[Federal Register Volume 69, Number 59 (Friday, March 26, 2004)]
[Rules and Regulations]
[Pages 15695-15702]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-6852]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 148

[CMS-2179-F]
RIN 0938-AM42


Grants to States for Operation of Qualified High Risk Pools

AGENCY: Office of the Secretary, HHS.

ACTION: Final rule.

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SUMMARY: This final rule implements a provision of the Trade Adjustment 
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 final rule also 
addresses comments received in response to the interim final rule that 
was published on May 2, 2003. 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 April 26, 
2004
    Deadline for States to submit an application for losses incurred in 
their fiscal year 2002: States had to 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.

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

SUPPLEMENTARY INFORMATION:

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

[[Page 15696]]

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 (FYs) 2003 and 2004). We have 2 
years to obligate funding for each fiscal year. As directed by the 
statute, we will allocate 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 45 CFR 
148.312(b) of this 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.

C. The Final Rule With Comment Period

    On May 2, 2003, we published a final rule with comment period (68 
FR 23410) to benefit eligible States and uninsured populations. We made 
funds available as quickly as possible to eligible States to fund 
losses incurred in the operation of qualified high risk pools.

II. Provisions of the Final Rule with Comment Period Published on May 
2, 2003 (63 FR 23410)

    In the May 2, 2003 final rule with comment period, we added a new 
subpart E to 45 CFR part 148, to provide for grants to States that 
incur losses in connection with operating qualified high risk pools. 
This subpart implemented 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.
    In the May 2, 2003 final rule with comment period, we added Sec.  
148.306, which describes the statutory basis and scope of the 
regulation. We also added 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.
    In the May 2, 2003 final rule with comment period, we added 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.
    In the May 2, 2003 final rule with comment period, we added 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 1 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.
    In the May 2, 2003 final rule with comment period, we added 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

[[Page 15697]]

connection with a qualified high risk pool in State fiscal year 2002, 
had to submit a grant request by September 30, 2003. The first year 
grant for these States was 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 did not submit 
applications for their 2002 fiscal years (or submitted applications but 
did 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 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 that have shown interest, 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, 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 ensure 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 that 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. This method is set up to 
accommodate as many States as possible.
    In the May 2, 2003 final rule with comment period, we added Sec.  
148.316; paragraph (a) 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 HIPAA-eligible individuals (as defined in Sec.  
148.103) and non-HIPAA-eligible individuals.
    (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) transmission will not 
be accepted.

[[Page 15698]]

    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 had to 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.
    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.
    In the May 2, 2003 final rule with comment period, 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 which 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.
    In the May 2, 2003 final rule with comment period, 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 part 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. Analysis of and Responses to Public Comments

    We received five timely public comments in response to the May 2, 
2003 final rule with comment period. The comments and our responses are 
summarized below.
    Comment: One commenter was concerned with the requirement in Sec.  
148.316(a)(1)(v) that a State applicant provide the plan benefits and 
coverage of the two most popular policies in the State's private 
individual market.
    The commenter indicated that eligibility for a grant under the 
Trade Adjustment Assistance Reform Act of 2002 (Trade Act) does not 
require that the benefits and coverage of the high risk pool relate to 
the benefits and coverage of the State's most popular plans.
    Response: The Trade Act requires that, in order to be eligible for 
a grant, a State's high risk pool must be a ``qualified high risk 
pool'' as defined in section 2744(c)(2) of the Public Health Service 
Act (PHS Act). A high risk pool, in accordance with section 2744(c)(2), 
must provide covered benefits consistent with the NAIC Model Health 
Plan for Uninsurable Individuals Act (NAIC Model) that was in effect at 
the time of passage of the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA).
    Section 8 of the NAIC Model provides two alternatives for a high 
risk pool to use in designing a benefit package. Alternative One 
requires that a benefit plan be designed to be ``consistent with major 
medical expense coverage to every eligible person who is not eligible 
for Medicare.'' Alternative Two provides a specific menu of benefits 
and exclusions that can be adopted by the risk pool. In establishing 
the coverage under alternative two, however, the risk pool board shall 
promulgate a benefit level ``commensurate with health insurance 
provided through a representative number of large employers in the 
State.'' Both of these alternatives clearly indicate that a risk pool 
should provide a level of coverage that is consistent with what is 
being provided by other carriers throughout the State. An example of a 
way to establish that a risk pool is providing coverage that is 
consistent with what is being provided in the State is to provide both 
the coverage of the risk pool and that of the two most popular policies 
in the private individual market. In response to this comment, Sec.  
148.316(a)(1)(v) is being amended to specify that a State applicant 
must demonstrate that its high risk pool is providing coverage 
consistent with either Alternative One or Alternative Two in section 8 
of the NAIC Model. This provides an applicant more flexibility in 
demonstrating that its risk pool is providing a level of benefits 
consistent with the NAIC Model.
    Comment: One commenter was concerned with our interpretation of 
``qualified high risk pool'' as defined in the Trade Act and section 
2744(c)(2) of the PHS Act. The commenter indicated that the intent of 
the legislation was to provide assistance to all State high risk pools, 
regardless of whether the pools met the requirements of the PHS Act. 
The commenter stated that the definition of a ``qualified high risk 
pool''

[[Page 15699]]

was inserted in the Trade Act to encourage States to use their high 
risk pools as their HIPAA mechanism, but not to rule out State high 
risk pools that did not meet the technical requirements of section 
2744(c)(2).
    The commenter also expressed concern for the States that have 
bifurcated pools, one for HIPAA eligibles and one for non-HIPAA 
eligibles, stating that losses from both pools should be counted for 
the grant, not just the pool for HIPAA eligibles.
    Response: We do not believe there is any ambiguity in the statute. 
The language of the Trade Act expressly provides that a State must have 
established a ``qualified high risk pool'' as defined in section 
2744(c)(2) of the PHS Act in order to qualify for a grant. Similarly, 
with respect to States with bifurcated high risk pools, the risk pools 
that do not include HIPAA eligibles do not meet the statutory 
definition of a qualified high risk pool. However, as a practical 
matter, it is our understanding that the losses from the pools that 
serve HIPAA eligibles are likely to be high enough to enable those 
States to obtain their full grant allotment under the allocation 
formula.
    Comment: One commenter requested that the definition of ``State'' 
be expanded to include entities that may have been formed by State 
legislatures to conduct risk pool operations. This would allow the risk 
pool entity to submit a grant application on behalf of the State. The 
commenter also requested that ``fiscal year'' be defined to allow use 
of either the fiscal year of the State or, if different, the fiscal 
year of the risk pool entity. This would allow the risk pool entity to 
submit records based upon its own accounting system, if different from 
the State's.
    Response: We agree with this comment and for purposes of this rule 
we have added to Sec.  148.308 a definition of ``State'' that includes 
a risk pool entity of a State. We also added a definition of ``State 
fiscal year'' to include the fiscal year of the risk pool entity of the 
State.
    Comment: One commenter was concerned with the 150 percent of the 
standard risk rate premium cap requirement. Since each State may 
calculate its standard risk rate differently, one State's risk pool 
premium, although set higher than 150 percent of its standard risk 
rate, may be lower in dollar value than another State's risk pool 
premium, even though the second State's premium is set lower than 150 
percent of its standard risk rate. The commenter also stated that the 
NAIC Model recommends a premium cap of 200 percent, which, in the 
commenter's opinion, was more reasonable.
    Response: The statute expressly requires the premium cap to be 150 
percent of the standard risk rate. We have no authority to change the 
premium cap amount.
    Comment: One commenter requested that we revise the language in 
Sec.  148.314 (d) and (e), which explains how we plan to allocate the 
grant funds, to make it more technically correct in terms of fiscal 
year appropriations.
    Response: We agree with this comment and have revised Sec.  
148.314(d) and (e) with the language that was suggested by the 
commenter.

IV. Provisions of the Final Regulations

    For the most part, this final rule adopts the provisions of the May 
2, 2003 final rule with comment period. Those provisions of this final 
rule that differ from the May 2003 final rule with comment period 
follow.
    In response to comments, we revised Sec.  148.308 by adding the 
definition of ``State'' to include in the definition an entity that 
operates the risk pools on behalf of the State. We also added the 
definition of ``State fiscal year'' to include fiscal years by which 
the risk pool entity bases its accounting. We revised Sec.  148.316(a) 
introductory text to indicate that if a risk pool entity of a State 
applies for the grant (instead of the State itself), then it must 
demonstrate the nexus between it and the State. We revised Sec.  
148.316(a)(1)(v) to require State applicants to demonstrate that their 
risk pool is providing benefits coverage that is consistent with either 
Alternative One or Alternative Two of the NAIC Model.
    We also revised Sec.  148.312(b)(1) to indicate that, for grants 
based upon State fiscal years 2002 and 2003, the 3-year average of the 
number of uninsured in each State was calculated using CPS statistics 
available as of September 30, 2003 and for grants based upon State 
fiscal year 2004, the average number of uninsured will be calculated 
using CPS statistics available as of September 30, 2004. This change 
was made to reflect when the Census Bureau releases its annual 
statistics on the uninsured.
    We revised Sec.  148.314(a) to clarify that, when a State becomes 
eligible for a grant in the middle of its fiscal year, it can apply for 
a grant based only upon losses its risk pool incurs for the portion of 
the fiscal year after eligibility is established. We also revised Sec.  
148.314(d)(1), (d)(2), (d)(4), and (e) to use technically correct 
language for Federal fiscal year appropriations.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act (PRA) of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment when 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:
     The need for the information collection and its 
usefulness in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information 
collection burden.
     The quality, utility, and clarity of the 
information to be collected.
     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.
    The burden for this information collection requirement has been 
approved by the Office of Management and Budget under approval number 
0938-0887 through July 2006.
    This section also requires documentation to be provided by a risk 
pool entity if it applies on behalf of a State. We estimate that it 
will take approximately 10 minutes per risk pool entity to provide 
documentation for a total of 3 hours per year, based on a maximum of 18 
risk pool applicants. We will revise the information collection 
package, 0938-0887, to include this additional burden.
    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, RDIG, DRD-B, Attn: Dawn Willinghan, 
CMS-2179-F, Room C5-16-03, 7500 Security Boulevard, Baltimore, MD 
21244-1850; and
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.

[[Page 15700]]

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 an 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 have a significant impact on 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 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 Part 148

    Administrative practice and procedure, Health care, Health 
insurance, Penalties, Reporting and recordkeeping 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. In Sec.  148.308, add the definitions of ``State'' and ``State 
fiscal year'' in alphabetical order to read as follows:


Sec.  148.308  Definitions.

* * * * *
    State, for purposes of this subpart, means any of the 50 States and 
the District of Columbia or any entity to which a State has delegated 
the authority to conduct risk pool operations.
    State fiscal year, for purposes of this subpart, means the fiscal 
year used for accounting purposes by either a State or a risk pool 
entity to which a State has delegated the authority to conduct risk 
pool operations.

0
3. In Sec.  148.312, republish the introductory text of paragraph (b) 
and revise paragraph (b)(1) to read as follows:


Sec.  148.312  Amount of grant payment.

* * * * *
    (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 was calculated using numbers available as of September 
30, 2003. For grants based upon State fiscal year 2004, a 3-year 
average will be calculated using

[[Page 15701]]

numbers available as of September 30, 2004.
* * * * *

0
4. Amend Sec.  148.314 as follows:
0
A. Revise paragraph (a).
0
B. Revise paragraph (d)(1).
0
C. Revise paragraph (d)(2).
0
D. Revise paragraph (d)(4).
0
E. Revise paragraph (e).
    The revisions read as follows:


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. If a 
State becomes eligible for a grant in the middle of its fiscal year, a 
State may apply for losses incurred in a partial fiscal year if a 
partial year audit is done. Only losses that are incurred after 
eligibility is established will qualify for a grant.
* * * * *
    (d) * * *
    (1) Initial grant applications submitted for losses incurred in 
State fiscal year 2002 (hereafter referred to as 02 States). Initial 
grants to States that submitted an application for losses incurred in 
State fiscal year 2002 were funded out of the $40 million appropriation 
for Federal fiscal year (FFY) 2003, which is available for obligation 
until the end of FFY 2004. (This is referred to as the ``initial $40 
million appropriation.'')
    (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 out of the initial $40 million appropriation.
* * * * *
    (4) Other applications. All other grants, including the initial 
grants for the 04 States (States that initially qualify based upon 
losses incurred in their fiscal year 2004), will be funded out of the 
$40 million appropriation for FFY 2004, which is available for 
obligation until the end of FFY 2005. (This is referred to as the 
``second $40 million appropriation.'')
    (e) Allocation of funds. Grants to States described in paragraphs 
(d)(1) and (d)(2) of this section will be allocated in accordance with 
paragraphs (e)(1) and (e)(2) of this section.
    (1) Initial allocation. (i) Reserves. We will first determine the 
projected number of 03 States (those that are expected to submit their 
initial grant requests after the deadline for grants relating to a 
State's 2002 losses). We will reserve the portion of the initial $40 
million appropriation that we estimate will be needed to fund grants 
for 03 States.
    (ii) Initial allocation to 02 States. The remainder of the initial 
$40 million appropriation will be allotted to the 02 States.
    (iii) Excess reserves. If the initial allotments for any of the 02 
or 03 States are less than 50 percent of the losses incurred by those 
States, any reserved funds that remain after allotments have been made 
to all 02 and 03 States will be proportionally redistributed to the 02 
and 03 States, but not to exceed 50 percent of losses incurred by the 
States. The size of the initial grants will be increased retroactively 
for those States.
    (2) Second allocation. The procedure described in paragraph (e)(1) 
of this section will also be applied to allocate the second $40 million 
appropriation. A reserve will be established based on the amounts 
expected to be needed to fund grants to 04 States before funds are 
allocated for second year grants for 02 and 03 States. If any excess 
funds remain after States receive their full allotments, the funds will 
be proportionally distributed to States whose allotments were less than 
50 percent of their losses.

0
5. Amend Sec.  148.316 as follows:
0
A. Revise paragraph (a) introductory text.
0
B. Republish the introductory text of paragraph (a)(1).
0
C. Revise paragraph (a)(1)(v).
    The revisions read as follows:


Sec.  148.316  Grant application instructions.

    (a) Application package. Each State must compile an application 
package that documents that it has met the requirements for a grant. If 
a risk pool entity applies on behalf of a State, it must provide 
documentation that it has been delegated appropriate authority by the 
State. At a minimum, the application 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:
* * * * *
    (v) Outline of plan benefits and coverage offered in the pool. 
Provide evidence that the level of plan benefits is consistent with 
either Alternative One or Alternative Two in Section 8 of the NAIC 
Model Health Plan for Uninsurable Individuals Act. See Appendix for the 
text of Section 8 of the NAIC Model.
* * * * *

(Catalogue of Federal Domestic Assistance Program No. 93.780, Grants 
to States for Operation of Qualified High-Risk Pools)


    Dated: October 30, 2003.
Thomas A. Scully,
Administrator, Centers for Medicare & Medicaid Services.

    Approved: December 22, 2003.
Tommy G. Thompson,
Secretary.

    Note: This appendix will not appear in the Code of Federal 
Regulations.

Appendix

    NAIC Model Health Plan for Uninsurable Individuals Act--July 
1997 (This version is identical to the version that was in effect as 
of August 21, 1996)

Section 8. Benefits

    Drafting Note: Two alternatives for Subsection A are offered for 
establishing covered services for the plan. Alternative One provides 
for the plan board to establish the covered services and exclusions, 
subject to the approval of the Commissioner. The advantages of this 
alternative are that legislators can leave the benefit 
determinations to experts in plan design and that benefits can be 
easily modified from time to time to recognize changes in 
marketplace standards and medical technology.
    Alternative Two contains a list of covered services and 
exclusions for states that wish to include the benefits and 
exclusions in the statute. The advantage of Alternative Two is that 
the list contains the benefits and exclusions found in some high 
risk plans in operation at the time the model was adopted. The list 
is intended to be inclusive and states may wish to add or delete 
benefits or exclusions to reflect the state's policy preferences. 
The list is an outline of the benefits and exclusions; it is not 
policy language.
    Consideration should be given prior to enactment to the cost 
effectiveness of inclusion or deletion of benefit mandates or other 
minimum benefit standards. Consideration also should be given to 
providing sufficient flexibility in the plan to allow for the 
delivery of services through health maintenance organizations, 
preferred provider organizations and other managed care 
arrangements.

Alternative One

    A. The plan shall offer health care coverage consistent with 
major medical expense coverage to every eligible person who is not 
eligible for Medicare. The coverage to be issued by the plan, its 
schedule of benefits, exclusions and other limitations shall be 
established by the board and subject to the approval of the 
Commissioner.

[[Page 15702]]

Alternative Two

    A. (1) Outline of Benefits. Covered expenses shall be the usual, 
customary and reasonable charge in the locality for the following 
services and articles when prescribed by a physician and determined 
by the plan to be medically necessary for the following areas of 
services, subject to provisions of Subsection B:
    (a) Hospital services;
    (b) Professional services for the diagnosis or treatment of 
injuries, illnesses or conditions, other than mental or dental, 
which are rendered by a physician, or by other licensed 
professionals at his direction;
    (c) Drugs requiring a physician's prescription;
    (d) Skilled nursing services of a licensed skilled nursing 
facility for not more than 120 days during a policy year;
    (e) Services of a home health agency up to a maximum of 270 
services per year;
    (f) Use of radium or other radioactive materials;
    (g) Oxygen;
    (h) Anesthetics;
    (i) Prostheses other than dental;
    (j) Rental of durable medical equipment, other than eyeglasses 
and hearing aids, for which there is no personal use in the absence 
of the conditions for which it is prescribed;
    (k) Diagnostic X-rays and laboratory tests;
    (1) Oral surgery for excision of partially or completely 
unerupted, impacted teeth or the gums and tissues of the mouth when 
not performed in connection with the extraction or repair of teeth;
    (m) Services of a physical therapist;
    (n) Emergency and other medically necessary transportation 
provided by a licensed ambulance service to the nearest facility 
qualified to treat a covered condition;
    (o) Outpatient services for diagnosis and treatment of mental 
and nervous disorders provided that a covered person shall be 
required to make a fifty percent (50%) copayment, and that the 
plan's payment shall not exceed $[insert number].
    (2) Exclusions. Covered expenses shall not include the 
following:
    (a) Any charge for treatment for cosmetic purposes other than 
surgery for the repair or treatment of an injury or a congenital 
bodily defect to restore normal bodily functions;
    (b) Care which is primarily for custodial or domiciliary 
purposes;
    (c) Any charge for confinement in a private room to the extent 
it is in excess of the institution's charge for its most common 
semiprivate room, unless a private room is medically necessary;
    (d) That part of any charge for services rendered or articles 
prescribed by a physician, dentist or other health care personnel 
which exceeds the prevailing charge in the locality or for any 
charge not medically necessary;
    (e) Any charge for services or articles the provision of which 
is not within the scope of authorized practice of the institution or 
individual providing the services or articles;
    (f) Any expense incurred prior to the effective date of coverage 
by the plan for the person on whose behalf the expense is incurred;
    (g) Dental care except as provided in Subsection A(1)(1);
    (h) Eyeglasses and hearing aids;
    (i) Illness or injury due to acts of war;
    (j) Services of blood donors and any fee for failure to replace 
the first three (3) pints of blood provided to an eligible person 
each policy year;
    (k) Personal supplies or services provided by a hospital or 
nursing home, or any other nonmedical or nonprescribed supply or 
service;
    (1) Routine maternity charges for a pregnancy, except where 
added as optional coverage with payment of additional premiums;
    (m) Any expense or charge for services, drugs or supplies that 
are not provided in accord with generally accepted standards of 
current medical practice;
    (n) Any expense or charge for routine physical examinations or 
tests;
    (o) Any expense for which a charge is not made in the absence of 
insurance or for which there is no legal obligation on the part of 
the patient to pay;
    (p) Any expense incurred for benefits provided under the laws of 
the United States and this state, including Medicare and Medicaid 
and other medical assistance, military service-connected disability 
payments, medical services provided for members of the armed forces 
and their dependents or employees of the armed forces of the United 
States, and medical services financed on behalf of all citizens by 
the United States;
    (q) Any expense or charge for in vitro fertilization, artificial 
insemination, or any other artificial means used to cause pregnancy;
    (r) Any expense or charge for oral contraceptives used for birth 
control or any other temporary birth control measures;
    (s) Any expense or charge for sterilization or sterilization 
reversals;
    (t) Any expense or charge for weight loss programs, exercise 
equipment or treatment of obesity, except when certified by a 
physician as morbid obesity (at least two (2) times normal body 
weight);
    (u) Any expense or charge for acupuncture treatment unless used 
as an anesthetic agent for a covered surgery;
    (v) Any expense or charge for organ or bone marrow transplants 
other than those performed at a hospital with a board approved organ 
transplant program that has been designated by the board as a 
preferred provider organization for that specific organ or bone 
marrow transplant;
    (w) Any expense or charge for procedures, treatments, equipment, 
or, services that are provided in special settings for research 
purposes or in a controlled environment, are being studied for 
safety, efficiency, and effectiveness, and are awaiting endorsement 
by the appropriate national medical specialty college for general 
use within the medical community.
    B. In establishing the plan coverage, the board shall take into 
consideration the levels of health insurance provided in the state 
and medical economic factors as may be deemed appropriate; and 
promulgate benefit levels, deductibles, coinsurance factors, 
exclusions and limitations determined to be generally reflective of 
and commensurate with health insurance provided through a 
representative number of large employers in the state.
    C. The board may adjust any deductibles and coinsurance factors 
annually according to the Medical Component of the Consumer Price 
Index.
    D. Preexisting Conditions.
    (1) Plan coverage shall exclude charges or expenses incurred 
during the first six (6) months following the effective date of 
coverage as to any condition for which medical advice, care or 
treatment was recommended or received as to such conditions during 
the six-month period immediately preceding the effective date of 
coverage.
    Drafting Note: In order to reduce the premiums and costs of the 
plan, states may wish to provide for a longer exclusion period for 
preexisting conditions. States will need to weigh the need to 
provide access to individuals with preexisting conditions with the 
increased costs associated with a shorter preexisting condition 
exclusion period.
    (2) Such preexisting condition exclusions shall be waived to the 
extent that similar exclusions, if any, have been satisfied under 
any prior health insurance coverage which was involuntarily 
terminated; provided, that
    (1) Application for pool coverage is made not later than sixty 
(60) days following such involuntary termination and, in such case, 
coverage in the plan shall be effective from the date on which such 
prior coverage was terminated; and
    (b) The applicant is not eligible for continuation or conversion 
rights that would provide coverage substantially similar to plan 
coverage.
    E. Nonduplication of Benefits.
    (1) The plan shall be payer for last resort of benefits whenever 
any other benefit or source of third-party payment is available. 
Benefits otherwise payable under plan coverage shall be reduced by 
all amounts paid or payable through any other health insurance and 
by all hospital and medical expense benefits paid or payable under 
any workers' compensation coverage, automobile medical payment or 
liability insurance whether provided on the basis of fault or 
nonfault, and by any hospital or medical benefits paid or payable 
under or provided pursuant to any state or federal law or program.
    (2) The plan shall have a cause of action against an eligible 
person for the recovery of the amount of benefits paid that are not 
for covered expenses. Benefits due from the plan may be reduced or 
refused as a set-off against any amount recoverable under this 
paragraph.

[FR Doc. 04-6852 Filed 3-25-04; 8:45 am]
BILLING CODE 4120-01-P