Basic Health Program; Federal Funding Methodology for Program Years 2017 and 2018, 63936-63950 [2015-26907]

Agencies

• Centers for Medicare & Medicaid Services
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 80, Number 204 (Thursday, October 22, 2015)]
[Proposed Rules]
[Pages 63936-63950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-26907]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2396-PN]
RIN 0938-ZB21


Basic Health Program; Federal Funding Methodology for Program 
Years 2017 and 2018

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

ACTION: Proposed methodology.

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SUMMARY: This document provides the methodology and data sources 
necessary to determine federal payment amounts made in program years 
2017 and 2018 to states that elect to establish a Basic Health Program 
under the Affordable Care Act to offer health benefits coverage to low-
income individuals otherwise eligible to purchase coverage through 
Affordable Insurance Marketplaces.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on November 23, 
2015.

ADDRESSES: In commenting, refer to file code CMS-2396-PN. Because of 
staff and resource limitations, we cannot accept comments by facsimile 
(FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS 2396-PN, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-2396-PN, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written only to the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Christopher Truffer, (410) 786-1264; 
Stephanie Kaminsky (410) 786-4653.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
II. Provisions of the Proposed Methodology
    A. Overview of the Funding Methodology and Calculation of the 
Payment Amount
    B. Federal BHP Payment Rate Cells
    C. Sources and State Data Considerations
    D. Discussion of Specific Variables Used in Payment Equations
    E. Adjustments for American Indians and Alaska Natives
    F. State Option to Use 2016 or 2017 QHP Premiums for BHP 
Payments
    G. State Option to Include Retrospective State-Specific Health 
Risk Adjustment in Certified Methodology
    H. Example Application of the BHP Funding Methodology
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Statement
    A. Overall Impact
    B. Unfunded Mandates Reform Act
    C. Regulatory Flexibility Act
    D. Federalism

I. Background

    Section 1331 of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148, enacted on March 23, 2010), as amended by the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted 
on March 30, 2010) (collectively referred as the Affordable Care Act) 
provides states with an option to establish a Basic Health Program 
(BHP). In the states that

[[Page 63937]]

elect to operate BHP, BHP will make affordable health benefits coverage 
available for individuals under age 65 with household incomes between 
133 percent and 200 percent of the federal poverty level (FPL) who are 
not otherwise eligible for Medicaid, the Children's Health Insurance 
Program (CHIP), or affordable employer-sponsored coverage, or for 
individuals whose income is below these levels but are lawfully present 
non-citizens ineligible for Medicaid. (For those states that have 
expanded Medicaid coverage under section 1902(a)(10)(A)(i)(VIII) of the 
Social Security Act (the Act), the lower income threshold for BHP 
eligibility is effectively 138 percent due to the application of a 
required 5 percent income disregard in determining the upper limits of 
Medicaid income eligibility (section 1902(e)(14)(I) of the Act).
    BHP provides another option for states in providing affordable 
health benefits to individuals with incomes in the ranges described 
above. States may find BHP a useful option for several reasons, 
including the ability to potentially coordinate standard health plans 
in BHP with their Medicaid managed care plans, or to potentially reduce 
the costs to individuals by lowering premiums or cost-sharing 
requirements.
    Federal funding will be available for BHP based on the amount of 
PTC and cost-sharing reductions (CSRs) that BHP enrollees would have 
received had they been enrolled in QHPs through Marketplaces. These 
funds are paid to the states through trust funds dedicated to BHP, and 
the states then administer the payments to standard health plans within 
BHP.
    In the March 12, 2014 Federal Register (79 FR 14112), we published 
a final rule entitled the ``Basic Health Program: State Administration 
of Basic Health Programs; Eligibility and Enrollment in Standard Health 
Plans; Essential Health Benefits in Standard Health Plans; Performance 
Standards for Basic Health Programs; Premium and Cost Sharing for Basic 
Health Programs; Federal Funding Process; Trust Fund and Financial 
Integrity'' (hereinafter referred to as the BHP final rule) 
implementing section 1331 of the Affordable Care Act), which directs 
the establishment of BHP. The BHP final rule establishes the standards 
for state and federal administration of BHP, including provisions 
regarding eligibility and enrollment, benefits, cost-sharing 
requirements and oversight activities. While the BHP final rule 
codifies the overall statutory requirements and basic procedural 
framework for the funding methodology, it does not contain the specific 
information necessary to determine federal payments. We anticipated 
that the methodology would be based on data and assumptions that would 
reflect ongoing operations and experience of BHP programs as well as 
the operation of the Marketplaces. For this reason, the BHP final rule 
indicated that the development and publication of the funding 
methodology, including any data sources, would be addressed in a 
separate annual BHP Payment Notice.
    In the BHP final rule, we specified that the BHP Payment Notice 
process would include the annual publication of both a proposed and 
final BHP Payment Notice. The proposed BHP Payment Notice would be 
published in the Federal Register each October, and would describe the 
proposed methodology for the upcoming BHP program year, including how 
the Secretary considered the factors specified in section 1331(d)(3) of 
the Affordable Care Act, along with the proposed data sources used to 
determine the federal BHP payment rates. The final BHP Payment Notice 
would be published in the Federal Register in February, and would 
include the final BHP funding methodology, as well as the federal BHP 
payment rates for the next BHP program year. For example, payment rates 
published in February 2016 would apply to BHP program year 2017, 
beginning in January 2017. As discussed in section II.C of this 
proposed methodology, and as referenced in 42 CFR 600.610(b)(2), state 
data needed to calculate the federal BHP payment rates for the final 
BHP Payment Notice must be submitted to CMS.
    As described in the BHP final rule, once the final methodology has 
been published, we will only make modifications to the BHP funding 
methodology on a prospective basis with limited exceptions. The BHP 
final rule provided that retrospective adjustments to the state's BHP 
payment amount may occur to the extent that the prevailing BHP funding 
methodology for a given program year permits adjustments to a state's 
federal BHP payment amount due to insufficient data for prospective 
determination of the relevant factors specified in the payment notice. 
Additional adjustments could be made to the payment rates to correct 
errors in applying the methodology (such as mathematical errors).
    Under section 1331(d)(3)(ii) of the Affordable Care Act, the 
funding methodology and payment rates are expressed as an amount per 
eligible individual enrolled in a BHP standard health plan (BHP 
enrollee) for each month of enrollment. These payment rates may vary 
based on categories or classes of enrollees. Actual payment to a state 
would depend on the actual enrollment of individuals found eligible in 
accordance with a state's certified blueprint eligibility and 
verification methodologies in coverage through the state BHP. A state 
that is approved to implement BHP must provide data showing quarterly 
enrollment of eligible individuals in the various federal BHP payment 
rate cells. Such data should include the following:
    1. Personal identifier;
    2. Date of birth;
    3. County of residence;
    4. Indian status;
    5. Family size;
    6. Household income;
    7. Number of person in household enrolled in BHP;
    8. Family identifier;
    9. Months of coverage;
    10. Plan information; and
    11. Any other data required by CMS to properly calculate the 
payment.
    In the February 24, 2015 Federal Register (80 FR 9636), we 
published the final payment methodology entitled ``Basic Health 
Program; Federal Funding Methodology for Program Year 2016'' 
(hereinafter referred to as the 2016 payment methodology) that sets 
forth the methodology that will be used to calculate the federal BHP 
payments for the 2016 program year.
    In this proposed payment notice, we are proposing that the 
methodology described within be for program years 2017 and 2018 for 
states that elect to establish a BHP under the Affordable Care Act to 
offer health benefits coverage to low-income individuals otherwise 
eligible to purchase coverage through Affordable Insurance 
Marketplaces. We are proposing that the payment methodology be for 2 
years because after 2 years of publishing single year methodologies, 
few year-to-year changes are needed at this point. If we find, based on 
additional data that is generated from 2015 operations, that we would 
like to further analyze enrollment data for another year before 
finalizing the methodology for 2018, we will only finalize for 2017 and 
then either finalize later or repropose our payment methodology for 
2018.

II. Provisions of the Proposed Methodology

A. Overview of the Funding Methodology and Calculation of the Payment 
Amount

    Section 1331(d)(3) of the Affordable Care Act directs the Secretary 
to

[[Page 63938]]

consider several factors when determining the federal BHP payment 
amount, which, as specified in the statute, must equal 95 percent of 
the value of the PTC and CSRs that BHP enrollees would have been 
provided had they enrolled in a QHP through an Marketplace. Thus, the 
proposed BHP funding methodology is designed to calculate the PTC and 
CSRs as consistently as possible and in general alignment with the 
methodology used by Marketplaces to calculate the advance payments of 
the PTC and CSRs, and by the Internal Revenue Service (IRS) to 
calculate final PTCs. In general, we propose to rely on values for 
factors in the payment methodology specified in statute or other 
regulations as available, and we propose to develop values for other 
factors not otherwise specified in statute, or previously calculated in 
other regulations, to simulate the values of the PTC and CSRs that BHP 
enrollees would have received if they had enrolled in QHPs offered 
through an Marketplace. In accordance with section 1331(d)(3)(A)(iii) 
of the Affordable Care Act, the final funding methodology must be 
certified by the Chief Actuary of CMS, in consultation with the Office 
of Tax Analysis of the Department of the Treasury, as having met the 
requirements of section 1331(d)(3)(A)(ii) of the Affordable Care Act.
    Section 1331(d)(3)(A)(ii) of the Affordable Care Act specifies that 
the payment determination shall take into account all relevant factors 
necessary to determine the value of the premium tax credits and cost-
sharing reductions that would have been provided to eligible 
individuals, including the age and income of the enrollee, whether the 
enrollment is for self-only or family coverage, geographic differences 
in average spending for health care across rating areas, the health 
status of the enrollee for purposes of determining risk adjustment 
payments and reinsurance payments that would have been made if the 
enrollee had enrolled in a qualified health plan through an 
Marketplace, and whether any reconciliation of PTC and CSR would have 
occurred if the enrollee had been so enrolled. This proposed payment 
methodology takes each of these factors into account. We propose a 
methodology that is the same as the 2016 payment methodology, with 
minor changes to update the value of certain factors used to calculate 
the payments, but with no changes in methods. These updates are 
explained in later sections of this notice. Accordingly, while this 
notice uses the term ``proposed methodology'' throughout, the 
methodology proposed is essentially identical to that already in place 
for the BHP.
    In this proposed methodology, we are proposing to establish a 
payment methodology for the 2017 and 2018 BHP program years. The same 
methodology would apply for both years, but the values of a number of 
factors would be updated for 2018, as noted throughout this notice. We 
reserve the right to specify a different methodology for 2018.
    We propose that the total federal BHP payment amount would be based 
on multiple rate cells in each state. Each rate cell would represent a 
unique combination of age range, geographic area, coverage category 
(for example, self-only or two-adult coverage through BHP), household 
size, and income range as a percentage of FPL. Thus, there would be 
distinct rate cells for individuals in each coverage category within a 
particular age range who reside in a specific geographic area and are 
in households of the same size and income range. We would develop BHP 
payment rates that would be consistent with those states' rules on age 
rating. Thus, in the case of a state that does not use age as a rating 
factor on the Marketplace, the BHP payment rates would not vary by age.
    The proposed rate for each rate cell would be calculated in two 
parts. The first part (as described in Equation (1)) would equal 95 
percent of the estimated PTC that would have been paid if a BHP 
enrollee in that rate cell had instead enrolled in a QHP in the 
Marketplace. The second part (as described in Equation (2)) would equal 
95 percent of the estimated CSR payment that would have been made if a 
BHP enrollee in that rate cell had instead enrolled in a QHP in the 
Marketplace. These 2 parts would be added together and the total rate 
for that rate cell would be equal to the sum of the PTC and CSR rates.
    We propose that Equation (1) would be used to calculate the 
estimated PTC for eligible individuals enrolled in the BHP in each rate 
cell and Equation (2) would be used to calculate the estimated CSR 
payments for eligible individuals enrolled in the BHP in each rate 
cell. (Indeed, we note that throughout the payment notice, when we 
refer to enrollees and enrollment data, we mean data regarding 
individuals who are enrolled in the BHP who have been found eligible 
for the BHP using the eligibility and verification requirements that 
are applicable in the state's most recent certified Blueprint.) By 
applying the equations separately to rate cells based on age, income 
and other factors, we would effectively take those factors into account 
in the calculation. In addition, the equations would reflect the 
estimated experience of individuals in each rate cell if enrolled in 
coverage through the Marketplace, taking into account additional 
relevant variables. Each of the variables in the equations is defined 
in this section, and further detail is provided later in this section 
of the payment notice.
    In addition, we describe how we propose to calculate the adjusted 
reference premium (described later in this section of the payment 
notice) that is used in Equations (1) and (2). This is defined in 
Equation (3a) and Equation (3b).
Equation 1: Estimated PTC by Rate Cell
    We propose that the estimated PTC, on a per enrollee basis, would 
continue to be calculated for each rate cell for each state based on 
age range, geographic area, coverage category, household size, and 
income range. The PTC portion of the rate would be calculated in a 
manner consistent with the methodology used to calculate the PTC for 
persons enrolled in a QHP, with 3 adjustments. First, the PTC portion 
of the rate for each rate cell would represent the mean, or average, 
expected PTC that all persons in the rate cell would receive, rather 
than being calculated for each individual enrollee. Second, the 
reference premium used to calculate the PTC (described in more detail 
later in the section) would be adjusted for BHP population health 
status, and in the case of a state that elects to use 2016 premiums for 
the basis of the BHP federal payment, for the projected change in the 
premium from the 2016 to 2017, to which the rates announced in the 
final payment methodology would apply. These adjustments are described 
in Equation (3a) and Equation (3b). Third, the PTC would be adjusted 
prospectively to reflect the mean, or average, net expected impact of 
income reconciliation on the combination of all persons enrolled in 
BHP; this adjustment, as described in section II.D.5. of this proposed 
methodology, would account for the impact on the PTC that would have 
occurred had such reconciliation been performed. Finally, the rate is 
multiplied by 95 percent, consistent with section 1331(d)(3)(A)(i) of 
the Affordable Care Act. We note that in the situation where the 
average income contribution of an enrollee would exceed the adjusted 
reference premium, we would calculate the PTC to be equal to 0 and 
would not allow the value of the PTC to be negative.

[[Page 63939]]

    We propose using Equation (1) to calculate the PTC rate, consistent 
with the methodology described above:
[GRAPHIC] [TIFF OMITTED] TP22OC15.014

PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
ARPa,g,c = Adjusted reference premium
Ih,i,j = Income (in dollars per month) at each 1 percentage-point 
increment of FPL
j = jth percentage-point increment FPL
n = Number of income increments used to calculate the mean PTC
PTCFh,i,j = Premium Tax Credit Formula percentage
IRF = Income reconciliation factor
Equation 2: Estimated CSR Payment by Rate Cell
    We propose that the CSR portion of the rate would continue to be 
calculated for each rate cell for each state based on age range, 
geographic area, coverage category, household size, and income range 
defined as a percentage of FPL. The CSR portion of the rate would be 
calculated in a manner consistent with the methodology used to 
calculate the CSR advance payments for persons enrolled in a QHP, as 
described in the ``HHS Notice of Benefit and Payment Parameters for 
2016'' final rule published in the February 27, 2015 Federal Register 
(80 FR 10749), with 3 principal adjustments. (We further propose a 
separate calculation that includes different adjustments for American 
Indian/Alaska Native BHP enrollees, as described in section II.D.1 of 
this proposed methodology.) For the first adjustment, the CSR rate, 
like the PTC rate, would represent the mean expected CSR subsidy that 
would be paid on behalf of all persons in the rate cell, rather than 
being calculated for each individual enrollee. Second, this calculation 
would be based on the adjusted reference premium, as described in 
section II.A.3. of this proposed methodology. Third, this equation uses 
an adjusted reference premium that reflects premiums charged to non-
tobacco users, rather than the actual premium that is charged to 
tobacco users to calculate CSR advance payments for tobacco users 
enrolled in a QHP. Accordingly, we propose that the equation include a 
tobacco rating adjustment factor that would account for BHP enrollees' 
estimated tobacco-related health costs that are outside the premium 
charged to non-tobacco-users. Finally, the rate would be multiplied by 
95 percent, as provided in section 1331(d)(3)(A)(i) of the Affordable 
Care Act.
    We propose using Equation (2) to calculate the CSR rate, consistent 
with the methodology described above:
[GRAPHIC] [TIFF OMITTED] TP22OC15.015

CSRa,g,c,h,i = Cost-sharing reduction subsidy portion of BHP payment 
rate
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
ARPa,g,c = Adjusted reference premium
TRAF = Tobacco rating adjustment factor
FRAC = Factor removing administrative costs
AV = Actuarial value of plan (as percentage of allowed benefits 
covered by the applicable QHP without a cost-sharing reduction 
subsidy)
IUFh,i = Induced utilization factor
[Delta]AVh,i = Change in actuarial value (as percentage of allowed 
benefits)
Equation 3a and Equation 3b: Adjusted Reference Premium Variable (Used 
in Equations 1 and 2)
    As part of these calculations for both the PTC and CSR components, 
we propose to continue to calculate the value of the adjusted reference 
premium as described below. Consistent with the approach last year, we 
are proposing to allow states to choose between using the actual 2017 
and 2018 QHP premiums or the 2016 and 2017 QHP premiums multiplied by 
the premium trend factor (for the 2017 and 2018 program years, 
respectively, and as described in section II.F). Therefore, we are 
proposing how we would calculate the adjusted reference premium under 
each option.
    In the case of a state that elected to use the reference premium 
based on the 2017 premiums for the 2017 program year, we propose to 
calculate the value of the adjusted reference premium as specified in 
Equation (3a). The adjusted reference premium would be equal to the 
reference premium, which would be based on the second lowest cost 
silver plan premium in 2017, multiplied by the BHP population health 
factor (described in section II.D of this proposed methodology), which 
would reflect the projected impact that enrolling BHP-eligible 
individuals in QHPs on an Marketplace would have had on the average QHP 
premium.

ARPa,g,c = Adjusted reference premium

a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
RPa,g,c = Reference premium
PHF = Population health factor

    In the case of a state that elected to use the reference premium 
based on the 2016 premiums for the 2017 program year (as described in 
section II.F of this proposed methodology), we propose to calculate the 
value of the adjusted reference premium as specified in Equation (3b). 
The adjusted reference premium would be equal to the reference premium, 
which would be based on the second lowest cost silver plan premium in 
2016, multiplied by the BHP population health factor (described in 
section II.D of this proposed methodology), which would reflect the 
projected impact that enrolling BHP-eligible individuals in QHPs on an 
Marketplace would have had on the average QHP premium, and by the 
premium trend factor, which would reflect the projected change in the 
premium level between 2016 and 2017 (including the estimated impact of 
changes resulting from the transitional

[[Page 63940]]

reinsurance program established in section 1341 of the Affordable Care 
Act).
[GRAPHIC] [TIFF OMITTED] TP22OC15.016

ARPa,g,c = Adjusted reference premium
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
RPa,g,c = Reference premium
PHF = Population health factor
PTF = Premium trend factor

    This methodology would also apply for the 2018 program year, using 
either actual 2018 QHP premiums or the 2017 QHP premiums multiplied by 
a premium trend factor.
Equation 4: Determination of Total Monthly Payment for BHP Enrollees in 
Each Rate Cell
    In general, the rate for each rate cell would be multiplied by the 
number of BHP enrollees in that cell (that is, the number of enrollees 
that meet the criteria for each rate cell) to calculate the total 
monthly BHP payment. This calculation is shown in Equation 4.
[GRAPHIC] [TIFF OMITTED] TP22OC15.017

PMT = Total monthly BHP payment
PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
CSRa,g,c,h,i = Cost-sharing reduction subsidy portion of BHP payment 
rate
Ea,g,c,h,i = Number of BHP enrollees
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)

B. Federal BHP Payment Rate Cells

    Consistent with the 2015 and 2016 payment methodologies, we propose 
that a state implementing BHP provide us an estimate of the number of 
BHP enrollees it projects will enroll in the upcoming BHP program year, 
by applicable rate cell, prior to the first quarter and each subsequent 
quarter of program operations until actual enrollment data is 
available. Upon our approval of such estimates as reasonable, they 
would be used to calculate the prospective payment for the first and 
subsequent quarters of program operation until the state has provided 
us actual enrollment data. These data would be required to calculate 
the final BHP payment amount, and make any necessary reconciliation 
adjustments to the prior quarters' prospective payment amounts due to 
differences between projected and actual enrollment. Subsequent, 
quarterly deposits to the state's trust fund would be based on the most 
recent actual enrollment data submitted to us. Actual enrollment data 
must be based on individuals enrolled for the quarter submitted who the 
state found eligible and whose eligibility was verified using 
eligibility and verification requirements as agreed to by the state in 
its applicable BHP Blueprint for the quarter that enrollment data is 
submitted. Procedures will ensure that federal payments to a state 
reflect actual BHP enrollment during a year, within each applicable 
category, and prospectively determined federal payment rates for each 
category of BHP enrollment, with such categories defined in terms of 
age range, geographic area, coverage status, household size, and income 
range, as explained above.
    We propose requiring the use of certain rate cells as part of the 
proposed methodology. For each state, we propose using rate cells that 
separate the BHP population into separate cells based on the 5 factors 
described as follows:
    Factor 1--Age: We propose to continue separating enrollees into 
rate cells by age, using the following unchanged age ranges that 
capture the widest variations in premiums under HHS's Default Age 
Curve: \1\
---------------------------------------------------------------------------

    \1\ This curve is used to implement the Affordable Care Act's 
3:1 limit on age-rating in states that do not create an alternative 
rate structure to comply with that limit. The curve applies to all 
individual market plans, both within and outside the Marketplace. 
The age bands capture the principal allowed age-based variations in 
premiums as permitted by this curve. More information can be found 
at https://www.cms.gov/CCIIO/Resources/Files/Downloads/market-reforms-guidance-2-25-2013.pdf. Both children and adults under age 
21 are charged the same premium. For adults age 21-64, the age bands 
in this notice divide the total age-based premium variation into the 
three most equally-sized ranges (defining size by the ratio between 
the highest and lowest premiums within the band) that are consistent 
with the age-bands used for risk-adjustment purposes in the HHS-
Developed Risk Adjustment Model. For such age bands, see Table 5, 
``Age-Sex Variables,'' in HHS-Developed Risk Adjustment Model 
Algorithm Software, June 2, 2014, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/ra-tables-03-27-2014.xlsx.
---------------------------------------------------------------------------

     Ages 0-20.
     Ages 21-34.
     Ages 35-44.
     Ages 45-54.
     Ages 55-64.
    Factor 2--Geographic area: For each state, we propose separating 
enrollees into rate cells by geographic areas within which a single 
reference premium is charged by QHPs offered through the state's 
Marketplace. Multiple, non-contiguous geographic areas would be 
incorporated within a single cell, so long as those areas share a 
common reference premium.\2\ This provision would also be unchanged 
from the current method.
---------------------------------------------------------------------------

    \2\ For example, a cell within a particular state might refer to 
``County Group 1,'' ``County Group 2,'' etc., and a table for the 
state would list all the counties included in each such group. These 
geographic areas are consistent with the geographic areas 
established under the 2014 Market Reform Rules. They also reflect 
the service area requirements applicable to qualified health plans, 
as described in 45 CFR 155.1055, except that service areas smaller 
than counties are addressed as explained below.
---------------------------------------------------------------------------

    Factor 3--Coverage status: We propose to continue separating 
enrollees into rate cells by coverage status, reflecting whether an 
individual is enrolled in self-only coverage or persons are enrolled in 
family coverage through BHP, as provided in section 1331(d)(3)(A)(ii) 
of the Affordable Care Act. Among recipients of family coverage through 
BHP, separate rate cells, as explained below, would apply based on 
whether such coverage involves two adults alone or whether it involves 
children.
    Factor 4--Household size: We propose to continue the current

[[Page 63941]]

methods for separating enrollees into rate cells by household size that 
states use to determine BHP enrollees' income as a percentage of the 
FPL under Sec.  600.320 (Administration, eligibility, essential health 
benefits, performance standards, service delivery requirements, premium 
and cost sharing, allotments, and reconciliation; Determination of 
eligibility for and enrollment in a standard health plan). We are 
proposing to require separate rate cells for several specific household 
sizes. For each additional member above the largest specified size, we 
propose to publish instructions for how we would develop additional 
rate cells and calculate an appropriate payment rate based on data for 
the rate cell with the closest specified household size. We propose to 
publish separate rate cells for household sizes of 1 through 10. In 
previous methodologies, we stated that we would publish rate cells for 
household sizes of 1 through 5. We believe that publishing rate cells 
for larger household sizes would be beneficial to states operating BHP. 
We have worked with states in 2015 to publish rate cells for household 
sizes 1 through 10.
    Factor 5--Income: For households of each applicable size, we 
propose to continue the current methods for creating separate rate 
cells by income range, as a percentage of FPL. The PTC that a person 
would receive if enrolled in a QHP varies by income, both in level and 
as a ratio to the FPL, and the CSR varies by income as a percentage of 
FPL. Thus, we propose that separate rate cells would be used to 
calculate federal BHP payment rates to reflect different bands of 
income measured as a percentage of FPL. We propose using the following 
income ranges, measured as a ratio to the FPL:
     0 to 50 percent of the FPL.
     51 to 100 percent of the FPL.
     101 to 138 percent of the FPL.\3\
---------------------------------------------------------------------------

    \3\ The three lowest income ranges would be limited to lawfully 
present immigrants who are ineligible for Medicaid because of 
immigration status.
---------------------------------------------------------------------------

     139 to 150 percent of the FPL.
     151 to 175 percent of the FPL.
     176 to 200 percent of the FPL.
    These rate cells would only be used to calculate the federal BHP 
payment amount. A state implementing BHP would not be required to use 
these rate cells or any of the factors in these rate cells as part of 
the state payment to the standard health plans participating in BHP or 
to help define BHP enrollees' covered benefits, premium costs, or out-
of-pocket cost-sharing levels.
    We propose using averages to define federal payment rates, both for 
income ranges and age ranges, rather than varying such rates to 
correspond to each individual BHP enrollee's age and income level. We 
believe that the proposed approach will increase the administrative 
feasibility of making federal BHP payments and reduce the likelihood of 
inadvertently erroneous payments resulting from highly complex 
methodologies. We believe that this approach should not significantly 
change federal payment amounts, since within applicable ranges, the 
BHP-eligible population is distributed relatively evenly.
    The number of factors contributing to rate cells, when combined, 
can result in over 350,000 rate cells which can increase the complexity 
when generating quarterly payment amounts. In future years, we will 
consider whether to combine or eliminate certain rate cells, once we 
are certain that the effect on payment would be insignificant in the 
interest of administrative simplification.

C. Sources and State Data Considerations

    To the extent possible, we intend to continue to use data submitted 
to the federal government by QHP issuers seeking to offer coverage 
through an Marketplace to perform the calculations that determine 
federal BHP payment cell rates. We propose that the current methodology 
would not change, but we also propose clarifications regarding the 
submission of state data in this section.
    States operating a State Based Marketplace in the individual 
market, however, must provide certain data, including premiums for 
second lowest cost silver plans, by geographic area, for CMS to 
calculate the federal BHP payment rates in those states. We propose 
that a State Based Marketplace interested in obtaining the applicable 
federal BHP payment rates for its state must submit such data 
accurately, completely, and as specified by CMS, by no later than 
October 15, 2016, for CMS to calculate the applicable rates for 2017 
and by October 15, 2017 for 2018. If additional state data (that is, in 
addition to the second lowest cost silver plan premium data) are needed 
to determine the federal BHP payment rate, such data must be submitted 
in a timely manner, and in a format specified by CMS to support the 
development and timely release of annual BHP payment notices. The 
specifications for data collection to support the development of BHP 
payment rates will be published in CMS guidance and will be available 
at https://www.medicaid.gov/Federal-Policy-Guidance/Federal-Policy-Guidance.html.
    States must submit to CMS enrollment data on a quarterly basis and 
should be technologically prepared to begin submitting data at the 
start of their BHP. This requirement is necessary for us to implement 
the payment methodology that is tied to a quarterly reconciliation 
based on actual enrollment data.
    We newly propose 2 additional clarifications regarding state-
submitted data. First, for states that have BHP enrollees who do not 
file federal tax returns (non-filers), the state must develop a 
methodology which they must submit to CMS as the time of their 
Blueprint submission to determine the enrollees' household income and 
household size consistently with Marketplace requirements. We reserve 
the right to approve or disapprove the state's methodology to determine 
income and household size for non-filers.
    Second, as the federal payments are determined quarterly and the 
enrollment data is required to be submitted by the states to CMS 
quarterly, we propose that the quarterly payment would be based on the 
characteristics of the enrollee at the beginning of the quarter (or 
their first month of enrollment in BHP in each quarter). Thus, if an 
enrollee were to experience a change in county of residence, income, 
household size, or other factors related to the BHP payment 
determination during the quarter, the payment for the quarter would be 
based on the data as of the beginning of the quarter. Payments would 
still be made only for months that the person is enrolled in and 
eligible for BHP. We do not anticipate that this would have a 
significant effect on the federal BHP payment. The states must maintain 
data that are consistent with CMS' verification requirements, including 
auditable records for each individual enrolled, indicating an 
eligibility determination and a determination of income and other 
criteria relevant to the payment methodology as of the beginning of 
each quarter.
    As described in Sec.  600.610 (Secretarial determination of BHP 
payment amount), the state is required to submit certain data in 
accordance with this Notice. We require that this data be collected and 
validated by states operating BHP and that this data be submitted to 
CMS.

D. Discussion of Specific Variables Used in Payment Equations

1. Reference Premium (RP)
    To calculate the estimated PTC that would be paid if individuals 
enrolled in QHPs through the Marketplace, we must

[[Page 63942]]

calculate a reference premium (RP) because the PTC is based, in part, 
on the premiums for the applicable second lowest cost silver plan as 
explained in section II.C.4 of this proposed methodology, regarding the 
Premium Tax Credit Formula (PTCF). The proposal is unchanged from the 
current method except to update the reference years, and to provide 
additional methodological details to simplify calculations and to deal 
with potential ambiguities. Accordingly, for the purposes of 
calculating the BHP payment rates, the reference premium, in accordance 
with 26 U.S.C. 36B(b)(3)(C), is defined as the adjusted monthly premium 
for an applicable second lowest cost silver plan. The applicable second 
lowest cost silver plan is defined in 26 U.S.C. 36B(b)(3)(B) as the 
second lowest cost silver plan of the individual market in the rating 
area in which the taxpayer resides, which is offered through the same 
Marketplace. We propose to use the adjusted monthly premium for an 
applicable second lowest cost silver plan in 2017 and 2018 as the 
reference premium (except in the case of a state that elects to use the 
2016 or 2017 premium, respectively, as the basis for the federal BHP 
payment, as described in section II.F of this final notice).
    The reference premium would be the premium applicable to non-
tobacco users. This is consistent with the provision in 26 U.S.C. 
36B(b)(3)(C) that bases the PTC on premiums that are adjusted for age 
alone, without regard to tobacco use, even for states that allow 
insurers to vary premiums based on tobacco use in accordance with 42 
U.S.C. 300gg(a)(1)(A)(iv).
    Consistent with the policy set forth in 26 CFR 1.36B-3(f)(6) to 
calculate the PTC for those enrolled in a QHP through an Marketplace, 
we propose not to update the payment methodology, and subsequently the 
federal BHP payment rates, in the event that the second lowest cost 
silver plan used as the reference premium, or the lowest cost silver 
plan, changes (that is, terminates or closes enrollment during the 
year).
    The applicable second lowest cost silver plan premium will be 
included in the BHP payment methodology by age range, geographic area, 
and self-only or applicable category of family coverage obtained 
through BHP.
    American Indians and Alaska Natives with household incomes between 
100 percent and 300 percent of the FPL are eligible for a full cost 
sharing subsidy regardless of the plan they select (as described in 
sections 1402(d) and 2901(a) of the Affordable Care Act). We assume 
that American Indians and Alaska Natives would be more likely to enroll 
in bronze plans as a result, as it would reduce the amount of the 
premium they would pay compared to the costs of enrolling in a silver 
plan; thus, for American Indian/Alaska Native BHP enrollees, we propose 
to use the lowest cost bronze plan as the basis for the reference 
premium for the purposes of calculating the CSR portion of the federal 
BHP payment as described further in section II.E of this proposed 
methodology.
    We note that the choice of the second lowest cost silver plan for 
calculating BHP payments would rely on several simplifying assumptions 
in its selection. For the purposes of determining the second lowest 
cost silver plan for calculating PTC for a person enrolled in a QHP 
through an Marketplace, the applicable plan may differ for various 
reasons. For example, a different second lowest cost silver plan may 
apply to a family consisting of 2 adults, their child, and their niece 
than to a family with 2 adults and their children, because 1 or more 
QHPs in the family's geographic area might not offer family coverage 
that includes the niece. We believe that it would not be possible to 
replicate such variations for calculating the BHP payment and believe 
that in aggregate they would not result in a significant difference in 
the payment. Thus, we propose to use the second lowest cost silver plan 
available to any enrollee for a given age, geographic area, and 
coverage category.
    This choice of reference premium relies on 2 assumptions about 
enrollment in the Marketplaces. First, we assume that all persons 
enrolled in BHP would have elected to enroll in a silver level plan if 
they had instead enrolled in a QHP through the Marketplaces. It is 
possible that some persons would have chosen not to enroll at all or 
would have chosen to enroll in a different metal-level plan (in 
particular, a bronze level plan with a premium that is less than the 
PTC for which the person was eligible). We do not believe it is 
appropriate to adjust the payment for an assumption that some BHP 
enrollees would not have enrolled in QHPs for purposes of calculating 
the BHP payment rates, since section 1331(d)(3)(A)(ii) of the 
Affordable Care Act requires the calculation of such rates as if the 
enrollee had enrolled in a qualified health plan through an 
Marketplace.
    Second, we assume that, among all available silver plans, all 
persons enrolled in BHP would have selected the second-lowest cost 
plan. Both this and the prior assumption allow an administratively 
feasible determination of federal payment levels. They also have some 
implications for the CSR portion of the rate. If persons were to enroll 
in a bronze level plan through the Marketplace, they would not be 
eligible for CSRs, unless they were an eligible American Indian or 
Alaska Native; thus, assuming that all persons enroll in a silver level 
plan, rather than a plan with a different metal level, would increase 
the BHP payment. Assuming that all persons enroll in the second lowest 
cost silver plan for the purposes of calculating the CSR portion of the 
rate may result in a different level of CSR payments than would have 
been paid if the persons were enrolled in different silver level plans 
on the Marketplaces (with either lower or higher premiums). We believe 
that it would be difficult to project how many BHP enrollees would have 
enrolled in different silver level QHPs, and thus propose to use the 
second lowest cost silver plan as the basis for the reference premium 
and calculating the CSR portion of the rate. While some data is 
available from the Marketplaces, developing projections of how persons 
in different income ranges choose plans and extrapolating that to other 
states, with different numbers of plans and different premiums, would 
not be an improvement upon the current methodology. For American 
Indian/Alaska Native BHP enrollees, we propose to use the lowest cost 
bronze plan as the basis for the reference premium as described further 
in section II.E. of this proposed methodology.
    The applicable age bracket will be one dimension of each rate cell. 
We propose to assume a uniform distribution of ages and estimate the 
average premium amount within each rate cell. We believe that assuming 
a uniform distribution of ages within these ranges is a reasonable 
approach and would produce a reliable determination of the PTC and CSR 
components.
    We also believe this approach would avoid potential inaccuracies 
that could otherwise occur in relatively small payment cells if age 
distribution were measured by the number of persons eligible or 
enrolled.
    We propose to use geographic areas based on the rating areas used 
in the Marketplaces. We propose to define each geographic area so that 
the reference premium is the same throughout the geographic area. When 
the reference premium varies within a rating area, we propose defining 
geographic areas as aggregations of counties with the same reference 
premium. Although plans are allowed to serve geographic areas smaller 
than counties after obtaining our approval, we propose that no 
geographic area, for

[[Page 63943]]

purposes of defining BHP payment rate cells, will be smaller than a 
county. We do not believe that this assumption will have a significant 
impact on federal payment levels and it would likely simplify both the 
calculation of BHP payment rates and the operation of BHP.
    Finally, in terms of the coverage category, we propose that federal 
payment rates only recognize self-only and two-adult coverage, with 
exceptions that account for children who are potentially eligible for 
BHP. First, in states that set the upper income threshold for 
children's Medicaid and CHIP eligibility below 200 percent of FPL 
(based on modified adjusted gross income), children in households with 
incomes between that threshold and 200 percent of FPL would be 
potentially eligible for BHP. Currently, the only states in this 
category are Arizona, Idaho, and North Dakota.\4\ Second, BHP would 
include lawfully present immigrant children with incomes at or below 
200 percent of FPL in states that have not exercised the option under 
the sections 1903(v)(4)(A)(ii) and 2107(e)(1)(E) of the Act to qualify 
all otherwise eligible, lawfully present immigrant children for 
Medicaid and CHIP. States that fall within these exceptions would be 
identified based on their Medicaid and CHIP State Plans, and the rate 
cells would include appropriate categories of BHP family coverage for 
children. For example, Idaho's Medicaid and CHIP eligibility is limited 
to families with MAGI at or below 185 percent FPL. If Idaho implemented 
BHP, Idaho children with incomes between 185 and 200 percent could 
qualify. In other states, BHP eligibility will generally be restricted 
to adults, since children who are citizens or lawfully present 
immigrants and who live in households with incomes at or below 200 
percent of FPL will qualify for Medicaid or CHIP and thus be ineligible 
for BHP under section 1331 (e)(1)(C) of the Affordable Care Act, which 
limits BHP to individuals who are ineligible for minimum essential 
coverage (as defined in section 5000A(f) of the Internal Revenue Code 
of 1986).
---------------------------------------------------------------------------

    \4\ CMCS. ``State Medicaid and CHIP Income Eligibility Standards 
Effective January 1, 2014.''
---------------------------------------------------------------------------

2. Population Health Factor (PHF)
    We propose that the population health factor be included in the 
methodology to account for the potential differences in the average 
health status between BHP enrollees and persons enrolled in the 
Marketplace. To the extent that BHP enrollees would have been enrolled 
in the Marketplace in the absence of BHP in a state, the exclusion of 
those BHP enrollees in the Marketplace may affect the average health 
status of the overall population and the expected QHP premiums. Our 
proposal continues the methodology currently in place, except to update 
reference years.
    We currently do not believe that there is evidence that the BHP 
population would have better or poorer health status than the 
Marketplace population. At this time, there is a lack of experience 
available in the Marketplace that limits the ability to analyze the 
health differences between these groups of enrollees. Marketplaces have 
been in operation since 2014, and 2 states have operated BHP in 2015, 
but we do not have the data available to do the analysis necessary to 
make this adjustment at this time. In addition, differences in 
population health may vary across states. Thus, at this time, we 
believe that it is not feasible to develop a methodology to make a 
prospective adjustment to the population health factor that is reliably 
accurate.
    Given these analytic challenges and the limited data about 
Marketplace coverage and the characteristics of BHP-eligible consumers 
that will be available by the time we establish federal payment rates 
for 2017 and 2018, we believe that the most appropriate adjustment for 
2017 and 2018 would be 1.00.
    In the 2015 and 2016 payment methodologies, we included an option 
for states to include a retrospective population health status 
adjustment. Similarly, we propose for the 2017 and 2018 payment 
methodology to provide states with the same option, as described 
further in section II.G of this proposed methodology, to include a 
retrospective population health status adjustment in the certified 
methodology, which is subject to our review and approval. Regardless of 
whether a state elects to include a retrospective population health 
status adjustment, we anticipate that, in future years, when additional 
data become available about Marketplace coverage and the 
characteristics of BHP enrollees, we may estimate this factor 
differently.
    While the statute requires consideration of risk adjustment 
payments and reinsurance payments insofar as they would have affected 
the PTC and CSRs that would have been provided to BHP-eligible 
individuals had they enrolled in QHPs, we are not proposing to require 
that a BHP program's standard health plans receive such payments. As 
explained in the BHP final rule, BHP standard health plans are not 
included in the risk adjustment program operated by HHS on behalf of 
states. Further, standard health plans do not qualify for payments from 
the transitional reinsurance program established under section 1341 of 
the Affordable Care Act.\5\ To the extent that a state operating a BHP 
determines that, because of the distinctive risk profile of BHP-
eligible consumers, BHP standard health plans should be included in 
mechanisms that share risk with other plans in the state's individual 
market, the state would need to use other methods for achieving this 
goal.
---------------------------------------------------------------------------

    \5\ See 45 CFR 153.400(a)(2)(iv) (BHP standard health plans are 
not required to submit reinsurance contributions), 153.20 
(definition of ``Reinsurance-eligible plan'' as not including 
``health insurance coverage not required to submit reinsurance 
contributions''), Sec.  153.230(a) (reinsurance payments under the 
national reinsurance parameters are available only for 
``Reinsurance-eligible plans'').
---------------------------------------------------------------------------

3. Income (I)
    Household income is a significant determinant of the amount of the 
PTC and CSRs that are provided for persons enrolled in a QHP through 
the Marketplace. Accordingly, both the current and proposed BHP payment 
methodology incorporates income into the calculations of the payment 
rates through the use of income-based rate cells. We propose defining 
income in accordance with the definition of modified adjusted gross 
income in 26 U.S.C. 36B(d)(2)(B) and consistent with the definition in 
45 CFR 155.300. Income would be measured relative to the FPL, which is 
updated periodically in the Federal Register by the Secretary under the 
authority of 42 U.S.C. 9902(2), based on annual changes in the consumer 
price index for all urban consumers (CPI-U). In our proposed 
methodology, household size and income as a percentage of FPL would be 
used as factors in developing the rate cells. We propose using the 
following income ranges measured as a percentage of FPL: \6\
---------------------------------------------------------------------------

    \6\ These income ranges and this analysis of income apply to the 
calculation of the PTC. Many fewer income ranges and a much simpler 
analysis apply in determining the value of CSRs, as specified below.
---------------------------------------------------------------------------

     0-50 percent.
     51-100 percent.
     101-138 percent.
     139-150 percent.
     151-175 percent.
     176-200 percent.
    We further propose to assume a uniform income distribution for each 
federal BHP payment cell. We believe that assuming a uniform income 
distribution for the income ranges proposed would be reasonably 
accurate for the purposes of calculating the PTC and CSR components of 
the BHP

[[Page 63944]]

payment and would avoid potential errors that could result if other 
sources of data were used to estimate the specific income distribution 
of persons who are eligible for or enrolled in BHP within rate cells 
that may be relatively small.
    Thus, when calculating the mean, or average, PTC for a rate cell, 
we propose to calculate the value of the PTC at each one percentage 
point interval of the income range for each federal BHP payment cell 
and then calculate the average of the PTC across all intervals. This 
calculation would rely on the PTC formula described in section II.4 of 
this proposed methodology.
    As the PTC for persons enrolled in QHPs would be calculated based 
on their income during the open enrollment period, and that income 
would be measured against the FPL at that time, we propose to adjust 
the FPL by multiplying the FPL by a projected increase in the CPI-U 
between the time that the BHP payment rates are calculated and the QHP 
open enrollment period, if the FPL is expected to be updated during 
that time. We propose that the projected increase in the CPI-U would be 
based on the intermediate inflation forecasts from the most recent 
OASDI and Medicare Trustees Reports.\7\
---------------------------------------------------------------------------

    \7\ See Table IV A1 from the 2013 reports in https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2014.pdf.
---------------------------------------------------------------------------

4. Premium Tax Credit Formula (PTCF)
    In Equation 1 described in section II.A.1 of this proposed 
methodology, we propose to use the formula described in 26 U.S.C. 
36B(b) to calculate the estimated PTC that would be paid on behalf of a 
person enrolled in a QHP on an Marketplace as part of the BHP payment 
methodology. This formula is used to determine the contribution amount 
(the amount of premium that an individual or household theoretically 
would be required to pay for coverage in a QHP on an Marketplace), 
which is based on (A) the household income; (B) the household income as 
a percentage of FPL for the family size; and (C) the schedule specified 
in 26 U.S.C. 36B(b)(3)(A) and shown below. The difference between the 
contribution amount and the adjusted monthly premium for the applicable 
second lowest cost silver plan is the estimated amount of the PTC that 
would be provided for the enrollee.
    The PTC amount provided for a person enrolled in a QHP through an 
Marketplace is calculated in accordance with the methodology described 
in 26 U.S.C. 36B(b)(2). The amount is equal to the lesser of the 
premium for the plan in which the person or household enrolls, or the 
adjusted premium for the applicable second lowest cost silver plan 
minus the contribution amount.
    The applicable percentage is defined in 26 U.S.C. 36B (b)(3)(A) and 
26 CFR 1.36B-3(g) as the percentage that applies to a taxpayer's 
household income that is within an income tier specified in Table 1, 
increasing on a sliding scale in a linear manner from an initial 
premium percentage to a final premium percentage specified in the table 
(see Table 1). The methodology is unchanged, but we propose to update 
the percentages:
[GRAPHIC] [TIFF OMITTED] TP22OC15.018

     
---------------------------------------------------------------------------

    \8\ Examination of returns and claims for refund, credit, or 
abatement; determination of correct tax liability. https://www.irs.gov/pub/irs-drop/rp-14-62.pdf.
---------------------------------------------------------------------------

    These are the applicable percentages for calendar year (CY) 2016 
and would be used for the 2017 payment methodology. We plan to use the 
CY 2017 percentages when they become available for the 2018 payment 
methodology, as the percentages are indexed annually and published by 
the Internal Revenue Service (IRS). The applicable percentages will be 
updated in future years in accordance with 26 U.S.C. 36B(b)(3)(A)(ii).
5. Income Reconciliation Factor (IRF)
    For persons enrolled in a QHP through an Marketplace who receive an 
advance payment of the premium tax credit (APTC), there will be an 
annual reconciliation following the end of the year to compare the 
advance payments to the correct amount of PTC based on household 
circumstances shown on the federal income tax return. Any difference 
between the latter amounts and the advance payments made during the 
year would either be paid to the taxpayer (if too little APTC was paid) 
or charged to the taxpayer as additional tax (if too much APTC was 
made, subject to any limitations in statute or regulation), as provided 
in 26 U.S.C. 36B(f).
    Section 1331(e)(2) of the Affordable Care Act specifies that an 
individual eligible for BHP may not be treated as a qualified 
individual under section 1312 eligible for enrollment in a QHP offered 
through an Marketplace. We are defining ``eligible'' to mean anyone for 
whom the state agency or the Marketplace assesses or determines, based 
on the single streamlined application or renewal form, as eligible for 
enrollment in the BHP. Because

[[Page 63945]]

enrollment in a QHP is a requirement for PTC for the enrolled 
individual's coverage, individuals determined or assessed as eligible 
for a BHP are not eligible to receive APTC assistance for coverage in 
the Marketplace. Because they do not receive APTC assistance, BHP 
enrollees, on whom the 2017 and 2018 payment methodology is based, are 
not subject to the same income reconciliation as Marketplace consumers. 
Nonetheless, there may still be differences between a BHP enrollee's 
household income reported at the beginning of the year and the actual 
income over the year. These may include small changes (reflecting 
changes in hourly wage rates, hours worked per week, and other 
fluctuations in income during the year) and large changes (reflecting 
significant changes in employment status, hourly wage rates, or 
substantial fluctuations in income). There may also be changes in 
household composition. Thus, we believe that using unadjusted income as 
reported prior to the BHP program year may result in calculations of 
estimated PTC that are inconsistent with the actual incomes of BHP 
enrollees during the year. Even if the BHP program adjusts household 
income determinations and corresponding claims of federal payment 
amounts based on household reports during the year or data from third-
party sources, such adjustments may not fully capture the effects of 
tax reconciliation that BHP enrollees would have experienced had they 
been enrolled in a QHP through an Marketplace and received APTC 
assistance.
    Therefore, in accordance with current practice, we propose 
including in Equation 1 an income adjustment factor that would account 
for the difference between calculating estimated PTC using: (a) Income 
relative to FPL as determined at initial application and potentially 
revised mid-year, under proposed Sec.  600.320, for purposes of 
determining BHP eligibility and claiming federal BHP payments; and (b) 
actual income relative to FPL received during the plan year, as it 
would be reflected on individual federal income tax returns. This 
adjustment would seek prospectively to capture the average effect of 
income reconciliation aggregated across the BHP population had those 
BHP enrollees been subject to tax reconciliation after receiving APTC 
assistance for coverage provided through QHPs. Consistent with the 
methodology used in 2015 (and that will be used in 2016), for 2017 and 
2018, we propose estimating reconciliation effects based on tax data 
for 2 years, reflecting income and tax unit composition changes over 
time among BHP-eligible individuals.
    The Office of Tax Analysis in the U.S. Department of Treasury (OTA) 
maintains a model that combines detailed tax and other data, including 
Marketplace enrollment and PTC claimed, to project Marketplace 
premiums, enrollment, and tax credits. For each enrollee, this model 
compares the APTC based on household income and family size estimated 
at the point of enrollment with the PTC based on household income and 
family size reported at the end of the tax year. The former reflects 
the determination using enrollee information furnished by the applicant 
and tax data furnished by the IRS. The latter would reflect the PTC 
eligibility based on information on the tax return, which would have 
been determined if the individual had not enrolled in BHP. We propose 
that the ratio of the reconciled PTC to the initial estimation of PTC 
would be used as the income reconciliation factor in Equation (1) for 
estimating the PTC portion of the BHP payment rate.
    For 2016, OTA estimated that the income reconciliation factor for 
states that have implemented the Medicaid eligibility expansion to 
cover adults up to 133 percent of the FPL will be 100.25 percent, and 
for states that have not implemented the Medicaid eligibility expansion 
and do not cover adults up to 133 percent of the FPL will be 100.24 
percent. In the 2016 payment methodology, the IRF was set equal to 
100.25 percent. We propose updating this calculation and the IRF for 
2017 and 2018.
6. Tobacco Rating Adjustment Factor (TRAF)
    As described previously, the reference premium is estimated, for 
purposes of determining both the PTC and related federal BHP payments, 
based on premiums charged for non-tobacco users, including in states 
that allow premium variations based on tobacco use, as provided in 42 
U.S.C. 300gg (a)(1)(A)(iv). In contrast, as described in 45 CFR 
156.430, the CSR advance payments are based on the total premium for a 
policy, including any adjustment for tobacco use. Accordingly, we 
propose to continue our current methodology and to incorporate a 
tobacco rating adjustment factor into Equation 2 that reflects the 
average percentage increase in health care costs that results from 
tobacco use among the BHP-eligible population and that would not be 
reflected in the premium charged to non-users. This factor will also 
take into account the estimated proportion of tobacco users among BHP-
eligible consumers.
    To estimate the average effect of tobacco use on health care costs 
(not reflected in the premium charged to non-users), we propose to 
calculate the ratio between premiums that silver level QHPs charge for 
tobacco users to the premiums they charge for non-tobacco users at 
selected ages. To calculate estimated proportions of tobacco users, we 
propose to use data from the Centers for Disease Control and Prevention 
to estimate tobacco utilization rates by state and relevant population 
characteristic.\9\ For each state, we propose to calculate the tobacco 
usage rate based on the percentage of persons by age who use cigarettes 
and the percentage of persons by age that use smokeless tobacco, and 
calculate the utilization rate by adding the two rates together. The 
data is available for 3 age intervals: 18-24; 25-44; and 45-64. For the 
BHP payment rate cell for persons ages 21-34, we would calculate the 
factor as (4/14 * the utilization rate of 18-24 year olds) plus (10/14 
* the utilization rate of 25-44 year olds), which would be the weighted 
average of tobacco usage for persons 21-34 assuming a uniform 
distribution of ages; for all other age ranges used for the rate cells, 
we would use the age range in the CDC data in which the BHP payment 
rate cell age range is contained.
---------------------------------------------------------------------------

    \9\ Centers for Disease Control and Prevention, Tobacco Control 
State Highlights 2012: https://www.cdc.gov/tobacco/data_statistics/state_data/state_highlights/2012/index.htm.
---------------------------------------------------------------------------

    We propose to provide tobacco rating factors that may vary by age 
and by geographic area within each state. To the extent that the second 
lowest cost silver plans have a different ratio of tobacco user rates 
to non-tobacco user rates in different geographic areas, the tobacco 
rating adjustment factor may differ across geographic areas within a 
state. In addition, to the extent that the second lowest cost silver 
plan has a different ratio of tobacco user rates to non-tobacco user 
rates by age, or that there is a different prevalence of tobacco use by 
age, the tobacco rating adjustment factor may differ by age.
7. Factor for Removing Administrative Costs (FRAC)
    The Factor for Removing Administrative Costs represents the average 
proportion of the total premium that covers allowed health benefits, 
and we propose to continue including this factor in our calculation of 
estimated CSRs in Equation 2. The product of the reference premium and 
the Factor for Removing Administrative Costs would

[[Page 63946]]

approximate the estimated amount of Essential Health Benefit (EHB) 
claims that would be expected to be paid by the plan. This step is 
needed because the premium also covers such costs as taxes, fees, and 
QHP administrative expenses. We are proposing to set this factor equal 
to 0.80, which is the same percentage for the factor to remove 
administrative costs for calculating CSR advance payments for 
established in the 2016 HHS Notice of Benefit and Payment Parameters.
8. Actuarial Value (AV)
    The actuarial value is defined as the percentage paid by a health 
plan of the total allowed costs of benefits, as defined under 45 CFR 
156.20. (For example, if the average health care costs for enrollees in 
a health insurance plan were $1,000 and that plan has an actuarial 
value of 70 percent, the plan would be expected to pay on average $700 
($1,000 x 0.70) for health care costs per enrollee.) By dividing such 
estimated costs by the actuarial value in the proposed methodology, we 
would calculate the estimated amount of total EHB-allowed claims, 
including both the portion of such claims paid by the plan and the 
portion paid by the consumer for in-network care. (To continue with 
that same example, we would divide the plan's expected $700 payment of 
the person's EHB-allowed claims by the plan's 70 percent actuarial 
value to ascertain that the total amount of EHB-allowed claims, 
including amounts paid by the consumer, is $1,000.)
    For the purposes of calculating the CSR rate in Equation 2, we 
propose to continue to use the standard actuarial value of the silver 
level plans in the individual market, which is equal to 70 percent.
9. Induced Utilization Factor (IUF)
    The induced utilization factor is proposed to continue to be a 
factor in calculating estimated CSRs in Equation 2 to account for the 
increase in health care service utilization associated with a reduction 
in the level of cost sharing a QHP enrollee would have to pay, based on 
the cost-sharing reduction subsidies provided to enrollees.
    The 2016 HHS Notice of Benefit and Payment Parameters provided 
induced utilization factors for the purposes of calculating cost-
sharing reduction advance payments for 2016. In that Notice, the 
induced utilization factors for silver plan variations ranged from 1.00 
to 1.12, depending on income. Using those utilization factors, the 
induced utilization factor for all persons who would qualify for BHP 
based on their household income as a percentage of FPL is 1.12; this 
would include persons with household income between 100 percent and 200 
percent of FPL, lawfully present non-citizens below 100 percent of FPL 
who are ineligible for Medicaid because of immigration status, and 
American Indians and Alaska Natives with household income between 100 
and 300 percent of FPL, not subject to any cost-sharing. Thus, 
consistent with last year, we propose to set the induced utilization 
factor equal to 1.12 for the BHP payment methodology.
    We note that for CSRs for QHPs, there will be a final 
reconciliation at the end of the year and the actual level of induced 
utilization could differ from the factor proposed in the rule. Our 
proposed methodology for BHP funding would not include any 
reconciliation for utilization and thus may understate or overstate the 
impact of the effect of the subsidies on health care utilization.
10. Change in Actuarial Value ([Delta]AV)
    The increase in actuarial value would account for the impact of the 
cost-sharing reduction subsidies on the relative amount of EHB claims 
that would be covered for or paid by eligible persons, and we propose 
including it as a factor in calculating estimated CSRs in Equation 2.
    The actuarial values of QHPs for persons eligible for cost-sharing 
reduction subsidies are defined in 45 CFR 156.420(a), and eligibility 
for such subsidies is defined in 45 CFR 155.305(g)(2)(i) through (iii). 
For QHP enrollees with household incomes between 100 percent and 150 
percent of FPL, and those below 100 percent of FPL who are ineligible 
for Medicaid because of their immigration status, CSRs increase the 
actuarial value of a QHP silver plan from 70 percent to 94 percent. For 
QHP enrollees with household incomes between 150 percent and 200 
percent of FPL, CSRs increase the actuarial value of a QHP silver plan 
from 70 percent to 87 percent.
    We propose to continue to apply this factor by subtracting the 
standard AV from the higher AV allowed by the applicable cost-sharing 
reduction. For BHP enrollees with household incomes at or below 150 
percent of FPL, this factor would be 0.24 (94 percent minus 70 
percent); for BHP enrollees with household incomes more than 150 
percent but not more than 200 percent of FPL, this factor would be 0.17 
(87 percent minus 70 percent).

E. Adjustments for American Indians and Alaska Natives

    There are several exceptions made for American Indians and Alaska 
Natives enrolled in QHPs through an Marketplace to calculate the PTC 
and CSRs. Thus, we propose adjustments to the payment methodology 
described above to be consistent with the Marketplace rules.
    We propose the following adjustments, unchanged from the current 
methodology: 1. We propose that the adjusted reference premium for use 
in the CSR portion of the rate would use the lowest cost bronze plan 
instead of the second lowest cost silver plan, with the same adjustment 
for the population health factor (and in the case of a state that 
elects to use the 2016 or 2017 premiums as the basis of the federal BHP 
payment, the same adjustment for the premium trend factor). American 
Indians and Alaska Natives are eligible for CSRs with any metal level 
plan, and thus we believe that eligible persons would be more likely to 
select a bronze level plan instead of a silver level plan. (It is 
important to note that this would not change the PTC, as that is the 
maximum possible PTC payment, which is always based on the applicable 
second lowest cost silver plan.)
    2. We propose that the actuarial value for use in the CSR portion 
of the rate would be 0.60 instead of 0.70, which is consistent with the 
actuarial value of a bronze level plan.
    3. We propose that the induced utilization factor for use in the 
CSR portion of the rate would be 1.15 for 2017/2018, which is 
consistent with the 2016 HHS Notice of Benefit and Payment Parameters 
induced utilization factor for calculating advance CSR payments for 
persons enrolled in bronze level plans and eligible for CSRs up to 100 
percent of actuarial value.
    4. We propose that the change in the actuarial value for use in the 
CSR portion of the rate would be 0.40. This reflects the increase from 
60 percent actuarial value of the bronze plan to 100 percent actuarial 
value, as American Indians and Alaska Natives with household incomes 
between 100 and 300 percent FPL are eligible to receive CSRs up to 100 
percent of actuarial value.

F. State Option To Use 2016 or 2017 QHP Premiums for BHP Payments

    In the interest of allowing states greater certainty in the total 
BHP federal payments for 2017 or 2018, we propose providing states the 
option to have their final 2017 and 2018 federal BHP

[[Page 63947]]

payment rates, respectively, calculated using the projected 2017 and 
2018 adjusted reference premium (that is, using 2016 or 2017 premium 
data multiplied by the premium trend factor defined below), as 
described in Equation (3b).
    For a state that would elect to use the 2016 or 2017 premiums as 
the basis for the 2017 and 2018 BHP federal payments, respectively, we 
propose requiring that the state inform us no later than May 15, 2016 
for the 2017 program year and May 15, 2017 for the 2018 program year. 
Our experience to date has been that states have elected to use the 
premium data that correlates to the year of payment. If this trend 
continues, we will consider in future payment notices whether to 
eliminate the choice of the premium from the prior year moving forward.
    For Equation (3b), we propose to continue to define the premium 
trend factor, with minor changes in calculation sources and methods, as 
follows:
    Premium Trend Factor (PTF): In Equation (3b), we propose to 
calculate an adjusted reference premium (ARP) based on the application 
of certain relevant variables to the reference premium (RP), including 
a premium trend factor (PTF). In the case of a state that would elect 
to use the 2016 or 2017 premiums as the basis for determining the BHP 
payment, it would be appropriate to apply a factor that would account 
for the change in health care costs between the year of the premium 
data and the BHP plan year. We are proposing to define this as the 
premium trend factor in the BHP payment methodology. This factor would 
approximate the change in health care costs per enrollee, which would 
include, but not be limited to, changes in the price of health care 
services and changes in the utilization of health care services. This 
would provide an estimate of the adjusted monthly premium for the 
applicable second lowest cost silver plan that would be more accurate 
and reflective of health care costs in the BHP program year, which 
would be the year following issuance of the final federal payment 
notice. In addition, we believe that it would be appropriate to adjust 
the trend factor for the estimated impact of changes to the 
transitional reinsurance program on the average QHP premium.
    For the trend factor we propose to use the annual growth rate in 
private health insurance expenditures per enrollee from the National 
Health Expenditure projections, developed by the Office of the Actuary 
in CMS (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/proj2014.pdf).
    We propose to also include an adjustment for changes in the 
transitional reinsurance program. We propose that this adjustment would 
be developed from analysis by CMS' Center for Consumer Information and 
Insurance Oversight (CCIIO).
    States may want to consider that the increase in premiums for QHPs 
from 2016 to 2017 or from 2017 to 2018 may differ from the premium 
trend factor developed for the BHP funding methodology for several 
reasons. In particular, states may want to consider that the second 
lowest cost silver plan for 2016 or 2017 may not be the same as the 
second lowest cost silver plan in 2017 or 2018, respectively. This may 
lead to the premium trend factor being greater than or less than the 
actual change in the premium of the second lowest cost silver plan in 
2016 compared to the premium of the second lowest cost silver plan in 
2017 (or from 2017 to 2018).

G. State Option To Include Retrospective State-Specific Health Risk 
Adjustment in Certified Methodology

    To determine whether the potential difference in health status 
between BHP enrollees and consumers in the Marketplace would affect the 
PTC, CSRs, risk adjustment and reinsurance payments that would have 
otherwise been made had BHP enrollees been enrolled in coverage on the 
Marketplace, we propose to continue to provide states implementing the 
BHP the option to propose and to implement, as part of the certified 
methodology, a retrospective adjustment to the federal BHP payments to 
reflect the actual value that would be assigned to the population 
health factor (or risk adjustment) based on data accumulated during 
program years 2017 and 2018 for each rate cell.
    We acknowledge that there is uncertainty with respect to this 
factor due to the lack of experience of QHPs on the Marketplace and 
other payments related to the Marketplace, which is why, absent a state 
election, we propose to use a value for the population health factor to 
determine a prospective payment rate which assumes no difference in the 
health status of BHP enrollees and QHP enrollees. There is considerable 
uncertainty regarding whether the BHP enrollees will pose a greater 
risk or a lesser risk compared to the QHP enrollees, how to best 
measure such risk, and the potential effect such risk would have had on 
PTC, CSRs, risk adjustment and reinsurance payments that would have 
otherwise been made had BHP enrollees been enrolled in coverage on the 
Marketplace. To the extent, however, that a state would develop an 
approved protocol to collect data and effectively measure the relative 
risk and the effect on federal payments, we propose to permit a 
retrospective adjustment that would measure the actual difference in 
risk between the two populations to be incorporated into the certified 
BHP payment methodology and used to adjust payments in the previous 
year.
    For a state electing the option to implement a retrospective 
population health status adjustment, we propose requiring the state to 
submit a proposed protocol to CMS, which would be subject to approval 
by us and would be required to be certified by the Chief Actuary of 
CMS, in consultation with the Office of Tax Analysis, as part of the 
BHP payment methodology. We describe the protocol for the population 
health status adjustment in guidance in Considerations for Health Risk 
Adjustment in the Basic Health Program in Program Year 2015 (https://www.medicaid.gov/Basic-Health-Program/Downloads/Risk-Adjustment-and-BHP-White-Paper.pdf). We propose requiring a state to submit its 
proposed protocol by August 1, 2016 for our approval for the 2017 
program year, and by August 1, 2017 for the 2018 program year. This 
submission would also include descriptions of how the state would 
collect the necessary data to determine the adjustment, including any 
contracting contingences that may be in place with participating 
standard health plan issuers. We would provide technical assistance to 
states as they develop their protocols. To implement the population 
health status, we propose that we must approve the state's protocol no 
later than December 31, 2016 for the 2017 program year, and by December 
31, 2017 for the 2018 program year. Finally, we propose that the state 
be required to complete the population health status adjustment at the 
end of 2017 (or 2018) based on the approved protocol. After the end of 
the 2017 and 2018 program years, and once data is made available, we 
proposed to review the state's findings, consistent with the approved 
protocol, and make any necessary adjustments to the state's federal BHP 
payment amounts. If we determine that the federal BHP payments were 
less than they would have been using the final adjustment factor, we 
would apply the difference to the state's next quarterly BHP trust fund 
deposit. If we determine that the federal BHP payments were more than 
they

[[Page 63948]]

would have been using the final reconciled factor, we would subtract 
the difference from the next quarterly BHP payment to the state.

H. Example Application of the BHP Funding Methodology

    In the 2015 proposed payment methodology, we included an example of 
how the BHP funding methodology would be applied (Proposed Basic Health 
Program 2015 Funding Methodology, (78 FR 77399), published in the 
Federal Register on December 23, 2013). For those interested in this 
example, we would refer to the 2015 proposed payment methodology and 
note the following changes since that time.
    In the final BHP payment methodology, we provided the option for 
states to elect to use the 2015 premiums to calculate the BHP payment 
rates instead of the 2014 premiums multiplied by the premium trend 
factor. The example in the previous proposed payment methodology used 
the 2014 premiums multiplied by the premium trend factor only.
    In addition, we provided the option for the state to develop a risk 
adjustment protocol to revise the population health factor in the final 
payment methodology. The example in the previous proposed payment 
methodology did not assume any adjustment to the population health 
factor.
    Furthermore, we modified the age ranges used to develop the rate 
cells after the proposed payment methodology was published. The age 
range for persons ages 21-44 was divided into age ranges of 21-34 and 
35-44.

III. Collection of Information Requirements

    This 2017 and 2018 proposed methodology is mostly unchanged from 
the 2016 final methodology published on February 24, 2015 (80 FR 9636). 
For states that have BHP enrollees who do not file federal tax returns 
(``non-filers''), this methodology notice clarifies that the state must 
develop a methodology to determine the enrollee's household income and 
household size consistent with Marketplace requirements. Since the 
requirement applies to fewer than 10 states, the 2017 and 2018 
methodology does not require additional OMB review under the authority 
of the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.). 
Otherwise, the methodology's information collection requirements and 
burden estimates are not affected by this action and are approved by 
OMB under control number 0938-1218 (CMS-10510). With regard to state 
elections, protocols, certifications, and status adjustments, this 
action would not revise or impose any additional reporting, 
recordkeeping, or third-party disclosure requirements or burden on 
qualified health plans or on states operating State Based Marketplaces.

IV. Response to Comments

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

V. Regulatory Impact Statement

A. Overall Impact

    We have examined the impacts of this proposed methodology as 
required by Executive Order 12866 on Regulatory Planning and Review 
(September 30, 1993), Executive Order 13563 on Improving Regulation and 
Regulatory Review (January 18, 2011), the Regulatory Flexibility Act 
(RFA) (September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, 
March 22, 1995) (UMRA), Executive Order 13132 on Federalism (August 4, 
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating a serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year). As noted in the BHP final rule, BHP provides states the 
flexibility to establish an alternative coverage program for low-income 
individuals who would otherwise be eligible to purchase coverage 
through the Marketplace. Because we propose no changes in methodology 
that would have a consequential effect on state participation 
incentives, or on the size of either the BHP program or offsetting PTC 
and CSR expenditures, the effects of the changes made in this 
methodology notice would not approach the $100 million threshold, and 
hence it is neither an economically significant rule under E.O. 12866 
nor a major rule under the Congressional Review Act. The size of the 
BHP program depends on several factors, including the number of and 
which particular states choose to implement or continue BHP in 2017 or 
2018, the level of QHP premiums in 2016 and 2017, the number of 
enrollees in BHP, and the other coverage options for persons who would 
be eligible for BHP. In particular, while we generally expect that many 
enrollees would have otherwise been enrolled in a QHP through the 
Marketplace, some persons may have been eligible for Medicaid under a 
waiver or a state health coverage program. For those who would have 
enrolled in a QHP and thus would have received PTCs or CSRs, the 
federal expenditures for BHP would be expected to be more than offset 
by a reduction in federal expenditures for PTCs and CSRs. For those who 
would have been enrolled in Medicaid, there would likely be a smaller 
offset in federal expenditures (to account for the federal share of 
Medicaid expenditures), and for those who would have been covered in 
non-federal programs or would have been uninsured, there likely would 
be an increase in federal expenditures. None of these factors or 
incentives would be materially affected by the updates we propose.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.
1. Need for the Proposed Methodology Notice
    Section 1331 of the Affordable Care Act (codified at 42 U.S.C. 
18051)

[[Page 63949]]

requires the Secretary to establish a BHP, and section (d)(1) 
specifically provides that if the Secretary finds that a state meets 
the requirements of the program established under section (a) [of 
section 1331 of the Affordable Care Act], the Secretary shall transfer 
to the State federal BHP payments described in section (d)(3). This 
proposed methodology provides for the funding methodology to determine 
the federal BHP payment amounts required to implement these provisions 
in program years 2017 and 2018.
2. Alternative Approaches
    Many of the factors proposed in this notice are specified in 
statute; therefore, we are limited in the alternative approaches we 
could consider. One area in which we had a choice was in selecting the 
data sources used to determine the factors included in the proposed 
methodology. Except for state-specific reference premiums and 
enrollment data, we propose using national rather than state-specific 
data. This is due to the lack of currently available state-specific 
data needed to develop the majority of the factors included in the 
proposed methodology. We believe the national data will produce 
sufficiently accurate determinations of payment rates. In addition, we 
believe that this approach will be less burdensome on states. In many 
cases, using state-specific data would necessitate additional 
requirements on the states to collect, validate, and report data to 
CMS. By using national data, we are able to collect data from other 
sources and limit the burden placed on the states. To reference 
premiums and enrollment data, we propose using state-specific data 
rather than national data as we believe state-specific data will 
produce more accurate determinations than national averages.
    In addition, we considered whether or not to provide states the 
option to develop a protocol for a retrospective adjustment to the 
population health factor in 2017 and 2018 as we did in the 2015 and 
2016 payment methodologies. We believe that providing this option again 
in 2017 and 2018 is appropriate and likely to improve the accuracy of 
the final payments.
    We also considered whether or not to require the use of 2017 and 
2018 QHP premiums to develop the 2017 and 2018 federal BHP payment 
rates. We believe that the payment rates can still be developed 
accurately using either the 2016 and 2017 QHP premiums (for the 2017 
and 2018 program years, respectively) or the 2017 and 2018 program year 
premiums and that it is appropriate to provide the states the option, 
given the interests and specific considerations each state may have in 
operating the BHP.
3. Transfers
    The provisions of this notice are designed to determine the amount 
of funds that will be transferred to states offering coverage through a 
BHP rather than to individuals eligible for premium and cost-sharing 
reductions for coverage purchased on the Marketplace. We are uncertain 
what the total federal BHP payment amounts to states will be as these 
amounts will vary from state to state due to the varying nature of 
state composition. For example, total federal BHP payment amounts may 
be greater in more populous states simply by virtue of the fact that 
they have a larger BHP-eligible population and total payment amounts 
are based on actual enrollment. Alternatively, total federal BHP 
payment amounts may be lower in states with a younger BHP-eligible 
population as the reference premium used to calculate the federal BHP 
payment will be lower relative to older BHP enrollees. While state 
composition will cause total federal BHP payment amounts to vary from 
state to state, we believe that the proposed methodology, like the 
current methodology, accounts for these variations to ensure accurate 
BHP payment transfers are made to each state.

B. Unfunded Mandates Reform Act

    Section 202 of the UMRA requires that agencies assess anticipated 
costs and benefits before issuing any rule whose mandates require 
spending in any 1 year of $100 million in 1995 dollars, updated 
annually for inflation, by state, local, or tribal governments, in the 
aggregate, or by the private sector. In 2015, that threshold is 
approximately $144 million. States have the option, but are not 
required, to establish a BHP. Further, the proposed methodology would 
establish federal payment rates without requiring states to provide the 
Secretary with any data not already required by other provisions of the 
Affordable Care Act or its implementing regulations. Thus, neither the 
current nor the proposed payment methodologies mandate expenditures by 
state governments, local governments, or tribal governments.

C. 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 Act 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. Individuals and states are not included in the definition of a 
small entity. Few of the entities that meet the definition of a small 
entity as that term is used in the RFA would be impacted directly by 
this proposed methodology.
    Because this proposed methodology is focused solely on federal BHP 
payment rates to states, it does not contain provisions that would have 
a direct impact on hospitals, physicians, and other health care 
providers that are designated as small entities under the RFA. 
Accordingly, we have determined that the proposed methodology, like the 
current methodology and the final rule that established the BHP 
program, will not have a significant economic impact on a substantial 
number of small entities.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a proposed methodology may have a significant 
economic impact on the operations of a substantial number of small 
rural hospitals. For purposes of section 1102(b) of the Act, we define 
a small rural hospital as a hospital that is located outside of a 
metropolitan statistical area and has fewer than 100 beds. For the 
preceding reasons, we have determined that the proposed methodology 
will not have a significant impact on a substantial number of small 
rural hospitals.

D. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct effects on states, preempts 
state law, or otherwise has federalism implications. The BHP is 
entirely optional for states, and if implemented in a state, provides 
access to a pool of funding that would not otherwise be available to 
the state. Accordingly, the requirements of the Executive Order do not 
apply to this proposed methodology notice.


[[Page 63950]]


    Dated: August 27, 2015.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: October 9, 2015.
Sylvia Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2015-26907 Filed 10-21-15; 8:45 am]
BILLING CODE 4120-01-P