunded
Mandates Reform Act of 1995 requires
that agencies prepare a written
statement, which includes an
assessment of anticipated costs and
benefits, before proposing ‘‘any rule that
includes any Federal mandate that may
result in the expenditure by State, local,
and tribal governments, in the aggregate,
or by the private sector, of $100,000,000
or more (adjusted annually for inflation)
in any one year.’’ The current threshold
after adjustment for inflation is
approximately $136 million, using the
most current (2011) Implicit Price
Deflator for the Gross Domestic Product.
Because States are not required to
establish a reinsurance program or
operate a risk adjustment program, the
final rule does not impose a mandate to
incur costs above the $136 million
threshold on State, local, or tribal
governments. Because operational
details on how health insurance issuers
and entities that must participate in the
reinsurance program have not been
finalized, we are not able to estimate
whether the final rule imposes a
mandate to incur costs above the $136
million threshold on the private sector.
B. Need for This Regulation
This rule implements standards for
States related to reinsurance and risk
adjustment, and for health insurance
issuers related to reinsurance, risk
corridors, and risk adjustment
consistent with the Affordable Care Act.
These programs will mitigate the
impacts of potential adverse selection
and stabilize the individual and small
group markets as insurance reforms and
the Exchanges are implemented, starting
in 2014. The transitional State-based
reinsurance program serves to reduce
the uncertainty of insurance risk in the
individual market by making payments
for high-cost enrollees. The temporary
federally administered risk corridors
program serves to protect against ratesetting uncertainty for QHPs by limiting
the extent of issuer losses (and gains).
On an ongoing basis, the State-based
risk adjustment program is intended to
protect health insurance issuers that
attract higher-risk populations (such as
individuals with chronic conditions).
C. Summary of Costs and Benefits
Two regulations are being published
to implement components of the
Exchange and health insurance
premium stabilization policies in the
Affordable Care Act. The detailed
Regulatory Impact Analysis evaluates
the impacts of both proposed rules,
while this summary focuses on the
benefits and costs of the requirements in
this final rule.
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Methods of Analysis
This regulatory impact analysis
references Congressional Budget Office
(CBO) estimates relating to the
Affordable Care Act and CMS estimates
published in the FY 2013 President’s
Budget relating to the Affordable Care
Act and the proposed form of this rule.
The CBO estimates remain the most
comprehensive accounting of all the
interacting provisions pertaining to the
Affordable Care Act, and contain cost
estimates of certain provisions that have
not been independently estimated by
CMS. We expect that the requirements
in this final rule will significantly alter
neither CBO’s estimates nor CMS’s
estimates. Our review and analysis of
the requirements of the final rule
indicate that the impacts are within the
margin of error of CBO’s and CMS’s
models.
Summary of Costs and Benefits
CBO estimated program payments and
receipts for reinsurance and risk
adjustment. As those programs do not
begin operation until 2014, there are no
outlays for reinsurance and risk
adjustment in 2012 and 2013. CBO
estimates that risk adjustment payments
and collections are equal in the
aggregate, but that risk adjustment
payments lag revenues by one quarter.
CBO did not score the impact of the risk
corridors program, but assumed
collections would equal payments to
plans in the aggregate. The payments
and receipts in risk adjustment and
reinsurance are financial transfers
between issuers and the entities running
those programs.
TABLE 1—ESTIMATED OUTLAYS AND RECEIPTS FOR REINSURANCE AND RISK ADJUSTMENT PROGRAMS FY2012–FY2016,
IN BILLIONS OF DOLLARS
Year
2012
2013
Reinsurance and Risk Adjustment Program Payments a ....
Reinsurance and Risk Adjustment Program Receipts a ......
........................
........................
2014
........................
........................
2015
11
12
2016
18
16
18
18
a Risk-adjustment payments lag receipts by one quarter. Note that although the estimates above are based upon CBO analyses, CBO did not
account for reinsurance collections payable to the U.S. Treasury. Consequently, the receipts in the President’s Fiscal Year 2013 Budget are
higher than those estimated by CBO, though not appreciably different.
Source: CBO. 2011. Letter to Hon. Nancy Pelosi. March 20, 2010.
Benefits. Payments through
reinsurance, risk adjustment, and risk
corridors reduce the increased risk of
financial loss that health insurance
issuers might otherwise expect to incur
in 2014. Insurers charge premiums for
expected costs plus a risk premium, in
order to build up reserve funds in case
medical costs are higher than expected.
Reinsurance, risk adjustment, and risk
corridors payments reduce the risk to
the issuer, reducing the risk premium.
Costs. There are administrative costs
to States and Exchanges to set up and
administer these premium stabilization
programs. However, States may use
Exchange Planning and Establishment
Grant funding awarded pursuant to
section 1311 of the Affordable Care Act
to develop these programs. There are
also reporting costs for issuers to submit
data and financial information.
Regulatory Options Considered
Options considered for the
reinsurance, risk adjustment, and risk
corridor programs parallel the options
considered for Exchanges. These
programs aim to mitigate the impacts of
potential adverse selection and stabilize
the individual and small group markets
as insurance reforms and the Affordable
Insurance Exchanges are implemented,
starting in 2014. The Affordable Care
Act structures reinsurance and risk
adjustment as State-based programs
with Federal guidelines on
methodology, while it establishes risk
corridors as a federally run program.
HHS identified two regulatory options
to the approach set forth in this final
rule, as required by Executive Order
12866.
Uniform Standards for Reinsurance
and Risk Adjustment: Under this option,
HHS would have set a single standard
for State operation of reinsurance and
risk adjustment. This option would have
restricted State flexibility.
State Flexibility for Reinsurance and
Risk Adjustment: Under this option,
States would have had a great deal of
flexibility around whether and how to
implement reinsurance and risk
adjustment programs. This option
would have allowed States to develop
these programs to fit their State-specific
characteristics. The programs would
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Category
Primary estimate
Benefits:
Annualized Monetized ($millions/year) ....
Costs:
Annualized Monetized ($millions/year) ....
have been subject to few Federal
standards.
Summary of Estimate Costs for Each
Option
A single standard for State operations
of reinsurance and risk adjustment
could have resulted in reduced Federal
oversight cost. However, this option
could also have reduced innovation and
limited the diffusion of successful
policies. On the other hand, while State
flexibility could have allowed for State
innovation, it would have increased the
administrative burden on the Federal
government and multi-State issuers, as
policies and procedures could have
varied significantly between States.
HHS has adopted a middle course that
aims to limit administrative costs,
especially for the transitional
reinsurance program, while also
ensuring that the policy aims of the
premium stabilization programs are met.
These costs and benefits are discussed
more fully in the detailed Regulatory
Impact Analysis.
D. Accounting Statement
Year dollar
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Period
covered
Not estimated .................................................
Not estimated .................................................
2011
2011
7
3
2012–2016
2012–2016
Not estimated .................................................
Not estimated .................................................
2011
2011
7
3
2012–2016
2012–2016
Transfers:
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rate
(percent)
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Category
Primary estimate
Federal Annualized Monetized ($millions/
year).
Year dollar
Unit discount
rate
(percent)
Period
covered
2011
7
2012–2016
9633 ...............................................................
Qualitative .........................................
9925 ...............................................................
2011
3
2012–2016
Risk Adjustment transfers funds among individual and small group market health plan issuers.
Reinsurance collects funds from all issuers and distributes it to individual market issuers.
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Note: For full documentation and discussion of these estimated costs and benefits see the detailed Regulatory Impact Analysis, available at
https://cciio.cms.gov under ‘‘Regulations and Guidance.’’
VI. Regulatory Flexibility Act
The Regulatory Flexibility Act (5
U.S.C. 601 et seq.) (RFA) requires
agencies to prepare an initial regulatory
flexibility analysis to describe the
impact of the proposed rule on small
entities, unless the head of the agency
can certify that the rule will not have a
significant economic impact on a
substantial number of small entities.
The RFA generally defines a ‘‘small
entity’’ as (1) A proprietary firm meeting
the size standards of the Small Business
Administration (SBA), (2) a not-forprofit organization that is not dominant
in its field, or (3) a small government
jurisdiction with a population of less
than 50,000. States and individuals are
not included in the definition of ‘‘small
entity.’’ HHS uses as its measure of
significant economic impact on a
substantial number of small entities a
change in revenues of more than 3 to 5
percent.
As discussed above, this final rule is
necessary to implement standards for
States related to reinsurance and risk
adjustment, and for health insurance
issuers related to reinsurance, risk
corridors, and risk adjustment
consistent with the Affordable Care Act.
For purpose of the regulatory flexibility
analysis, we expect entities offering
health insurance plans, including fully
insured health plan issuers and selfinsured health plan issuers, to be
affected by this proposed rule. We
believe that health insurers would be
classified under the North American
Industry Classification System (NAICS)
Codes 524114 (Direct Health and
Medical Insurance Carriers) According
to SBA size standards, entities with
average annual receipts of $7 million or
less would be considered small entities
for this NAICS code. Health issuers
could also be classified in NAICS code
621491 (HMO Medical Centers), in
which case the SBA size standard for
small entities would be annual receipts
of $10 million or less.
HHS examined the health insurance
industry in depth in the Regulatory
Impact Analysis we prepared for the
proposed rule on establishment of the
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Medicare Advantage program (69 FR
46866, August 3, 2004). In that analysis,
we determined that there were few
insurance firms underwriting
comprehensive health insurance
policies (in contrast, for example, to
travel insurance policies or dental
discount policies) that fell below the
size thresholds for ‘‘small’’ entities
established by the SBA.
Additionally, as discussed in the
Medical Loss Ratio interim final rule (75
FR 74918), HHS used 2009 National
Association of Insurance Commissioners
(NAIC) Health and Life Blank annual
financial statement data to develop an
updated estimate of the number of small
entities that offer comprehensive major
medical coverage in the individual and
group markets. For purposes of that
analysis, HHS used total Accident and
Health (A&H) earned premiums as a
proxy for annual receipts. HHS
estimated that there were 28 small
entities with less than $7 million in
A&H earned premiums offering
individual or group comprehensive
major medical coverage; however, this
estimate may overstate the actual
number of small health insurance
issuers offering such coverage, since it
does not include receipts from these
companies’ other lines of business.
This final rule contains standards for
premium stabilization programs
required of health plan issuers
including the risk adjustment program
as well as the transitional reinsurance
program and temporary risk corridors
programs. Because we believe that few
insurance firms offering comprehensive
health insurance policies fall below the
size thresholds for ‘‘small’’ entities
established by the SBA, we conclude
that this final rule will not have a
significant economic impact on a
substantial number of small entities.
List of Subjects in 45 CFR Part 153
Administrative practice and
procedure, Adverse selection, Health
care, Health insurance, Health records,
Organization and functions
(Government agencies), Premium
Stabilization, Reporting and
recordkeeping requirements,
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Reinsurance, Risk adjustment, Risk
corridors, Risk mitigation, State and
local governments.
For the reasons set forth in the
preamble, the Department of Health and
Human Services amends 45 CFR subtitle
A, subchapter B, by adding part 153 to
read as set forth below:
Subtitle A—Department of Health and
Human Services
Subchapter B—Requirements Relating
To Health Care Access
PART 153—STANDARDS RELATED TO
REINSURANCE, RISK CORRIDORS,
AND RISK ADJUSTMENT UNDER THE
AFFORDABLE CARE ACT
Subpart A—General Provisions
Sec.
153.10
153.20
Basis and scope.
Definitions.
Subpart B—State Notice of Benefit and
Payment Parameters
153.100 State notice of benefit and
payment parameters.
153.110 Standards for the State notice of
benefit and payment parameters.
Subpart C—State Standards Related to the
Reinsurance Program
153.200 [Reserved]
153.210 State establishment of a
reinsurance program.
153.220 Collection of reinsurance
contribution funds.
153.230 Calculation of reinsurance
payments.
153.240 Disbursement of reinsurance
payments.
153.250 Coordination with high-risk pools.
Subpart D—State Standards Related to the
Risk Adjustment Program
153.300 [Reserved]
153.310 Risk adjustment administration.
153.320 Federally certified risk adjustment
methodology.
153.330 State alternate risk adjustment
methodology.
153.340 Data collection under risk
adjustment.
153.350 Risk adjustment data validation
standards.
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Subpart E—Health Insurance Issuer and
Group Health Plan Standards Related to the
Reinsurance Program
153.400 Reinsurance contribution funds.
153.410 Requests for reinsurance payment.
Subpart F—Health Insurance Issuer
Standards Related to the Risk Corridors
Program
153.500 Definitions.
153.510 Risk corridors establishment and
payment methodology.
153.520 Attribution and allocation of
revenue and expense items.
153.530 Risk corridors data requirements.
Subpart G—Health Insurance Issuer
Standards Related to the Risk Adjustment
Program
153.600 [Reserved]
153.610 Risk adjustment issuer
requirements.
153.620 Compliance with risk adjustment
standards.
Authority: Secs. 1321, 1341–1343, Pub. L.
111–148, 24 Stat. 119.
Subpart A—General Provisions
§ 153.10
Basis and scope.
(a) Basis. This part is based on the
following sections of title I of the
Affordable Care Act (Pub. L. 111–148,
24 Stat. 119):
(1) Section 1321. State flexibility in
operation and enforcement of Exchanges
and related requirements.
(2) Section 1341. Transitional
reinsurance program for individual
market in each State.
(3) Section 1342. Establishment of risk
corridors for plans in individual and
small group markets.
(4) Section 1343. Risk adjustment.
(b) Scope. This part establishes
standards for the establishment and
operation of a transitional reinsurance
program, temporary risk corridors
program, and a permanent risk
adjustment program.
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§ 153.20
Definitions.
The following definitions apply to
this part, unless the context indicates
otherwise:
Alternate risk adjustment
methodology means a risk adjustment
methodology proposed by a State for use
instead of a Federally certified risk
adjustment methodology that has not
yet been certified by HHS.
Applicable reinsurance entity means a
not-for-profit organization that is
exempt from taxation under Chapter 1
of the Internal Revenue Code of 1986
that carries out reinsurance functions
under this part on behalf of the State.
An entity is not an applicable
reinsurance entity to the extent it is
carrying out reinsurance functions
under subpart C of this part on behalf
of HHS.
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Attachment point means the
threshold dollar amount for claims costs
incurred by a health insurance issuer for
an enrolled individual’s covered
benefits in a benefit year, after which
threshold the claims costs for such
benefits are eligible for reinsurance
payments.
Benefit year has the meaning given to
the term in § 155.20 of this subchapter.
Calculation of payments and charges
means the methodology applied to plan
average actuarial risk to determine risk
adjustment payments and charges for a
risk adjustment covered plan.
Calculation of plan average actuarial
risk means the specific procedures used
to determine plan average actuarial risk
from individual risk scores for a risk
adjustment covered plan, including
adjustments for variable rating and the
specification of the risk pool from
which average actuarial risk is to be
calculated.
Coinsurance rate means the rate at
which the applicable reinsurance entity
will reimburse the health insurance
issuer for claims costs incurred for an
enrolled individual’s covered benefits in
a benefit year after the attachment point
and before the reinsurance cap.
Contributing entity means a health
insurance issuer or a third party
administrator on behalf a self-insured
group health plan.
Contribution rate means, with respect
to a benefit year, the per capita amount
each contributing entity must pay for a
reinsurance program established under
this part with respect to each
reinsurance contribution enrollee who
resides in that State.
Exchange has the meaning given to
the term in § 155.20 of this subchapter.
Federally certified risk adjustment
methodology means a risk adjustment
methodology that either has been
developed and promulgated by HHS, or
has been certified by HHS.
Grandfathered health plan has the
meaning given to the term in
§ 147.140(a) of this subchapter.
Group health plan has the meaning
given to the term in § 144.103 of this
subchapter.
Health insurance coverage has the
meaning given to the term in § 144.103
of this subchapter.
Health insurance issuer or issuer has
the meaning given to the term in
§ 144.103 of this subchapter.
Health plan has the meaning given to
the term in section 1301(b)(1) of the
Affordable Care Act.
Individual market has the meaning
given to the term in § 144.103 of this
subchapter.
Individual risk score means a relative
measure of predicted health care costs
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for a particular enrollee that is the result
of a risk adjustment model.
Large employer has the meaning given
to the term in § 155.20 of this
subchapter.
Qualified employer has the meaning
given to the term in § 155.20 of this
subchapter.
Qualified health plan or QHP has the
meaning given to the term in § 155.20 of
this subchapter.
Qualified individual has the meaning
given to the term in § 155.20 of this
subchapter.
Reinsurance cap means the threshold
dollar amount for claims costs incurred
by a health insurance issuer for an
enrolled individual’s covered benefits,
after which threshold, the claims costs
for such benefits are no longer eligible
for reinsurance payments.
Reinsurance contribution enrollee
means an individual covered by a plan
for which reinsurance contributions
must be made pursuant to § 153.400.
Reinsurance-eligible plan means, for
the purpose of the reinsurance program,
any health insurance coverage offered in
the individual market, except for
grandfathered plans and health
insurance coverage not required to
submit reinsurance contributions under
§ 153.400(a).
Risk adjustment covered plan means,
for the purpose of the risk adjustment
program, any health insurance coverage
offered in the individual or small group
market with the exception of
grandfathered health plans, group
health insurance coverage described in
§ 146.145(c) of this subchapter,
individual health insurance coverage
described in § 148.220 of this
subchapter, and any other plan
determined not to be a risk adjustment
covered plan in the annual HHS notice
of benefit and payment parameters.
Risk adjustment data means all data
that are used in a risk adjustment
model, the calculation of plan average
actuarial risk, or the calculation of
payments and charges, or that are used
for validation or audit of such data.
Risk adjustment data collection
approach means the specific procedures
by which risk adjustment data is to be
stored, collected, accessed, transmitted,
validated and audited and the
applicable timeframes, data formats, and
privacy and security standards.
Risk adjustment methodology means
the risk adjustment model, the
calculation of plan average actuarial
risk, the calculation of payments and
charges, the risk adjustment data
collection approach, and the schedule
for the risk adjustment program.
Risk adjustment model means an
actuarial tool used to predict health care
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costs based on the relative actuarial risk
of enrollees in risk adjustment covered
plans.
Risk pool means the State-wide
population across which risk is
distributed.
Small group market has the meaning
given to the term in section 1304(a)(3)
of the Affordable Care Act.
State has the meaning given to the
term in § 155.20 of this subchapter.
Subpart B—State Notice of Benefit and
Payment Parameters
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§ 153.100 State notice of benefit and
payment parameters.
(a) General requirement for
reinsurance. A State establishing a
reinsurance program must issue an
annual notice of benefit and payment
parameters specific to that State if that
State elects to:
(1) Modify the data requirements or
data collection frequency for health
insurance issuers to receive reinsurance
payment from those specified in the
annual HHS notice of benefit and
payment parameters for the applicable
benefit year;
(2) Collect reinsurance contributions
pursuant to § 153.220(a)(1);
(3) Collect additional reinsurance
contributions pursuant to § 153.220(g);
(4) Use more than one applicable
reinsurance entity; or
(5) Modify any reinsurance payment
parameters from those specified in the
annual HHS notice of benefit and
payment parameters for the applicable
benefit year.
(b) Risk adjustment requirements. A
State operating a risk adjustment
program must issue an annual notice of
benefit and payment parameters specific
to that State setting forth the risk
adjustment methodology and data
validation standards it will use.
(c) State notice deadlines. If a State is
required to publish an annual State
notice of benefit and payment
parameters, it must do so by March 1 of
the calendar year prior to the benefit
year for which the notice applies.
(d) State failure to publish notice. Any
State establishing a reinsurance program
or operating a risk adjustment program
that fails to publish a State notice of
benefit and payment parameters within
the period specified in paragraph (c) of
this section must—
(1) Adhere to the data requirements
and data collection frequency for health
insurance issuers to receive reinsurance
payments that are specified in the
annual HHS notice of benefit and
payment parameters for the applicable
benefit year;
(2) Forgo the collection of reinsurance
contributions pursuant to § 153.220(a);
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(3) Forgo the collection of additional
reinsurance contributions pursuant to
§ 153.220(g);
(4) Forgo the use of more than one
applicable reinsurance entity;
(5) Adhere to the reinsurance
parameters specified in the annual HHS
notice of benefit and payment
parameters for the applicable benefit
year; and
(6) Adhere to the risk adjustment
methodology and data validation
standards published in the annual HHS
notice of benefit and payment
parameters for use by HHS when
operating risk adjustment on behalf of a
State.
§ 153.110 Standards for the State notice of
benefit and payment parameters.
(a) Data requirements. If a State that
establishes a reinsurance program elects
to modify the data requirements or data
collection frequency for health
insurance issuers to receive reinsurance
payment from those specified in the
annual HHS notice of benefit and
payment parameters for the applicable
benefit year, the State notice of benefit
and payment parameters must specify
those modifications.
(b) Reinsurance collection. If a State
that establishes a reinsurance program
elects to collect reinsurance
contributions pursuant to § 153.220(a),
then the State must announce its
intention to do so in the State notice of
benefit and payment parameters.
(c) Additional collections. If a State
that establishes a reinsurance program
elects to collect additional funds
pursuant to § 153.220(g), the State must
publish the following:
(1) A description of the purpose of the
additional collection, including whether
it will be used to cover reinsurance
payments, administrative costs, or both;
and
(2) The additional contribution rate at
which the funds will be collected.
(d) Multiple reinsurance entities. If a
State plans to use more than one
applicable reinsurance entity, the State
must publish in the State notice of
benefit and payment parameters, for
each applicable reinsurance entity—
(1) The geographic boundaries for that
entity;
(2) An estimate of the number of
enrollees in fully insured plans within
those boundaries;
(3) An estimate of the number of
enrollees in the individual market
within those boundaries;
(4) An estimate of the reinsurance
contributions that will be collected by
the applicable reinsurance entity;
(5) The percentage of reinsurance
contributions received from HHS for the
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17247
State to be allocated to the applicable
reinsurance entity; and
(6) An estimate of the amount of
reinsurance payments that will be made
to issuers with respect to enrollees
within those boundaries.
(e) Reinsurance payment. If a State
that establishes a reinsurance program
intends to modify the attachment point,
reinsurance cap, or coinsurance rate
from the corresponding parameters
specified in the annual HHS notice of
benefit and payment parameters for the
applicable benefit year, the State must—
(1) Describe those modified
parameters in the State notice of benefit
and payment parameters; and
(2) Apply the modified parameters
uniformly throughout the State.
(f) Risk adjustment content. A State
operating a risk adjustment program
must provide the information set forth
in § 153.330(a) and the data validation
standards set forth pursuant to § 153.350
in the State notice of benefit and
payment parameters.
Subpart C—State Standards Related to
the Reinsurance Program
§ 153.200
[Reserved]
§ 153.210 State establishment of a
reinsurance program.
(a) General requirement. Each State is
eligible to establish a reinsurance
program for the years 2014 through
2016.
(1) If a State establishes a reinsurance
program, the State must enter into a
contract with one or more applicable
reinsurance entities to carry out the
provisions of this subpart.
(2) If a State contracts with more than
one applicable reinsurance entity, the
State must:
(i) Ensure that each applicable
reinsurance entity operates in a distinct
geographic area with no overlap of
jurisdiction with any other applicable
reinsurance entity;
(ii) Use the same payment parameters
with respect to each applicable
reinsurance entity; and
(iii) Notify HHS in the manner and
timeframe specified by HHS of the
percentage of reinsurance contributions
received from HHS for the State to be
allocated to each applicable reinsurance
entity.
(3) A State may permit an applicable
reinsurance entity to subcontract
specific administrative functions
required under this subpart and subpart
E of this part.
(4) A State must review and approve
subcontracting arrangements to ensure
efficient and appropriate expenditures
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of administrative funds collected under
this subpart.
(5) A State must ensure that the
applicable reinsurance entity completes
all reinsurance-related activities for
benefit years 2014 through 2016 and any
activities required to be undertaken in
subsequent periods.
(b) Multi-State reinsurance
arrangements. Multiple States may
contract with a single entity to serve as
an applicable reinsurance entity for
each State. In such a case, the
reinsurance programs for those States
must be operated as separate programs.
(c) Non-electing States. HHS will
establish a reinsurance program for each
State that does not elect to establish its
own reinsurance program.
(d) Oversight. Each State that
establishes a reinsurance program must
ensure that the applicable reinsurance
entity complies with all provisions of
this subpart and subpart E of this part
throughout the duration of its contract.
srobinson on DSK4SPTVN1PROD with RULES3
§ 153.220 Collection of reinsurance
contribution funds.
(a) Collections. If a State establishes a
reinsurance program, then—
(1) The State may elect to—
(i) Have the applicable reinsurance
entity collect contributions for
reinsurance contribution enrollees who
reside in that State directly from issuers
of health plans; or
(ii) Ensure that the applicable
reinsurance entity accepts contributions
for reinsurance contribution enrollees
who reside in that State with respect to
issuers of health plans from HHS.
(2) The State must ensure that the
applicable reinsurance entity accepts
contributions for reinsurance
contribution enrollees who reside in
that State with respect to all
contributing entities other than issuers
of health plans from HHS.
(b) Notification of election to collect.
If a State establishes a reinsurance
program, then that State must notify
HHS by December 1, 2012, if the State
elects to collect reinsurance
contributions from fully insured plans
for the 2014 benefit year, and by
September 1 of the calendar year that is
two years prior to the applicable benefit
year if the State elects to collect
reinsurance contributions from fully
insured plans for any benefit year after
2014, in each case pursuant to
paragraph (a)(1)(i) of this section. The
State’s notification will be effective for
the applicable benefit year and each
subsequent benefit year during which
activities related to the transitional
reinsurance program continue.
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(c) Contribution funding. Reinsurance
contributions collected must fund the
following:
(1) Reinsurance payments that will
total, on a national basis, $10 billion in
2014, $6 billion in 2015, and $4 billion
in 2016;
(2) U.S. Treasury contributions that
will total, on a national basis, $2 billion
in 2014, $2 billion in 2015, and
$1 billion in 2016; and
(3) Administrative expenses of the
applicable reinsurance entity or HHS
when performing reinsurance functions
under this subpart.
(d) Distribution of reinsurance
contributions. If a State establishes a
reinsurance program, HHS will
distribute funds collected for
reinsurance contribution enrollees who
reside in a State to the applicable
reinsurance entity for that State (or the
applicable reinsurance entities, if more
than one, in accordance with the
allocation specified by the State
pursuant to § 153.210(a)(2)(ii)), less:
(1) The State’s pro rata share of the
U.S. Treasury contribution described in
paragraph (c)(2) of this section; and
(2) The State’s pro rata share of
administrative expenses incurred by
HHS when performing reinsurance
functions under this subpart.
(e) National contribution rate. HHS
will set in the annual HHS notice of
benefit and payment parameters for the
applicable benefit year the national
contribution rate and the proportion of
contributions collected under the
national contribution rate to be
allocated to:
(1) Reinsurance payments;
(2) Payments to the U.S. Treasury as
described in paragraph (c)(2) of this
section; and
(3) Administrative expenses of the
applicable reinsurance entity or HHS
when performing reinsurance functions
under this subpart.
(f) State collections. If a State elects to
have the applicable reinsurance entity
collect contributions pursuant to
paragraph (a)(1)(i) of this section, the
State must ensure that:
(1) The applicable reinsurance entity
for the State collects contributions for
reinsurance contribution enrollees who
reside in that State directly from issuers
of health plans in the amounts required
under the national contribution rate.
(2) Reinsurance contributions are
allocated as required in the annual HHS
notice of benefit and payment
parameters for the applicable benefit
year, such that:
(i) Contributions allocated for
reinsurance payments are only used for
reinsurance payments; and
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(ii) Contributions allocated for
payments to the U.S. Treasury are paid
to the U.S. Treasury in a timeframe to
be established by HHS.
(g) Additional State collections. If a
State establishes a reinsurance program,
it may elect to collect more than the
amounts that would be collected based
on the national contribution rate set
forth in the annual HHS notice of
benefit and payment parameters for the
applicable benefit year to provide:
(1) Funding for administrative
expenses of the applicable reinsurance
entity; or
(2) Additional funding for reinsurance
payments.
(h) Administration of additional State
collections. If a State elects to collect
additional amounts pursuant to
paragraph (g) of this section for
administrative expenses or reinsurance
payments, then:
(1) The State must notify HHS within
30 days after publication of the draft
annual HHS notice of benefit and
payment parameters for the applicable
benefit year of the additional
contribution rate that it elects to collect
for additional administrative expenses.
The State must ensure that the State’s
applicable reinsurance entity—
(i) Collects these additional amounts
for additional administrative expenses
from issuers of health plans when the
State elects to collect contributions from
such issuers under paragraph (a)(1) of
this section; and
(ii) Accepts additional amounts for
additional administrative expenses from
HHS from all contributing entities from
which HHS collects in accordance with
the State’s election under paragraph
(a)(1) of this section.
(2) Notwithstanding paragraphs (a)(1)
and (a)(2) of this section, the State must
ensure that the applicable reinsurance
entity collects all additional reinsurance
contributions for the purpose of
reinsurance payments from all
contributing entities.
§ 153.230 Calculation of reinsurance
payments.
(a) General requirement. A health
insurance issuer of a non-grandfathered
individual market plan becomes eligible
for reinsurance payments when its
claims costs for an individual enrollee’s
covered benefits in a benefit year exceed
the attachment point.
(b) Reinsurance payment parameters.
If a State establishes a reinsurance
program, the State must use, subject to
any modifications made pursuant to
paragraph (d) of this section, the
payment formula and values for the
attachment point, reinsurance cap, and
coinsurance rate for each year
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commencing in 2014 and ending in
2016 established in the annual HHS
notice of benefit and payment
parameters for the applicable benefit
year.
(c) Reinsurance payments. If a State
establishes a reinsurance program, the
State must ensure, subject to
§ 153.240(b)(1), that the reinsurance
payment represents the product of the
coinsurance rate multiplied by the
health insurance issuer’s claims costs
for an individual enrollee’s covered
benefits that the health insurance issuer
incurs between the attachment point
and the reinsurance cap.
(d) State modification of reinsurance
payment formula. If a State establishes
a reinsurance program, the State may
modify the reinsurance payment
formula in accordance with the
following:
(1) The State may only use one or
more of the following methods to
modify the reinsurance payment
formula:
(i) Increasing or decreasing the
attachment point;
(ii) Increasing, decreasing, or
eliminating the reinsurance cap; or
(iii) Increasing or decreasing the
coinsurance rate.
(2) The State must publish any such
modification to the reinsurance
payment formula and parameters in a
State notice of benefit and payment
parameters as described in subpart B of
this part.
(3) Any State modification to the
reinsurance payment formula pursuant
to paragraph (d)(1) of this section must
be reasonably calculated to ensure that
reinsurance contributions received
toward reinsurance are sufficient to
cover payments that the applicable
reinsurance entity is obligated to make
under that State formula for the given
benefit year for the reinsurance
program.
(4) The State must use a uniform
attachment point, coinsurance rate, and
reinsurance cap throughout the State.
srobinson on DSK4SPTVN1PROD with RULES3
(a) Data collection. If a State
establishes a reinsurance program, the
State must ensure that the applicable
reinsurance entity collects from health
insurance issuers of reinsurance-eligible
plans data required to calculate
payments described in § 153.230,
according to the data requirements and
data collection frequency specified by
the State in the notice of benefit and
payment parameters described in
subpart B of this part.
(b) Reinsurance entity payments. If a
State establishes a reinsurance program,
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§ 153.250
pools.
Coordination with high-risk
(a) General requirement. The State
must eliminate or modify any State
high-risk pool to the extent necessary to
carry out the reinsurance program
established under this subpart.
(b) Coordination with high-risk pools.
The State may coordinate the State highrisk pool with the reinsurance program
to the extent that the State high-risk
pool conforms to the provisions of this
subpart.
Subpart D—State Standards Related to
the Risk Adjustment Program
§ 153.300
[Reserved]
§ 153.310
§ 153.240 Disbursement of reinsurance
payments.
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the State must ensure that each
applicable reinsurance entity does not
make payments to health insurance
issuers that exceed contributions
received to date by the applicable
reinsurance entity.
(1) If a State, or HHS on behalf of the
State, determines that reinsurance
payments requested for a benefit year
will likely exceed the reinsurance
contributions that will be received for
the year, the State may require that the
applicable reinsurance entity reduce (or
HHS on behalf of the State may reduce)
reinsurance payments, so long as the
manner in which payments are reduced
is fair and equitable for all health
insurance issuers in the individual
market.
(2) The State must ensure that an
applicable reinsurance entity makes
payment to the health insurance issuer
of a reinsurance-eligible plan after
receiving a valid claim for payment
from that health insurance issuer in
accordance with the requirements of
§ 153.410.
(c) Maintenance of records. If a State
establishes a reinsurance program, the
State must maintain books, records,
documents, and other evidence of
accounting procedures and practices of
the reinsurance program for each benefit
year for at least 10 years.
Risk adjustment administration.
(a) State eligibility to establish a risk
adjustment program. (1) A State that
elects to operate an Exchange is eligible
to establish a risk adjustment program.
(2) Any State that does not elect to
operate an Exchange, or that HHS has
not approved to operate an Exchange,
will forgo implementation of all State
functions in this subpart, and HHS will
carry out all of the provisions of this
subpart on behalf of the State.
(3) Any State that elects to operate an
Exchange but does not elect to
administer risk adjustment will forgo
implementation of all State functions in
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17249
this subpart, and HHS will carry out all
of the provisions of this subpart on
behalf of the State.
(b) Entities eligible to carry out risk
adjustment activities. If a State is
operating a risk adjustment program, the
State may elect to have an entity other
than the Exchange perform the State
functions of this subpart, provided that
the entity meets the standards
promulgated by HHS to be an entity
eligible to carry out Exchange functions.
(c) Timeframes. A State, or HHS on
behalf of the State, must implement risk
adjustment for the 2014 benefit year and
every benefit year thereafter. For each
benefit year, a State, or HHS on behalf
of the State, must notify issuers of risk
adjustment payments due or charges
owed annually by June 30 of the year
following the benefit year.
(d) State summary reports. Each State
operating a risk adjustment program
must submit to HHS an annual
summary of risk adjustment program
operations in the manner and timeframe
specified by HHS.
§ 153.320 Federally certified risk
adjustment methodology.
(a) General requirement. Any risk
adjustment methodology used by a
State, or HHS on behalf of the State,
must be a Federally certified risk
adjustment methodology. A risk
adjustment methodology may become
Federally certified by one of the
following processes:
(1) The risk adjustment methodology
is developed by HHS and published in
an annual HHS notice of benefit and
payment parameters; or
(2) An alternate risk adjustment
methodology is submitted by a State in
accordance with § 153.330, reviewed
and certified by HHS, and published in
an annual HHS notice of benefit and
payment parameters.
(b) Publication of methodology in
notices. The publication of a risk
adjustment methodology by HHS in an
annual HHS notice of benefit and
payment parameters or by a State in an
annual State notice of benefit and
payment parameters described in
subpart B of this part must include:
(1) A complete description of the risk
adjustment model, including—
(i) Factors to be employed in the
model, including but not limited to
demographic factors, diagnostic factors,
and utilization factors, if any;
(ii) The qualifying criteria for
establishing that an individual is
eligible for a specific factor;
(iii) Weights assigned to each factor;
and
(iv) The schedule for the calculation
of individual risk scores.
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(2) A complete description of the
calculation of plan average actuarial
risk.
(3) A complete description of the
calculation of payments and charges.
(4) A complete description of the risk
adjustment data collection approach.
(5) The schedule for the risk
adjustment program.
(c) Use of methodology for States that
do not operate a risk adjustment
program. HHS will specify in the annual
HHS notice of benefit and payment
parameters for the applicable year the
Federally certified risk adjustment
methodology that will apply in States
that do not operate a risk adjustment
program.
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§ 153.330 State alternate risk adjustment
methodology.
(a) State request for alternate
methodology certification. (1) A State
request to HHS for the certification of an
alternate risk adjustment methodology
must include:
(i) The elements specified in
§ 153.320(b);
(ii) The calibration methodology and
frequency of calibration; and
(iii) The statistical performance
metrics specified by HHS.
(2) The request must include the
extent to which the methodology:
(i) Accurately explains the variation
in health care costs of a given
population;
(ii) Links risk factors to daily clinical
practice and is clinically meaningful to
providers;
(iii) Encourages favorable behavior
among providers and health plans and
discourages unfavorable behavior;
(iv) Uses data that is complete, high
in quality, and available in a timely
fashion;
(v) Is easy for stakeholders to
understand and implement;
(vi) Provides stable risk scores over
time and across plans; and
(vii) Minimizes administrative costs.
(b) State renewal of alternate
methodology. If a State is operating a
risk adjustment program, the State may
not implement a recalibrated risk
adjustment model or otherwise alter its
risk adjustment methodology without
first obtaining HHS certification.
(1) Recalibration of the risk
adjustment model must be performed at
least as frequently as described in
paragraph (a)(1)(ii) of this section;
(2) A State request to implement a
recalibrated risk adjustment model or
otherwise alter its risk adjustment
methodology must include any changes
to the parameters described in
paragraph (a)(1) of this section.
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§ 153.340 Data collection under risk
adjustment.
(a) Data collection requirements. If a
State is operating a risk adjustment
program, the State must collect risk
adjustment data.
(b) Minimum standards. (1) If a State
is operating a risk adjustment program,
the State may vary the amount and type
of data collected, but the State must
collect or calculate individual risk
scores generated by the risk adjustment
model in the applicable Federally
certified risk adjustment methodology;
(2) If a State is operating a risk
adjustment program, the State must
require that issuers offering risk
adjustment covered plans in the State
comply with data privacy and security
standards set forth in the applicable risk
adjustment data collection approach;
and
(3) If a State is operating a risk
adjustment program, the State must
ensure that any collection of personally
identifiable information is limited to
information reasonably necessary for
use in the applicable risk adjustment
model, calculation of plan average
actuarial risk, or calculation of
payments and charges. Except for
purposes of data validation, the State
may not collect or store any personally
identifiable information for use as a
unique identifier for an enrollee’s data,
unless such information is masked or
encrypted by the issuer, with the key to
that masking or encryption withheld
from the State.
(4) If a State is operating a risk
adjustment program, the State must
implement security standards that
provide administrative, physical, and
technical safeguards for the individually
identifiable information consistent with
the security standards described at 45
CFR 164.308, 164.310, and 164.312.
§ 153.350 Risk adjustment data validation
standards.
(a) General requirement. The State, or
HHS on behalf of the State, must ensure
proper implementation of any risk
adjustment software and ensure proper
validation of a statistically valid sample
of risk adjustment data from each issuer
that offers at least one risk adjustment
covered plan in that State.
(b) Adjustment to plan average
actuarial risk. The State, or HHS on
behalf of the State, may adjust the plan
average actuarial risk for a risk
adjustment covered plan based on errors
discovered with respect to
implementation of risk adjustment
software or as a result of data validation
conducted pursuant to paragraph (a) of
this section.
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(c) Adjustment to charges and
payments. The State, or HHS on behalf
of the State, may adjust charges and
payments to all risk adjustment covered
plan issuers based on the adjustments
calculated in paragraph (b) of this
section.
(d) Appeals. The State, or HHS on
behalf of the State, must provide an
administrative process to appeal
findings with respect to the
implementation of risk adjustment
software or data validation.
Subpart E—Health Insurance Issuer
and Group Health Plan Standards
Related to the Reinsurance Program
§ 153.400
Reinsurance contribution funds.
(a) General requirement. Each
contributing entity must make
reinsurance contributions at the
national contribution rate (and any
additional contribution rate if the State
has elected to collect additional
contributions pursuant to § 153.220(g))
for the reinsurance program for all
reinsurance contribution enrollees who
reside in a State, in a frequency and
manner determined by HHS or the State,
to HHS or the applicable reinsurance
entity, as applicable.
(1) A contributing entity must make
reinsurance contributions on behalf of
its group health plans and health
insurance coverage, except as set forth
in paragraph (a)(2) of this section.
(2) A contributing entity is not
required to make contributions on
behalf of plans or health insurance
coverage that consist solely of excepted
benefits as defined by section 2791(c) of
the PHS Act.
(b) Multiple reinsurance entities. If the
State establishes or contracts with more
than one applicable reinsurance entity,
the contributing entity must make
reinsurance contributions to each
applicable reinsurance entity for the
reinsurance contribution enrollees who
reside in the applicable geographic area.
(c) Timeframe for Federal collections.
Each contributing entity must submit
contributions to HHS on a quarterly
basis beginning January 15, 2014.
(d) Data requirements. Each
contributing entity must submit to HHS
and each applicable reinsurance entity,
if the State elects to collect reinsurance
contributions, data required to
substantiate the contribution amounts
for the contributing entity, in the
manner and timeframe specified by the
State or HHS.
§ 153.410 Requests for reinsurance
payment.
(a) General requirement. An issuer of
a reinsurance-eligible plan may make a
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request for payment when an enrollee of
that reinsurance-eligible plan has met
the criteria for reinsurance payment set
forth in the annual HHS notice of
benefit and payment parameters for the
applicable year or the State notice of
benefit and payment parameters
described in subpart B of this part, as
applicable.
(b) Manner of request. An issuer of a
reinsurance-eligible plan must make
requests for payment in accordance with
the requirements of the annual HHS
notice of benefit and payment
parameters for the applicable benefit
year or the State notice of benefit and
payment parameters described in
subpart B of this part, as applicable.
Subpart F—Health Insurance Issuer
Standards Related to the Risk
Corridors Program
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§ 153.500
Definitions.
The following definitions apply to
this subpart:
Administrative costs mean, with
respect to a QHP, total non-claims costs
incurred by the QHP issuer for the QHP,
as described in § 158.160(b) of this
subchapter.
Allowable administrative costs mean,
with respect to a QHP, administrative
costs of the QHP, up to 20 percent of the
premiums earned with respect to the
QHP (including any premium tax credit
under any governmental program).
Allowable costs mean, with respect to
a QHP, an amount equal to the sum of
incurred claims of the QHP issuer for
the QHP, within the meaning of
§ 158.140 of this subchapter (including
adjustments for any direct and indirect
remuneration); expenditures by the QHP
issuer for the QHP for activities that
improve health care quality as set forth
in § 158.150 of this subchapter;
expenditures by the QHP issuer for the
QHP related to health information
technology and meaningful use
requirements as set forth in § 158.151 of
this subchapter; and the adjustments set
forth in § 153.530(b).
Charge means the flow of funds from
QHP issuers to HHS.
Direct and indirect remuneration
means prescription drug rebates
received by a QHP issuer within the
meaning of § 158.140(b)(1)(i) of this
subchapter.
Payment means the flow of funds
from HHS to QHP issuers.
Premiums earned mean, with respect
to a QHP, all monies paid by or for
enrollees with respect to that plan as a
condition of receiving coverage,
including any fees or other
contributions paid by or for enrollees,
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within the meaning of § 158.130 of this
subchapter.
Risk corridors means any payment
adjustment system based on the ratio of
allowable costs of a plan to the plan’s
target amount.
Target amount means, with respect to
a QHP, an amount equal to the total
premiums earned with respect to a QHP,
including any premium tax credit under
any governmental program, reduced by
the allowable administrative costs of the
plan.
§ 153.510 Risk corridors establishment
and payment methodology.
(a) General requirement. A QHP issuer
must adhere to the requirements set by
HHS in this subpart and in the annual
HHS notice of benefit and payment
parameters for the establishment and
administration of a program of risk
corridors for calendar years 2014, 2015,
and 2016.
(b) HHS payments to health insurance
issuers. QHP issuers will receive
payment from HHS in the following
amounts, under the following
circumstances:
(1) When a QHP’s allowable costs for
any benefit year are more than 103
percent but not more than 108 percent
of the target amount, HHS will pay the
QHP issuer an amount equal to 50
percent of the allowable costs in excess
of 103 percent of the target amount; and
(2) When a QHP’s allowable costs for
any benefit year are more than 108
percent of the target amount, HHS will
pay to the QHP issuer an amount equal
to the sum of 2.5 percent of the target
amount plus 80 percent of allowable
costs in excess of 108 percent of the
target amount.
(c) Health insurance issuers’
remittance of charges. QHP issuers must
remit charges to HHS in the following
amounts, under the following
circumstances:
(1) If a QHP’s allowable costs for any
benefit year are less than 97 percent but
not less than 92 percent of the target
amount, the QHP issuer must remit
charges to HHS in an amount equal to
50 percent of the difference between 97
percent of the target amount and the
allowable costs; and
(2) When a QHP’s allowable costs for
any benefit year are less than 92 percent
of the target amount, the QHP issuer
must remit charges to HHS in an
amount equal to the sum of 2.5 percent
of the target amount plus 80 percent of
the difference between 92 percent of the
target amount and the allowable costs.
§ 153.520 Attribution and allocation of
revenue and expense items.
(a) Attribution to QHP. Each item of
revenue or expense in allowable costs or
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17251
the target amount with respect to a QHP
must be reasonably attributable to the
operation of the QHP, with the
attribution based on a generally
accepted accounting method,
consistently applied. To the extent that
an issuer utilizes a specific method for
allocating expenses for purposes of
§ 158.170 of this subchapter, the method
used for purposes of this paragraph
must be consistent.
(b) Allocation across plans. Each item
of revenue or expense in allowable costs
or the target amount must be reasonably
allocated across a QHP issuer’s plans,
with the allocation based on a generally
accepted accounting method,
consistently applied. To the extent that
an issuer utilizes a specific method for
allocating expenses for purposes of
§ 158.170 of this subchapter, the method
used for purposes of this paragraph
must be consistent.
(c) Disclosure of attribution and
allocation methods. A QHP issuer must
submit to HHS a report, in the manner
and timeframe specified in the annual
HHS notice of benefit and payment
parameters, with a detailed description
of the methods and specific bases used
to perform the attributions and
allocations set forth in paragraphs (a)
and (b) of this section.
(d) Attribution of reinsurance and risk
adjustment to benefit year. A QHP
issuer must attribute reinsurance
payments and contributions and risk
adjustment payments and charges to
allowable costs for the benefit year with
respect to which the reinsurance
payments or contributions or risk
adjustment calculations apply.
(e) Maintenance of records. A QHP
issuer must maintain for 10 years and
make available to HHS upon request the
data used to make the attributions and
allocations set forth in paragraphs (a)
and (b) of this section, together with all
supporting information required to
determine that these methods and bases
were accurately implemented.
§ 153.530 Risk corridors data
requirements.
(a) Premium data. A QHP issuer must
submit to HHS data on the premiums
earned with respect to each QHP that
the issuer offers in the manner and
timeframe set forth in the annual HHS
notice of benefit and payment
parameters.
(b) Allowable costs. A QHP issuer
must submit to HHS data on the
allowable costs incurred with respect to
each QHP that the QHP issuer offers in
the manner and timeframe set forth in
the annual HHS notice of benefit and
payment parameters. For purposes of
this subpart, allowable costs must be—
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srobinson on DSK4SPTVN1PROD with RULES3
(1) Increased by—
(i) Any risk adjustment charges paid
by the issuer for the QHP under the risk
adjustment program established
pursuant to subpart D of this part; and
(ii) Any reinsurance contributions
made by the issuer for the QHP under
the transitional reinsurance program
established pursuant to subpart C of this
part.
(2) Reduced by—
(i) Any risk adjustment payments
received by the issuer for the QHP
under the risk adjustment program
established pursuant to subpart D of this
part;
(ii) Any reinsurance payments
received by the issuer for the QHP
under the transitional reinsurance
program established pursuant to subpart
C of this part; and
(iii) Any cost-sharing reduction
payments received by the issuer for the
QHP.
(c) Allowable administrative costs. A
QHP issuer must submit to HHS data on
the allowable administrative costs
incurred with respect to each QHP that
the QHP issuer offers in the manner and
timeframe set forth in the annual HHS
notice of benefit and payment
parameters.
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Subpart G—Health Insurance Issuer
Standards Related to the Risk
Adjustment Program
§ 153.600
[Reserved]
§ 153.610 Risk adjustment issuer
requirements.
(a) Data requirements. An issuer that
offers risk adjustment covered plans
must submit or make accessible all
required risk adjustment data for those
risk adjustment covered plans in
accordance with the risk adjustment
data collection approach established by
the State, or by HHS on behalf of the
State.
(b) Risk adjustment data storage. An
issuer that offers risk adjustment
covered plans must store all required
risk adjustment data in accordance with
the risk adjustment data collection
approach established by the State, or by
HHS on behalf of the State.
(c) Issuer contracts. An issuer that
offers risk adjustment covered plans
may include in its contract with a
provider, supplier, physician, or other
practitioner, provisions that require
such contractor’s submission of
complete and accurate risk adjustment
data in the manner and timeframe
established by the State, or HHS on
behalf of the State. These provisions
may include financial penalties for
failure to submit complete, timely, or
accurate data.
(d) Assessment of charges. An issuer
that offers risk adjustment covered plans
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that has a net balance of risk adjustment
charges payable, including adjustments
made pursuant to § 153.350(c), will be
notified by the State, or by HHS on
behalf of the State, of those net charges,
and must remit those risk adjustment
charges to the State, or to HHS on behalf
of the State, as applicable.
(e) Charge submission deadline. An
issuer must remit net charges to the
State, or HHS on behalf of the State,
within 30 days of notification of net
charges payable by the State, or HHS on
behalf of the State.
§ 153.620 Compliance with risk adjustment
standards.
(a) Issuer support of data validation.
An issuer that offers risk adjustment
covered plans must comply with any
data validation requests by the State or
HHS on behalf of the State.
(b) Issuer records maintenance
requirements. An issuer that offers risk
adjustment covered plans must retain
any information requested to support
risk adjustment data validation for a
period of at least ten years after the date
of the report.
Dated: March 14, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare
& Medicaid Services.
Approved: March 14, 2012.
Kathleen Sebelius,
Secretary.
[FR Doc. 2012–6594 Filed 3–16–12; 11:15 am]
BILLING CODE 4120–01–P
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Agencies
[Federal Register Volume 77, Number 57 (Friday, March 23, 2012)]
[Rules and Regulations]
[Pages 17220-17252]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-6594]
[[Page 17219]]
Vol. 77
Friday,
No. 57
March 23, 2012
Part IV
Department of Health and Human Services
-----------------------------------------------------------------------
45 CFR Part 153
Patient Protection and Affordable Care Act; Standards Related to
Reinsurance, Risk Corridors and Risk Adjustment; Final Rule
Federal Register / Vol. 77 , No. 57 / Friday, March 23, 2012 / Rules
and Regulations
[[Page 17220]]
-----------------------------------------------------------------------
DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Part 153
[CMS-9975-F]
RIN 0938-AR07
Patient Protection and Affordable Care Act; Standards Related to
Reinsurance, Risk Corridors and Risk Adjustment
AGENCY: Department of Health and Human Services.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: This final rule implements standards for States related to
reinsurance and risk adjustment, and for health insurance issuers
related to reinsurance, risk corridors, and risk adjustment consistent
with title I of the Patient Protection and Affordable Care Act as
amended by the Health Care and Education Reconciliation Act of 2010,
referred to collectively as the Affordable Care Act. These programs
will mitigate the impact of potential adverse selection and stabilize
premiums in the individual and small group markets as insurance reforms
and the Affordable Insurance Exchanges (``Exchanges'') are implemented,
starting in 2014. The transitional State-based reinsurance program
serves to reduce uncertainty by sharing risk in the individual market
through making payments for high claims costs for enrollees. The
temporary Federally administered risk corridors program serves to
protect against uncertainty in rate setting by qualified health plans
sharing risk in losses and gains with the Federal government. The
permanent State-based risk adjustment program provides payments to
health insurance issuers that disproportionately attract high-risk
populations (such as individuals with chronic conditions).
DATES: Effective Date: These regulations are effective on May 22, 2012.
FOR FURTHER INFORMATION CONTACT:
Sharon Arnold at (301) 492-4415 or Laurie McWright at (301) 492-4372
for general information.
Wakina Scott at (301) 492-4393 for matters related to reinsurance.
Grace Arnold at (301) 492-4272 for matters related to risk adjustment.
Jeff Wu at (301) 492-4416 for matters related to risk corridors.
SUPPLEMENTARY INFORMATION:
Abbreviations
CMS Centers for Medicare & Medicaid Services
HHS U.S. Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
(Pub. L. 104-191)
MLR Medical Loss Ratio
PCIP Pre-existing Condition Insurance Plan
PHS Act Public Health Service Act (42 U.S.C. 201 et seq.)
QHP Qualified Health Plan
Table of Contents
I. Background
A. Legislative Overview
B. Introduction
II. Provisions of the Proposed Regulations and Analysis of and
Responses to Public Comments
A. Subpart A--General Provisions
B. Subpart B--State Notice of Benefit and Payment Parameters
C. Subpart C--State Standards Related to the Reinsurance Program
D. Subpart D--State Standards Related to the Risk Adjustment
Program
E. Subpart E--Health Insurance Issuer and Group Health Plan
Standards Related to the Reinsurance Program
F. Subpart F--Health Insurance Issuer Standards Related to the
Risk Corridors Program
G. Subpart G--Health Insurance Issuer Standards Related to the
Risk Adjustment Program
III. Provisions of the Final Regulations
IV. Collection of Information Requirements
V. Summary of Regulatory Impact Analysis
VI. Regulatory Flexibility Act
I. Background
A. Legislative Overview
Starting in 2014, individuals and small businesses will be able to
purchase private health insurance through State-based competitive
marketplaces called Affordable Insurance Exchanges, or ``Exchanges.''
Exchanges will offer Americans competition, choice, and clout.
Insurance companies will compete for business on a level playing field,
driving down costs. Consumers will have a choice of health plans to fit
their needs. In addition, Exchanges will give individuals and small
businesses the same purchasing power as big businesses. The Departments
of Health and Human Services, Labor, and the Treasury are working in
close coordination to release guidance related to Exchanges in several
phases. A Request for Comment relating to Exchanges was published in
the Federal Register on August 3, 2010. An Initial Guidance to States
on Exchanges was issued on November 18, 2010. A proposed rule for the
application, review, and reporting process for waivers for State
innovation was published in the Federal Register on March 14, 2011. Two
proposed rules, including the proposed form of this rule, were
published in the Federal Register on July 15, 2011 to implement
components of Exchanges and health insurance premium stabilization
programs (that is, reinsurance, risk corridors, and risk adjustment)
from the Affordable Care Act. A proposed rule regarding eligibility for
Exchanges was published in the Federal Register on August 17, 2011. A
proposed rule on the Health Insurance Premium Tax Credit was published
in the Federal Register on August 17, 2011. A proposed rule making
changes to eligibility for the Medicaid program was published in the
Federal Register on August 17, 2011. The final versions of the Exchange
Establishment and Eligibility rules were made available for public
inspection at the Office of the Federal Register on March 12, 2012. A
final version of the Medicaid rule is being made available for public
inspection at the Office of the Federal Register on the same date as
this rule.
Section 1341 of the Affordable Care Act provides that each State
must establish a transitional reinsurance program to help stabilize
premiums for coverage in the individual market during the first three
years of Exchange operation (2014 through 2016). Section 1342 provides
that HHS must establish a temporary risk corridors program that will
apply to QHPs in the individual and small group markets for the first
three years of Exchange operation (2014 through 2016). Section 1343
provides that each State must establish a permanent program of risk
adjustment for all non-grandfathered plans in the individual and small
group markets both inside and outside of the Exchanges. These risk-
spreading mechanisms, which will be implemented by HHS and the States,
are designed to mitigate the potential impact of adverse selection and
provide stability for health insurance issuers in the individual and
small group markets. If a State chooses not to establish a transitional
reinsurance program or a risk adjustment program, this final rule
provides that HHS will do so on its behalf.
Section 1321(a) also provides broad authority for HHS to establish
standards and regulations to implement the statutory requirements
related to reinsurance, risk adjustment, and the other components of
title I of the Affordable Care Act. Section 1321(a)(2) requires, in
issuing such regulations, HHS to engage in stakeholder consultation in
a way that ensures balanced representation among interested parties. We
describe the consultation activities HHS has undertaken later in this
introduction. Section 1321(c)(1) authorizes HHS to establish and
implement reinsurance,
[[Page 17221]]
risk adjustment, and the other components of title I of the Affordable
Care Act in States that have not done so.
B. Introduction
Underpinning the goals of high-quality, affordable health insurance
coverage is the need to minimize the possible negative effects of
adverse selection. Adverse selection results when a health insurance
purchaser understands his or her own potential health risk better than
the health insurance issuer does, resulting in a health plan having
higher costs than anticipated.
To protect themselves from adverse selection, issuers may include a
margin in their pricing (that is, set premiums higher than necessary)
in order to offset the potential expense of high-cost enrollees. The
uncertainty resulting from adverse selection could also lead an issuer
to be more cautious about offering certain plan designs in the
Exchange. This risk will likely be greatest in the first years of the
Exchange; however, the risk should decrease as the new market matures
and issuers gain actual claims experience with this new population.
As experience in States has shown, offsetting the adverse selection
from insurance reforms may be best accomplished by broadening the risk
pool: Making coverage affordable through lower premiums and targeted
financial assistance and making coverage a responsibility so that
people pay premiums regardless of their current need for health care.
In addition, to further minimize the negative effects of adverse
selection and foster a stable marketplace from year one of
implementation, the Affordable Care Act establishes transitional
reinsurance and temporary risk corridors programs, and a permanent risk
adjustment program to provide payments to health insurance issuers that
cover higher-risk populations and to more evenly spread the financial
risk borne by issuers.
The transitional reinsurance program and the temporary risk
corridors program, which begin in 2014, are designed to provide issuers
with greater payment stability as insurance market reforms are
implemented. The reinsurance program, which is a State-based program,
will reduce the uncertainty of insurance risk in the individual market
by partially offsetting risk for high-cost enrollees. By limiting
issuers' exposure to high-cost enrollees, this program will attenuate
individual market rate increases that might otherwise occur because of
the immediate enrollment of individuals with unknown health status. The
risk corridors program, which is a Federally administered program, will
protect against uncertainty in rates for QHPs by limiting the extent of
issuer losses (and gains). On an ongoing basis, the risk adjustment
program is intended to provide increased payments to health insurance
issuers that attract higher-risk populations (such as those with
chronic conditions) and reduce the incentives for issuers to avoid
higher-risk enrollees. Under this program, funds are transferred from
issuers with lower-risk enrollees to issuers with higher-risk
enrollees. Section 1343 of the Affordable Care Act authorizes HHS to
utilize criteria and methods similar to those utilized under Parts C or
D of title XVIII of the Social Security Act to implement risk
adjustment. Standards for the reinsurance, risk corridors, and risk
adjustment programs are addressed in this final rule. The following
chart summarizes these programs:
----------------------------------------------------------------------------------------------------------------
Program Reinsurance Risk corridors Risk adjustment
----------------------------------------------------------------------------------------------------------------
What................................. Provides funding to Limits issuer losses Transfers funds from
issuers that incur (and gains). lower risk plans to
high claims costs for higher risk plans.
enrollees.
Program Operation.................... State option to HHS.................... State option to operate
operate, regardless of if the State
whether the State establishes an
establishes an Exchange.
Exchange.
Who Participates..................... All issuers and third Qualified health plans. Non-grandfathered
party administrators individual and small
on behalf of group group market plans,
health plans inside and outside the
contribute funding; Exchange.
non-grandfathered
individual market
plans (inside and
outside the Exchange)
are eligible for
payments.
Why.................................. Offsets high cost Protects against Protects against
outliers. inaccurate rate- adverse selection.
setting.
When................................. Throughout the year.... After reinsurance and Before June 30 of the
risk adjustment. calendar year
following the benefit
year.
Time Frame........................... 3 years (2014-2016).... 3 years (2014-2016).... Permanent.
----------------------------------------------------------------------------------------------------------------
II. Provisions of the Proposed Regulations and Analysis of and
Responses to Public Comments
As indicated in our proposed rule, HHS published a Request for
Comment (RFC) on August 3, 2010, inviting the public to provide input
regarding the rules that will govern the Exchanges. The comment period
closed on October 4, 2010. Comments were submitted by consumer advocacy
organizations, medical and health care professional trade associations
and societies, medical and health care professional entities, health
insurance issuers, insurance trade associations, members of the general
public, and employer organizations. The RFC comments were considered in
the development of the proposed rule.
Leading up to the issuance of the Premium Stabilization proposed
rule, HHS consulted with stakeholders through weekly meetings with the
National Association of Insurance Commissioners (NAIC), regular contact
with States through the Exchange grant process, and meetings with
tribal representatives, health insurance issuers, trade groups,
consumer advocates, employers, and other interested parties. We
continue to consult with these stakeholders on the development of
guidance related to the reinsurance, risk adjustment, and risk
corridors programs. In this final rule, we have responded to comments
submitted in response to the Premium Stabilization proposed rule and
the RFC, where relevant.
On July 15, 2011, we published in the Federal Register (76 FR
41950-41956) the proposed Standards related to Reinsurance, Risk
Corridors, and Risk Adjustment. We received approximately 700 comments
on the proposed rule. Of the comments received, approximately 200 were
submitted as part of letter campaigns related to women's and mental
health services, or were general comments on the Affordable Care Act
and the government's role in health
[[Page 17222]]
care, but were not specific to the proposed rule.
Comments that were specific to the proposed rule represented a wide
variety of stakeholders, including States and tribal organizations,
health insurance issuers, consumer groups, healthcare providers,
industry experts, and members of the public. Many commenters emphasized
the importance of the premium stabilization programs as Exchanges and
insurance reforms are implemented and addressed the balance between
flexibility for States and standardization and predictability for
consumers nationwide.
A. Subpart A--General Provisions
1. Basis and Scope (Sec. 153.10)
Section 153.10(a) of subpart A specified that the general statutory
authority for the standards proposed in part 153 are based on the
following sections of title I of the Affordable Care Act: sections 1321
and 1341-1343. Section 153.10(b) specified that this part establishes
standards for the establishment and operation of a transitional
reinsurance program, a temporary risk corridors program, and a
permanent risk adjustment program. We received a number of supportive
comments on these provisions and we are finalizing them without
modification.
2. Definitions (Sec. 153.20)
In Sec. 153.20, Sec. 153.200, Sec. 153.300, and Sec. 153.600 of
the proposed rule, we set forth definitions for terms that are critical
to the reinsurance, risk adjustment, and risk corridors programs. Many
of the definitions presented in Sec. 153.20 were taken directly from
the Affordable Care Act or from existing regulations. New definitions
were created to carry out the regulations in part 153. When a term is
defined in part 153 other than in subpart A, the definition of the term
is applicable only to the relevant subpart or section. The application
of the terms defined in Sec. 153.20 is limited to part 153.
Considering the comments received, we are finalizing this section
as proposed, with the following modifications:
We are moving a number of definitions that previously appeared in
subparts C, D, and G of the proposed rule to subpart A of this final
rule. We are revising the definition of ``attachment point'' to clarify
that reinsurance payments will apply to claims costs accumulated on an
incurred basis in a benefit year, and to specify that reinsurance
payments are payable on all covered benefits. We are making conforming
revisions to the definitions of ``coinsurance rate'' and ``reinsurance
cap.'' We are revising the definition of ``contribution rate'' to be a
per capita amount payable with respect to reinsurance contribution
enrollees who reside in a State. We are adding a new defined term,
``reinsurance contribution enrollee,'' which means an individual
covered by a plan for which reinsurance contributions must be made
pursuant to Sec. 153.400(b). We are removing the definition of
``percent of premium'' because this definition is no longer used.
We are modifying the definition of ``risk adjustment methodology''
to mean all parts of the risk adjustment process--the risk adjustment
model, the calculation of plan average actuarial risk, the calculation
of payments and charges, the risk adjustment data collection approach,
and the schedule for the risk adjustment program. We are doing so to
clarify the distinct parts of the risk adjustment process. The risk
adjustment model calculates individual risk scores. The calculation of
plan average actuarial risk adjusts those individual risk scores for
rating variation, and calculates average actuarial risk at the plan
level. The plan average actuarial risk is used for the calculation of
payments and charges for risk adjustment covered plans. The risk
adjustment data collection approach specifies how risk adjustment data
will be stored, collected, accessed, transmitted, and validated, and
the timeframes, data format, and privacy and security standards
associated with each. The schedule for the risk adjustment program is
the schedule for calculating payments and charges, invoicing issuers
for charges, and disbursing payments. We are modifying the definition
of ``risk adjustment data'' to mean all data that are used in a risk
adjustment model, the calculation of plan average actuarial risk, or
the calculation of payments and charges, or that are used for
validation or audit of such data. We have added several new
definitions--``individual risk score,'' ``calculation of plan average
actuarial risk,'' ``calculation of payments and charges,'' and ``risk
adjustment data collection approach.''
Finally, we are making a number of clarifying modifications
throughout this section.
Comment: We received one comment suggesting that HHS define the
benefit year as a calendar year and that the reinsurance program would
be best operated on a calendar year basis.
Response: The benefit year was defined as the calendar year in the
Exchange Establishment rule. We have cross-referenced this definition
in this final rule.
Comment: Although a few commenters supported the proposal that
reinsurance be payable only on essential health benefits, the majority
of commenters urged that reinsurance be payable on all covered
benefits, with several citing the administrative complexity of
distinguishing between claims for essential health benefits and claims
for other covered benefits.
Response: Because it would be administratively burdensome for
issuers to distinguish claims for covered essential health benefits
from other claims, we are revising the definitions so that reinsurance
is payable on all covered benefits.
Comment: We received several comments disagreeing with the
inconsistency in the proposed definition of percent of premium, which
would include administrative costs for the fully insured market, but
not the self-insured market.
Response: We believe that the statute intended for self-insured
plans also to pay administrative costs. However, since we have modified
the policy for the collection of contributions as discussed in the
preamble to Sec. 153.220, we are no longer proposing a definition for
percent of premium.
Comment: We received a number of comments requesting clarification
of the definition of a contributing entity for the reinsurance program.
Several commenters suggested that HHS clarify that third-party
administrators are not financially liable for contributions to be made
by group health plans for which they administer benefits.
Response: The Affordable Care Act requires that health insurance
issuers and third party administrators on behalf of group health plans
make contributions. We are including text in Sec. 153.400 that
clarifies which issuers must make reinsurance contributions and which
are exempt.
Comment: A few commenters expressed support for the differentiation
between the defined terms ``risk adjustment model'' and ``risk
adjustment methodology.'' Another commenter suggested an expanded set
of definitions to capture more of the steps in the risk adjustment
process, including a term to define the methodology for transferring
money between plans, and a term to describe an individual enrollee's
relative cost compared to that of an average enrollee.
Response: We are adding a definition of ``individual risk score''
to describe a relative measure of predicted health care costs for a
particular enrollee. We are adding a definition of ``calculation
[[Page 17223]]
of plan average actuarial risk'' to describe the specific calculations
used to determine plan average actuarial risk from individual risk
scores for a risk adjustment covered plan, including the specification
of the risk pool from which average actuarial risk will be calculated.
We are adding a definition of ``calculation of payments and charges''
to describe the specific procedures used to determine plan average
actuarial risk from individual risk scores for a risk adjustment
covered plan, including adjustment for variable rating factors and the
specification of the risk pool from which average actuarial risk is to
be calculated. We are adding a definition of ``risk adjustment data
collection approach'' to describe the specific procedures by which risk
adjustment data is to be stored, collected, accessed, and transmitted,
and the timeframes, data format, and privacy and security standards
with respect thereto.
Comment: We received two comments about the definition of ``risk
adjustment data.'' One commenter suggested that the definition be
expanded to encompass all aspects of the risk adjustment process.
Another commenter requested that HHS not adopt language that would
curtail the use of a prospective risk adjustment model.
Response: We are aligning the definition with a number of the other
new definitions encompassed in ``risk adjustment methodology.'' We do
not intend to curtail the use of a prospective risk adjustment model.
Comment: We received a few comments requesting clarification as to
the types of plans that are subject to risk adjustment. Commenters
asked specifically about Medicaid managed care plans and multi-State
plans.
Response: Section 1343 of the Affordable Care Act requires that
health plans (except grandfathered plans) in the individual or small
group markets participate in the risk adjustment program. We are
modifying the definition of ``risk adjustment covered plan'' in
response to comments. This modification clarifies that all health
insurance coverage, including multi-State plans and Consumer Operated
and Oriented Plans, are risk adjustment covered plans. The risk
adjustment program does not apply to Medicare Advantage plans or
Medicare Prescription Drug Plans, under which private health plans
contract with Medicare to provide Medicare-covered benefits, or to
contracts with State Medicaid agencies to provide Medicaid benefits, as
payments for such coverage are regulated under provisions of the Social
Security Act.
Insurance coverage solely for excepted benefits under title XXVII
of the PHS Act will be excluded from risk adjustment. Excepted benefit
plans cover a specific set of services, such as vision benefits, while
``major medical'' plans cover a broader set of benefits such as
physician and hospital visits. These differences make fair enrollee
risk comparison between excepted benefit plans and major medical plans
difficult. We are modifying the definition of risk adjustment covered
plan to exclude plans determined not to be risk adjustment covered
plans in the annual HHS notice of benefit and payment parameters.
B. Subpart B--State Notice of Benefit and Payment Parameters
In this subpart, we proposed a process by which the States that are
operating a risk adjustment program or establishing a reinsurance
program issue an annual notice of benefit and payment parameters to
disseminate information to issuers and other stakeholders about
specific requirements to support payment-related functions. This
provides a practical way to update certain payment and benefit
parameters that may change annually, such as reinsurance contribution
rates that are based on annually changing thresholds. This notice will
also serve as a mechanism to address other Exchange-related provisions.
1. State Notice of Benefit and Payment Parameters (Sec. 153.100)
In Sec. 153.100(a), we proposed that a State operating an
Exchange, as well as a State establishing a reinsurance program, be
required to issue a notice to describe the specific parameters that the
State will employ if that State intends to utilize any reinsurance or
risk adjustment parameters that differ from those specified in the
annual HHS notice of benefit and payment parameters. In paragraph (b)
(now paragraph (c)), we proposed specific deadlines for the State
notice of benefit and payment parameters. We proposed that those
deadlines be tied to the publication of the annual HHS notice of
benefit and payment parameters, upon which the public will have an
opportunity to comment. Below is a chart detailing the schedules for
the annual HHS notice of benefit and payment parameters for benefit
year 2014 and subsequent years, with the first two milestones occurring
in the calendar year two years before the effective date.
Annual HHS Notice of Benefit and Payment Parameters
------------------------------------------------------------------------
------------------------------------------------------------------------
HHS publishes advance notice....... Mid-October two calendar years
before the benefit year.
Comment period ends................ Mid-November two calendar years
before the benefit year.
HHS publishes final notice......... Mid-January of the calendar year
before the benefit year.
------------------------------------------------------------------------
We proposed that a State that plans to modify Federal parameters
issue its notice by early March in the calendar year before the benefit
year. We proposed that this requirement set an outer bound for the date
by which the final notice is to be issued by a State that intends to
utilize any reinsurance or risk adjustment parameters that differ from
those specified in the annual HHS notice of benefit and payment
parameters.
We also proposed in paragraph (c) (now paragraph (d)), that if a
State operating an Exchange or establishing a reinsurance program does
not provide public notice of its intent to have State-specific
parameters within the period specified, the parameters set forth in the
annual HHS notice of benefit and payment parameters will serve as the
State parameters.
For the reasons described in the proposed rule and considering the
comments received, we are finalizing the provisions proposed in Sec.
153.100 of the proposed rule, with the following modifications: We are
clarifying that a State must publish a notice of benefit and payment
parameters if it intends to modify the data requirements for
reinsurance payments, collect reinsurance contributions, use more than
one applicable reinsurance entity, or modify any reinsurance
parameters. We are directing a State that operates a risk adjustment
program to publish a notice of benefit and payment parameters setting
forth the risk adjustment methodology and data validation standards it
will use. We are specifying that State notices be issued by March 1 of
the calendar year prior to the first benefit year for which the notice
applies. We are clarifying that a
[[Page 17224]]
State that does not publish a notice of benefit and payment parameters
forgoes its right to modify the data requirements for reinsurance
payments, collect reinsurance contributions, use more than one
applicable reinsurance entity, or use any risk adjustment methodology
or data validation standards other than those published in the annual
HHS notice of benefit and payment parameters for use by HHS when
operating risk adjustment on behalf of a State. We are also making a
number of clarifying modifications throughout this section.
Comment: We received a number of comments in support of a
requirement that States publish a State notice of benefit and payment
parameters. One commenter suggested that we include a requirement that
all notices be made public with a period for comment. Another commenter
proposed that States be required to justify deviation from any
methodologies or parameters set forth in the annual HHS notice of
benefit and payment parameters.
Response: While we recognize the value of requiring a public
comment period for State notices, we believe that such a requirement
should be left to State law and practice. HHS will provide an
opportunity for public comment when HHS administers risk adjustment or
reinsurance. State law will govern what administrative process is
necessary when a State adopts a risk adjustment methodology, or
modifies reinsurance parameters, subject to the limits of this final
rule and the HHS notice of benefit and payment parameters. We are
clarifying the content of the justification to be published by a State
that seeks to use a risk adjustment methodology other than the
methodology used by HHS when operating risk adjustment on behalf of a
State. However, we are not requiring that a State must provide
justification for changes to reinsurance payment parameters. As
discussed in the preamble in subpart C, we believe a State may have
many reasons to make adjustments to the HHS reinsurance payment
parameters. As such, we believe that each State should have the
flexibility to determine the parameters that best suit the
administration of its reinsurance program.
Comment: A number of commenters expressed support for the timing of
notice releases as proposed. However, we received a number of comments
stating that the proposed timeframe did not allow sufficient time for
issuers to prepare their applications for certification for
participation in the Exchange in time for the October 2013 open
enrollment period. Commenters proposed alternative timeframes for the
release of the HHS notice that ranged from January 2012 to June 30,
2012. A number of commenters also stated that, particularly in the
initial years, more advanced notice of Federal and State program
parameters will be necessary in order for issuers to prepare premiums
for the 2014 benefit year.
Response: The timeframe for implementation of the Affordable Care
Act makes it difficult for the Federal and State governments to provide
more notice than was proposed in the proposed rule. To accommodate
States' and issuers' desire for further information with respect to
risk adjustment, HHS is planning a number of working sessions with
issuers and States. We believe these sessions will provide sufficient
information to issuers and States, while providing HHS the time
necessary to more fully develop the Federal parameters for the
reinsurance and risk adjustment programs. For these reasons, we are
clarifying and finalizing the proposed requirement that State notices
of benefit and payment parameters be published by March 1 of the
calendar year prior to the benefit year.
Comment: We received a comment supporting the requirement that, if
a State establishing a reinsurance program does not provide public
notice of its intent to have State-specific parameters, the parameters
set forth in the annual HHS notice of benefit and payment parameters
will serve as the State parameters.
Response: We are finalizing our policy that a State that elects to
establish a reinsurance program that does not publish a State notice of
benefit and payment parameters by March 1 must adhere to the parameters
set forth in the HHS notice of benefit and payment parameters.
2. Standards for the State Notice of Benefit and Payment Parameters
(Sec. 153.110)
We proposed in paragraph (a)(1) (now paragraph (a)), that content
related to the reinsurance program include the data requirements and
data collection frequency for health insurance issuers to receive
reinsurance payments. In paragraph (a)(2) (now paragraph (e)), we
proposed that a State that establishes a reinsurance program must
specify the attachment point, reinsurance cap, and coinsurance rate if
the State plans to use values different from those set forth in the
annual HHS notice of benefit and payment parameters. In paragraph
(a)(3) (now paragraph (d)), we proposed that if a State plans to use
more than one applicable reinsurance entity, the State must include in
its State notice of benefit and payment parameters information related
to the geographic boundaries of each applicable reinsurance entity and
estimates related to the number of enrollees, payments, and premiums
available for contributions in each region.
In paragraph (b) (now paragraph (f)), we proposed content related
to the risk adjustment program if the State intends to modify the risk
adjustment parameters set forth in the annual HHS notice of benefit and
payment parameters, including a detailed description of and rationale
for any modification.
For the reasons described in the proposed rule and considering the
comments received, we are finalizing the provisions proposed in Sec.
153.110 with the following modifications: We are specifying that a
State establishing a reinsurance program that elects to collect
reinsurance contributions from the fully insured market must announce
its intention to do so, and must set forth the data requirements for
reinsurance payments in the State notice of benefit and payment
parameters. We are clarifying that a State must apply any modified
reinsurance parameters uniformly throughout the State. However, as
discussed in Subpart C, a State must inform HHS by December 1, 2012, of
its intent to collect reinsurance contributions for the 2014 benefit
year, and by September 1 of the calendar year that is two years prior
to the applicable benefit year if the State elects to collect
reinsurance contributions for any benefit year after 2014. A State that
elects to collect additional reinsurance contributions must describe
the purpose of the additional collection and the additional
contribution rate. We are making a number of clarifying modifications
throughout this section.
Comment: One commenter supported affording States the flexibility
to provide higher reinsurance payments to plans.
Response: We believe that States should have the flexibility to
vary reinsurance payments, so long as the reinsurance parameters are
uniform throughout the State. However, a State electing to change
reinsurance parameters must publish those changed parameters in the
State notice of benefit and payment parameters. A State electing to
make higher reinsurance payments will be required to collect any
additional reinsurance contributions required to fund those higher
payments through a State applicable reinsurance entity.
Comment: We received a comment asking that States be provided the
[[Page 17225]]
flexibility to use multiple coinsurance rates.
Response: We believe that States generally should have flexibility
in setting payment parameters, but we do not believe that the
Affordable Care Act intended for a State to allow an applicable
reinsurance entity to set multiple payment parameters in the State, or
for multiple applicable reinsurance entities in a State to set
different payment parameters. We believe that payment parameters set by
the State or HHS on behalf of the State should be uniform throughout
the State.
Comment: Several commenters supported the requirement that if there
are multiple applicable reinsurance entities in a State, these entities
must be required to operate in distinct geographic areas.
Response: We are finalizing that requirement in Sec.
153.210(a)(2).
Comment: Several commenters asked for clarification or changes in
the content that a State must provide in its notice of benefit and
payment parameters. In particular, commenters stated that the proposed
rule did not define the term ``risk adjustment data validation
methodology.''
Response: We believe our proposed rule struck a balance between
providing minimal baselines for States and providing States with
flexibility for their State notices. We are clarifying the provisions
related to risk adjustment data validation by requiring that Sec.
153.110(f) align with Sec. 153.330(a) and Sec. 153.350.
C. Subpart C--State Standards Related to the Reinsurance Program
Section 1341 of the Affordable Care Act directs that a transitional
reinsurance program be established in each State to help stabilize
premiums for coverage in the individual market during the benefit years
2014 through 2016. Under this provision, all health insurance issuers,
and third-party administrators on behalf of self-insured group health
plans, must make contributions to support reinsurance payments to non-
grandfathered plans of individual market issuers that cover high-cost
individuals. As a basis for reinsurance payments, the law directs HHS
to develop a list of 50 to 100 medical conditions to identify high-cost
individuals, or to identify alternative methods for payment in
consultation with the American Academy of Actuaries.
In subpart C of the proposed rule, we proposed to codify in
regulation section 1341 of the Affordable Care Act as it relates to
establishing a reinsurance program. Related standards on health
insurance issuers with respect to reinsurance were proposed in subpart
E of the proposed rule.
1. Reserved (Sec. 153.200)
Section 153.200 of the proposed rule defined a number of terms used
in this subpart. Those definitions have been moved to subpart A. We are
reserving this section for future use.
2. State Establishment of a Reinsurance Program (Sec. 153.210)
In Sec. 153.210 of the proposed rule, we described standards for
States regarding the establishment of a reinsurance program. We
proposed in paragraph (a) that each State that elects to operate an
Exchange must also establish a reinsurance program as required by the
law. In paragraph (a)(1), we proposed to codify in regulation section
1341(a) of the Affordable Care Act, which requires that States must
either enter into a contract with an existing applicable reinsurance
entity or establish an applicable reinsurance entity to carry out the
provisions for the reinsurance program. We believe the statute allows
State flexibility in selecting an applicable reinsurance entity and did
not propose more specific guidelines.
The Affordable Care Act also allows States to set up more than one
reinsurance entity, although this option may increase administrative
costs. We proposed in paragraph (a)(2) that, for any State that chooses
to have more than one reinsurance entity, the State must publish in a
State notice of benefit and payment parameters, described in subpart B,
information regarding the geographic divisions between the applicable
entities. We further interpret the statute to imply that the geographic
divisions of the applicable reinsurance entities must be distinct and
together cover the entire individual market in the State and not just
certain areas or populations. In paragraph (a)(3), we proposed to allow
the State to permit a reinsurance entity to subcontract for
administrative functions, provided that the State reviews and approves
these subcontracted arrangements as described in paragraph (a)(4). We
interpreted the statute to allow flexibility in the performance of
administrative functions, with the understanding that the responsible
party must be the applicable reinsurance entity.
We proposed in paragraph (a)(5) that the establishment of, or
contract with, an applicable reinsurance entity must extend for a
sufficient period to ensure that the entity can fulfill all reinsurance
requirements for the benefit years 2014 through 2016, and any
activities required to be undertaken in subsequent periods. Any State
in which contributions remain to be disbursed for benefit years beyond
2016 must ensure that an applicable reinsurance entity is available for
required payment activities for such additional periods. Section
1341(b)(4) of the Affordable Care Act requires that these payments be
completed by December 31, 2018.
We clarified in paragraph (b) that there may be situations in which
an applicable reinsurance entity operates a reinsurance program for
more than one State. In such cases, we consider each contract to be an
individual reinsurance arrangement between a specific State and the
applicable reinsurance entity.
We proposed in paragraph (c) to allow a State that does not elect
to establish an Exchange to operate its own reinsurance program. Under
this circumstance, the State will be required to carry out the
provisions of this subpart. In paragraph (d), we proposed that if a
State does not elect to establish an Exchange and does not elect to
establish its own reinsurance program, HHS will establish the
reinsurance program and will perform all the reinsurance functions for
that State. These functions would include the collection of all
contributions described in Sec. 153.220, including funds required to
operate and administer the applicable reinsurance functions. In
paragraph (e), we proposed that each State that establishes a
reinsurance program must ensure that each applicable reinsurance entity
within the State complies with all provisions of this subpart and with
subpart E.
For the reasons described in the proposed rule and considering the
comments received, we are finalizing these provisions with the
following modifications:
In paragraph (a), we are clarifying that because reinsurance is no
longer a required Exchange function, each State is eligible to
establish a reinsurance program regardless of whether the State
establishes an Exchange; we are removing proposed paragraph (c) to
conform to this change. We are clarifying in paragraph (a)(2) that each
State is required to notify HHS in the manner and timeframe specified
by HHS of the percentage of reinsurance contributions received by HHS
for the State to be allocated to each applicable reinsurance entity, if
applicable. We are moving the requirement that a State publish the
geographic boundaries for each applicable reinsurance entity, if it
elects to have more than one, to subpart B. Finally, we are making a
number of clarifying modifications to this section.
[[Page 17226]]
Comment: We received a comment suggesting a number of entities that
could serve as a not-for-profit reinsurance entity for a State. We
received a few comments urging that we provide more guidance on
entities eligible to be State applicable reinsurance entities. One
commenter suggested that the State reinsurance entity be subject to
both Federal and State oversight.
Response: We believe that a State should have the discretion to
select the entity that will administer its reinsurance program, and do
not establish specific standards for that selection. We understand the
commenter's concern about oversight, and note that Sec. 153.210(d)
requires States to ensure compliance with subpart C when the State is
operating the reinsurance program. When HHS is operating a reinsurance
program on behalf of the State, HHS will also ensure such compliance.
Because we believe that States should have flexibility in selection and
oversight over the applicable reinsurance entity, we are not proposing
further guidance on those matters.
Comment: We received a comment suggesting that HHS provide options
for States to terminate an entity for cause.
Response: We believe that nothing in this final rule precludes
States from terminating a contract with an applicable reinsurance
entity in a manner consistent with State law (including regulations
governing contracting). In such an event, the State should ensure a
seamless transition of reinsurance functions to another applicable
reinsurance entity to prevent any disruption in the program.
Comment: We received many comments suggesting that a State
establishing an Exchange not be required to operate a reinsurance
program. Commenters stated that it would be difficult for a State to
identify a not-for-profit entity to operate the transitional
reinsurance program. One commenter suggested that HHS execute a master
contract with a single reinsurance entity that satisfies all of the
requirements in this final rule and permit States to use that entity.
Another commenter stated that a State's options for establishing a
reinsurance program should be similar to those it has with respect to
establishing a risk adjustment program.
Response: We are no longer requiring that States that establish an
Exchange also establish a reinsurance program. We believe that this
flexibility is appropriate because some States have previously
established reinsurance programs, and may feel they are prepared to
operate a reinsurance program for their State. If a State chooses not
to establish a reinsurance program, HHS will establish a reinsurance
program for that State.
Comment: We received one comment asking HHS to publish a white
paper on draft methodologies for reinsurance.
Response: We are describing the general methodology for collecting
reinsurance contributions and making reinsurance payments in subpart C
of this final rule. We plan to provide further details on this
methodology, including the national rate for contributions and State-
based reinsurance payment parameters, in the HHS notice of benefit and
payment parameters.
Comment: We received a comment seeking clarification on the use of
unexpended contribution funds collected in calendar years 2014 through
2016, and funds that may remain after 2016.
Response: We believe that unused reinsurance funds should be used
by the State until expended or by December 31, 2018, whichever date
comes first, to make reinsurance payments. States are not prohibited
from continuing a reinsurance program, but may not use reinsurance
contribution funds collected under the reinsurance program in calendar
years 2014 through 2016 to fund the program in years after 2018. If
contribution funds collected for a calendar year between 2014 and 2016
remain unspent by December 31 of the year, those funds may be carried
into the next year to make payments for the next year or to make
retroactive payments for prior years.
Comment: We received a comment asking that existing State
reinsurance programs be permitted to serve as a combined reinsurance
program. The commenter further suggested permitting the use of
reinsurance contributions collected under the transitional reinsurance
program for an existing State reinsurance program.
Response: We believe that a State with an existing reinsurance
program in place can modify that program to comply with the standards
for the transitional reinsurance program. The State would be required
to contract with a not-for-profit reinsurance entity to administer the
program, and the applicable reinsurance entity must comply with the
standards. Contributions collected for the transitional reinsurance
program must be used to make reinsurance payments pursuant to the
transitional reinsurance program based on the payment parameters
established by the State or HHS on behalf of the State, and may not be
used to fund a separate State reinsurance program.
3. Collection of Reinsurance Contribution Funds (Sec. 153.220)
In Sec. 153.220 of the proposed rule, we described standards for
the collection of reinsurance contribution funds. In paragraph (a)(1)
(now paragraph (c)), we proposed to codify in regulation the aggregate
contribution amounts required under the Affordable Care Act for
reinsurance. The Affordable Care Act requires that the reinsurance
entity collect specified additional contribution funds for deposit into
the general fund of the U.S. Treasury. In paragraph (a)(2), we proposed
to codify in regulation these additional contribution amounts.
Although the transitional reinsurance program is State-based,
section 1341(b)(3) sets contribution amounts for the program on a
national basis. We considered two approaches to collecting contribution
funds: (1) Use of a national uniform contribution rate, and (2) use of
a State-level allocation, both set by HHS to ensure that the sum of all
contribution funds equals the national amounts set forth in the
Affordable Care Act. In paragraph (b), we proposed using a national
contribution rate. Use of a national contribution rate is a simpler
approach. Further, since there is significant uncertainty about
individual market enrollment, the overall health of the enrolled
population, and the cost of care for new enrollees, we believed that a
national contribution rate would be the less ambiguous approach of the
two. All contribution funds collected by a State establishing a
reinsurance program under the national contribution rate would stay in
that State and be used to make reinsurance payments on valid claims
submitted by reinsurance-eligible plans in that State. There are two
methods we considered for determining contributions using a national
rate: (1) A percent of premium amount applied to all contributing
entities, and (2) a flat per capita amount applied to all covered
enrollees of contributing entities. In paragraph (b)(1) (now paragraph
(e)), we proposed the percent of premium method as the fairest method
by which to collect these contributions.
In paragraph (b)(2) (now paragraph (e)), we also proposed requiring
that all contribution funds collected for reinsurance payments be used
for reinsurance, and all contribution funds collected for the U.S.
Treasury be paid to the U.S. Treasury. In paragraph (b)(3)(i), we
proposed that a State may collect more than would be collected under
the national rate, if the State believes that these amounts are not
sufficient to cover the payments it will
[[Page 17227]]
make under the payment formula. In paragraph (b)(3)(ii) (now paragraph
(g)), we proposed permitting a State to collect more than the amount
collected at the national rate to cover the administrative costs of the
applicable reinsurance entity.
We also considered the frequency with which applicable reinsurance
entities should collect contribution funds from contributing entities.
For example, applicable reinsurance entities could collect contribution
funds intended for reinsurance payments and payments to the U.S.
Treasury on a monthly basis beginning in January 2014 so that
reinsurance payments could begin in February 2014.
Considering the comments received, we are finalizing these
provisions with the following modifications:
In paragraph (a), we are revising the proposed provisions so that
HHS would collect contribution funds from self-insured plans and third-
party administrators on their behalf, whether or not a state elects to
establish a reinsurance program. This policy is consistent with
traditional Federal oversight of self-insured plans. States that
establish a reinsurance program would have the option, but not the
obligation, to collect contributions from issuers in the fully insured
market. If a State does not elect to collect from the fully insured
market, HHS would collect contributions from both fully insured and
self-insured plans.
In paragraph (b), we are clarifying that a State that elects to
establish a reinsurance program must generally notify HHS by September
1 of the calendar year that is two years prior to the applicable
benefit year if the State plans to collect reinsurance contributions
from fully insured plans. However, due to States' anticipated workload
in establishing Exchanges in the fall of 2012, we are postponing the
deadline for notifying HHS of a State's intent to collect reinsurance
contributions from fully insured plans to December 1, 2012, for the
2014 benefit year (with the notification being required by September 1
of the calendar year two years prior to the applicable benefit year for
any benefit year after 2014). The State's notification will be
effective for the applicable benefit year and each subsequent benefit
year during which reinsurance-related activities continue.
Paragraph (d) describes how contribution funds collected by HHS
will be distributed: HHS will distribute the reinsurance contributions
collected to the applicable reinsurance entity for a State, net of the
State's share of the U.S. Treasury contribution and administrative
expenses incurred when performing reinsurance functions under this
subpart.
In paragraph (e), we are clarifying that HHS will set the national
contribution rate in the annual HHS notice of benefit and payment
parameters along with the proportion of the national contribution rate
that will be allocated to reinsurance payments, payments to the U.S.
Treasury, and administrative expenses of the applicable reinsurance
entity for the State or HHS when performing reinsurance functions under
this subpart.
In paragraph (g), we are clarifying that a State may elect to
collect more than the amounts that would be collected based on the
contribution rate to provide funding for administrative expenses or
additional reinsurance payments. This policy was proposed in paragraph
(b)(3) of the proposed rule. In paragraph (h), we describe the
administration of additional State collections. If a State establishes
a reinsurance program and elects to collect more than the amounts that
would be collected based on the national contribution rate for
administrative expenses, then the State must notify HHS within 30 days
after publication of the proposed annual HHS notice of benefit and
payment parameters of the additional contribution rate that it elects
to collect for administrative expenses. Further, the State must ensure
that the State's applicable reinsurance entity collects any additional
amount for administrative expenses, or accepts additional amounts from
HHS in accordance with the State's election under paragraph (a)(1). For
reinsurance payments, notwithstanding paragraphs (a)(1) and (a)(2), the
State must ensure that the State applicable reinsurance entity collects
all additional reinsurance contributions from contributing entities for
the purpose of reinsurance payments. In sum, HHS will only collect
additional amounts for administrative expenses for a State, and will
not collect additional amounts for reinsurance payments for a State.
The collection of additional amounts for reinsurance payments must be
carried out by the State's applicable reinsurance entity. We are also
making a number of clarifying modifications throughout this section.
Comment: We received many comments expressing concern that States
may lack the ability to collect contributions from self-insured plans,
due to the States' lack of authority and oversight of self-insured
plans.
Response: We are revising the proposed collection process so that
HHS collects from the self-insured market in all States. We believe
that this change in collection process will create a more efficient,
centralized collection from self-insured plans that is beneficial to
both States and third party administrators on behalf of group health
plans. This collection is authorized under HHS' authority under section
1321(c)(1) of the Affordable Care Act to ``take such actions as are
necessary to implement'' the requirements of title I of the Affordable
Care Act.
Comment: We received overwhelming support for the proposed use of a
national uniform contribution rate. However, one commenter expressed
concern with this approach, and suggested a State-level allocation to
make the redistribution of contribution funds proportional to the size
of the State's individual market.
Response: Consistent with the majority of comments, we believe that
a national uniform contribution rate is the better approach because it
is simpler and more easily implemented for a transitional program. The
statute does not specify the approach for collection of contributions,
but requires HHS to consult with the NAIC in determining provisions for
the reinsurance program. NAIC supported the use of a national
contribution rate because it minimizes the burden on States and issuers
and is more equitable. NAIC also stated in its official response to the
proposed rule that a State-level allocation would be more
administratively burdensome for issuers and States and would not
guarantee fairness in the collection of contributions. While one
commenter expressed concern that use of a national contribution rate
would result in underfunding of reinsurance, we believe that a State's
right to increase the contribution rate addresses this concern.
Comment: Many commenters supported the proposed percent of premium
method, arguing that a percent of premium method better allocates
contributions to States with higher premium and healthcare costs. A few
commenters opposed use of a percent of premium method due to its
complexity and a concern that it could adversely impact the market.
Response: HHS has considered the advantages and disadvantages of
both methods, along with the overarching goals for the transitional
reinsurance program, which are to (1) Stabilize premiums by offering
protection to health insurance issuers against medical cost overruns
for high-cost enrollees in the individual market; (2) provide early and
prompt payment of reinsurance funds during the benefit year; (3)
minimize administrative burden; and (4)
[[Page 17228]]
allow contributions collected by or on behalf of a State to remain in
that State. Given these goals and the time-limited nature of the
program, we believe that the per capita approach will be less complex
to administer, particularly with regard to the self-insured market.
Further, the per capita approach will better enable us to maintain the
goals of the reinsurance program by providing issuers with a more
straightforward approach in making contributions to the reinsurance
program with minimal administrative burden. A State would still be
allowed to collect additional contributions towards reinsurance
payment.
While several commenters expressed support for our original
proposal of a percent of premium method, these same stakeholders also
support timely collection and payment in the reinsurance program, which
is an important component of the premium stabilization provided by the
reinsurance program. We believe that the per capita approach will best
achieve this goal.
4. Calculation of Reinsurance Payments (Sec. 153.230)
In Sec. 153.230 of the proposed rule, we set the payment policy
for the reinsurance program based upon consultation with the American
Academy of Actuaries. The reinsurance payment policy must address two
basic issues: (1) How to determine the individuals who are covered by
reinsurance, and (2) how to determine appropriate payment amounts.
Given the short-term nature of the program, our primary objective is to
select an implementation approach that is administratively and
operationally simple, but satisfies the goals of the program.
Therefore, we prefer to use reliable and readily accessible data
sources that will allow health insurance issuers to receive prompt
payment. We proposed in paragraph (a) that coverage be based on items
and services within the essential health benefits for an individual
enrollee that exceeds an attachment point.
In paragraph (b), we proposed to announce the reinsurance payment
formula and State-specific values for the attachment point, reinsurance
cap, and coinsurance rate in the annual HHS notice of benefit and
payment parameters. We believe that publishing this information in a
Federal notice is the best approach for announcing the attachment point
and reinsurance cap, as these values may change in calendar years 2015
and 2016. The Affordable Care Act does not suggest that the three-year
reinsurance program should replace commercial reinsurance or internal
risk mitigation strategies. There will be a continued need for ongoing
commercial reinsurance. Therefore, we proposed establishing a
reinsurance cap set at a level approximately equal to the attachment
point for traditional commercial reinsurance.
In paragraph (b)(1) (now paragraph (c)), we proposed that the
reinsurance payment amount be a percentage of those costs above an
attachment point and below a reinsurance cap. However, we believe
States may have unique situations, and will permit a State that
establishes a reinsurance program to establish its own payment formula
by varying the attachment point, coinsurance rate, and reinsurance cap.
The preamble to the proposed rule contains a further discussion of the
reasoning and background behind the policy proposed in paragraph
(b)(1).
We proposed using medical cost experience to identify eligible
enrollees for which health insurance issuers would receive reinsurance.
This approach for calculating reinsurance payments considers costs only
for high-risk individuals. However, use of a reinsurance cap, as well
as the fact that a health insurance issuer pays only a portion of costs
above the attachment point and below the cap, may incentivize health
insurance issuers to control costs.
We proposed in paragraph (b)(2) (now moved to Sec.
153.220(f)(2)(ii)), that all payments to the general fund of the U.S.
Treasury be made on a frequency to be determined by HHS. We have also
considered the frequency with which payments should be made to the U.S.
Treasury. For example, the applicable reinsurance entities could remit
payment on a monthly or quarterly basis commencing February 28, 2014
and continuing through January 31, 2017 or until States have remitted
the full amount of all payments. We proposed in paragraph (c) (now
paragraph (d)), to allow some degree of State variation from the
reinsurance parameters proposed by HHS. We proposed in paragraph (c)(1)
(now paragraph (d)(1)), that the State may alter the attachment point,
reinsurance cap, including elimination of the cap, and coinsurance
rate. We proposed in paragraph (c)(2) (now paragraph (d)(2)), that
States must publish any modification to the reinsurance payment formula
and parameters in a State notice of benefit and payment parameters as
described in subpart B of this part. We proposed in paragraph (c)(3)
(now paragraph (d)(3)), that the State must ensure that all proposed
alterations to the reinsurance formulas proposed by HHS, including
payments and contributions, result in the applicable reinsurance entity
having sufficient contributions to meet all of its obligations for
payments. These alterations to reinsurance parameters do not require
HHS approval.
We believe that a State may have many reasons to make adjustments
to the HHS reinsurance payment formula. First, the State may decide to
increase reinsurance payments above the levels established by HHS.
Second, the State may have additional unexpended funds from a prior
contribution period and may seek to adjust the reinsurance formulas to
disburse the unexpended funds. Finally, the State may elect to pay the
same amounts recommended by HHS, but may wish to modify the frequency
of those payments.
For the reasons described in the proposed rule and considering the
comments received, we are finalizing these provisions, with the
following modifications:
In paragraph (a), we are no longer requiring that payment be linked
to the coverage of essential health benefits. In paragraph (b), we are
clarifying that the States must use, subject to any modifications made
pursuant to paragraph (d), the payment formula and values for the
attachment point, reinsurance cap, and coinsurance rate for each year
commencing in 2014 and ending in 2016, established in the annual HHS
notice of benefit and payment parameters for the applicable benefit
year. We are removing paragraph (b)(2) due to the new policy on
collections and payments to the U.S. Treasury set forth in Sec.
153.220. We are revising paragraph (c)(3) (now paragraph (d)(3)), to
clarify that any State modification to the reinsurance payment formula
pursuant to paragraph (d)(1) must be reasonably calculated to ensure
that contributions received toward reinsurance are sufficient to cover
payments that the applicable reinsurance entity is obligated to make
under that State formula for the given benefit year for the reinsurance
program. We are making a number of clarifying modifications throughout
this section.
Comment: We received a number of comments that emphasized that
reinsurance programs typically are tied not to underlying conditions
that lead to high enrollee medical costs, but to claims costs beyond a
specific dollar threshold within a coverage period, regardless of
enrollees' health condition. Several commenters stated that coverage of
specific conditions under a reinsurance program could lead to
discriminatory practices toward certain individuals, with one commenter
noting
[[Page 17229]]
that identifying medical conditions as a basis for reinsurance payments
would require more extensive verification than usually required by
traditional reinsurance. Another commenter stated that reinsurance that
makes payments based solely on incurred costs does not encourage
efficient and effective care.
Response: We are finalizing the provisions that base reinsurance
payments on total claims costs, rather than specific diagnoses. We
believe that because reinsurance payments are likely to only reimburse
a portion of claims costs above the attachment point and will pay no
costs above the reinsurance cap, there will still be incentives for an
issuer to encourage efficient and effective care.
Comment: We received a few comments suggesting that States be
permitted to use one of the other approaches proposed by the American
Academy of Actuaries for determining eligible individuals for
reinsurance.
Response: In consultation with HHS, the American Academy of
Actuaries proposed four approaches for determining eligible individuals
for the reinsurance program, described in the preamble to the proposed
rule. From those proposals, we selected the approach based on total
claims costs. We believe that permitting States the flexibility to
select one of the other American Academy of Actuaries approaches would
unnecessarily burden issuers operating in multiple States. Because
reinsurance is a transitional program, we wish to avoid that additional
burden on issuers, and are finalizing the proposed policy that uses
total claims cost.
Comment: We received many comments supporting our proposed approach
for calculating reinsurance payments based on the use of an attachment
point, coinsurance rate, and reinsurance cap. One commenter expressed
concern that the proposed approach may reduce the incentive to control
costs.
Response: We understand the concerns regarding cost control.
However, since issuers are likely to not be fully reimbursed under the
reinsurance program for claims costs above the attachment point, we
believe that they will continue to have an incentive to control costs.
Comment: We received a comment asking for clarification on whether
reinsurance payments are made on an incurred basis.
Response: As indicated in the proposed definitions for ``attachment
point,'' ``coinsurance rate,'' and ``reinsurance cap,'' we intend for
claims costs to be measured on an incurred basis for purposes of
calculating reinsurance payments.
5. Disbursement of Reinsurance Payments (Sec. 153.240)
In Sec. 153.240, we proposed parameters for the timing of
reinsurance payments. In paragraph (a) of this section, we proposed
that States must ensure that the applicable reinsurance entity collects
from health insurance issuers of reinsurance-eligible plans data
required to calculate payments described in Sec. 153.230, according to
the data requirements and data collection frequency specified by the
State in the State notice of benefit and payment parameters described
in subpart B, or in the annual HHS notice of benefit and payment
parameters.
In paragraph (b), we proposed that a State must ensure that each
applicable reinsurance entity makes payments that do not exceed
contributions and makes payments to health insurance issuers of
reinsurance-eligible plans according to Sec. 153.230. We also proposed
in paragraph (b)(2) (now paragraph (b)(1)), to allow a State to reduce
payments on a pro rata basis to match the amount of contributions
received by the State in a given reinsurance year, and to require that
pro rata reductions made by the State be made in a fair and equitable
manner for all health insurance issuers in the individual market.
In paragraph (b)(3) (now paragraph (b)(2)), we proposed that a
State be required to ensure that an applicable reinsurance entity make
payments as specified in Sec. 153.410(b) to the issuer of a
reinsurance-eligible plan after receiving a valid claim for payment.
Finally, in paragraph (c), we proposed that for each benefit year, the
State be required to maintain all records related to the reinsurance
program for 10 years, consistent with requirements for record retention
under the False Claims Act.
For the reasons described in the proposed rule and considering the
comments received, we are finalizing these provisions with the
following modifications:
We are clarifying in paragraph (b) that the State must ensure that
each applicable reinsurance entity does not make reinsurance payments
that exceed contributions received to date. We are removing paragraph
(b)(1) because those requirements are covered in Sec. 153.230 and
paragraph (b)(2) (formerly paragraph (b)(3)). We are clarifying in
paragraph (b)(1) (formerly paragraph (b)(2)), that if a State, or HHS
on behalf of the State, determines that reinsurance payments requested
for a calendar year will likely exceed the reinsurance contributions
that will be received for the year, the State, or HHS on behalf of the
State, may reduce reinsurance payments, so long as the manner in which
payments are reduced is fair and equitable for all health insurance
issuers in the individual market. We are making a number of clarifying
modifications throughout this section.
Comment: We received many comments related to the timing of
reinsurance payments. Some commenters asked that States be provided
flexibility in determining payment timeframes. A few commenters
suggested that contributions be collected monthly, but that payments be
made quarterly. One commenter suggested providing early funds to small
carriers to cover potential cash flow shortfalls.
Response: We recognize the importance of providing issuers with
reinsurance payments in a timely manner, but we believe it is prudent
to maintain flexibility in payment timing to ensure that sufficient
contributions are available to fund those payments. We are finalizing
the proposal permitting States to establish the payment timeframe in
the State notice of benefit and payment parameters described in subpart
B. For reinsurance programs established by HHS on behalf of the State,
HHS will publish the payment timeframe in the HHS notice of benefit and
payment parameters. We anticipate that States will take into account
the cash flow needs of small issuers in setting the reinsurance payment
timeframes.
Comment: We received several comments suggesting that HHS prohibit
health insurance issuers from passing reinsurance payment shortfalls on
to providers.
Response: We understand the concern raised by the commenters, and
we encourage providers to work with plan issuers concerning this
matter.
Comment: We received several comments on the duration of the record
maintenance requirement. Commenters suggested retention requirements
ranging from two to fifteen years, with many commenters suggesting a
five-year period.
Response: We believe that the record retention requirements for
reinsurance should be consistent with other Federal record retention
requirements, and are finalizing the proposed provision that requires
records to be retained for ten years, as explained above.
6. Coordination With High-Risk Pools (Sec. 153.250)
In Sec. 153.250(a) of the proposed rule, we proposed to codify in
regulation section 1341(d) of the Affordable Care
[[Page 17230]]
Act, which requires that States eliminate or modify high-risk pools to
the extent necessary to carry out the reinsurance program. In paragraph
(a), we proposed to codify in regulation the above-referenced section.
In paragraph (b), we proposed to permit a State that continues its
high-risk pool to coordinate its high-risk pool with its reinsurance
program to the extent it conforms with the provisions of this subpart.
For the reasons described in the proposed rule and considering the
comments received, we are finalizing these provisions with no
modifications.
Comment: We received several comments recommending that high-risk
pools be permitted to be offered as individual market plans eligible
for reinsurance. One commenter requested that reinsurance contributions
be used to fund the costs of operating State high-risk pools during the
three-year period. Several commenters suggested not combining
reinsurance funds with funds for high-risk pools, and opposed
permitting high-risk pools to receive reinsurance payments.
Response: We clarify in Sec. 153.400 that State high-risk pools
are excluded from contributions and payments. We clarify, as we did in
the proposed rule, that none of the funds collected for reinsurance can
be used for any purpose other than for making payments under the
reinsurance program or for administering that program. We understand
the concerns of some commenters regarding the transition of high-risk
pool participants and point out that the Exchanges will work with State
high-risk pools to ensure a smooth transition and continuity of care
for these enrollees. We believe that the reinsurance program, along
with the risk adjustment and risk corridors programs, were designed in
anticipation of new high-cost enrollees, some of whom may currently be
receiving coverage through State high-risk pools.
Comment: We received a comment suggesting coordination between PCIP
and the transitional reinsurance program.
Response: Section 1101 of the Affordable Care Act requires
coordination between PCIP and the Exchanges. To the extent that
individuals previously enrolled in PCIP enroll in reinsurance-eligible
plans, issuers will have access to the reinsurance program for these
enrollees.
D. Subpart D--State Standards Related to the Risk Adjustment Program
In subpart D, we proposed standards for States with respect to the
risk adjustment program required under section 1343 of the Affordable
Care Act. Parallel provisions for health insurance issuers were
proposed in subpart G of this part. Section 1343 provides for a program
of risk adjustment for all non-grandfathered plans in the individual
and small group market both inside and outside of the Exchange. The
risk adjustment program is intended to reduce or eliminate premium
differences between plans based solely on expectations of favorable or
unfavorable risk selection or choices by higher risk enrollees in the
individual and small group market. The risk adjustment program also
serves to level the playing field inside and outside of the Exchange,
reducing the potential for excessive premium growth or instability
within the Exchange. We interpret section 1343 to mean that risk pools
must be aggregated at the State level, even if a State decides to
utilize regional Exchanges. Furthermore, section 1343(c) indicates that
risk adjustment applies to individual and small group market health
insurance issuers of non-grandfathered plans within a State, both
inside and outside of the Exchange. Accordingly, similar to our
approach in reinsurance, if multiple States contract with a single
entity to administer risk adjustment, risk may not be combined across
State lines, but must be pooled within each State.
1. Reserved (Sec. 153.300)
Section 153.300 of the proposed rule defined a number of terms used
in this subpart. Those definitions have been moved to subpart A. We are
reserving this section for future use.
2. Risk Adjustment Administration (Sec. 153.310)
In this section, in paragraph (a)(1), we specified that any State
electing to establish an Exchange is eligible to establish a risk
adjustment program. Pursuant to section 1321(c)(1) of the Affordable
Care Act, we proposed in paragraph (a)(2) that for States that do not
operate an Exchange, HHS will establish a risk adjustment program. We
also clarified in paragraph (a)(3) that HHS will administer all of the
risk adjustment functions for any State that elects to establish an
Exchange but does not elect to administer risk adjustment. We are
finalizing this provision, with a number of clarifying modifications.
Comment: Many commenters supported permitting States to defer
operation of a risk adjustment program to HHS. One commenter
recommended that any State should be eligible to operate a risk
adjustment program, whether or not the State is establishing an
Exchange.
Response: An effective risk adjustment program is critical to
prevent adverse selection and stabilize premiums inside and outside the
Exchanges. Developing a risk adjustment program is methodologically and
operationally complex. We believe that, particularly in the initial
years, States may wish to defer risk adjustment operation to HHS in
order to focus resources on establishing Exchanges. We are therefore
finalizing these provisions to provide States the option to operate
risk adjustment if they establish Exchanges. Because we believe that
the Federally Facilitated Exchange should be operated in coordination
with a risk adjustment program that is closely tied to its
implementation, States not operating Exchanges and States entering into
a partnership with or relying entirely on the Federally Facilitated
Exchange will not be permitted to operate a risk adjustment program. We
will clarify in future guidance the process through which a State will
notify HHS of its choice to operate risk adjustment if it establishes
an Exchange beginning in 2014 or any subsequent year.
In paragraph (b), we clarified that a State may elect to have an
entity other than the Exchange perform the risk adjustment functions of
this subpart, provided that the selected entity meets the requirements
for eligibility to serve as an Exchange set forth in Sec. 155.110 of
the proposed Exchange Establishment rule. Considering the comments
received, we are finalizing this provision, noting that the definition
of an entity eligible to serve as an Exchange has been modified from
the proposed definition.
Comments: Commenters offered varying opinions regarding the
requirements for entities to be eligible to administer risk adjustment.
Several commenters urged HHS to include stronger provisions prohibiting
conflicts of interest. Those commenters stated that all members of the
board of a risk adjustment entity should be free of financial ties to
issuers, and that consumer representation on the board should be
required. One commenter believed that an entity's eligibility to be a
risk adjustment entity should be based on the entity's experience, and
not on the requirements governing entities carrying out Exchange
functions. Other commenters stated that the requirements on entities
eligible to administer risk adjustment and carry out Exchange functions
were overly restrictive, noting that the requirements would exclude
State regulators, such as a State Department of Insurance. This
commenter asked that the regulator in
[[Page 17231]]
each State be eligible to administer risk adjustment. Two commenters
suggested that entities be eligible to administer both risk adjustment
and reinsurance.
Response: We believe that a State may have a single entity
administer reinsurance and risk adjustment, provided that the entity
meets the separate requirements to administer both programs. We note
that to be eligible to administer reinsurance, an entity must meet the
definition outlined in Sec. 153.20. We also appreciate concerns that
risk adjustment entities may have board members with conflicts of
interest and, further, that because risk adjustment involves the
transfer of money between plans, these concerns may be especially
relevant for this program. We encourage States to weigh these concerns
when establishing a risk adjustment entity. However, we seek, to the
extent possible, consistency between the requirements to serve as a
risk adjustment entity and the requirements to serve as an entity
performing other Exchange functions.
In paragraph (c), we proposed timeframes for the risk adjustment
process. We proposed that all payment calculations commence with the
2014 benefit year. We sought comment on the appropriate deadline by
which risk adjustment must be completed each year. In response to
comments, we are finalizing the standard that risk adjustment be
implemented beginning with the 2014 benefit year, and are including a
requirement that each issuer be notified of risk adjustment payments
owed to, or charges owed by, the issuer by June 30 of the year
following the benefit year. We believe that this deadline best balances
the need to coordinate risk adjustment payments and charges with other
programs, and the need to ensure that high quality risk adjustment data
is available to support the program.
Comments: We received a number of comments recommending that risk
adjustment be performed before completion of the MLR calculation
process. Two commenters specified that risk adjustment should be
completed by late May of the year following the benefit year in order
to accommodate the Federal MLR reporting deadline of June 1. Other
commenters stated that it would be difficult to coordinate risk
adjustment payments with MLR reporting. Two commenters suggested
extending the MLR deadline for 2014 through 2016. One commenter
suggested delaying the implementation of risk adjustment until 2016.
Response: The risk adjustment process relies in part on high
quality claims data. Allowing for claims run-out after the benefit year
increases the amount and quality of claims data because issuers will
have more time to receive, review and pay claims made during the
benefit year. Better quality data will lead to more accurate risk
scores, which ultimately feed into the calculation of plan average
actuarial risk and the calculation of payments and charges.
In the preamble to the proposed rule, we discussed requiring that
States complete the risk adjustment process by June 30 of the year
following the benefit year, or June 30, 2015 for the benefit year 2014.
States would be free to set a payment schedule (including interim
payments throughout the benefit year), but would be required to comply
with the June 30 deadline. Many commenters agreed that June 30 was a
reasonable deadline for completion of the risk adjustment process. We
have included in the final rule a June 30 deadline for the completion
of the risk adjustment process. We believe that 6 months following the
benefit year is a reasonable timeframe to complete the risk adjustment
process.
The deadline to submit MLR reports to the Federal government is
June 1 of the year following the calendar year experience being
reported. MLR calculations must take into account risk adjustment
payments and charges. We recognize that our proposed deadline is
inconsistent with the current Federal MLR reporting deadline, but
believe that allowing sufficient time to collect quality data to
support risk adjustment is extremely important and would be extremely
difficult to complete within current MLR timeframes. We will work to
resolve this issue prior to 2014.
Comments: A few commenters suggested that risk adjustment payments
be made quarterly, with the final payment to be made after the first
quarter of the year following the benefit year.
Response: We believe that States should have the flexibility to set
a payment schedule that best suits their program administration.
Therefore, we did not include a requirement that States adhere to a
specific payment schedule.
In the preamble to the proposed rule, we discussed our belief that
States should provide HHS with a summary report of risk adjustment
activities for each benefit year in the year following the calendar
year covered in the report. The final rule directs States to submit an
annual summary report of their program. We believe that this report
will permit States to learn from other States' experience and will help
HHS evaluate the implementation of the risk adjustment program. We will
specify the contents of the report in future guidance, but expect the
report would include information such as plan average actuarial risk
score and the risk adjustment payment or charge for each risk
adjustment covered plan in the State, trends in risk scores over time,
evidence of upcoding, and other risk adjustment-related elements. We
expect that States will make summary reports publicly available. We
believe this report will facilitate periodic evaluation, oversight, and
continuous improvement of the risk adjustment program.
Comment: Several commenters supported the concept of providing
summary reports. However, one commenter was unwilling to fully support
the requirement until knowing the content that would be required in the
report. Two commenters suggested that the report include the average
actuarial risk for each plan, the risk adjustment charge or payment for
each plan, and information on risk scores and cost trends, including
evidence of upcoding and error rates determined under the most recently
completed risk adjustment data validation audits. We also received
comments requesting that HHS require that State risk adjustment
entities report information about their States' risk adjustment program
to issuers. Finally, we received one comment suggesting that all funds
collected by the risk adjustment entity be required to be used only in
connection with the risk adjustment program.
Response: Annual summary reports can serve as a tool for States and
HHS to monitor and evaluate State programs across the country. HHS will
also be able to use the reports to provide technical assistance to
States administering risk adjustment programs when needed. The
technical assistance will serve not only to improve a State's risk
adjustment program, but will reduce the burden on each State to
evaluate and improve its risk adjustment program. The information in
the annual reports will also be useful in evaluating the implementation
of the Federally developed risk adjustment methodology and other
Federally certified risk adjustment methodologies. For these reasons,
we have added paragraph (d) to this final rule to ensure that States
submit annual risk adjustment program reports to HHS.
3. Federally Certified Risk Adjustment Methodology (Sec. 153.320)
Section 1343(b) of the Affordable Care Act requires HHS to
establish criteria and methods for risk adjustment in coordination with
the States. We
[[Page 17232]]
interpret this provision to mean that HHS will establish a baseline
methodology to be used by a State, or HHS on behalf of the State, in
determining plan average actuarial risk. In Sec. 153.300 of the
proposed rule, we defined the risk adjustment methodology as
encompassing the risk adjustment model, the calculation of plan average
actuarial risk, and the calculation of payments and charges.
We proposed in paragraph (a)(1) that a Federally certified risk
adjustment methodology be developed by HHS. We proposed in paragraph
(a)(2) that a State-submitted alternate risk adjustment methodology may
become a Federally certified risk adjustment methodology through HHS
certification. For the reasons described in the proposed rule and
considering the comments received, we are finalizing these provisions,
with certain clarifying modifications.
Comments: One commenter requested clarification on when State
alternate methodologies would be required to be submitted and would be
evaluated. Multiple commenters expressed a preference that State and
Federal methodologies be announced early enough to give sufficient time
for issuers to incorporate anticipated risk adjustment payments or
charges into their rates.
Response: While the proposed timing necessitates a short window for
submission and evaluation of the alternate risk adjustment
methodologies, the timeframe permits a State to evaluate the
methodology proposed by HHS in the proposed annual HHS notice of
benefit and payment parameters. This timeframe also permits HHS to
publish all certified methodologies at one time in the final annual HHS
notice of benefit and payment parameters. In future years, HHS will
evaluate whether it should accept and evaluate applications for
alternate risk adjustment methodologies on an earlier timeframe.
However, in the initial year, the HHS methodology will likely not have
been fully developed in time to benchmark alternate risk adjustment
methodologies on an earlier timeframe.
We proposed in paragraph (b)(1) of this section that a State that
is operating a risk adjustment program must use one of the Federally
certified risk adjustment methodologies that HHS will publish in an
annual HHS notice of benefit and payment parameters. We proposed that
State notices of benefit and payment parameters include a full
description of the risk adjustment model, including, but not limited
to: (1) Demographic factors, diagnostic factors, and utilization
factors (if any); (2) the qualifying criteria for establishing that an
individual is eligible for a specific factor; (3) the weights assigned
to each factor; and (4) the schedule for the calculation of individual
risk scores. We sought comments on other information that should be
included in this notice. In paragraph (b)(2), we proposed that the risk
adjustment methodology will also describe any adjustments made to the
risk adjustment model weights when calculating average actuarial risk,
including premium rating variation.
Considering the comments received, we are finalizing this
provision, with the following modifications: We are clarifying that
notices must also include a description of the calculation of plan
average actuarial risk, a description of the calculation of payments
and charges, and a description the risk adjustment data collection
approach. We are also including a number of other clarifying
modifications.
Comments: We received several comments supporting a structure in
which HHS will develop a risk adjustment methodology but States have
the option to submit alternate methodologies for approval by HHS.
Several commenters preferred that HHS establish one national
methodology. Other commenters suggested that States be required to
justify deviation from the methodology developed by HHS. Two commenters
believed that HHS approval of State methodologies was unnecessary, and
that any State alternate methodology should be deemed certified and
available to all States. Some commenters suggested that all
methodologies be subject to notice and comment.
Response: We recognize that States may wish to employ alternate
risk adjustment methodologies, and believe that alternate approaches
could achieve results similar to those that will be achieved by the
methodology developed by HHS. We agree that States should submit a
rationale for their proposed alternate methodology for certification.
We are therefore finalizing the proposed rule, which required
publication of a rationale, with a number of clarifying modifications.
HHS will develop a Federal risk adjustment methodology, and States that
wish to deviate from that methodology may submit an alternate
methodology to HHS for approval. States must specify in their State
notice of benefit and payment parameters which of the Federally
certified methodologies published in the annual HHS notice of benefit
and payment parameters they will use. We believe that the publication
of the Federal methodology in a notice of benefit and payment
parameters addresses certain commenters' desire that interested parties
be given opportunity to comment on the methodology proposed by HHS. HHS
will provide an opportunity for public comment when it administers risk
adjustment on behalf of a State. State law will govern what
administrative process is necessary when a State adopts a risk
adjustment methodology, subject to the limits of this final rule and
the annual HHS notice of benefit and payment parameters.
In paragraph (c), we proposed that HHS will specify in the annual
HHS notice of benefit and payment parameters the Federally certified
risk adjustment methodology that will apply when HHS operates the risk
adjustment program. We are finalizing this provision, with a number of
clarifying modifications.
The statute is not specific with respect to the method by which
States are expected to determine the precise value of payments and
charges, so we requested comment on two payments and charges
methodologies and whether there are alternate methodologies that might
be used. We received a number of comments requesting consistency in
methodology from State to State. Therefore, we plan to establish a
national method for the calculation of payments and charges that States
may not vary. A national method for the calculation of payments and
charges ensures a degree of consistency in the risk adjustment program
from State to State while allowing States to vary certain elements of
the program.
Comments: Many commenters recommended that HHS establish one
national methodology or limit States' ability to deviate from the
methodology developed by HHS. Other commenters supported giving States
the flexibility to propose alternate methodologies so long as those
methodologies are as robust as the one proposed by HHS.
Response: The calculation of payments and charges requires
selection of a baseline premium, for example, a plan average or State
average premium. That premium basis is multiplied by the plan average
actuarial risk to calculate risk adjustment payments or charges, and
requires balancing if payments do not equal charges. Thus, the
calculation of payments and charges affects the amount of funds
transferred from low-risk to high-risk plans, and can affect premiums
in low-risk and high-risk plans.
Although a national standard methodology for calculating payments
and charges provides a degree of consistency from State to State, we
recognize it may also limit States' ability
[[Page 17233]]
to implement novel methodologies. We believe that there may be
potential to introduce State variation in the calculation of payments
and charges in the future. We also believe that requiring a national
methodology for calculating payments and charges initially, and leaving
open the possibility of permitting State variation in later years,
relieves States from the burden of developing such a methodology in the
first year, and provides a starting point for States seeking to create
alternate methodologies in later years.
4. State Alternate Risk Adjustment Methodologies (Sec. 153.330)
We proposed allowing States to utilize alternate risk adjustment
methodologies, provided that States taking advantage of this
flexibility submit their proposed alternate risk adjustment
methodologies for HHS review and certification. We proposed in
paragraph (a)(1) the information about the State's proposed risk
adjustment methodology that the State must include in its request for
certification. In paragraph (a)(2), we proposed that all requests
include information relating to certain criteria to be used in the
evaluation of the request.
For the reasons described in the proposed rule, and considering the
comments received, we are finalizing these provisions with the
following modifications: We are including new language requiring States
to provide a description of the risk adjustment methodology. This
change aligns this provision with changes made to Sec. 153.320
discussed above. We are also making a number of clarifying
modifications throughout this section.
Comments: Several commenters requested greater specificity about
the validation requirements for the proposed alternate risk adjustment
methodologies. One commenter requested that HHS permit States to vary
payments based on whether a plan participates in the Exchange or the
Small Business Health Options Program. Another commenter suggested that
States be permitted to vary payments based on whether the issuer
implements programs to improve population health. Other commenters
suggested other requirements for certification of alternate risk
adjustment methodologies. For example, one commenter recommended
requiring that an alternate methodology include either a separate model
for pediatrics or demonstrate the model's effectiveness in pediatric
populations. Another commenter recommended requiring States to specify
how they will move from a retrospective to a prospective risk
adjustment approach. A number of commenters supported use of a
prospective approach, while others favored a retrospective approach.
Some commenters supported a diagnosis-based risk adjustment model,
while others favored a demographic approach. One commenter suggested
that a survey-based approach be utilized.
Response: We anticipate that a number of different approaches could
receive Federal certification. HHS will provide further details on the
process for receiving Federal certification for alternate risk
adjustment methodologies in the draft annual HHS notice of benefit and
payment parameters. State alternate methodology requests will be
accepted up to 30 days after publication of the draft annual HHS notice
of benefit and payment parameters, and alternate methodologies that are
certified by HHS will be published in the final HHS notice of benefit
and payment parameters.
In paragraph (b), we proposed that a State that operates a risk
adjustment program must renew HHS certification of alternate risk
adjustment methodologies whenever changes occur, including at the time
of recalibration, which the State must identify when initially
requesting certification for the alternate risk adjustment model.
Considering the comments received, we are finalizing this provision
with the following modifications: We are including language clarifying
that the need to obtain recertification of a recalibrated risk
adjustment model applies to any alteration to the Federally certified
risk adjustment methodology.
Comment: We received two comments supporting a requirement that
States wishing to recalibrate or otherwise change their methodology
submit that change to HHS for approval.
Response: We are finalizing this policy.
5. Data Collection Under Risk Adjustment (Sec. 153.340)
As described above, a robust risk adjustment process requires data
to support the determination of an individual's risk score and the plan
and State average actuarial risk. In paragraph (a), we proposed that a
State, or HHS on behalf of the State, be responsible for collecting
data for use in the risk adjustment program. HHS considered three
possibilities for data collection: (1) A centralized approach in which
issuers submit raw claims data sets to HHS; (2) an intermediate State-
level approach in which issuers submit raw claims data sets to the
State government or the entity responsible for administering the risk
adjustment process at the State level; and (3) a distributed approach
in which each issuer must reformat its own data to map correctly to the
risk assessment database, and then pass on individual risk scores to
the entity responsible for assessing risk adjustment charges and
payments.
Considering the comments received, we are modifying this paragraph
as follows: Rather than specify an intermediate risk adjustment data
collection approach, we are permitting States that elect to operate a
risk adjustment program to choose the risk adjustment data collection
approach that best suits their program. HHS will use a distributed
approach when operating risk adjustment on behalf of a State. Because a
distributed approach to data collection has not been implemented on
this scale, we plan to evaluate the implementation and may make changes
to the approach based on that evaluation. We are including a
requirement that States operating risk adjustment collect or calculate,
at a minimum, individual risk scores. This requirement minimizes the
collection of sensitive data while allowing States to calculate rating
variation adjustments and payments and charges. We are modifying the
privacy and security standards applicable when a State is operating
risk adjustment. Protecting the privacy and confidentiality of an
individual's personal health information continues to be among HHS'
highest priorities. Under a distributed approach, issuers will need to
format risk adjustment data, maintain that data in a manner that
complies with State or HHS specifications, and in some cases run risk
adjustment software. In addition, a State, or HHS on behalf of the
State, will not be required to collect claims data; however, the data
validation and audit process will be more involved.
Comments: We received a large number of comments on the collection
of risk adjustment data, including many comments supporting HHS'
proposed collection of risk adjustment data at the State level. A
number of other commenters expressed concern for patient privacy under
the proposed method of data collection. Some of those concerned about
patient privacy did not explicitly oppose the proposed risk adjustment
data collection approach, but encouraged HHS to collect de-identified
data or carefully consider privacy and security standards, such as
techniques to mask or encrypt data. We received many comments in favor
of a distributed approach to risk adjustment data collection. These
comments focused on the administrative complexity of transmitting
claims data
[[Page 17234]]
to HHS and the risk of exposing private information and competitively
sensitive data, such as unit prices for medical services. Another
commenter suggested that States be given flexibility to choose which
risk adjustment data collection approach to use when operating risk
adjustment.
Response: The transmission by issuers to HHS and the storage by HHS
of large amounts of sensitive data pose potential risks to consumer
privacy. A distributed approach would leverage the existing data
infrastructure of issuers, potentially saving Federal and issuer
resources. For these reasons, HHS will utilize a distributed approach
to collecting risk adjustment data when operating risk adjustment on
behalf of a State.
We considered requiring that all States utilize a distributed
approach to risk adjustment data collection, as HHS will do. However,
we believe that requiring a particular approach runs counter to the
flexibility generally afforded States by the Affordable Care Act and
HHS.
We proposed in paragraph (b) that the State, or HHS on behalf of
the State, use standard HIPAA transaction standards when collecting
data. We proposed in paragraphs (b)(1) and (b)(2) to require States to
utilize two specific HIPAA transaction standards for risk adjustment
data collection. In paragraph (b)(3), to address consumer privacy
concerns, we proposed that States must utilize specific privacy
standards in their data collection risk adjustment procedures.
Considering the comments received, we are modifying this paragraph
as follows: We are including a requirement that States require issuers
to comply with the data privacy and security standards set forth in the
State's notice of benefit and payment parameters.
Because we maintain the flexibility for States that operate risk
adjustment programs to choose their data collection approaches, we are
including a requirement that States limit their collection to the
information reasonably necessary to operate the risk adjustment
program. For example, a State could not collect an enrollee's name,
because that information would not be reasonably necessary to operate
the risk adjustment program. We are prohibiting a State from collecting
or storing any personally identifiable information for use as a unique
identifier for an enrollee's data, unless that information is masked or
encrypted by the issuer, with the key to that masking or encryption
withheld from the State. The term ``personally identifiable
information'' is a broadly used term across Federal agencies, and has
been defined in the Office of Management and Budget Memorandum M-07-16.
In order to reduce duplicative guidance or potentially conflicting
regulatory language, we are not defining personally identifiable
information in this final rule, and incorporate the aforementioned
definition into this final rule.
The privacy and security standards outlined above reflect the
changes in the risk adjustment data collection approach in paragraph
(a) of this section. We note that these standards should be read to
represent a minimum standard to be used in the risk adjustment program.
We expect that States will build on these minimum privacy and security
standards when establishing a risk adjustment data collection program.
Comment: We received a number of comments about privacy concerns
associated with the proposed collection of risk adjustment data. Some
commenters believed that HHS should finalize a requirement that any
risk adjustment data collected be de-identified. Others preferred that
data not be collected.
Response: We are committed to applying strong privacy and security
standards to risk adjustment data collected by States or HHS on behalf
of a State. We are amending the proposed privacy and security standards
so that States that limit their collection of personally identifiable
information to that which is reasonably necessary to carry out their
risk adjustment methodology. In paragraph (b)(4), we require States to
implement security standards that provide administrative, technical,
and physical safeguards consistent with the standards described in the
HIPAA Security Rule at 45 CFR 164.308, 164.310, and 164.312. We
recognize that the specific requirements for data collection may vary
depending on the amount and type of data States choose to collect, and
thus we decided to permit States to design security requirements to
accommodate these requirements. This final rule does not preclude
States from implementing stricter security standards, particularly if
they choose to collect additional risk adjustment data. HHS will not be
collecting the claims data from issuers needed to run the risk
adjustment methodology when HHS runs risk adjustment on behalf of a
State. HHS will issue further guidance regarding the privacy and
security standards applicable when HHS is operating risk adjustment on
behalf of a State.
In paragraph (c), we proposed that States with existing all-payer
claims databases may request an exception from the minimum standards
for data collection. In paragraph (d), we proposed that the State must
make certain risk adjustment data available to support other
activities, including: recalibrating Federally certified risk
adjustment models; verifying risk corridor submissions; and verifying
and auditing reinsurance claims. We have removed paragraphs (c) and (d)
because these requirements are not compatible with flexibility with
regard to risk adjustment data collection. In the proposed rule and
preamble, we discussed a number of ways risk adjustment data could be
used to support other programs such as verifying risk corridor
submissions, reinsurance payments, cost-sharing reductions, and quality
improvement efforts. We are continuing to explore how to obtain the
data needed to support these programs. We anticipate working closely
with States and issuers to efficiently gather or access the data needed
to support these programs.
Comments: We received a few comments requesting that existing data
collection initiatives such as all-payer claims databases be utilized
to the fullest extent possible to support risk adjustment.
Response: A State operating a risk adjustment program may choose to
utilize all-payer claims databases, provided that the State complies
with the requirements set forth in this paragraph.
Comments: We received several comments supporting the use of risk
adjustment data for other Affordable Care Act purposes. Two commenters
were wary of permitting access to data for uses beyond risk adjustment
because they view the data as sensitive and wish to limit Federal
access to it.
Response: We believe that HHS' use of a distributed approach for
risk adjustment addresses many concerns regarding centralized data
collection of risk adjustment data. We are currently exploring options
to collect the information needed for other purposes. We believe that
States administering a risk adjustment program should, to the extent
possible, seek efficiencies in data collection across programs.
6. Risk Adjustment Data Validation Standards (Sec. 153.350)
In Sec. 153.350, we proposed that States have a reliable data
validation process, which is essential to the establishment of a
credible risk adjustment program. In paragraph (a), we proposed that
the State, or HHS on behalf of the State, validate a statistically
valid sample of all issuers that submit data for risk adjustment every
year. In paragraph (b), we proposed that the State, or HHS on
[[Page 17235]]
behalf of the State, be permitted to adjust the average actuarial risk
for each plan based on the error rate found in the validation. In
paragraph (c), we proposed that the State, or HHS on behalf of the
State, be permitted to adjust payments and charges based on the changes
to average actuarial risk. Finally, in paragraph (d), we proposed that
the State, or HHS on behalf of the State, be required to provide an
appeals process for issuers.
Considering the comments received, we are finalizing this
provision, with the following modifications: We are expanding the data
validation requirements to include requirements applicable to a
distributed risk adjustment data collection approach, and are making a
number of clarifying modifications throughout this section.
Comments: We received several comments on data validation. We
received a number of comments supporting the proposed data validation
requirements. For the most part, commenters supported data validation
requirements for every issuer offering risk adjustment covered plans in
a State. A few commenters suggested that HHS add requirements on
States, establish a national validation methodology, or perform the
validation itself.
One commenter suggested that States be allowed to establish minimum
values, under which annual data validation would not be required. For
example, issuers with fewer than 5,000 members and less than 1 percent
of the overall market would not be required to validate data annually;
instead, these issuers would be required to validate data every 2 or 3
years.
Response: We believe that the data validation standards we are
finalizing represent appropriate minimum standards. We believe that
annual data validation for all issuers is necessary to ensure a robust
risk adjustment program, and so do not believe that minimum values for
annual data validation or data validation that occurs less frequently
are appropriate.
Comment: We also received a number of comments about the specific
data validation methodology or process. Several commenters suggested
that data validation be completed throughout the year and certified at
the end of the year. One commenter suggested including a requirement
that data validation be maintained for the duration of risk adjustment
operation. One commenter suggested that diagnoses identified by health
care providers apply even if, upon subsequent audit, HHS determines
that the patient's medical records did not support the provider's
diagnosis. One commenter urged that States be required to design risk
adjustment data validation standards using a methodology similar to
that used under the CMS-Hierarchical Condition Category system.
Response: We believe that a State should have the discretion to
design its risk adjustment program, including the method for data
validation. Given that risk adjustment occurs at the State level, the
possibility of differences from State to State do not present a
significant problem. For this reason, we are finalizing the data
validation requirements with the modifications described above.
Comment: We received one comment suggesting that we insert the
phrase ``or HHS on behalf of the State'' in paragraph (c).
Response: In the preamble to the proposed rule, we proposed ``that
the State, or HHS on behalf of the State, adjust payments and charges
based on the changes to average actuarial risk.'' However, the phrase
``or HHS on behalf of the State'' was omitted from the proposed
regulation text in paragraph (c). We are amending the final rule text
to be consistent with Sec. 153.350(a) and (b) of, and the preamble to,
the proposed rule.
E. Subpart E--Health Insurance Issuer and Group Health Plan Standards
Related to the Reinsurance Program
In subpart E of the proposed rule, we proposed standards for health
insurance issuers that complemented the standards for the transitional
reinsurance program more fully described in the preamble to subpart C
of the proposed rule. Subpart C discussed standards of the program
applicable to States. In subpart E, we discussed the standards
applicable to health insurance issuers and self-insured group health
plans.
1. Reinsurance Contribution Funds (Sec. 153.400)
In Sec. 153.400, we proposed to codify in regulation section 1341
of the Affordable Care Act, which requires that the reinsurance program
be funded by contribution funds from contributing entities. In
paragraph (a), we proposed that all contributing entities make
contributions, in a frequency and manner to be determined by the State
or HHS, to the applicable reinsurance entity in the State. In paragraph
(b), we proposed that if the State establishes multiple applicable
reinsurance entities, the contributing entity must contribute an
appropriate payment to each applicable reinsurance entity. We proposed
in paragraph (c) (now paragraph (d)), that contributing entities be
required to provide the data necessary for the applicable reinsurance
entity to calculate the amounts due from each contributing entity.
For the reasons described in the proposed rule and considering the
comments received, we are finalizing these provisions, with the
following modifications:
We are clarifying in paragraph (a) that a contributing entity must
make contributions for all reinsurance contribution enrollees who
reside in a State at the national rate and any additional contribution
rate if a State elects to collect additional contributions. We are
adding paragraph (a)(1), which clarifies that all contributing entities
must make reinsurance contributions on behalf of all group health plans
and health insurance coverage they represent except those set forth in
paragraph (a)(2). For example, contributing entities are required to
make reinsurance contributions on behalf of plans in the Federal
Employee Health Benefit Program, State and local government employee
plans, and grandfathered health plans. The Affordable Care Act requires
these issuers and third-party administrators on behalf of self-insured
plans to make reinsurance contributions.
In paragraph (a)(2), we are clarifying that contributing entities
are not required to make contributions on behalf of plans or health
insurance coverage that consists solely of excepted benefits within the
meaning of section 2791(c) of the PHS Act. Section 1341(b)(3)(B)(i) of
the Affordable Care Act requires the contribution amount for an issuer
to be based on the issuer's fully insured commercial book of business
for all major medical products. Issuers of certain plans are excluded
from making reinsurance contributions because those plans are not
``commercial books of business'' or ``major medical'' products. Thus,
private Medicare and Medicaid plans and Federal and certain State high-
risk pools are exempt from making reinsurance contributions because
they are not a ``commercial book of business.'' Further, stand-alone
vision and dental plans and other plans defined as excepted benefits
within the meaning of section 2791(c) of the PHS Act are exempt because
they are not ``major medical'' products.
In a new paragraph (c), we are requiring that each contributing
entity submit contributions due to the Federal applicable reinsurance
entity on a quarterly basis beginning January 15, 2014. We believe this
timeframe is consistent with industry practice and will allow for
timely transfer of
[[Page 17236]]
contribution funds to States and the U.S. Treasury. We believe that
States should have the flexibility to set the frequency of collections
by the applicable reinsurance entity.
In a new paragraph (d), we are clarifying that each contributing
entity must submit to HHS and each applicable reinsurance entity, if
the State elects to collect reinsurance contributions, data required to
substantiate contribution amounts, in the format and with the timing
specified by the State or HHS. For example, HHS may request this data
in the form of a report that specifies the number of reinsurance
contribution enrollees covered by a plan in each State in a month.
Comment: We received a number of comments requesting clarification
as to whether certain types of plans, such as multi-State plans and CO-
OP plans, are contributing entities.
Response: We believe that section 1341(b)(1)(A) of the Affordable
Care Act directs a broad cross-section of issuers and self-insured
plans to make reinsurance contributions, given the uncertainty of the
size and characteristics of the population that will participate in the
Exchanges. We discuss whether certain plans are required to make
reinsurance contributions in the preamble above.
Comment: One commenter suggested that HHS clarify whether the Basic
Health Plans described in Section 1331 of the Affordable Care Act will
be subject to reinsurance contributions or eligible for reinsurance
payments.
Response: Since guidance and regulations regarding the Basic Health
Plans have not yet been issued by HHS, we are unable to provide
direction at present on whether these plans are subject to the
reinsurance program.
Comment: We received several comments recommending that reinsurance
contributions be collected on a quarterly basis. One commenter
recommended an annual collection.
Response: We have included a provision that requires that
contributions to HHS be submitted quarterly in paragraph (c). A State
that elects to collect contributions may set its own timeframe for
collection. However, we encourage States to adopt a timeframe similar
to the one adopted by HHS to minimize the burden on issuers in multiple
States.
2. Requests for Reinsurance Payment (Sec. 153.410)
The reinsurance program as proposed in subpart C will make payments
to reinsurance-eligible plan issuers. In paragraph (a) of the proposed
rule, we proposed that reinsurance-eligible plan issuers be required to
submit a request for reinsurance payment to the applicable reinsurance
entity. We proposed in paragraph (b) that this request be made
according to the method specified in the annual HHS notice of benefit
and payment parameters.
For the reasons described in the proposed rule and considering the
comments received, we are finalizing these provisions, with certain
clarifying changes.
Comment: We received a comment requesting that HHS provide
standards for issuers to request payment.
Response: Issuers of reinsurance-eligible plans will make requests
for payment in accordance with the procedures set forth in the annual
HHS notice of benefit and payment parameters. If a State establishes a
reinsurance program, then it will publish guidance regarding data
requirements for reinsurance payment in its State notice of benefit and
payment parameters.
Comment: We received a few comments regarding the frequency of
reinsurance payments. One commenter suggested a monthly reinsurance
payment cycle. The commenter suggested that the reinsurance entity pay
claims at 75 percent of the eligible amounts, with the remaining 25
percent of eligible claims becoming payable at the end of the year to
the extent funds are available. One commenter suggested a payment
process at the end of the benefit year. Another commenter suggested
that reinsurance payment requests be permitted to be submitted whenever
an individual claim causes a beneficiary's accumulated claims costs for
the plan year to exceed the attachment point, and that adjustments be
permitted to be submitted as the claim fully develops.
Response: Further guidance on the reinsurance claim and payment
process will be provided in the HHS notice of benefit and payment
parameters.
Comment: We received comments regarding the deadline for
reinsurance payment requests and late claims. One commenter suggested
that reinsurance-eligible claims be required to be submitted no more
than six months after the plan year, and that claims not filed within
that timeframe become ineligible for reinsurance payment. Another
commenter suggested that the ability to submit late claims be
restricted to ensure that late claims do not delay MLR rebates to
consumers or risk corridors payments to insurers.
Response: We will provide further guidance on the deadline for
requests and on late claims in the annual HHS notice of benefit and
payment parameters.
F. Subpart F--Health Insurance Issuer Standards Related to the
Temporary Risk Corridors Program (Sec. 153.500-Sec. 153.530)
In this subpart, we proposed requirements on health insurance
issuers related to the temporary risk corridors program which section
1342 of the Affordable Care Act established for the first three years
of Exchange operation (2014-2016). Risk corridors create a mechanism
for sharing risk for allowable costs between the Federal government and
QHP issuers. QHP issuers with allowable costs that are less than 97
percent of the QHP's target amount will remit charges for a percentage
of those savings to HHS, while QHP issuers with allowable costs greater
than 103 percent of the QHP's target amount will receive payments from
HHS to offset a percentage of those losses.
1. Definitions (Sec. 153.500)
In Sec. 153.500, we proposed a number of definitions for purposes
of administering risk corridors. We proposed to define ``allowable
administrative costs'' as the total non-medical costs as defined in
Sec. 158.160(b), including costs for the administration and operation
incurred by the plan as set forth in Sec. 158.160(b)(2). We proposed
to define ``allowable costs'' as an amount equal to the total medical
costs, which include clinical costs, excluding allowable administrative
costs, paid by the QHP issuer in providing benefits covered by the QHP.
``Charge'' was defined as the flow of funds from QHP issuers to HHS.
``Direct and indirect remuneration'' was defined by reference to the
definition used for Medicare Part D purposes. ``Payment'' was defined
as the flow of funds from HHS to QHP issuers. ``Qualified health plan''
was defined by reference to the definition for the term included in the
proposed Exchange Establishment rule. ``Risk corridors'' was defined as
any payment adjustment system based on the ratio of allowable costs of
a plan to the plan's target amount. ``Target amount'' was defined as an
amount equal to the total premiums incurred by a QHP, including any
premium tax credit under any governmental program, reduced by the
allowable administrative costs of the plan.
Considering the comments received and other considerations
discussed below, we are finalizing this section with the following
modifications:
[[Page 17237]]
We are adding the defined term, ``administrative costs,'' meaning
total non-claims costs for a QHP as defined in Sec. 158.160(b). We are
revising the defined term, ``allowable administrative costs,'' to mean
administrative costs, capped at 20 percent of premiums earned. We are
revising the definition of ``allowable costs'' to reference the MLR
term ``incurred claims'' and to include quality improvement and health
information technology expenditures, as defined in the MLR rule. We are
also referencing the after-the-fact adjustments described in Sec.
153.530(b) for reinsurance and risk adjustment amounts paid or received
by a QHP issuer.
We are revising the definition of ``direct and indirect
remuneration'' to mean prescription drug rebates received by the issuer
within the meaning of Sec. 158.140(b)(1)(i). This definition matches
the concept from the MLR rule, which takes into account rebates, but
not other forms of remuneration, such as price concessions and
discounts.
We are adding the defined term, ``premiums earned,'' meaning monies
paid by or for enrollees with respect to a QHP as a condition of
receiving coverage under that plan, including any fees or other
contributions paid by or for enrollees. This defined term references
the equivalent definition in the MLR rule, and is intended to clarify
that premiums are to be determined in a manner consistent with the MLR
rule, a consistency we seek with respect to the risk corridors program
when practicable. We are revising the defined term, ``target amount,''
to reference the new defined term ``premiums earned.''
We are moving the definition of ``qualified health plan'' to
subpart A. We are not modifying the definitions of ``charge,''
``payment,'' or ``risk corridors.'' Finally, we are making a number of
clarifying modifications throughout this section. Many of the revisions
we are making to defined terms in this subpart are intended to parallel
terms used in the MLR rule, to the extent feasible. These revised
definitions are used in the risk corridors calculation in a manner that
is mathematically identical to the statutory formulation in section
1342 of the Affordable Care Act.
Comment: In the preamble of the proposed rule, we discussed the
possibility of imposing a 20 percent limitation on allowable
administrative costs. A number of commenters supported this limitation.
Some commenters supported the 20 percent limitation because it would
prevent an issuer with high administrative costs from receiving risk
corridors payments, and then using those payments to pay the required
MLR rebates. Other commenters stated that imposing a limitation would
be consistent with the MLR rule--a consistency that could reduce the
need for issuers to maintain data for two different formulas.
Response: We are revising the definition of allowable
administrative costs accordingly.
Comment: We received a number of comments that supported including
quality improvement expenditures in allowable costs. Some commenters
also suggested including health information technology expenses, which
the MLR rule also takes into account. The commenters stated that
including quality improvement expenses and health information
technology expenditures in allowable costs would ensure consistency
with MLR requirements, and would incentivize issuers to make these
investments, which could inure to the benefit of enrollees. Some
commenters requested that we adopt certain modifications to those MLR
definitions. For example, two commenters suggested that HHS adopt a
standard-based ``functional approach'' for determining whether an
activity or function is a quality improvement activity similar to that
employed by MLR. Under this approach, the function of the activity
would dictate whether it was a quality improvement activity that
issuers could include in allowable costs. Another commenter recommended
that quality improvement activity expenditures be based on projections.
Response: We viewed the proposed rule as including these costs in
allowable costs, because they are not among the administrative costs in
Sec. 158.160(b). We are revising the definition of allowable costs to
make clear that it includes both expenditures to improve health care
quality and expenditures related to health information technology and
meaningful use requirements. However, we are not modifying those MLR
definitions for purposes of risk corridors, in order to retain
consistency with the MLR calculation.
Comment: A few commenters requested that the risk corridors program
not utilize the Medicare Part D formulation of direct and indirect
remuneration. They stated that the Part D formulation is too broad for
the risk corridors program, and that a narrower construct is
appropriate here. Commenters contrasted the formulation applicable to
Medicare, a governmental program, with the formulation that in their
view should be applicable to commercial plans. Commenters recommended
including a number of different definitions of rebates, discounts, and
price concessions. One commenter recommended using the formulation used
in the retiree drug subsidy program under subpart R of the Medicare
Modernization Act regulations at 42 CFR 423.880 et seq.
Response: We acknowledge the breadth of the proposed definition of
direct and indirect remuneration, and are revising the definition to be
consistent with the approach adopted by the MLR rule. The MLR rule
requires deduction of prescription drug rebates received by an issuer
for both reporting and calculation purposes. We intend that MLR rules
for defining and determining when prescription drug rebates are
received by an issuer apply for risk corridors purposes.
Comment: One commenter recommended that allowable costs be defined
as the sum of claims incurred during the risk corridors reporting year
and paid through March 31 of the following year plus unpaid claims
liabilities associated with claims incurred during the risk corridors
reporting year.
Response: We agree that the calculation of allowable costs should
include a run-out period and unpaid claims liabilities, and are
clarifying that allowable costs should be calculated in accordance with
the MLR rule.
Comment: We received four comments about the definition of ``QHP.''
Three commenters stated that a plan offered by an issuer outside of the
Exchange that is identical to a QHP should be subject to the risk
corridors program. Those commenters cited administrative simplicity,
and stated that ``the pricing of QHPs is supposed to be the same
whether offered on or off an Exchange.'' A fourth commenter requested
guidance on the issue.
Response: The Affordable Care Act provides that the risk corridors
program applies to QHPs. For risk corridors purposes, the QHP
definition set forth in the Exchange Establishment rule applies. A QHP
issuer is not precluded from offering a QHP outside an Exchange. If a
QHP issuer does so, the QHP offered outside an Exchange is subject to
the risk corridors program. We believe that, in keeping with the
discussion of the same premium provision in the preamble of the
Exchange Establishment rule, this generally means that health plans
that are substantially the same as a QHP will be subject to the risk
corridors program. HHS may clarify this standard in future rulemaking
or guidance.
Comment: A number of commenters requested that the risk corridors
[[Page 17238]]
calculation take into account profits in a manner similar to the MLR
rule. Some commenters requested that allowable administrative costs
include profits, margin, or underwriting gain. This inclusion would be
consistent with the MLR rule, which permits an issuer in certain
circumstances to have administrative expenses and profits up to 20
percent of after-tax premium revenues before a rebate is due.
Commenters also noted that section 1342(a) of the Affordable Care Act
states that risk corridors calculations are to be based on a similar
program under Medicare Part D, which includes return on investment, an
analog to profits, in the definition of target amount.
Response: The proposed rule did not address profits in the risk
corridors calculation. In the HHS notice of benefit and payment
parameters, we intend to propose that profits be included within
administrative costs for purposes of the risk corridors calculation,
consistent with MLR.
Comment: A number of commenters requested that the risk corridors
calculation take into account taxes in a manner similar to the MLR
rule. The MLR rule requires reporting of a broad range of taxes, and
deduction of certain taxes from premiums in the MLR denominator. One
commenter noted that taxes may either be subtracted from premiums or
added to allowable administrative costs.
Response: The proposed rule did not address taxes in the risk
corridors calculation. In the HHS notice of benefit and payment
parameters, we intend to propose that taxes and other expenses be
included within administrative costs for purposes of the risk corridors
calculation, with those Federal and State taxes and licensing and
regulatory fees described in Sec. 158.161(a), Sec. 158.162(a)(1), and
Sec. 158.162(b)(1) exempt from the 20 percent cap on allowable
administrative expenses.
Comments: Several commenters sought clarification as to whether any
of the risk corridors elements were projections. Various commenters
suggested that premiums or administrative costs should reflect
projections. One commenter requested a clarification to confirm the
intent to use projected costs as the targeted amount.
Response: Section 1342 of the Affordable Care Act does not allow
the use of projections. Furthermore, because the temporary risk
corridors program is designed to limit the extent of actual issuer
losses (and gains) with respect to QHPs, the program will use actual
data, not projected data.
2. Risk Corridors Establishment and Payment Methodology (Sec. 153.510)
In Sec. 153.510 of the proposed rule, we proposed to establish
risk corridors by specifying risk percentages above and below the
target amount. In Sec. 153.510(a), we proposed to require a QHP issuer
to adhere to the requirements set by HHS for the establishment and
administration of a risk corridors program for calendar years 2014
through 2016. The preamble to the proposed rule stated that we would
issue guidance in the annual HHS notice of benefit and payment
parameters for QHPs regarding reporting and the administration of
payments and charges. The preamble also stated that risk corridors
guidance will be plan-specific, and not issuer-specific, as is the case
with respect to the MLR rule, and that we interpreted the risk
corridors provisions to apply to all QHPs offered in the Exchange.
In Sec. 153.510, we also established the payment methodology for
the risk corridors program, using the thresholds and risk-sharing
levels specified in statute. In Sec. 153.510(b), we described the
method for determining payment amounts to QHP issuers. For a QHP with
allowable costs in excess of 103 percent but not more than 108 percent
of the target amount, HHS will pay the QHP issuer 50 percent of the
amount in excess of 103 percent of the target amount. For a QHP with
allowable costs that exceed 108 percent of the target amount, the
Affordable Care Act directs HHS to pay the QHP issuer an amount equal
to 2.5 percent of the target amount plus 80 percent of the amount in
excess of 108 percent of the target amount.
In Sec. 153.510(c), we described the circumstances under which QHP
issuers will remit charges to HHS, as well as the means by which HHS
will determine those charge amounts. We proposed that QHP issuers will
begin to remit charges to HHS for the first dollar of allowable charges
less than 97 percent of the target amount. For a QHP with allowable
costs that are less than 97 percent of the target amount but greater
than 92 percent of the target amount, HHS will charge the QHP issuer an
amount equal to 50 percent of the difference between 97 percent of the
target amount and the actual value of allowable costs. For a QHP with
allowable costs below 92 percent of the target amount, the QHP issuer
will remit charges to HHS in an amount equal to 2.5 percent of the
target amount plus 80 percent of the difference between 92 percent of
the target amount and the actual value of allowable costs.
While we did not propose deadlines in the proposed rule, we
discussed in the preamble timeframes for QHP issuers to remit charges
to HHS. We suggested, for example, that a QHP issuer required to make a
risk corridors payment may be required to remit charges within 30 days
of receiving notice from HHS, and that HHS would make payments to QHP
issuers that are owed risk corridors amounts within a 30-day period
after HHS determines that a payment should be made to the QHP issuer.
QHP issuers who are owed these amounts will want prompt payment, and
payment deadlines should be the same for HHS and QHP issuers. We sought
comment on these proposed payment deadlines in the preamble to the
proposed rule.
Considering the comments received, we are finalizing this section
as proposed, with a few clarifying modifications.
Comments: We received a number of comments suggesting that the risk
corridors calculation should be performed at a less granular level than
the plan level. The most common suggestion was aggregation at the
issuer level, although other alternatives were suggested. One commenter
suggested aggregation at the carrier, State and business line level,
while another recommended applying the risk corridors calculation
separately to an issuer's aggregate non-group QHP business and
aggregate small group QHP business. One reason advanced for these
alternatives was consistency with the MLR rules, which apply at the
issuer level. Commenters also noted that issuers do not currently
accumulate data at the plan level. Some commenters stated that issuer-
level data would be more credible and reliable.
Response: We have carefully considered the commenters' suggestions,
but are not making the requested change. The statutory language
governing risk corridors does not afford the necessary flexibility. The
statutory provision that governs risk corridors at section 1342(a) of
the Affordable Care Act describes the risk corridors program as one in
which ``a qualified health plan offered in the individual or small
group market shall participate * * *''. By contrast, section 2718 of
the PHS Act, which governs the MLR program, requires the calculation of
a ratio with respect to an issuer.
Comment: One commenter requested that the risk corridors program
may be based on targeted medical costs (net premiums) in addition to
the premium rates.
Response: We are not making the changes proposed by the commenter
because section 1342 of the Affordable Care Act does not provide the
flexibility necessary to do so. That section requires
[[Page 17239]]
that the risk corridors program be based upon the ratio of a plan's
total costs, other than administrative costs, to its total premiums,
reduced by the administrative costs. In codifying that section in
regulation, we have sought to define the relevant terms in a manner
consistent with those used in the MLR calculation.
Comments: A number of commenters addressed the risk corridors
payment deadline. Three commenters agreed that 30 days was a reasonable
timeframe for both payments and charges, and one commenter recommended
that payments and charges be paid once per year. One commenter
suggested requiring issuers of QHPs to submit risk corridors data
within 30 days after submission of a request for payment to HHS or
receipt of demand for payment from HHS.
Response: We plan to address the risk corridors payment deadline in
the HHS notice of benefit and payment parameters.
3. Attribution and Allocation of Revenue and Expense Items (Sec.
153.520)
In Sec. 153.520(a)(3) of the proposed rule (now Sec. 153.530(d)),
we proposed rules for accounting for reinsurance claims submitted on a
date to be determined by HHS for a given reinsurance benefit year.
Specifically, we proposed that a QHP issuer be required to attribute
reinsurance payments to risk corridors based on the date on which the
valid reinsurance claim was submitted. For example, if the QHP issuer
were to submit a reinsurance claim on or before the deadline for a
benefit year, that QHP issuer would attribute the claim payment to the
risk corridors calculation for the benefit year in which the costs were
accrued. Conversely, if the QHP issuer were to submit a claim after the
deadline for a benefit year, that QHP issuer would attribute the claim
payment to the risk corridors calculation for the following benefit
year.
We are finalizing this provision as proposed, with the following
modifications:
We are revising Sec. 153.520(d) to clarify that an issuer must
attribute not only reinsurance payments, but also reinsurance
contributions and risk adjustment payments and charges to the benefit
year for which the contributions, charges, or payments apply, not the
year in which the claim was submitted.
In addition, we are including the new paragraphs Sec. 153.520(a),
Sec. 153.520(b), Sec. 153.520(c), and Sec. 153.520(e) to clarify the
attribution of items, such as quality improvement and health
information technology expenditures, that are typically not plan-
specific. Paragraph 153.520(a) requires that each item of revenue and
expense in allowable costs and target amount for a QHP must be
reasonably attributable to that QHP's operations. Paragraph 153.520(b)
states that each item must be reasonably allocated across the issuer's
plans (that is, QHPs and non-QHPs). Thus, Sec. 153.520(a) and Sec.
153.520(b) require an issuer to allocate shared revenue and expense
items between its health plans and its other business lines, and then
to attribute its shared items within its health plans to each plan. To
the extent that the issuer is utilizing a method for allocating
expenses for MLR purposes, the method used for risk corridors purposes
under Sec. 153.520 must be consistent. Paragraph 153.520(c) requires
an issuer to disclose to HHS a detailed description of the methods and
bases for the attribution and allocation. We plan to specify the timing
and method of disclosure in future guidance. Finally, Sec. 153.520(e)
requires an issuer to maintain the supporting records for the
attribution and allocation for 10 years, and to make the records
available to HHS upon request.
Comments: We received a few comments to the proposed provision
attributing reinsurance payments to the applicable benefit year. One
commenter stated that the rule was inconsistent with issuers' pricing
practices, the MLR calculation, and financial reporting practices. The
commenter stated that issuers could manipulate risk corridors payments
by delaying claims submissions, and that claims not submitted in time
for the 2016 calculation would not be eligible for risk corridors,
since the program would have terminated. Another commenter recommended
that reinsurance amounts be on a ``basis other than a paid basis'' in
order to be consistent with the MLR calculation. Another commenter
recommended attribution of reinsurance claims to the year of
submission, even if the claims were incurred in a prior benefit year.
Response: We are clarifying in the rule that reinsurance and risk
adjustment payments, contributions, and charges are attributed to the
benefit year with respect to which the reinsurance or risk adjustment
amounts apply. For example, reinsurance payments received in 2015 for
claims costs incurred in 2014 (even if the reinsurance claim was
properly submitted in 2015) would be attributed to 2014 for purposes of
risk corridors calculations.
4. Risk Corridors Data Requirements (Sec. 153.530)
To support the risk corridors program calculations, we proposed in
Sec. 153.520 of the proposed rule that all QHP issuers submit data
needed to determine actual performance relative to their target
amounts, to be collected in standard formats specified by HHS. We
proposed in Sec. 153.520(a) to require that QHP issuers submit data
related to actual premium amounts collected, including premium amounts
paid by parties other than the enrollee in a QHP, and specifically,
advance premium tax credits paid by the government. We also proposed
that risk adjustment and reinsurance be regarded as after-the-fact
adjustments to premiums for purposes of determining risk corridors
amounts. Therefore, Sec. 153.520(a)(1) of the proposed rule required
that the reported premium amounts be increased by the amounts paid to
the QHP issuer for risk adjustment and reinsurance, and Sec.
153.520(a)(2) required that reported premium amounts be reduced for any
risk adjustment charges the QHP issuer pays on behalf of the plan,
reinsurance contributions that the QHP issuer makes on behalf of the
plan, and Exchange user fees that the QHP issuer pays on behalf of the
plan. We sought comment on this issue in the preamble.
We proposed in Sec. 153.520(b) that QHP issuers be required to
submit allowable cost data to calculate the risk corridors in a format
to be specified by HHS, and that allowable costs be reduced for any
direct and indirect remuneration received. Finally, we proposed that
allowable costs be reduced by the amount of any cost-sharing reductions
received from HHS.
Considering the comments received, we are finalizing this
provision, with the following modifications:
In order to more clearly reflect section 1342(c)(1)(B) of the
Affordable Care Act, we are revising this section so that the
adjustments for reinsurance and risk adjustment are made to allowable
costs. We are also making a number of clarifying modifications
throughout this section.
Comments: Commenters generally agreed that reinsurance and risk
adjustment payments and charges should be treated as after-the-fact
adjustments to risk corridors. One commenter noted the inconsistency
between the proposed rule's treatment of reinsurance and risk
adjustment payments and charges as adjustments to premium revenue, and
section 1342 of the Affordable Care Act, which requires that those
adjustments be made to allowable costs. Another commenter
[[Page 17240]]
noted that under the MLR rule, these adjustments are made to premium
revenue, and urged that the risk corridors program handle these
adjustments in the same manner. One commenter requested clarification
that the attribution of reinsurance payments ``received'' be determined
on an accrual rather than cash basis. Another commenter, who requested
that the risk adjustment program be delayed until at least 2016 because
of the complexity of implementing the risk adjustment, reinsurance, and
risk corridors programs simultaneously, requested that, for
consistency, HHS only take into account reinsurance for purposes of the
temporary risk corridors program during those initial years.
Response: In order to more clearly reflect the requirements of the
Affordable Care Act, we are revising the section so that those payments
and charges are adjustments to allowable costs, rather than premium
revenue. We agree with the commenter that reinsurance and risk
adjustment payments and charges should be reflected in risk corridors
on an accrual basis, and are reflecting that requirement in Sec.
153.520(d) of this final rule. Since all three programs will play
important and different roles in stabilizing premiums beginning in
2014, we believe that both the risk adjustment and reinsurance programs
should be taken into account as after-the-fact adjustments for purposes
of the risk corridors calculation, as required by the statute.
Comments: Commenters expressed concern about the interaction of
risk corridors, reinsurance, and risk adjustment with the MLR
calculation. Commenters discussed the need for the MLR timeline to take
into account those other calculations, payments, and charges. One
commenter discussed the challenges faced by publicly held issuers who
must also comply with Federal securities laws' disclosure requirements.
Two commenters included detailed timelines encompassing proposed due
dates for reinsurance, risk adjustment, risk corridors and MLR.
Commenters also supported our efforts to use, where practicable,
MLR definitions and concepts in the risk corridors rules, but noted
difficulties in using data collected for MLR purposes for premium
stabilization purposes because MLR data is compiled at the issuer
level, while risk corridors data will be required to be collected at
the plan level.
Response: We will provide additional details on timeline-related
issues in future guidance. We anticipate that the accounting profession
will take appropriate measures to guide issuers, as it has in past
analogous circumstances, such as with the retiree drug subsidy program
under the Medicare Modernization Act, which was first effective in
2006. We will continue efforts to minimize reporting burden by seeking
to utilize data already collected for MLR.
Comments: We received a comment on the issue of how to determine
the allowable costs for a QHP if the issuer fails to comply with the
reporting requirements in Sec. 153.530. The commenter recommended that
HHS use quarterly reports to determine a final payment liability using
the lowest HHS payment liability minus a certain percentage of withhold
(penalty) of either the premium payments or risk corridors payment.
Response: We interpret the comment as suggesting that HHS determine
a baseline amount of allowable costs or payment liability reflecting
experience of other issuers. The approach is one of several reasonable
methods. We will consider it along with other approaches. We are
evaluating measures we could take to address non-compliance.
G. Subpart G--Health Insurance Issuer Standards Related to the Risk
Adjustment Program
Section 1343 of the Affordable Care Act provides for a program of
risk adjustment for all non-grandfathered plans in the individual and
small group markets both inside and outside of the Exchanges. We noted
in the introduction to subpart D of this part that the risk adjustment
program described in section 1343 is intended to reduce or eliminate
premium differences between plans based solely on expectations of
favorable or unfavorable risk selection or choices by higher risk
enrollees in the individual and small group markets. The foregoing is
relevant for this subpart as well, which finalizes the health insurance
issuer standards that are necessary to carry out risk adjustment as
described in subpart D.
1. Reserved (Sec. 153.600)
Section 153.600 of the proposed rule defined a number of terms used
in this subpart. Those definitions have been moved to subpart A. We are
reserving this section for future use.
2. Risk Adjustment Issuer Requirements (Sec. 153.610)
We proposed in paragraph (a) that all issuers of risk adjustment
covered plans be required to submit risk adjustment data according to
the timetable and format prescribed by the State, or HHS on behalf of
the State. Considering the comments received, we are finalizing this
definition, with the following modifications: We are modifying the
requirement that issuers submit risk adjustment data to the State, or
HHS on behalf of the State, to align with the changes to Sec.
153.340(a) and (b) discussed above. We are adding a requirement that
issuers that offer risk adjustment covered plans store required risk
adjustment data in accordance with the risk adjustment data collection
approach established by HHS or the State. We note that use of a
distributed model may require issuers to format risk adjustment data
and maintain that data in a manner that complies with specifications
promulgated by the State, or HHS on behalf of the State, and to run
risk adjustment software.
Comment: We received many comments supporting the requirement that
issuers submit risk adjustment data to the State, or HHS on behalf of
the State. A number of commenters requested that HHS expand the
definition of risk adjustment data to include rate setting data that
may not be available from State Departments of Insurance. Other
commenters stated that the amount and type of data envisioned in the
proposed rule was appropriate.
Response: We are making only minor changes to this provision, to
align with changes made to Sec. 153.340(a).
Comment: One commenter suggested that participation in risk
adjustment should be voluntary. Two other commenters urged HHS to delay
risk adjustment until sufficient data is available. We received several
comments suggesting that the timeframe for data submission be left to
States.
Response: The Affordable Care Act requires that issuers of risk
adjustment covered plans participate in the risk adjustment program. We
believe that there will be sufficient data to administer the risk
adjustment program, even in the initial years. Therefore, we are
finalizing the policy that all issuers offering risk adjustment covered
plans must participate in the program by providing the specified
information to the State, or HHS on behalf of the State, on a timeframe
determined by that State.
In paragraph (b) of the proposed rule, we proposed to permit
contractual arrangements between issuers and providers, suppliers,
physicians, and other practitioners to ensure that issuers receive the
necessary risk adjustment data. Considering the comments received, we
are finalizing this paragraph as paragraph (c).
[[Page 17241]]
Comments: We received a number of comments in response to this
provision. Two commenters supported a requirement permitting issuers to
require providers, suppliers, physicians, and other practitioners to
submit risk adjustment data to those issuers. We received two comments
expressing reservations about the requirement on the grounds that it
would place additional burdens on practitioners.
Response: We believe that the risk adjustment program is highly
dependent on high quality risk adjustment data. Issuers depend on
providers, suppliers, physicians, and other practitioners to submit
this data to them. Because issuers will receive or be required to make
risk adjustment payments based in part on the amount and quality of
this risk adjustment data, we believe it is fair to permit issuers to
require suppliers, physicians, and other practitioners to submit that
data to them in their contracts. We are therefore finalizing this
paragraph.
In paragraph (c) of the proposed rule, we proposed that risk
adjustment covered plan issuers who owe a net balance of risk
adjustment charges will be assessed those net charges upon completion
of the risk adjustment process. Additionally, we requested comment as
to whether issuers should have a 30-day timeframe in which to pay net
charges to the State that assessed those charges, or to HHS on behalf
of the State. Considering the comments received, we are finalizing this
paragraph, clarifying that charges include any adjustments made
pursuant to data validation described in Sec. 153.350.
Comment: We received a few comments supporting the requirement that
issuers remit charges to the State, or HHS on behalf of the State.
Response: In response to comments, we are finalizing the
requirement that issuers pay risk adjustment charges to the State, or
HHS on behalf of the State. We are clarifying that charges include any
adjustments made pursuant to data validation described in Sec.
153.350.
Comment: We received one comment supporting a requirement that
issuers be required to pay net charges within 30 days of the assessment
of those charges by a State, or HHS on behalf of a State.
Response: In response to the comment, we are adding a provision
that issuers must pay net charges to the State, or HHS on behalf of the
State, within 30 days of the assessment of those charges.
3. Compliance With Risk Adjustment Standards (Sec. 153.620)
The credibility of risk adjustment is important to stabilizing
health insurance premiums in the Exchanges. Consistent with Sec.
153.350 of the proposed rule, we proposed in Sec. 153.620 that risk
adjustment covered plan issuers must make available data to HHS or the
State to support validation of the risk adjustment data that they have
submitted. In paragraph (b), we proposed that risk adjustment covered
plan issuers retain the risk adjustment data that they have reported
for a period of ten years. For the reasons described in the proposed
rule and considering the comments received, we are finalizing these
provisions as proposed with a few modifying clarifications.
Comment: We received several comments supporting the requirement
that issuers make data required for validation of risk adjustment data
available to States or HHS on behalf of the State. Two commenters
suggested that HHS establish sanctions for issuers that do not comply
with the data validation and records maintenance requirements. One
commenter opposed this requirement, suggesting that the requirement
would force issuers to disclose sensitive data.
Response: We believe that the data validation and records
maintenance standards are necessary to support the credibility of the
risk adjustment program. After consideration of the comments received,
we are finalizing the proposed provision with a minor drafting change
to Sec. 153.610(b) to clarify that the provision applies when the
State, or HHS on behalf of the State, requests the data.
Comment: We received several comments suggesting that a ten-year
record retention requirement was too long and would impose a
significant burden on issuers.
Response: We believe that the record retention requirements should
be consistent with other Federal record retention requirements, and are
finalizing the proposed provision.
III. Provisions of the Final Regulations
For the most part, this final rule incorporates the provisions of
the proposed rule. Those provisions of the final rule that differ from
the proposed rule are as follows:
Subpart A--General Provisions (Sec. 153.10 and Sec. 153.20)
We have moved a number of reinsurance-related definitions
to subpart A. We have made technical changes to the definition of
``attachment point,'' ``coinsurance rate,'' ``contribution rate,'' and
``reinsurance cap'' to reflect comments received.
We have moved a number of risk adjustment-related
definitions to subpart A. We have added several new definitions--
``individual risk score,'' ``calculation of plan average actuarial
risk,'' ``calculation of payments and charges,'' ``risk adjustment data
collection approach,'' and ``risk adjustment data.'' We also modified
the definition of ``risk adjustment methodology'' to mean all parts of
risk adjustment--the risk adjustment model, the calculation of plan
average actuarial risk, the calculation of payments and charges, the
risk adjustment data collection approach, and the schedule for the risk
adjustment program. We have modified the definition of ``risk
adjustment data'' to mean all data that are used in a risk adjustment
model, or the calculation of plan average actuarial risk, or the
calculation of payments and charges, or that are used for validation or
audit of such data.
Subpart B--State Notice of Benefit and Payment Parameters (Sec.
153.100 and Sec. 153.110)
We have clarified that a State that establishes a
reinsurance program must publish a notice of benefit and payment
parameters if it intends to modify the data requirements for
reinsurance payments, collect reinsurance contributions, use more than
one applicable reinsurance entity, or modify any reinsurance
parameters. We have clarified that States have the flexibility to
establish a reinsurance entity regardless of whether or not they
establish a State Exchange.
We have clarified that a State operating a risk adjustment
program must publish a notice of benefit and payment parameters setting
forth the risk adjustment methodology and data validation that it will
use.
We have specified that State notices of benefit and
payment parameters be issued by March 1 of the calendar year prior to
the first benefit year for which the notice applies.
We have clarified that a State that does not publish a
notice of benefit and payment parameters forgoes its right to modify
the data requirements for reinsurance payments, collect reinsurance
contributions, use more than one applicable reinsurance entity, modify
any reinsurance parameters, or use any risk adjustment methodology or
data validation standards other than those published in the HHS notice
of benefit and payment parameters for use by HHS when operating risk
adjustment on behalf of the State.
[[Page 17242]]
We have specified that a State that elects to collect
additional reinsurance contributions must describe the purpose of the
additional collection and the additional contribution rate.
We have clarified that a State that modifies the
reinsurance parameters from those published in the annual HHS notice of
benefit and payment parameters must apply those parameters uniformly
throughout the State.
Subpart C--State Standards Related to the Reinsurance Program (Sec.
153.200-Sec. 153.250)
We have clarified that States that establish an Exchange
are not required to establish a reinsurance program.
We have revised the process for collection of
contributions so that HHS will collect contributions from self-insured
plans, while the State has the option to collect from fully insured
plans. We have required States to notify HHS by December 1, 2012, if
they elect to collect reinsurance contributions from fully insured
plans for the 2014 benefit year, and by September 1 of the calendar
year that is two years prior to the applicable benefit year if they
elect to collect reinsurance contributions from fully insured plans for
any benefit year after 2014.
We have directed each State to notify HHS of the
percentage of reinsurance contributions received by HHS allocated to
each applicable reinsurance entity, if applicable.
We have added provisions specifying that if a State elects
to collect additional reinsurance contributions, HHS will only collect
additional amounts for administrative expenses, and will not collect
additional amounts for reinsurance payments.
We are no longer requiring that reinsurance payments be
linked to essential health benefits.
Subpart D--State Standards Related to the Risk Adjustment Program
(Sec. 153.300-Sec. 153.350)
We have added a deadline for States to notify issuers of
payments and charges.
We have added a provision that States must submit annual
risk adjustment program summary reports to HHS.
We have clarified the standards for publication of risk
adjustment methodology in HHS and State notices of benefit and payment
parameters.
We have modified the proposed approach to risk adjustment
data collection, as follows: When HHS operates a risk adjustment
program, it will use a distributed approach so that individual data
remains with the issuer. When a State operates a risk adjustment
program, it may choose the approach that best suits its program.
We have modified the privacy and security standards
applicable when a State is operating risk adjustment.
We have adjusted the data validation standards to account
for the new approach to risk adjustment data collection.
Subpart E--Health Insurance Issuer and Group Health Plan Standards
Related to the Reinsurance Program (Sec. 153.400 and Sec. 153.410)
We have clarified that contributing entities must make
reinsurance contributions to HHS and the applicable reinsurance entity,
if the State elects to collect reinsurance contributions.
We have clarified which contributing entities must make
reinsurance contributions.
We have clarified issuer standards for States that elect
to collect additional funds.
We have specified a collection timeframe for submission of
reinsurance contributions to HHS.
We have clarified that reinsurance contributions data must
be submitted to HHS and each applicable reinsurance entity, if the
State elects to collect reinsurance contributions.
Subpart F--Health Insurance Issuer Standards Related to the Risk
Corridors Program (Sec. 153.500-Sec. 153.530)
We added the defined terms ``administrative costs'' and
``premiums earned'' to be consistent with the MLR regulations.
We revised the defined term ``allowable administrative
costs'' to include a 20 percent cap on such costs.
We revised the defined term ``allowable costs'' to include
quality improvement and health information technology expenditures
under the MLR regulations.
We revised the defined term ``direct and indirect
remuneration'' to conform with the MLR regulations.
We revised the provision regarding attribution of
reinsurance payments based on the date on which the reinsurance claim
was submitted. The final rule specifies that reinsurance payments and
contributions and risk adjustment payments and charges be allocated to
the benefit year for which they apply.
We added a number of provisions clarifying how revenue and
expense items not typically plan-specific are to be allocated and
attributed to plans.
We revised the provisions concerning after-the-fact
adjustments to allowable costs to more clearly reflect the relevant
statutory requirements.
Subpart G--Health Insurance Issuer Standards Related to the Risk
Adjustment Program (Sec. 153.610 and Sec. 153.620)
We have modified issuers' data submission standards to
reflect the flexibility afforded to States in collecting risk
adjustment data.
We have included a requirement that issuers that offer
risk adjustment covered plans store all required risk adjustment data
in accordance with the risk adjustment data collection approach
established by HHS, or the State.
We have specified that issuers remit risk adjustment
charges within 30 days.
IV. Collection of Information Requirements
This final rule includes requirements that differ from those
included in the proposed rule. The following provisions of provisions
this final rule involve changes from the information collection
requirements set forth in the proposed rule:
As described in Sec. 153.210(a), we have added a new
provision to the final rule under which a State that contracts with
more than one applicable reinsurance entity must notify HHS of the
percentage of reinsurance contributions received from HHS for the State
to be allocated to each applicable reinsurance entity.
As described in Sec. 153.220(b), we have added a new
standard to the final rule under which a State electing to collect
reinsurance contributions from issuers in the fully insured market must
notify HHS of its intention to do so.
As described in Sec. 153.310(d), we have added a new
standard to the final rule under which a State operating a risk
adjustment program must submit annual summary reports of risk
adjustment operations to HHS.
As described in Sec. 153.340(b)(1), we have modified the
risk adjustment data collection standards from the proposed rule. A
State operating a risk adjustment program must collect or calculate
individual risk scores generated by the risk adjustment model in the
Federally certified risk adjustment methodology.
As described in Sec. 153.400(d), we have modified the
data standards applicable to contributing entities with respect to
contribution amounts so that a contributing entity in the individual
and fully insured market is no longer required to submit enrollment and
premium data and a contributing entity in the self-insured market is no
longer required to submit data on covered lives and total expenses.
Instead, a contributing entity is required to submit
[[Page 17243]]
data necessary to substantiate the contribution amounts for the
contributing entity.
As described in Sec. 153.520(c), we have added a new
standard to the final rule under which a QHP issuer must submit to HHS
a report with detailed description of the methods and specific bases
used to attribute revenues and expenses in allowable costs and target
amount to each QHP and across plans.
As described in Sec. 153.520(e), we have added a new
standard to the final rule under which a QHP issuer must maintain for
ten years and make available to HHS upon request the data used to make
certain attributions and allocations of items of revenue or expenses,
together with all supporting information required to determine that
these methods and bases were accurately implemented.
In addition, this final rule describes some information collections
for which HHS plans to seek approval at a later date. For these
information collections, HHS will issue future Federal Register notices
to seek comments on those information collections, as required by the
Paperwork Reduction Act. Included among such information collections
for which HHS plans to seek later approval are the following
requirements:
As described in Sec. 153.310(d), a State operating a risk
adjustment program must submit annual summary reports of risk
adjustment operations to HHS.
As described in Sec. 153.400(d), a contributing entity
must submit data required to substantiate the contribution amounts for
the contributing entity.
As described in Sec. 153.410(b), issuers of reinsurance-
eligible plans, in order to receive reinsurance payments, must make
requests for payment in accordance with the standards of the annual HHS
notice of benefit and payment parameters for the applicable benefit
year or the applicable State notice of benefit and payment parameters.
As described in Sec. 153.520(c), a QHP issuer must submit
to HHS a report with a detailed description of the methods and specific
bases used to attribute revenues and expenses in allowable costs and
target amount to each QHP and across plans.
As described in Sec. 153.530, a QHP issuer must submit to
HHS data on premiums earned, allowable costs, and allowable
administrative costs with respect to each QHP that the QHP issuer
offers.
As described in Sec. 153.610(a)-(b) and Sec. 153.620(b),
an issuer that offers risk adjustment covered plans must submit or make
accessible, and must store, all risk adjustment data for those risk
adjustment covered plans.
As described in Sec. 153.620, an issuer that offers risk
adjustment covered plans must comply with data validation requests by
the State or HHS on behalf of the State.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a control
number assigned by OMB.
V. Summary of Regulatory Impact Analysis
The following section focuses on the benefits and costs of the
requirements included in this final rule, summarizing analysis from the
detailed Regulatory Impact Analysis, available at https://cciio.cms.gov
under ``Regulations and Guidance.'' That Regulatory Impact Analysis
evaluates the impacts of this final rule and a second final rule,
titled ``Patient Protection and Affordable Care Act; Establishment of
Exchanges and Qualified Health Plans; Exchange Standards for
Employers.'' The second final rule was made available for public
inspection at the Office of the Federal Register on March 12, 2012.
A. Introduction
HHS has examined the impacts of the final rule under Executive
Orders 12866 and 13563, the Regulatory Flexibility Act (5 U.S.C. 601-
612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).
Executive Orders 12866 and 13563 direct agencies to assess all costs
and benefits (both quantitative and qualitative) of available
regulatory alternatives and, if regulation is necessary, to select
regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety effects, distributive
impacts, and equity). Executive Order 13563 emphasizes the importance
of quantifying both costs and benefits, of reducing costs, of
harmonizing rules, and of promoting flexibility. This rule has been
designated an ``economically'' significant rule, under section 3(f)(1)
of Executive Order 12866. Accordingly, the rule has been reviewed by
the Office of Management and Budget.
The Regulatory Flexibility Act requires agencies to analyze
regulatory options that would minimize any significant impact of a rule
on small entities. Few insurance issuers offering comprehensive health
insurance policies fall below the size thresholds for ``small''
business established by the SBA. HHS concludes that this rule will not
have a significant impact on a substantial number of small entities.
Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires
that agencies prepare a written statement, which includes an assessment
of anticipated costs and benefits, before proposing ``any rule that
includes any Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100,000,000 or more (adjusted annually for
inflation) in any one year.'' The current threshold after adjustment
for inflation is approximately $136 million, using the most current
(2011) Implicit Price Deflator for the Gross Domestic Product. Because
States are not required to establish a reinsurance program or operate a
risk adjustment program, the final rule does not impose a mandate to
incur costs above the $136 million threshold on State, local, or tribal
governments. Because operational details on how health insurance
issuers and entities that must participate in the reinsurance program
have not been finalized, we are not able to estimate whether the final
rule imposes a mandate to incur costs above the $136 million threshold
on the private sector.
B. Need for This Regulation
This rule implements standards for States related to reinsurance
and risk adjustment, and for health insurance issuers related to
reinsurance, risk corridors, and risk adjustment consistent with the
Affordable Care Act. These programs will mitigate the impacts of
potential adverse selection and stabilize the individual and small
group markets as insurance reforms and the Exchanges are implemented,
starting in 2014. The transitional State-based reinsurance program
serves to reduce the uncertainty of insurance risk in the individual
market by making payments for high-cost enrollees. The temporary
federally administered risk corridors program serves to protect against
rate-setting uncertainty for QHPs by limiting the extent of issuer
losses (and gains). On an ongoing basis, the State-based risk
adjustment program is intended to protect health insurance issuers that
attract higher-risk populations (such as individuals with chronic
conditions).
C. Summary of Costs and Benefits
Two regulations are being published to implement components of the
Exchange and health insurance premium stabilization policies in the
Affordable Care Act. The detailed Regulatory Impact Analysis evaluates
the impacts of both proposed rules, while this summary focuses on the
benefits and costs of the requirements in this final rule.
[[Page 17244]]
Methods of Analysis
This regulatory impact analysis references Congressional Budget
Office (CBO) estimates relating to the Affordable Care Act and CMS
estimates published in the FY 2013 President's Budget relating to the
Affordable Care Act and the proposed form of this rule. The CBO
estimates remain the most comprehensive accounting of all the
interacting provisions pertaining to the Affordable Care Act, and
contain cost estimates of certain provisions that have not been
independently estimated by CMS. We expect that the requirements in this
final rule will significantly alter neither CBO's estimates nor CMS's
estimates. Our review and analysis of the requirements of the final
rule indicate that the impacts are within the margin of error of CBO's
and CMS's models.
Summary of Costs and Benefits
CBO estimated program payments and receipts for reinsurance and
risk adjustment. As those programs do not begin operation until 2014,
there are no outlays for reinsurance and risk adjustment in 2012 and
2013. CBO estimates that risk adjustment payments and collections are
equal in the aggregate, but that risk adjustment payments lag revenues
by one quarter. CBO did not score the impact of the risk corridors
program, but assumed collections would equal payments to plans in the
aggregate. The payments and receipts in risk adjustment and reinsurance
are financial transfers between issuers and the entities running those
programs.
Table 1--Estimated Outlays and Receipts for Reinsurance and Risk Adjustment Programs FY2012-FY2016, in Billions
of Dollars
----------------------------------------------------------------------------------------------------------------
Year 2012 2013 2014 2015 2016
----------------------------------------------------------------------------------------------------------------
Reinsurance and Risk Adjustment .............. .............. 11 18 18
Program Payments \a\...........
Reinsurance and Risk Adjustment .............. .............. 12 16 18
Program Receipts \a\...........
----------------------------------------------------------------------------------------------------------------
a Risk-adjustment payments lag receipts by one quarter. Note that although the estimates above are based upon
CBO analyses, CBO did not account for reinsurance collections payable to the U.S. Treasury. Consequently, the
receipts in the President's Fiscal Year 2013 Budget are higher than those estimated by CBO, though not
appreciably different.
Source: CBO. 2011. Letter to Hon. Nancy Pelosi. March 20, 2010.
Benefits. Payments through reinsurance, risk adjustment, and risk
corridors reduce the increased risk of financial loss that health
insurance issuers might otherwise expect to incur in 2014. Insurers
charge premiums for expected costs plus a risk premium, in order to
build up reserve funds in case medical costs are higher than expected.
Reinsurance, risk adjustment, and risk corridors payments reduce the
risk to the issuer, reducing the risk premium.
Costs. There are administrative costs to States and Exchanges to
set up and administer these premium stabilization programs. However,
States may use Exchange Planning and Establishment Grant funding
awarded pursuant to section 1311 of the Affordable Care Act to develop
these programs. There are also reporting costs for issuers to submit
data and financial information.
Regulatory Options Considered
Options considered for the reinsurance, risk adjustment, and risk
corridor programs parallel the options considered for Exchanges. These
programs aim to mitigate the impacts of potential adverse selection and
stabilize the individual and small group markets as insurance reforms
and the Affordable Insurance Exchanges are implemented, starting in
2014. The Affordable Care Act structures reinsurance and risk
adjustment as State-based programs with Federal guidelines on
methodology, while it establishes risk corridors as a federally run
program.
HHS identified two regulatory options to the approach set forth in
this final rule, as required by Executive Order 12866.
Uniform Standards for Reinsurance and Risk Adjustment: Under this
option, HHS would have set a single standard for State operation of
reinsurance and risk adjustment. This option would have restricted
State flexibility.
State Flexibility for Reinsurance and Risk Adjustment: Under this
option, States would have had a great deal of flexibility around
whether and how to implement reinsurance and risk adjustment programs.
This option would have allowed States to develop these programs to fit
their State-specific characteristics. The programs would have been
subject to few Federal standards.
Summary of Estimate Costs for Each Option
A single standard for State operations of reinsurance and risk
adjustment could have resulted in reduced Federal oversight cost.
However, this option could also have reduced innovation and limited the
diffusion of successful policies. On the other hand, while State
flexibility could have allowed for State innovation, it would have
increased the administrative burden on the Federal government and
multi-State issuers, as policies and procedures could have varied
significantly between States. HHS has adopted a middle course that aims
to limit administrative costs, especially for the transitional
reinsurance program, while also ensuring that the policy aims of the
premium stabilization programs are met. These costs and benefits are
discussed more fully in the detailed Regulatory Impact Analysis.
D. Accounting Statement
----------------------------------------------------------------------------------------------------------------
Unit discount
Category Primary estimate Year dollar rate Period
(percent) covered
----------------------------------------------------------------------------------------------------------------
Benefits:
Annualized Monetized ($millions/ Not estimated........... 2011 7 2012-2016
year).
Not estimated........... 2011 3 2012-2016
Costs:
Annualized Monetized ($millions/ Not estimated........... 2011 7 2012-2016
year).
Not estimated........... 2011 3 2012-2016
Transfers:
[[Page 17245]]
Federal Annualized Monetized 9925.................... 2011 7 2012-2016
($millions/year).
9633.................... 2011 3 2012-2016
-------------------------------------------------------------------------
Qualitative................... Risk Adjustment transfers funds among individual and small group market
health plan issuers.
Reinsurance collects funds from all issuers and distributes it to
individual market issuers.
----------------------------------------------------------------------------------------------------------------
Note: For full documentation and discussion of these estimated costs and benefits see the detailed Regulatory
Impact Analysis, available at https://cciio.cms.gov under ``Regulations and Guidance.''
VI. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
requires agencies to prepare an initial regulatory flexibility analysis
to describe the impact of the proposed rule on small entities, unless
the head of the agency can certify that the rule will not have a
significant economic impact on a substantial number of small entities.
The RFA generally defines a ``small entity'' as (1) A proprietary firm
meeting the size standards of the Small Business Administration (SBA),
(2) a not-for-profit organization that is not dominant in its field, or
(3) a small government jurisdiction with a population of less than
50,000. States and individuals are not included in the definition of
``small entity.'' HHS uses as its measure of significant economic
impact on a substantial number of small entities a change in revenues
of more than 3 to 5 percent.
As discussed above, this final rule is necessary to implement
standards for States related to reinsurance and risk adjustment, and
for health insurance issuers related to reinsurance, risk corridors,
and risk adjustment consistent with the Affordable Care Act. For
purpose of the regulatory flexibility analysis, we expect entities
offering health insurance plans, including fully insured health plan
issuers and self-insured health plan issuers, to be affected by this
proposed rule. We believe that health insurers would be classified
under the North American Industry Classification System (NAICS) Codes
524114 (Direct Health and Medical Insurance Carriers) According to SBA
size standards, entities with average annual receipts of $7 million or
less would be considered small entities for this NAICS code. Health
issuers could also be classified in NAICS code 621491 (HMO Medical
Centers), in which case the SBA size standard for small entities would
be annual receipts of $10 million or less.
HHS examined the health insurance industry in depth in the
Regulatory Impact Analysis we prepared for the proposed rule on
establishment of the Medicare Advantage program (69 FR 46866, August 3,
2004). In that analysis, we determined that there were few insurance
firms underwriting comprehensive health insurance policies (in
contrast, for example, to travel insurance policies or dental discount
policies) that fell below the size thresholds for ``small'' entities
established by the SBA.
Additionally, as discussed in the Medical Loss Ratio interim final
rule (75 FR 74918), HHS used 2009 National Association of Insurance
Commissioners (NAIC) Health and Life Blank annual financial statement
data to develop an updated estimate of the number of small entities
that offer comprehensive major medical coverage in the individual and
group markets. For purposes of that analysis, HHS used total Accident
and Health (A&H) earned premiums as a proxy for annual receipts. HHS
estimated that there were 28 small entities with less than $7 million
in A&H earned premiums offering individual or group comprehensive major
medical coverage; however, this estimate may overstate the actual
number of small health insurance issuers offering such coverage, since
it does not include receipts from these companies' other lines of
business.
This final rule contains standards for premium stabilization
programs required of health plan issuers including the risk adjustment
program as well as the transitional reinsurance program and temporary
risk corridors programs. Because we believe that few insurance firms
offering comprehensive health insurance policies fall below the size
thresholds for ``small'' entities established by the SBA, we conclude
that this final rule will not have a significant economic impact on a
substantial number of small entities.
List of Subjects in 45 CFR Part 153
Administrative practice and procedure, Adverse selection, Health
care, Health insurance, Health records, Organization and functions
(Government agencies), Premium Stabilization, Reporting and
recordkeeping requirements, Reinsurance, Risk adjustment, Risk
corridors, Risk mitigation, State and local governments.
For the reasons set forth in the preamble, the Department of Health
and Human Services amends 45 CFR subtitle A, subchapter B, by adding
part 153 to read as set forth below:
Subtitle A--Department of Health and Human Services
Subchapter B--Requirements Relating To Health Care Access
PART 153--STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND
RISK ADJUSTMENT UNDER THE AFFORDABLE CARE ACT
Subpart A--General Provisions
Sec.
153.10 Basis and scope.
153.20 Definitions.
Subpart B--State Notice of Benefit and Payment Parameters
153.100 State notice of benefit and payment parameters.
153.110 Standards for the State notice of benefit and payment
parameters.
Subpart C--State Standards Related to the Reinsurance Program
153.200 [Reserved]
153.210 State establishment of a reinsurance program.
153.220 Collection of reinsurance contribution funds.
153.230 Calculation of reinsurance payments.
153.240 Disbursement of reinsurance payments.
153.250 Coordination with high-risk pools.
Subpart D--State Standards Related to the Risk Adjustment Program
153.300 [Reserved]
153.310 Risk adjustment administration.
153.320 Federally certified risk adjustment methodology.
153.330 State alternate risk adjustment methodology.
153.340 Data collection under risk adjustment.
153.350 Risk adjustment data validation standards.
[[Page 17246]]
Subpart E--Health Insurance Issuer and Group Health Plan Standards
Related to the Reinsurance Program
153.400 Reinsurance contribution funds.
153.410 Requests for reinsurance payment.
Subpart F--Health Insurance Issuer Standards Related to the Risk
Corridors Program
153.500 Definitions.
153.510 Risk corridors establishment and payment methodology.
153.520 Attribution and allocation of revenue and expense items.
153.530 Risk corridors data requirements.
Subpart G--Health Insurance Issuer Standards Related to the Risk
Adjustment Program
153.600 [Reserved]
153.610 Risk adjustment issuer requirements.
153.620 Compliance with risk adjustment standards.
Authority: Secs. 1321, 1341-1343, Pub. L. 111-148, 24 Stat.
119.
Subpart A--General Provisions
Sec. 153.10 Basis and scope.
(a) Basis. This part is based on the following sections of title I
of the Affordable Care Act (Pub. L. 111-148, 24 Stat. 119):
(1) Section 1321. State flexibility in operation and enforcement of
Exchanges and related requirements.
(2) Section 1341. Transitional reinsurance program for individual
market in each State.
(3) Section 1342. Establishment of risk corridors for plans in
individual and small group markets.
(4) Section 1343. Risk adjustment.
(b) Scope. This part establishes standards for the establishment
and operation of a transitional reinsurance program, temporary risk
corridors program, and a permanent risk adjustment program.
Sec. 153.20 Definitions.
The following definitions apply to this part, unless the context
indicates otherwise:
Alternate risk adjustment methodology means a risk adjustment
methodology proposed by a State for use instead of a Federally
certified risk adjustment methodology that has not yet been certified
by HHS.
Applicable reinsurance entity means a not-for-profit organization
that is exempt from taxation under Chapter 1 of the Internal Revenue
Code of 1986 that carries out reinsurance functions under this part on
behalf of the State. An entity is not an applicable reinsurance entity
to the extent it is carrying out reinsurance functions under subpart C
of this part on behalf of HHS.
Attachment point means the threshold dollar amount for claims costs
incurred by a health insurance issuer for an enrolled individual's
covered benefits in a benefit year, after which threshold the claims
costs for such benefits are eligible for reinsurance payments.
Benefit year has the meaning given to the term in Sec. 155.20 of
this subchapter.
Calculation of payments and charges means the methodology applied
to plan average actuarial risk to determine risk adjustment payments
and charges for a risk adjustment covered plan.
Calculation of plan average actuarial risk means the specific
procedures used to determine plan average actuarial risk from
individual risk scores for a risk adjustment covered plan, including
adjustments for variable rating and the specification of the risk pool
from which average actuarial risk is to be calculated.
Coinsurance rate means the rate at which the applicable reinsurance
entity will reimburse the health insurance issuer for claims costs
incurred for an enrolled individual's covered benefits in a benefit
year after the attachment point and before the reinsurance cap.
Contributing entity means a health insurance issuer or a third
party administrator on behalf a self-insured group health plan.
Contribution rate means, with respect to a benefit year, the per
capita amount each contributing entity must pay for a reinsurance
program established under this part with respect to each reinsurance
contribution enrollee who resides in that State.
Exchange has the meaning given to the term in Sec. 155.20 of this
subchapter.
Federally certified risk adjustment methodology means a risk
adjustment methodology that either has been developed and promulgated
by HHS, or has been certified by HHS.
Grandfathered health plan has the meaning given to the term in
Sec. 147.140(a) of this subchapter.
Group health plan has the meaning given to the term in Sec.
144.103 of this subchapter.
Health insurance coverage has the meaning given to the term in
Sec. 144.103 of this subchapter.
Health insurance issuer or issuer has the meaning given to the term
in Sec. 144.103 of this subchapter.
Health plan has the meaning given to the term in section 1301(b)(1)
of the Affordable Care Act.
Individual market has the meaning given to the term in Sec.
144.103 of this subchapter.
Individual risk score means a relative measure of predicted health
care costs for a particular enrollee that is the result of a risk
adjustment model.
Large employer has the meaning given to the term in Sec. 155.20 of
this subchapter.
Qualified employer has the meaning given to the term in Sec.
155.20 of this subchapter.
Qualified health plan or QHP has the meaning given to the term in
Sec. 155.20 of this subchapter.
Qualified individual has the meaning given to the term in Sec.
155.20 of this subchapter.
Reinsurance cap means the threshold dollar amount for claims costs
incurred by a health insurance issuer for an enrolled individual's
covered benefits, after which threshold, the claims costs for such
benefits are no longer eligible for reinsurance payments.
Reinsurance contribution enrollee means an individual covered by a
plan for which reinsurance contributions must be made pursuant to Sec.
153.400.
Reinsurance-eligible plan means, for the purpose of the reinsurance
program, any health insurance coverage offered in the individual
market, except for grandfathered plans and health insurance coverage
not required to submit reinsurance contributions under Sec.
153.400(a).
Risk adjustment covered plan means, for the purpose of the risk
adjustment program, any health insurance coverage offered in the
individual or small group market with the exception of grandfathered
health plans, group health insurance coverage described in Sec.
146.145(c) of this subchapter, individual health insurance coverage
described in Sec. 148.220 of this subchapter, and any other plan
determined not to be a risk adjustment covered plan in the annual HHS
notice of benefit and payment parameters.
Risk adjustment data means all data that are used in a risk
adjustment model, the calculation of plan average actuarial risk, or
the calculation of payments and charges, or that are used for
validation or audit of such data.
Risk adjustment data collection approach means the specific
procedures by which risk adjustment data is to be stored, collected,
accessed, transmitted, validated and audited and the applicable
timeframes, data formats, and privacy and security standards.
Risk adjustment methodology means the risk adjustment model, the
calculation of plan average actuarial risk, the calculation of payments
and charges, the risk adjustment data collection approach, and the
schedule for the risk adjustment program.
Risk adjustment model means an actuarial tool used to predict
health care
[[Page 17247]]
costs based on the relative actuarial risk of enrollees in risk
adjustment covered plans.
Risk pool means the State-wide population across which risk is
distributed.
Small group market has the meaning given to the term in section
1304(a)(3) of the Affordable Care Act.
State has the meaning given to the term in Sec. 155.20 of this
subchapter.
Subpart B--State Notice of Benefit and Payment Parameters
Sec. 153.100 State notice of benefit and payment parameters.
(a) General requirement for reinsurance. A State establishing a
reinsurance program must issue an annual notice of benefit and payment
parameters specific to that State if that State elects to:
(1) Modify the data requirements or data collection frequency for
health insurance issuers to receive reinsurance payment from those
specified in the annual HHS notice of benefit and payment parameters
for the applicable benefit year;
(2) Collect reinsurance contributions pursuant to Sec.
153.220(a)(1);
(3) Collect additional reinsurance contributions pursuant to Sec.
153.220(g);
(4) Use more than one applicable reinsurance entity; or
(5) Modify any reinsurance payment parameters from those specified
in the annual HHS notice of benefit and payment parameters for the
applicable benefit year.
(b) Risk adjustment requirements. A State operating a risk
adjustment program must issue an annual notice of benefit and payment
parameters specific to that State setting forth the risk adjustment
methodology and data validation standards it will use.
(c) State notice deadlines. If a State is required to publish an
annual State notice of benefit and payment parameters, it must do so by
March 1 of the calendar year prior to the benefit year for which the
notice applies.
(d) State failure to publish notice. Any State establishing a
reinsurance program or operating a risk adjustment program that fails
to publish a State notice of benefit and payment parameters within the
period specified in paragraph (c) of this section must--
(1) Adhere to the data requirements and data collection frequency
for health insurance issuers to receive reinsurance payments that are
specified in the annual HHS notice of benefit and payment parameters
for the applicable benefit year;
(2) Forgo the collection of reinsurance contributions pursuant to
Sec. 153.220(a);
(3) Forgo the collection of additional reinsurance contributions
pursuant to Sec. 153.220(g);
(4) Forgo the use of more than one applicable reinsurance entity;
(5) Adhere to the reinsurance parameters specified in the annual
HHS notice of benefit and payment parameters for the applicable benefit
year; and
(6) Adhere to the risk adjustment methodology and data validation
standards published in the annual HHS notice of benefit and payment
parameters for use by HHS when operating risk adjustment on behalf of a
State.
Sec. 153.110 Standards for the State notice of benefit and payment
parameters.
(a) Data requirements. If a State that establishes a reinsurance
program elects to modify the data requirements or data collection
frequency for health insurance issuers to receive reinsurance payment
from those specified in the annual HHS notice of benefit and payment
parameters for the applicable benefit year, the State notice of benefit
and payment parameters must specify those modifications.
(b) Reinsurance collection. If a State that establishes a
reinsurance program elects to collect reinsurance contributions
pursuant to Sec. 153.220(a), then the State must announce its
intention to do so in the State notice of benefit and payment
parameters.
(c) Additional collections. If a State that establishes a
reinsurance program elects to collect additional funds pursuant to
Sec. 153.220(g), the State must publish the following:
(1) A description of the purpose of the additional collection,
including whether it will be used to cover reinsurance payments,
administrative costs, or both; and
(2) The additional contribution rate at which the funds will be
collected.
(d) Multiple reinsurance entities. If a State plans to use more
than one applicable reinsurance entity, the State must publish in the
State notice of benefit and payment parameters, for each applicable
reinsurance entity--
(1) The geographic boundaries for that entity;
(2) An estimate of the number of enrollees in fully insured plans
within those boundaries;
(3) An estimate of the number of enrollees in the individual market
within those boundaries;
(4) An estimate of the reinsurance contributions that will be
collected by the applicable reinsurance entity;
(5) The percentage of reinsurance contributions received from HHS
for the State to be allocated to the applicable reinsurance entity; and
(6) An estimate of the amount of reinsurance payments that will be
made to issuers with respect to enrollees within those boundaries.
(e) Reinsurance payment. If a State that establishes a reinsurance
program intends to modify the attachment point, reinsurance cap, or
coinsurance rate from the corresponding parameters specified in the
annual HHS notice of benefit and payment parameters for the applicable
benefit year, the State must--
(1) Describe those modified parameters in the State notice of
benefit and payment parameters; and
(2) Apply the modified parameters uniformly throughout the State.
(f) Risk adjustment content. A State operating a risk adjustment
program must provide the information set forth in Sec. 153.330(a) and
the data validation standards set forth pursuant to Sec. 153.350 in
the State notice of benefit and payment parameters.
Subpart C--State Standards Related to the Reinsurance Program
Sec. 153.200 [Reserved]
Sec. 153.210 State establishment of a reinsurance program.
(a) General requirement. Each State is eligible to establish a
reinsurance program for the years 2014 through 2016.
(1) If a State establishes a reinsurance program, the State must
enter into a contract with one or more applicable reinsurance entities
to carry out the provisions of this subpart.
(2) If a State contracts with more than one applicable reinsurance
entity, the State must:
(i) Ensure that each applicable reinsurance entity operates in a
distinct geographic area with no overlap of jurisdiction with any other
applicable reinsurance entity;
(ii) Use the same payment parameters with respect to each
applicable reinsurance entity; and
(iii) Notify HHS in the manner and timeframe specified by HHS of
the percentage of reinsurance contributions received from HHS for the
State to be allocated to each applicable reinsurance entity.
(3) A State may permit an applicable reinsurance entity to
subcontract specific administrative functions required under this
subpart and subpart E of this part.
(4) A State must review and approve subcontracting arrangements to
ensure efficient and appropriate expenditures
[[Page 17248]]
of administrative funds collected under this subpart.
(5) A State must ensure that the applicable reinsurance entity
completes all reinsurance-related activities for benefit years 2014
through 2016 and any activities required to be undertaken in subsequent
periods.
(b) Multi-State reinsurance arrangements. Multiple States may
contract with a single entity to serve as an applicable reinsurance
entity for each State. In such a case, the reinsurance programs for
those States must be operated as separate programs.
(c) Non-electing States. HHS will establish a reinsurance program
for each State that does not elect to establish its own reinsurance
program.
(d) Oversight. Each State that establishes a reinsurance program
must ensure that the applicable reinsurance entity complies with all
provisions of this subpart and subpart E of this part throughout the
duration of its contract.
Sec. 153.220 Collection of reinsurance contribution funds.
(a) Collections. If a State establishes a reinsurance program,
then--
(1) The State may elect to--
(i) Have the applicable reinsurance entity collect contributions
for reinsurance contribution enrollees who reside in that State
directly from issuers of health plans; or
(ii) Ensure that the applicable reinsurance entity accepts
contributions for reinsurance contribution enrollees who reside in that
State with respect to issuers of health plans from HHS.
(2) The State must ensure that the applicable reinsurance entity
accepts contributions for reinsurance contribution enrollees who reside
in that State with respect to all contributing entities other than
issuers of health plans from HHS.
(b) Notification of election to collect. If a State establishes a
reinsurance program, then that State must notify HHS by December 1,
2012, if the State elects to collect reinsurance contributions from
fully insured plans for the 2014 benefit year, and by September 1 of
the calendar year that is two years prior to the applicable benefit
year if the State elects to collect reinsurance contributions from
fully insured plans for any benefit year after 2014, in each case
pursuant to paragraph (a)(1)(i) of this section. The State's
notification will be effective for the applicable benefit year and each
subsequent benefit year during which activities related to the
transitional reinsurance program continue.
(c) Contribution funding. Reinsurance contributions collected must
fund the following:
(1) Reinsurance payments that will total, on a national basis, $10
billion in 2014, $6 billion in 2015, and $4 billion in 2016;
(2) U.S. Treasury contributions that will total, on a national
basis, $2 billion in 2014, $2 billion in 2015, and $1 billion in 2016;
and
(3) Administrative expenses of the applicable reinsurance entity or
HHS when performing reinsurance functions under this subpart.
(d) Distribution of reinsurance contributions. If a State
establishes a reinsurance program, HHS will distribute funds collected
for reinsurance contribution enrollees who reside in a State to the
applicable reinsurance entity for that State (or the applicable
reinsurance entities, if more than one, in accordance with the
allocation specified by the State pursuant to Sec. 153.210(a)(2)(ii)),
less:
(1) The State's pro rata share of the U.S. Treasury contribution
described in paragraph (c)(2) of this section; and
(2) The State's pro rata share of administrative expenses incurred
by HHS when performing reinsurance functions under this subpart.
(e) National contribution rate. HHS will set in the annual HHS
notice of benefit and payment parameters for the applicable benefit
year the national contribution rate and the proportion of contributions
collected under the national contribution rate to be allocated to:
(1) Reinsurance payments;
(2) Payments to the U.S. Treasury as described in paragraph (c)(2)
of this section; and
(3) Administrative expenses of the applicable reinsurance entity or
HHS when performing reinsurance functions under this subpart.
(f) State collections. If a State elects to have the applicable
reinsurance entity collect contributions pursuant to paragraph
(a)(1)(i) of this section, the State must ensure that:
(1) The applicable reinsurance entity for the State collects
contributions for reinsurance contribution enrollees who reside in that
State directly from issuers of health plans in the amounts required
under the national contribution rate.
(2) Reinsurance contributions are allocated as required in the
annual HHS notice of benefit and payment parameters for the applicable
benefit year, such that:
(i) Contributions allocated for reinsurance payments are only used
for reinsurance payments; and
(ii) Contributions allocated for payments to the U.S. Treasury are
paid to the U.S. Treasury in a timeframe to be established by HHS.
(g) Additional State collections. If a State establishes a
reinsurance program, it may elect to collect more than the amounts that
would be collected based on the national contribution rate set forth in
the annual HHS notice of benefit and payment parameters for the
applicable benefit year to provide:
(1) Funding for administrative expenses of the applicable
reinsurance entity; or
(2) Additional funding for reinsurance payments.
(h) Administration of additional State collections. If a State
elects to collect additional amounts pursuant to paragraph (g) of this
section for administrative expenses or reinsurance payments, then:
(1) The State must notify HHS within 30 days after publication of
the draft annual HHS notice of benefit and payment parameters for the
applicable benefit year of the additional contribution rate that it
elects to collect for additional administrative expenses. The State
must ensure that the State's applicable reinsurance entity--
(i) Collects these additional amounts for additional administrative
expenses from issuers of health plans when the State elects to collect
contributions from such issuers under paragraph (a)(1) of this section;
and
(ii) Accepts additional amounts for additional administrative
expenses from HHS from all contributing entities from which HHS
collects in accordance with the State's election under paragraph (a)(1)
of this section.
(2) Notwithstanding paragraphs (a)(1) and (a)(2) of this section,
the State must ensure that the applicable reinsurance entity collects
all additional reinsurance contributions for the purpose of reinsurance
payments from all contributing entities.
Sec. 153.230 Calculation of reinsurance payments.
(a) General requirement. A health insurance issuer of a non-
grandfathered individual market plan becomes eligible for reinsurance
payments when its claims costs for an individual enrollee's covered
benefits in a benefit year exceed the attachment point.
(b) Reinsurance payment parameters. If a State establishes a
reinsurance program, the State must use, subject to any modifications
made pursuant to paragraph (d) of this section, the payment formula and
values for the attachment point, reinsurance cap, and coinsurance rate
for each year
[[Page 17249]]
commencing in 2014 and ending in 2016 established in the annual HHS
notice of benefit and payment parameters for the applicable benefit
year.
(c) Reinsurance payments. If a State establishes a reinsurance
program, the State must ensure, subject to Sec. 153.240(b)(1), that
the reinsurance payment represents the product of the coinsurance rate
multiplied by the health insurance issuer's claims costs for an
individual enrollee's covered benefits that the health insurance issuer
incurs between the attachment point and the reinsurance cap.
(d) State modification of reinsurance payment formula. If a State
establishes a reinsurance program, the State may modify the reinsurance
payment formula in accordance with the following:
(1) The State may only use one or more of the following methods to
modify the reinsurance payment formula:
(i) Increasing or decreasing the attachment point;
(ii) Increasing, decreasing, or eliminating the reinsurance cap; or
(iii) Increasing or decreasing the coinsurance rate.
(2) The State must publish any such modification to the reinsurance
payment formula and parameters in a State notice of benefit and payment
parameters as described in subpart B of this part.
(3) Any State modification to the reinsurance payment formula
pursuant to paragraph (d)(1) of this section must be reasonably
calculated to ensure that reinsurance contributions received toward
reinsurance are sufficient to cover payments that the applicable
reinsurance entity is obligated to make under that State formula for
the given benefit year for the reinsurance program.
(4) The State must use a uniform attachment point, coinsurance
rate, and reinsurance cap throughout the State.
Sec. 153.240 Disbursement of reinsurance payments.
(a) Data collection. If a State establishes a reinsurance program,
the State must ensure that the applicable reinsurance entity collects
from health insurance issuers of reinsurance-eligible plans data
required to calculate payments described in Sec. 153.230, according to
the data requirements and data collection frequency specified by the
State in the notice of benefit and payment parameters described in
subpart B of this part.
(b) Reinsurance entity payments. If a State establishes a
reinsurance program, the State must ensure that each applicable
reinsurance entity does not make payments to health insurance issuers
that exceed contributions received to date by the applicable
reinsurance entity.
(1) If a State, or HHS on behalf of the State, determines that
reinsurance payments requested for a benefit year will likely exceed
the reinsurance contributions that will be received for the year, the
State may require that the applicable reinsurance entity reduce (or HHS
on behalf of the State may reduce) reinsurance payments, so long as the
manner in which payments are reduced is fair and equitable for all
health insurance issuers in the individual market.
(2) The State must ensure that an applicable reinsurance entity
makes payment to the health insurance issuer of a reinsurance-eligible
plan after receiving a valid claim for payment from that health
insurance issuer in accordance with the requirements of Sec. 153.410.
(c) Maintenance of records. If a State establishes a reinsurance
program, the State must maintain books, records, documents, and other
evidence of accounting procedures and practices of the reinsurance
program for each benefit year for at least 10 years.
Sec. 153.250 Coordination with high-risk pools.
(a) General requirement. The State must eliminate or modify any
State high-risk pool to the extent necessary to carry out the
reinsurance program established under this subpart.
(b) Coordination with high-risk pools. The State may coordinate the
State high-risk pool with the reinsurance program to the extent that
the State high-risk pool conforms to the provisions of this subpart.
Subpart D--State Standards Related to the Risk Adjustment Program
Sec. 153.300 [Reserved]
Sec. 153.310 Risk adjustment administration.
(a) State eligibility to establish a risk adjustment program. (1) A
State that elects to operate an Exchange is eligible to establish a
risk adjustment program.
(2) Any State that does not elect to operate an Exchange, or that
HHS has not approved to operate an Exchange, will forgo implementation
of all State functions in this subpart, and HHS will carry out all of
the provisions of this subpart on behalf of the State.
(3) Any State that elects to operate an Exchange but does not elect
to administer risk adjustment will forgo implementation of all State
functions in this subpart, and HHS will carry out all of the provisions
of this subpart on behalf of the State.
(b) Entities eligible to carry out risk adjustment activities. If a
State is operating a risk adjustment program, the State may elect to
have an entity other than the Exchange perform the State functions of
this subpart, provided that the entity meets the standards promulgated
by HHS to be an entity eligible to carry out Exchange functions.
(c) Timeframes. A State, or HHS on behalf of the State, must
implement risk adjustment for the 2014 benefit year and every benefit
year thereafter. For each benefit year, a State, or HHS on behalf of
the State, must notify issuers of risk adjustment payments due or
charges owed annually by June 30 of the year following the benefit
year.
(d) State summary reports. Each State operating a risk adjustment
program must submit to HHS an annual summary of risk adjustment program
operations in the manner and timeframe specified by HHS.
Sec. 153.320 Federally certified risk adjustment methodology.
(a) General requirement. Any risk adjustment methodology used by a
State, or HHS on behalf of the State, must be a Federally certified
risk adjustment methodology. A risk adjustment methodology may become
Federally certified by one of the following processes:
(1) The risk adjustment methodology is developed by HHS and
published in an annual HHS notice of benefit and payment parameters; or
(2) An alternate risk adjustment methodology is submitted by a
State in accordance with Sec. 153.330, reviewed and certified by HHS,
and published in an annual HHS notice of benefit and payment
parameters.
(b) Publication of methodology in notices. The publication of a
risk adjustment methodology by HHS in an annual HHS notice of benefit
and payment parameters or by a State in an annual State notice of
benefit and payment parameters described in subpart B of this part must
include:
(1) A complete description of the risk adjustment model,
including--
(i) Factors to be employed in the model, including but not limited
to demographic factors, diagnostic factors, and utilization factors, if
any;
(ii) The qualifying criteria for establishing that an individual is
eligible for a specific factor;
(iii) Weights assigned to each factor; and
(iv) The schedule for the calculation of individual risk scores.
[[Page 17250]]
(2) A complete description of the calculation of plan average
actuarial risk.
(3) A complete description of the calculation of payments and
charges.
(4) A complete description of the risk adjustment data collection
approach.
(5) The schedule for the risk adjustment program.
(c) Use of methodology for States that do not operate a risk
adjustment program. HHS will specify in the annual HHS notice of
benefit and payment parameters for the applicable year the Federally
certified risk adjustment methodology that will apply in States that do
not operate a risk adjustment program.
Sec. 153.330 State alternate risk adjustment methodology.
(a) State request for alternate methodology certification. (1) A
State request to HHS for the certification of an alternate risk
adjustment methodology must include:
(i) The elements specified in Sec. 153.320(b);
(ii) The calibration methodology and frequency of calibration; and
(iii) The statistical performance metrics specified by HHS.
(2) The request must include the extent to which the methodology:
(i) Accurately explains the variation in health care costs of a
given population;
(ii) Links risk factors to daily clinical practice and is
clinically meaningful to providers;
(iii) Encourages favorable behavior among providers and health
plans and discourages unfavorable behavior;
(iv) Uses data that is complete, high in quality, and available in
a timely fashion;
(v) Is easy for stakeholders to understand and implement;
(vi) Provides stable risk scores over time and across plans; and
(vii) Minimizes administrative costs.
(b) State renewal of alternate methodology. If a State is operating
a risk adjustment program, the State may not implement a recalibrated
risk adjustment model or otherwise alter its risk adjustment
methodology without first obtaining HHS certification.
(1) Recalibration of the risk adjustment model must be performed at
least as frequently as described in paragraph (a)(1)(ii) of this
section;
(2) A State request to implement a recalibrated risk adjustment
model or otherwise alter its risk adjustment methodology must include
any changes to the parameters described in paragraph (a)(1) of this
section.
Sec. 153.340 Data collection under risk adjustment.
(a) Data collection requirements. If a State is operating a risk
adjustment program, the State must collect risk adjustment data.
(b) Minimum standards. (1) If a State is operating a risk
adjustment program, the State may vary the amount and type of data
collected, but the State must collect or calculate individual risk
scores generated by the risk adjustment model in the applicable
Federally certified risk adjustment methodology;
(2) If a State is operating a risk adjustment program, the State
must require that issuers offering risk adjustment covered plans in the
State comply with data privacy and security standards set forth in the
applicable risk adjustment data collection approach; and
(3) If a State is operating a risk adjustment program, the State
must ensure that any collection of personally identifiable information
is limited to information reasonably necessary for use in the
applicable risk adjustment model, calculation of plan average actuarial
risk, or calculation of payments and charges. Except for purposes of
data validation, the State may not collect or store any personally
identifiable information for use as a unique identifier for an
enrollee's data, unless such information is masked or encrypted by the
issuer, with the key to that masking or encryption withheld from the
State.
(4) If a State is operating a risk adjustment program, the State
must implement security standards that provide administrative,
physical, and technical safeguards for the individually identifiable
information consistent with the security standards described at 45 CFR
164.308, 164.310, and 164.312.
Sec. 153.350 Risk adjustment data validation standards.
(a) General requirement. The State, or HHS on behalf of the State,
must ensure proper implementation of any risk adjustment software and
ensure proper validation of a statistically valid sample of risk
adjustment data from each issuer that offers at least one risk
adjustment covered plan in that State.
(b) Adjustment to plan average actuarial risk. The State, or HHS on
behalf of the State, may adjust the plan average actuarial risk for a
risk adjustment covered plan based on errors discovered with respect to
implementation of risk adjustment software or as a result of data
validation conducted pursuant to paragraph (a) of this section.
(c) Adjustment to charges and payments. The State, or HHS on behalf
of the State, may adjust charges and payments to all risk adjustment
covered plan issuers based on the adjustments calculated in paragraph
(b) of this section.
(d) Appeals. The State, or HHS on behalf of the State, must provide
an administrative process to appeal findings with respect to the
implementation of risk adjustment software or data validation.
Subpart E--Health Insurance Issuer and Group Health Plan Standards
Related to the Reinsurance Program
Sec. 153.400 Reinsurance contribution funds.
(a) General requirement. Each contributing entity must make
reinsurance contributions at the national contribution rate (and any
additional contribution rate if the State has elected to collect
additional contributions pursuant to Sec. 153.220(g)) for the
reinsurance program for all reinsurance contribution enrollees who
reside in a State, in a frequency and manner determined by HHS or the
State, to HHS or the applicable reinsurance entity, as applicable.
(1) A contributing entity must make reinsurance contributions on
behalf of its group health plans and health insurance coverage, except
as set forth in paragraph (a)(2) of this section.
(2) A contributing entity is not required to make contributions on
behalf of plans or health insurance coverage that consist solely of
excepted benefits as defined by section 2791(c) of the PHS Act.
(b) Multiple reinsurance entities. If the State establishes or
contracts with more than one applicable reinsurance entity, the
contributing entity must make reinsurance contributions to each
applicable reinsurance entity for the reinsurance contribution
enrollees who reside in the applicable geographic area.
(c) Timeframe for Federal collections. Each contributing entity
must submit contributions to HHS on a quarterly basis beginning January
15, 2014.
(d) Data requirements. Each contributing entity must submit to HHS
and each applicable reinsurance entity, if the State elects to collect
reinsurance contributions, data required to substantiate the
contribution amounts for the contributing entity, in the manner and
timeframe specified by the State or HHS.
Sec. 153.410 Requests for reinsurance payment.
(a) General requirement. An issuer of a reinsurance-eligible plan
may make a
[[Page 17251]]
request for payment when an enrollee of that reinsurance-eligible plan
has met the criteria for reinsurance payment set forth in the annual
HHS notice of benefit and payment parameters for the applicable year or
the State notice of benefit and payment parameters described in subpart
B of this part, as applicable.
(b) Manner of request. An issuer of a reinsurance-eligible plan
must make requests for payment in accordance with the requirements of
the annual HHS notice of benefit and payment parameters for the
applicable benefit year or the State notice of benefit and payment
parameters described in subpart B of this part, as applicable.
Subpart F--Health Insurance Issuer Standards Related to the Risk
Corridors Program
Sec. 153.500 Definitions.
The following definitions apply to this subpart:
Administrative costs mean, with respect to a QHP, total non-claims
costs incurred by the QHP issuer for the QHP, as described in Sec.
158.160(b) of this subchapter.
Allowable administrative costs mean, with respect to a QHP,
administrative costs of the QHP, up to 20 percent of the premiums
earned with respect to the QHP (including any premium tax credit under
any governmental program).
Allowable costs mean, with respect to a QHP, an amount equal to the
sum of incurred claims of the QHP issuer for the QHP, within the
meaning of Sec. 158.140 of this subchapter (including adjustments for
any direct and indirect remuneration); expenditures by the QHP issuer
for the QHP for activities that improve health care quality as set
forth in Sec. 158.150 of this subchapter; expenditures by the QHP
issuer for the QHP related to health information technology and
meaningful use requirements as set forth in Sec. 158.151 of this
subchapter; and the adjustments set forth in Sec. 153.530(b).
Charge means the flow of funds from QHP issuers to HHS.
Direct and indirect remuneration means prescription drug rebates
received by a QHP issuer within the meaning of Sec. 158.140(b)(1)(i)
of this subchapter.
Payment means the flow of funds from HHS to QHP issuers.
Premiums earned mean, with respect to a QHP, all monies paid by or
for enrollees with respect to that plan as a condition of receiving
coverage, including any fees or other contributions paid by or for
enrollees, within the meaning of Sec. 158.130 of this subchapter.
Risk corridors means any payment adjustment system based on the
ratio of allowable costs of a plan to the plan's target amount.
Target amount means, with respect to a QHP, an amount equal to the
total premiums earned with respect to a QHP, including any premium tax
credit under any governmental program, reduced by the allowable
administrative costs of the plan.
Sec. 153.510 Risk corridors establishment and payment methodology.
(a) General requirement. A QHP issuer must adhere to the
requirements set by HHS in this subpart and in the annual HHS notice of
benefit and payment parameters for the establishment and administration
of a program of risk corridors for calendar years 2014, 2015, and 2016.
(b) HHS payments to health insurance issuers. QHP issuers will
receive payment from HHS in the following amounts, under the following
circumstances:
(1) When a QHP's allowable costs for any benefit year are more than
103 percent but not more than 108 percent of the target amount, HHS
will pay the QHP issuer an amount equal to 50 percent of the allowable
costs in excess of 103 percent of the target amount; and
(2) When a QHP's allowable costs for any benefit year are more than
108 percent of the target amount, HHS will pay to the QHP issuer an
amount equal to the sum of 2.5 percent of the target amount plus 80
percent of allowable costs in excess of 108 percent of the target
amount.
(c) Health insurance issuers' remittance of charges. QHP issuers
must remit charges to HHS in the following amounts, under the following
circumstances:
(1) If a QHP's allowable costs for any benefit year are less than
97 percent but not less than 92 percent of the target amount, the QHP
issuer must remit charges to HHS in an amount equal to 50 percent of
the difference between 97 percent of the target amount and the
allowable costs; and
(2) When a QHP's allowable costs for any benefit year are less than
92 percent of the target amount, the QHP issuer must remit charges to
HHS in an amount equal to the sum of 2.5 percent of the target amount
plus 80 percent of the difference between 92 percent of the target
amount and the allowable costs.
Sec. 153.520 Attribution and allocation of revenue and expense items.
(a) Attribution to QHP. Each item of revenue or expense in
allowable costs or the target amount with respect to a QHP must be
reasonably attributable to the operation of the QHP, with the
attribution based on a generally accepted accounting method,
consistently applied. To the extent that an issuer utilizes a specific
method for allocating expenses for purposes of Sec. 158.170 of this
subchapter, the method used for purposes of this paragraph must be
consistent.
(b) Allocation across plans. Each item of revenue or expense in
allowable costs or the target amount must be reasonably allocated
across a QHP issuer's plans, with the allocation based on a generally
accepted accounting method, consistently applied. To the extent that an
issuer utilizes a specific method for allocating expenses for purposes
of Sec. 158.170 of this subchapter, the method used for purposes of
this paragraph must be consistent.
(c) Disclosure of attribution and allocation methods. A QHP issuer
must submit to HHS a report, in the manner and timeframe specified in
the annual HHS notice of benefit and payment parameters, with a
detailed description of the methods and specific bases used to perform
the attributions and allocations set forth in paragraphs (a) and (b) of
this section.
(d) Attribution of reinsurance and risk adjustment to benefit year.
A QHP issuer must attribute reinsurance payments and contributions and
risk adjustment payments and charges to allowable costs for the benefit
year with respect to which the reinsurance payments or contributions or
risk adjustment calculations apply.
(e) Maintenance of records. A QHP issuer must maintain for 10 years
and make available to HHS upon request the data used to make the
attributions and allocations set forth in paragraphs (a) and (b) of
this section, together with all supporting information required to
determine that these methods and bases were accurately implemented.
Sec. 153.530 Risk corridors data requirements.
(a) Premium data. A QHP issuer must submit to HHS data on the
premiums earned with respect to each QHP that the issuer offers in the
manner and timeframe set forth in the annual HHS notice of benefit and
payment parameters.
(b) Allowable costs. A QHP issuer must submit to HHS data on the
allowable costs incurred with respect to each QHP that the QHP issuer
offers in the manner and timeframe set forth in the annual HHS notice
of benefit and payment parameters. For purposes of this subpart,
allowable costs must be--
[[Page 17252]]
(1) Increased by--
(i) Any risk adjustment charges paid by the issuer for the QHP
under the risk adjustment program established pursuant to subpart D of
this part; and
(ii) Any reinsurance contributions made by the issuer for the QHP
under the transitional reinsurance program established pursuant to
subpart C of this part.
(2) Reduced by--
(i) Any risk adjustment payments received by the issuer for the QHP
under the risk adjustment program established pursuant to subpart D of
this part;
(ii) Any reinsurance payments received by the issuer for the QHP
under the transitional reinsurance program established pursuant to
subpart C of this part; and
(iii) Any cost-sharing reduction payments received by the issuer
for the QHP.
(c) Allowable administrative costs. A QHP issuer must submit to HHS
data on the allowable administrative costs incurred with respect to
each QHP that the QHP issuer offers in the manner and timeframe set
forth in the annual HHS notice of benefit and payment parameters.
Subpart G--Health Insurance Issuer Standards Related to the Risk
Adjustment Program
Sec. 153.600 [Reserved]
Sec. 153.610 Risk adjustment issuer requirements.
(a) Data requirements. An issuer that offers risk adjustment
covered plans must submit or make accessible all required risk
adjustment data for those risk adjustment covered plans in accordance
with the risk adjustment data collection approach established by the
State, or by HHS on behalf of the State.
(b) Risk adjustment data storage. An issuer that offers risk
adjustment covered plans must store all required risk adjustment data
in accordance with the risk adjustment data collection approach
established by the State, or by HHS on behalf of the State.
(c) Issuer contracts. An issuer that offers risk adjustment covered
plans may include in its contract with a provider, supplier, physician,
or other practitioner, provisions that require such contractor's
submission of complete and accurate risk adjustment data in the manner
and timeframe established by the State, or HHS on behalf of the State.
These provisions may include financial penalties for failure to submit
complete, timely, or accurate data.
(d) Assessment of charges. An issuer that offers risk adjustment
covered plans that has a net balance of risk adjustment charges
payable, including adjustments made pursuant to Sec. 153.350(c), will
be notified by the State, or by HHS on behalf of the State, of those
net charges, and must remit those risk adjustment charges to the State,
or to HHS on behalf of the State, as applicable.
(e) Charge submission deadline. An issuer must remit net charges to
the State, or HHS on behalf of the State, within 30 days of
notification of net charges payable by the State, or HHS on behalf of
the State.
Sec. 153.620 Compliance with risk adjustment standards.
(a) Issuer support of data validation. An issuer that offers risk
adjustment covered plans must comply with any data validation requests
by the State or HHS on behalf of the State.
(b) Issuer records maintenance requirements. An issuer that offers
risk adjustment covered plans must retain any information requested to
support risk adjustment data validation for a period of at least ten
years after the date of the report.
Dated: March 14, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.
Approved: March 14, 2012.
Kathleen Sebelius,
Secretary.
[FR Doc. 2012-6594 Filed 3-16-12; 11:15 am]
BILLING CODE 4120-01-P