Basic Health Program; Federal Funding Methodology for Program Years 2019 and 2020, 12552-12566 [2019-06276]

Agencies

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

[Federal Register Volume 84, Number 63 (Tuesday, April 2, 2019)]
[Proposed Rules]
[Pages 12552-12566]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-06276]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2407-PN]
RIN 0938-ZB42


Basic Health Program; Federal Funding Methodology for Program 
Years 2019 and 2020

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

ACTION: Proposed methodology.

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SUMMARY: This document proposes the methodology and data sources 
necessary to determine federal payment amounts to be made in program 
years 2019 and 2020 to states that elect to establish a Basic Health 
Program under the Patient Protection and Affordable Care Act to offer 
health benefits coverage to low-income individuals otherwise eligible 
to purchase coverage through Affordable Insurance Exchanges. Prior to 
the final notice being published, Basic Health Program (BHP) payments 
will be made using the methodology described in the Final 
Administrative Order published on August 24, 2018. Payments for 2019 
will be conformed to the finalized 2019 payment methodology through 
reconciliation.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on May 2, 2019.

ADDRESSES: In commenting, refer to file code CMS-2407-PN. Because of 
staff and resource limitations, we cannot accept comments by facsimile 
(FAX) transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following three 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-2407-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-2407-PN, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Christopher Truffer, (410) 786-1264; 
or Cassandra Lagorio, (410) 786-4554.

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

[[Page 12553]]

comment period on the following website as soon as possible after they 
have been received: https://www.regulations.gov. Follow the search 
instructions on that website to view public comments.

I. Background

A. Overview of the Basic Health Program

    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 to as the Affordable Care 
Act) provides states with an option to establish a Basic Health Program 
(BHP). In the states that elect to operate a BHP, the 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)).
    A BHP provides another option for states in providing affordable 
health benefits to individuals with incomes in the ranges described 
above. States may find a BHP a useful option for several reasons, 
including the ability to potentially coordinate standard health plans 
in the BHP with their Medicaid managed care plans, or to potentially 
reduce the costs to individuals by lowering premiums or cost-sharing 
requirements.
    Federal funding for a BHP under section 1331(d)(3)(A) of the 
Affordable Care Act is based on the amount of premium tax credit (PTC) 
and cost-sharing reductions (CSRs) that would have been provided for 
the fiscal year to eligible individuals enrolled in BHP standard health 
plans in the state if such eligible individuals were allowed to enroll 
in a qualified health plan (QHP) through Affordable Insurance Exchanges 
(``Exchanges''). These funds are paid to trusts established by the 
states and dedicated to the BHP, and the states then administer the 
payments to standard health plans within the 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 governs 
the establishment of BHPs. The BHP final rule establishes the standards 
for state and federal administration of BHPs, 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 BHPs, as well as the 
operation of the Exchanges. 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 funding methodology for the upcoming BHP program year,\1\ 
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 2019 would apply to BHP program 
year 2020, beginning in January 2020. As discussed in section II.C of 
this notice, 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.
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    \1\ BHP program years span from January to December.
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    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 BHP Blueprint eligibility and 
verification methodologies in coverage through the state BHP. A state 
that is approved to implement a BHP must provide data showing quarterly 
enrollment of eligible individuals in the various federal BHP payment 
rate cells. Such data should include the following:
     Personal identifier;
     Date of birth;
     County of residence;
     Indian status;
     Family size;
     Household income;
     Number of persons in household enrolled in BHP;
     Family identifier;
     Months of coverage;
     Plan information; and
     Any other data required by CMS to properly calculate the 
payment.

B. 2018 Funding Methodology and Changes in Final Administrative Order

    In the February 29, 2016 Federal Register (81 FR 10091), we 
published the final notice entitled ``Basic Health Program; Federal 
Funding Methodology for Program Years 2017 and 2018'' (hereinafter 
referred to as the February 2016 payment notice) that sets forth the 
methodology that would be used to

[[Page 12554]]

calculate the federal BHP payments for the 2017 and 2018 program years. 
Updated factors for the program year 2018 federal BHP payments were 
provided in the CMCS Informational Bulletin, ``Basic Health Program; 
Federal Funding Methodology for Program Year 2018'' on May 17, 2017.
    On October 11, 2017, the Attorney General of the United States 
provided the Department of Health and Human Services and the Department 
of Treasury with a legal opinion indicating that the permanent 
appropriation at 31 U.S.C. 1324, from which the Departments had 
historically drawn funds to make CSR payments, cannot be used to fund 
CSR payments to insurers. In light of this opinion--and in the absence 
of any other appropriation that could be used to fund CSR payments--the 
Department of Health and Human Services directed us to discontinue CSR 
payments to issuers until Congress provides for an appropriation. In 
the absence of a Congressional appropriation for federal funding for 
CSRs, we cannot provide states with a federal payment attributable to 
CSRs that BHP enrollees would have received had they been enrolled in a 
QHP through an Exchange.
    Starting with the payment for the first quarter (Q1) of 2018 (which 
began on January 1, 2018), we stopped paying the CSR component of the 
quarterly BHP payments to New York and Minnesota (the states), the only 
states operating a BHP in 2018. The states then sued the Secretary for 
declaratory and injunctive relief in the United States District Court 
for the Southern District of New York. See State of New York, et al, v. 
U.S. Department of Health and Human Services, 18-cv-00683 (S.D.N.Y. 
filed Jan. 26, 2018). On May 2, 2018, the parties filed a stipulation 
requesting a 60-day stay of the litigation so that HHS could issue an 
administrative order revising the 2018 BHP payment methodology. As a 
result of the stipulation, the court dismissed the BHP litigation, 
although it retained jurisdiction to enforce the stipulation and re-
open the docket. On July 6, 2018, we issued a Draft Administrative 
Order on which New York and Minnesota had an opportunity to comment. 
The states each submitted comments on August 6, 2018. We considered the 
states' comments and issued a Final Administrative Order on August 24, 
2018 setting forth the payment methodology that would only apply to the 
2018 BHP benefit year. The payment methodology proposed in this notice 
would apply the methodology described in the Final Administrative Order 
with one additional adjustment to account for the impact of individuals 
selecting different metal-tier level plans in the Exchange. The payment 
methodology proposed in this notice would apply to program years 2019 
and 2020.
    We will be making future BHP payments for program year 2019 using 
the methodology described in the Final Administrative Order published 
on August 24, 2018 until a final methodology for 2019 and 2020 is 
published. If necessary, any payments for 2019 will be conformed to the 
finalized 2019 payment methodology through reconciliation.

II. Provisions of the Proposed Notice

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 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 Exchange. Thus, the BHP 
funding methodology is designed to calculate the PTC and CSRs as 
consistently as possible and in general alignment with the methodology 
used by Exchanges to calculate the advance payments of the PTC and 
CSRs, and by the Internal Revenue Service (IRS) to calculate final 
PTCs. In general, we have relied on values for factors in the payment 
methodology specified in statute or other regulations as available, and 
have developed 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 Exchange. 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 (OTA) 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 PTCs and CSRs that would have 
been provided to eligible individuals, including but not limited to, 
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 
QHP through an Exchange, and whether any reconciliation of PTC and CSR 
would have occurred if the enrollee had been so enrolled. Under the 
payment methodologies for 2015 (79 FR 13887, published on March 12, 
2014), for 2016 (80 FR 9636, published on February 24, 2015), and for 
2017 and 2018 (81 FR 10091, published on February 29, 2016), the total 
federal BHP payment amount has been calculated using multiple rate 
cells in each state. Each rate cell represents a unique combination of 
age range, geographic area, coverage category (for example, self-only 
or two-adult coverage through the BHP), household size, and income 
range as a percentage of FPL, and there is a distinct rate cell 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. The BHP payment rates developed also are 
consistent with the state's rules on age rating. Thus, in the case of a 
state that does not use age as a rating factor on an Exchange, the BHP 
payment rates would not vary by age.
    Under the methodology in the Final Administrative Order, the rate 
for each rate cell is calculated in two parts. The first part is equal 
to 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 an 
Exchange. The second part is equal to 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 an Exchange. These 2 parts are added 
together and the total rate for that rate cell would be equal to the 
sum of the PTC and CSR rates. As noted in the Final Administrative 
Order, we will assign a value of zero to the CSR portion of the BHP 
payment rate calculation, because there is presently no available 
appropriation from which we can make the CSR portion of any BHP 
Payment.
    We propose that Equation (1) would be used to calculate the 
estimated PTC for eligible individuals enrolled in the BHP in each rate 
cell. We note that throughout this 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

[[Page 12555]]

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 an Exchange, 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 this payment 
notice. In addition, we describe how we propose to calculate the 
adjusted reference premium (ARP) (described later in this section of 
the payment notice) that is used in Equation (1). This is defined in 
Equation (2a) and Equation (2b).

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 5 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 (RP) (described in more detail later in the section) 
used to calculate the PTC would be adjusted for the BHP population 
health status, and in the case of a state that elects to use 2018 
premiums for the basis of the BHP federal payment, for the projected 
change in the premium from 2018 to 2019, to which the rates announced 
in the final payment methodology would apply. These adjustments are 
described in Equation (2a) and Equation (2b). 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 the BHP; this adjustment, as described in section II.D.5 of 
this notice, would account for the impact on the PTC that would have 
occurred had such reconciliation been performed. Fourth, the PTC would 
be adjusted to account for the estimated impacts of plan selection; 
this adjustment, the metal tier selection factor (MTSF), would reflect 
the effect on the average PTC of individuals choosing different metal-
tier levels of QHPs. 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 ARP, we would calculate the PTC to be equal 
to 0 and would not allow the value of the PTC to be negative.
    We propose using Equation (1) to calculate the PTC rate, consistent 
with the methodology described above:
[GRAPHIC] [TIFF OMITTED] TP02AP19.010


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
MTSF = Metal-tier selection factor

    Equation 2a and Equation 2b: Adjusted Reference Premium (ARP) 
Variable (used in Equation 1)
    As part of the calculations for the PTC component, we propose to 
continue to calculate the value of the ARP is described below. 
Consistent with the existing approach, we are proposing to allow states 
to choose between using the actual current year premiums or the prior 
year's premiums multiplied by the premium trend factor (PTF) (as 
described in section II.F. of this notice). Below we describe how we 
would continue to calculate the ARP under each option.
    In the case of a state that elected to use the RP based on the 
current program year (for example, 2019 premiums for the 2019 program 
year), we propose to calculate the value of the ARP as specified in 
Equation (2a). The ARP would be equal to the RP, which would be based 
on the second lowest cost silver plan premium in the applicable program 
year, multiplied by the BHP population health factor (PHF) (described 
in section II.D of this notice), which would reflect the projected 
impact that enrolling BHP-eligible individuals in QHPs through an 
Exchange would have had on the average QHP premium, and multiplied by 
the premium adjustment factor (PAF) (described in section II.D of this 
notice), which would account for the change in silver-level premiums 
due to the discontinuance of CSR payments.
[GRAPHIC] [TIFF OMITTED] TP02AP19.011


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
PAF = Premium adjustment factor

    In the case of a state that elected to use the RP based on the 
prior program year (for example, 2018 premiums for the 2019 program 
year, as described in more detail in section II.F of this notice), we 
propose to calculate the value of the ARP as specified in Equation 
(2b). The ARP would be equal to the RP, which would be based on the 
second lowest cost silver plan premium in 2018, multiplied by the BHP 
PHF (described in section II.D of this notice), which would reflect the 
projected impact that enrolling BHP-eligible individuals in QHPs on an 
Exchange would have had on the average QHP premium, multiplied by the 
PAF (described in section II.D of this notice), which would account for 
the change in silver-level premiums due to the

[[Page 12556]]

discontinuance of CSR payments, and multiplied by the PTF (described in 
section II.E of this notice), which would reflect the projected change 
in the premium level between 2018 and 2019.
[GRAPHIC] [TIFF OMITTED] TP02AP19.012


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
PAF = Premium adjustment factor
PTF = Premium trend factor

    Equation 3: 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 (3).
[GRAPHIC] [TIFF OMITTED] TP02AP19.013

    (In this equation, we assign a value of zero to the CSR part of the 
BHP payment rate calculation (CSRa,g,c,h,i because there is presently 
no available appropriation from which we can make the CSR portion of 
any BHP payment. In the event that an appropriation for CSRs for 2019 
or 2020 is made, we would determine whether to modify the CSR part of 
the BHP payment rate calculation (CSRa,g,c,h,i or include the PAF in 
the payment methodology.)

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 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 previous payment methodologies, we propose that 
a state implementing a BHP provide us an estimate of the number of BHP 
enrollees it projects will enroll in the upcoming BHP program quarter, 
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 five 
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: \2\
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    \2\ 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 Exchange. The 
age bands capture the principal allowed age-based variations in 
premiums as permitted by this curve. The default age curve was 
updated for 2018 to include different age rating factors between 
children 0-14 and for persons at each age between 15 and 20. More 
information is available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/StateSpecAgeCrv053117.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.
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     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 RP 
is charged by QHPs offered through the state's Exchange. Multiple, non-
contiguous geographic areas would be incorporated within a single cell, 
so long as those areas share a common RP.\3\ This provision would also 
be unchanged from the current method.
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    \3\ 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 QHPs, as described in 45 
CFR 155.1055, except that service areas smaller than counties are 
addressed as explained below.
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    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 the BHP, as provided in section 
1331(d)(3)(A)(ii) of the Affordable Care Act. Among recipients of 
family coverage through the BHP, separate rate cells, as explained 
below, would apply

[[Page 12557]]

based on whether such coverage involves two adults alone or whether it 
involves children.
    Factor 4--Household size: We propose to continue the current 
methods for separating enrollees into rate cells by household size that 
states use to determine BHP enrollees' household 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.
    Factor 5--Household 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 through an Exchange varies by 
household income, both in level and as a ratio to the 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.\4\
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    \4\ The three lowest income ranges would be limited to lawfully 
present immigrants who are ineligible for Medicaid because of 
immigration status.
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     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 a 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 the 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, and in the 
interest of administrative simplification, we will consider whether to 
combine or eliminate certain rate cells, once we are certain that the 
effect on payment would be insignificant.

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 the Exchange in the relevant BHP state 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 Exchange 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 Exchange 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 30 days after the 
publication of the final notice for CMS to calculate the applicable 
rates for 2019, and by no later than October 15, 2019, for CMS to 
calculate the applicable rates for 2020. 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 us 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 enrollment data to us on a quarterly basis and 
should be technologically prepared to begin submitting data at the 
start of their BHP, starting with the beginning of the first program 
year. (This differs from the enrollment estimates used to calculate the 
initial BHP payment, which states would generally be submit to CMS 60 
days before the start of the first quarter of the program start date.) 
This requirement is necessary for us to implement the payment 
methodology that is tied to a quarterly reconciliation based on actual 
enrollment data.
    We propose to continue the policy adopted in the February 2016 
payment notice that in 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 us at 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 household 
income and household size for non-filers if the household composition 
and/or household income resulting from application of the methodology 
are different than what typically would be expected to result if the 
individual or head of household in the family were to file a tax 
return.
    In addition, as the federal payments are determined quarterly and 
the enrollment data is required to be submitted by the states to us 
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 the BHP in each quarter). Thus, if 
an enrollee were to experience a change in county of residence, 
household 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 the 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.

[[Page 12558]]

    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 a 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 BHP-eligible 
individuals enrolled in QHPs through an Exchange, we must calculate a 
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 notice, 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 
RP, 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 that 
is offered through the same Exchange. We propose to use the adjusted 
monthly premium for an applicable second lowest cost silver plan in the 
applicable program year (2019 or 2020) as the RP (except in the case of 
a state that elects to use the prior plan year's premium as the basis 
for the federal BHP payment for 2019 or 2020, as described in section 
II.F of this notice).
    The RP 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 Exchange, 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 RP, 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 the BHP.
    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 Exchange, 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 the 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 RP relies on an assumption about enrollment in the 
Exchanges. In previous methodologies, we had assumed that all persons 
enrolled in the BHP would have elected to enroll in a silver level plan 
if they had instead enrolled in a QHP through an Exchange (and that the 
QHP premium would not be lower than the value of the PTC). While we 
propose to continue to use the second-lowest cost silver plan premium 
as the RP, we are proposing in this methodology to change the 
assumption about which metal-tier plans enrollees would choose (see the 
section on the metal-tier selection factor (MTSF) in this methodology).
    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 QHP through an 
Exchange.
    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 total 
monthly payment for BHP enrollees. 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 Exchanges. We propose to define each geographic area so that the 
RP is the same throughout the geographic area. When the RP varies 
within a rating area, we propose defining geographic areas as 
aggregations of counties with the same RP. Although plans are allowed 
to serve geographic areas smaller than counties after obtaining our 
approval, we propose that no geographic area, for 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 the 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 
the 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 (MAGI), children in households 
with incomes between that threshold and 200 percent of FPL would be 
potentially eligible for the BHP. Currently, the only states in this 
category are Idaho and North Dakota.\5\ Second, the BHP would include 
lawfully present immigrant children with household 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 
a BHP, Idaho children with household 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 live in

[[Page 12559]]

households with incomes at or below 200 percent of FPL will qualify for 
Medicaid or CHIP, and thus be ineligible for a BHP under section 1331 
(e)(1)(C) of the Affordable Care Act, which limits a BHP to individuals 
who are ineligible for minimum essential coverage (as defined in 
section 5000A(f) of the Internal Revenue Code of 1986).
---------------------------------------------------------------------------

    \5\ CMCS. ``State Medicaid, CHIP and BHP Income Eligibility 
Standards Effective April 1, 2018.''
---------------------------------------------------------------------------

2. Premium Adjustment Factor (PAF)
    The PAF considers the premium increases in other states that took 
effect after we discontinued payments to issuers for CSRs provided to 
enrollees in QHPs offered through Exchanges. Despite the discontinuance 
of federal payments for CSRs, QHPs are required to provide CSRs to 
eligible enrollees. As a result, QHPs frequently increased the silver-
level plan premiums to account for those additional costs; adjustments 
and how those were applied (for example, to only silver-level plans or 
to all metal-tier plans) varied across states. For the states operating 
BHPs in 2018, the adjustments were relatively minor, because the 
majority of enrollees eligible for CSRs (and all who were eligible for 
the largest CSRs) were enrolled in the BHP and not in QHPs on the 
Exchanges.
    In the Final Administrative Order, we incorporated the PAF into the 
BHP payment methodology for 2018. We propose to include this factor in 
the 2019 and 2020 payment methodologies, and to use the same value for 
the factor as in the Final Administrative Order.
    Under the Final Administrative Order, we calculated the PAF for 
each BHP state by using information requested from QHP issuers in each 
state and the District of Columbia, and determined the premium 
adjustment that the responding QHP issuers made to each silver level 
plan in 2018 to account for the discontinuation of CSR payments to QHP 
issuers. Based on the data collected, we estimated the median 
adjustment for silver level QHPs nationwide (excluding those in the two 
BHP states). To the extent that QHP issuers made no adjustment (or the 
adjustment was 0), this would be counted as 0 in determining the median 
adjustment made to all silver level QHPs nationwide. If the amount of 
the adjustment was unknown--or we determined that it should be excluded 
for methodological reasons (for example, the adjustment was negative, 
an outlier, or unreasonable)--then we did not count the adjustment 
towards determining the median adjustment.\6\
---------------------------------------------------------------------------

    \6\ Some examples of outliers or unreasonable adjustments 
include (but are not limited to) values over 100 percent (implying 
the premiums doubled or more as a result of the adjustment), values 
more than double the otherwise highest adjustment, or non-numerical 
entries.
---------------------------------------------------------------------------

    For each of the two BHP states, we determined the median adjustment 
for all silver level QHPs in that state. The PAF for each BHP state 
equaled 1 plus the nationwide median adjustment divided by 1 plus the 
state median adjustment for the BHP state. In other words,

PAF = (1 + Nationwide Median Adjustment) / (1 + State Median 
Adjustment)

    To determine the PAF described above, we requested information from 
QHP issuers in each state serviced by a Federally-facilitated Exchange 
(FFE) to determine the premium adjustment those issuers made to each 
silver level plan offered through the Exchange in 2018 to account for 
the end of CSR payments. Specifically, we requested information showing 
the percentage change that QHP issuers made to the premium for each of 
their silver level plans to cover benefit expenditures associated with 
the CSRs, given the lack of CSR payments in 2018. This percentage 
change was a portion of the overall premium increase from 2017 to 2018.
    According to our records, there are 1,233 silver-level QHPs 
operating on Exchanges in 2018. Of these 1,233 QHPs, 318 QHPs (25.8 
percent) responded to our request for the percentage adjustment applied 
to silver-level QHP premiums in 2018 to account for the discontinuance 
of the CSRs. These 318 QHPs operated in 26 different states, with 10 of 
those states running State-based Exchanges (SBEs), working in 
partnership with us to implement the FFE in their state in 2018. 
Thirteen of these 318 QHPs were in New York (and none were in 
Minnesota). Excluding these 13 QHPs from the analysis, the nationwide 
median adjustment was 20.0 percent. Of the 13 QHPs in New York that 
responded, the state median adjustment was 1.0 percent. We believe that 
this is an appropriate adjustment for QHPs in Minnesota as well, based 
on the observed changes in New York's QHP premiums in response to the 
CSR adjustment (and the operation of the BHP in that state) and our 
analysis of expected QHP premium adjustments for states with BHPs. We 
calculated the proposed PAF as (1 + 20%) / (1 + 1%) (or 1.20/1.01), 
which results in a value of 1.188.
    We propose that the PAF continue to be set to 1.188 for 2019 and 
2020. We believe that this value for the PAF continues to reasonably 
account for the increase in silver-level premiums experienced in non-
BHP states that is associated with the discontinuance of the CSR 
payments. The impact can reasonably be expected to be similar to that 
in 2018, because the unavailability of CSR payments has not changed. We 
welcome comments on this factor and its development.
3. Population Health Factor (PHF)
    We propose that the PHF be included in the methodology to account 
for the potential differences in the average health status between BHP 
enrollees and persons enrolled through the Exchanges. To the extent 
that BHP enrollees would have been enrolled through an Exchange in the 
absence of a BHP in a state, the exclusion of those BHP enrollees in 
the Exchange 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 Exchange 
population. At this time, there is a lack of experience available in 
the Exchanges that limits the ability to analyze the health differences 
between these groups of enrollees. Exchanges have been in operation 
since 2014, and 2 states have operated BHPs in 2015, 2016, 2017, and 
2018, 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 PHF that is reliably accurate, 
consistent with the methodology described in previous notices. We will 
consider updating the methodology in future years when information 
becomes available.
    Given these analytic challenges and the limited data about Exchange 
coverage and the characteristics of BHP-eligible consumers that will be 
available by the time we establish federal payment rates, we believe 
that the most appropriate adjustment for 2019 would be 1.00. We also 
propose that the adjustment for 2020 would remain at 1.00.
    In the previous BHP payment methodologies, we included an option 
for states to include a retrospective population health status 
adjustment. We propose that states be provided with the same option for 
2019 and 2020 to include a retrospective population health status 
adjustment in the certified methodology, which is subject to our

[[Page 12560]]

review and approval. This option is described further in section II.G 
of this notice. Regardless of whether a state elects to include a 
retrospective population health status adjustment, we anticipate that, 
in future years, when additional data becomes available about Exchange 
coverage and the characteristics of BHP enrollees, we may estimate the 
PHF differently.
    While the statute requires consideration of risk adjustment 
payments and reinsurance payments insofar as they would have affected 
the PTC that would have been provided to BHP-eligible individuals had 
they enrolled in QHPs, we are not proposing to require that a BHP'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.\7\ 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.
---------------------------------------------------------------------------

    \7\ 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''), 153.230(a) (reinsurance payments under the 
national reinsurance parameters are available only for 
``Reinsurance-eligible plans'').
---------------------------------------------------------------------------

4. Household Income (I)
    Household income is a significant determinant of the amount of the 
PTC that is provided for persons enrolled in a QHP through an Exchange. 
Accordingly, both the current and proposed BHP payment methodologies 
incorporate household income into the calculations of the payment rates 
through the use of income-based rate cells. We propose defining 
household income in accordance with the definition of MAGI 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: \8\
---------------------------------------------------------------------------

    \8\ 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 BHP 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 the 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 1 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.D.4 of this 
notice.
    As the advance payment of PTC (APTC) for persons enrolled in QHPs 
would be calculated based on their household 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.\9\
---------------------------------------------------------------------------

    \9\ See Table IV A1 from the 2018 reports in https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2018.pdf.
---------------------------------------------------------------------------

5. Premium Tax Credit Formula (PTCF)
    In Equation 1 described in section II.A.1 of this notice, 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 Exchange 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 Exchange), 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 
Exchange 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 Tables 1 
and 2, increasing on a sliding scale in a linear manner from an initial 
premium percentage to a final premium percentage specified in Tables 1 
and 2. We propose no changes to this methodology. The applicable 
percentages in Table 1 for calendar year (CY) 2018 would be effective 
for BHP program year 2019, and the applicable percentages in Table 2 
for CY 2019 would be effective for BHP program year 2020.

[[Page 12561]]



           Table 1--Applicable Percentage Table for CY 2018 a
------------------------------------------------------------------------
                                            The initial      The final
     In the case of household income          premium         premium
(expressed as a percent of poverty line)  percentage is-- percentage is--
    within the following income tier:
------------------------------------------------------------------------
Up to 133%..............................            2.01            2.01
133% but less than 150%.................            3.02            4.03
150% but less than 200%.................            4.03            6.34
200% but less than 250%.................            6.34            8.10
250% but less than 300%.................            8.10            9.56
300% but not more than 400%.............            9.56            9.56
------------------------------------------------------------------------
\a\ IRS Revenue Procedure 2017-36. https://www.irs.gov/pub/irs-drop/rp-17-36.pdf.


           Table 2--Applicable Percentage Table for CY 2019 b
------------------------------------------------------------------------
                                            The initial      The final
     In the case of household income          premium         premium
(expressed as a percent of poverty line)  percentage is-- percentage is--
    within the following income tier:
------------------------------------------------------------------------
Up to 133%..............................            2.08            2.08
133% but less than 150%.................            3.11            4.15
150% but less than 200%.................            4.15            6.54
200% but less than 250%.................            6.54            8.36
250% but less than 300%.................            8.36            9.86
300% but not more than 400%.............            9.86            9.86
------------------------------------------------------------------------
\b\ IRS Revenue Procedure 2018-34. https://www.irs.gov/pub/irs-drop/rp-18-34.pdf.

    The applicable percentages for CY 2018 (Table 1) would be used for 
the 2019 payment methodology, and the applicable percentages for CY 
2019 (Table 2) would be used for the 2020 payment methodology. The 
applicable percentages will be updated in future years in accordance 
with 26 U.S.C. 36B (b)(3)(A)(ii).
6. Metal-Tier Selection Factor (MTSF)
    On the Exchange, if an enrollee chooses a QHP and the value of the 
PTC is greater than the premium, then the PTC is reduced to be equal to 
the premium. This usually occurs when enrollees eligible for larger 
PTCs (generally those with lower household incomes or older enrollees) 
choose bronze-level plans, which have the lowest premiums on the 
Exchange. Prior to 2018, we believed that the impact of these choices 
were relatively small on the amount of PTCs that the federal government 
paid. Most enrollees in income ranges up to 200 percent FPL chose 
silver-level plans, and in most cases where enrollees chose bronze-
level plans, the premium was still more than the PTC. Therefore, we 
made no adjustment for enrollees choosing non-silver-level plans in 
developing the BHP payment methodology.
    After the discontinuance of the CSR payments in October 2017, 
several changes occurred that increased the expected impact of 
enrollees' plan choices on the amount of PTC paid. Silver-level QHP 
premiums for the 2018 benefit year increased substantially relative to 
other metal-tier plans in many states (on average, by about 20 
percent). We believe this contributed to an increase in the percentage 
of enrollees with lower incomes choosing bronze-level plans, despite 
being eligible for CSRs in silver-level plans, because many were able 
to purchase plans and pay $0 in premium; according to CMS data, the 
percentage of persons with incomes between 0 percent and 200 percent of 
FPL eligible for CSRs (those who would be eligible for the BHP if the 
state operated a BHP) selecting bronze plans increased from about 11 
percent in 2017 to about 13 percent in 2018. In addition, the 
likelihood that a person choosing a bronze-level plan would pay $0 
premium increased (and the difference between the bronze-level QHP 
premium and the available PTC widened). Between 2017 and 2018, the 
ratio of the average silver plan premium to the average bronze plan 
premium increased from about 117 percent to 133 percent; that is, the 
average silver plan premium was 17 percent higher than the average 
bronze plan premium in 2017, and the average silver plan premium was 33 
percent higher than the average bronze plan premium in 2018. Similarly, 
the average estimated reduction in APTC for enrollees with incomes 
between 0 percent and 200 percent FPL that chose bronze plan increased 
from about 11 percent in 2017 to about 23 percent in 2018 (after 
adjusting for the average age of bronze plan and silver plan 
enrollees); that is, in 2017, enrollees with incomes in this range who 
chose bronze plans received 11 percent less than the full value of the 
APTC, and in 2018, those enrollees who chose bronze plans received 23 
percent less than the full value of the APTC. The discontinuance of the 
CSR payments led to increases in silver plan premiums (and thus in the 
total potential PTCs), but did not generally increase the bronze plan 
premiums in most states; we believe this is the primary reason for the 
increase in the percentage reduction in PTCs paid for those who 
enrolled in bronze plans between 2017 and 2018. Therefore, we now 
believe that the impacts on the amount of PTC the government would pay 
due to enrollees' plan choices are larger and thus more significant, 
and we are proposing to include an adjustment in the BHP payment 
methodology to account for this (the MTSF). Section 1331(d)(3) of the 
Affordable Care Act requires that the BHP payments to states be based 
on what would have been provided if such eligible individuals were 
allowed to enroll in QHPs, and we believe that it is appropriate to 
consider how individuals would have chosen different plans--including 
across different metal tiers--as part of the BHP payment methodology.
    We propose to calculate the MTSF using the following approach. 
First, we would calculate the percentage of enrollees with incomes 
below 200

[[Page 12562]]

percent of the FPL (those who would be potentially eligible for the 
BHP) in non-BHP states who enrolled in bronze-level plans in 2018. 
Second, we would calculate the ratio of the average PTC paid for 
enrollees in this income range who selected bronze-level plans compared 
to the average PTC paid for enrollees in the same income range who 
selected silver-level plans. Both of these calculations would be done 
using CMS data on Exchange enrollment and payments.
    The MTSF would then be set to the value of 1 minus the product of 
the percentage of enrollees who chose bronze-level plans and 1 minus 
the ratio of the average PTC paid for enrollees in bronze-level plans 
to the average PTC paid for enrollees in silver-level plans:
    MTSF = 1-(percentage of enrollees in bronze-level plans x (1-
average PTC paid for bronze-level enrollees/average PTC paid for 
silver-level enrollees))
    We have calculated that 12.68 percent of enrollees in households 
with incomes below 200 percent of the FPL selected bronze-level plans 
in 2018, and that those enrollees received average PTCs equal to 76.66 
percent of the average PTCs paid for enrollees in silver-level plans 
(the average PTC was 27.04 lower for those who selected bronze plans, 
but after adjusting for the average age of bronze and silver plans 
enrollees, the difference was reduced to 23.34 percent). Therefore, we 
propose that the value of the MTSF for 2019 would be 97.04 percent. We 
also propose to update this with 2019 data for 2020.
    We welcome comments on this factor and the determination of the 
value.
7. Income Reconciliation Factor (IRF)
    For persons enrolled in a QHP through an Exchange who receive 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 the BHP may not be treated as a qualified 
individual under section 1312 who is eligible for enrollment in a QHP 
offered through an Exchange. We are defining ``eligible'' to mean 
anyone for whom the state agency or the Exchange assesses or 
determines, based on the single streamlined application or renewal 
form, as eligible for enrollment in the BHP. Because enrollment in a 
QHP is a requirement for individuals to receive PTC, individuals 
determined or assessed as eligible for a BHP are not eligible to 
receive APTC assistance for coverage in the Exchange. Because they do 
not receive APTC assistance, BHP enrollees, on whom the BHP payment 
methodology is based, are not subject to the same income reconciliation 
as Exchange consumers. Nonetheless, there may still be differences 
between a BHP enrollee's household income reported at the beginning of 
the year and the actual household 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 
household incomes of BHP enrollees during the year. Even if the BHP 
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 Exchange 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) 
Household income relative to FPL as determined at initial application 
and potentially revised mid-year under Sec.  600.320, for purposes of 
determining BHP eligibility and claiming federal BHP payments; and (b) 
actual household 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 past years, 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 OTA maintains a model that combines detailed tax and other 
data, including Exchange enrollment and PTC claimed, to project 
Exchange 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 the BHP. We 
propose that the ratio of the reconciled PTC to the initial estimation 
of PTC would be used as the IRF in Equation (1) for estimating the PTC 
portion of the BHP payment rate.
    For 2018, OTA estimated that the IRF for states that have 
implemented the Medicaid eligibility expansion to cover adults up to 
133 percent of the FPL will be 97.37 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 97.45 percent. In the 2018 
payment methodology, the IRF will be equal to 97.41 percent (this was 
previously published in the CMCS Informational Bulletin ``Basic Health 
Program; Federal Funding Methodology for Program Year 2018'' on May 17, 
2017). We propose updating this calculation and the IRF for 2019 and 
for 2020.

E. State Option To Use Prior Program Year QHP Premiums for BHP Payments

    In the interest of allowing states greater certainty in the total 
BHP federal payments for a given plan year, we have given states the 
option to have their final federal BHP payment rates calculated using a 
projected ARP (that is, using premium data from the prior program year 
multiplied by the PTF defined below), as described in Equation (2b). 
Under the 2016 BHP payment notice, states were required to make their 
election for the 2017 program year by May 15, 2016 and to make their 
election for the 2018 program year by May 15, 2017. We propose that 
states generally continue to meet the deadline of making their election 
by May 15 of the year preceding the applicable program year. However, 
because we are proposing to revise the 2019 payment methodology after 
the May 15, 2018 deadline has passed, we are proposing that a state may 
change its

[[Page 12563]]

election for the 2019 program year, provided that it does so within 30 
days of the date of the notice announcing the final BHP payment 
methodology for 2019. A change in the state's election would be 
effective retroactive to January 1, 2019. For 2020, the state would 
need to inform us no later than May 15, 2019 of its decision for the 
2020 program year. (If the final methodology is published after this 
deadline, we may extend this deadline to give states the opportunity to 
make this election.)
    For Equation (2b), we propose to continue to define the PTF, with 
minor changes in calculation sources and methods, as follows:
    PTF: In Equation (2b), we propose to calculate an ARP based on the 
application of certain relevant variables to the RP, including a PTF. 
In the case of a state that would elect to use the 2018 premiums as the 
basis for determining the 2019 BHP payment, for example, 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 
program year. We are proposing to define this as the PTF 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.
    For the PTF, we propose to use the annual growth rate in private 
health insurance expenditures per enrollee from the National Health 
Expenditure (NHE) projections, developed by the Office of the Actuary 
in CMS (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html). For BHP program year 2019, we 
propose that the PTF would be 3.8 percent.
    States may want to consider that the increase in premiums for QHPs 
from one year to the next may differ from the PTF developed for the BHP 
funding methodology for several reasons. In particular, states may want 
to consider that the second lowest cost silver plan may be different 
from one year to the next. This may lead to the PTF being greater than 
or less than the actual change in the premium of the second lowest cost 
silver plan.

F. 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 Exchange would affect the 
PTC, risk adjustment payments that would have otherwise been made had 
BHP enrollees been enrolled in coverage through an Exchange, 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 PHF (or risk adjustment) 
based on data accumulated during that program year for each rate cell.
    We acknowledge that there is uncertainty with respect to this 
factor due to the lack of experience of QHPs through an Exchange and 
other payments related to the Exchange, which is why, absent a state 
election, we propose to use a value for the PHF 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, the potential effect such risk would have had on 
PTC, and risk adjustment that would have otherwise been made had BHP 
enrollees been enrolled in coverage through an Exchange. 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 OTA, 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). Under the February 2016 BHP payment notice, states were 
required to submit a proposed protocol by August 1, 2017 for the 2018 
program year. We propose requiring a state to submit its proposed 
protocol within 60 days of the publication of the final payment 
methodology for our approval for the 2019 program year, and by August 
1, 2019 for the 2020 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 90 days after the 
submission of the PHF methodology for the 2019 program year, and by 
December 31, 2019 for the 2020 program year. Finally, we propose that 
the state be required to complete the population health status 
adjustment at the end of the program year based on the approved 
protocol. After the end of the program year, and once data is made 
available, we propose 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 would have been using the final reconciled 
factor, we would subtract the difference from the next quarterly BHP 
payment to the state.

III. Collection of Information Requirements

    This notice's proposed methodology is similar to the methodology 
originally published in the February 2016 payment notice and modified 
by the Final Administrative Order. The proposed methodology changes 
would not revise or impose any additional reporting, recordkeeping, or 
third-party disclosure requirements or burden on QHPs or on states 
operating State-based Exchanges. The methodology's information 
collection requirements and burden estimates are approved by OMB under 
control number 0938-1218 (CMS-10510). The proposed methodology would 
not necessitate the need to make any changes under that control number.

[[Page 12564]]

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 Analysis

A. Statement of Need

    Section 1331 of the Affordable Care Act (codified at 42 U.S.C. 
18051) 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 2019 and 2020.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Act, section 202 of the 
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), 
Executive Order 13132 on Federalism (August 4, 1999), the Congressional 
Review Act (5 U.S.C. 804(2) and Executive Order 13771 on Reducing 
Regulation and Controlling Regulatory Costs (January 30, 2017).
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). 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, the 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. To date, two states have established a BHP, 
and we expect state participation to remain static as a result of this 
payment methodology. However, the proposed payment methodology differs 
from prior years' methodologies as the MTSF is incorporated and would 
reduce BHP payments compared to using the previous year's methodology. 
We estimate that this rulemaking is ``economically significant'' as 
measured by the $100 million threshold, and hence also a major rule 
under the Congressional Review Act. Accordingly, we have prepared a RIA 
that, to the best of our ability, presents the costs and benefits of 
the rulemaking.
    The aggregate economic impact of this proposed payment methodology 
is estimated to be $300 million from CY 2019 through 2020 (measured in 
real 2019 dollars). For the purposes of this analysis, we have assumed 
that 2 states would implement BHP in 2019 and 2020. This assumption is 
based on the fact that two states have established a BHP to date, and 
we do not have any indication that additional states may implement the 
program. We also assumed there would be about 802,000 BHP enrollees in 
2019 (based on the most recent state estimates of enrollment as of 
October 2018) and about 806,000 in 2020. The size of the BHP depends on 
several factors, including the number of and which particular states 
choose to implement or continue a BHP, the level of QHP premiums, and 
the other coverage options for persons who would be eligible for the 
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, the federal expenditures for the BHP 
would be expected to be more than offset by a reduction in federal 
expenditures for PTCs. 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.
    Projected BHP enrollment and expenditures under the previous 
payment methodology were calculated using the most recent 2018 QHP 
premiums and state estimates for BHP enrollment. Enrollment was 
projected to 2019 using the projected increase in the number of adults 
in the U.S. from 2018 to 2019 (0.5 percent), and premiums were 
projected using the NHE projection of premiums for private health 
insurance. Expenditures are in real 2019 dollars and are deflated using 
the projected change in the medical component of the consumer price 
index (CPI-M). Expenditures are projected to be $4.890 billion in 2019 
and $4.944 billion in 2020.
    For the change in the methodology to incorporate the MTSF, the MTSF 
was calculated as having a value of 97.04 percent (as described 
previously). This reduced projected expenditures by $149 million in 
2019 and $151 million in 2020, compared to projected expenditures using 
the methodology in the 2018 Final Administrative Order.

Table 3--Estimated Federal Impacts for the Basic Health Program 2019 and
                        2020 Payment Methodology
                       [Millions of 2019 dollars]
------------------------------------------------------------------------
                                               2019            2020
------------------------------------------------------------------------
Projected Federal BHP payments under              $5,040          $5,094
 2018 Final Administrative Order........
Projected Federal BHP payments under               4,890           4,944
 proposed methodology...................

[[Page 12565]]

 
Federal savings under proposed                       149             151
 methodology............................
------------------------------------------------------------------------

C. Anticipated Effects

    The proposed change in the BHP methodology is expected to shift a 
portion of BHP costs from the Federal government to the state operating 
a BHP. Currently, we understand that states pay a portion of the BHP 
costs each year. This increase in costs may lead the states to consider 
a combination of the following changes: Increasing state payments to 
the BHP; increasing beneficiary premiums and cost-sharing to the BHP; 
and reducing payment rates to standard health plans. Beneficiary 
premiums and cost-sharing are limited under the BHP, so it is unlikely 
states could make up much of the difference through increased 
beneficiary contributions. We expect that most of the difference in 
federal payments would be made up through increases in state funding.
    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.
    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, will 
not have a significant economic impact on a substantial number of small 
entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
RIA if a rule may have a significant 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, the Secretary has determined 
that this proposed methodology will not have a significant impact on 
the operations of a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
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. In 2019, that 
threshold is approximately $154 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.
    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 requirement costs on State 
and local governments, 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. This requirement unlike the 
preceding requirement excludes the impact on the private sectors.

D. Alternatives Approaches

    Given the absence of an appropriation for federal CSR payments, we 
considered several alternatives of how to consider this in the BHP 
payment methodology for 2019 and 2020, following the Final 
Administrative Order. In States without BHPs, there were increases in 
the silver plan premiums due to the lack of federal funding for CSRs in 
2018, and those are expected to remain in the rates in 2019 and 2020 
(absent federal funding for CSRs). QHP issuers are still responsible 
for CSRs on behalf of eligible enrollees, regardless of federal 
funding; therefore, in many States QHP issuers have increased premiums 
significantly to account for the costs of the CSRs in 2018 and are 
expected to continue to do so in subsequent years. In states operating 
BHPs, the majority of the individuals eligible for CSRs (and the vast 
majority eligible for the largest CSRs) are enrolled in the BHP and not 
in the Exchange. As a result, in those states, QHP issuers made much 
smaller adjustments to premiums to account for CSR costs in 2018. We 
considered whether or not to make an adjustment in the BHP payment 
methodology for how much QHP premiums would have increased if BHP 
enrollees had been enrolled through the Exchange instead as part of the 
Final Administrative Order. We are also considering other methodologies 
for calculating the adjustment, including using program data to 
estimate the expected adjustment and to request information from QHPs 
and/or states for 2019 and 2020 QHP premiums. We are proposing to use 
the same methodology, data, and adjustment to the premiums as was used 
in the 2018 payment methodology described in the Final Administrative 
Order. (See section II.D.2 for more information.)
    We are also considering whether or not to make an adjustment to 
account for the number of enrollees who would select other metal-tier 
plans on the Exchange (if not for the existence of the BHP) and the 
impact that this would have on the average PTC paid. In previous 
methodologies, we have not made such an adjustment; however, there are 
two results from the discontinuance of CSR payments that we considered 
in adding this adjustment for the 2019 and 2020 payment methodology. 
First, there are a significant percentage of enrollees with incomes 
below 200 percent of the FPL in states without BHPs that have chosen to 
enroll in bronze-level QHPs, despite the availability of CSRs if they 
had chosen to enroll in a silver-level QHP (about 13 percent in 2018). 
Second, the discontinuance of the CSR payments

[[Page 12566]]

and the subsequent increases to silver-level QHP premiums in 2018 led 
to a larger difference between the bronze-level and silver-level QHP 
premiums in many states (from a difference of about 17 percent in 2017 
to about 33 percent in 2018). As a result, the likelihood that 
enrollees eligible for CSRs who enrolled in bronze-level plans would 
pay $0 in premium increased (and thus the full value of the PTC they 
were eligible for would not be paid), and the average difference 
between the bronze-level premium and the full value of the PTC likely 
increased. In addition, the percentage of enrollees eligible for CSRs 
enrolled in bronze-level QHPs also increased from 2017 to 2018 (from 11 
percent to 13 percent), and we believe this is likely due to the 
availability of QHPs that effectively had $0 in premium due to the PTC 
for which individuals qualified. Therefore, we are proposing to make an 
adjustment for enrollees selecting bronze-level QHPs in this 
methodology.
    In addition, we are also considering whether or not to continue to 
provide states the option to develop a protocol for a retrospective 
adjustment to the PHF as we did in previous payment methodologies. We 
believe that continuing to provide this option is appropriate and 
likely to improve the accuracy of the final payments.
    We also are considering whether or not to require the use of the 
program year premiums to develop the federal BHP payment rates, rather 
than allow the choice between the program year premiums and the prior 
year premiums trended forward. We believe that the payment rates can 
still be developed accurately using either the prior year QHP premiums 
or the current program year premiums and that it is appropriate to 
continue to provide the states the option.
    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 previously had and still have a 
choice is in selecting the data sources used to determine the factors 
included in the proposed methodology. Except for state-specific RPs 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. For RPs 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.
    We request public comment on these alternative approaches.

E. Accounting Statement and Table

    In accordance with OMB Circular A- 4, Table 4 depicts an accounting 
statement summarizing the assessment of the benefits, costs, and 
transfers associated with this proposed payment methodology.

      Table 4--Account Statement Changes to Federal Payments for the Basic Health Program for 2019 and 2020
----------------------------------------------------------------------------------------------------------------
                                                                                       Units
                                                                 -----------------------------------------------
                    Category                         Estimates                     Discount rate
                                                                    Year dollar         (%)       Period covered
----------------------------------------------------------------------------------------------------------------
Transfers: Annualized/Monetized ($million/year).           150.0            2019               7       2019-2020
                                                           150.0            2019               3       2019-2020
                                                 ---------------------------------------------------------------
From Whom to Whom...............................     From the States Operating BHPs to the Federal Government.
----------------------------------------------------------------------------------------------------------------

F. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, titled ``Reducing Regulation and Controlling 
Regulatory Costs,'' was issued on January 30, 2017 (82 FR 9339, 
February 3, 2017). It has been determined that this notice is a 
transfer notice that does not impose more than de minimis costs, and 
thus is not a regulatory action for the purposes of E.O. 13771.

G. Conclusion

    Overall, federal BHP payments are expected to decrease by $300 
million from 2019 through 2020 as a result of the changes to the 
methodology. The decrease in federal BHP payments is expected to be 
made up in increased state BHP expenditures, with a potential increase 
in beneficiary contributions and potential decreases in provider 
payment rates (including rates to standard health plans in the BHP) as 
a result of these changes. The analysis above, together with the 
remainder of this preamble, provides an RIA.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

    Dated: February 19, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: March 5, 2019.
Alex M. Azar,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-06276 Filed 3-29-19; 11:15 am]
 BILLING CODE 4120-01-P