Basic Health Program; Federal Funding Methodology for Program Years 2019 and 2020, 59529-59548 [2019-24064]

Agencies

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

[Federal Register Volume 84, Number 214 (Tuesday, November 5, 2019)]
[Rules and Regulations]
[Pages 59529-59548]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-24064]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2407-FN]
RIN 0938-ZB42


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

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

ACTION: Final methodology.

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SUMMARY: This document provides the methodology and data sources 
necessary to determine federal payment amounts for program years 2019 
and 2020 to states that elect to establish a Basic Health Program under 
the Affordable Care Act to offer health benefits coverage to low-income 
individuals otherwise eligible to purchase coverage through Affordable 
Insurance Exchanges.

DATES: Effective January 6, 2020.

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

SUPPLEMENTARY INFORMATION:

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

[[Page 59530]]

final rule entitled ``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 established 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 in October, 2 years prior to the 
applicable program year,\1\ and would describe the proposed funding 
methodology for the relevant BHP program year, including how the 
Secretary considered the factors specified in section 1331(d)(3) of the 
Affordable Care Act, along with the proposed data sources used to 
determine the federal BHP payment rates for the applicable BHP program 
year. 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 
applicable BHP program year. For example, payment rates in the final 
BHP Payment Notice published in February 2020 would apply to BHP 
program year 2021, beginning in January 2021. As discussed in section 
III.C. of this final 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 for 
the applicable program year 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 applicable final BHP Payment Notice. For example, the 
population health factor adjustment described in section III.D.3 of 
this final notice allows for a retrospective adjustment (at the state's 
option) to account for the impact that BHP may have had on the 
individual market risk pool and QHP premiums in the Exchange. 
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 \2\ 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 must include the following:
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    \2\ The BHP Blueprint is a comprehensive written document 
submitted by the state to the HHS Secretary to establish compliance 
with program requirements. For more information on the BHP 
Blueprint, please see 42 CFR 600.610.

     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 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.\3\
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    \3\ Available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib051717.pdf.
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    On October 11, 2017, the Attorney General of the United States 
provided the Department of Health and Human Services and the Department 
of the 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 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. On 
July 6, 2018, we issued a Draft Administrative

[[Page 59531]]

Order on which New York and Minnesota had an opportunity to comment. 
Each state submitted comments. We considered the states' comments and 
issued a Final Administrative Order on August 24, 2018 (Final 
Administrative Order) setting forth the payment methodology that would 
apply to the 2018 BHP program year.
    The payment methodology we are finalizing in this final notice 
applies the methodology described in the Final Administrative Order to 
program years 2019 and 2020, with one additional adjustment, the Metal 
Tier Selection Factor (MTSF), that will apply for program year 2020 
only.
    On the Exchange, if an enrollee chooses a QHP and the value of the 
PTC to which the enrollee is entitled is greater than the premium of 
the selected plan, then the PTC is reduced to be equal to the premium. 
This usually occurs when enrollees eligible for larger PTCs choose 
bronze-level QHPs, which typically have lower premiums on the Exchange 
than silver-level QHPs. Prior to 2018, we believed that the impact of 
these choices and plan selections on the amount of PTCs that the 
federal government paid was relatively small. During this time, most 
enrollees in income ranges up to 200 percent of FPL chose silver-level 
QHPs, and in most cases where enrollees chose bronze-level QHPs, the 
premium was still more than the PTC. Based on our analysis of the 
percentage of persons with incomes below 200 percent of FPL choosing 
bronze-level QHPs and the average reduction in the PTCs paid for those 
enrollees, we believe that the total PTCs paid for persons with incomes 
below 200 percent of FPL were reduced by about 1 percent in 2017. We 
believe that the magnitude of this effect was similar from 2014 to 2016 
as well. Therefore, we did not seek to make an adjustment based on the 
effect of enrollees choosing non-silver-level QHPs in developing the 
BHP payment methodology applicable to program years prior to 2018. 
However, 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, as further described 
in section III.D.6 of this final notice. These changes led to a larger 
percentage of individuals choosing bronze-level QHPs, and for those 
individuals who chose bronze-level QHPs, these changes also generally 
led to larger reductions in PTCs paid by the federal government per 
individual. The combination of more individuals with incomes below 200 
percent of FPL choosing bronze-level QHPs and the reduction in PTCs had 
an impact on PTCs paid by the federal government for enrollees with 
incomes below 200 percent of FPL. Therefore, we believe that the 
impacts due to enrollees' plan choices are now larger, have become 
material, and are now a relevant factor necessary for purposes of 
determining the payment amount as set forth by section 
1331(d)(3)(A)(ii) of the Affordable Care Act.
    Thus, we proposed and are finalizing an adjustment to account for 
the impact of individuals selecting different metal tier level plans in 
the Exchange, which we refer to as the Metal Tier Selection Factor 
(MTSF). We will include the MTSF in the methodology for program year 
2020, and we will not include the MTSF in the methodology for program 
year 2019. Please see section III.D.6 of this final notice for a more 
detailed discussion of the MTSF.
    As specified in the BHP proposed payment notice for program years 
2019 and 2020, we have been making BHP payments for program year 2019 
using the methodology described in the Final Administrative Order. 
Payments issued to states for 2019 will be conformed to the rates 
applicable to the finalized 2019 payment methodology established in 
this final notice through reconciliation. If a state chooses to change 
its premium election for 2019, we will also apply that change through 
reconciliation.
    The scope of this final notice is limited to only the final payment 
methodologies for 2019 and 2020, and any payment methodology for a 
future year will be proposed and finalized through other rulemaking.

II. Summary of Proposed Provisions and Analysis of and Responses to 
Public Comments

    The following sections, arranged by subject area, include a summary 
of the public comments that we received, and our responses. We received 
a total of 47 timely comments from individuals and organizations, 
including, but not limited to, state Medicaid agencies, health plans, 
health care providers, advocacy organizations, and research groups.
    For a complete and full description of the BHP proposed funding 
methodology for program years 2019 and 2020, see the ``Basic Health 
Program; Federal Funding Methodology for Program Years 2019 and 2020'' 
proposed notice published in the April 2, 2019 Federal Register (84 FR 
12552) (hereinafter referred to as the April 2019 proposed payment 
notice).

A. Background

    In the April 2019 proposed payment notice, we proposed the 
methodologies for how the federal BHP payments would be calculated for 
program years 2019 and 2020.
    We received the following comments on the background information 
included in the April 2019 proposed payment notice:
    Comment: Some commenters expressed general support for the BHP.
    Response: We appreciate the support from these commenters; however, 
since the comments were not specific to the BHP payment methodologies 
for program years 2019 or 2020, they are outside the scope of this 
rulemaking and will not be addressed in this final rule.
    B. Overview of the Funding Methodology and Calculation of the 
Payment Amount
    We proposed in the overview of the funding methodology to calculate 
the PTC and CSR as consistently as possible and in general alignment 
with the methodology used by Exchanges to calculate the advance 
payments of the PTC and CSR, and by the Internal Revenue Service (IRS) 
to calculate the allowable PTC. We proposed four equations (1, 2a, 2b, 
and 3) that would, if finalized, compose the overall BHP payment 
methodology.
    Comment: Many commenters recommended that CMS not include the MTSF 
in the 2019 and 2020 BHP payment methodologies and offered several 
rationales for not adopting the MTSF. Many commenters stated that CMS 
should only make changes to the BHP payment methodology for future 
program years. Two commenters expressed concern about the timing for 
publication of the proposed and final payment methodologies, including 
the proposed introduction of the MTSF for 2019 and 2020. Several 
commenters questioned if the rationale for including the MTSF in the 
2019 and 2020 payment methodologies was sufficient, and some commenters 
specifically questioned whether the changes to the percentage of 
enrollees choosing bronze-level QHPs and the decrease in the PTCs for 
these enrollees were significant. Many commenters noted that we found 
that the percentage of enrollees with incomes below 200 percent of FPL 
choosing bronze-level QHPs rose by a small percentage (from 11 percent 
in 2017 to 13 percent in 2018), and stated that this increase was 
insufficient to justify including the MTSF in the payment methodology. 
Some commenters also stated that individuals in non-BHP states could 
have enrolled in bronze-level QHPs prior to 2018, asserting that CMS 
should have accounted for that possibility starting in the beginning of 
the BHP instead of waiting several years.

[[Page 59532]]

    Some commenters stated that the MTSF is inappropriate because BHPs 
are prohibited from offering bronze-level coverage to their enrollees.
    Several commenters questioned whether the statute permits CMS to 
include the MTSF in the payment methodology, as the MTSF is not 
explicitly identified in the statute.
    Several commenters disagreed with including the MTSF because it 
would decrease federal funding and increase state costs for BHP, or 
else result in decreased benefits for BHP enrollees.
    Some commenters also stated that the trend of increased bronze-
level QHP enrollment and the increase in silver-level QHP premiums for 
2017 and 2018 has slowed and/or reversed between 2018 and 2019, and 
questioned whether the MTSF should be applied. Some commenters cited 
analysis from the Kaiser Family Foundation of plan selection by metal 
tier, which states that the percentage of enrollees nationwide across 
all income levels that selected or were auto-enrolled in bronze-level 
QHPs during open enrollment increased by about 6 percent from 2017 to 
2018 (from 22.9 percent in 2017 to 28.6 percent in 2018) and by about 2 
percent from 2018 to 2019 (from 28.6 percent to 30.6 percent).\4\
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    \4\ https://www.kff.org/health-reform/state-indicator/marketplace-plan-selections-by-metal-level-2/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D. https://www.kff.org/health-reform/state-indicator/marketplace-plan-selections-by-metal-level-2/.
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    In addition, commenters cited an analysis by the Kaiser Family 
Foundation on QHP premium levels by state and by metal tier,\5\ which 
states that the national average lowest cost bronze-level QHP premium 
increased by 17.6 percent from 2017 to 2018, and decreased by 0.6 
percent from 2018 to 2019.\6\ This analysis also found that the 
national average benchmark silver-level QHP premium increased by 34.0 
percent from 2017 to 2018 and decreased by 0.8 percent from 2018 to 
2019.\7\ The ratio of the national average benchmark silver-level QHP 
premium to the lowest cost bronze-level QHP premium in this analysis 
increased from 123.8 percent in 2017 to 141.1 percent in 2018, and then 
decreased to 140.7 percent in 2019.\8\
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    \5\ https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/.
    \6\ https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/.
    \7\ https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/.
    \8\ https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/.
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    Response: We adopted the schedule reflected in Sec.  600.610 to 
align with the approach for how payment parameters for Exchanges are 
determined as well as how CHIP allotments were determined during the 
initial implementation of the program.\9\ The schedule is also intended 
to provide a state the information it needs to appropriately budget for 
BHP each year.\10\ We recognize the timeline was not followed each year 
and are considering whether modifications to the schedule captured in 
regulation are appropriate based on lessons learned and experience with 
the BHP. We would propose any such changes through notice and comment 
rulemaking to allow stakeholders and interested parties an opportunity 
to comment. After consideration of the comments received, and further 
analysis of timing considerations, for 2019 we are finalizing our 
proposal to apply the methodology described in the Final Administrative 
Order, and we are not finalizing our proposal to apply the MTSF in 
2019.
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    \9\ See 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; Proposed Rule; 78 FR 59122 at 59135 
(September 25, 2013).
    \10\ Ibid.
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    For program year 2020, we are finalizing our proposal to apply the 
methodology described in the Final Administrative Order and to apply 
the MTSF. We also proposed to update the value of the MTSF for 2020 
with 2019 data. However, since the 2019 PTC and enrollment data 
necessary to update the factor are not available at this time, we will 
apply the MTSF at the value of 97.04 percent for 2020. We believe that 
applying the MTSF value based on 2018 data is appropriate because the 
discontinuation of CSR payments to issuers continued in 2019 as 
Congress has not provided an appropriation for those payments. In 
addition, our analysis of preliminary 2019 data that is available 
suggests that the value of the MTSF would be similar (likely within 0.5 
percentage points of the value of the MTSF based on 2018 data), which 
further supports using 2018 data as the basis for calculating the 2020 
MTSF value. Please see section III.D.6. of this final notice for a 
description of how the MTSF was calculated.
    As detailed in the April 2019 proposed payment notice and in this 
final notice, we continue to believe that it is appropriate to update 
the methodology for 2020 to take the MTSF into account following the 
discontinuance of the CSR payments due to several changes that occurred 
that increased the impact of enrollees' plan choices on the amount of 
PTC paid by the federal government. First, silver-level QHP premiums 
increased at a higher percentage in comparison to the increase in 
premiums of other metal-tier plans in many states starting in 2018 (on 
average, the national average benchmark silver-level QHP premium 
increased about 17 percent more than the national average lowest-cost 
bronze-level QHP premium). Second, there was an increase in the 
percentage of enrollees with incomes below 200 percent of FPL choosing 
bronze-level QHPs. Third, the likelihood that a person choosing a 
bronze-level QHP would pay $0 premium also increased, as the difference 
between the bronze-level QHP premium and the full value of APTC 
widened. Finally, the average estimated reduction in APTC for enrollees 
with incomes below 200 percent of FPL that chose bronze-level QHPs in 
2017 compared to 2018 increased. Our analysis of 2017 and 2018 data 
documents these effects.
    In 2017, prior to the discontinuance of CSR payments, 11 percent of 
QHP enrollees with incomes below 200 percent of FPL elected to enroll 
in bronze-level QHPs, and on average the PTC paid on behalf of those 
enrollees was 11 percent less than the full value of APTC. In 2018, 
after the discontinuance of the CSR payments, 13 percent of QHP 
enrollees with incomes below 200 percent of FPL chose bronze-level 
QHPs, and on average, the PTC paid on behalf of those enrollees was 23 
percent less than the full value of the APTC. In addition, the ratio of 
the national average silver-level QHP premium to the national average 
bronze-level plan premium increased from 17 percent higher in 2017 to 
33 percent higher in 2018. While the increase in the percentage of QHP 
enrollees with incomes below 200 percent of FPL who elected to enroll 
in bronze-level QHPs between 2017 and 2018 is about 2 percent, the 
accompanying percentage reduction of the PTC paid by the federal 
government for QHP enrollees with incomes below 200 percent of FPL more 
than doubled between 2017 and 2018. Consistent with section 1331(d)(3) 
of the Affordable Care Act, which requires payments to states be based 
on what would have been provided if BHP eligible individuals were 
allowed to enroll in QHPs, we believe it is appropriate to consider how 
individuals would have chosen different plans--including across metal 
tiers--as part of

[[Page 59533]]

the BHP payment methodology and are finalizing the application of the 
MTSF for program year 2020.
    Regarding comments that BHPs are prohibited from providing bronze-
level coverage to enrollees and thus the BHP payment methodology should 
not assume enrollees would have chosen bronze-level QHPs in the 
Exchange, section 1331(d)(3)(A)(ii) of the Affordable Care Act directs 
the Secretary to ``take into account all relevant factors necessary to 
determine the value of the'' PTCs and CSRs that would have been 
provided to eligible individuals if they would have enrolled in QHPs 
through an Exchange. We further note the statute does not set forth an 
exhaustive list of what those necessary relevant factors are, providing 
the Secretary with discretion and authority to identify and take into 
consideration factors that are not specifically enumerated in the 
statute. In addition, section 1331(d)(3)(A)(ii) of the Affordable Care 
Act requires the Secretary to ``take into consideration the experience 
of other States with respect to participation on Exchanges and such 
credit and reductions provided to residents of the other States, with a 
special focus on enrollees with income below 200 percent of poverty.''
    We believe that the data sources that commenters submitted 
regarding bronze-level QHP enrollment and the data sources comparing 
the increases in silver-level QHP premiums and bronze-level QHP premium 
support, not undermine, our position that the MTSF is a relevant factor 
that should be taken into account in the BHP payment methodology. As 
previously stated, we believe that the MTSF is a relevant factor 
because of the combined effects of increased bronze-level QHP 
enrollment and the reduction of PTCs paid by the federal government 
subsequent to the discontinuation of CSRs. The data sources submitted 
by the commenters show increases in bronze-level QHP enrollment in both 
2018 and 2019. We note that the commenters did not submit data sources 
pertaining to bronze-level QHP enrollment specifically for enrollees 
with incomes less than 200 percent of FPL. In addition, the analysis 
cited by commenters shows that the average ratio of the national 
average silver-level benchmark QHP premium to the average lowest cost 
bronze-level QHP premium remained almost exactly the same (141.1 
percent in 2018, 140.7 percent in 2019). This data supports the 
conclusion that there is a continued effect of material reductions in 
the amount of PTCs made by the federal government as a result of the 
discontinuation of CSRs. We anticipate updating the MTSF value as 
necessary and appropriate in future years.
    We recognize that applying the MTSF would reduce BHP funding, but 
we nonetheless believe that incorporating the MTSF into the BHP payment 
methodology for program year 2020 accurately reflects the changes in 
PTCs after the federal government stopped making CSR payments and is 
consistent with section 1331(d)(3)(A)(ii) of the Affordable Care Act. 
Regarding the comments about the potential impact of reduced BHP 
funding on benefits available under BHPs, we note that the benefits 
requirements at Sec.  600.405 are still applicable and therefore 
benefits available under BHPs should not be impacted.
    Comment: Several commenters questioned the methodology in 
calculating the MTSF. One commenter noted that while most states permit 
age rating, some states (including New York) do not use age rating and 
other states' varying rating practices could result in variability in 
the calculation of BHP payments. Several commenters stated that CMS 
should not rely on the experience from other states in calculating the 
BHP payments, specifically with regard to the MTSF. In particular, some 
commenters suggested that the MTSF for New York should rely on the 
experience of bronze-level QHP selection from 2015. These commenters 
stated the experience in New York in 2015--before BHP was fully 
implemented--showed that a smaller percentage of enrollees with incomes 
below 200 percent of FPL chose bronze-level QHPs than the percentage of 
such enrollees nationwide who chose bronze-level QHPs nationwide in 
2017. Some commenters also stated that the amount of PTC reduction for 
these enrollees in New York in 2015 was about $12 per enrollee per 
month. These commenters recommended that these figures be used to 
develop the MTSF for New York's BHP payments. Some commenters also 
suggested applying the percentage increases in the enrollees choosing 
bronze-level QHPs and the PTC reduction to the 2015 experience for New 
York's BHP payments. Some commenters cited New York's enrollment 
assistance efforts as the reason for a smaller percentage of enrollees 
choosing bronze-level QHPs in 2015.
    Response: We recognize that New York requires pure community rating 
(and does not permit age rating); however, the BHP statute directs the 
Secretary to take into consideration the experience of other states 
when developing the payment methodology \11\ and doing so is a 
reasonable basis for calculating the MTSF. In general, the increases in 
the silver-level QHP premiums due to the discontinuance of CSR payments 
were fairly similar across most states \12\ and we expect that 
enrollees' decisions about which metal tier plan to enroll in is 
generally comparable across all states. Fundamentally, enrollees in 
each state are making decisions under similar conditions comparing 
silver-level QHPs to other metal tier plans. It is not clear how states 
that use different rating rules (age rating or pure community rating) 
would have significantly different experiences in the amounts added to 
the QHP premiums after the discontinuation of CSRs, nor is it obvious 
that the use of one set of rating rules would lead to larger or smaller 
effects on the QHP premiums than another set of rules. We also note 
that the BHP payment rates are developed consistent with the state's 
rules on age rating since the beginning of the BHP, and we are 
continuing this policy for the payment methodologies finalized in this 
rulemaking for program years 2019 and 2020. As such, the impact of age 
rating, or the prohibition of age rating, in a BHP state has and will 
be reflected in the BHP payment methodology, and it is unnecessary to 
account for these state-specific differences as part of the MTSF.
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    \11\ Section 1331(d)(3)(A)(ii) of the Affordable Care Act.
    \12\ Based on data collected from QHPs to develop the PAF. In 
addition, information collected by the Kaiser Family Foundation also 
shows similar increases across states. See https://www.kff.org/health-reform/issue-brief/how-the-loss-of-cost-sharing-subsidy-payments-is-affecting-2018-premiums/.
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    In addition, we believe that using 2015 data, as the basis for the 
MTSF is not appropriate. Premiums and enrollment patterns have changed 
over time, including changes in bronze-level and silver-level QHP 
premiums, changes in the ratio of the silver-level to bronze-level QHP 
premiums, and changes to the amount of PTC paid by the federal 
government. While 2015 data provides some evidence of consumer plan 
selections prior to the full implementation of New York's BHP, we do 
not believe that the 2015 data should be relied upon for the 
development of MTSF for the following reasons. First, New York did not 
begin implementing its BHP until April 2015 (and did not fully 
implement BHP until 2016). Second, the 2015 data predates the 
discontinuance of the CSR payments in 2017 and the subsequent 
adjustments to premiums in 2018 (particularly to

[[Page 59534]]

silver-level QHP premiums). Therefore, relying on data from 2015 does 
not capture the more recent experience of New York and/or other states 
subsequent to the discontinuation of CSRs, which the MTSF is intended 
to reflect.
    We also note that the statute does not require the Secretary to 
address every difference in Exchange operations among the states 
(including, but not limited to, enrollment assistance efforts by 
individual Exchanges). Instead, section 1331(d)(3)(A)(ii) of the 
Affordable Care Act directs the Secretary to take into account ``all 
relevant factors necessary'' when establishing the payment methodology. 
We further believe that it is not practicable to address every 
potential difference in Exchange operations, and that not every 
potential difference in Exchange operations would be a relevant factor 
necessary to take into account.
    Comment: Several commenters stated that they believed CMS did not 
have the authority to exclude payment for the CSR portion of the BHP 
payment rate. In addition, several other commenters recommended that 
CMS add back the CSR portion of the payment.
    Response: As noted in the April 2019 proposed payment notice, in 
light of the Attorney General's opinion regarding CSR payments--and in 
the absence of any other appropriation that could be used to fund CSR 
payments--HHS directed CMS 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 also 
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.
    Comment: Several commenters discussed the interactions between the 
reinsurance waiver approved for Minnesota under section 1332 of the 
Affordable Care Act (``Minnesota reinsurance section 1332 waiver'') and 
Minnesota's BHP. Some commenters expressed concern that the pass-
through funding amounts that Minnesota receives from the federal 
government under the Minnesota reinsurance section 1332 waiver are 
lower than they should be, as the Minnesota BHP is not taken into 
account in those calculations because BHP enrollees are not eligible to 
enroll in QHPs. Some commenters observed that the Minnesota reinsurance 
section 1332 waiver reduced premiums in Minnesota, noting this has led 
to a lower BHP funding amount for Minnesota because the PTC values are 
therefore lower. One commenter stated that CMS did not take into 
consideration the experience of other states, particularly states 
without reinsurance programs where premiums were likely higher, in the 
BHP payment methodology. One commenter recommended that CMS interpret 
section 1331(d)(3)(A)(ii) of the Affordable Care Act as to consider the 
Minnesota reinsurance section 1332 waiver as a relevant factor 
necessary in determining the payment amount under the BHP payment 
methodology by basing Minnesota's value of PTC for BHP on what the 
state's reference premium would be absent the state-based reinsurance 
program. In addition, a commenter questioned the appropriateness of 
considering the experience of other states with respect to bronze-level 
QHP selections for purposes of Minnesota's BHP payments when BHP 
eligible individuals in Minnesota cannot enroll in bronze-level QHPs 
and CMS did not take into consideration the experience of other states 
without reinsurance programs.
    Response: Calculations of pass-through funding amounts under 
section 1332 waivers are outside the scope of this rulemaking, which is 
specific to the BHP payment methodology for the 2019 and 2020 program 
years. We also note there are separate statutes governing section 1332 
waivers and BHP, including separate provisions outlining the 
determination of payments under each program.\13\ As detailed above, we 
believe it is appropriate to incorporate the MTSF in the 2020 BHP 
payment methodology and to calculate the MTSF, taking into 
consideration the experience of other states.
---------------------------------------------------------------------------

    \13\ See sections 1331 and 1332 of the Affordable Care Act.
---------------------------------------------------------------------------

    With respect to the comments regarding the BHP payment methodology 
and its application in Minnesota, we do not believe it would be 
appropriate to disregard the impact of the Minnesota reinsurance 
section 1332 waiver in determining BHP payments, because section 
1331(d)(3)(A)(i) of the Affordable Care Act requires that the payment 
amount is what ``would have been provided for the fiscal year to 
eligible individuals enrolled in standard health plans in the State if 
such eligible individuals were allowed to enroll in qualified health 
plans through an Exchange.'' The Minnesota reinsurance section 1332 
waiver lowers the premium that eligible individuals would pay if they 
were allowed to enroll in QHPs through the Exchange, and therefore is a 
necessarily relevant factor to take into account for purposes of 
determining the BHP payment amount because it has the effect of 
lowering the value of PTCs. Therefore, we do not believe it would be 
appropriate to base Minnesota's value of PTC for BHP payments based on 
what the state's reference premium would be absent the state-based 
reinsurance program. We further note that we do not take into 
consideration the experience of other states that do not have state-
based reinsurance programs because the changes created by the Minnesota 
section 1332 reinsurance waiver directly affect the PTCs paid for 
enrollees participating in the Exchange in Minnesota. We believe taking 
into account the specific impact of the Minnesota section 1332 
reinsurance waiver is the best reflection of the PTCs that would have 
been provided if BHP enrollees were allowed to enroll in a QHP through 
an Exchange and receive PTCs, as required by section 1331(d)(3)(A)(i) 
of the Affordable Care Act.
    Regarding metal tier selection, as detailed above, we believe that 
considering which metal level plans enrollees would have selected if 
they were enrolled in QHPs through the Exchange is another relevant 
factor necessary to determine what would have been paid if eligible 
individuals in a BHP were allowed to enroll in QHPs through an 
Exchange. Consistent with the direction under the last sentence of 
section 1331(d)(3)(A)(ii) of the Affordable Care Act, when developing 
the MTSF, we took into consideration the experience of other states 
with respect to participation in an Exchange and the PTCs provided to 
residents of other states, with a special focus on enrollees with 
income below 200 percent of FPL. In the case of the MTSF, if not for 
the BHP, persons with incomes below 200 percent of FPL would be 
expected to enroll in QHPs on the Exchanges and receive PTC. Based on 
the current experience of states without BHPs, the cessation of CSR 
payments to issuers caused many QHP issuers to increase premiums to 
account for the costs of providing CSRs to consumers. The increased 
premiums caused PTCs to increase and led some enrollees to select 
bronze-level QHPs, which resulted in the federal government paying less 
than the full value of PTCs it would have paid had those enrollees 
selected silver-level QHPs. However, there is an important difference 
in the impact of the enrollee metal tier selection when considering how 
much PTC and CSRs would have been provided to individuals enrolled in a 
BHP if they were instead enrolled in a QHP on an

[[Page 59535]]

Exchange in a state with a state reinsurance program. Holding all other 
things equal, in a state with a reinsurance program, we expect that the 
QHP premiums on the Exchange, as well as PTCs paid for eligible 
enrollees, would be similar with or without BHP in place. Thus, there 
would be no need to make a separate adjustment for the impacts of a 
state reinsurance program.
    Comment: Several commenters recommended that the BHP payments 
should be sufficient to ensure that American Indian and Alaska Native 
enrollees in BHPs do not pay higher premiums than they would have paid 
if they had enrolled in a bronze-level QHP through an Exchange.
    Response: Section 1331(a)(2)(A)(i) of the Affordable Care Act 
requires that states operating BHPs must ensure that individuals do not 
pay a higher monthly premium than they would have if they had been 
enrolled in the second lowest cost silver-level QHP in an Exchange, 
factoring in any PTC individuals would have received. Therefore, we 
have not adopted this recommendation.
    Comment: Several commenters recommended that for the purpose of 
calculating BHP payments, CMS assume that American Indian and Alaska 
Native enrollees in BHPs would have enrolled in the second-lowest cost 
bronze-level QHP instead of the lowest-cost bronze-level QHP on the 
Exchanges.
    Response: We did not propose and are not adopting this 
recommendation. The only portion of the rate affected by the use of the 
lowest-cost bronze-level QHP is the CSR portion of the BHP payment; due 
to the discontinuance of CSR payments and the accompanying modification 
to the BHP payment methodology, the CSR portion of the payment is 
assigned a value of 0, and any change to the assumption about which 
bronze-level QHP is used would therefore have no effect on the BHP 
payments.

C. Federal BHP Payment Rate Cells

    In this section, we proposed that a state implementing BHP provide 
us with an estimate of the number of BHP enrollees it will enroll in 
the upcoming BHP program, by applicable rate cell, to determine the 
federal BHP payment amounts. For each state, we proposed using rate 
cells that separate the BHP population into separate cells based on the 
following factors: Age; geographic rating area; coverage status; 
household size, and income. For specific discussions, please refer to 
the April 2019 proposed payment notice.
    We received no comments on this aspect of the proposed methodology. 
We are finalizing these policies as proposed.

D. Sources and State Data Considerations

    We proposed in this section of the April 2019 proposed payment 
notice to use, to the extent possible, data submitted to the federal 
government by QHP issuers seeking to offer coverage through an Exchange 
that uses HealthCare.gov to determine the federal BHP payment cell 
rates. However, for states operating a State-based Exchange (SBE) that 
do not use HealthCare.gov, we proposed that such states submit required 
data for CMS to calculate the federal BHP payment rates in those 
states. For specific discussions, please refer to the April 2019 
proposed payment notice.
    We received no comments on this aspect of the proposed methodology. 
We are finalizing these policies as proposed, with one change. We 
proposed that a SBE 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. Given the publication date for 
this final notice, we are modifying the timeline for submitting the 
applicable data for both program years 2019 and 2020. The data must be 
submitted by no later than 30 days after the publication of this final 
notice, which will allow states additional time to submit the required 
2019 and 2020 data.

E. Discussion of Specific Variables Used in Payment Equations

    In this section of the April 2019 proposed payment notice, we 
proposed eight specific variables to use in the payment equations that 
compose the overall BHP funding methodology. (seven variables are 
described in section III.D. of this final notice, and the premium trend 
factor is described in section III.E. of this final notice). For each 
proposed variable, we included a discussion on the assumptions and data 
sources used in developing the variables. For specific discussions, 
please refer to the April 2019 proposed payment notice.
    We received several comments that related to the MTSF. Those 
comments and our responses are described in section II.B. of this final 
notice. We did not receive comments on any other factors, and are 
finalizing the other factors as proposed.

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

    In this section of the April 2019 proposed payment notice, we 
proposed to provide states implementing BHP with the option to use the 
2018 or 2019 QHP premiums multiplied by a premium trend factor to 
calculate the federal BHP payment rates instead of using the 2019 or 
2020 QHP premiums, for the 2019 and 2020 BHP program years, 
respectively. For specific discussions, please refer to the April 2019 
proposed payment notice.
    We received no comments on this aspect of the proposed methodology. 
We are finalizing this policy as proposed.

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

    In this section of the April 2019 proposed payment notice, we 
proposed to provide states implementing BHP the option to develop a 
methodology to account for the impact that including the BHP population 
in the Exchange would have had on QHP premiums based on any differences 
in health status between the BHP population and persons enrolled 
through the Exchange. For specific discussions, please refer to the 
April 2019 proposed payment notice.
    We received no comments on this aspect of the methodology. We are 
finalizing this policy as proposed, with one change. We proposed to 
require a state that wanted to elect this option 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. Given the publication date of this 
final notice, we are modifying this timeline and will require a state 
electing this option to submit its proposed protocol within 60 days of 
the publication of this final notice for our approval for both the 2019 
and 2020 program years, which will allow a state additional time to 
submit its proposed protocol for program years 2019 and 2020.

III. Provisions of the Final Methodology

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

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

[[Page 59536]]

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 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, 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, is assigned a value of zero because 
there is presently no available appropriation from which we can make 
the CSR portion of any BHP payment.
    Equations (1a) and (1b) will be used to calculate the estimated PTC 
for eligible individuals enrolled in the BHP in each rate cell. We note 
that throughout this final notice, when we refer to enrollees and 
enrollment data, we mean data regarding individuals who are enrolled in 
the BHP who have been found eligible for the BHP using the eligibility 
and verification requirements that are applicable in the state's most 
recent certified Blueprint. By applying the equations separately to 
rate cells based on age, income and other factors, we effectively take 
those factors into account in the calculation. In addition, the 
equations 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 final notice. In addition, we describe in Equation 
(2a) and Equation (2b) how we proposed to calculate the adjusted 
reference premium (ARP) that is used in Equations (1a) and (1b).
Equations (1a) and (1b): Estimated PTC by Rate Cell
    We will continue to calculate the estimated PTC, on a per enrollee 
basis, for each rate cell for each state based on age range, geographic 
area, coverage category, household size, and income range. We will 
calculate the PTC portion of the rate in a manner consistent with the 
methodology used to calculate the PTC for persons enrolled in a QHP, 
with the following adjustments. First, the PTC portion of the rate for 
each rate cell will 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 will 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 will 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 III.D.5. of this final notice, 
will account for the impact on the PTC that would have occurred had 
such reconciliation been performed. Fourth, for program year 2020, the 
PTC will be adjusted to account for the estimated impacts of plan 
selection; this adjustment, the MTSF, will reflect the effect on the 
average PTC of individuals choosing different metal-tier levels of 
QHPs. For program year 2019, the MTSF will not apply, and thus would 
not change the value of the PTC amount of the BHP payment. 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 will calculate the PTC to be equal to 0 and will not 
allow the value of the PTC to be negative.
    We will use Equation (1a) to calculate the PTC rate for program 
year 2019 and Equation (1b) to calculate the PTC rate for program year 
2020, consistent with the methodology described above: 
[GRAPHIC] [TIFF OMITTED] TR05NO19.000


[[Page 59537]]


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 
[GRAPHIC] [TIFF OMITTED] TR05NO19.001

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 Equations (1a) and (1b))
    As part of the calculations for the PTC component, we will continue 
to calculate the value of the ARP as described below. Consistent with 
the approach in previous years, we will allow states to choose between 
using the actual current year premiums or the prior year's premiums 
multiplied by the premium trend factor (as described in section III.E. 
of this final notice). Therefore, we describe how we would calculate 
the ARP under each option.
    In the case of a state that elected to use the reference premium 
(RP) based on the current program year (for example, 2019 premiums for 
the 2019 program year), we will calculate the value of the ARP as 
specified in Equation (2a). The ARP will be equal to the RP, which will 
be based on the second lowest cost silver-level QHP premium in the 
applicable program year, multiplied by the BHP population health factor 
(PHF) (described in section III.D. of this final notice), which will 
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 
III.D. of this final notice), which will account for the change in 
silver-level QHP premiums due to the discontinuance of CSR payments. 
[GRAPHIC] [TIFF OMITTED] TR05NO19.002

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 III.F. of this final 
notice), we will calculate the value of the ARP as specified in 
Equation (2b). The ARP will be equal to the RP, which will be based on 
the second lowest cost silver-level QHP premium in 2018, multiplied by 
the BHP PHF (described in section III.D. of this final notice), which 
will 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 III.D. of this 
final notice), which will account for the change in silver-level QHP 
premiums due to the discontinuance of CSR payments, and multiplied by 
the premium trend factor (PTF) (described in section III.E. of this 
final notice), which will reflect the projected change in the premium 
level between 2018 and 2019. 
[GRAPHIC] [TIFF OMITTED] TR05NO19.003

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 will 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] TR05NO19.004


[[Page 59538]]


(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 will determine whether to modify the CSR part of the 
BHP payment rate calculation (CSRa,g,c,h,i) or include the PAF and the 
MTSF in the BHP 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, a state 
implementing a BHP will 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, we will 
use those estimates 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 are required to 
calculate the final BHP payment amount, and to 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 will be based 
on the most recent actual enrollment data submitted to CMS. 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 will require the use of certain rate cells as part of the 
methodology. For each state, we will use rate cells that separate the 
BHP population into separate cells based on the five factors described 
as follows:
    Factor 1--Age: We will separate enrollees into rate cells by age, 
using the following age ranges that capture the widest variations in 
premiums under HHS's Default Age Curve: \14\
---------------------------------------------------------------------------

    \14\ 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 beginning with the 2018 benefit year 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. Children under age 15 
are charged the same premium. For persons age 15-64, the age bands 
in this final notice divide the total age-based premium variation 
into the three most equally-sized ranges (defining size by the ratio 
between the highest and lowest premiums within the band) that are 
consistent with the age-bands used for risk-adjustment purposes in 
the HHS-Developed Risk Adjustment Model. For such age bands, see 
Table 5, ``Age-Sex Variables,'' in HHS-Developed Risk Adjustment 
Model Algorithm Software, June 2, 2014, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/ra-tables-03-27-2014.xlsx.
---------------------------------------------------------------------------

     Ages 0-20.
     Ages 21-34.
     Ages 35-44.
     Ages 45-54.
     Ages 55-64.

This provision is unchanged from the current methodology.
    Factor 2--Geographic area: For each state, we will separate 
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 will be incorporated within a single cell, 
so long as those areas share a common RP.\15\ This provision is 
unchanged from the current methodology.
---------------------------------------------------------------------------

    \15\ 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.
---------------------------------------------------------------------------

    Factor 3--Coverage status: We will separate 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, will apply based on 
whether such coverage involves two adults alone or whether it involves 
children. This provision is unchanged from the current methodology.
    Factor 4--Household size: We will separate enrollees into rate 
cells by the 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 will require separate rate 
cells for several specific household sizes. For each additional member 
above the largest specified size, we will publish instructions for how 
we will develop additional rate cells and calculate an appropriate 
payment rate based on data for the rate cell with the closest specified 
household size. We will publish separate rate cells for household sizes 
of 1 through 10. This provision is unchanged from the current 
methodology.
    Factor 5--Household Income: For households of each applicable size, 
we will create 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, separate rate cells will be used to calculate federal 
BHP payment rates to reflect different bands of income measured as a 
percentage of FPL. We will use the following income ranges, measured as 
a ratio to the FPL:

     0 to 50 percent of FPL.
     51 to 100 percent of FPL.
     101 to 138 percent of FPL.\16\
---------------------------------------------------------------------------

    \16\ The three lowest income ranges would be limited to lawfully 
present immigrants who are ineligible for Medicaid because of 
immigration status.
---------------------------------------------------------------------------

     139 to 150 percent of FPL.
     151 to 175 percent of FPL.
     176 to 200 percent of FPL.

This provision is unchanged from the current methodology.
    These rate cells will only be used to calculate the federal BHP 
payment amount. A state implementing a BHP will 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

[[Page 59539]]

enrollees' covered benefits, premium costs, or out-of-pocket cost-
sharing levels.
    We will use 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 will continue to use data submitted to 
the federal government by QHP issuers seeking to offer coverage through 
an Exchange that uses HealthCare.gov in the relevant BHP state to 
perform the calculations that determine federal BHP payment cell rates.
    States operating a SBE in the individual market that do not use 
HealthCare.gov, however, must provide certain data, including premiums 
for second lowest cost silver-level QHPs, by geographic area, for CMS 
to calculate the federal BHP payment rates in those states. We proposed 
that a SBE that does not use HealthCare.gov 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. Given the 
publication date for this final methodology, we are modifying the 
timeline for submitting the applicable data such that the data must be 
submitted by no later than 30 days after the publication of this final 
notice for both program year 2019 and 2020, which will allow states 
additional time to submit the required 2019 and 2020 data. If 
additional state data (that is, in addition to the second lowest cost 
silver-level QHP premium data) are needed to determine the federal BHP 
payment rate, such data must be submitted in a timely manner upon 
request, 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 are 
published in CMS guidance and are available in the Federal Policy 
Guidance section at https://medicaid.gov (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 timeframe differs from the enrollment estimates used to 
calculate the initial BHP payment, which states would generally 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 will 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 from 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, the quarterly payment will continue to 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 
will be based on the data as of the beginning of the quarter. Payments 
will still be made only for months that the person is enrolled in and 
eligible for the BHP. We do not anticipate that this will have a 
significant effect on the federal BHP payment. The states must maintain 
data that are consistent with CMS' verification requirements, including 
auditable records for each individual enrolled, indicating an 
eligibility determination and a determination of income and other 
criteria relevant to the payment methodology as of the beginning of 
each quarter.
    As described in Sec.  600.610 (Secretarial determination of BHP 
payment amount), the state is required to submit certain data in 
accordance with this final 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-level QHP as explained in section 
III.D.5. of this final notice, regarding the Premium Tax Credit Formula 
(PTCF). This methodology 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-level QHP. The applicable second lowest cost silver-level 
QHP is defined in 26 U.S.C. 36B(b)(3)(B) as the second lowest cost 
silver-level QHP of the individual market in the rating area in which 
the taxpayer resides that is offered through the same Exchange. We will 
use the adjusted monthly premium for an applicable second lowest cost 
silver-level QHP 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 III.F. of this final notice).
    The RP will 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

[[Page 59540]]

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 
will not update the payment methodology, and subsequently the federal 
BHP payment rates, in the event that the second lowest cost silver-
level QHP used as the RP, or the lowest cost silver-level QHP, changes 
(that is, terminates or closes enrollment during the year).
    We will include the applicable second lowest cost silver-level QHP 
premium 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-level QHP 
for calculating BHP payments relies on several simplifying assumptions 
in its selection. For the purposes of determining the second lowest 
cost silver-level QHP 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-level QHP 
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 will use the second 
lowest cost silver-level QHP 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 QHP 
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). We will 
continue to use the second-lowest cost silver-level QHP premium as the 
RP, but in this methodology, beginning with program year 2020, we will 
change the assumption about which metal tier plans enrollees would have 
chosen (see section III.D.6. in this final notice).
    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 will 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 will produce a reliable determination of the total monthly 
payment for BHP enrollees. We also believe this approach will 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 will use geographic areas based on the rating areas used in the 
Exchanges. We will define each geographic area so that the RP is the 
same throughout the geographic area. When the RP varies within a rating 
area, we will define 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, 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 will likely simplify both the 
calculation of BHP payment rates and the operation of the BHP.
    Finally, in terms of the coverage category, the federal payment 
rates will 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.\17\ 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 of 
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 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).
---------------------------------------------------------------------------

    \17\ CMCS. ``State Medicaid, CHIP and BHP Income Eligibility 
Standards Effective April 1, 2019.''
---------------------------------------------------------------------------

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 QHP premiums to account for those additional costs; adjustments 
and how those were applied (for example, to only silver-level QHPs or 
to all metal-tier plans) varied across states. For the states operating 
BHPs in 2018, the increases in premiums 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, and therefore issuers in BHP states did not significantly 
raise premiums to cover unpaid CSR costs.
    In the Final Administrative Order, we incorporated the PAF into the 
BHP payment methodology for 2018 to reflect how other states responded 
to us ceasing to pay CSRs. We are including this factor in the 2019 and 
2020 payment methodologies and will 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 
QHP in 2018 to account for the discontinuation of CSR payments to QHP 
issuers. Based on the

[[Page 59541]]

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 toward determining 
the median adjustment.\18\
---------------------------------------------------------------------------

    \18\ 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 premium 
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 QHP 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 QHPs 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 were 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 SBEs (while we requested information only from QHP 
issuers in states serviced by an FFE, many of those issuers also had 
QHPs in states operating SBEs and submitted information for those 
states as well). 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 PAF as (1 + 20%) / (1 + 1%) (or 1.20/
1.01), which results in a value of 1.188.
    The PAF will 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 QHP 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.
3. Population Health Factor (PHF)
    We will include the PHF 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. The use and determination of 
the PHF as described below is consistent with the current methodology.
    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 two states have operated BHPs since 2015, but we do not 
have the data available to do the analysis necessary to make this 
adjustment at this time. In addition, differences in population health 
may vary across states. Thus, at this time, we believe that it is not 
feasible to develop a methodology to make a prospective adjustment to 
the 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 and 2020 is 1.00.
    In the previous BHP payment methodologies, we included an option 
for states to include a retrospective population health status 
adjustment. The states will 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 review and 
approval. This option is described further in section III.F. of this 
final 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, BHP standard health plans do not participate in 
the risk adjustment program operated by HHS on behalf of states. 
Further, standard health plans did not qualify for payments from the 
transitional reinsurance program established under section 1341 of the 
Affordable Care Act.\19\ 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 employ methods other than the HHS-
operated risk adjustment program to achieve this goal.
---------------------------------------------------------------------------

    \19\ 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 provided for persons enrolled in a QHP through an Exchange. 
Accordingly, the BHP payment methodology incorporates household income 
into the calculations of the payment rates through the use of income-
based rate cells. We define

[[Page 59542]]

household income in accordance with the definition of modified adjusted 
gross income in 26 U.S.C. 36B(d)(2)(B) and consistent with the 
definition in 45 CFR 155.300. Income would be measured relative to the 
FPL, which is updated periodically in the Federal Register by the 
Secretary under the authority of 42 U.S.C. 9902(2). In this 
methodology, household size and income as a percentage of FPL would be 
used as factors in developing the rate cells. We will use the following 
income ranges measured as a percentage of FPL: \20\
---------------------------------------------------------------------------

    \20\ These income ranges and this analysis of income apply to 
the calculation of the PTC.
---------------------------------------------------------------------------

     0-50 percent.
     51-100 percent.
     101-138 percent.
     139-150 percent.
     151-175 percent.
     176-200 percent.
    We will assume a uniform income distribution for each federal BHP 
payment cell. We believe that assuming a uniform income distribution 
for the income ranges proposed will be reasonably accurate for the 
purposes of calculating the BHP payment and will 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 will 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 
will rely on the PTC formula described in section III.D.5. of this 
final 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 will 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. The projected increase in the CPI-U 
would be based on the intermediate inflation forecasts from the most 
recent OASDI and Medicare Trustees Reports.\21\
---------------------------------------------------------------------------

    \21\ See Table IV A1 from the 2018 Annual Report of the Boards 
of Trustees of the Federal Hospital Insurance and Federal 
supplementary Medical Insurance Trust Funds, available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2019.pdf.https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2018.pdf.
---------------------------------------------------------------------------

5. Premium Tax Credit Formula (PTCF)
    In Equations (1a) and (1b) described in section III.A.1. of this 
final notice, we will 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 (that is, the monthly premium adjusted for the age of 
the enrollee) for the applicable second lowest cost silver-level QHP 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 adjusted 
monthly premium for the plan in which the person or household enrolls, 
or the adjusted monthly premium for the applicable second lowest cost 
silver-level QHP minus the contribution amount.
    The applicable percentage is the percentage of income that a 
household would pay if the household enrolled in the applicable second-
lowest cost silver-level plan on the Exchange, and is used to calculate 
the household's PTC. 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. The applicable percentages of income in Table 1 for 
calendar year (CY) 2018 will be effective for BHP program year 2019, 
and the applicable percentages of income in Table 2 for CY 2019 will be 
effective for BHP program year 2020. The applicable percentages of 
income will be updated in future years in accordance with 26 U.S.C. 
36B(b)(3)(A)(ii).

           Table 1--Applicable Percentage Table for CY 2018 a
------------------------------------------------------------------------
  In the case of household
   income (expressed as a
  percent of poverty line)     The initial premium    The final premium
 within the following income     percentage is--       percentage is--
            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
------------------------------------------------------------------------
  In the case of household
   income (expressed as a
  percent of poverty line)     The initial premium    The final premium
 within the following income     percentage is--       percentage is--
            tier:
------------------------------------------------------------------------
Up to 133%..................                  2.08                  2.08
133% but less than 150%.....                  3.11                  4.15

[[Page 59543]]

 
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.

6. Metal-Tier Selection Factor (MTSF)
    As we discuss in section II.B. of this final notice, we are 
finalizing an adjustment in the methodology for program year 2020 to 
account for the impact of individuals selecting different metal-tier 
level plans in the Exchange, which we refer to as the Metal Tier 
Selection Factor (MTSF). Here, we explain how the MTSF is calculated.
    We have calculated the MTSF for program year 2020 using the 
following approach. First, we calculate the percentage of enrollees 
with incomes below 200 percent of FPL (those who would be potentially 
eligible for the BHP) in non-BHP states who enrolled in bronze-level 
QHPs in 2018. Second, we calculate the ratio of the average PTC paid 
for enrollees in this income range who selected bronze-level QHPs 
compared to the average PTC paid for enrollees in the same income range 
who selected silver-level QHPs. Both of these calculations are done 
using CMS data on Exchange enrollment and payments.
    The MTSF equals the value of 1 minus the product of the percentage 
of enrollees who chose bronze-level QHPs and 1 minus the ratio of the 
average PTC paid for enrollees in bronze-level QHPs to the average PTC 
paid for enrollees in silver-level QHPs:

MTSF = 1 - (percentage of enrollees in bronze-level QHPs x (1 - average 
PTC paid for bronze-level QHP enrollees/average PTC paid for silver-
level QHP enrollees))

    We have calculated that 12.68 percent of enrollees in households 
with incomes below 200 percent of FPL selected bronze-level QHPs in 
2018. We also have calculated that the ratio of the average PTC paid 
for those enrollees in bronze-level QHPs to the average PTCs paid for 
enrollees in silver-level QHPs was 76.66 percent after adjusting for 
the average age of bronze-level and silver-level QHP enrollees. The 
MTSF is equal to 1 minus the product of the percentage of enrollees in 
bronze-level QHPs (12.68 percent) and 1 minus the ratio of the average 
PTC paid for bronze-level QHP enrollees to the average PTC paid for 
silver-level QHP enrollees (76.66 percent). Thus, the MTSF would be 
calculated as:

    MTSF = 1 - (12.68% x (1 - 76.66%))

    Therefore, we have set the value of the MTSF for 2020 to be 97.04 
percent.
    In addition, we proposed in the April 2019 proposed payment notice 
to update the value of the MTSF for 2020 with 2019 data. However, as we 
discuss in section II.B. of this final notice, as since the 2019 data 
on enrollment and PTCs necessary to update the factor are not available 
at this time, we apply the MTSF at the value of 97.04 percent for 
program year 2020.
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 
differences 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 are including in 
Equations (1a) and (1b) 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 will 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 will estimate reconciliation effects 
based on tax data for 2 years, reflecting income and tax unit

[[Page 59544]]

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 
will use the ratio of the reconciled PTC to the initial estimation of 
PTC as the IRF in Equations (1a) and (1b) for estimating the PTC 
portion of the BHP payment rate.
    For 2019 and 2020, OTA estimated that the IRF for states that have 
implemented the Medicaid eligibility expansion to cover adults up to 
133 percent of FPL will be 98.37 percent and 98.91 percent, 
respectively; for states that have not implemented the Medicaid 
eligibility expansion and do not have to cover adults up to 133 percent 
of FPL, OTA estimated that the IRF would be 97.70 percent and 98.09 
percent, respectively. In the 2019 and 2020 payment methodology, the 
IRF will be 98.03 percent in 2019 and 98.50 percent in 2020, which is 
the average of the values for expansion and non-expansion states in 
each year.

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. States will 
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 finalizing the 2019 and 2020 payment methodologies after the May 
15, 2018 and May 15, 2019 deadlines, respectively, have passed, we are 
finalizing that a state may change its election for the 2019 and 2020 
program years, provided that it does so within 30 days of the date of 
this final notice. A change in the state's election would be effective 
retroactive to January 1, 2019 for the 2019 program year. The 2020 
election will be effective January 1, 2020.
    For Equation (2b), we will continue to define the Premium Trend 
Factor (PTF), with minor changes in calculation sources and methods, as 
follows:
    PTF: In Equation (2b), we will 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 define this as the premium trend factor (PTF) in the 
BHP payment methodology. This factor will 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 will provide an estimate of 
the adjusted monthly premium for the applicable second lowest cost 
silver-level QHP that would be more accurate and reflective of health 
care costs in the BHP program year.
    For the PTF, we proposed 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). We are finalizing the PTF as 
proposed. For BHP program year 2019, the PTF is 3.9 percent, and for 
program year 2020, the PTF is 4.9 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-level QHP 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-level QHP.

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 and risk adjustment payments that would have otherwise been made 
had BHP enrollees been enrolled in coverage through an Exchange, we 
will continue to provide states implementing the BHP the option to 
propose and to implement, as part of the certified methodology, a 
retrospective adjustment to the federal BHP payments to reflect the 
actual value that would be assigned to the population health factor (or 
risk adjustment) based on data accumulated during 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 proposed to use a value for the population health factor 
to determine a prospective payment rate which assumes no difference in 
the health status of BHP enrollees and QHP enrollees. There is 
considerable uncertainty regarding whether the BHP enrollees will pose 
a greater risk or a lesser risk compared to the QHP enrollees, how to 
best measure such risk, 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. However, to 
the extent that a state would develop an approved protocol to collect 
data and effectively measure the relative risk and the effect on 
federal payments, we will 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 proposed 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://

[[Page 59545]]

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 proposed to require 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. Given the publication date of 
this final notice, we will require a state to submit its proposed 
protocol within 60 days of the publication of the final payment 
methodology for our approval for both the 2019 and 2020 program years, 
which will allow a state adequate time to submit the proposal for 
program year 2020. 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 will provide 
technical assistance to states as they develop their protocols. To 
implement the population health status adjustment, we must approve the 
state's protocol no later than 90 days after the submission of the 
population health factor methodology for the 2019 program year, and by 
December 31, 2019 for the 2020 program year. Finally, the state will 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 will 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 will 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 will subtract the difference from the next 
quarterly BHP payment to the state.

IV. Collection of Information Requirements

    The final methodologies for program years 2019 and 2020 are similar 
to the methodology originally published in the February 2016 payment 
notice and modified by the Final Administrative Order (see section I.B. 
of this final notice for more information). The methodologies for 2019 
and 2020 will not revise or impose any additional reporting, 
recordkeeping, or third-party disclosure requirements or burden on QHPs 
or on states operating SBEs. Although the methodologies' information 
collection requirements and burden estimates had at one time been 
approved by OMB under control number 0938-1218 (CMS-10510), the 
approval was discontinued on August 31, 2017, since we adjusted our 
estimated number of respondents below the Paperwork Reduction Act of 
1995 (44 U.S.C. 3501 et seq.) threshold of ten or more respondents. 
Only New York and Minnesota operate a BHP at this time.

V. Regulatory Impact Analysis

A. Statement of Need

    Section 1331 of the Affordable Care Act (42 U.S.C. 18051) requires 
the Secretary to establish a BHP, and section 1331(d)(1) of the 
Affordable Care Act specifically provides that if the Secretary finds 
that a state meets the requirements of the program established under 
section 1331(a) of the Affordable Care Act, the Secretary shall 
transfer to the State federal BHP payments described in section (d)(3). 
This final notice provides for the funding methodologies that we will 
use to determine the federal BHP payment amounts required to implement 
these statutory provisions for program years 2019 and 2020.

B. Overall Impact

    We have examined the impacts of this final notice 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.
    Agencies must prepare a regulatory impact analysis (RIA) 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 
on an Exchange. To date, two states have established a BHP, and we 
expect state participation to remain static as a result of these 
payment methodologies. However, the final payment methodology for 
program year 2020 differs from prior years' methodologies due to the 
addition of the MTSF, which would reduce BHP payments, compared to 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 payment methodology is 
estimated to be $0 for CY 2019 and $151 million for CY 2020 (measured 
in real 2019 dollars), which would be a reduction in federal payments 
to the state BHPs. There is zero incremental cost in 2019 attributable 
to policy changes because the methodology is not changing from 2018. 
For the purposes of this analysis, we have assumed that two states 
would implement BHPs in 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 approximately 806,000 BHP enrollees in 2020. The 
size of the BHP depends on several factors, including the number

[[Page 59546]]

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 
on the Exchange, 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. We projected 
enrollment for 2020 using the projected increase in the number of 
adults in the U.S. from 2018 to 2020 (about 0.5 percent per year), and 
we projected premiums 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 $5.094 
billion in 2020.
    For the change in the methodology to incorporate the MTSF for 
benefit year 2020, the MTSF was calculated as having a value of 97.04 
percent (as described previously). This reduced projected expenditures 
by approximately $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 2020
                           Payment Methodology
                       [Millions of 2020 dollars]
------------------------------------------------------------------------
                                           2019               2020
------------------------------------------------------------------------
Projected Federal BHP payments                 $5,040             $5,094
 under 2018 Final Administrative
 Order............................
Projected Federal BHP payments                  5,040              4,944
 under finalized methodologies....
Federal savings under methodology.                  0                151
------------------------------------------------------------------------
Totals may not add due to rounding.

C. Anticipated Effects

    Currently, states pay a portion of the BHP costs each year. We 
expect the proposed change in the BHP methodology for benefit year 2020 
to shift a portion of BHP costs from the federal government to the 
states operating a BHP. 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 RFA generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA); 
(2) a not-for-profit organization that is not dominant in its field; or 
(3) a small government jurisdiction with a population of less than 
50,000. Individuals and states are not included in the definition of a 
small entity.
    Because these methodologies are 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 these methodologies, 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 RFA 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 RFA, 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 these methodologies 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 methodologies 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 finalized 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.

D. Alternative Approaches

    Given the absence of an appropriation for federal CSR payments, we 
considered several alternatives of how to consider these amounts in the 
BHP payment methodology for 2019 and 2020, following the Final 
Administrative Order. In most states without BHPs, there were increases 
in the silver-level QHP premiums due to the lack of federal funding for 
CSRs in 2018, and those increases are expected

[[Page 59547]]

to also be reflected in the 2019 and 2020 premiums (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. As part of the Final 
Administrative Order, 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. We also considered other methodologies for 
calculating the PAF, 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 decided 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 
III.D.2. of this final notice for more information).
    We also considered 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 methodologies. First, there 
are a significant percentage of enrollees with incomes below 200 
percent of 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 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 QHPs would pay $0 in premium increased (and thus the 
government would not pay the full value of the PTCs enrollees were 
eligible for), and the average difference between the bronze-level QHP 
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 making an adjustment for enrollees 
selecting bronze-level QHPs in the methodology for the 2020 program 
year. As noted previously, we are not including the MTSF in the 2019 
payment methodology.
    In addition, we considered whether or not to continue to provide 
states the option to develop a protocol for a retrospective adjustment 
to the population health factor 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 considered 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 in this final 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 methodology. Except for state-specific RPs and enrollment data, 
we have used national rather than state-specific data. This decision is 
due to the lack of currently available state-specific data needed to 
develop the majority of the factors included in the methodology. We 
believe the national data produce sufficiently accurate determinations 
of payment rates. In addition, we believe that this approach is 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 have used state-specific data rather than 
national data as we believe state-specific data will produce more 
accurate determinations than national averages.

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 these payment methodologies.

    Table 4--Accounting 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).             $73            2019               7       2019-2020
                                                              74            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 final 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.

[[Page 59548]]

G. Conclusion

    Overall, federal BHP payments are expected to decrease by $151 
million from 2019 through 2020 as a result of the changes to the 
methodologies. 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 
document was reviewed by the Office of Management and Budget.

    Dated: October 28, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.

    Dated: October 28, 2019.
Alex M. Azar,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-24064 Filed 11-1-19; 11:15 am]
 BILLING CODE 4120-01-P