[Federal Register Volume 75, Number 146 (Friday, July 30, 2010)]
[Rules and Regulations]
[Pages 45014-45033]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-18691]



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Part II





Department of Health and Human Services





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45 CFR Part 152



Pre-Existing Condition Insurance Plan Program; Interim Final Rule

  Federal Register / Vol. 75 , No. 146 / Friday, July 30, 2010 / Rules 
and Regulations  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 152

[OCIIO-9995-IFC]
RIN 0991-AB71


Pre-Existing Condition Insurance Plan Program

AGENCY: Office of Consumer Information and Insurance Oversight, OCIIO, 
Department of Health and Human Services, HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: Section 1101 of Title I of the Patient Protection and 
Affordable Care Act of 2010 (Affordable Care Act) requires that the 
Secretary establish, either directly or through contracts with States 
or nonprofit private entities, a temporary high risk health insurance 
pool program to provide affordable health insurance coverage to 
uninsured individuals with pre-existing conditions. This program will 
continue until January 1, 2014, when Exchanges established under 
sections 1311 and 1321 of the Affordable Care Act will be available for 
individuals to obtain health insurance coverage. This interim final 
rule implements requirements in section 1101 of the Affordable Care 
Act. Key issues addressed in this interim final rule include 
administration of the program, eligibility and enrollment, benefits, 
premiums, funding, and appeals and oversight rules.

DATES: Effective date: This regulation is effective on July 30, 2010.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
on September 28, 2010.

ADDRESSES: In commenting, please refer to file code OCIIO-9995-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed)
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the instructions under 
the ``More Search Options'' tab.
    2. By regular mail. You may mail written comments to the following 
address only: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-OCIIO-IFC, P.O. Box 8010, 
Baltimore, MD 21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: OCIIO-9995-IFC, 
Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC--

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue, SW., Washington, DC 20201

    (Because access to the interior of the Hubert H. Humphrey 
Building is not readily available to persons without Federal 
government identification, commenters are encouraged to leave their 
comments in the CMS drop slots located in the main lobby of the 
building. A stamp-in clock is available for persons wishing to 
retain a proof of filing by stamping in and retaining an extra copy 
of the comments being filed.)

    b. For delivery in Baltimore, MD--

Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.

    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Ariel Novick, (301) 492-4290.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: http://regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will be also available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

I. Background

A. General

    Historically, public policy has addressed the challenges of people 
with pre-existing conditions through either high risk pools or 
insurance reform. In general, high risk pools provide coverage of last 
resort for people who, because of their health, are denied coverage by 
private insurers or are unable to purchase coverage in the individual 
market except at substantially surcharged premiums due to their health 
status, and are ineligible for public coverage (such as Medicare or 
Medicaid). Most States that permit insurers to decline coverage for 
health reasons have established high risk pools as an alternative 
coverage option in their individual market. These current pools provide 
safety net coverage for people who have difficulty obtaining individual 
health insurance because of their pre-existing conditions. First 
established in 1976, 35 State high risk pools currently provide 
coverage to approximately 200,000 individuals, or about one percent of 
the individual market nationwide, and vary in terms of the populations 
they cover and the benefits they provide.
    States and the Congress through the Affordable Care Act have also 
elected to use insurance reforms to address the accessibility and 
availability of health insurance coverage for high risk populations. 
Seven States have adopted guaranteed issue to ensure access to 
coverage, and two States prohibit health status from being a factor in 
setting premiums.\1\ The Patient Protection and Affordable Care Act of 
2010, (the Affordable Care Act or ``the Act''), Public Law 111-148 
applies a ban on pre-existing condition exclusions and ``rate-ups'' 
based on health status starting in

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2014 and prohibits the use of pre-existing condition exclusions for 
children starting in plan or policy years that begin on or after 
September 23, 2010.\2\ This temporary Federal program provides coverage 
to uninsured Americans with pre-existing conditions until the 
Affordable Care Act is fully implemented in 2014.
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    \1\ Kaiser Family Foundation. State Health Facts. http://www.statehealthfacts.org/.
    \2\ These provisions do not apply to ``grandfathered'' plans. 
For a description of these provisions, see the interim final 
regulations implementing 2719A (regarding patient protections), 
published in the Federal Register on June 28, 2010 (75 FR 37188).
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B. Overview: Section 1101 of the Patient Protection and Affordable Care 
Act

    The Affordable Care Act, was enacted on March 23, 2010. The Health 
Care and Education Reconciliation Act (the Reconciliation Act), Public 
Law 111-152, was enacted on March 30, 2010. Section 1101 of the 
Affordable Care Act requires that the Secretary of the Department of 
Health and Human Services (HHS) establish, either directly or through 
contracts with States or nonprofit private entities, a temporary high 
risk health insurance program to provide access to coverage for 
uninsured Americans with pre-existing conditions. (Hereafter, we 
generally refer to this program as the Pre-Existing Condition Insurance 
Plan program, or PCIP program, to avoid confusion with the existing 
State high risk pool programs, which will continue to operate 
separately.)
    The PCIP program is intended to remain in place from the time of 
its establishment until the Exchanges established under sections 1311 
or 1321 of the Act go into effect on January 1, 2014. This interim 
final regulation sets policy only for this unique, temporary Federal 
program with fixed Federal funding. Presented below is a general 
overview of the statutory requirements for the new program. More 
detailed descriptions of the specific requirements are included below 
as part of the discussion of the associated regulatory provisions set 
forth in this interim final rule.

II. Provisions of the Interim Final Rule

A. General Provisions (Subpart A, Sec.  152.1 Through Sec.  152.2)

    Section 152.1 of this interim final rule specifies the general 
statutory authority for the ensuing regulations and the scope of the 
program, consistent with section 1101 of the Act. Section 152.2 
provides definitions for terms that appear throughout these 
regulations. Generally, the definitions are self-explanatory or taken 
directly from section 1101 of the statute. The definitions set forth in 
subpart A apply to all of part 152 unless otherwise indicated and are 
applicable only for purposes of part 152.
    The definition of ``pre-existing condition exclusion'' warrants a 
brief discussion. First, it is important to note that this definition 
applies only for purposes of the prohibition in section 1101(c)(2)(A) 
on a PCIP ``impos[ing] any preexisting condition exclusion'' under the 
coverage provided (an important protection for a program designed to 
offer coverage to those with a pre-existing condition), and is separate 
from the ``guidelines'' that determine pre-existing condition status 
under section 1101(d)(2)(3) for purposes of eligibility for enrollment 
in a PCIP. These latter eligibility provisions are set forth in subpart 
C of this rule, under section 152.14.
    State laws vary with regard to the definition of a pre-existing 
condition exclusion. For purposes of defining a pre-existing condition 
exclusion, we adopted the definition of pre-existing condition 
currently used in the group market under the Health Insurance 
Portability and Accountability Act of 1996 (HIPAA). We also took into 
account section 1201 of the Affordable Care Act, which prohibits 
denials of coverage because of a pre-existing condition. Thus, we 
specify that pre-existing condition exclusion has the same meaning as 
under 45 CFR 144.103. That is, the term refers to a denial of coverage, 
or limitation or exclusion of benefits, based on the fact that the 
individual denied coverage or benefits had a health condition that was 
present before the date of enrollment for the coverage (or a denial of 
enrollment), whether or not any medical advice, diagnosis, care, or 
treatment was recommended or received before that date. This would 
include exclusions stemming from a condition identified via a pre-
enrollment questionnaire or physical examination, or the review of 
medical records during the pre-enrollment period.

B. PCIP Program Administration (Subpart B, Sec.  152.6 and Sec.  152.7)

    As noted above, section 1101(b) of the Affordable Care Act provides 
that HHS may ``carry out'' the temporary high risk health insurance 
pool program either directly or through contracts with eligible 
entities, which are States and non-profit entities. Eligible entities 
must submit a proposal to carry out a PCIP in a time and manner, and 
containing such information, that the Secretary requires. Section 152.6 
establishes the general rules for administration through either a State 
or by HHS through a non-profit private entity. Section 152.7 then 
describes the proposal process and specifies that in order to contract 
with HHS, the eligible entity's proposal must demonstrate capability to 
perform all functions necessary for the design and operation of a PCIP, 
and that its proposed PCIP is in full compliance with all of the 
requirements of this part.
    These standards establish minimum requirements for PCIPs, and are 
supplemented by other requirements detailed in solicitation documents 
(such as the descriptions of the outreach plan and consumer information 
resources that each PCIP will establish) and incorporated into the 
final contracts with HHS.

B. Eligibility and Enrollment (Subpart C, Sec.  152.14 Through Sec.  
152.15)

    Section 1101(d) of the Affordable Care Act provides the basic 
eligibility criteria for the PCIP program, which are set forth under 
Sec.  152.14. In addition, consistent with the Secretary's general 
authority under section 1101(c)(2)(D) of the Act to establish 
requirements for a PCIP, we set forth enrollment and disenrollment 
requirements in Sec.  152.15.
Eligibility for the PCIP Program (Sec.  152.14)
    Under section 1101(d) of the Affordable Care Act and subparagraphs 
(1), (2) and (3) of Sec.  152.14(a) of this interim final rule, an 
individual is eligible to enroll in a PCIP if he or she: (1) Is a 
citizen or national of the United States or is lawfully present in the 
United States as determined in accordance with section 1411 of the 
Affordable Care Act; (2) has not been covered under creditable 
coverage, as defined in section 2701(c)(1) of the Public Health Service 
Act as of the date of enactment, during the 6-month period prior to the 
date on which he or she is applying for coverage through the PCIP; and 
(3) has a pre-existing condition, as determined in a manner consistent 
with guidance issued by the Secretary. We further provide in Sec.  
152.14(a)(4) that an individual must be a resident of a State that 
falls within the service area of a PCIP.
Eligibility Conditioned on Citizenship and Immigration Status
    Eligibility for the PCIP program is limited to citizens or 
nationals of the United States and individuals who are lawfully present 
in the United States. For the purpose of this regulation, lawfully 
present has the meaning presently used under the Children's Health 
Insurance Program, provided in the State Health Official letter issued 
by

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the Centers for Medicare and Medicaid Services (CMS) on July 1, 2010. 
Section 1101(d)(1) directs the Secretary to make a determination of 
citizenship and immigration status in accordance with section 1411 of 
the Act, which describes procedures to be employed for determining 
eligibility for the Exchanges and provides for these procedures also to 
be used in determining eligibility for the PCIP program. This section 
sets forth detailed requirements governing the type of information that 
applicants must provide and specific verification procedures that the 
Secretary of Health and Human Services, Commissioner of Social 
Security, and Secretary of Homeland Security would be required to 
follow to establish eligibility. Section 1411(c)(4) of the Affordable 
Care Act further provides that the Secretary shall conduct 
verifications and determinations ``through the use of an on-line system 
or otherwise for the electronic submission of, and response to, the 
information submitted * * * with respect to an applicant,'' or by 
``such other method as is approved by the Secretary'' that determines 
``the consistency of the information submitted with the information 
maintained in the records of the Secretary of the Treasury, the 
Secretary of Homeland Security, and the Commissioner of Social 
Security''.
    Under this authority, Sec.  152.15(a)(3) specifies that a PCIP must 
verify that an individual is a United States citizen or national, or 
lawfully present in the United States. A PCIP can verify an 
individual's citizenship or immigration status through the Social 
Security Administration or, if applicable, the Department of Homeland 
Security. In many cases, States may be able to automate verification of 
citizenship and immigration status by leveraging existing data 
exchanges that are currently in place for other programs, such as 
Medicaid and the Children's Health Insurance Program. The Department of 
Homeland Security's U.S. Citizenship and Immigration Services (USCIS) 
Systematic Alien Verification for Entitlements (SAVE) program provides 
online system to verify an individual's immigration status. States can 
access this system after entering into the necessary Memorandum of 
Understanding with USCIS. An automated verification process will be 
used in all States where HHS is administering the PCIP program.
    Some States are not able to have an automated ``on-line system'' or 
``electronic'' process in place when they start accepting enrollments 
into their PCIPs. Therefore, these regulations provide, as an 
``alternative method'' approved by the Secretary, that a PCIP program 
may instead require the individual to provide documentation that 
establishes citizenship or immigration status. Subject to HHS approval, 
States using documentation procedures may switch to an automated system 
in the future. If a PCIP shares such information with the Social 
Security Administration or the Department of Homeland Security, 
consistent with the Privacy Act, the regulation specifies that a PCIP 
must include a disclosure that the information provided on the 
enrollment request may be shared with other government agencies for 
purposes of establishing eligibility. The type(s) of documentation 
PCIPs may use is subject to approval by HHS under the terms of the 
contract.
Eligibility Based on a 6-Month Period Without Insurance Coverage
    Eligibility for the PCIP program is limited to individuals with no 
creditable coverage during the 6-month period prior to the date on 
which they apply for coverage through the PCIP. Section 2701(c)(1) of 
the Public Health Service Act on the date of enactment and 45 CFR Sec.  
146.113(a)(1) define creditable coverage as coverage of an individual 
under a group health plan, health insurance coverage as defined at 45 
CFR 144.103, Medicare Part A or Part B, Medicaid, the Children's Health 
Insurance Program, the TRICARE program, a medical care program of the 
Indian Health Service or of a tribal organization, a State health 
benefits risk pool (that is, existing State high risk pool), the 
Federal Employee Health Benefits program, a public health plan (for 
example, coverage through the Veterans Administration), or a health 
benefit plan offered under section 5(e) of the Peace Corps Act. Such 
creditable coverage includes health coverage provided to certain former 
employees, retirees, spouses, former spouses, and dependent children 
who are entitled to temporary continuation of health coverage at group 
rates under the Consolidated Omnibus Reconciliation Act of 1985 
(COBRA). We specify under Sec.  152.14(b)(3) that if an individual has 
already satisfied the requirement for a 6-month period without 
creditable coverage in connection with qualifying for a given PCIP 
under section 1101 of the Act, the individual will be considered to 
have satisfied this eligibility requirement for purposes of a PCIP in 
another State, if such individual moves to a different State and wishes 
to enroll in that State's PCIP.
    In light of the unique circumstances presented by infants who are 
less than six months old, the Department will issue guidance on how the 
requirement that the individual not have had creditable coverage during 
the six-month period prior to the application for the PCIP program 
applies to and can be satisfied by such infants. Factors to be 
considered in this guidance include whether coverage in the hospital 
under the mother's plan at birth counts, current practices regarding 
insurers' coverage of newborns, and the anti-dumping rules that direct 
the Secretary to prevent disenrollment of individuals from existing 
insurance due to their health status.
Eligibility Based on Having a Pre-Existing Condition
    Under section 1101(d)(3), eligibility for the PCIP program is 
conditioned on individuals having a pre-existing condition, as 
``determined in a manner consistent with guidance issued by the 
Secretary.'' We specify at Sec.  152.14(c)(1) that a PCIP in a State, 
or the PCIP run by a non-profit in States that are not carrying out the 
PCIP program, may determine that an individual has a pre-existing 
condition, for purposes of PCIP eligibility, based on satisfying any 
one or more of the following criteria, subject to HHS approval: (1) The 
individual provides documented evidence that an insurer has refused, or 
has provided clear indication that it would refuse, to issue individual 
coverage on grounds related to the individual's health; (2) the 
individual provides documented evidence that he or she has been offered 
individual coverage but only with a rider that excludes coverage of 
benefits associated with a pre-existing condition; (3) the individual 
provides documented evidence that he or she has a medical or health 
condition specified by the State and approved by the Secretary; or (4) 
other criteria as defined by the PCIP and approved by HHS.
    We believe that these criteria are fully consistent with the intent 
of section 1101(d)(3) of the Act and address the problems that 
individuals with pre-existing conditions face when applying for 
insurance coverage in the individual market. That is, individuals with 
pre-existing conditions are often unable to obtain coverage for reasons 
that include an outright denial and an exclusion of coverage for the 
pre-existing condition. This includes instances when an individual 
applies for coverage and is informed by the carrier's representative or 
Web site that they would be denied for coverage by the carrier due to 
the pre-existing condition. Providing States and non-profit entities 
operating a PCIP

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the option of using these manifestations of having a pre-existing 
condition, rather than relying on a list of medical conditions, is 
consistent with the PCIP program goal of covering people who both have 
a pre-existing condition and otherwise cannot access insurance. We note 
that in some cases, individuals with pre-existing conditions are unable 
to obtain outright written coverage denials, but instead are told that 
carriers will not accept their applications. These regulations will 
permit PCIPs to exercise flexibility in determining exactly what type 
of communication constitutes a refusal to issue coverage.
    Under Sec.  152.14(c)(3), we specify that a PCIP may determine that 
an individual has a pre-existing condition based on evidence of the 
existence or history of certain medical or health conditions, as 
approved by the Secretary. This provision comports with our intention 
to permit the continuing use of eligibility standards that States use 
in their existing high risk pools, and permits a State that has 
guaranteed issue and community rated premiums to use an alternative 
test to showing a denial of coverage.
    Finally, we provide at Sec.  152.14(c)(4) that HHS may approve 
other criteria for meeting the definition of pre-existing condition 
under a given PCIP.
    We anticipate that the first two criteria will be used in all 
States where individuals may be denied coverage or offered coverage 
with exclusionary riders. In the PCIP program serving States that have 
elected not to play a role in operating a PCIP program, only the first 
two criteria will be used, except with respect to individuals who are 
guaranteed to be issued a policy. PCIPs administered by States or non-
profit entities may choose to utilize the additional criteria with HHS 
approval.
Eligibility for a PCIP Conditioned on Residing in the Plan's Service 
Area
    Eligibility for a PCIP is limited to individuals who reside in the 
service area of the PCIP. At Sec.  152.14(a)(4), we provide that an 
individual must be a resident of one of the 50 States or the District 
of Columbia which constitutes or is within the service area of the 
PCIP.
    The statute explicitly acknowledges the role of a State (defined in 
section 1304(d) of the Act as the 50 States and the District of 
Columbia) with respect to the administration of PCIP, with no reference 
to ``Territories'' (see 1101(b)(2) and (3), 1101(e)(3), 1101(g)(3)(A) 
and (5)). Unlike section 1204(a) of the Health Care and Education 
Reconciliation Act of 2010, (which amended the Affordable Care Act and 
clearly specified a role for territories in the operation of 
Exchanges), the Congress made no similar reference to Territories in 
connection with the PCIP program.
Enrollment and Disenrollment Process (Sec.  152.15)
    Under our authority in section 1101(c)(2)(D) of the Act to impose 
``appropriate'' requirements that PCIPs would be required to meet, 
Sec.  152.15(a) and (b) require PCIPs to establish a process for 
enrolling and disenrolling individuals that is approved by HHS. Our 
intent is to permit the use of established enrollment policies and 
procedures in place under existing State high risk pools, to the extent 
that they are consistent with the statute.
    Section 152.15(a)(2) of this interim final rule specifies that a 
PCIP must allow an individual to remain enrolled unless the individual 
is disenrolled under specified circumstances (for example, the 
individual moves out of the service area or obtains other creditable 
coverage) or the PCIP program is terminated. Our intent is to promote 
continuity of coverage for individuals who enroll in a PCIP until they 
are able to obtain coverage through the Exchange, under which 
participating insurers cannot exclude individuals with pre-existing 
conditions. We understand, however, that to the extent individuals can 
obtain other coverage, for example, by becoming entitled to Medicare or 
enrolling in employer-based health insurance, such coverage would 
obviate the need for coverage provided by the PCIP. Leveraging the 
availability of such coverage, by exiting the PCIP, enables other 
qualified individuals to enroll.
    A PCIP is required to establish, consistent with Sec.  152.15(b) of 
this interim final rule, a disenrollment process that is approved by 
HHS. As noted above, we seek to support States' ability to participate 
in this program by allowing them to adopt policies and procedures in 
use under existing high risk pool programs. We understand that current 
practice in State high risk pools is that an individual who does not 
pay his or her premiums on a timely basis may be disenrolled. We 
provide in Sec.  152.15(b)(2) that, under these circumstances, the 
enrollee will receive sufficient notice and reasonable grace period for 
payment prior to any disenrollment taking effect not to exceed 61 days 
(the longest period currently provided for by States). The consequence 
of failing to pay premiums and any subsequent disenrollment is that an 
individual loses access to coverage and may not be able to re-enroll 
for 6 months. Thus, we believe that it is the PCIP's responsibility to 
inform its enrollees prior to making a disenrollment effective. There 
are other circumstances in which involuntary disenrollment is 
appropriate and thus we establish at Sec.  152.15(b)(3) that a PCIP 
must disenroll an individual in cases of death, where an individual 
obtains creditable coverage or no longer resides in the PCIP's service 
area, and other exceptional circumstances as established by HHS. We 
envision that such circumstances would include cases of fraud or 
intentional misrepresentation of material fact, and it is our intent to 
work with PCIPs to develop policies in these areas via sub-regulatory 
guidance. As we explain under our discussion of eligibility, an 
individual who is disenrolled because he or she no longer resides in 
the service area of a PCIP does not have to satisfy another 6-month 
continuous period without creditable coverage before applying to enroll 
in a PCIP in the new State of residence.
    Section 152.15(c) requires that a PCIP establish rules governing 
effective dates of enrollments and disenrollments. In particular, a 
PCIP program must specify the deadline for receiving an enrollment 
application that would take effect on the first of the following month. 
In general, an individual who submits a complete enrollment request by 
an eligible individual by the 15th day of a month could access coverage 
by the 1st day of the following month. Exceptions to this policy will 
be subject to approval by HHS.
    Finally, given the capped appropriation for this program, we 
recognize that PCIPs need sufficient programmatic flexibility to manage 
their costs and enrollment, to help ensure that the PCIP program's 
funding allocation is sufficient to cover claims and other program 
costs for the entire duration of the program. Thus, we establish 
authority under Sec.  152.15(d) for a PCIP program to employ strategies 
to manage enrollment over the course of the program that may include 
enrollment capacity limits, phased-in (delayed) enrollment, premium and 
benefit adjustments that indirectly affect enrollment, and other 
measures, as defined by the PCIP and approved by HHS.

Benefits--(Subpart D, Sections 152.19 Through 152.22)

Covered Benefits (Sec.  152.19)
Required Benefits (Sec.  152.19(a))
    The required benefit list in Sec.  152.19(a) builds off of the 
essential health benefits under the new section 2707 of the Public 
Health Service Act, as enacted in the Affordable Care Act, for which

[[Page 45018]]

guidance has yet to be issued. The list is consistent with the most 
commonly covered services offered in existing State high risk pools, 
according to a survey conducted by the National Association of State 
Comprehensive Health Insurance Plans (NASCHIP) in 2009. Its benefits 
are also parallel to the benefits offered by the Federal Employees 
Health Benefits Plan (FEHBP).
Excluded Services (Sec.  152.19(b))
    Section 152.19(b) sets forth a list of services that shall not be 
covered by any PCIP. While the specific benefits to be included and 
excluded by any PCIP are generally subject to HHS approval and review 
through the PCIP contracting process, this excluded services list 
addresses several areas where providing coverage is unequivocally 
prohibited. This list of excluded services parallels that of FEHBP.
    The subject of Federal funding of abortion services with respect to 
the Affordable Care Act was addressed in the Executive Order issued by 
the President on March 24, 2010: The enactment of the Affordable Care 
Act left in place current restrictions that prohibit the use of Federal 
funds for abortion services, except in cases of rape or incest, or 
where the life of the woman would be endangered. Exec. Order No. 
13,535, 75 FR 15,599 (Mar. 24, 2010). These restrictions currently 
apply to certain Federal programs that are similar to the PCIP program. 
The PCIP program is Federally-created, funded, and administered 
(whether directly or through contract); it is a temporary Federal 
insurance program in which the risk is borne by the Federal government 
up to a fixed appropriation. As such, the services covered by the PCIP 
program shall not include abortion services except in the case of rape 
or incest, or where the life of the woman would be endangered.
Pre-Existing Conditions Exclusions (Sec.  152.20)
    Section 1101(c)(2)(A) of the Act requires that a PCIP established 
under this section not impose any pre-existing condition exclusions 
with respect to covered services. The Health Insurance Portability and 
Accountability Act of 1996 (HIPAA) includes limitations for pre-
existing conditions in the group market. This protection was expanded 
under section 1201 of the Affordable Care Act, which prohibits any pre-
existing condition exclusions from being imposed by group health plans 
or group and individual health insurance coverage beginning January 1, 
2014. The interim final rules issued pursuant to section 2704 of the 
Public Health Service Act (as amended by the Affordable Care Act) under 
Sec.  147 adopt, with minor modifications, the definition of pre-
existing condition currently used under HIPAA.
    Similarly, our rule prohibits PCIPs from applying any pre-existing 
condition exclusion to covered services, and consistent with the 
regulations implementing section 1201 of the Act, defines a pre-
existing condition exclusion as a limitation or exclusion of benefits 
based on the fact that the condition was present before the date of 
enrollment in coverage (or a denial of enrollment), whether or not any 
medical advice, diagnosis, care, or treatment was recommended or 
received before that date.
    Pursuant to the authority provided to the Secretary under section 
1101(c)(2)(D), this interim final rule also prohibits PCIPs from 
imposing any type of coverage waiting period upon eligible individuals. 
For purposes of this rule, a waiting period is defined as the period 
immediately following the effective date of enrollment in which some or 
all benefits in the coverage are not provided. Accordingly, once an 
individual is enrolled in a PCIP consistent with the rules set forth in 
subpart C, full coverage must be provided to the individual starting 
with the effective date of enrollment.
Premiums and Cost-Sharing (Sec.  152.21)
Standard Rate
    Section 1101(c)(2)(C)(iii) of the Act requires that premium rates 
charged for coverage under the high risk pool program be established at 
``a standard rate for a standard population''. The National Association 
of Insurance Commissioners (NAIC) Model Health Plan for Uninsurable 
Individuals Act suggests that high risk pool plans ``determine a 
standard risk rate by considering the premium rates charged by other 
insurers offering health insurance coverage to individuals.'' 
Furthermore, section 2245(g)(2) of the Public Health Service Act 
(PHSA), which governs the existing Federal high risk pool grant 
program, defines the ``standard risk rate'' for the high risk pools to 
mean a rate that: (1) Is determined under the State high risk pool by 
considering the premium rates charged by other health insurers offering 
health insurance coverage to individuals in the insurance market 
served; (2) is established using reasonable actuarial techniques; and 
(3) reflects anticipated claims experience and expenses for the 
coverage involved.
    In keeping with the methodology suggested by the NAIC Model Act and 
the Federal grant program, Sec.  152.21 of this interim final rule 
generally interprets the phrase ``standard rate for a standard 
population'' to refer to the premium rates offered in the individual 
market in a given State. While existing State high risk pools' premiums 
vary between 105-250 percent of the standard rate of the individual 
market, the Act requires that premiums in the PCIP program be at the 
standard rate, rather than a higher proportion of that rate. Therefore, 
this rule provides that a PCIP established under this section must not 
offer enrollees premiums at a rate that exceeds 100 percent of the 
standard individual market rate in the PCIP service area.
    This interim final rule does not mandate a specific formula for 
calculating the standard rate. Instead, we specify that a PCIP may 
calculate the standard rate using reasonable actuarial techniques, as 
approved by the Secretary, that reflect anticipated experience and 
expenses. This requirement should accommodate reasonable variations in 
the methods that PCIPs may use to calculate a standard risk rate.
    We also recognize that individual market rates in each State can 
vary as a consequence of individual State insurance laws. For example, 
some States require that insurers issue all applicants a policy or 
offer coverage at a community rate. In such situations, the standard 
individual rate may be considerably higher than in a State that permits 
insurers to reject applicants or set premiums on the basis of health 
status or other factors. To account for these variations, Sec.  
152.21(a) of these rules provides that, subject to approval by HHS, a 
PCIP may use other methods of determining the standard rate in the 
State. The exact methodology must be submitted and approved through the 
proposal process as specified in Sec.  152.8 of this part.
Premium Variation
    Section 1101(c)(2)(C)(ii) of the Act specifies that premium rates 
in a PCIP can vary on the basis of age by a factor not greater than 4 
to 1. Section 2701(a)(3) of the PHSA as amended by the Affordable Care 
Act requires HHS, in consultation with NAIC, to define permissible age 
bands for rating purposes in the individual and group markets. However, 
the rating bands established under section 2701 will not be effective 
until January 1, 2014, and no such requirement exists for the PCIP 
program. Given these factors, this rule does not establish standard age 
bands

[[Page 45019]]

for the PCIP program beyond the statutory requirements. Thus, Sec.  
152.21(a)(2) of this rule simply follows the statutory requirement of 
section 1101(c)(2)(C)(ii) of the Act and provides that premiums charged 
in the PCIP can vary by age on a factor of not greater than 4 to 1. 
Specific age band rating will be established through the PCIP 
contracting process.
    Section 1101(c)(2)(C)(i) of the Act requires that premiums in the 
PCIP program may vary only as provided under section 2701 of the PHSA, 
other than what is allowed in section 1101. Section 2701 permits 
premiums rates to vary in the individual and group markets by a finite 
number of factors. Gender rating, for example, is prohibited in the 
PCIP program.
Limits on Enrollee Costs
    Section 1101(c)(2)(B) of the Act sets limits on enrollee costs in 
the PCIP program. Specifically, the issuer's share of the total allowed 
costs of benefits provided under such coverage cannot be less than 65 
percent of such costs, subject to actuarial review and approval by the 
Secretary. Section 152.21(b)(1) of this rule provides that coverage 
under a plan offered by a PCIP must at a minimum meet this 65 percent 
threshold.
    Section 1101(c)(2)(B)(ii) of the Act requires that coverage 
provided by PCIPs not have an out-of-pocket limit greater than the 
applicable amount described in section 223(c)(2) of the Internal 
Revenue Code, which sets the out-of-pocket limit for high deductible 
health plans associated with a tax favored health savings accounts. 
(This amount is $5,950 for 2010.) Under Sec.  152.2, we define out-of-
pocket costs as the sum of the annual deductible and the other annual 
out-of-pocket expenses, other than for premiums, required to be paid 
under the plan. Section 152.21(b)(2) also notes that, consistent with 
IRS rules, the out-of-pocket limit may be applied only for in-network 
providers, consistent with the terms of PCIP plan benefit package.
Access to Services (Sec.  152.22)
    As noted above, section 1101(c)(2)(D) of the Act provides that 
coverage offered via a PCIP must meet any other requirements determined 
appropriate by the Secretary of HHS. Section 152.22 provides that the 
PCIP may specify the network of providers from whom enrollees may 
obtain services, provided that the PCIP demonstrates to HHS that it has 
a sufficient number and range of providers to ensure that all covered 
services are reasonably available and accessible under such coverage. 
Section 152.22(b) makes clear that, in the case of emergency room 
services, such services must be covered out of network and out of area 
if (1) the enrollee had a reasonable concern that failure to obtain 
immediate treatment could present a serious risk to his or her life or 
health; and (2) the services were required to assess whether a 
condition requiring immediate treatment exists, or to provide such 
immediate treatment where warranted. We believe these requirements are 
in keeping with generally accepted standards with respect to the 
provision of emergency services in plans with network limits, such as 
those in place in the Medicare Advantage program under title XVIII of 
the Social Security Act and the commercial health insurance market.

E. Oversight (Subpart E, Sections 152.26 Through 152.28)

Appeals Procedures (Sec.  152.26)
    Section 1101(f)(1) of the Act requires the establishment of an 
appeals process to enable individuals to appeal determinations under 
the PCIP program. We are interpreting this provision to apply both to 
determinations with respect to benefit coverage determinations and 
determinations with respect to an individual's eligibility for the 
program, including whether an individual is a citizen or national of 
the United States, or lawfully present in the United States.
    Rather than establishing detailed, proscriptive requirements with 
respect to appeals procedures, Sec.  152.26 of this interim final rule 
establishes minimum requirements that all PCIPS must meet. Section 
152.26(b) specifies that a PCIP must provide for a timely 
redetermination of an eligibility or coverage determination; coverage 
determinations include both whether an item or service is covered and 
the amount paid by the PCIP. For coverage determinations, Sec.  
152.26(b)(3) further specifies that an enrollee has the right to a 
timely second-level appeal, or ``reconsideration,'' by an independent 
entity.
    The requirement for independent review of a plan's coverage 
redetermination ensures that the entity providing the reconsideration 
would have no stake of any kind in the outcome, and was not involved in 
the initial or reconsidered determination being reviewed. This 
requirement could be satisfied under a variety of arrangements, 
including (1) An existing appeal mechanism provided for under State 
law; (2) in the case of a State-administered PCIP, a review process 
created by the State; or (3) an independent contractor, such as the 
independent review entities with which HHS contracts to review coverage 
determinations under the Medicare program.
    These requirements are intended to permit States to use existing 
appeals or review mechanisms provided for under State law, and to 
permit other non-profit entities to utilize their existing internal 
appeals mechanisms. The actual appeals mechanisms will be subject to 
the Secretary's approval as part of the contracting process. Given both 
the temporary nature of the program and the statutory implementation 
timeframe for the new program, we believe that using these existing 
mechanisms is necessary and appropriate.
Fraud, Waste, and Abuse (Sec.  152.27)
    Section 1101(f)(2) of the Affordable Care Act requires the 
Secretary to establish procedures to protect against fraud, waste, and 
abuse. To that end, Sec.  152.27(a) of this interim final rule requires 
the PCIP to develop, implement, and execute operating procedures to 
prevent, detect, recover payments (when applicable or allowable), and 
promptly report to HHS incidences of waste, fraud, and abuse. These 
procedures are required to include identifying situations in which 
enrollees, potential enrollees, or their family members had access to 
employer-based coverage, and may have been discouraged from enrolling 
in that coverage. Should HHS become aware of instances involving fraud, 
waste, or abuse within the PCIP's operation, HHS will take appropriate 
action within the terms of the contract, or as otherwise provided by 
law. As stated in Sec.  152.27(b), the PCIP shall cooperate with 
Federal law enforcement and oversight authorities in cases involving 
waste, fraud and abuse, and shall report cases in which an individual 
may have been discouraged from enrolling in other coverage to 
appropriate authorities. For example, if the coverage was an employer 
group health plan subject to ERISA, which prohibits discrimination 
based on health status, the matter should be reported to the Department 
of Labor for investigation and possible enforcement action.
Preventing Insurer Dumping (Sec.  152.28)
    There is an incentive for employers and issuers to single out high 
risk and thus high-cost individuals and offer incentives for them to 
disenroll from their coverage and obtain coverage in PCIPs which offer 
such individuals guaranteed access to coverage without pre-existing 
condition exclusion at a standard premium, if they are uninsured

[[Page 45020]]

for at least six months. Congress recognized this potential issue and 
directed the Secretary under section 1101(e)(2) of the Act to establish 
criteria for determining whether health insurance issuers and 
employment-based health plans have discouraged individuals from 
remaining enrolled in prior coverage based on the health status of 
those individuals, and specifies certain criteria that shall be 
included in those established by the Secretary. Section 152.28 of this 
interim final rule thus sets forth these criteria, and requires that 
PCIPs establish procedures to identify and report to HHS instances 
where health insurance issuers or group health plans are discouraging 
high-risk individuals from remaining enrolled in their current 
coverage, in instances where such individuals subsequently are eligible 
to enroll in the PCIP.
    Consistent with section 1101(e)(2) of the Affordable Care Act, 
section 152.28(c) of the interim final rule provides that if, in 
applying the criteria in section 152.28(b), it is determined that a 
dumping under section 152.28(a) has occurred, the Secretary may bill 
the issuer or group health plan for any medical expenses incurred by 
the PCIP for such enrollees. In these situations, the interim final 
rule also makes clear that the issuer or group health plan will be 
referred to appropriate Federal and State authorities for other 
enforcement action that may be warranted depending on the facts and 
circumstances. Finally, section 152.28(d) specifies that nothing in the 
subsection may be construed as constituting exclusive remedies for 
violations of the section or preventing States from applying or 
enforcing this section or other provisions of law with respect to 
health insurance issuers, consistent with section 1101(c)(3) of the 
Affordable Care Act. Additional guidance will be issued to prevent 
``dumping'' from public programs like Medicaid and the Children's 
Health Insurance Program.

F. Funding (Subpart F, Sections 152.32 Through 152.35)

Use of Funds (Sec.  152.32)
    Section 1101(g) of the Affordable Care Act appropriates 
$5,000,000,000 to pay the claims and administrative costs of the PCIP 
program established under this section that are in excess of the amount 
of premiums collected from enrollees. Traditionally, in State high risk 
pools, as well as other insurance programs, the funds collected from 
enrollees as premiums and other funding streams are expended across two 
chief areas. The majority of funds collected as premiums are expended 
to pay the health expenses for covered services incurred by enrollees. 
Administrative expenses, the costs of operating the program, make up 
the second major expense category. Section 152.32(a) of this interim 
final rule thus provides that all funds awarded under this program must 
be used exclusively to pay the allowable claims and administrative 
costs of a PCIP established under this section. Such costs include 
those incurred in the development and operation of the PCIP program, to 
the extent that those costs are in excess of the amounts or premiums 
collected from individuals enrolled in the program. PCIP program funds 
are not available for any other uses, such as to pay expenses or defray 
premiums of existing State high risk pools.
    Although the Act does not specify the amount that a PCIP can spend 
on administrative expenses, Sec.  152.32(b) of this rule permits PCIPs 
to spend no more than 10 percent of its total allotted funds towards 
administrative expenses. The 10 percent limitation is similar to what 
is imposed under the Children's Health Insurance Program (CHIP). 
Typical examples of the types of administrative costs and expenses that 
we expect to be incurred by PCIPs include: Start-up and program 
implementation activities, the production and distribution of 
information and outreach materials, eligibility determination and 
enrollment processing, claims processing, costs associated with 
prevention and detection of fraud, waste and abuse, and other ancillary 
services such as operation of a customer service call center, account 
maintenance, and appeals. We note that, given the start-up costs for 
the new PCIPs established under this program, and the need for 
expeditious implementation, this 10 percent cap applies to the total 
allotment for the duration of the program, as opposed to spending in a 
given year.
Initial Allocation of Funds (Sec.  152.33)
    Section 1101(g) of the Act does not specify exactly how HHS should 
allocate funds for the purpose of this program. At the outset of the 
program, as specified under section 152.33, the Secretary has 
established initial allotment ceilings for PCIPs in each State using a 
methodology consistent with the funding allocation methodology used in 
CHIP, as set forth under 42 CFR Part 457, subpart F, Payment to States. 
(Note that, subject to these allocation ceilings, the estimated funding 
amounts available under the PCIP program contracts are established 
through the contracting process based on the projected number of PCIP 
enrollees and their projected claims costs. Actual payments to PCIPs 
will be based on their reported cost statements during the life of the 
contract.)
    Thus, the initial ceilings on PCIP funding allocations are based on 
a blended formula based on the State population, number of uninsured 
individuals under 65, and geographic health care costs. Under this 
formula, one half of the available funds are allocated based on the 
number of the nonelderly population in each State, compared to the 
total U.S. nonelderly population. This gives more populous States more 
funding and does not penalize those States that employ mechanisms to 
reduce the number of uninsured persons in their States.
    The health care cost index that HHS will use to adjust the funding 
allocations will be based on the wages of employees in the health 
services industry, and is consistent with what we have used under the 
Children's Health Insurance Program. These wage data were developed by 
the Bureau of Labor Statistics of the Department of Labor through its 
Quarterly Census of Employment and Wages. This will include a weighted 
average of the wages in the health services industry represented by 
ambulatory health care services, hospitals, and nursing and residential 
care facilities. As in the CHIP formula, 15 percent of the cost factor 
is held constant, while 85 percent reflects how each State's average 
wage compares to the U.S. average. In order to insure that the 
geographic variation and cost adjustments accurately reflect statistics 
on population and the number of uninsured, the same year of data will 
be used to calculate population, number of uninsured, geographic health 
care costs, and cost adjustments.
Reallocation of Funds (Sec.  152.34)
    As noted above, over time, spending under the PCIP program will be 
determined based on the actual enrollment and cost experience of the 
PCIPs across the country. Thus, we recognize that there may be a need 
to reallocate funds if actual experience indicates that, in a given 
State, not all of funds available under the allocation formula will be 
used. Section 152.34 accounts for this possibility by giving HHS 
explicit authority to reallocate funds among States if HHS determines 
that the PCIP in a given State will not make use of the total estimated 
funding originally allotted to that State. HHS will be receiving 
monthly reports on the program costs of each PCIP and will consult 
closely with PCIPs in evaluating these reports and making any decisions

[[Page 45021]]

with respect to the need for reallocations.
Insufficient Funds (Sec.  152.35)
    Section 1101(g)(2) of the Affordable Care Act states that if HHS 
estimates for any fiscal year that the aggregate amounts available for 
the payment of the expenses of the high risk pool will be less than the 
actual amount of such expenses, HHS shall make such adjustments as are 
necessary to eliminate this deficit. Further, section 1101(g)(4) of 
this Act states that HHS has the authority to stop taking applications 
for participation in the program to comply with the funding 
limitations. Accordingly, Sec.  152.35(c) of this rule provides that 
the PCIP, subject to HHS approval, may adjust premiums, alter required 
benefits, limit PCIP applications or take other measures to eliminate a 
projected deficit. Particularly in view of the capped appropriation for 
the PCIP program, HHS is committed to working very closely with the 
PCIPs to monitor PCIP enrollment and claims experience. To that end, 
the PCIP contracts include detailed reporting responsibilities with 
respect to PCIP enrollment and spending, as well as spelling out PCIP 
responsibilities for the development of mitigation strategies and 
recommended adjustments should the amounts available under a contract 
be less than the projected expenses. Lastly, Sec.  152.35(d) ensures 
that, if the Secretary estimates that aggregate amounts available for 
PCIP expenses will be less than the actual amount of expenses, HHS 
reserves the right to make such adjustments as are necessary to 
eliminate such deficit, consistent with the terms of the PCIP contract.

G. Relationship to Existing Laws and Programs (Subpart G, Sec.  152.39 
Through Sec.  152.40)

Relationship to Other Federal Health Insurance Regulation
    We note that subtitles A and C of Title I of the Affordable Care 
Act contain new requirements that apply to group health plans and 
issuers of health insurance in the individual health insurance market 
which are governed by title XXVII of the PHSA. Some of these provisions 
address the same areas as the above provisions in section 1101 
governing the PCIP program (e.g., premium amounts, beneficiary out-of-
pocket expenses, and pre-existing conditions). These insurance reforms 
do not apply to the PCIP established under section 1101 of the 
Affordable Care Act and implemented in this interim final rule since 
the high risk pools do not meet the definition of a group health plan 
or a health insurance issuer pursuant to sections 2791(a)(1) and 
2791(b)(2) of the PHS Act.
Maintenance of Effort (Sec.  152.39)
    Section 1101(b)(3) of the new law imposes a maintenance of effort 
requirement, which specifies that in order for a State to enter into a 
contract to administer a PCIP, a State must agree not to reduce the 
annual amount it expended on the operation of an existing State high 
risk pool in the year preceding the year in which a PCIP contract 
begins. We believe that the clear intent of this provision is to 
prohibit the shifting of costs of existing State high risk pools to the 
Federal government. The maintenance of effort requirement both ensures 
that the fixed $5 billion in funding is used to meet the PCIP program 
goals and also reinforces the limitation of eligibility to individuals 
who are uninsured, as opposed to those already insured through a State 
high risk pool. At the same time, we recognize that States now use 
different sources of funds to support the operation of existing high 
risk pools. For example, many States rely upon assessments on the 
health insurance industry or health insurance providers to support 
their high risk pools, and States also commonly allow insurers to 
reduce premium tax payments by all or a percentage of such assessment.
    Given the various funding models that are now in place in different 
States, we believe it is appropriate to permit States some latitude in 
terms of ways in which they can satisfy this requirement subject to 
Secretarial approval. Accordingly, section 152.39(a) specifies that in 
order for a State to enter into a contract with the Secretary it must 
comply with the maintenance of effort requirement set forth in section 
1101(b)(3) of the Affordable Care Act in a manner approved by the 
Secretary. We anticipate that permissible methods of meeting this 
requirement would include, but are not limited to, maintaining either 
the total amount or the total per capita amount of State funding for 
the operation of an existing high risk pool (given that a State would 
be maintaining its effort per enrollee, and cannot control 
disenrollment), maintaining the same formula for providing funding for 
a State high risk pool, or establishing an altered formula that the 
Secretary determines will not reduce the total funds expended on the 
existing high risk pool. (Note that options such as the per capita 
approach would need to be evaluated in terms of other policies in 
effect in a State that could negatively influence enrollment in an 
existing State high risk pool.) Again, all such approaches are subject 
to the approval of the Secretary.
    Section 152.39(b) specifies that in situations where a State enters 
into a contract with HHS under this part, HHS shall take appropriate 
action, such as terminating the PCIP contract, against any State that 
fails to maintain funding levels for existing State high risk pools.
Relation to State Laws (Sec.  152.40)
    Section 152.40 of this interim final rule reflects the provision in 
section 1101(g)(5) that specifies State standards that might otherwise 
apply to the coverage offered under a PCIP program are pre-empted, with 
the exception of laws relating to licensing or solvency. This language 
tracks similar language that applies to State regulation of health 
plans offering Medicare Advantage plans under Medicare Part C or drug 
coverage under Medicare Part D under title XVIII of the Social Security 
Act, and we would expect to interpret the language for purposes of the 
PCIP program in a manner similar to the way HHS has applied it under 
those programs.

H. Transition to Exchanges (Subpart H, Sec.  152.44 Through Sec.  
152.45)

End of PCIP Coverage (Sec.  152.44)
    Section of 152.44 of this interim final rule specifies that, 
consistent with section 1101(g)(3)(A) of the Affordable Care Act, 
enrollee coverage under the PCIP program will end effective January 1, 
2014, because affordable coverage will be available under the Exchanges 
and insurance plans will no longer be permitted to exclude coverage for 
pre-existing conditions. Note that PCIP program contracts will remain 
in effect to provide for appropriate contractual close out periods, but 
coverage of claims under the PCIP program will extend only to the costs 
of covered services provided up through December 31, 2013.
Transition to the Exchanges (Sec.  145.45)
    As provided by section 1101(g)(3)(B) of the Affordable Care Act, 
HHS will develop procedures to transition PCIP enrollees to the 
Exchanges (exchanges) that are established under sections 1311 or 1321 
of the Act, in order to ensure there are no lapses in coverage for 
individuals enrolled in the PCIP program. Since these exchanges are 
still in the developmental stages, we believe it would be premature to 
specify transition procedures in this interim final rule. Thus, section 
152.45 simply establishes that HHS will develop such transition 
procedures, and we encourage

[[Page 45022]]

comments on the best ways to carry out the transition.

III. Response to Comments

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

IV. Waiver of Proposed Rulemaking

    We ordinarily publish a notice of proposed rulemaking (NPRM) in the 
Federal Register and invite public comment on the proposed rule before 
publishing a final rule that responds to comments and sets forth final 
regulations that generally take effect sixty days later. This procedure 
can be waived, however, if an agency finds good cause that a notice-
and-comment procedure is impracticable, unnecessary, or contrary to the 
public interest and incorporates a statement of the finding and its 
reasons in the rule issued.
    The Affordable Care Act was enacted on March 23, 2010, and requires 
that a temporary high risk pool program be in place ``not later than 90 
days'' after enactment. The publication of proposed regulations in an 
NPRM could not govern implementation of the high risk pool program, as 
they would constitute mere proposals with no force of law. The normal 
sixty-day public comment period provided for in the case of regulations 
proposed in an NPRM would by itself consume two-thirds of the time the 
statute provides for implementation. Under these circumstances, it 
would be impracticable and contrary to the public interest to delay 
putting regulations into effect that are necessary to implement the 
program until the rules have been subjected to prior notice and comment 
procedures.
    Therefore, we find good cause to waive the notice of proposed 
rulemaking and to issue this final rule on an interim basis. We are 
providing a 60-day public comment period. Also, because these 
regulations need to be in effect in order to undertake full 
implementation of the program, we also find good cause for waiving the 
normal delay in effective date that would apply, and these regulations 
are effective on July 30, 2010.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement 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 Paperwork Reduction Act 
of 1995 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 
following sections of this document that contain information collection 
requirements (ICRs):

A. ICRs Regarding Proposal Process (Sec.  152.7)

    Section 152.7 states that a proposal from a State or from a 
nonprofit private entity shall demonstrate that the eligible entity has 
the capacity and technical capability to perform all functions 
necessary for the design and operation of a Pre-Existing Condition 
Insurance Plan (PCIP), and that its proposed PCIP is in full compliance 
with all of the requirements of this part. Specifically, the proposal 
shall demonstrate that the proposed PCIP satisfies at least the 
conditions listed at Sec.  152.7(a)(1) through (9).
    If there are States that do not submit acceptable proposals as 
described in Sec.  152.7, HHS will solicit proposals from nonprofit 
entities to contract with HHS to operate a PCIP in those States. 
Nonprofits may submit proposals to contract directly with HHS to 
operate a PCIP program.
    The burden associated with this requirement is the time and effort 
necessary for a State or nonprofit entity to develop and submit a 
proposal to operate a PCIP, which is a one-time information collection 
burden. We estimate that it would take a State or nonprofit entity 684 
hours to compile the necessary information to comply with this 
requirement. While this one-time requirement is subject to the PRA, the 
associated burden is approved under OMB control number 0938-1085.

B. ICRs Regarding Eligibility (Sec.  152.14)

    Section 152.14 discusses eligibility to enroll in a PCIP program. 
An individual who enrolls in a PCIP must meet both the requirements 
listed at Sec.  152.14(a)(1), demonstrating they are a citizen or 
national of the United States or lawfully present in the United States 
and Sec.  152.14(a)(3), providing evidence that they have a pre-
existing condition as established under paragraph (c) of this section. 
The burden associated with this requirement includes the process of 
obtaining such information and forwarding the information to the 
appropriate party at the PCIP. We estimate this information could be 
submitted either electronically or hard copy in accordance with 
directions furnished by the PCIP and approved by HHS. We estimate that 
it will take approximately 30 minutes per applicant to obtain, review 
and submit the above proof(s) of eligibility. Although the Department 
has not estimated program participation, for the purpose of this 
calculation, we assume that within the first six months of the program 
approximately 100,000 potential enrollees will submit eligibility 
information to the PCIP program. The estimated one-time burden 
associated with this requirement is 50,000 hours. As the program 
progresses beyond 2010, we assume that we will receive fewer inquiries 
based on the experience with existing State high risk pool programs. In 
2011 and beyond, we assume that approximately 50,000 potential 
enrollees will submit eligibility information to the PCIP program. The 
estimated annual burden associated with this requirement is 25,000 
hours.

C. ICRs Regarding Enrollment and Disenrollment Process (Sec.  152.15)

    Section 152.15(a) and (b) require a PCIP to develop and implement 
enrollment and disenrollment processes, respectively. The burden 
associated with these requirements is the time and effort necessary for 
a PCIP program to establish enrollment and disenrollment procedures. 
The burden associated with the establishment of enrollment and 
disenrollment procedures is a one-time burden that was included in the 
684 burden hour estimate in our earlier discussion of Sec.  152.7. 
While these requirements are subject to the PRA, the associated burden 
is approved under OMB control number 0938-1085.
    In regards to ongoing reporting under the PCIP contract, any State 
or entity selected to administer the PCIP program may later decide it 
is in the best interest of their State to propose amendments to

[[Page 45023]]

the previously agreed upon contract. We estimate that, while uncommon, 
such instances may occur and permissible proposed changes would be 
allowed. When considering all aspects of the contract, which would 
include the enrollment and disenrollment process, access to services, 
and the appeals process, we estimate that it will take approximately 24 
hours per contractor to submit a revised proposal and implement any 
approved amendments. The estimated annual burden associated with this 
requirement is 1,224 hours at a cost of $28,152.

D. ICRs Regarding Access to Services (Sec.  152.22)

    Section Sec.  152.22(a) states that a PCIP may specify the networks 
of providers from whom enrollees may obtain plan services. The PCIP 
must demonstrate to HHS that it has a sufficient number and range of 
providers to ensure that all covered services are reasonably available 
and accessible to its enrollees. The burden associated with this 
requirement is the time and effort necessary for a PCIP to demonstrate 
to HHS that it has a sufficient number and range of providers to ensure 
that all covered services are reasonably available and accessible to 
its enrollees. The burden associated with these requirements is 
included in the 684 burden hour estimate for compiling the necessary 
information to comply with this requirement as stated in our earlier 
discussion of Sec.  152.7.
    In regards to ongoing reporting under the PCIP contract, any State 
or entity selected to administer the PCIP program may later decide it 
is in the best interest of their state to propose amendments to the 
previously agreed upon contract. We estimate that while uncommon, such 
instances may occur, and permissible proposed changes would be allowed. 
When considering all aspects of the contract, which would include 
access to covered services, we estimate that it will take approximately 
24 hours per contractor to submit a revised proposal and implement any 
approved amendments. The estimated annual burden associated with this 
requirement is 1,224 hours at a cost of $28,152.

E. ICRs Regarding Appeals Procedures (Sec.  152.26)

    Section 152.26(a) requires a PCIP to establish and maintain 
procedures for individuals to appeal eligibility and coverage 
determinations. Section 152.26(b) lists the minimum requirements for 
appeals procedures. The burden associated with this requirement is the 
time and effort necessary for a PCIP to develop and maintain appeals 
procedures. The burden associated with these requirements is included 
in the 684 burden hour estimate for compiling the necessary information 
to comply with this requirement as stated in our earlier discussion of 
Sec.  152.7. The aforementioned information collection requirements and 
associated burden are currently approved under OMB control number 0938-
1085.
    In regards to ongoing reporting under the PCIP contract, any state 
or entity selected to administer the PCIP program may later decide it 
is in the best interest of their state to propose amendments to the 
previously agreed upon contract. We estimate that while uncommon, such 
instances may occur, and permissible proposed changes would be allowed. 
When considering all aspects of the contract, which would include the 
appeals process, we estimate that it will take approximately 24 hours 
per contractor to submit a revised proposal and implement any approved 
amendments. The estimated annual burden associated with this 
requirement is 1,224 hours at a cost of $28,152.

F. ICRs Regarding Fraud, Waste, and Abuse (Sec.  152.27)

    As stated in Sec.  152.27(a), a PCIP shall develop, implement, and 
execute operating procedures to prevent, detect, recover (when 
applicable or allowable), and promptly report to HHS incidences of 
waste, fraud and abuse. Additionally, Sec.  152.27(b) states that a 
PCIP program shall cooperate with Federal law enforcement authorities 
in cases involving waste, fraud, and abuse. The burden associated with 
the requirement contained in Sec.  152.27 is the time and effort 
necessary to submit the required information on an ongoing basis. We 
estimate that it will take PCIPs 4 hours each month, per State, to 
report all required information to HHS and/or Federal law enforcement 
authorities which would include any identified instances of waste, 
fraud, and abuse. The estimated annual burden associated with this 
requirement is 2,448 hours at a cost of $56,304.

G. ICRs Regarding Preventing Insurer Dumping (Sec.  152.28)

    Section 152.28(b) requires a PCIP to establish procedures to 
identify and report to HHS instances in which health insurance issuers 
or group health plans are discouraging high-risk individuals from 
remaining enrolled in their current coverage and in instances in which 
such individuals subsequently are eligible to enroll in the qualified 
high risk pool. The required procedures shall include methods to 
identify circumstances described in Sec.  152.28(b)(1) through (4). The 
burden associated with this requirement is the time and effort 
necessary for a PCIP to establish procedures for identifying insurer 
dumping and for reporting dumping practices to HHS. We estimate that it 
will take PCIPs 8 hours each month, per State, to develop and report 
information to HHS of any health insurance issuer or group health plan 
they have identified as discouraging an individual from remaining 
enrolled in coverage offered by such issuer or health plan based on the 
individual's health status. The estimated annual burden associated with 
this requirement is 4,896 hours at a cost of $110,160.

H. ICRs Regarding Use of Funds (Sec.  152.32)

    Section 152.32 states that all funds awarded through the contracts 
established under this program must be used exclusively to pay 
allowable claims and administrative costs incurred in the development 
and operation of the PCIP that are in excess of the amounts of premiums 
collected from individuals enrolled in the program. The burden 
associated with this requirement is the time and effort necessary for a 
State to collect allowable cost information, review and submit such 
information to HHS for payment. We estimate that it will take each 
PCIPs 16 hours each month, per State to comply with this requirement. 
The estimated annual burden associated with this requirement is 9,792 
hours at a cost of $323,136.

I. ICRs Regarding Maintenance of Effort (Sec.  152.39)

    Section 152.39(a) requires a State that enters into a contract with 
HHS under this part to demonstrate, subject to approval by HHS, that it 
will continue to provide funding of any existing high risk pools in the 
State at a level that is not reduced from the amount provided for in 
the year prior to the year in which the contract is entered. The burden 
associated with this requirement is the time and effort necessary for a 
State to demonstrate maintenance of effort to HHS. The burden 
associated with this one-time requirement is included in the 684 burden 
hour estimate for compiling the necessary information to comply with 
the proposal requirement as stated in our earlier discussion of Sec.  
152.7. While this requirement is subject to the PRA, the associated 
burden is approved under OMB control number 0938-1085.

[[Page 45024]]



                                                   Table 1--Annual Reporting and Recordkeeping Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                         Hourly       Total
                                            OMB                               Burden per     Total     labor cost   labor cost      Total
         Regulation Section(s)            Control    Respondents   Responses    response    annual         of           of        capital/    Total cost
                                            No.                                 (hours)     burden     reporting    reporting    maintenance      ($)
                                                                                            (hours)       ($)          ($)       costs  ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   152.7, Sec.   152.15, Sec.        0938-1085            51          51         684      34,884           **    1,421,268             0   1,421,268
 152.22, Sec.   152.26, Sec.   152.39.
Sec.   152.15, Sec.   152.22, Sec.       0938-1100            51          51          24       1,224           **       28,152             0      28,152
 152.26...............................
Sec.   152.14.........................   0938-1095       100,000     100,000          .5      50,000           **          N/A             0         N/A
Sec.   152.27.........................   0938-1100            51         612           4       2,448           **       56,304             0      56,304
Sec.   152.28.........................   0938-1100            51         612           8       4,896           **      110,160             0     110,160
Sec.   152.32.........................   0938-1100            51         612          16       9,792           **      323,136             0     323,136
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................  ..........       100,051     101,887  ..........     103,244  ...........  ...........  ............   1,939,020
--------------------------------------------------------------------------------------------------------------------------------------------------------
**Wage rates vary by level of staff involved in complying with information collection request (ICR). Wage rates are detailed in the Supporting Statement
  Part A for this (ICR). Wage rates vary from $12 to $60 hourly salary. Supporting Statement Part A for this (ICR).

    We will accept comments for both the new information collection 
requirements contained in this interim final rule and the requirements 
previously approved under 0938-1085 and 0938-1095, respectively, for 60 
days from the date of display for this interim final rule. At the 
conclusion of the 60-day comment period, we will publish an additional 
notice announcing the submission of the information collection request 
associated with this final rule for OMB approval. At that time, the 
public will have an additional 30 days to submit public comments to OMB 
for consideration.
    If you comment on these information collection and recordkeeping 
requirements, please do either of the following:
    1. Submit your comments electronically as specified in the 
ADDRESSES section of this proposed rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget,
    Attention: CMS Desk Officer, [OCIIO-9995-IFC]
    Fax: (202) 395-6974; or
    E-mail: [email protected].

VI. Regulatory Impact Analysis

A. Summary and Need for Regulatory Action

    Section 1101 of Title I of the Patient Protection and Affordable 
Care Act of 2010 (Affordable Care Act), Public Law 111-148, requires 
that the Secretary establish, either directly or through contracts with 
States or nonprofit private entities, a temporary high risk health 
insurance pool program to provide affordable health insurance coverage 
to uninsured individuals with pre-existing conditions. (We generally 
refer to this program as the Pre-Existing Condition Insurance Plan 
program, or PCIP program, to avoid confusion with the existing State 
high risk pool programs, which will continue to operate separately.) 
This program will continue until January 1, 2014, when Exchanges 
established under sections 1311 and 1321 of the Affordable Care Act 
will be available for individuals to obtain health insurance coverage 
without regard to their pre-existing condition. This interim final rule 
sets forth the initial regulations with respect to this new program, 
and is needed for its implementation. The rule addresses key issues 
regarding administration of the program, eligibility and enrollment, 
benefits, premiums, funding, appeals rules, and enforcement provisions 
related to anti-dumping and fraud waste and abuse.
    Executive Order 12866 explicitly requires agencies to take account 
of ``distributive impacts'' and ``equity.'' Offering health coverage to 
uninsured Americans with pre-existing conditions at an affordable 
premium is needed to provide the opportunity for coverage to 
individuals that cannot otherwise obtain insurance in the market. It is 
a temporary program to provide a transition to the Affordable Care Act 
policies that take effect in 2014 that ban the use of pre-existing 
conditions in determining access, benefit and premiums. The $5 billion 
in Federal funding appropriated for this program will yield a 
meaningful increase in equity, and is a benefit of this interim final 
regulation.

B. Executive Order 12866

    Under Executive Order 12866 (58 FR 51735), a ``significant'' 
regulatory action is subject to review by the Office of Management and 
Budget (OMB). Section 3(f) of the Executive Order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule (1) having an annual effect on the economy of $100 million or 
more in any one year, or adversely and materially affecting a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. OMB has 
determined that this regulation is economically significant within the 
meaning of section 3(f)(1) of the Executive Order, because it is likely 
to have an annual effect on the economy of $100 million in any one 
year. Accordingly, OMB has reviewed this rule pursuant to the Executive 
Order.
    The Department provides an assessment of the potential costs, 
benefits, and transfers associated with these interim final 
regulations, summarized in the following table.

[[Page 45025]]



                       Table 1.1--Accounting Table
------------------------------------------------------------------------
 
------------------------------------------------------------------------
Benefits
------------------------------------------------------------------------
Qualitative: The Pre-existing Condition Insurance Plan will provide
 uninsured Americans with preexisting conditions that have been denied
 coverage or otherwise excluded from purchasing insurance coverage with
 an opportunity to obtain coverage. Providing this insurance option will
 increase access to health care and reduce financial strain for
 participants. It is also likely to improve health outcomes and worker
 productivity. Individuals who are especially vulnerable as a result of
 existing health problems and financial status may receive the greatest
 benefit from this program.
------------------------------------------------------------------------
Costs.................................  $1,939,020 annually for
                                         reporting and recordkeeping.
------------------------------------------------------------------------
Qualitative: To the extent PCIP increases access to health care
 services, increased health care utilization and costs will result due
 to increased uptake. Administrative costs include: the cost of
 contractors to apply, the time cost for individuals to apply, and the
 contractors' costs of complying with program rules (e.g., conducting
 appeals, preventing fraud).
------------------------------------------------------------------------
Transfers.............................  $5,000,000,000 for the period
                                         from July 1, 2010 to December
                                         31, 2013.
------------------------------------------------------------------------
Qualitative: The $5 billion in Federal funds is a transfer from the
 Secretary to contractors to aid in administering the program.
------------------------------------------------------------------------

a. Estimated Number of Affected Entities
    This rule provides guidance for the States and nonprofit private 
entities that contract with HHS to establish PCIPs to provide 
affordable health insurance coverage to uninsured individuals with pre-
existing conditions within each State. The States or nonprofit private 
entities that voluntarily participate in the PCIP program will be 
directly affected by this regulation as well as the terms of their 
contracts.
    There are 35 State-based high risk pool programs today.\3\ First 
created in the 1970s, States adopted these programs to address 
insurance market failures for people with pre-existing conditions. The 
number of such existing State programs grew with the enactment of a 
Federal law, the Health Insurance Portability and Accountability Act of 
1996 (HIPAA), that requires States to provide either guaranteed issue 
policies in the individual market to a certain set of people who have 
been continuously covered or access to an acceptable alternative 
mechanism, such as a high risk pool. In addition, beginning in 2002, 
Federal grants provided seed money and a limited amount of loss 
subsidies for such programs. Ongoing financial support for State-based 
high risk pools varies, but is generally provided through assessments 
on issuers, enrollee premiums, State general revenue, and, recently, 
Federal grants. Each program also has different eligibility rules, 
benefits, premiums, and/or cost controls (e.g., pre-existing condition 
waiting lists, disease management). As of the end of 2008, there were 
approximately 200,000 enrollees in the 35 State high risk pools. The 
Government Accountability Office (GAO) estimated that there were 
approximately 4 million uninsured people with health problems in States 
with high risk pools.\4\
---------------------------------------------------------------------------

    \3\ U.S. Government Accountability Office, Health Insurance: 
Enrollment, Benefits, Funding, and Other Characteristics of State 
High Risk Health Insurance Pools (2009), http://www.gao.gov/new.items/d09730r.pdf.
    \4\ U.S. Government Accountability Office, Health Insurance: 
Enrollment, Benefits, Funding, and Other Characteristics of State 
High Risk Health Insurance Pools (2009), http://www.gao.gov/new.items/d09730r.pdf. This estimate was based on the number of 
individuals with at least one chronic condition, from the 2006 
Medical Expenditure Panel Survey (MEPS), applied to the Current 
Population Survey estimates of the population in States with high 
risk pools.
---------------------------------------------------------------------------

    The Affordable Care Act establishes a program that is similar in 
some respects to these programs, but has notable differences in terms 
of eligibility criteria, benefits, and premiums. These differences make 
it difficult to extrapolate potential enrollment in the PCIP program 
from the experience of existing State high risk pools.
    First, none of the existing pools limit eligibility to people who 
have been uninsured for a minimum of six months whereas this is a pre-
requisite for enrollment in the PCIP program. In general, the uninsured 
have different health problems, economic statuses, and demands for 
health care and health insurance than the insured population.\5\
---------------------------------------------------------------------------

    \5\ ``The Uninsured: A Primer,'' Kaiser Commission on Medicaid 
and the Uninsured (2006), http://www.kff.org/uninsured/upload/7451.pdf.
---------------------------------------------------------------------------

    Second, while the State programs and Federal program cover roughly 
the same benefit categories, the PCIP program bars both benefit carve-
outs and waiting periods for pre-existing conditions, which 30 State 
programs employ.\6\ In addition, PCIP limits annual out-of-pocket 
spending to $5,950 nationwide, whereas two State programs have no 
specified annual limits and six States have limits that exceed $5,950 
within each State's most popular high risk pool plan.\7\ These 
distinctions in benefits affect both the cost of health insurance per 
capita as well as the mix of enrollees. For example, a person with 
cancer may decide it is not worth the premiums to sign up for a State 
high risk pool that will not cover her chemotherapy in the first year 
of enrollment due to a waiting period. Immediate coverage of pre-
existing conditions should increase demand in the new program relative 
to the existing pools, and may also lead to a somewhat less favorable 
mix of health risks, because people with problems requiring substantial 
medical care will receive more benefit from the new program than the 
existing pools.
---------------------------------------------------------------------------

    \6\ Tanya Schwartz, ``State High Risk Pools: An Overview,'' 
Kaiser Commission on Medicaid and the Uninsured. (2010), http://www.kff.org/uninsured/8041.cfm.
    \7\ U.S. Government Accountability Office, Health Insurance: 
Enrollment, Benefits, Funding, and Other Characteristics of State 
High Risk Health Insurance Pools (2009), http://www.gao.gov/new.items/d09730r.pdf.
---------------------------------------------------------------------------

    Third, all State high risk pools set their premiums at a higher 
percent of the standard rate in the individual market than the PCIP 
program. In the existing pools, premiums average 140 percent of 
standard rate, and range from 105 percent to 250 percent of the 
standard rate or higher.\8\ The PCIP program's premiums are set at 100 
percent of standard rate. PCIP's lower premium is expected to increase 
the number of people who will want to purchase coverage. One study 
estimated that lowering all State high risk pool premiums to 125 
percent of the standard rate would increase enrollment by one-third.\9\ 
The lower premium may lead to a more favorable health mix of enrollees, 
because the higher premiums in existing pools make the pools less

[[Page 45026]]

attractive to individuals with fewer health problems. Lower premiums 
may also attract individuals who are in poor health, but are unable to 
afford the premiums in the existing pools.
---------------------------------------------------------------------------

    \8\ National Association of State Comprehensive Health Insurance 
Plans. Comprehensive Health Insurance for High-Risk Individuals: A 
State-by-State Analysis, 2009/2010.
    \9\ Austin Frakt, Steve Pizer, and Martin Wrobel, ``Insuring the 
Uninsurable: The Growth in High-Risk Pools,'' Abt Associates, HSRE 
Working Paper (2002), http://www.abtassociates.com/reports/HSRE-W12-highrisk.pdf.
---------------------------------------------------------------------------

    Fourth, fifteen States and the District of Columbia lack a high 
risk pool program today. These States do not have a high risk pool for 
a variety of reasons. Some States, such as New York, Massachusetts, and 
Vermont, have enacted insurance reforms that require plans to accept 
people with pre-existing conditions into the individual insurance 
market (through guaranteed issue and rating rules) instead of 
segregating them into high risk pools. Others, like Arizona and Nevada, 
do not have extensive insurance reforms. There is no common profile to 
States that lack high risk pools today.
    Lastly, there is no clear correlation between high risk pool 
enrollment and need. One measure of need is the number and rate of 
uninsured residents. A State that provides protections for its 
residents with high risk or low income should have a relatively low 
number and rate of uninsured residents, and vice versa. As such, among 
States that offer such pools, there should be a relatively constant 
relationship between a State's number of uninsured and its enrollees in 
high risk pools. However, experience suggests otherwise. The difference 
between the highest and lowest ratio of a State's uninsured population 
to its high risk pool enrollees is 27 to one. This is substantially 
larger than the disparity in the ratio of uninsured to Medicaid 
enrollees in a State, which is six to one.\10\ A report that examined 
current State high risk pools, estimated a participation rate of 0.05 
to 0.33 percent of the State population in those programs.\11\ For 
these reasons, the Department concludes that the experience in existing 
high risk pools is not a good basis for estimating PCIP enrollment.
---------------------------------------------------------------------------

    \10\ Data from State Health Facts.org, Kaiser Family Foundation.
    \11\ ``State High Risk Pools: An Overview.'' State Health Access 
Data Assistance Center (2008).
---------------------------------------------------------------------------

    Several reports have estimated the likely number of enrollees in 
the PCIP program by using survey data and applying a participation rate 
to the approximate number of people eligible for the PCIP program. One 
analysis was conducted by the Center for Studying Health System 
Change.\12\ Using the Medical Expenditure Panel Survey (MEPS), the 
analysis identified individuals who were uninsured and had at least one 
chronic condition deemed ``high cost,'' meaning spending exceeds 1.5 
times of the average cost of the condition. This methodology generated 
5.6 to 7 million people who could potentially qualify for the program. 
Assuming that the annual Federal cost per person is $6,000 to $7,000 
and the $5 billion in Federal funding is capped in each year over the 
three and a half year period (roughly $1.3 to $1.4 billion per year), 
the analysis estimated that 200,000 people per year through 2013 could 
be covered.
---------------------------------------------------------------------------

    \12\ Mark Merlis, ``Health Coverage for the High-Risk Uninsured: 
Policy Options for Design of the Temporary High-Risk Pool,'' 
National Institute for Health Care Reform, Center for Studying 
Health System Change (2010).
---------------------------------------------------------------------------

    Second, the Centers for Medicare and Medicaid Services' Office of 
the Actuary (OAct) estimated participation based on demand, without 
assuming that Federal funding would be limited to $1.3 to $1.4 billion 
in each year. It estimated that participation in the program in 2010 
would be 375,000, assuming the program would be fully implemented 
within the year. Given this enrollment rate, it projected that the $5 
billion in Federal funding would not last through 2013.
    Third, the Congressional Budget Office (CBO) conducted two 
analyses. In a December 2008 report, CBO estimated the cost and 
coverage of a national high risk pool program. This program would 
require that all States establish high risk pool programs, with full 
Federal subsidies for enrollees. Its premiums would be higher than 
PCIP--150 versus 100 percent of the standard rate--but its enrollment 
would be broader--significantly, it would not require that applicants 
have been uninsured for the previous six months. CBO estimated that 
175,000 uninsured would gain coverage in this program, and the Federal 
cost would be $5.4 billion over five years (with offsetting receipts 
from changes in employer coverage).\13\
---------------------------------------------------------------------------

    \13\ Congressional Budget Office. Health Care Budget Options 
Volume I. December 2008.
---------------------------------------------------------------------------

    In addition, in June, 2010, CBO provided information on PCIP in 
response to a request from Congress.\14\ Its methodology was not 
explained in its letter, but it calculated that 200,000 people could be 
enrolled in the program for the 2010-2013 period given the fixed $5 
billion appropriation. If the Federal funding cap were lifted, CBO 
estimated that enrollment would be 400,000 in 2011 rising to about 
600,000 or 700,000 in 2013. CBO underscored the uncertainty of the 
estimates due to the potential variation in eligibility rules, 
benefits, and premiums. Since this interim final rule preserves 
variation and flexibility in program parameters across States, CBO's 
observations continue to be relevant and there may be a wide range of 
potential enrollees. CBO would probably continue to estimate a wide 
range of potential enrollees taking this interim final rule into 
account.
---------------------------------------------------------------------------

    \14\ Congressional Budget Office Director Douglas W. Elmendorf, 
letter to Senator Michael B. Enzi, June 21, 2010.
---------------------------------------------------------------------------

    For purpose of this analysis, the Department has not produced its 
own estimates of the number of individuals likely to enroll in the PCIP 
program but believes that it will fall in the range of the other 
estimates, from 200,000 to 400,000. The lower bound of this range is 
consistent with the numbers estimated by the Center for Studying Health 
System Change and by CBO in June 2010. The upper bound of this range is 
approximately the enrollment estimate from the Office of the Actuary 
and CBO when they assume that PCIPs do not immediately impose 
enrollment constraints to extend the limited Federal funding. We expect 
that efficient program implementation, effective cost control, targeted 
benefit design, and enrollment patterns that are different than 
projected will mitigate the need for enrollment constraints, and 
Federal funding will be sufficient to meet program demand. Even 
assuming the lower estimate of enrollment of 200,000, the PCIP program 
could double the number of Americans with pre-existing conditions 
insured through high risk pool programs.
c. Benefits
    A key premise for the establishment of the Pre-Existing Condition 
Insurance Plan is that those who are unable to purchase health 
insurance in the private sector due to medical underwriting and are not 
eligible for public insurance programs are potentially disadvantaged 
through both poor health and loss of income. We expect that the PCIP 
program will help such individuals by providing access to affordable 
health insurance coverage.
    This interim final regulation could generate significant benefits 
to consumers. These benefits could take the form of reductions in 
mortality and morbidity, reductions in medical expenditure risk, 
increases in worker productivity, and decreases in the cross-subsidy in 
premiums to offset uncompensated care, sometimes referred to as the 
``hidden tax.'' Each of these effects is described below.
    A first type of benefit is reductions in mortality and morbidity. 
While the empirical literature leaves many questions unresolved, a 
growing body of evidence convincingly demonstrates that health can be 
improved by

[[Page 45027]]

spending more on at-risk individuals and by expanding health insurance 
coverage. For example, Almond et al.\15\ find that newborns classified 
just below a medical threshold for ``very low birthweight'' have lower 
mortality rates than newborns classified as just above the threshold, 
despite an association between low birth weight and higher mortality in 
general, because they tend to receive timely and appropriate medical 
care. In a study of severe automobile accidents, Doyle \16\ found that 
uninsured individuals receive less care and have a substantially higher 
mortality rate. Currie and Gruber \17\ found that increased eligibility 
for Medicaid coverage expanded utilization of care for otherwise 
uninsured children, leading to a sizeable and significant reduction in 
child mortality. A study of Medicare by Card et al.\18\ found that 
individuals just old enough to qualify for coverage have lower 
mortality rates--despite similar illness severity--than do those just 
too young for eligibility. Finally, a report by the Institute of 
Medicine (IOM) \19\ found mortality risks for uninsured individuals 
that were 25 percent higher than those of observably similar insured 
individuals. In addition to the prospect that expanded insurance 
coverage will result in reductions in mortality, it will almost 
certainly significantly reduce morbidity, as demonstrated in extensive 
reviews of the literature by Hadley and the IOM.\20\
---------------------------------------------------------------------------

    \15\ Douglas Almond et al., ``Estimating Marginal Returns to 
Medical Care: Evidence from At-Risk Newborns,'' The Quarterly 
Journal of Economics 125, No. 2 (2010): 591-634, http://www.mit.edu/
~jjdoyle/vlbw.pdf.
    \16\ Joseph J. Doyle, ``Health Insurance, Treatment and 
Outcomes: Using Auto Accidents as Health Shocks.'' The Review of 
Economics and Statistics 87, No. 2 (2005): 256-270, http://www.mitpressjournals.org/doi/abs/10.1162/0034653053970348.
    \17\ Janet Currie and J. Gruber, ``Health Insurance Eligibility, 
Utilization of Medical Care, and Child Health,'' The Quarterly 
Journal of Economics 111, No. 2 (1996): 431-466, http://www.jstor.org/stable/2946684?cookieSet=1.
    \18\ David Card, C. Dobkin, and N. Maestas, ``Does Medicare Save 
Lives?'' The Quarterly Journal of Economics 124, No. 2 (2009): 597-
636, http://www.mitpressjournals.org/doi/abs/10.1162/qjec.2009.124.2.597.
    \19\ Institute of Medicine, ``Care Without Coverage: Too Little, 
Too Late,'' (2002), http://books.nap.edu/openbook.php?record_id=10367&page=R1.
    \20\ Institute of Medicine, op. cit. J. Hadley, ``Sicker and 
Poorer: The Consequences of Being Uninsured,'' Medical Care Research 
and Review 60 (No. 2): 3S-75S, (2003).
---------------------------------------------------------------------------

    This interim final regulation will expand access to currently 
uninsured individuals with pre-existing conditions. These newly insured 
populations will likely achieve both mortality and morbidity reductions 
from the regulation greater than those found in the studies, since 
these populations are, on average, in worse health than the population 
at large and thus likely to benefit even more from insurance coverage 
than uninsured individuals in general.
    A second type of benefit from the cumulative effects of this 
interim final regulation is a reduction in financial burden faced by 
the uninsured on account of onerous medical costs. Various studies have 
documented two related phenomena: (1) Averted healthcare utilization 
among the uninsured due to cost and (2) financial strain due to medical 
expenditures among the uninsured. Recent data show that 24 percent of 
the uninsured went without needed health care due to cost compared to 4 
percent of those with private or employer-based insurance.\21\ Given 
the population targeted by the PCIP program--uninsured people with pre-
existing conditions--individuals currently without insurance may not be 
able to simply forgo needed care, leading to substantial financial 
strain. Approximately half of the more than 500,000 personal 
bankruptcies in the U.S. in 2007 were in part due to very high medical 
expenses.\22\ In a Commonwealth Fund report \23\ on medical debt, 60 
percent of those having no insurance reported having difficulties 
paying medical care costs. In the past 12 months, they had incurred 
medical bills they either could not pay, were forced to make 
significant changes in their life styles in order to meet their 
obligations, had been contacted by a bill collection agency, or were 
forced to pay medical bills over an extended period. Exclusions from 
health insurance coverage based on preexisting conditions expose the 
uninsured to the aforementioned financial risks.
---------------------------------------------------------------------------

    \21\ Kaiser Family Foundation, ``The Uninsured A Primer,'' 
(2009), http://www.kff.org/uninsured/upload/7451-05.pdf.
    \22\ David Himmelstein et al., ``Medical Bankruptcy in the 
United States, 2007: Results of a National Study,'' The American 
Journal of Medicine (2009), http://www.pnhp.org/new_bankruptcy_study/Bankruptcy-2009.pdf.
    \23\ Collins et al., ``The Affordability Crisis In U.S. Health 
Care: Findings From The Commonwealth Fund Biennial Health Insurance 
Survey,'' (2004): 17.
---------------------------------------------------------------------------

    The Pre-Existing Condition Insurance Plan is designed to reduce the 
uncertainty and hardship associated with these financial risks by 
limiting the extent to which individuals must bear the entire cost of 
medical care by themselves. One study found that people who are 
uninsured for a full year pay for over a third of their care (35 
percent) out-of-pocket, while individuals who are insured for a full or 
partial year paid just under 20 percent of their care out-of-
pocket.\24\ Moreover, because the PCIP program is targeted to 
individuals who are likely to have extensive medical needs, it is 
likely to have especially large economic benefits in terms of reducing 
financial risk. For example, uninsured individuals with two chronic 
conditions spent $908 out of pocket annually compared to $304 annually 
among the uninsured with no chronic conditions and $259 annually among 
the privately insured with no chronic conditions.\25\ This program and 
the interim final regulation that implements it will help insurance 
companies more effectively protect patients from the financial hardship 
of illness, including bankruptcy and reduced funds for non-medical 
purposes.
---------------------------------------------------------------------------

    \24\ Jack Hadley and John Holohan, ``The Cost of Care for the 
Uninsured,'' The Kaiser Commission on Medicaid and the Uninsured 
(2004), http://www.kff.org/uninsured/upload/The-Cost-of-Care-for-the-Uninsured-What-Do-We-Spend-Who-Pays-and-What-Would-Full-Coverage-Add-to-Medical-Spending.pdf.
    \25\ Hwang et al, ``Out of Pocket Medical Spending for Care of 
Chronic Conditions,'' Health Affairs (2001), http://www.partnershipforsolutions.org/DMS/files/Out-of-pocket2002.pdf.
---------------------------------------------------------------------------

    A third type of benefit from the PCIP program and this interim 
final regulation is improved workplace productivity. This interim final 
regulation will benefit employers and workers by increasing workplace 
productivity and reducing absenteeism, low productivity at work due to 
preventable illness, and ``job-lock.'' A June 2009 report by the 
Council of Economic Advisers found that increased access to health 
insurance coverage improves labor market outcomes by improving worker 
health.\26\ The health benefits of offering health insurance to 
uninsured people with pre-existing conditions will help to reduce 
disability, low productivity at work due to preventable illness, and 
absenteeism in the work place, thereby increasing workplace 
productivity and labor supply. Economic theory suggests that these 
benefits would likely be shared by workers, employers, and consumers.
---------------------------------------------------------------------------

    \26\ Council of Economic Advisers. ``The Economic Case for 
Health Reform.'' (2009).
---------------------------------------------------------------------------

    Fourth, the PCIP will reduce cost shifting of uncompensated care to 
the privately insured, which contributes to higher premiums. The 
program will help expand the number of individuals who are insured and 
reduce the likelihood that individuals who have insurance do not 
bankrupt themselves by paying medical bills. Both effects will help 
reduce the amount of uncompensated care that imposes a ``hidden tax'' 
on consumers of health care since the costs of this care are

[[Page 45028]]

shifted to those who are able to pay for services in the form of higher 
prices.
    In their analysis of the interim final regulations implementing 
patient protections, the Departments of Labor, the Treasury, and Health 
and Human Services estimated an order of magnitude for the compensatory 
reduction in cost-shifting of uncompensated care associated with the 
expansion of coverage of those interim final regulations.\27\ The 
analysis assumed that induced utilization due to expanded coverage 
would be relatively low since the uninsured populations affected by 
these interim final regulations tend to have worse health, greater 
needs for health care, and less ability to reduce utilization when they 
are uninsured. Second, on the basis of the economics literature on the 
subject,\28\ the Departments estimated that two-thirds of the 
previously uncovered costs would have been uncompensated care, 25 
percent of which would have been paid for by private sources. Assuming 
that reductions in privately-financed uncompensated care lower 
insurance premiums charged to consumers, the Departments estimated the 
patient protections' regulations' increased insurance coverage could 
result in reductions in insurance premiums of up to $1 billion in 
2013.\29\
---------------------------------------------------------------------------

    \27\ Federal Register June 28, 2010: http://frwebgate1.access.gpo.gov/cgi-bin/TEXTgate.cgi?WAISdocID=3HyQcj/5/1/0&WAISaction=retrieve.
    \28\ Jack Hadley et al, ``Covering the Uninsured in 2008: 
Current Costs, Sources of Payment, and Incremental Costs,'' Health 
Affairs 27, No. 5 (2008): 399-415.
    \29\ The Departments first estimated the proportion of the 
population in group and individual markets using the Medical 
Expenditure Panel Survey (2008). Next, information from 75 FR 34538 
(June 17, 2010) was used to estimate the proportion of employer and 
individual plans that maintain or lose grandfather status by 2013. 
Projections of national health expenditures from the National Health 
Expenditure Accounts to 2013 were distributed among these groups, 
and premium impacts as discussed in this regulatory impact analysis 
were applied. Potential premium reductions secondary to reductions 
in the cost-shifting of uncompensated care were then calculated 
using the information from the economic literature as presented in 
this discussion. The Departments note that to the extent that not 
all of the reductions in uncompensated care costs are passed onto 
insured populations, these estimates may be an overestimate.
---------------------------------------------------------------------------

    Assuming an enrollment range of 200,000 to 400,000 in the PCIP 
program, the effect on uncompensated care could be over twice to four 
times as high as prior estimates associated with the patient 
protections. This increased impact is due to the fact that the primary 
effect on coverage of the patient protections interim final regulations 
was the ban on pre-existing condition exclusions for children. Those 
rules estimated that 90,000 children would gain coverage. Given the 
differing scopes of these two interim final regulations, it is likely 
that more uninsured will be helped by PCIP than the patient protections 
policies and interim final regulations. Moreover, savings per person 
will likely be higher for the PCIP population compared to children with 
pre-existing conditions. This is because most enrollees in PCIP are 
likely to be adults, whose average cost of health care is higher than 
that of children.
    In addition, we believe that PCIP will help local and State 
governments. Since much of the uncompensated health care is provided 
through State and locally funded public health facilities, by enabling 
a portion of those who would seek care at a public facility to enroll 
in the high risk pool, the program could help reduce the drain on 
scarce State and local resources. We welcome public comment on this 
analysis.
d. Costs and Transfers
    Under section 1101 of the Affordable Care Act, HHS is authorized to 
disperse $5 billion for the purpose of funding the PCIP program, 
including administrative costs and contracts with States and non-profit 
third party administrators. This Federal funding is used to offset the 
cost of providing health care to enrollees that exceeds the premium 
revenue. According to independent studies, the Federal share of total 
costs could be roughly 35 to 40 percent of total spending.\30\
---------------------------------------------------------------------------

    \30\ Mark Merlis, ``Health Coverage for the High-Risk Uninsured: 
Policy Options for Design of the Temporary High-Risk Pool,'' 
National Institute for Health Care Reform, Center for Studying 
Health System Change (2010).
---------------------------------------------------------------------------

    There will also be administrative costs associated with the PCIP 
program. This takes the form of the cost to contractors to apply, the 
time cost for individuals to apply, and the contractors' costs of 
complying with program rules (for example, conducting appeals, 
preventing fraud). The Department estimates that the annual 
administrative cost would be $1.9 million. Note that any State 
administrative costs incurred that are allowable under this program may 
be paid for by Federal and premium funds.
e. Conclusion
    Under section 1101 of the Affordable Care Act, the Department is 
authorized to spend $5 billion via States and third party 
administrators for the purpose of funding the PCIP program. The 
transfer of this amount of funds will have a significant, positive 
financial impact on individuals who enroll in the program, States, and 
health care providers. We anticipate that individuals who are currently 
uninsured will benefit from having lower out-of-pocket costs for health 
care, less financial strain, and improved access to health services. We 
also anticipate that insured individuals will benefit indirectly 
through paying lower premiums because of a reduced burden on the plans 
to subsidize uncompensated care. In addition, we believe that 
establishing the PCIP program will reduce the burden on local and State 
governments to pay health care providers for uncompensated care.
    The direct costs of this regulation is a transfer of $5 billion 
from the Federal government to the PCIPs that will be established in 
each State. Administrative costs are expected to be $1.9 million per 
year. In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

VII. Other Sections

Regulatory Alternatives

    Under the Executive Order, we must consider alternatives to issuing 
regulations and alternative regulatory approaches. Section 1101 
establishes broad requirements regarding contracting, eligibility, 
benefits, payments, insurer dumping, and the control of fraud, waste, 
and abuse.
    We considered implementing the PCIP through some form of guidance 
to States and other interested parties. However, we believe that it is 
in the best interest of States, contractors, enrollees, and other 
interested parties to establish this program through the rulemaking 
process. As discussed in detail above, there are several areas where 
the statute clearly anticipates that the Secretary will exercise 
discretion in implementing the program, most notably the definition of 
a pre-existing condition for purpose of establishing eligibility. We 
also need to issue regulations to establish the legal framework for the 
contracting mechanism that sets the specific terms for the State-
administered pools and for the organizations that will operate the 
pools in the States that do not contract with HHS. Establishing these 
rules through rulemaking ensures that the public has ample opportunity 
to understand and comment on these rules and establishes clear 
authority to enforce them.
    The Department considered regulatory alternatives for program 
design, and often referred to the design features in existing State 
high risk pool and the Children's Health Insurance Program (CHIP) given 
their similarities to the PCIP goals and features. We

[[Page 45029]]

explored setting uniform rules for eligibility for all PCIPs but 
rejected this approach since it did not take into account the existing 
markets and programs in each State.
    Given the fixed Federal funding for the PCIP program, these 
regulatory alternatives will not affect Federal outlays. They are also 
unlikely to have measurable national health spending implications since 
the Federal funding constraint is accompanied by a fixed standard for 
private premiums--100 percent of a standard rate for benefits that 
cover at least 65 percent of the cost of coverage.

Regulatory Flexibility Act

    The RFA requires agencies that issue a regulation to analyze 
options for regulatory relief of small businesses if a rule has a 
significant impact on a substantial number of small entities. The Act 
generally defines a ``small entity'' as (1) A proprietary firm meeting 
the size standards of the Small Business Administration (SBA), (2) a 
nonprofit organization that is not dominant in its field, or (3) a 
small government jurisdiction with a population of less than 50,000. 
States and individuals are not included in the definition of ``small 
entity.'' These regulations apply to the States, both those that 
contract with HHS to establish PCIPs and those States in which HHS 
contracts with another entity to establish the program, no small 
entities will be affected. Therefore, the Secretary certifies that the 
regulations will not have significant impact on a substantial number of 
small entities.

Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates would require spending in any one year 
$100 million in 1995 dollars, updated annually for inflation. In 2010, 
that threshold is approximately $135 million.
    UMRA does not address the total cost of a rule. Rather, it focuses 
on certain categories of cost, mainly those ``Federal mandate'' costs 
resulting from: (1) Imposing enforceable duties on State, local, or 
tribal governments, or on the private sector; or (2) increasing the 
stringency of conditions in, or decreasing the funding of, State, 
local, or tribal governments under entitlement programs.
    Under the Affordable Care Act, States may choose to participate in 
the PCIPs and receive Federal funding for administering and paying 
benefits. If they do not choose to participate, the Federal government 
will establish a PCIPs in the State. Thus, the law and these 
regulations do not impose an unfunded mandate on States.
    Individuals will have to pay a premium and incur out-of-pocket 
expenses to join the PCIPs that either a State or the Federal 
government establishes. However, individuals are free to join based on 
their evaluation of the costs and benefits of belonging to the program. 
There is no automatic enrollment and no requirement to join a PCIP. 
Thus, the law, and these regulations do not impose an unfunded mandate 
on the private sector.

Federalism

    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.
    This rule does not impose any direct costs on State or local 
governments. Consistent with section 1101(g)(5) of the Act, Sec.  
152.40 of this interim final rule specifies that State standards that 
might otherwise apply to the coverage offered under a PCIP are 
preempted, with the exception of laws relating to licensing or 
solvency. This language tracks similar language that applies to State 
regulation of health plans offering Medicare Advantage plans under 
Medicare Part C or drug coverage under Medicare Part D under title 
XVIII of the Social Security Act, and we would expect to interpret the 
language for purposes of the high risk pool program in a manner similar 
to the way HHS has applied it under those programs. We do not 
anticipate that this regulation will have significant implications, 
particularly since only individuals who are not now insured, and thus 
not directly subject to existing State insurance laws, may enroll in 
the program.

List of Subjects in 45 CFR Part 152

    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 subtitle A, subchapter B, by adding a new 
part 152 to read as follows:

PART 152--PRE-EXISTING CONDITION INSURANCE PLAN PROGRAM

Subpart A--General Provisions
Sec.
152.1 Statutory basis.
152.2 Definitions.
Subpart B--PCIP Program Administration
152.6 Program administration.
152.7 PCIP proposal process.
Subpart C--Eligibility and Enrollment
152.14 Eligibility.
152.15 Enrollment and disenrollment process.
Subpart D--Benefits
152.19 Covered benefits.
152.20 Prohibitions on pre-existing condition exclusions and waiting 
periods.
152.21 Premiums and cost-sharing.
152.22 Access to services.
Subpart E--Oversight
152.26 Appeals procedures.
152.27 Fraud, waste, and abuse.
152.28 Preventing insurer dumping.
Subpart F--Funding
152.32 Use of funds.
152.33 Initial allocation of funds.
152.34 Reallocation of funds.
152.35 Insufficient funds.
Subpart G--Relationship to Existing Laws and Programs
152.39 Maintenance of effort.
152.40 Relation to State laws.
Subpart H--Transition to Exchanges
152.44 End of PCIP program coverage.
152.45 Transition to the exchanges.

    Authority:  Sec. 1101 of the Patient Protection and Affordable 
Care Act (Pub. L. 111-148).

Subpart A--General Provisions


Sec.  152.1  Statutory basis.

    (a) Basis. This part establishes provisions needed to implement 
section 1101 of the Patient Protection and Affordable Care Act of 2010 
(Affordable Care Act), which requires the Secretary of the Department 
of Health and Human Services to establish a temporary high risk health 
insurance pool program to provide health insurance coverage for 
individuals described in Sec.  152.14 of this part.
    (b) Scope. This part establishes standards and sets forth the 
requirements, limitations, and procedures for the temporary high risk 
health insurance pool program, hereafter referred to as the ``Pre-
Existing Condition Insurance Plan'' (PCIP) program.


Sec.  152.2  Definitions.

    For purposes of this part the following definitions apply:
    Creditable coverage means coverage of an individual as defined in 
section 2701(c)(1) of the Public Health Service Act as of March 23, 
2010 and 45 CFR 146.113(a)(1).

[[Page 45030]]

    Enrollee means an individual receiving coverage from a PCIP 
established under this section.
    Lawfully present means
    (1) A qualified alien as defined in section 431 of the Personal 
Responsibility and Work Opportunity Act (PRWORA) (8 U.S.C. 1641);
    (2) An alien in nonimmigrant status who has not violated the terms 
of the status under which he or she was admitted or to which he or she 
has changed after admission;
    (3) An alien who has been paroled into the United States pursuant 
to section 212(d)(5) of the Immigration and Nationality Act (INA) (8 
U.S.C. 1182(d)(5)) for less than 1 year, except for an alien paroled 
for prosecution, for deferred inspection or pending removal 
proceedings;
    (4) An alien who belongs to one of the following classes:
    (i) Aliens currently in temporary resident status pursuant to 
section 210 or 245A of the INA (8 U.S.C. 1160 or 1255a, respectively);
    (ii) Aliens currently under Temporary Protected Status (TPS) 
pursuant to section 244 of the INA (8 U.S.C. 1254a), and pending 
applicants for TPS who have been granted employment authorization;
    (iii) Aliens who have been granted employment authorization under 8 
CFR 274a.12(c)(9), (10), (16), (18), (20), (22), or (24);
    (iv) Family Unity beneficiaries pursuant to section 301 of Public 
Law 101-649 as amended;
    (v) Aliens currently under Deferred Enforced Departure (DED) 
pursuant to a decision made by the President;
    (vi) Aliens currently in deferred action status;
    (vii) Aliens whose visa petitions have been approved and who have a 
pending application for adjustment of status;
    (5) A pending applicant for asylum under section 208(a) of the INA 
(8 U.S.C. 1158) or for withholding of removal under section 241(b)(3) 
of the INA (8 U.S.C. 1231) or under the Convention Against Torture who 
has been granted employment authorization, and such an applicant under 
the age of 14 who has had an application pending for at least 180 days;
    (6) An alien who has been granted withholding of removal under the 
Convention Against Torture; or
    (7) A child who has a pending application for Special Immigrant 
Juvenile status as described in section 101(a)(27)(J) of the INA (8 
U.S.C. 1101(a)(27)(J)).
    Out-of-pocket costs means the sum of the annual deductible and the 
other annual out-of-pocket expenses, other than for premiums, required 
to be paid under the program.
    Pre-Existing condition exclusion has the meaning given such term in 
45 CFR 144.103.
    Pre-Existing Condition Insurance Plan (PCIP) means the temporary 
high risk health insurance pool plan (sometimes referred to as a 
``qualified high risk pool'') that provides coverage in a State, or 
combination of States, in accordance with the requirements of section 
1101 of the Affordable Care Act and this part. The term ``PCIP 
program'' is generally used to describe the national program the 
Secretary is charged with carrying out, under which States or non-
profit entities operate individual PCIPs.
    Resident means an individual who has been legally domiciled in a 
State.
    Service Area refers to the geographic area encompassing an entire 
State or States in which PCIP furnishes benefits.
    State refers each of the 50 States and the District of Columbia.

Subpart B--PCIP Program Administration


Sec.  152.6  Program administration.

    (a) General rule. Section 1101(b)(1) of the Affordable Care Act 
requires that HHS carry out the Pre-Existing Condition Insurance Plan 
program directly or through contracts with eligible entities, which are 
States or nonprofit private entities.
    (b) Administration by State. A State (or its designated non-profit 
private entity) may submit a proposal to enter into a contract with HHS 
to establish and administer a PCIP in accordance with section 1101 of 
the Affordable Care Act and this part.
    (1) At the Secretary's discretion, a State may designate a 
nonprofit entity or entities to contract with HHS to administer a PCIP.
    (2) As part of its administrative approach, a State or designated 
entity may subcontract with either a for-profit or nonprofit entity.
    (c) Administration by HHS. If a State or its designated entity 
notifies HHS that it will not establish or continue to administer a 
PCIP, or does not submit an acceptable or timely proposal to do so, HHS 
will contract with a nonprofit private entity or entities to administer 
a PCIP in that State.
    (d) Transition in administration. The Secretary may consider a 
request from a State to transition from administration by HHS to 
administration by a State or from administration by a State to 
administration by HHS. Such transitions shall be approved only if the 
Secretary determines that the transition is in the best interests of 
the PCIP enrollees and potential PCIP enrollees in that state, 
consistent with Sec.  152.7(b) of this part.


Sec.  152.7  PCIP proposal process.

    (a) General. A proposal from a State or nonprofit private entity to 
contract with HHS shall demonstrate that the eligible entity has the 
capacity and technical capability to perform all functions necessary 
for the design and operation of a PCIP, and that its proposed PCIP is 
in full compliance with all of the requirements of this part.
    (b) Special rules for transitions in administration. (1) 
Transitions from HHS administration of a PCIP to State administration 
must take effect on January 1 of a given year.
    (2) A State's proposal to administer a PCIP must meet all the 
requirements of this section.
    (3) Transitions from State administration to HHS administration 
must comply with the termination procedures of the PCIP contract in 
effect with the State or its designated entity.
    (4) The Secretary may establish other requirements needed to ensure 
a seamless transition of coverage for all existing enrollees.

Subpart C--Eligibility and Enrollment


Sec.  152.14  Eligibility.

    (a) General rule. An individual is eligible to enroll in a PCIP if 
he or she:
    (1) Is a citizen or national of the United States or lawfully 
present in the United States;
    (2) Subject to paragraph (b) of this section, has not been covered 
under creditable coverage for a continuous 6-month period of time prior 
to the date on which such individual is applying for PCIP;
    (3) Has a pre-existing condition as established under paragraph (c) 
of this section; and
    (4) Is a resident of one of the 50 States or the District of 
Columbia which constitutes or is within the service area of the PCIP. A 
PCIP may not establish any standards with regard to the duration of 
residency in the PCIP service area.
    (b) Satisfaction of 6-month creditable coverage requirement when an 
enrollee leaves the PCIP service area. An individual who becomes 
ineligible for a PCIP on the basis of no longer residing in the PCIP's 
service area as described in paragraph (a)(4) of this section is deemed 
to have satisfied the requirement in paragraph (a)(2) of this section 
for purposes of applying to enroll in a PCIP in the new service area.
    (c) Pre-existing condition requirement. For purposes of 
establishing a process for determining eligibility, and subject

[[Page 45031]]

to HHS approval, a PCIP may elect to apply any one or more of the 
following criteria in determining whether an individual has a pre-
existing condition for purposes of this section:
    (1) Refusal of coverage. Documented evidence that an insurer has 
refused, or a clear indication that the insurer would refuse, to issue 
coverage to an individual on grounds related to the individual's 
health.
    (2) Exclusion of coverage. Documented evidence that such individual 
has been offered coverage but only with a rider that excludes coverage 
of benefits associated with an individuals' identified pre-existing 
condition.
    (3) Medical or health condition. Documented evidence of the 
existence or history of certain medical or health condition, as 
approved or specified by the Secretary.
    (4) Other. Other criteria, as defined by a PCIP and approved by 
HHS.


Sec.  152.15  Enrollment and disenrollment process.

    (a) Enrollment process. (1) A PCIP must establish a process for 
verifying eligibility and enrolling an individual that is approved by 
HHS.
    (2) A PCIP must allow an individual to remain enrolled in the PCIP 
unless:
    (i) The individual is disenrolled under paragraph (b) of this 
section;
    (ii) The individual obtains other creditable coverage;
    (iii) The PCIP program terminates, or is terminated; or
    (iv) As specified by the PCIP program and approved by HHS.
    (3) A PCIP must verify that an individual is a United States 
citizen or national or lawfully present in the United States by:
    (i) Verifying the individual's citizenship, nationality, or lawful 
presence with the Commissioner of Security or Secretary of Homeland 
Security as applicable; or
    (ii) By requiring the individual to provide documentation which 
establishes the individual's citizenship, nationality, or lawful 
presence.
    (iii) The PCIP must provide an individual who is applying to enroll 
in the PCIP with a disclosure specifying if the information will be 
shared with the Department of Health and Human Services, Social 
Security Administration, and if necessary, Department of Homeland 
Security for purposes of establishing eligibility.
    (b) Disenrollment process. (1) A PCIP must establish a 
disenrollment process that is approved by HHS.
    (2) A PCIP may disenroll an individual if the monthly premium is 
not paid on a timely basis, following notice and a reasonable grace 
period, not to exceed 61 days from when payment is due, as defined by 
the PCIP and approved by HHS.
    (3) A PCIP must disenroll an individual in any of the following 
circumstances:
    (i) The individual no longer resides in the PCIP service area.
    (ii) The individual obtains other creditable coverage.
    (iii) Death of the individual.
    (iv) Other exceptional circumstances established by HHS.
    (c) Effective dates. A PCIP must establish rules governing the 
effective date of enrollment and disenrollment that are approved by 
HHS. A complete enrollment request submitted by an eligible individual 
by the 15th day of a month, where the individual is determined to be 
eligible for enrollment, must take effect by the 1st day of the 
following month, except in exceptional circumstances that are subject 
to HHS approval.
    (d) Funding limitation. A PCIP may stop taking applications for 
enrollment to comply with funding limitations established by the HHS 
under section 1101(g) of Public Law 111-148 and Sec.  152.35 of this 
part. Accordingly, a PCIP may employ strategies to manage enrollment 
over the course of the program that may include enrollment capacity 
limits, phased-in (delayed) enrollment, and other measures, as defined 
by the PCIP and approved by HHS, including measures specified under 
Sec.  152.35(b).

Subpart D--Benefits


Sec.  152.19  Covered benefits.

    (a) Required benefits. Each benefit plan offered by a PCIP shall 
cover at least the following categories and the items and services:
    (1) Hospital inpatient services
    (2) Hospital outpatient services
    (3) Mental health and substance abuse services
    (4) Professional services for the diagnosis or treatment of injury, 
illness, or condition
    (5) Non-custodial skilled nursing services
    (6) Home health services
    (7) Durable medical equipment and supplies
    (8) Diagnostic x-rays and laboratory tests
    (9) Physical therapy services (occupational therapy, physical 
therapy, speech therapy)
    (10) Hospice
    (11) Emergency services, consistent with Sec.  152.22(b), and 
ambulance services
    (12) Prescription drugs
    (13) Preventive care
    (14) Maternity care
    (b) Excluded services. Benefit plans offered by a PCIP shall not 
cover the following services:
    (1) Cosmetic surgery or other treatment for cosmetic purposes 
except to restore bodily function or correct deformity resulting from 
disease.
    (2) Custodial care except for hospice care associated with the 
palliation of terminal illness.
    (3) In vitro fertilization, artificial insemination or any other 
artificial means used to cause pregnancy.
    (4) Abortion services except when the life of the woman would be 
endangered or when the pregnancy is the result of an act of rape or 
incest.
    (5) Experimental care except as part of an FDA-approved clinical 
trial.


Sec.  152.20  Prohibitions on pre-existing condition exclusions and 
waiting periods.

    (a) Pre-existing condition exclusions. A PCIP must provide all 
enrollees with health coverage that does not impose any pre-existing 
condition exclusions (as defined in Sec.  152.2) with respect to such 
coverage.
    (b) Waiting periods. A PCIP may not impose a waiting period with 
respect to the coverage of services after the effective date of 
enrollment.


Sec.  152.21  Premiums and cost-sharing.

    (a) Limitation on enrollee premiums. (1) The premiums charged under 
the PCIP may not exceed 100 percent of the premium for the applicable 
standard risk rate that would apply to the coverage offered in the 
State or States. The PCIP shall determine a standard risk rate by 
considering the premium rates charged for similar benefits and cost-
sharing by other insurers offering health insurance coverage to 
individuals in the applicable State or States. The standard risk rate 
shall be established using reasonable actuarial techniques, that are 
approved by the Secretary, and that reflect anticipated experience and 
expenses. A PCIP may not use other methods of determining the standard 
rate, except with the approval of the Secretary.
    (2) Premiums charged to enrollees in the PCIP may vary on the basis 
of age by a factor not greater than 4 to 1.
    (b) Limitation on enrollee costs. (1) The PCIP's average share of 
the total allowed costs of the PCIP benefits must be at least 65 
percent of such costs.
    (2) The out-of-pocket limit of coverage for cost-sharing for 
covered services under the PCIP may not be greater than the applicable 
amount described in section 223(c)(2) of the Internal Revenue

[[Page 45032]]

code of 1986 for the year involved. If the plan uses a network of 
providers, this limit may be applied only for in-network providers, 
consistent with the terms of PCIP benefit package.


Sec.  152.22  Access to services.

    (a) General rule. A PCIP may specify the networks of providers from 
whom enrollees may obtain plan services. The PCIP must demonstrate to 
HHS that it has a sufficient number and range of providers to ensure 
that all covered services are reasonably available and accessible to 
its enrollees.
    (b) Emergency services. In the case of emergency services, such 
services must be covered out of network if:
    (1) The enrollee had a reasonable concern that failure to obtain 
immediate treatment could present a serious risk to his or her life or 
health; and
    (2) The services were required to assess whether a condition 
requiring immediate treatment exists, or to provide such immediate 
treatment where warranted.

Subpart E--Oversight


Sec.  152.26  Appeals procedures.

    (a) General. A PCIP shall establish and maintain procedures for 
individuals to appeal eligibility and coverage determinations.
    (b) Minimum requirements. The appeals procedure must, at a minimum, 
provide:
    (1) A potential enrollee with the right to a timely redetermination 
by the PCIP or its designee of a determination regarding PCIP 
eligibility, including a determination of whether the individual is a 
citizen or national of the United States, or is lawfully present in the 
United States.
    (2) An enrollee with the right to a timely redetermination by the 
PCIP or its designee of a determination regarding the coverage of a 
service or the amount paid by the PCIP for a service.
    (3) An enrollee with the right to a timely reconsideration of a 
redetermination made under paragraph (b)(2) of this section by an 
entity independent of the PCIP.


Sec.  152.27  Fraud, waste, and abuse.

    (a) Procedures. The PCIP shall develop, implement, and execute 
operating procedures to prevent, detect, recover (when applicable or 
allowable), and promptly report to HHS incidences of waste, fraud, and 
abuse, and to appropriate law enforcement authorities instances of 
fraud. Such procedures shall include identifying situations in which 
enrollees or potential enrollees (or their family members) are 
employed, and may have, or have had, access to other coverage such as 
group health coverage, but were discouraged from enrolling.
    (b) Cooperation. The PCIP shall cooperate with Federal law 
enforcement and oversight authorities in cases involving waste, fraud 
and abuse, and shall report to appropriate authorities situations in 
which enrollment in other coverage may have been discouraged.


Sec.  152.28  Preventing insurer dumping.

    (a) General rule. If it is determined based on the procedures and 
criteria set forth in paragraph (b) of this section that a health 
insurance issuer or group health plan has discouraged an individual 
from remaining enrolled in coverage offered by such issuer or health 
plan based on the individual's health status, if the individual 
subsequently enrolls in a PCIP under this part, the issuer or health 
plan will be responsible for any medical expenses incurred by the PCIP 
with respect to the individual.
    (b) Procedures and criteria for a determination of dumping. A PCIP 
shall establish procedures to identify and report to HHS instances in 
which health insurance issuers or employer-based group health plans are 
discouraging high-risk individuals from remaining enrolled in their 
current coverage in instances in which such individuals subsequently 
are eligible to enroll in the qualified high risk pool. Such procedures 
shall include methods to identify the following circumstances, either 
through the PCIP enrollment application form or other vehicles:
    (1) Situations where an enrollee or potential enrollee had prior 
coverage obtained through a group health plan or issuer, and the 
individual was provided financial consideration or other rewards for 
disenrolling from their coverage, or disincentives for remaining 
enrolled.
    (2) Situations where enrollees or potential enrollees had prior 
coverage obtained directly from an issuer or a group health plan and 
either of the following occurred:
    (i) The premium for the prior coverage was increased to an amount 
that exceeded the premium required by the PCIP (adjusted based on the 
age factors applied to the prior coverage), and this increase was not 
otherwise explained;
    (ii) The health plan, issuer or employer otherwise provided money 
or other financial consideration to disenroll from coverage, or 
disincentive to remain enrolled in such coverage. Such considerations 
include payment of the PCIP premium for an enrollee or potential 
enrollee.
    (c) Remedies. If the Secretary determines, based on the criteria in 
paragraph (b) of this section, that the rule in paragraph (a) of this 
section applies, an issuer or a group health plan will be billed for 
the medical expenses incurred by the PCIP. The issuer or group health 
plan also will be referred to appropriate Federal and State authorities 
for other enforcement actions that may be warranted based on the 
behavior at issue.
    (d) Other. Nothing in this section may be construed as constituting 
exclusive remedies for violations of this section or as preventing 
States from applying or enforcing this section or other provisions of 
law with respect to health insurance issuers.

Subpart F--Funding


Sec.  152.32  Use of funds.

    (a) Limitation on use of funding. All funds awarded through the 
contracts established under this program must be used exclusively to 
pay allowable claims and administrative costs incurred in the 
development and operation of the PCIP that are in excess of the amounts 
of premiums collected from individuals enrolled in the program.
    (b) Limitation on administrative expenses. No more than 10 percent 
of available funds shall be used for administrative expenses over the 
life of the contract with the PCIP, absent approval from HHS.


Sec.  152.33  Initial allocation of funds.

    HHS will establish an initial ceiling for the amount of the $5 
billion in Federal funds allocated for PCIPs in each State using a 
methodology consistent with that used to established allocations under 
the Children's Health Insurance Program, as set forth under 42 CFR Part 
457, Subpart F, Payment to States.


Sec.  152.34  Reallocation of funds.

    If HHS determines, based on actual and projected enrollment and 
claims experience, that the PCIP in a given State will not make use of 
the total estimated funding allocated to that State, HHS may reallocate 
unused funds to other States, as needed.


Sec.  152.35  Insufficient funds.

    (a) Adjustments by a PCIP to eliminate a deficit. In the event that 
a PCIP determines, based on actual and projected enrollment and claims 
data, that its allocated funds are insufficient to cover projected PCIP 
expenses, the PCIP shall report such insufficiency to HHS, and identify 
and implement

[[Page 45033]]

necessary adjustments to eliminate such deficit, subject to HHS 
approval.
    (b) Adjustment by the Secretary. If the Secretary estimates that 
aggregate amounts available for PCIP expenses will be less than the 
actual amount of expenses, HHS reserves the right to make such 
adjustments as are necessary to eliminate such deficit.

Subpart G--Relationship to Existing Laws and Programs


Sec.  152.39  Maintenance of effort.

    (a) General. A State that enters into a contract with HHS under 
this part must demonstrate, subject to approval by HHS, that it will 
continue to provide funding of any existing high risk pool in the State 
at a level that is not reduced from the amount provided for in the year 
prior to the year in which the contract is entered.
    (b) Failure to maintain efforts. In situations where a State enters 
into a contract with HHS under this part, HHS shall take appropriate 
action, such as terminating the PCIP contract, against any State that 
fails to maintain funding levels for existing State high risk pools as 
required, and approved by HHS, under paragraph (a) of this section.


Sec.  152.40  Relation to State laws.

    The standards established under this section shall supersede any 
State law or regulation, other than State licensing laws or State laws 
relating to plan solvency, with respect to PCIPs which are established 
in accordance with this section.

Subpart H--Transition to Exchanges


Sec.  152.44  End of PCIP program coverage.

    Effective January 1, 2014, coverage under the PCIP program (45 CFR 
part 152) will end.


Sec.  152.45  Transition to the exchanges.

    Prior to termination of the PCIP program, HHS will develop 
procedures to transition PCIP enrollees to the Exchanges, established 
under sections 1311 or 1321 of the Affordable Care Act, to ensure that 
there are no lapses in health coverage for those individuals.

    Dated: July 26, 2010.
Jay Angoff,
Director, Office of Consumer Information and Insurance Oversight.
    Dated: July 26, 2010.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2010-18691 Filed 7-29-10; 8:45 am]
BILLING CODE 4150-03-P