[Federal Register Volume 73, Number 75 (Thursday, April 17, 2008)]
[Rules and Regulations]
[Pages 20804-20807]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 08-1136]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 423

[CMS-4133-CN]
RIN 0938-AP25


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

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

ACTION: Correction of final.

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SUMMARY: This document corrects mathematical errors that appeared in 
the impact analysis accompanying the final rule that appeared in the 
Federal Register on April 3, 2008 entitled, ``Modification to the 
Weighting Methodology Used to Calculate the Low-Income Benchmark 
Amount.''

DATES: Effective Date: May 31, 2008.

FOR FURTHER INFORMATION CONTACT: Paul Spitalnic, (410) 786-2328.

SUPPLEMENTARY INFORMATION:

I. Background

    In FR Doc.08-1088 of April 3, 2008 (73 FR 18176), there were a 
number of technical errors that are identified and corrected in the 
Correction of Errors section below. The provisions in this correction 
notice are effective as if they had been included in the document 
printed in the Federal Register on April 3, 2008. Accordingly, the 
corrections are effective May 31, 2008.

II. Summary of Errors

    This correction notice corrects the impact estimates shown in the 
preamble to the final rule, Medicare Program; Modification to the 
Weighting Methodology Used to Calculate the Low-Income Benchmark Amount 
(CMS-4133-F), which appeared in the Federal Register on April 3, 2008. 
That final rule introduced an improved weighting method in the 
calculation of the low-income benchmark premium amount under section 
1860D-14(b)(2)(A)(ii) of the Social Security Act.
    The impact estimates presented in the final rule were affected by a 
mathematical calculation error that resulted in an overestimate of the 
number of Medicare Part D enrollees affected by the final rule and a 
similar overestimate of the additional cost to Medicare under the new 
policy. This notice corrects the estimated reduction in the future 
number of low-income subsidy eligible beneficiaries who would have to 
be reassigned to a different Part D prescription drug benefit plan. The 
original estimate was 850,000, and the corrected number is 580,000. 
Further, the additional cost of the rule was originally estimated to 
total $1.68 billion for fiscal years 2009 through 2018, and the 
corrected estimated cost is $1.23 billion. The correction of these 
estimation errors has no effect on the policy adopted in the final 
rule, on the Part D low-income subsidy benchmarks previously determined 
for 2008, or on beneficiaries'' enrollment in Part D plans in 2008.

III. Correction of Errors

    In FR Doc. 08-1088 of April 3, 2008 (73 FR 18176), make the 
following corrections:
    1. On page 18178, in the second column, in the first full 
paragraph, in line 27, change the number ``850,000'' to ``580,000.''
    2. On pages 18180 through 18182, section ``V. Regulatory Impact

[[Page 20805]]

Statement'' is deleted and is replaced in its entirety to read as 
follows:

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 $60 million for calendar year 
(CY) 2009. The CY 2009 cost of $60 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 $1.23 billion. The 
year-by-year impacts in millions of dollars are shown in Table 1 below. 
The $60 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
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                    Fiscal year                        2009     2010     2011     2012     2013     2014     2015     2016     2017     2018   2009-2018
--------------------------------------------------------------------------------------------------------------------------------------------------------
Estimated Costs (in millions)......................      $50      $80      $90     $100     $110     $120     $140     $160     $180     $200     $1,230
--------------------------------------------------------------------------------------------------------------------------------------------------------

    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 21 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 any time 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 580,000 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 $60 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 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

[[Page 20806]]

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 
400,000) 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 21 of the 34 regions and the number of 
reassignments would have been 1.60 million--approximately 580,000 lower 
than under the current regulation. The amount of the benchmark increase 
averaged $2.22.
    We estimate that this final rule, if implemented in 2008, would 
have reduced the benchmarks slightly in 13 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 averaged $1.13. In 
2008, these benchmark reductions would have increased reassignments in 
total by about 150,000. The 1.60 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 16 of the 34 PDP regions. This is somewhat lower than 
the number of regions where the benchmarks would have been higher (21), 
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 four zero-premium 
organizations in every Part D region with the exception of one region, 
which would have had three 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 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

[[Page 20807]]

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
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             Category: Monetized costs               Costs ($ millions)
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Single Year CY 2009...............................                   $60
Annualized Monetized Costs Using 7% Discount Rate                  114.6
 FY 2009-FY 2018..................................
Annualized Monetized Costs Using 3% Discount Rate                  119.3
 FY 2009-FY 2018..................................
Undiscounted Cumulative Costs--FY 2009-FY 2018....                1,230
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Costs reflect transfers from the Federal Government to Health Plans.

E. Conclusion

    This rule is estimated to result in an increased Federal cost of 
$60 million in CY 2009 and $1.23 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.

III. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking in the 
Federal Register to provide a period for public comment before the 
provisions of a rule take effect in accordance with section 553(b) of 
the Administrative Procedure Act (APA) (5 U.S.C. 553(b)). However, we 
can waive this notice and comment procedure if the Secretary finds, for 
good cause, that the notice and comment process is impracticable, 
unnecessary, or contrary to the public interest, and incorporates a 
statement of the finding and the reasons therefore in the notice.
    This correction notice does not make any changes to the final rule 
printed in the Federal Register on April 3, 2008, which was the product 
of a public notice and comment process. Rather, this notice corrects an 
arithmetic error that was reflected in the impact analysis accompanying 
the final rule. Because this error does not affect the substance of the 
final rule or involve any exercise of policy discretion, we do not 
believe an additional comment period is necessary.
    In addition, because MA organizations and PDP Sponsors have already 
begun the process of preparing their bids for 2009, and may take the 
erroneous impact analysis in the final rule into account in doing so, 
it is in the public interest to publish a corrected impact statement as 
soon as possible.

(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: April 11, 2008.
Ashley Files Flory,
Deputy Executive Secretary.
[FR Doc. 08-1136 Filed 4-11-08; 3:55 pm]
BILLING CODE 4120-01-P