[Federal Register Volume 68, Number 85 (Friday, May 2, 2003)]
[Rules and Regulations]
[Pages 23410-23417]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-10713]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 148

[CMS-2179-FC]
RIN 0938-AM42


Grants to States for Operation of Qualified High Risk Pools

AGENCY: Office of the Secretary, HHS.

ACTION: Final rule with comment period.

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SUMMARY: This final rule with comment period implements a provision of 
the Trade Assistance Reform Act of 2002 by providing $40 million in 
Federal fiscal year 2003 and $40 million in Federal fiscal year 2004 to 
States that have incurred losses in connection with the operation of 
qualified high risk pools that meet certain criteria. This grant 
program implements section 2745 of the Public Health Service Act, as 
added by the Trade Adjustment Assistance Reform Act of 2002.

DATES: Effective date. These regulations are effective on June 2, 2003.
    Public comments: We will consider comments if we receive them at 
the appropriate address, as provided below, no later than 5 p.m. on 
July 1, 2003.
    Deadline for States to submit an application for losses incurred in 
their fiscal year 2002: States must submit an application to us by no 
later than September 30, 2003.
    Deadline for States to submit an application for losses incurred in 
their fiscal year 2003: States must submit an application to us by no 
later than June 30, 2004.
    Deadline for States to submit an application for losses incurred in 
their fiscal year 2004: States must submit an application to us by no 
later than June 30, 2005.

ADDRESSES: Where to Submit an Application. All initial applications and 
supplemental applications must be submitted to:

Centers for Medicare & Medicaid Services, Acquisition and Grants Group, 
Mail Stop C2-21-15, 7500 Security Boulevard, Baltimore, MD 21244-1850, 
Attn: Nicole Nicholson.

    Public Comments. In commenting, please refer to file code CMS-2179-
FC. Because of staff and resource limitations, we cannot accept 
comments by facsimile (FAX) transmission or e-mail.
    Mail written comments (one original and two copies) to the 
following address ONLY:

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-2179-FC, PO Box 8016, Baltimore, MD 
21244-8016.

    Please allow sufficient time for mailed comments to be timely 
received in the event of delivery delays.
    If you prefer, you may deliver (by hand or courier) your written 
comments (one original and two copies) to one of the following 
addresses:

Room 445-G, Hubert H. Humphrey Building, 200 Independence Avenue, SW., 
Washington, DC 20201, or Room C5-14-03, 7500 Security Boulevard, 
Baltimore, MD 21244-1850.

(Because access to the interior of the HHH Building is not readily 
available to persons without Federal Government identification, 
commenters are encouraged to leave their comments in the CMS drop slots 
located in the main lobby of the building. A stamp-in clock is 
available for persons wishing to retain a proof of filing by stamping 
in and retaining an extra copy of the comments being filed.)
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and could be considered late.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: James Mayhew, (410) 786-9244.

SUPPLEMENTARY INFORMATION: 
    Inspection of Public Comments: Comments received timely will be 
available for public inspection as they are received, generally 
beginning approximately 3 weeks after publication of a document, at the 
headquarters of the Centers for Medicare & Medicaid Services, 7500 
Security Boulevard, Baltimore, Maryland 21244, Monday through Friday of 
each week from 8:30 a.m. to 4 p.m. To schedule an appointment to view 
public comments, phone 410-786-7195.

I. Background

A. General

    Section 2745(b) of the Public Health Service Act (PHS Act), as 
added by section 201(b) of the Trade Adjustment Assistance Reform Act 
of 2002, authorizes the Secretary to make grants to States for up to 50 
percent of the losses they incur in the operation of qualified high 
risk pools , and appropriates the necessary funds. In order to qualify 
for a grant, a State's risk pool must meet the definition of a 
qualified risk pool, as described in section II of this preamble, as 
well as other applicable eligibility requirements described in that 
section.

B. Availability and Use of Funds

    The total amount appropriated for these grants is $80 million ($40 
million each in Federal fiscal years (FY) 2003 and 2004). We have two 
years to obligate funding for each fiscal year. As directed by the 
statute, we will allocate

[[Page 23411]]

funds in accordance with a formula based upon the number of uninsured 
individuals in each eligible State. This formula, described in section 
II of this preamble and in Sec.  148.312(b) of the final rule, was 
developed using the most accurate and current statistics available on 
the uninsured in each State. Eligible States may apply for grants for 
amounts up to 50 percent of losses they incur in connection with the 
operation of a qualified high risk pool. A State must have a qualified 
high risk pool that has incurred a loss in order to be eligible for a 
grant.

II. Provisions of the Final Rule

    We are adding a new subpart E to 45 CFR 148, to provide for grants 
to States that incur losses in connection with operating qualified high 
risk pools. This subpart implements section 2745 of the PHS Act. Its 
purpose is to provide grants to States that have qualified high risk 
pools that meet the specific requirements described in Sec.  148.310. 
It also provides specific instructions on how to apply for the grants 
and outlines the grant review and grant award processes.
    We are adding Sec.  148.306, which describes the statutory basis 
and scope of the regulation. We are also adding Sec.  148.308, 
``Definitions.'' CMS stands for Centers for Medicare & Medicaid 
Services. For the purposes of subpart E, a ``qualified high risk pool'' 
is a high risk pool that meets the conditions described in Sec.  
148.128(a)(2)(ii): (1) It provides to all eligible individuals, as 
defined in Sec.  148.103, health insurance coverage (or comparable 
coverage) that does not impose any preexisting condition exclusion or 
affiliation periods for coverage of an eligible individual; and (2) 
provides for premium rates and covered benefits for the coverage 
consistent with the standards included in the National Association of 
Insurance Commissioners (NAIC) Model Health Plan for Uninsurable 
Individuals Act (as in effect as of August 21, 1996) but only if the 
model has been revised in State regulations to meet all of the 
requirements of this part and title 27 of the PHS Act.
    A ``loss'' means the difference between expenses incurred by a 
qualified high risk pool, including payment of claims and 
administrative expenses, and premiums collected by the pool. A 
``standard risk rate'' means a rate developed by a State using 
reasonable actuarial techniques and taking into account the premium 
rates charged by the other insurers offering health insurance coverage 
to individuals in the same geographical service area to which the rate 
applies. The standard rate may be adjusted based upon age, sex, and 
geographical location.
    We are adding Sec.  148.310, which describes eligibility 
requirements for a grant. A State must meet all of the following 
requirements to be eligible for a grant:
    (a) The State has a qualified high risk pool as defined in Sec.  
148.308.
    (b) The pool restricts premiums charged under the pool to no more 
than 150 percent of the premium for applicable standard risk rates for 
the State.
    (c) The pool offers a choice of two or more coverage options 
through the pool.
    (d) The pool has in effect a mechanism reasonably designed to 
ensure continued funding of losses incurred by the State after the end 
of fiscal year 2004 in connection with the operation of the pool.
    (e) The pool has incurred a loss in a period described in Sec.  
148.314.
    We are adding Sec.  148.312, which describes the amount of a grant 
payment. Paragraph (a) provides that an eligible State may receive a 
grant to fund up to 50 percent of the losses incurred in the operation 
of its qualified high risk pool during the period for which it is 
applying. Paragraph (b) provides that we will allocate funds to each 
eligible State in accordance with the following formula:
    (1) The number of uninsured individuals is calculated for each 
eligible State by taking a 3-year average of the number of uninsured 
individuals in that State in the Current Population Survey (CPS) of the 
Census Bureau. For grants based upon State fiscal years 2002 and 2003, 
a 3-year average will be calculated using numbers available as of May 
1, 2003. For grants based upon State fiscal year 2004, a 3-year average 
will be calculated using numbers available as of March 1, 2005. 
Calculation of the State 3-year average will be done by the Census 
Bureau and provided to CMS.
    (2) Based upon the CPS numbers, the State's percentage of the total 
uninsured population of eligible States is calculated and then 
multiplied by $40 million to determine the State's maximum allotment 
for the fiscal year in question. For example, if the most current 3-
year average of uninsured individuals in State A is one million, and 
the 3-year average of uninsured individuals for all eligible States was 
10 million, State A would have 10 percent of the uninsured population 
of the eligible States. Accordingly, State A's allotment would be 10 
percent of $40 million, or $4 million, for the fiscal year in question.
    Paragraph (c) states that the amount awarded to each eligible State 
will be the lesser of the 50 percent of losses incurred by its 
qualified risk pool for the fiscal year in question or its allotment 
under the formula.
    We are adding Sec.  148.314, which describes the periods for which 
eligible States may apply for grants; application deadlines; and 
allocation methodology. Under paragraph (a), an eligible State may 
apply for a grant to fund losses incurred in the operation of its 
qualified risk pool during the State's fiscal year 2002, 2003, or 2004. 
A State may apply for losses incurred in a partial fiscal year if a 
partial year audit is done. Under paragraph (b), an eligible State may 
only be awarded a maximum of two grants, with one grant per fiscal 
year. A grant for a partial fiscal year counts as a full grant. We also 
explain how we determine which grants will be funded out of which 
Federal fiscal year funds. This will depend in part on when the State 
submits its initial application.
    In paragraph (c), we indicate that the deadlines for submitting 
grant applications are stated in Sec.  148.316(d).
    In paragraph (d), we explain how Federal funds will be distributed 
to States that may qualify at different points in time. The first group 
of States are those that submit applications for their fiscal year 2002 
losses. (We will refer to those States as ``02 States.'') These States, 
that meet all the eligibility requirements and incur losses in 
connection with a qualified high risk pool in State fiscal year 2002, 
may submit a grant request, which must be received by September 30, 
2003. The first year grant for these States will be funded with Federal 
fiscal year 2003 funds. The 02 States may be eligible for a second 
grant to fund their fiscal year 2003 losses. The deadline for those 
grant requests will be June 30, 2004. As explained below, these grants 
will be funded with Federal fiscal year 2004 funds. (If a State does 
not receive a grant for State fiscal year 2003, however, it still might 
qualify for its fiscal year 2004, as discussed below.)
    The second group of States are those that do not submit 
applications for their 2002 fiscal years (or do submit applications but 
do not qualify) and that first qualify with respect to losses incurred 
in their fiscal year 2003. (We will refer to these States as ``03 
States.'') These States may submit a grant request, which must be 
received by June 30, 2004. The first year grant for these States will 
be funded with Federal fiscal year 2003 funds. The 03 States (or any 02 
States that did not apply or receive approval for losses incurred 
during State fiscal year 2003) may be eligible

[[Page 23412]]

for a second grant to fund their fiscal year 2004 losses. The deadline 
for those grant requests will be June 30, 2005. Those grants will be 
funded with Federal fiscal year 2004 funds. The third group of States 
are those that first qualify with respect to losses incurred in their 
fiscal year 2004. (We will refer to these States as ``04 States''). 
These States may submit a grant request, which must be received by June 
30, 2005. The first year grant for these States will be funded with 
Federal fiscal year 2004 funds. The 04 States will not be eligible for 
a second grant because the availability of Federal funds will have 
expired.
    In paragraph (e), we explain how excess funds will be 
redistributed. The initial grants to the 02 States and the 03 States 
will come from the Federal fiscal year 2003 funds. After the deadline 
for 02 grants, we will determine how many States have submitted 
applications for grants. We will estimate, based upon contacts with 
other States, how many requests are likely to be received from 03 
States. We will make an initial allotment for 02 States based upon 
these estimates. In other words, we will reserve some of the Federal 
fiscal year 2003 funds after the 02 States grant requests have been 
received in anticipation of requests being made by 03 States. Based 
upon expressions of interest we have received from States, we believe 
we have a reasonable estimate of the States that are likely to first 
qualify in their fiscal year 2003. We will hold in reserve our best 
estimate of the maximum amount of funds needed to provide full 
allotments to these States. If there are excess reserves (that is, the 
Department withholds more money than was necessary to provide grants to 
the 03 States), the excess funds will be proportionally redistributed 
to the 02 States and the 03 States, but not to exceed 50 percent of 
losses incurred by the States. In other words, the size of the first 
year grants will be increased retroactively for these States. In the 
unlikely event that the Department should underestimate the reserve 
needed to fund grants to all eligible 03 States, money will be taken 
from the Federal fiscal year 2004 funds to assure that all eligible 03 
States receive grants on an equivalent basis. We do not expect it to 
have a major impact on funding of the additional grants from the 
Federal fiscal year 2004 funds. Similarly, the Department will reserve 
some of the Federal fiscal year 2004 money to fund the second year 
grants for 02 and 03 States and the first year grants for the 04 
States.
    We believe that this method of distribution of the Federal funds is 
the fairest because it allows for States that qualified for a grant in 
their fiscal year 2002 to immediately apply for funding and it also 
allows for the States who may not immediately qualify to enact the 
changes needed in order to qualify and apply for funding in either 
their fiscal year 2003 or fiscal year 2004. In other words, this method 
is set up to accommodate as many States as possible.
    We are adding Sec.  148.316, which describes the application 
package that the individual State must submit to document that it has 
met the requirements for a grant. At a minimum, the package must 
include a completed standard form application kit (see paragraph (b) of 
this section) along with the following information:
    (1) History and description of the qualified high risk pool. 
Provide a detailed description of the qualified high risk pool that 
includes the following:
    (i) Brief history, including date of inception.
    (ii) Enrollment criteria (including provisions for the admission of 
eligible individuals, as defined in Sec.  148.103) and number of 
enrollees.
    (iii) Description of how coverage is provided administratively in 
the qualified high risk pool (that is, self-insured, through a private 
carrier, etc.).
    (iv) Benefits options and packages offered in the qualified high 
risk pool to both eligible individual (as defined in Sec.  148.103) and 
other applicants.
    (v) Outline of plan benefits and coverage offered in the pool and 
the plan benefits and coverage of the two most popular policies in the 
State's private individual market.
    (vi) Premiums charged (in terms of dollars and in percentage of 
standard risk rate) and other cost-sharing mechanisms, such as co-pays 
and deductibles, imposed on enrollees (both eligible individuals (as 
defined in Sec.  148.103) and non-eligible individuals if a distinction 
is made).
    (vii) How the standard risk rate for the State is calculated and 
when it was last calculated.
    (viii) Revenue sources for the qualified high risk pool, including 
current funding mechanisms and, if different, future funding 
mechanisms. Provide current projections of future income.
    (ix) Copies of all governing authorities of the pool, including 
statutes, regulations, and plan of operation.
    (2) Accounting of risk pool losses. Provide a detailed accounting 
of claims paid, administrative expenses, and premiums collected for the 
fiscal year for which the grant is being requested. Indicate the timing 
of the fiscal year upon which the accounting is based. Provide the 
methodology of projecting losses and expenses, and include current 
projections of future operating losses (this information is needed to 
judge compliance with the requirement in Sec.  148.310(d) of this final 
rule).
    (3) Contact person. Identify the name, position title, address, e-
mail address, and telephone number of the person to contact for further 
information and questions.
    In paragraph (b)(1) of Sec.  148.316, the following standard forms 
must be completed with an original signature and enclosed as part of 
the proposal:

SF-424 Application for Federal Assistance
SF-424A Budget Information
SF-424B Assurances--Non-Construction Program
SF-LLL Disclosure of Lobbying Activities
Biographical Sketch
Additional Assurances

    These forms can be downloaded from the following Web site: http://www.cms.hhs.gov/researchers/priorities/grants.asp.
    Paragraph (b)(2) specifies that all other narrative in the 
application must be submitted on 8\1/2\ x 11'' white paper.
    In paragraph (c), we describe what applicants are required to 
submit. Applicants are required to submit an original and two copies of 
the application. Submissions by facsimile (fax) transmissions will not 
be accepted.
    Applications mailed through the U.S. Postal Service or a commercial 
delivery service will be considered ``on time'' if received by the 
close of business on the closing date, or postmarked (first class mail) 
by the date specified in the DATES section of this final rule. If 
express, certified, or registered mail is used, the applicant should 
obtain a legible dated mailing receipt from the U.S. Postal Service. 
Private metered postmarks are not acceptable as proof of timely 
mailings.
    In paragraph (d), we describe the deadlines States must meet for 
submitting an application for losses they incur in a specified fiscal 
year.
    (1) Deadline for States to submit an application for losses 
incurred in their fiscal year 2002. States must submit an application 
to us by no later than September 30, 2003.
    (2) Deadline for States to submit an application for losses 
incurred in their fiscal year 2003. States must submit an application 
to us by no later than June 30, 2004.
    (3) Deadline for States to submit an application for losses 
incurred in their fiscal year 2004. States must submit an application 
to us by no later than June 30, 2005.

[[Page 23413]]

    In paragraph (e), we indicate where to submit an application. All 
initial applications and supplemental applications must be submitted 
to:
    Centers for Medicare & Medicaid Services, Acquisition and Grants 
Group, Mail Stop C2-21-15, 7500 Security Boulevard, Baltimore, MD 
21244-1850, Attn: Nicole Nicholson.
    We added Sec.  148.318, which describes how we will review grant 
applications. Paragraph (a) indicates that this grant program is not 
listed by the Secretary under 45 CFR 100.3, and therefore the grant 
program is not subject to review by States under 45 CFR part 100, which 
implements Executive Order 12372, ``Intergovernmental Review of Federal 
Programs.''
    Paragraph (b) states that a team consisting of staff from CMS and 
the Department of Health and Human Services will review all 
applications. The team will meet as necessary on an ongoing basis as 
applications are received.
    Paragraph (c) describes the eligibility criteria. To be eligible 
for a grant, a State must submit sufficient documentation to 
demonstrate that its high risk pool meets the eligibility requirements 
described in Sec.  148.310. A State must include sufficient 
documentation of the losses incurred in the operation of the qualified 
high risk pool in the period for when it is applying. Paragraph (d) 
indicates that if the review team determines that a State meets the 
eligibility requirements described in Sec.  148.310, the review team 
will use the following additional criteria in reviewing the 
applications:
    (1) Documentation of expenses incurred during operation of the 
qualified high risk pool. The losses and expenses incurred in the 
operation of a State's pool are sufficiently documented.
    (2) Funding mechanism. The State has outlined funding sources, such 
as assessments and State general revenues, which can cover the 
projected costs and are reasonably designed to ensure continued funding 
of losses a State incurs in connection with the operation of the 
qualified high risk pool after fiscal year 2004.
    We added Sec.  148.320, which describes our grant award process. 
Paragraph (a) provides that we will notify each State applicant in 
writing of CMS' decision on its application. If we award a grant to the 
State applicant, the award letter will contain the following terms and 
conditions:
    (i) All funds awarded to the grantee under this program must be 
used exclusively for the operation of a qualified high risk pool that 
meets the eligibility requirements for this program.
    (ii) The grantee must keep sufficient records of the grant 
expenditures for audit purposes (see 45 CFR part 92).
    (iii) The grantee may be required to submit quarterly progress and 
financial reports under 45 CFR 92.
    Paragraph (b) specifies that an applicant that receives a grant 
award must submit a letter of acceptance to CMS' Acquisition and Grants 
Group within 30 days of the date of the award agreeing to the terms and 
conditions of the award letter.

III. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register and invite public comment on the proposed rule. The 
notice of proposed rulemaking includes a reference to the legal 
authority under which the rule is proposed, and the terms and substance 
of the proposed rule or a description of the subjects and issues 
involved. This procedure can be waived, however, if an agency finds 
good cause that a notice-and-comment procedure is impracticable, 
unnecessary, or contrary to the public interest and incorporates a 
statement of the finding and its reasons in the rule issued. In this 
instance, we find that notice-and-comment is contrary to the public 
interest because it is beneficial to the eligible States and to the 
uninsured population in the eligible States that funding for qualified 
high risk pool is available as quickly as possible. The sooner the 
funds become available for States to fund losses incurred in the 
operation of the qualified high risk pools, the sooner that the pools 
can expand their eligibility to provide coverage to more uninsured 
individuals.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule on an interim basis. We are 
providing a 60-day public comment period.

IV. Response to Comments

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

V. Collection of Information Requirements

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

    We are soliciting public comment on each of these issues for the 
section that contains information collection requirements.

Sections 148.316 Grant Application Instructions

    This section requires an applicant to submit the application in 
writing and states what it must contain.

Sections 148.320 Grant Awards

    Paragraph (b) of this section requires an applicant that is granted 
an award to send CMS a letter of acceptance.
    These two information collection requirements together have been 
estimated to take 40 hours per applicant/grantee to fulfill, for a 
total of 800 hours per year, based on a maximum of 20 applicants. This 
burden has been approved by the Office of Management and Budget under 
approval number 0938-0887 through June 2003.

Section 148.320 Grant Awards

    Paragraph (a)(2)(iii) of this section states that the grantee may 
be required to submit quarterly progress and financial reports under 
pursuant to part 92 of this title.
    The burden associated with requirement is the time it will take the 
grantee to complete the reports, if requested. At a maximum, a grantee 
would have to complete 8 reports; however, we anticipate that the 
grantees will need to file only semi-annually, thus completing only 
four reports. We estimate that a progress report will take 30 minutes 
to complete and a financial

[[Page 23414]]

report 30 minutes as well. This would total 2 hours per grantee per 
year, or 40 hours per year (2 hrs. x 20 grantees).
    If you comment on these information collection and record keeping 
requirements, please mail copies directly to the following:
    Centers for Medicare & Medicaid Services, Office of Strategic 
Operations and Regulatory Affairs, DRDI, DRD-B, Attn: Julie Brown, Room 
C5-16-03, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    Office of Information and Regulatory Affairs, Office of Management 
and Budget, Room 10235, New Executive Office Building, Washington, DC 
20503, Attn: Brenda Aguilar, CMS Desk Officer.

VI. Regulatory Impact Statement

A. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 16, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), and Executive Order 13132.
    Executive Order 12866 (as amended by Executive Order 13258, which 
merely reassigns responsibility of duties) directs 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). A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year). 
Since the amount of appropriations under this rule will not total more 
than $40 million per fiscal year, it is not a major rule.
    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and government agencies. 
Most hospitals and most other providers and suppliers are small 
entities, either by nonprofit status or by having revenues of $6 
million to $29 million in any 1 year. Individuals and States are not 
included in the definition of a small entity. Since this rule is 
implementing a grant program for the States, this rule will not have a 
significant impact on small businesses.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 604 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a Metropolitan 
Statistical Area and has fewer than 100 beds. Again, since this rule is 
implementing a grant program for the States, it will not have a 
significant impact on small hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule that may result in expenditure in any 1 year by State, 
local, or tribal governments, in the aggregate, or by the private 
sector, of $110 million. Since this rule is strictly an appropriation, 
there are no unfunded mandates included in the rule.
    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. Since this rule is strictly an appropriation of $80 
million to the States to fund losses incurred in the operation of 
qualified high risk pools, it will have a beneficial impact on State 
governments since the funds will be used to provide health insurance 
coverage to uninsured individuals and will not impose any direct 
requirement costs on State and local governments.

B. Anticipated Effects

    This rule will have a positive impact on approximately 22 States 
that currently operate qualified high risk pools in that it will make 
funds available to those States to fund losses incurred in the 
operation of their high risk pools. Additionally, in order to be 
eligible for funding, the high risk pools will have to lower or 
maintain their premium cap at no higher than 150 percent of the 
standard rate in the private market. These grants, therefore, will 
serve as an incentive for States to keep their risk pool premiums at a 
level that will be affordable and accessible to more uninsured 
individuals. It will not significantly impact upon other entities, 
including providers, nor will it have any significant impact on the 
Medicare and Medicaid programs.

C. Alternatives Considered

    The Trade Adjustment Assistance Reform Act of 2002 was very 
prescriptive in its criteria for eligibility for operation grants to 
high risk pools. It also provided a specific definition of a high risk 
pool and outlined the allocation formula for the grants. In addition to 
following the statute, we had to comply with the Department grant award 
procedure requirements. Because of these requirements, and because we 
wanted to make the money available as quickly as possible, we did not 
consider other major alternatives on how to award the grants.

D. Conclusion

    For the reasons indicated elsewhere in this section, we are not 
preparing analyses for either the RFA or section 1102(b) of the Act 
because we have determined, and we certify, that this rule will not 
have a significant economic impact on a substantial number of small 
entities or a significant impact on the operations of a substantial 
number of small rural hospitals.
    In accordance with the provisions of Executive Order 12866, the 
Office of Management and Budget reviewed this regulation.

List of Subjects in 45 CFR 148

    Administrative practice and procedure, Health care, Health 
insurance, Penalties, Reporting and record keeping requirements.

0
For the reasons set forth in the preamble, the Department of Health and 
Human Services amends 45 CFR subchapter B part 148 as set forth below:

PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET

0
1. The authority citation for part 148 continues to read as follows:

    Authority: Secs 2741 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 U.S.C. 300gg-41 through 300gg-63, 300gg-91, 
and 300gg-92).


0
2. A new subpart E is added to read as follows:
Subpart E--Grants to States for Operation of Qualified High Risk Pools
Sec.
148.306 Basis and scope.
148.308 Definitions.
148.310 Eligibility requirements for a grant.
148.312 Amount of grant payment.
148.314 Periods during which eligible States may apply for a grant.
148.316 Grant application instructions.
148.318 Grant application review.
148.320 Grant awards.

Subpart E--Grants to States for Operation of Qualified High Risk 
Pools


Sec.  148.306  Basis and scope.

    This subpart implements section 2745 of the Public Health Service 
Act (the PHS Act). It provides for grants to States

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that have qualified high risk pools that meet the specific requirements 
described in Sec.  148.310. It also provides specific instructions on 
how to apply for the grants and outlines the grant review and grant 
award processes.


Sec.  148.308  Definitions.

    For the purposes of this subpart, the following definitions apply:
    CMS stands for Centers for Medicare & Medicaid Services.
    Loss means the difference between expenses incurred by a qualified 
high risk pool, including payment of claims and administrative 
expenses, and the premiums collected by the pool.
    Qualified high risk pool means a high risk pool that meets the 
conditions described in Sec.  148.128(a)(2)(ii):
    (1) It provides to all eligible individuals, as defined in Sec.  
148.103, health insurance coverage (or comparable coverage) that does 
not impose any preexisting condition exclusion or affiliation periods 
for coverage of an eligible individual; and
    (2) Provides for premium rates and covered benefits for the 
coverage consistent with the standards included in the National 
Association of Insurance Commissioners (NAIC) Model Health Plan for 
Uninsurable Individuals Act (as in effect as of August 21, 1996) but 
only if the model has been revised in State regulations to meet all of 
the requirements of this part and title 27 of the PHS Act.
    Standard risk rate means a rate developed by a State using 
reasonable actuarial techniques and taking into account the premium 
rates charged by other insurers offering health insurance coverage to 
individuals in the same geographical service area to which the rate 
applies. The standard rate may be adjusted based upon age, sex, and 
geographical location.


Sec.  148.310  Eligibility requirements for a grant.

    A State must meet all of the following requirements to be eligible 
for a grant:
    (a) The State has a qualified high risk pool as defined in Sec.  
148.308.
    (b) The pool restricts premiums charged under the pool to no more 
than 150 percent of the premium for applicable standard risk rates for 
the State.
    (c) The pool offers a choice of two or more coverage options 
through the pool.
    (d) The pool has in effect a mechanism reasonably designed to 
ensure continued funding of losses incurred by the State after the end 
of fiscal year 2004 in connection with the operation of the pool.
    (e) The pool has incurred a loss in a period described in Sec.  
148.314.


Sec.  148.312  Amount of grant payment.

    (a) An eligible State may receive a grant to fund up to 50 percent 
of the losses incurred in the operation of its qualified high risk pool 
during the period for which it is applying.
    (b) Funds will be allocated to each eligible State in accordance 
with the following formula:
    (1) The number of uninsured individuals is calculated for each 
eligible State by taking a 3-year average of the number of uninsured 
individuals in that State in the Current Population Survey (CPS) of the 
Census Bureau. For grants based upon State fiscal years 2002 and 2003, 
a 3-year average will be calculated using numbers available as of May 
1, 2003. For grants based upon State fiscal year 2004, a 3-year average 
will be calculated using numbers available as of March 1, 2005. 
Calculation of the State 3-year average will be done by the Census 
Bureau and provided to CMS.
    (2) Based upon the CPS numbers, the State's percentage of the total 
uninsured population of eligible States is calculated and then 
multiplied by $40 million to determine the State's maximum allotment 
for the fiscal year in question. The following example illustrates the 
formula in paragraph (b):
    (i) The most current 3-year average of uninsured individuals in 
State A is one million, and the 3-year average of uninsured individuals 
for all eligible States is 10 million. State A has 10 percent of the 
uninsured population of the eligible States.
    (ii) Under this example, State A's allotment would be 10 percent of 
$40 million, or $4 million, for the fiscal year in question.
    (c) The amount awarded to each eligible State will be the lesser of 
the 50 percent of losses incurred by its qualified risk pool for the 
fiscal year in question or its allotment under the formula.


Sec.  148.314  Periods during which eligible States may apply for a 
grant.

    (a) General Rule. A State that meets the eligibility requirements 
in Sec.  148.310 may apply for a grant to fund losses that were 
incurred during the State's fiscal year 2002, 2003, or 2004 in 
connection with the operation of its qualified high risk pool. A State 
may apply for losses incurred in a partial fiscal year if a partial 
year audit is done.
    (b) Maximum number of grants. An eligible State may only be awarded 
a maximum of two grants, with one grant per fiscal year. A grant for a 
partial fiscal year counts as a full grant.
    (c) Deadline for submitting grant applications. The deadlines for 
submitting grant applications are stated in Sec.  148.316(d).
    (d) Initial distribution of grant funds. States that meet all of 
the eligibility requirements in Sec.  148.310 and submit timely 
requests in accordance with paragraph (c) of this section will receive 
an initial distribution of grant funds using the following methodology:
    (1) Initial grant applications submitted for losses incurred in 
State fiscal year 2002 (hereafter referred to as 02 States). Initial 
grants to States that submit an application for losses incurred in 
State fiscal year 2002 will be funded with Federal fiscal year 2003 
funds.
    (2) Initial grant applications submitted for losses incurred in 
State fiscal year 2003 (hereafter referred to as 03 States). Initial 
grants to States that did not submit an application for losses in State 
fiscal year 2002 (or submitted an application but did not qualify) and 
first qualified for a grant for losses incurred in State fiscal year 
2003 will be funded with Federal fiscal year 2003 funds.
    (3) Initial grant allocations. Initial grant allocations will be 
determined by taking all grant applications described in paragraphs 
(d)(1) and (2) of this section, and allocating in accordance with Sec.  
148.312.
    (4) Other applications. All other grants will be funded in the 
first instance with Federal fiscal year 2004 funds.
    (e) Reallocation of funds. The initial grants to the 02 States and 
the 03 States will come from the Federal fiscal year 2003 funds. After 
the deadline for 02 grants, the Department will determine how many 
States have submitted applications for grants. The Department will then 
estimate, based on contacts with other States, how many requests are 
likely to be received from 03 States. The Department will make an 
initial allotment for 02 States based on these estimates. The 
Department will reserve some of the Federal fiscal year 2003 funds 
after the 02 States grant requests have been received in anticipation 
of requests being made by 03 States. The Department will hold in 
reserves adequate funds to provide full allotments to these States. If 
there are excess reserves (that is, the Department withholds more money 
than was necessary to provide grants to the 03 States), the excess 
funds will be proportionally redistributed to the 02 States and the 03 
States, but not to exceed 50 percent of losses incurred by the States. 
The size of the first year grants will be increased retroactively for 
these States. Similarly, the Department will reserve some of the 
Federal fiscal

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year 2004 money to fund the second year grants for 02 and 03 States and 
the first year grants for the 04 States (that is, States that initially 
qualify based upon losses incurred in their fiscal year 2004).


Sec.  148.316  Grant application instructions.

    (a) Application package. The individual States must compile an 
application package that documents that it has met the requirements for 
a grant. At a minimum, the package must include a completed standard 
form application kit (see paragraph (b) of this section) along with the 
following information:
    (1) History and description of the qualified high risk pool. 
Provide a detailed description of the qualified high risk pool that 
includes the following:
    (i) Brief history, including date of inception.
    (ii) Enrollment criteria (including provisions for the admission of 
eligible individuals as defined in Sec.  148.103) and number of 
enrollees.
    (iii) Description of how coverage is provided administratively in 
the qualified high risk pool (that is, self-insured, through a private 
carrier, etc.).
    (iv) Benefits options and packages offered in the qualified high 
risk pool to both eligible individual (as defined in Sec.  148.103) and 
other applicants.
    (v) Outline of plan benefits and coverage offered in the pool and 
the plan benefits and coverage of the two most popular policies in the 
State's private individual market.
    (vi) Premiums charged (in terms of dollars and in percentage of 
standard risk rate) and other cost-sharing mechanisms, such as co-pays 
and deductibles, imposed on enrollees (both eligible individuals (as 
defined in Sec.  148.103) and non-eligible individuals if a distinction 
is made).
    (vii) How the standard risk rate for the State is calculated and 
when it was last calculated.
    (viii) Revenue sources for the qualified high risk pool, including 
current funding mechanisms and, if different, future funding 
mechanisms. Provide current projections of future income.
    (ix) Copies of all governing authorities of the pool, including 
statutes, regulations and plan of operation.
    (2) Accounting of risk pool losses. Provide a detailed accounting 
of claims paid, administrative expenses, and premiums collected for the 
fiscal year for which the grant is being requested. Indicate the timing 
of the fiscal year upon which the accounting is based. Provide the 
methodology of projecting losses and expenses, and include current 
projections of future operating losses (this information is needed to 
judge compliance with the requirements in Sec.  148.310(d)).
    (3) Contact person. Identify the name, position title, address, e-
mail address, and telephone number of the person to contact for further 
information and questions.
    (b) Standard form application kit.
    (1) Forms. (i) The following standard forms must be completed with 
an original signature and enclosed as part of the application package:

SF-424 Application for Federal Assistance
SF-424A Budget Information
SF-424B Assurances `` Non-Construction Program
SF-LLL Disclosure of Lobbying Activities Biographical Sketch
Additional Assurances

    (ii) These forms can be downloaded from the following Web site:
    http://www.cms.hhs.gov/researchers/priorities/grants.asp.
    (2) Other narrative. All other narrative in the application must be 
submitted on 8\1/2\ x 11'' white paper.
    (c) Submission of application package.
    (1) Applicants are required to submit an original and two copies of 
the application. Submissions by facsimile (fax) transmissions will not 
be accepted.
    (2) Applications mailed through the U.S. Postal Service or a 
commercial delivery service will be considered ``on time'' if received 
by the close of business on the closing date, or postmarked (first 
class mail) by the date specified in the paragraph (d) of this section. 
If express, certified, or registered mail is used, the applicant should 
obtain a legible dated mailing receipt from the U.S. Postal Service. 
Private metered postmarks are not acceptable as proof of timely 
mailings.
    (d) Application deadlines.
    (1) Deadline for States to submit an application for losses 
incurred in their fiscal year 2002. States must submit an application 
to us by no later than September 30, 2003.
    (2) Deadline for States to submit an application for losses 
incurred in their fiscal year 2003. States must submit an application 
to us by no later than June 30, 2004.
    (3) Deadline for States to submit an application for losses 
incurred in their fiscal year 2004. States must submit an application 
to us by no later than June 30, 2005.
    (e) Where to submit an application. All initial applications and 
supplemental applications must be submitted to:

Centers for Medicare & Medicaid Services, Acquisition and Grants 
Group, Mail Stop C2-21-15, 7500 Security Boulevard, Baltimore, MD 
21244-1850, Attn: Nicole Nicholson.


Sec.  148.318  Grant application review.

    (a) Executive Order 12372. This grant program is not listed by the 
Secretary under Sec.  100.3 of this title, and therefore the grant 
program is not subject to review by States under part 100 of this 
title, which implements Executive Order 12372, ``Intergovernmental 
Review of Federal Programs'' (see part 100 of this title).
    (b) Review team. A team consisting of staff from CMS and the 
Department of Health and Human Services will review all applications. 
The team will meet as necessary on an ongoing basis as applications are 
received.
    (c) Eligibility criteria. To be eligible for a grant, a State must 
submit sufficient documentation that its high risk pool meets the 
eligibility requirements described in Sec.  148.310. A State must 
include sufficient documentation of the losses incurred in the 
operation of the qualified high risk pool in the period for when it is 
applying.
    (d) Review criteria. If the review team determines that a State 
meets the eligibility requirements described in Sec.  148.310, the 
review team will use the following additional criteria in reviewing the 
applications:
    (1) Documentation of expenses incurred during operation of the 
qualified high risk pool. The losses and expenses incurred in the 
operation of a State's pool are sufficiently documented.
    (2) Funding mechanism. The State has outlined funding sources, such 
as assessments and State general revenues, which can cover the 
projected costs and are reasonably designed to ensure continued funding 
of losses a State incurs in connection with the operation of the 
qualified high risk pool after fiscal year 2004.


Sec.  148.320  Grant awards.

    (a) Notification and award letter.
    (1) Each State applicant will be notified in writing of CMS's 
decision on its application.
    (2) If the State applicant is awarded a grant, the award letter 
will contain the following terms and conditions:
    (i) All funds awarded to the grantee under this program must be 
used exclusively for the operation of a qualified high risk pool that 
meets the eligibility requirements for this program.
    (ii) The grantee must keep sufficient records of the grant 
expenditures for audit purposes (see part 92 of this title).

[[Page 23417]]

    (iii) The grantee may be required to submit quarterly progress and 
financial reports under part 92 of this title.
    (b) Grantees letter of acceptance. Grantees must submit a letter of 
acceptance to CMS' Acquisition and Grants Group within 30 days of the 
date of the award agreeing to the terms and conditions of the award 
letter.

(Catalog of Federal Domestic Assistance Program No. 93779, Centers 
for Medicare and Medicaid Services Research, Demonstration, and 
Evaluations)


    Dated: March 16, 2003.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: April 18, 2003.
Tommy G. Thompson,
Secretary.
[FR Doc. 03-10713 Filed 4-28-03; 8:45 am]
BILLING CODE 4120-01-P