[Federal Register Volume 73, Number 65 (Thursday, April 3, 2008)]
[Rules and Regulations]
[Pages 18176-18182]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1088]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 423

[CMS-4133-F]
RIN 0938-AP25


Medicare Program; Modification to the Weighting Methodology Used 
To Calculate the Low-Income Benchmark Amount

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

ACTION: Final rule.

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SUMMARY: This final rule changes the weighting methodology used to 
calculate the low-income benchmark premium amount (benchmark) for 2009 
and thereafter. Under this final rule, the benchmark weighting 
methodology is adjusted so that the relative weights of the Medicare 
Advantage Prescription Drug (MA-PD) plan premiums and Prescription Drug 
Plan (PDP) plan premiums in the low-income benchmark premium amount 
reflect the

[[Page 18177]]

distribution of enrollment of beneficiaries eligible for the low-income 
subsidy in each plan.

DATES: Effective Dates: These regulations are effective on May 31, 
2008.

FOR FURTHER INFORMATION CONTACT:
Deondra Moseley, (410) 786-4577.
Meghan Elrington, (410) 786-8675.

SUPPLEMENTARY INFORMATION:

I. Background

    The beneficiary premiums for Prescription Drug Plans (PDPs) are 
based on an annual bidding process. Each year the beneficiary premium 
for a Part D plan can change as a result of this bidding process. In 
addition, each year, as required by statute, CMS recalculates the 
Federal Part D premium low-income subsidy (LIS) available to low-income 
beneficiaries based on the new premiums for plans in each region. As a 
result of these premium and subsidy changes, the premium for a Part D 
plan can be fully covered by the LIS in one year and not the following 
year.
    The amount of the premium subsidy available to LIS-eligible 
individuals cannot be calculated until after bids are submitted for the 
calendar year in question, because the subsidy amount is based on the 
bids that are submitted. Therefore, a PDP sponsor whose premium for 
LIS-eligible enrollees is currently zero does not know at the time its 
bid is submitted whether the premium that would result from its bid 
will be higher or lower than the premium subsidy amount.
    LIS-eligible individuals enrolled in a PDP that does not charge 
them a premium are faced with the possibility that the plan they are 
enrolled in will impose a premium during the next calendar year that 
would require them to make monthly payments. Section 1860D-1(b)(1)(C) 
of the Social Security Act (the Act) mandates the initial enrollment of 
full-benefit dual eligible individuals not choosing a plan into a PDP 
where they would not pay a premium. It does not, however, require that 
individuals be reassigned to a plan that would not charge them a 
premium, if they would be required to pay a premium in their plan the 
following calendar year. Using our authority under Section 1860D-
1(b)(1)(A) of the Act to, ``establish a process for the enrollment, 
disenrollment, termination, and change of enrollment of Part D eligible 
individuals in prescription drug plans,'' we have specified that LIS-
eligible individuals facing the above situation may ``elect'' a PDP 
with no premium (to which they would be randomly assigned) by taking no 
action. We have referred to this process as our reassignment process. 
Beneficiaries eligible for the full low-income premium subsidy who have 
not chosen a plan on their own, including beneficiaries dually eligible 
for benefits under Titles XVIII and XIX of the Act, are subject to 
reassignment. Beneficiaries eligible for a partial premium subsidy are 
not subject to reassignment.
    For 2008, the number of beneficiaries reassigned to a different 
organization under this process varied widely by region, ranging from 
as few as 17 beneficiaries to approximately 402,322 beneficiaries. The 
average number of beneficiaries reassigned to an organization other 
than the one with which they were enrolled was 34,044 per region. 
Alternatively, LIS beneficiaries can affirmatively elect to stay in 
their plan and begin paying a premium, or choose another plan with or 
without a premium.
    While the reassignment policy prevents an LIS-eligible individual 
who did not choose to elect a plan from being charged a premium, it 
disrupts continuity and stability in coverage. Individuals who are 
reassigned may have to change their pharmacy, get new copies of their 
prescription from their doctor, and determine whether they need a 
change in medications because the formulary might be different.
    Currently, under the demonstration project entitled, ``Medicare 
Demonstration to Transition Enrollment of Low-Income Subsidy 
Beneficiaries'' (established in 2007 and extended to 2008), if the 
premium amount for a LIS-eligible individual in the above situation is 
lower than a specified ``de minimis'' amount, the individual would not 
be charged this de minimis amount, and could remain in his or her 
current plan without paying a premium. This demonstration also 
transitions the calculation of the low-income benchmark premium amount 
for a region from a method that weights the standardized Part D bids 
for PDPs equally to the statutory method required under the current 
regulation, which calculates the benchmarks by weighting the bids for 
PDPs and Medicare Advantage Prescription Drug (MA-PD) plans in that 
region based on each plan's share of total Part D enrollment. While the 
evaluation for this demonstration project is still underway, we believe 
it has demonstrated the advantages of continuity of care and stability.
    In the proposed rule published on January 8, 2008, ``Option for 
Prescription Drug Plans to Lower their Premiums for Low-income Subsidy 
Beneficiaries'' (73 FR 1301), we proposed an approach to reducing the 
disruption caused by the re-assignment process. In that proposed rule, 
we proposed an approach that focused on the premiums that would be 
charged to LIS-eligible individuals in cases in which they would be 
subject to paying a premium if they stayed in the plan they were in. 
Specifically, we proposed, under certain circumstances, to give PDP 
Sponsors the option of setting a separate premium amount for such LIS-
eligible individuals at the low-income benchmark amount. We expected 
this policy to reduce the number of beneficiaries who would have to be 
re-assigned, and would ensure a choice of at least five no-premium 
plans for full LIS-eligible individuals in each region.

Requirements for Issuance of Regulations

    Section 902 of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) amended section 1871(a) of the Act and 
requires the Secretary, in consultation with the Director of the Office 
of Management and Budget, to establish and publish timelines for the 
publication of Medicare final regulations based on the previous 
publication of a Medicare proposed or interim final regulation. Section 
902 of the MMA also states that the timelines for these regulations may 
vary but shall not exceed 3 years after publication of the preceding 
proposed or interim final regulation except under exceptional 
circumstances.
    This final rule responds to comments we received on provisions set 
forth in the January 8, 2008 proposed rule. In addition, this final 
rule has been published within the 3-year time limit imposed by section 
902 of the MMA. Therefore, we believe that the final rule is in 
accordance with the Congress' intent to ensure timely publication of 
final regulations.

II. Analysis of the Proposed Rule and Responses to Public Comments

    We received 32 timely items of correspondence in response to the 
January 8, 2008 proposed rule. We received comments from a broad 
spectrum of commenters, including consumer groups, health plans and 
industry trade associations, and States. Approximately 13 comments were 
from consumer groups, 9 comments were from health plans and industry 
associations, 5 comments were from States, 3 comments were from 
pharmacists/providers, and 2 comments were from students. With a few 
exceptions, the commenters were

[[Page 18178]]

concerned that the proposed rule would not adequately address the 
reassignment issue, and suggested alternative approaches. Virtually all 
of these commenters recommended that, rather than adopting the proposed 
approach, we consider alternative methods for calculating the low-
income benchmark premium amounts. The following is a summary of the 
public comments and our responses.
    Comment: Two commenters proposed that the low-income benchmark 
premium amounts be calculated by weighting each plan's premium by its 
share of total LIS enrollment, rather than its share of total Part D 
enrollment.
    Response: Because section 1860D-14(b)(2) of the Act requires only 
that the premium calculation be ``weighted'', we believe that the 
statute could reasonably be interpreted to permit this proposed 
weighting methodology, and in response to these comments we have 
determined that this approach more effectively addresses the LIS 
reassignment issue that the proposed rule was intended to address. 
Therefore, we are adopting this approach in our final rule instead of 
our originally proposed option for PDPs to reduce their premiums for 
full-subsidy eligible beneficiaries.
    Specifically, the benchmark amounts for each Part D region will be 
calculated as a weighted average of the Part D premium amounts for 
basic Part D coverage with the weight for each PDP and MA-PD plan equal 
to a percentage in which the numerator is equal to the number of LIS 
eligible beneficiaries enrolled in the Part D plan in the reference 
month and the denominator is equal to the total number of LIS eligible 
beneficiaries enrolled in PDP and MA-PD plans (not including PACE, 
private fee-for-services plans or 1876 cost plans) in the reference 
month.
    Currently, CMS calculates the weighted portion of the low-income 
benchmark premium amount using a weighted average of the MA and PDP 
premiums that is based on total Part D enrollment. MA-PD sponsors can 
lower their Part D premiums through the application of Part C rebates. 
As a result, the Part D premiums for MA-PD plans tend to be lower than 
PDP premiums. In addition, the benchmark amounts tend to be 
significantly lower in regions with high MA-PD penetration than in 
other Part D regions.
    The lower benchmarks have contributed to large-scale reassignments 
of LIS beneficiaries in many of these regions. This is because the 
relatively low benchmarks result in many PDPs having a basic Part D 
premium that is not fully covered by the Federal premium subsidy. As 
noted above, CMS has reassigned full-subsidy beneficiaries in these 
PDPs to different, lower-premium PDPs in order to avoid a financial 
hardship for these beneficiaries.
    The conclusion of the ``Medicare Demonstration to Transition 
Enrollment of Low-Income Subsidy Beneficiaries,'' will put increased 
downward pressure on the benchmarks in these regions with high MA-PD 
enrollment and upward pressure on the number of reassignments. 
Calculating the benchmark amounts using a weighted average based on LIS 
enrollment, however, will help stabilize the benchmarks in these 
regions. As noted above, Part D beneficiary premiums for PDPs tend to 
be higher than for MA-PDs. In addition, PDPs tend to have a greater 
share of LIS enrollment because of auto and facilitated enrollment. As 
a result, weighting Part D plan premiums by total LIS enrollment gives 
greater weight to PDP premiums and tends to increase the benchmarks. As 
compared to the current regulatory formula, we estimate that this 
change in the methodology for calculating the benchmarks would have 
reduced the number of 2008 reassignments by approximately 850,000 LIS 
beneficiaries. This is significantly greater than the 200,000 
reassignment reduction estimated for the policy proposed in the 
proposed rule.
    Comment: Many commenters expressed concerns about various features 
of the proposed policy and suggested clarifications or changes. 
Commenters asked CMS to describe the methodology for selecting 
participating sponsors and any contingencies. Commenters asked CMS to 
make the checkbox in the bid pricing tool (BPT) where PDP Sponsors were 
to indicate whether the plan will participate in the second premium 
visible and unambiguous. Commenters also asked whether certification 
and attestation requirements should be amended. In addition, commenters 
suggested changes including limiting plans' financial losses by placing 
a cap on the amount by which the premium could be reduced for LIS 
beneficiaries and commented on the complexity of explaining the rule to 
beneficiaries.
    Response: We agree that the various features of the proposed rule 
would have needed clarification in the final rule. This final rule does 
not incorporate the option for PDP Sponsors to offer a reduced premium 
to full subsidy eligible individuals. The final rule takes a different 
approach and changes the weighting methodology used to calculate the 
low-income benchmark premium amount. This approach is relatively simple 
and transparent and does not raise the complexities of the dual premium 
policy in the proposed rule about which these commenters are concerned.
    Comment: Many commenters suggested that we continue with our de 
minimis policy, rather than adopt the policy in the proposed rule.
    Response: We believe that the methodology established in this final 
rule is a better approach to reducing reassignments than continuing 
with the de minimis policy as it directly addresses the benchmark 
disparities across regions. As stated in the proposed rule, we were 
concerned about an approach that permanently would employ a fixed 
dollar figure, and decided that a methodology under which the number is 
not known in advance would better preserve incentives for plans to 
submit a low bid.
    Comment: Many commenters suggested calculating the benchmark before 
applying Part C rebates to MA-PD premiums. CMS currently calculates the 
low-income benchmark premium amount using MA-PD premiums after Part C 
rebates have been applied. Calculating the benchmarks using MA-PD 
premiums before the application of rebates would increase the benchmark 
amounts in areas with high MA-PD penetration and in turn decrease the 
number of reassignments in these Part D regions, compared to the 
current regulation. Commenters argued that this is a better 
representation of the true drug cost for MA-PDs. Commenters believed 
that such an approach is permissible under the statute.
    Response: Section 1860D-14(b)(2) of the Act describes the 
calculation of the benchmark. The statute provides that for an MA-PD 
plan, CMS must use the weighted averages of the ``portion of the MA 
monthly prescription drug beneficiary premium that is attributable to 
basic prescription drug benefits'' to calculate the benchmark for each 
region. The Act states that the term ``MA monthly prescription drug 
beneficiary premium'' means, ``the base beneficiary premium * * * as 
adjusted * * *, less the amount of rebate credited toward such amount * 
* *'' CMS interprets the phrase ``portion of the MA monthly 
prescription drug beneficiary premium that is attributable to basic 
prescription drug benefits'' for an MA-PD plan to mean the base 
beneficiary premium adjusted for the difference between the bid and 
benchmark less the rebates. Therefore, we do not believe it is 
permissible under the statute to calculate the benchmarks with MA-PD 
premiums before the application of rebates. However, this regulation 
will

[[Page 18179]]

have a comparable effect on LIS reassignments to calculating the 
benchmarks using the MA-PD premiums that have not been reduced by 
rebates, and hence produces the outcome recommended by the commenters.
    Comment: Some commenters supported our alternative of allowing PDPs 
to waive the difference between the premium and the benchmark for full 
subsidy eligible beneficiaries. Commenters believed that CMS 
overestimated the impact this would have on bids as plans would be 
motivated to keep bids low in order to receive new auto-assignments.
    Response: We continue to believe that this option would have a 
negative impact on bid competition and bid integrity. As stated in the 
proposed rule, we did not choose this approach for two reasons. First, 
if the difference between the two amounts were too great, this would 
produce a significant disparity between the revenue needs assumed in 
the bid, and the revenue that would be received under the reduced 
premium, and undermine the integrity of the bid process. More 
importantly, if a PDP sponsor knew that it could be assured of reducing 
its premium for LIS-eligible individuals to the LIS amount no matter 
how much the premium produced by its bid exceeded this amount, this 
would greatly reduce existing incentives to bid as low as possible. In 
response to the commenters' argument, we do not believe new auto-
assignees would be enough incentive to keep bids low.
    Comment: Many commenters did not support the alternative in which 
CMS would change the current reassignment process so that beneficiaries 
would be informed of plans that offer a zero premium for full-subsidy 
eligible beneficiaries but would have to take action to change to such 
a plan. Commenters believed that based on their experience, placing the 
burden on beneficiaries to make the change would result in 
beneficiaries remaining in plans they cannot afford and would increase 
premium collection problems. Two commenters believed that CMS should 
implement this alternative, because it would be easier to address non-
payment of premium issues than the issues with continuity of care that 
come with reassignment.
    Response: We agree with the commenters who opposed the alternative 
for the reasons stated in our proposed rule. We are concerned about 
charging beneficiaries a premium without them electing to pay it and 
the potential financial hardship for individual beneficiaries.
    Comment: Several commenters suggested changes to the reassignment 
process, such as reassigning on other than a random basis, extending 
reassignment to people who have elected a plan with no premium and 
improvements to the premium information provided to choosers. One 
commenter asked CMS to review formularies to ensure they do not 
discourage access for vulnerable beneficiaries.
    Response: We do not believe these changes would be appropriate. 
Congress has favored random assignment by specifying it in the case of 
initial assignment. We believe that it is appropriate to extend this to 
re-assignment. It is not clear what the commenter means by reassigning 
people who have elected a plan with no premium, since they would have 
made an affirmative choice that we believe should be respected. We also 
believe that the information currently provided to beneficiaries on 
their choices is appropriate. Finally, we believe that beneficiaries 
are in the best position to make plan choices based on plan 
formularies.
    Comment: One commenter was concerned that the regulation would not 
come out in time for plans to use the information to model their bids.
    Response: We agree that Part D sponsors need to know how the LIS 
benchmarks will be calculated in order to prepare their Part D bids. 
Therefore, we are releasing this final rule before April 7, 2008, which 
is the beginning of the formal bid preparation period for 2009. On 
April 7, 2008, CMS will release all other final Part D payment policy 
information for 2009 as part of the Announcement of CY 2009 Medicare 
Advantage Capitation Rates and Medicare Advantage and Part D Payment 
Policies. This document is released annually by statute on the first 
Monday in April. With the release of the Rate Announcement and the 
publication of this final rule, Part D sponsors will have all the 
information on Part D payment policies that is needed from CMS to 
prepare their 2009 bids.

III. Provisions of the Final Regulations

    As noted above, we believe that the statute can reasonably be 
interpreted to permit us to weight the premiums used for the benchmark 
calculation by total LIS enrollment for each plan. The calculation of 
the benchmarks is described in section 1860-14(b)(2) of the Act. The 
statute provides that we must take the ``weighted average'' of the 
premium amounts described to calculate the benchmarks. The term 
``weighted average,'' however, is not definitively defined. The 
statutory language reads as follows:

    (2) LOW-INCOME BENCHMARK PREMIUM AMOUNT DEFINED.--
    (A) IN GENERAL.--For purposes of this subsection, the term 
``low-income benchmark premium amount'' means, with respect to a PDP 
region in which--
    (i) All prescription drug plans are offered by the same PDP 
sponsor, the weighted average of the amounts described in (B)(i) for 
such plans; or
    (ii) There are prescription drug plans offered by more than one 
PDP sponsor, the weighted average of amounts described in 
subparagraph (B) for prescription drug plans and MA-PD plans 
described in section 1851(a)(2)(A)(i) offered in such region.
    (B) PREMIUM AMOUNTS DESCRIBED.--The premium amounts described in 
this subparagraph are, in the case of--
    (i) A prescription drug plan that is a basic prescription drug 
plan, the monthly beneficiary premium for such plan;
    (ii) A prescription drug plan that provides alternative 
prescription drug coverage the actuarial value of which is greater 
than that of standard prescription drug coverage, the portion of the 
monthly beneficiary premium that is attributable to basic 
prescription drug coverage; and
    (iii) An MA-PD plan, the portion of the MA monthly prescription 
drug beneficiary premium that is attributable to basic prescription 
drug benefits (described in section 1854(b)(2)(B)) * * *

    We historically have interpreted ``weighted average'' to mean an 
average based on the plan's share of total Part D enrollment. We 
believe that ``weighted average'' could also reasonably be interpreted 
to mean weighted based on the plan's share of LIS enrollment, 
particularly given that the benchmarks are applicable to LIS 
beneficiaries only.
    The revised interpretation requires a change in the regulation. 
Therefore, we are revising Sec.  423.780(b)(2) to provide for the low-
income benchmark premium amount for a PDP region to be a weighted 
average of the premium amounts described in Sec.  423.780(b)(2)(ii). 
The weight for each PDP and MA-PD plan will be equal to a percentage. 
The numerator will be the number of Part D LIS eligible individuals 
enrolled in the plan in a reference month (as defined in Sec.  
422.258(c)(1)). The denominator will be equal to the total number of 
Part D LIS eligible individuals enrolled in all PDP and MA-PD plans 
(but not including PACE, private fee-for-service plans, or 1876 cost 
plans) in a PDP region in the reference month. We will include both 
partial and full-subsidy individuals in the weighting calculation.

VI. Collection of Information Requirements

    This document does not impose information collection and

[[Page 18180]]

recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

V. Regulatory Impact Statement

A. Overall Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 (September 1993, Regulatory Planning and Review), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, the Unfunded Mandates 
Reform Act of 1995 (Pub. L. 104-4), Executive Order 13132 on 
Federalism, and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Order 12866 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). This rule 
allows CMS to calculate the low-income premium benchmark amounts by 
weighting the premium amounts by total LIS enrollment for each plan in 
order to reduce the number of reassignments compared to the current 
regulatory framework. We believe this final rule will lead to 
additional Federal costs of approximately $90 million for calendar year 
(CY) 2009. The CY 2009 cost of $90 million represents our best estimate 
of the cost of the final rule. Generally, our best estimates reflect an 
equal likelihood of being too high or too low. The estimated cost over 
the next 10 fiscal years (2009 through 2018) is $1.68 billion. The 
year-by-year impacts in millions of dollars are shown in Table 1 below. 
The $90 million estimate above is for CY 2009. The table below 
summarizes the fiscal year (FY) costs. Yearly growth is due to an 
estimated increase in the number of enrollees in future years and 
increasing drug trends that cause higher estimated bids in future 
years.

                                                   Table 1.--Federal Costs for FY 2009 through FY 2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Fiscal Year
                                          --------------------------------------------------------------------------------------------------------------
                                             2009      2010      2011      2012      2013      2014      2015      2016      2017      2018    2009-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Costs (in millions)............      $60      $100      $120      $140      $150      $170      $190      $220      $250      $280     $1,680
--------------------------------------------------------------------------------------------------------------------------------------------------------

    This rule does reach the economic threshold of $100 million in the 
out-years and thus is considered a major rule, as outlined by Executive 
Order 12866.
    This cost is due to increased Federal premium subsidy payments, 
which are the result of generally increasing the low-income benchmarks. 
The higher benchmarks allow a greater number of low-income 
beneficiaries to remain in their current plan, rather than reassigning 
them to a lower cost plan.
    In each region, the low-income benchmark essentially functions as a 
ceiling for the Federal premium subsidy for low-income beneficiaries. 
That is, the Federal premium subsidy covers the full cost of the plan's 
basic Part D premium for a full-subsidy beneficiary, up to the low-
income benchmark amount.
    Weighting based on each plan's share of LIS enrollment generally is 
expected to increase the low-income benchmarks. We estimated that, in 
2008, if the low-income benchmarks had been calculated based on LIS 
enrollment weighting (rather than based on total Part D enrollment 
weighting), the benchmarks would have been higher in 27 of the 34 PDP 
regions. Generally, the higher the low-income benchmarks, the lower the 
number of LIS reassignments. This is because, under the higher 
benchmarks, more PDPs are likely to have premiums that are equal to or 
less than the low-income benchmark and, as a result, will be fully 
covered by the premium subsidy. Low-income subsidy beneficiaries are 
able to remain in these PDPs and are not reassigned to other lower-
premium PDPs.
    We expect this rule will reduce the administrative costs for plan 
sponsors associated with the reassignment of LIS beneficiaries. These 
costs include the production of new member informational materials by 
the new plan, increased staffing of call centers to field beneficiary 
questions, and costs associated with implementing transition benefits 
for new enrollees.
    Although there is no quantifiable monetary value to CMS to reducing 
reassignments, we feel this benefit is important, as it will increase 
program stability and continuity of care. The rule supports pharmacy 
and formulary consistency for the beneficiary. Particularly in regions 
with high MA-PD penetration, this rule will reduce the year-to-year 
volatility in reassignments of LIS beneficiaries and will help avoid 
the disruption that is inherent anytime a beneficiary is switched from 
one plan to another.
    Based on the most recent bid results, we estimated that if the 2008 
benchmarks had been calculated using LIS enrollment weighting, there 
would have been approximately 850,000 fewer reassignments than if the 
benchmarks had been calculated using total Part D enrollment weighting. 
Then we determined the impact of the revised benchmarks and 
reassignments on program payments throughout the projection period. We 
do not explicitly project reassignments in future years. The 
expectation is that the net effect of future reassignments will result 
in projected cost levels comparable to the results of the reassignments 
modeled on the most recent bid results.
    The cost estimate assumes full enrollment weighting based on LIS 
enrollment for the calculations of the low-income benchmark premium 
amounts. The estimate was developed by applying this rule against the 
2008 bids and this impact was projected throughout the forecast period. 
The estimate does not anticipate any change in bidding strategies or 
outcomes but does include the effect on the level of administrative 
costs plan sponsors will include in their bids to account for their 
expected number of LIS beneficiary reassignments.
    The proposed rule estimated Federal savings of approximately $20 
million per calendar year. However, the final rule estimates an 
additional $90 million in Federal costs for CY 2009. There are two 
reasons that the cost estimate has changed. First, the budget baseline 
has been updated since the issuance of the proposed rule. The Mid-
Session Review baseline assumed the continuation of the $1 de minimis 
policy; the President's 2009 Budget baseline does not. Because of the 
change in assumptions about the de minimis

[[Page 18181]]

policy, even if we had stayed with the five zero-premium organization 
policy in the proposed rule, the cost of the final rule would have 
changed from savings of approximately $20 million per year to costs of 
approximately $10 million per year. Second, this final rule changes the 
weighting methodology used to calculate the low-income benchmark 
premium amount. As discussed in the rationale, CMS has changed the 
method for calculating the Federal premium subsidy for LIS 
beneficiaries so that the subsidy amount better reflects the premiums 
of plans in which LIS beneficiaries are enrolled. The final rule uses 
each plan's share of LIS enrollment, rather than each plan's share of 
total Part D enrollment, to weight each plan's premium. This change 
results in fewer reassignments than the proposed rule (approximately 
670,000) and greater low-income premium subsidy costs. The relationship 
between reassignments and the premium subsidy is described above.
    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 small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are small entities, either by nonprofit status or by having revenues of 
$6.5 million to $31.5 million in any 1 year. Individuals and States are 
not included in the definition of a small entity. We are not preparing 
an analysis for the RFA because we have determined, and the Secretary 
certifies, that this regulation will not have a significant economic 
impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
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 for Medicare payment regulations and has fewer than 
100 beds. We are not preparing an analysis for section 1102(b) of the 
Act because we have determined, and the Secretary certifies, that this 
regulation will not have a significant impact on the operations of a 
substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $130 million. This rule will have no 
consequential effect on State, local, or tribal governments in the 
aggregate, or by the private sector.
    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 regulation does not impose any costs on State 
or local governments, the requirements of E.O. 13132 are not 
applicable.

B. Anticipated Effects

    We have estimated the effect this regulation will have on the 
number of reassignments, the number of zero-premium plans available to 
full-subsidy eligible individuals in each region, and bid incentives.
    This rule will reduce the number of reassignments compared to the 
current regulatory framework. In 2008, under the provisions of the 
``Medicare Demonstration to Transition Enrollment of Low-Income Subsidy 
Beneficiaries'', approximately 1.19 million LIS beneficiaries were 
reassigned to new Part D organizations. We estimated that if the 2008 
benchmarks had been calculated under the current regulation (that is, 
full enrollment weighted using all enrollees), the number of LIS 
reassignments would have been 2.18 million. Under the policy in the 
proposed rule, the number of reassignments would have declined by 
approximately 200,000 (compared to the current regulation) to 2.0 
million. We estimate that, if the 2008 benchmarks had been calculated 
using the LIS weighting methodology in this final rule, the benchmarks 
would have been higher in 27 of the 34 regions and the number of 
reassignments would have been 1.33 million--approximately 850,000 lower 
than under the current regulation.
    We estimate that this final rule, if implemented in 2008, would 
have reduced the benchmarks slightly in seven regions as compared to 
the current regulation. These regions tend to have low MA-PD 
penetration and a concentration of LIS beneficiaries in PDPs with 
relatively low premiums. The amount of the benchmark reduction was 
typically less than $0.50. In 2008, these benchmark reductions would 
have increased reassignments in total by less than 50,000. The 1.33 
million estimate noted above is net of these increased reassignments.
    We estimate that this final rule, if implemented in 2008, would 
have increased the number of zero premium organizations available to 
beneficiaries in 20 of the 34 PDP regions. This is somewhat lower than 
the number of regions where the benchmarks would have been higher (27), 
because some regions did not have any new plans that landed under the 
benchmark with the new calculation. In addition, in 2008, this 
regulation would have resulted in at least five zero-premium 
organizations in every Part D region with the exception of one region, 
which would have had four zero-premium organizations.
    This approach maintains a strong incentive to bid low to keep and 
possibly add LIS beneficiaries. Absent the rule, there may be a 
``winner take all'' outcome in certain regions with one organization 
acquiring all of the LIS beneficiaries in the region. It is difficult 
to predict what will happen in the absence of this rule, but we expect 
some organizations will be induced to bid even lower while other 
organizations will give up on this population and bid higher.

C. Alternatives Considered

    As stated in the ``Background'' section of this final rule, we 
considered allowing PDP Sponsors to reduce their premium to the subsidy 
amount after it was established for LIS-eligible individuals without 
regard to the amount of their premium. We also considered allowing 
plans with premiums under a fixed dollar amount to reduce their low-
income premiums to the premium subsidy amount (de minimis). We 
determined, however, that these options would undermine the integrity 
and competitiveness of the bidding process.
    We also considered changing our approach to reassignment to an 
approach that would allow LIS-eligible individuals to be informed of 
zero-premium PDP options for full-subsidy eligibles, but would remain 
in their current plan, regardless of the premium, if they take no 
action. Beneficiary advocacy groups were concerned about beneficiaries 
being charged a premium without electing to pay it.
    We also considered changing the regulation to calculate the 
benchmarks using MA-PD premiums before they have been reduced by Part C 
rebates. That approach, however, is not permitted under the statute.
    Finally, we considered the policy in the proposed rule itself, 
which was an option for PDP Sponsors in regions with less than five 
zero-premium PDPs to

[[Page 18182]]

offer a separate prescription drug premium amount for full subsidy 
eligible individuals subject to certain conditions. In response to 
comments received on the proposed rule, we determined that this 
approach did not address the reassignment issue as effectively as the 
LIS benchmark weighting approach recommended by commenters.

D. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), in Table 2 below, we 
have prepared an accounting statement showing the classification of the 
expenditures associated with the provisions of this final rule. This 
table provides our best estimate of the cost associated due to 
increased Federal low-income premium subsidy payments, which are 
primarily the result of allowing a greater number of low-income 
beneficiaries to remain in their current plan, rather than reassigning 
them to a lower cost plan. All expenditures are classified as costs to 
the Federal Government.

Table 2.--Accounting Statement: Classification of Estimated Expenditures
 for the Modification to the Weighting Methodology Used To Calculate the
                 Low-Income Benchmark Amount, Final Rule
                              [$ Millions]
------------------------------------------------------------------------
                 Category: Monetized costs                      Costs
------------------------------------------------------------------------
Single Year CY 2009........................................        $90
Annualized Monetized Costs Using 7% Discount Rate FY 2009-         155.6
 FY 2018...................................................
Annualized Monetized Costs Using 3% Discount Rate FY 2009-         162.6
 FY 2018...................................................
Undiscounted Cumulative Costs--FY 2009-FY 2018.............     1,680
------------------------------------------------------------------------
Costs reflect transfers from the Federal Government to Health Plans.

E. Conclusion

    This rule is estimated to result in an increased Federal cost of 
$90 million in CY 2009 and $1.68 billion over the next 10 fiscal years 
(2009 through 2018). As explained above, these costs are primarily due 
to an increase in low-income premium subsidy payments. This rule will 
not have a significant economic impact on a substantial number of small 
entities, so we are not preparing an analysis for the RFA. In addition, 
the regulation will not have a significant impact on the operations of 
a substantial number of small rural hospitals, so we are not preparing 
an analysis for section 1102(b) of the Act. The analysis above, 
together with the preamble, provides a Regulatory Impact Analysis as it 
qualifies as a major rule under Executive Order 12866.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects in 42 CFR Part 423

    Administrative practice and procedure, Emergency medical services, 
Health facilities, Health maintenance organizations (HMO), Medicare, 
Penalties, Privacy, Reporting and recordkeeping.

0
For the reasons set forth in the preamble, the Centers for Medicare & 
Medicaid Services amends 42 CFR chapter IV as set forth below:

PART 423--VOLUNTARY MEDICARE PRESCRIPTION DRUG BENEFIT

0
1. The authority citation for part 423 continues to read as follows:

    Authority: Secs. 1102, 1860D-1 through 1860D-42, and 1871 of the 
Social Security Act (42 U.S.C. 1302, 1395w-101 through 1395w-152, 
and 1395hh).

Subpart P--Premium and Cost-Sharing Subsidies for Low-Income 
Individuals

0
2. Amend Sec.  423.780 by revising paragraph (b)(2)(i) to read as 
follows:


Sec.  423.780  Premium subsidy.

* * * * *
    (b) * * *
    (2) * * *
    (i) The low-income benchmark premium amount for a PDP region is a 
weighted average of the premium amounts described in paragraph 
(b)(2)(ii) of this section, with the weight for each PDP and MA-PD plan 
equal to a percentage, the numerator being equal to the number of Part 
D low-income subsidy eligible individuals enrolled in the plan in the 
reference month (as defined in Sec.  422.258(c)(1) of this chapter) and 
the denominator equal to the total number of Part D low-income subsidy 
eligible individuals enrolled in all PDP and MA-PD plans (but not 
including PACE, private fee-for-service plans or 1876 cost plans) in a 
PDP region in the reference month.
* * * * *
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: March 20, 2008.
Kerry Weems,
Acting Administrator, Centers for Medicare & Medicaid Services.
    March 27, 2008.
Michael O. Leavitt,
Secretary.
[FR Doc. 08-1088 Filed 3-31-08; 4 pm]
BILLING CODE 4120-01-P