[Federal Register Volume 76, Number 136 (Friday, July 15, 2011)]
[Proposed Rules]
[Pages 41930-41956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-17609]
[[Page 41929]]
Vol. 76
Friday,
No. 136
July 15, 2011
Part III
Department of Health and Human Services
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45 CFR Part 153
Patient Protection and Affordable Care Act; Standards Related to
Reinsurance, Risk Corridors and Risk Adjustment; Proposed Rule
Federal Register / Vol. 76 , No. 136 / Friday, July 15, 2011 /
Proposed Rules
[[Page 41930]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
45 CFR Part 153
[CMS-9975-P]
RIN 0938-AR07
Patient Protection and Affordable Care Act; Standards Related to
Reinsurance, Risk Corridors and Risk Adjustment
AGENCY: Department of Health and Human Services.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would implement standards for States
related to reinsurance and risk adjustment, and for health insurance
issuers related to reinsurance, risk corridors, and risk adjustment
consistent with title I of the Patient Protection and Affordable Care
Act as amended by the Health Care and Education Reconciliation Act of
2010, referred to collectively as the Affordable Care Act. These
programs will mitigate the impact of potential adverse selection and
stabilize premiums in the individual and small group markets as
insurance reforms and the Affordable Insurance Exchanges
(``Exchanges'') are implemented, starting in 2014. The transitional
State-based reinsurance program serves to reduce the uncertainty of
insurance risk in the individual market by making payments for high-
cost cases. The temporary Federally-administered risk corridor program
serves to protect against uncertainty in the Exchange by limiting the
extent of issuer losses (and gains). On an ongoing basis, the State-
based risk adjustment program is intended to provide adequate payments
to health insurance issuers that attract high-risk populations (such as
individuals with chronic conditions).
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. Eastern Standard
Time (E.S.T.) on September 28, 2011.
ADDRESSES: In commenting, please refer to file code CMS-9975-P. 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-9975-P, 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: CMS-9975-P, 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) 786-9994 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:
Sharon Arnold at (301) 492-4415 for general information.
Wakina Scott at (301) 492-4393 for matters related to reinsurance and
risk corridors.
Kelly O'Brien at (301) 492-4399 for matters related to risk adjustment.
Grace Arnold at (301) 492-4272 for matters related to the collection of
information requirements.
Brigid Russell at (301) 492-4421 for matters related to the summary of
preliminary regulatory impact analysis.
Abbreviations:
Affordable Care Act--The collective term for the Patient Protection
and Affordable Care Act (Pub. L. 111-148) and the Health Care and
Education Reconciliation Act of 2010 (Pub. L. 111-152)
CMS Centers for Medicare & Medicaid Services
HHS U.S. Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
(Pub. L. 104-191)
MLR Medical Loss Ratio
PHS Act Public Health Service Act (42 U.S.C. 201 et seq.)
QHP Qualified Health Plan
SUPPLEMENTARY INFORMATION:
Submitting Comments: We welcome comments from the public on all
issues set forth in this proposed rule to assist us in fully
considering issues and developing policies. Comments will be most
useful if they are organized by the section of the proposed rule to
which they apply. You can assist us by referencing the file code [CMS-
9975-P] and the specific ``issue identifier'' that precedes the section
on which you choose to comment.
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 electronic
comments received before the close of the comment period on the
following public Web site as soon as possible after they have been
received: http://www.regulations.gov. Follow the search instructions on
that Web site to view public comments. Comments received timely will be
available for public inspection as they are received, generally
beginning approximately 3 weeks after publication of a document, at
Room 445-G, Department of Health and Human Services, Hubert H. Humphrey
Building, 200 Independence Avenue, SW., Washington, DC 20201, Monday
through Friday of each week from 8:30 a.m. to 4 p.m. To schedule an
appointment to view public comments, call 1-800-743-3951.
[[Page 41931]]
Table of Contents
I. Background
A. Legislative Overview
B. Introduction
II. Provisions of the Proposed Regulation
A. Subpart A--General Provisions
B. Subpart B--State Notice of Insurance Benefits and Payment
Parameters
C. Subpart C--State Standards for the Transitional Reinsurance
Program for the Individual Market
D. Subpart D--State Standards for the Risk Adjustment Program
E. Subpart E--Health Insurance Issuer Standards Related to the
Transitional Reinsurance Program
F. Subpart F--Health Insurance Issuer Standards Related to the
Temporary Risk Corridor Program
G. Subpart G--Health Insurance Issuer Standards Related to the
Risk Adjustment Program
III. Collection of Information Requirements
IV. Summary of Preliminary Regulatory Impact Analysis
V. Regulatory Flexibility Act
VI. Unfunded Mandates
VII. Federalism
VIII. Regulations Text
I. Background
A. Legislative Overview
Starting in 2014, individuals and small businesses will be able to
purchase private health insurance through State-based competitive
marketplaces called Affordable Insurance Exchanges, or ``Exchanges.''
Exchanges will offer Americans competition, choice, and clout.
Insurance companies will compete for business on a level playing field,
driving down costs. Consumers will have a choice of health plans to fit
their needs. And Exchanges will give individuals and small businesses
the same purchasing clout as big businesses. The Departments of Health
and Human Services, Labor, and the Treasury (the Departments) are
working in close coordination to release guidance related to Exchanges
in several phases. The first in this series was a Request for Comment
relating to Exchanges, published in the Federal Register on August 3,
2010. Second, Initial Guidance to States on Exchanges was issued on
November 18, 2010. Third, a proposed rule for the application, review,
and reporting process for waivers for State innovation was published in
the Federal Register on March 14, 2011. Fourth, two proposed
regulations, including this one, are published in this issue of the
Federal Register to implement components of the Exchange and health
insurance premium stabilization policies in the Affordable Care Act.
Section 1341 of the Affordable Care Act provides that each State
must establish a transitional reinsurance program to help stabilize
premiums for coverage in the individual market during the first three
years of Exchange operation (2014-2016). Section 1342 provides that the
Secretary must establish a transitional risk corridor program that will
apply to the qualified health plans in the individual and small group
markets for the first three years of Exchange operation (2014-2016).
Section 1343 provides that each State may establish a program of risk
adjustment for all non-grandfathered plans in the individual and small
group market both inside and outside of the Exchange. These risk-
spreading mechanisms, which will be implemented by the Secretary and
the States, are designed to mitigate the potential impact of adverse
selection and provide stability for health insurance issuers in the
individual and small group markets.
Section 1321(a) also provides broad authority for the Secretary to
establish standards and regulations to implement the statutory
requirements related to Exchanges, reinsurance, risk adjustment, and
other components of title I of the Affordable Care Act. Section
1321(a)(2) requires, in issuing such regulations, the Secretary to
engage in stakeholder consultation in a way that ensures balanced
representation among interested parties. We describe the consultation
activities the Secretary has undertaken later in this introduction.
Section 1321(c)(1) authorizes the Secretary to establish Exchanges and
implement reinsurance, risk adjustment and other components of title I
of the Affordable Care Act in States that have not done so.
B. Introduction
Underpinning the goals of high-quality, affordable health insurance
coverage is the need to minimize the possible negative effects of
adverse selection. Adverse selection occurs when each new health
insurance purchaser understands his or her own potential health risk
better than health insurance insurers do, and health insurance issuers
are therefore less able to accurately price their products.
To avoid adverse selection, issuers may set premiums higher than
necessary in order to offset the potential expense of high-cost
enrollees. This uncertainty could also result in an issuer being more
cautious about offering certain plan designs in the Exchange. This risk
will be greatest in the first years of the Exchange, and become less as
the new market matures and issuers learn more about new enrollees.
As experience in States has shown, offsetting the adverse selection
from insurance reforms may be best accomplished by broadening the risk
pool: making coverage affordable through lower premiums and targeted
financial assistance and making coverage a responsibility so that
people pay premiums in sickness and in health. In addition, to minimize
the negative effects of adverse selection and foster a stable
marketplace from year one, the Affordable Care Act establishes
transitional reinsurance and temporary risk corridor programs, and a
permanent risk adjustment program to provide payments to health
insurance issuers that cover higher-risk populations and to more evenly
spread the financial risk borne by issuers.
The transitional reinsurance program and temporary risk corridor
program, which begin in 2014, are designed to provide issuers with
greater payment stability as insurance market reforms are implemented.
The reinsurance program, which is a State-based program, will reduce
the uncertainty of insurance risk in the individual market by making
payments for high-cost cases. This program will attenuate individual
market rate increases that might otherwise occur because of the
immediate enrollment of individuals with unknown health status,
potentially including, at the State's discretion, those currently in
State high risk pools. The risk corridor program, which is a Federally-
administered program, will protect against uncertainty in setting rates
in the Exchange by limiting the extent of issuer losses (and gains).
Under the risk corridor program, an issuer of a qualified health plan
(QHP) plan whose gains are greater than three percent of the issuer's
projections must remit charges to HHS, while HHS must make payments to
an issuer of a QHP plan that experiences losses greater than three
percent of the issuer's projections. On an ongoing basis, the risk
adjustment program is intended to provide adequate payments to health
insurance issuers that attract high-risk populations (such as those
with chronic conditions). Under this program, generally, funds are
transferred from issuers with lower risk enrollees to issuers with
higher risk enrollees. Section 1343 indicates that the Secretary may
utilize criteria and methods similar to the criteria and methods
utilized under part C or D of title XVIII of the Social Security Act.
Proposed standards for these critical programs are addressed in this
proposed rule. The chart below summarizes theses programs:
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Program Reinsurance Risk corridors Risk adjustment
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What................................. Provides funding to Limit issuer loss (and Transfers funds from
plans that enroll gains). lowest risk plans to
highest cost highest risk plans.
individuals.
Program Oversight.................... State or State Option HHS.................... State Option in a State-
if no State-Run Run Exchange.
Exchange.
Who Participates..................... All issuers and TPAs Qualified Health Plans Non-grandfathered
contribute funding; (QHPs). individual and small
non-grandfathered group market plans,
individual market inside and outside the
plans (inside and Exchange.
outside the Exchange)
are eligible for
payments.
When................................. Throughout the year After reinsurance and After end of benefit
2014-2016. risk adjustment 2014- year 2014 and
2016. subsequent years.
Why.................................. Offsets high cost Protect against Protects against
outliers. inaccurate rate- adverse selection.
setting.
Time Frame........................... 3 years (2014-2016).... 3 years (2014-2016).... Permanent.
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On August 3, 2010, HHS published a Request for Comment (RFC)
inviting the public to provide input regarding the rules that will
govern the Exchanges and related functions such as reinsurance and risk
adjustment. In particular, HHS asked States, tribal representatives,
consumer advocates, employers, issuers, and other interested
stakeholders to comment on the types of standards Exchanges and related
functions should be required to meet. The comment period closed on
October 4, 2010. In this proposed rule, we do not directly respond to
comments from the RFC; however, we generally describe the comments
received at the beginning of each subpart and refer to them, where
applicable, when discussing specific regulatory proposals. We intend to
respond to comments from the RFC, along with comments received on this
proposed rule, as part of the final rule. We also plan to disseminate
parameters that will rely on factors that may change each year, such as
the national reinsurance contribution rate and the Federally-certified
risk adjustment model, in an annually updated Federal notice of benefit
and payment parameters. In addition to the RFC, we have consulted with
stakeholders through weekly meetings with the National Association of
Insurance Commissioners, regular contact with States that received
Exchange planning grants, and meetings with tribal representatives,
health insurance issuers, trade groups, consumer advocates, employers,
and other interested parties.
II. Provisions of the Proposed Regulation
A. Subpart A--General Provisions
1. Basis and Scope (Sec. 153.10)
Section 153.10(a) of subpart A specifies that the general statutory
authority for the standards proposed in part 153 are based on the
following sections of title I of the Affordable Care Act: sections 1321
and 1341-1343. Section 153.10(b) specifies that this part establishes
standards for the establishment and operation of a transitional
reinsurance program, temporary risk corridors, and a permanent risk
adjustment program.
2. Definitions (Sec. 153.20)
Under Sec. 153.20, we set forth definitions for terms that are
used throughout part 153. Many of the definitions presented in Sec.
153.20 are taken directly from the Affordable Care Act, from existing
regulations, or from Sec. 155.20 of the notice of proposed rulemaking
entitled ``Patient Protection and Affordable Care Act; Establishment of
Exchanges and Qualified Health Plans,'' published in this issue of the
Federal Register. New definitions were created for the purposes of
carrying out regulations proposed in part 153. When a term is defined
in part 153 other than in subpart A, the definition of the term is
applicable only to the relevant subpart or section. The application of
the terms defined in this section is limited to this proposed rule.
Specifically, several terms are defined by the Affordable Care Act,
including ``individual market'' (section 1304(a)(2)), ``qualified
health plan'' (section 1301(a)(1)), and ``health plan'' (section
1301(b)(1)). The definition for an ``Exchange'' is drawn from the
statutory text in section 1311(d)(1) and 1311(d)(2)(A). The term
``State'' is also taken directly from section 1304(d) of the Affordable
Care Act to mean the 50 States and the District of Columbia.
Some definitions were taken from other interim final regulations
issued pursuant to the Affordable Care Act, including the term
``grandfathered plan'' from Sec. 147.140. The definitions for the
terms ``group health plan,'' ``health insurance issuer,'' and ``health
insurance coverage'' are cross-referenced to the definitions
established in Sec. 144.103. The definitions for the terms
``enrollee,'' ``benefit year,'' and ``small group market'' are cross-
referenced to the definitions in the notice of proposed rulemaking
entitled ``Patient Protection and Affordable Care Act; Establishment of
Exchanges and Qualified Health Plans,'' published in this issue of the
Federal Register. Other definitions used throughout this proposed rule
are established for specific purposes. For example, the terms
``applicable reinsurance entity,'' ``contributing entity,'' and
``reinsurance-eligible plan'' relate to reinsurance programs, while the
term ``risk adjustment covered plan'' relates to the risk adjustment
program.
B. Subpart B--State Notice of Insurance Benefits and Payment Parameters
In this subpart, we propose a process by which the States that are
operating an Exchange or establishing a reinsurance program issue an
annual notice to disseminate information to issuers and other
stakeholders about specific requirements to support payment-related
functions. This notice may also be a mechanism to address updates to
other Exchange-related provisions proposed elsewhere that impact
payment and benefit design. This provides a practical way to update
certain payment and benefit factors that may change annually, such as
reinsurance contribution rates that are based on annually changing
thresholds.
1. Establishment of State insurance benefits and payment parameters
(Sec. 153.100)
In Sec. 153.100(a), we propose that a State operating an Exchange,
as well as a State establishing a reinsurance program, issue an annual
notice to describe the specific parameters that the State will employ
if that State intends to utilize any reinsurance or risk adjustment
parameters that differ from those specified in the forthcoming annual
Federal notice of benefit and payment parameters. We believe the
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information contained in the State notice should be provided one year
in advance of the benefit year so that issuers may account for any
updates in their design and review of plan benefits and in establishing
and reviewing rates. As such, in paragraph (b), we propose specific
deadlines for the State notice, if it intends on modifying Federally-
proposed parameters, which will be tied to a forthcoming annual Federal
notice of benefit and payment parameters, upon which the public will
have an opportunity to comment. Below are charts detailing the
schedules for the forthcoming annual Federal notice of benefit and
payment parameters for 2014 and subsequent years, with the first two
dates occurring in the calendar year two years before the effective
date.
Annual Federal Notice of Benefit and Payment Parameters
------------------------------------------------------------------------
------------------------------------------------------------------------
HHS publishes advance notice........... Mid-October.
Comment period ends.................... Mid-November.
HHS publishes final notice............. Mid-January.
------------------------------------------------------------------------
We propose that States that plan to modify Federal parameters issue
their notice by early March in the calendar year before the effective
date. We understand that States may have their own timelines for public
notice; this proposed requirement sets an outer bound for the final
notice to be issued by a State that intends to utilize any reinsurance
or risk adjustment parameters that differ from those specified in the
forthcoming annual Federal notice of benefit and payment parameters. We
seek comment on whether the proposed timing allows issuers sufficient
time to reflect these State requirements in setting rates. In
particular, we seek comment as to whether the schedule should be
adjusted in the initial year to provide issuers additional time for
setting rates for 2014.
We also propose in paragraph (c) that if a State operating an
Exchange or establishing a reinsurance program does not provide public
notice of its intent to have State-specific parameters for any
provision within the period specified in paragraph (b) of this section,
the parameters set forth in the forthcoming annual Federal notice of
benefits and payment parameters will serve as the State parameters.
2. Standards for the State Notice (Sec. 153.110)
In paragraph (a)(1), we propose that content related to the
reinsurance program include the data requirements and data collection
frequency for health insurance issuers to receive reinsurance payment.
In paragraph (a)(2), we propose that the State specify the attachment
point, reinsurance cap, and coinsurance rate if the State plans to use
different values than those set forth in the forthcoming annual Federal
notice of benefit and payment parameters. In paragraph (a)(3), we
propose that if a State plans to use more than one reinsurance entity,
the State must include in the notice information related to the
geographic boundaries of each applicable reinsurance entity and
estimates related to the number of enrollees, payments, and premiums
available for contributions in each region. We note that the
forthcoming annual Federal notice of benefit and payment parameters
will provide States with estimates for these values at the State level.
In paragraph (b), we propose content related to the risk adjustment
program if the State intends to modify the risk adjustment parameters
set forth in the forthcoming annual Federal notice of benefits and
payment parameters, including a detailed description of and rationale
for any modification. Specifically, the State description of
modifications should include: the methodology for determining average
actuarial risk, including the establishment of risk pools and the
Federally-certified risk adjustment model; and the risk adjustment data
validation methodology.
C. Subpart C--State Standards for the Transitional Reinsurance Program
for the Individual Market
Section 1341 of the Affordable Care Act provides that a
transitional reinsurance program is established in each State to help
stabilize premiums for coverage in the individual market during the
years 2014 through 2016. Under this provision, all health insurance
issuers, and third-party administrators on behalf of self-insured group
health plans, must make contributions to a not-for-profit reinsurance
entity to support reinsurance payments to individual market issuers
that cover high-cost individuals, except for high-cost individuals in
grandfathered individual market health plans. As a basis for
reinsurance payments, the law directs the Secretary to develop a list
of 50 to 100 medical conditions to identify high-cost individuals or to
identify alternative methods for payment in consultation with the
American Academy of Actuaries (AAA). In this subpart, we codify section
1341 of the Affordable Care Act as it relates to establishing a
reinsurance program. Related standards on health insurance issuers with
respect to reinsurance are proposed in subpart E.
We identified three critical policy goals of the transitional
reinsurance program. First, the transitional reinsurance program should
offer protection to health insurance issuers against medical cost
overruns for high-cost enrollees in the individual market, particularly
those that are newly insured or those with previously excluded
conditions, thereby allowing issuers to set lower premiums.
Second, a transitional reinsurance program should permit early and
prompt payment of reinsurance funds during the benefit year to help
offset the potential high costs of health insurance issuers early in
the benefit year. This objective is particularly important since the
two other risk sharing protections against adverse selection--risk
adjustment and risk corridors--are likely to be calculated after the
end of the benefit year.
Third, the transitional reinsurance program should require minimal
administrative burden since it is a temporary program. Given the short-
term nature of the program, the costs of setting up and administering
this program must be commensurate with its benefits over the three-year
window.
We received a number of comments on the transitional reinsurance
program in response to the RFC. Multiple respondents emphasized that,
although underlying conditions are referenced in the Affordable Care
Act with respect to the reinsurance provisions, reinsurance programs
typically do not consider the health status of the individual. Health
insurance issuers seek traditional reinsurance to protect against
unusually high medical cost of enrollees during a coverage year.
Generally, reinsurance is not tied to underlying conditions that lead
to high enrollee medical costs but to high claims costs beyond a
specific dollar threshold within a coverage period, regardless of
health condition.
Several commenters asserted that coverage of specific conditions
under a reinsurance program could lead to discriminatory practices
toward certain individuals, with one commenter noting that identifying
medical conditions as a basis for reinsurance payments requires a level
of verification beyond that of traditional reinsurance. Another
commenter contended that traditional reinsurance that makes payments
based solely on incurred costs does not encourage efficient and
effective care.
We considered all of these comments in the development of this
subpart, along with commenter suggestions on entities that could serve
as the
[[Page 41934]]
applicable reinsurance entity for a State. As explained more fully
below, we believe that States should have discretion to make a number
of decisions within the proposed standards, including the
appropriateness of any specific entity as an administrator of the
reinsurance program.
1. Definitions (Sec. 153.200)
In Sec. 153.200, we propose several definitions that are critical
to the establishment of a properly functioning transitional reinsurance
program. We define an ``attachment point'' as the threshold dollar
amount of costs incurred by a health insurance issuer for payment of
essential health benefits provided for an enrolled individual, after
which threshold, the costs for covered essential health benefits are
eligible for reinsurance payments. The definition of ``essential health
benefits'' will be proposed in future rulemaking. We define
``coinsurance rate'' as the rate at which the applicable reinsurance
entity will reimburse the health insurance issuer for costs incurred to
cover essential health benefits after the attachment point and before
the reinsurance cap. We define the ``reinsurance cap'' as the threshold
dollar amount for costs incurred by a health insurance issuer for
payment of essential health benefits provided for an enrolled
individual, after which threshold, the costs for covered essential
health benefits are no longer eligible for reinsurance payments. In
order to ensure reinsurance payments are made on a comparable set of
benefits, we propose that payments be calculated for costs to cover the
essential health benefits package. We solicit comments on alternatives
to the use of the essential health benefits package.
We define ``contribution rate'' as the rate, based on a percent of
premium, used to determine the dollar amounts each health insurance
issuer and third party administrator, on behalf of a self-insured group
health plan, must contribute to a State reinsurance program. We define
the ``percent of premium'' as the percent of total revenue, based on
earned premiums as described in Sec. 158.130(a), in all fully-insured
markets (inside and outside of the Exchange) or the percent of total
medical expenses in a self-insured market. Part 158 describes standards
for health insurance issuers implementing the medical loss ratio
requirements under section 2718 of the PHS Act. Finally, we define
``third party administrator'' as the claims processing entity for a
self-insured group health plan. As such, if a self-insured group health
plan processes its own claims, the self-insured plan will be considered
a third-party administrator for the purpose of the reinsurance program.
2. State Establishment of a Reinsurance Program (Sec. 153.210)
In Sec. 153.210, we describe standards for States regarding the
establishment of a reinsurance program. We propose in paragraph (a)
that each State that elects to operate an Exchange must also establish
a reinsurance program as required by the law. In paragraph (a)(1), we
codify section 1341(a) of the Affordable Care Act, which requires that
such States must either enter into a contract with an existing
applicable reinsurance entity or establish an applicable reinsurance
entity to carry out the provisions for the reinsurance program
discussed in this subpart. We believe the statute allows State
flexibility in selecting an applicable reinsurance entity and do not
propose more specific guidelines.
The Affordable Care Act also allows States to set up more than one
reinsurance entity, although this option may increase administrative
costs. We propose in paragraph (a)(2) that, for any State that chooses
to have more than one reinsurance entity, the State must publish in a
State notice, described in Sec. 153.110, information regarding the
geographic divisions between the applicable entities. We further
interpret the statute to imply that the geographic divisions of the
applicable reinsurance entities must be distinct and, together, cover
the entire individual market in the State and not just certain areas or
populations. In paragraph (a)(3), we propose to allow the State to
permit a reinsurance entity to subcontract administrative functions,
provided that the State reviews and approves these subcontracted
arrangements as described in paragraph (a)(4). We interpret the statute
to allow flexibility in the performance of administrative functions,
with the understanding that the responsible party must be the
applicable reinsurance entity.
We propose in paragraph (a)(5) that the establishment of, or
contract with, the applicable reinsurance entity must extend for a
sufficient period to ensure that the entity can fulfill all reinsurance
requirements for all benefit years through 2016 and any activities
required to be undertaken in subsequent periods. Any State in which
contributions remain to be disbursed for benefit years beyond 2016 must
ensure that an applicable reinsurance entity is available for required
payment activities for additional benefit years. When establishing or
contracting with an applicable reinsurance entity, States must
establish sufficient time to pay reinsurance claims after 2016. This
time cannot extend past December 31, 2018 as described in section
1341(b)(4) of the Affordable Care Act.
We clarify in paragraph (b) that there may be situations in which
an applicable reinsurance entity operates a reinsurance program for
more than one State. In other words, several States may contract with
one reinsurance entity, but that entity must maintain separate risk
pools for each State's reinsurance programs. In such cases, we consider
each contract to be an individual reinsurance arrangement between a
specific State and the applicable reinsurance entity.
We propose in paragraph (c) to allow a State that does not elect to
establish an Exchange to operate its own reinsurance program. Under
this circumstance, the State will be required to carry out the
provisions of this subpart. In paragraph (d), we propose that, if a
State does not elect to establish an Exchange and does not determine to
operate its own reinsurance program, HHS will establish the reinsurance
program to perform all the reinsurance functions for that State. These
functions would include the collection of all contributions described
in Sec. 153.220, including funds required to operate and administer
the applicable reinsurance functions. In paragraph (e), we propose that
each State that establishes an Exchange or operates a reinsurance
program must ensure that each applicable reinsurance entity complies
with all provisions of this subpart and with subpart E.
3. Collection of Reinsurance Contribution Funds (Sec. 153.220)
In Sec. 153.220, we describe standards for how States must ensure
that the reinsurance entity collects reinsurance contribution funds.
Section 1341 provides for the collection of contribution funds to cover
all reinsurance payments and also permits the collection of funds to
cover administrative costs incurred by the applicable reinsurance
entity. These contribution funds must be collected by the reinsurance
entity from all health insurance issuers and third party administrators
on behalf of self-insured plans. The aggregate contribution funds for
purposes of making reinsurance payments are specified as $10 billion in
2014, $6 billion in 2015, and $4 billion in 2016 as described in
section 1341(b)(3)(B)(iii). None of these funds can be used for any
purpose other than paying reinsurance or administering the reinsurance
programs. The aggregate
[[Page 41935]]
contribution funds would be returned to those issuers that qualify for
the transitional reinsurance program. In paragraph (a)(1), we codify
the aggregate contribution amounts.
The statute also requires that the reinsurance entity collect
specified additional contribution funds for deposit into the general
fund of the U.S. Treasury. The additional contribution funds to the
general fund are set at $2 billion in calendar years 2014 and 2015, and
$1 billion in 2016 as described in section 1341(b)(3)(B)(iv). The
Congressional Budget Office considered the additional contributions to
score as an offset for the costs of administering the Early Retiree
Reinsurance Program within the 10 year budget window, however, these
funds will not be used to directly pay for ERRP costs. In paragraph
(a)(2), we codify these additional contribution amounts.
Although the transitional reinsurance program is State-based,
section 1341(b)(3) sets contribution levels for the program on a
national basis. We considered two approaches by which to collect
contribution funds: (1) Use of a national uniform contribution rate,
and (2) use of a State-level allocation, both set by HHS to ensure that
the sum of all contribution funds equals the national amounts set forth
in statute. In paragraph (b) we propose the first approach to collect
contribution funds for amounts listed in paragraph (a)(1) and (a)(2).
Use of a national contribution rate is a simpler approach. Further,
since there is significant uncertainty about Exchange enrollment, the
overall health of the enrolled population, and the cost of care for new
enrollees, we believe that a national contribution rate would be the
less ambiguous approach of the two. All contribution funds collected by
a State establishing a reinsurance program, using the national
contribution rate, will stay in that State and be used to make
reinsurance payments on valid claims submitted by reinsurance-eligible
plans in that State. A State-level allocation would be more complex to
administer. We solicit comments regarding whether to use a State-level
allocation or a national rate.
There are two methods we considered for determining contributions
using a national rate: (1) A percent of premium amount applied to all
contributing entities, and (2) a flat per capita amount applied to all
covered enrollees of contributing entities. In paragraph (b)(1), we
propose the percent of premium method as the fairest method by which to
collect these contributions, as it allows States that tend to have
higher premium and health care costs, and thus reinsurance claims, to
collect additional funds towards reinsurance. A flat, per capita amount
could represent an excessively high percent of premium for products
that are designed and intended to have low premiums targeted toward a
population such as young adults and children. HHS will establish the
percentage through a forthcoming annual Federal notice of benefit and
payment parameters, based on its estimate of total premiums in the
fully insured market and medical expenses in the self-insured market.
We invite comments regarding the preferred method for calculating
health insurance issuer contribution funds using a national rate.
In paragraph (b)(2), we also propose that all contribution funds
collected for reinsurance payments must be used for reinsurance, and
all contribution funds collected for the U.S. Treasury must be paid to
the U.S. Treasury. In paragraph (b)(3)(i), we propose that a State may
collect more than its amount collected in the national rate, if the
State believes that these amounts are not sufficient to cover the
payments it will make under the payment formula. Nothing in the
Affordable Care Act precludes a State from supplementing this program.
In paragraph (b)(3)(ii), we also propose that a State may collect more
than its amount collected at the national rate to cover the
administrative costs of the applicable reinsurance entity.
We have also considered the frequency by which applicable
reinsurance entities should collect contribution funds from
contributing entities. For example, applicable reinsurance entities
could collect contribution funds intended for reinsurance payments and
payments to the U.S. Treasury on a monthly basis beginning in January
2014 so that reinsurance payments could begin in February 2014. We
invite comments on the most appropriate method and frequency to collect
reinsurance contribution funds.
4. Calculation of Reinsurance Payments (Sec. 153.230)
As required, in Sec. 153.230 we set the payment policy for the
reinsurance program based upon consultation with the AAA. The
reinsurance payment policy addresses two basic issues: (1) How to
determine the individuals who are covered by reinsurance, and (2) how
to determine appropriate payment amounts. Given the short-term nature
of the program, our primary objective is to select an implementation
approach that is administratively and operationally simple, but
satisfies the goals of the program. Therefore, we would use reliable
and readily accessible data sources that would allow health insurance
issuers to receive prompt payment. We propose in paragraph (a) of this
section that coverage be based on items and services within the
essential health benefits for an individual enrollee that exceeds an
attachment point. We invite comments regarding this proposed provision
or if we should allow reinsurance payment for more generous coverage
beyond that provided by essential health benefits.
In paragraph (b), we propose to announce the reinsurance payment
formula and State-specific values for the attachment point, reinsurance
cap, and coinsurance rate in the forthcoming annual Federal notice of
benefits and payment parameters. We believe that publishing this
information in a Federal notice is the best approach for announcing the
attachment point and reinsurance cap as these values may change in
years 2015 and 2016. The Affordable Care Act does not suggest that the
three-year reinsurance program should replace commercial reinsurance or
internal risk mitigation strategies. There will be a continued need for
ongoing commercial reinsurance. Therefore, we propose establishing a
reinsurance cap set at the attachment point of traditional reinsurance.
We seek comment on this approach.
In paragraph (b)(1), we propose that the reinsurance payment amount
be a percentage of those costs above an attachment point and below a
reinsurance cap. However, we believe States may have unique situations
and recommend allowing a State that runs the reinsurance program to
establish its own payment formula by varying the attachment point,
coinsurance rate, and reinsurance cap. The reasoning for the policy
proposed in paragraph (b)(1) follows below, along with a discussion of
some operational issues related to the timing of reinsurance payments.
In our consultation, AAA laid out a number of different ways to
implement the reinsurance payment provisions. A letter outlining this
issue can be found on their Web site at https://www.actuary.org/pdf/health/Reinsurance%20Options%209%2022%202010.pdf. With respect to the
determination of who will be covered, AAA identified four possible
approaches:
(1) Identification of individuals with specific conditions based on
claims data.
(2) Identification of individuals with specific conditions based on
survey data.
(3) Identification of high-risk individuals using risk adjustment
data
[[Page 41936]]
and a condition-based risk adjustment model.
(4) Identification of reinsurance-eligible individuals based on
medical cost to the health insurance issuer for covered benefits.
The last option, which we propose to adopt, focuses on all high-
cost enrollees without respect to the conditions that caused the
increased cost. This approach would be most familiar to health
insurance issuers and administratively less burdensome than the first
and second options. Data will be immediately available and dependent
only on health insurance issuers filing proof of payment for claims.
While the third option might mitigate some of the burden and cost
concerns, it would not eliminate the timing issues that are critical to
effective reinsurance implementation. In 2014, we will be able to
collect reliable condition information only for those conditions that
are diagnosed during that benefit year. In other words, condition-based
reinsurance will not be a predictive model until at least 2015 due to
lack of sufficient and timely data. As a result, we found all of the
condition-based approaches to eligibility identification to be
considerably more burdensome in comparison to the medical cost approach
without significant improvement in outcomes from a determination
standpoint. We solicit comments for a suitable method for ensuring that
issuer costs are appropriate and accurate.
With respect to the decision on how to calculate payments, AAA
discussed the following two principal approaches:
(1) Payments for costs incurred above an attachment point.
(2) Fixed payment schedule for specific conditions.
The first option, payment for costs incurred above an attachment
point, aligns compensation with cost by reimbursing health insurance
issuers that have enrollees in the individual market who actually
experience higher health costs. We propose this approach, which
represents a more traditional view of reinsurance. It is also
consistent with the Early Retiree Reinsurance Program. Health insurance
issuers are eligible for reinsurance payments only when costs are in
excess of a certain level. The proposed approach is simpler from an
operational perspective; the only data required to implement it will be
cost and claims data for individuals. This approach also works in
tandem with the medical-cost method of determining eligibility.
The fixed payment schedule option, which we are not proposing to
adopt, has the effect of paying the same amount for all individuals who
present with a specific condition regardless of actual enrollee cost.
This method assumes that high-cost individuals incurring highest costs
across plans are of equal care mix and does not make distinctions. This
method also penalizes issuers that attract more individuals with higher
disease burden within disease categories, and thus may be less
effective in mitigating the actual financial impact of adverse
selection.
In sum, we propose using medical cost experience only to identify
eligible enrollees for which health insurance issuers would receive
reinsurance. Accordingly, we also propose to use the attachment point
approach for determining payment. As described by AAA, an attachment
method for calculating reinsurance payments considers costs only for
high-risk individuals and may reduce incentives for health insurance
issuers to control costs. However, use of a reinsurance cap, as well as
the requirement for health insurance issuer coinsurance rate above the
attachment point and below the cap, may incentivize health insurance
issuers to control costs. We invite comment regarding the best method
of determining payments for the reinsurance program, which can relate
to either our criteria for selecting eligible enrollees for payment or
the method for calculating the payment amounts.
We propose in Sec. 153.230(b)(2) that all payments to the general
fund of the U.S. Treasury be made in a manner specified in the
forthcoming annual Federal notice of benefits and payment parameters.
We have also considered the frequency for which payments should be made
to the U.S. Treasury. For example, the applicable reinsurance entities
could remit payment on a monthly or quarterly basis commencing February
28, 2014, continuing through January 31, 2017 or until States have
remitted the full amount of all payments. We invite comment as to the
most appropriate frequency and method for applicable reinsurance
entities to remit payment to the U.S. Treasury.
We propose in Sec. 153.230(c) to allow some degree of State
variation from the reinsurance parameters proposed by HHS. The
Affordable Care Act contemplates the potential of modifications to the
payment parameters through a statutory reference to ``model
regulation'' as opposed to strict Federal regulation. Therefore, we
propose in paragraph (c)(1) that the State may alter the attachment
point, reinsurance cap, including elimination of the cap, and
coinsurance rate. We propose in paragraph (c)(2) that States must
publish any modification to the reinsurance payment formula and
parameters in a State notice as described in Sec. 153.110 of this
part. We propose in paragraph (c)(3) that the State must ensure that
all proposed alterations to the reinsurance formulas proposed by HHS,
including payments and contributions, result in the applicable
reinsurance entity having sufficient contributions to meet of all of
its obligations for payments. Such alterations to reinsurance
parameters do not require HHS approval.
We believe that a State may have many reasons to make adjustments
to the HHS reinsurance payment formula. First, the State may determine
to increase the reinsurance benefit above the level established by HHS.
Second, the State may have additional unexpended funds from a prior
contribution period and may seek to adjust the reinsurance formulas to
disburse the unexpended funds. Third, the State may elect to pay the
same amounts recommended by HHS, but may wish to make those payments
either earlier or later in the medical cost experience. Finally, the
State may decide to vary the annual amounts without varying the total
across all three years.
5. Disbursement of Reinsurance Payments (Sec. 153.240)
In Sec. 153.240, we propose parameters for the timing of
reinsurance payments. In paragraph (a) of this section, we propose that
States must ensure that the applicable reinsurance entity collects from
health insurance issuers of reinsurance-eligible plans data required to
calculate payments described in Sec. 153.230, according to the data
requirements and data collection frequency specified by the State in
the notice described in Sec. 153.110 or in the forthcoming annual
Federal notice of benefit and payment parameters.
Since we are proposing that reinsurance eligibility and payments be
based on the health insurance issuer medical costs, we believe that a
standard method of collecting the required information should be a
reasonable goal and easily achievable. Further, a standard method will
enable multi-State health insurance issuers to submit data promptly
without causing disruption for any single-State health insurance
issuer.
In paragraph (b), we propose that the State must ensure that each
applicable reinsurance entity makes payments that do not exceed
contributions and makes payments to health insurance issuers of
reinsurance-eligible plans according to Sec. 153.230. We also propose
in paragraph
[[Page 41937]]
(b)(2) to allow States to reduce payments on a pro rata basis to match
the amount of contributions received by the State in a given
reinsurance year. Any pro rata reductions made by the State must be
made in a fair and equitable manner for all health insurance issuers in
the individual market.
In paragraph (b)(3), we propose that the State must ensure that an
applicable reinsurance entity makes payments as specified in Sec.
153.410(b) to the issuer of a reinsurance-eligible plan after receiving
a valid claim for payment. We invite comments as to the most
appropriate timeframe that an applicable reinsurance entity should make
payments for reinsurance claims submitted, particularly, since
reinsurance claims may exceed contributions for a given month, but not
total projected contributions for the entire year.
We have also considered deadlines by which a health insurance
issuer could submit a claim for a given reinsurance benefit year. For
example, Medicare Part D has a requirement for data submission within 6
months after the end of the coverage year, and we believe this is an
appropriate standard. We seek comment as to whether the deadline for
health insurance issuers for submitting reinsurance claims should be
the same or different.
A standard deadline would allow for an orderly completion of the
payment processes that depend upon reinsurance, specifically the risk
corridors program and the medical loss ratio (MLR) reporting to support
the rebate calculations in section 2718 of the PHS Act. Health
insurance issuers must know the value of their reinsurance payments and
must report that value to HHS under the risk corridor and MLR reporting
provisions. Failure to establish a standard deadline could result in
excessive delays in the completion of the rebate calculations under
section 2718 of the PHS Act. Such delays would in turn delay receipt of
rebate payments by the affected enrollees. We invite comment on the use
of a standard deadline and the most appropriate deadline considering
the interaction of the reinsurance program with risk corridor and the
MLR process.
Finally, in paragraph (c), we propose that for each benefit year,
the State maintains all records related to the reinsurance program for
10 years, consistent with requirements for record retention under the
False Claims Act. We solicit comments on this record retention
requirement.
5. Coordination With High-Risk Pools (Sec. 153.250)
In Sec. 153.250, we codify the requirement under section 1341(d)
of the Affordable Care Act that States shall eliminate or modify high
risk pools to the extent necessary to carry out the reinsurance
program. As stated in the introduction to this subpart, the reinsurance
program required under the Affordable Care Act is designed to help
mitigate adverse selection risks in the first three years of Exchange
operation. In paragraph (a), we codify the above-referenced section. In
paragraph (b), we propose to allow a State that continues its high risk
pool to coordinate its high risk pool with its reinsurance program to
the extent it conforms to the provisions of this subpart. We seek
comment regarding whether a high risk pool that continues operation
after January 1, 2014 should be considered an individual market plan
eligible for reinsurance under this provision.
D. Subpart D--State Standards Related to the Risk Adjustment Program
In subpart D, we propose standards for States with respect to the
risk adjustment program required under section 1343 of the Affordable
Care Act. Parallel provisions on health plans are proposed in subpart G
of this subpart. Section 1343 provides for a program of risk adjustment
for all non-grandfathered plans in the individual and small group
market both inside and outside of the Exchange. Under this provision,
the Secretary, in consultation with the States, must establish criteria
and methods to be used by States in determining the actuarial risk of
plans within a State. States electing to operate an Exchange, or HHS on
behalf of States not electing to operate an Exchange, will assess
charges to plans that experience lower than average actuarial risk and
use them to make payments to plans that have higher than average
actuarial risk. Thus, the risk adjustment program is intended to reduce
or eliminate premium differences between plans based solely on
expectations of favorable or unfavorable risk selection or choices by
higher risk enrollees in the individual and small group market. The
risk adjustment program also serves to level the playing field inside
and outside of the Exchange, reducing the potential for excessive
premium growth or instability within the Exchange.
We received a variety of comments on the risk adjustment process in
response to the RFC. Many commenters expressed strong opinions about
the extent of Federal oversight in risk adjustment and the level of
flexibility afforded States for developing a risk adjustment model and
how much to rely on current prospective models being used, for example,
in Medicare Advantage or concurrent risk adjustment models being used.
We also received comments related to data standards and the role of
the Federal government. Commenters noted difficulties in obtaining
certain types of data accurately and expressed concerns about audit
requirements. Commenters discussed upcoding problems, as well as issues
of credibility of the underlying systems to support risk adjustment.
Commenters also raised issues related to the transition both to the
Exchanges and the risk adjustment program, with the primary issue being
the timing of claims data availability in the early years of the
program. Some States indicated that they are developing ``all payer
claims databases,'' although not all of these databases are expected to
be complete by 2014. However, even existing ``all payer'' databases
will not contain any data from the currently uninsured individuals, who
are expected to comprise a segment of new individual market enrollees.
Overall, we believe that States have discretion to make a number of
decisions within the standards we propose herein.
1. Definitions (Sec. 153.300)
We propose several definitions that are specifically applicable to
this subpart in Sec. 153.300. First, we distinguish between risk
adjustment models and risk adjustment methodologies. We define ``risk
adjustment model'' as an actuarial tool used to predict health plan
costs based on the relative actuarial risk of enrollees in risk
adjustment covered plans, which we had previously defined as non-
grandfathered plans in the individual and small group market. We define
``risk adjustment methodology'' as the specific set of procedures used
to determine average actuarial risk.
A ``Federally-certified risk adjustment methodology'' is a risk
adjustment methodology that has been developed and promulgated by HHS
or has been certified by HHS. As explained further in Sec. 153.330,
States may use a modified methodology if it has been certified by HHS
and deemed a Federally-certified risk adjustment methodology. An
``alternate risk adjustment methodology'' is a risk adjustment
methodology proposed by one or more States for use in place of the
Federally-certified risk adjustment methodology, not yet certified by
HHS. Additionally, we define ``risk pool'' as the population
[[Page 41938]]
across which risk is distributed in risk adjustment.
2. Risk Adjustment Administration (Sec. 153.310)
Section 1343(a) of the Affordable Care Act establishes that States
must assess risk adjustment charges and provide risk adjustment
payments based on plan actuarial risk as compared to a State average.
We interpret this provision to mean that risk pools must be aggregated
at the State level, even if a State decides to utilize regional
Exchanges. Furthermore, section 1343(c) indicates that risk adjustment
applies to individual and small group market health insurance issuers
of non-grandfathered plans within a State, both inside and outside of
the Exchange. Accordingly, similar to our approach in reinsurance, if
multiple States contract with a single entity to administer risk
adjustment, risk may not be combined across State lines, but must be
pooled at the individual State-level.
In this section, in paragraph (a)(1), we specify that any State
electing to establish an Exchange is eligible to establish a risk
adjustment program. Pursuant to section 1321(a)(1)(D) of the Affordable
Care Act, we propose in paragraph (a)(2) that for States that do not
operate an Exchange, HHS will establish a risk adjustment program. We
also clarify in (a)(3) that HHS will administer all of the risk
adjustment functions for any State that elects to establish an Exchange
but does not elect to administer risk adjustment. In paragraph (b), we
clarify that the State may elect to have an entity other than the
Exchange perform the risk adjustment functions of this subpart provided
that the selected entity meets the requirements for eligibility to
serve as the Exchange proposed in Sec. 155.110 of the notice of
proposed rulemaking entitled, ``Patient Protection and Affordable Care
Act; Establishment of Exchanges and Qualified Health Plans.''
In paragraph (c), we propose timeframes for completion of the risk
adjustment process. We propose that all payment calculations must
commence with the 2014 benefit year. The Affordable Care Act does not
explicitly set forth a timeframe by which risk adjustment programs must
start. However, we believe risk adjustment must be coordinated with
reinsurance and risk corridors to help stabilize the individual and
small group markets and ensure the viability of the Exchanges, which
begin in 2014. Timely completion of the risk adjustment process is
important because risk adjustments affect calculations of both risk
corridors and the rebates specified under section 2718 of the PHS Act.
By law, HHS will be performing the risk corridors calculations for all
qualified health plans (QHP) in all States. Therefore, we seek comment
on the appropriate deadline by which risk adjustment must be completed.
For example, HHS may require that States complete risk adjustment
activities by June 30 of the year following the benefit year. This
timing assumes at least a three-month lag from items and services
furnished in a benefit year and the end of the data collection period.
This approach is similar to the Medicare Advantage (Part C) risk
adjustment data submission, in which the annual deadline for risk
adjustment data submission is 2-months after the end of the 12-month
benefit period, but may, at CMS's discretion, include a 6-month lag
time.
Since risk adjustment is designed as a budget neutral activity,
States would likely need to receive remittances from issuers of low
actuarial risk plans before making payments to issuers of high
actuarial risk plans. We seek comment on an appropriate timeframe for
State commencement of payments.
To ensure the each State's risk adjustment program is functioning
properly, we believe that States should provide HHS with a summary
report of risk adjustment activities for each benefit year in the year
following the calendar year covered in the report. The summary report
should include the average actuarial risk score for each plan,
corresponding charges or payments, and any additional information HHS
deems necessary to support risk adjustment methodology determinations.
We seek comment on the requirements for such reports, including data
elements and timing.
3. Federally-Certified Risk Adjustment Methodology (Sec. 153.320)
Section 1343(b) of the Affordable Care Act requires HHS to
establish criteria and methods for risk adjustment in coordination with
the States. We interpret this provision to mean that HHS will establish
a baseline methodology to be used by a State, or HHS on behalf of the
State, in determining average actuarial risk. To fulfill the terms of
that basic requirement, we propose in paragraph (a)(1) a Federally-
certified risk adjustment methodology that will be developed and
authorized by HHS. Section 1343 indicates that the Secretary may
utilize criteria and methods similar to the criteria and methods
utilized under part C or D of title XVIII of the Social Security Act.
We seek to minimize issuer burden and will leverage existing processes
of part C and D wherever appropriate while recognizing the differences
in market demographics in determining methodologies.
We considered proposing a requirement that all States utilize a
Federally-certified risk adjustment methodology that was developed and
promulgated by HHS. However, we recognize that States may have
alternative methods that can achieve similar results. We also know that
some States have already implemented risk adjustment models for
programs such as Medicaid. We believe that the terms ``methods and
criteria'' in the Affordable Care Act can be interpreted to allow
certain levels of State variation provided that States meet basic
Federal standards. Therefore, we propose in paragraph (a)(2) that a
State-submitted alternative risk adjustment methodology may become a
Federally-certified risk adjustment methodology through HHS
certification. States that would like to use other methodologies should
view the Federally-certified risk adjustment methodology as a
comparative standard for their alternate risk adjustment methodologies.
A State's alternate risk adjustment methodology should offer similar or
better performance in that State than the Federally-certified risk
adjustment methodology as determined based on the criteria set forth in
Sec. 153.330(a)(2). After HHS approves a State alternative risk
adjustment methodology, that methodology is considered a Federally-
certified risk adjustment methodology.
We propose in paragraph (b) of this section that a State that is
operating a risk adjustment program must use one of the Federally-
certified risk adjustment methodologies that HHS will publish in a
forthcoming annual Federal notice of benefit and payment parameters or
that has been published by the State in that State's annual notice, as
described in Sec. 153.110(b). These notices will include a full
description of the risk adjustment model, including but not limited to:
demographic factors, diagnostic factors, and utilization factors if
any; the qualifying criteria for establishing that an individual is
eligible for a specific factor; the weights assigned to each factor;
the data required to support the model; and information regarding the
deadlines for data submission and the schedule for risk adjustment
factor determination. We seek comments on other information that should
be included in this notice.
In paragraph (b)(2), we propose that the risk adjustment
methodology will also describe any adjustments made to
[[Page 41939]]
the risk adjustment model weights when calculating average actuarial
risk, including premium rating variation. Under section 2701 of the PHS
Act as amended by the Affordable Care Act, issuers may vary rates
within defined maximum ranges based on age and tobacco use. Plans may
also vary rates by geographic rating area and family size. An approach
is needed to account for this allowed variation in rating so that risk
adjustment does not adjust for the actuarial risk that issuers have
been allowed to incorporate into their premium rates.
We invite comments on possible approaches to achieving the stated
policy goals. In particular, we request comments on the implications of
approaches for market efficiency, potential incentives created in how
issuers set rates, and how approaches address allowed rating variation
for age, family size, and tobacco use. We request comments on other
approaches to determining average actuarial risk and whether links
exist between potential actuarial risk methodology and potential
payments and charges methodology as described in Sec. 153.345. We also
request comments on the extent of State flexibility that should be
allowed in adopting an approach to determine average actuarial risk.
In paragraph (c), we propose that HHS will specify in a forthcoming
annual Federal notice of benefit and payment parameters the Federally-
certified risk adjustment methodology that will apply when the Federal
government operates the risk adjustment program in States that do not
elect to operate an Exchange, or that elect to operate an Exchange but
not a risk adjustment program.
To assist States in assessing a potential alternate risk adjustment
methodology, HHS will publish the basic standards any alternate risk
adjustment methodology must meet in the forthcoming annual Federal
notice of benefit and payment parameters that contains the details of
one or more Federally-certified risk adjustment methodologies. These
standards will likely include the minimum number or types of factors
that must be included and the statistical metrics the models will be
expected to achieve. Prior to that formal publication of standards, and
as part of the development of the Federally-certified methodologies and
associated standards for alternate risk adjustment methodologies, HHS
will consult with States regarding its development and the minimum
standards for alternate risk adjustment methodologies. States may use
information from the consultation process to either develop their own
methodologies or decide to utilize the Federally-certified risk
adjustment methodology.
The statute is not specific with respect to the method by which
States are expected to determine the precise value of payments and
charges. We believe the payments and charges methodology should
mitigate the financial impact of adverse selection on risk adjustment
covered plans, while limiting overall issuer uncertainty. We have
identified two methods that may achieve those goals--multiplying plan
average actuarial risk by the State average normalized premiums and
multiplying plan average actuarial risk by the specific premiums
collected for each plan. To determine the precise value of payments and
charges using State average normalized premiums, plan average premiums
are first normalized to the actuarial value of their benefits by
dividing each plan's premiums by the plan's actuarial value. This step
is necessary because plan premiums reflect differences in the benefits
and administration, including actuarial value.
Next, States would use these normalized average premiums as the
basis for the State normalized average premiums, weighted by enrollee
months, for all plans in a specific risk pool. The State normalized
average premium represents the premium that will be used in the charges
and payments calculation. Next, the amount by which a plan's average
actuarial risk deviates from the state average actuarial risk is
calculated. This deviation in actuarial risk is multiplied by the State
normalized average premium, the plan's enrollee months, and the plan's
actuarial value.
The alternative methodology uses plan-specific premiums as the
basis for calculating the gross plan charges and gross plan payments,
assuming that health plan premiums reflect State average actuarial risk
and the expectation that risk adjustment accounts for favorable or
adverse selection. Under this methodology, the deviation in actuarial
risk is multiplied by the aggregated plan premiums to determine the
gross plan charges and total plan payments that should be collected
from or disbursed to health plans through risk adjustment. We request
comment on the validity of these assumptions, including the two methods
described, and any alternative methods that could be used to calculate
payments and charges that would reduce uncertainty for plans. Finally,
we request comment on any intentional and unintentional consequences
from the use of either methodology.
Due to premium variance, we expect inequalities between payments
and charges, which could result in aggregate surpluses or deficits if a
simple collection of gross plan charges and disbursement of gross plan
payments is implemented. We have identified at least three methods for
adjusting gross calculations when gross plan payments are greater than
gross plan charges: decrease plan payments on a prorated basis to equal
plan charges; increase plan charges on a prorated basis to equal plan
payments; or split the shortfall between high-risk and low-risk plans
and pro-rating in both directions. We also identified two methods for
when gross plan charges are greater than the sum of gross plan
payments: reducing gross plan charges on a prorated basis such that the
net plan charges are sufficient to cover total plan payments; and
putting excess plan charges in a reserve account that would provide a
margin of error to ensure that all necessary payments can be covered by
charges.
We request comment on these methodologies and whether there are
alternative methodologies that might be used, including their
strengths, limitations, intentional or unintentional consequences and
any links that exist between the payments and charges methodology and
the actuarial risk methodology.
4. State Alternate Risk Adjustment Methodologies (Sec. 153.330)
We interpret the statutory provision regarding the Secretary's
establishment of criteria and methods for risk adjustment under section
1343(b) to require substantive Federal oversight of the risk adjustment
process. Accordingly, while we propose to allow States to utilize
alternate risk adjustment methodologies, we also propose in paragraph
(a) of Sec. 153.330 that States taking advantage of this flexibility
must submit their proposed alternate risk adjustment methodologies for
HHS review and certification.
As outlined in paragraph (a)(1), the State request must include
certain information about the State's proposed risk adjustment
methodology. As noted in paragraph (a)(1)(i), any request must identify
the risk pools to which the methodology will apply. Paragraph
(a)(1)(ii) also indicates that the proposed risk adjustment methodology
must include a full description of the risk adjustment model,
consisting of: factors employed in the model; weights associated with
each factor; the data collection method; the schedule for data
collection and risk adjustment factor calculation; and the calibration
[[Page 41940]]
methodology. HHS will also review the relevant statistical performance
metrics of the model, such as R-squared or predictive ratios, which
indicates the predictive power of the model. If the State wants to use
a Federally-certified risk adjustment model but with State-specific
weights, retaining all other characteristics of that model, the State
would only need to provide the State-specific weights and a description
of the calibration methodology, as well as an attestation that all
other model attributes will be implemented consistently with the
Federally-certified methodology.
As with the Federally-certified risk adjustment methodology, the
schedule for collection and submission of data and calculation of
factors are critical success elements for any State-proposed alternate
risk adjustment methodology. If a State proposes to deviate from the
Federally-certified methodology with respect to these elements, HHS
expects to evaluate a State proposed alternate risk adjustment
methodology to ensure that the proposed approach will meet HHS goals
for the risk adjustment program.
We propose in paragraph (a)(1)(iii) that States must describe any
adjustments they propose to make to the risk adjustment model weights
when determining average actuarial risk. We expect that States will
also incorporate a rating factor into the proposed risk adjustment
methodology.
In paragraph (a)(2), we propose that all requests be evaluated
against criteria that HHS establishes for risk adjustment
methodologies. Alternate risk adjustment methodologies should be
evaluated based on the extent to which the methodology: accurately
explains cost variation within a given population; chooses risk factors
that are clinically meaningful to providers; encourages favorable
behavior and discourages unfavorable behavior; uses data that is
complete, high in quality and available in a timely fashion; provides
stable risk scores over time and across plans; and minimizes
administrative burden. This criteria is based on the principles that
guided the creation of the hierarchical condition categories (HCC)
model used in Medicare's risk adjustment program, as well as criteria
described by AcademyHealth in its 2004 risk assessment paper (see
http://www.hcfo.org/pdf/riskadjustment.pdf) and criteria described by
the American Academy of Actuaries in its 2010 risk adjustment paper
(see http://www.actuary.org/pdf/health/Risk_Adjustment_Issue_Brief_Final_5-26-10.pdf).
To ensure the stability and predictability of payments, we
contemplated proposing that requests must be submitted to HHS no later
than early November in the calendar year two years before the effective
date. HHS recognizes that health insurance issuers must have detailed
information about risk adjustment prior to setting rates for any
benefit year because the risk adjustment methodology will affect both
the total value of premiums received after accounting for payments and
charges, as well as health plan administrative costs. Therefore, under
this scenario, HHS would evaluate the proposed alternate risk
adjustment methodologies submitted within the required timeframes and
notify States within 60 days, at the time of the publication of the
forthcoming annual Federal notice of benefits and payment parameters
whether such methodologies have been certified. In this scenario, if
HHS approves an alternate risk adjustment methodology, such a
methodology would be considered a Federally-certified risk adjustment
methodology and could be implemented in the State that proposed the
methodology as well as any other State that elects to implement an
Exchange.
We recognize that the above contemplated timeframe requires States
to submit requests for alternate methodology certification only 30 days
after the advance annual Federal notice of benefit and payment
parameters and prior to publication of the final annual Federal notice
of benefit and payment parameters. However, we believe any advantage in
allowing States additional time would be offset by a lesser ability to
leverage State alternative models and inadequate time for issuers to
reflect methodology decisions in setting rates. We seek comments
regarding our contemplated timeline and potential alternatives for
States to request submissions for alternate risk adjustment
methodology.
In paragraph (b), we propose that States that operate a risk
adjustment program must renew HHS certification of alternate risk
adjustment methodologies whenever changes occur, including at the time
of recalibration, which the State must identify when initially
requesting certification for the alternate risk adjustment model. The
proposed requirements for describing an update to a certified risk
adjustment model are the same as those for the initial model. The State
must describe any change to the model between the last certified
version and the recalibrated version. For example, if the only change
was to the schedule for data submission, then the State would need to
provide that update when seeking certification. Additionally, we
propose that States send a notification if they intend to use the
certified alternate risk adjustment model with no changes to any of the
basic parameters. We expect to use this certification process to ensure
that States make updates to their alternate risk adjustment
methodologies at reasonable intervals.
5. Data Collection Under Risk Adjustment (Sec. 153.340)
As described above, a robust risk adjustment process requires data
to support the determination of an individual's risk score and the
corresponding plan and State averages. In paragraph (a) we propose that
a State, or HHS on behalf of the State, is responsible for collecting
the data for use in determining individual risk scores.
HHS considered three possibilities for data collection: (1) A
centralized approach in which issuers submit raw claims data sets to
HHS; (2) an intermediate State-level approach in which issuers submit
raw claims data sets to the State government, or the entity responsible
for administering the risk adjustment process at the State level; and
(3) a distributed approach in which each issuer must reformat its own
data to map correctly to the risk assessment database and then pass on
self-determined individual risk scores and plan averages to the entity
responsible for assessing risk adjustment charges and payments.
A fully distributed approach would leverage existing
infrastructures established to support Exchanges. A distributed
approach also keeps individual-level data with the issuers, eliminating
privacy risks related to transmission. However, there is reason to be
concerned that some issuers would make errors in calculating individual
risk scores and plan averages. Furthermore, we believe that the
complicated nature of a distributed risk adjustment model may prove
challenging for some issuers, especially smaller issuers and would thus
require significant involvement by the State, or HHS on behalf of the
State. In addition, this approach would require issuers to be able to
respond to multiple queries to support other functions, such as data to
recalibrate the Federally-certified risk adjustment model, reconciling
cost-sharing reductions payments, verifying risk corridor submissions,
or auditing cost-sharing reductions or reinsurance payments. We seek
comment on use of this data for auditing purposes. We believe the
proposed intermediate approach would result in the most
[[Page 41941]]
complete, actuarially sound risk adjustment methodology and provides
support for other functions that also require encounter level data,
while maintaining State flexibility. We recognize this approach may
raise concerns related to consumer privacy and standard submission
formats. Accordingly, we propose national standards to address each of
these issues. We seek comment on the proposed approach, as well as
comments on the potential advantages and disadvantages of the
alternative approaches.
We propose in paragraph (b) that States, or HHS on behalf of the
State, use standard HIPAA transaction standards for data collection. We
note that HIPAA provides measures to achieve cost savings through
administrative simplification. As described in Health Insurance Reform:
Standards for Electronic Transactions, ``The purpose of this part is to
improve the efficiency and effectiveness of the health care system, by
encouraging the development of a health information system through the
establishment of standards and requirements to enable the electronic
exchange of certain health information.'' (65 FR 50312) ``We estimated
that the impact of the proposed rules would result in net savings to
health plans and health care providers of $1.5 billion during the first
5 years; use of the standards would continue to save the industry
money.'' (65 FR 50345)
Although the transaction standards promulgated under the HIPAA
administrative simplification provisions do not specifically apply to
data collections under section 1343 of the Affordable Care Act, we
propose in paragraph (b)(1) and (b)(2) to require States to utilize two
specific HIPAA transaction standards for risk adjustment data
collection: the ASC X12N 837 Health Care Claim transaction standard for
any claims-related data including encounters; and the ASC X12N 834
Enrollment and Maintenance transaction standard for any enrollment or
demographic data. In this paragraph, we also allow the use of the NCPDP
claims transaction standard for prescription drug, claims and encounter
data. We solicit comment on whether we should rely on the existing
HIPAA and NCPDP standards or engage stakeholders to develop a new set
of national standards for use in risk adjustment, for example,
leveraging the claims standards developed with stakeholder input by the
Agency for Healthcare Research and Quality. In paragraph (b)(3), to
address consumer privacy concerns, we propose that States must utilize
specific privacy standards in its data collection risk adjustment
procedures. We solicit comments on whether submission of issuers' rate
setting rules should be required.
We believe that standardizing data collection will allow State
flexibility in modeling while not unreasonably increasing issuer burden
for multi-State issuers. Under the proposed approach, States may limit
the minimum information required to specific data elements, provided
that the information submitted represents standard code sets and values
on the HIPAA transactions. We also propose that States must accept any
valid transaction submitted by an issuer provided that the transaction
contains the minimum data required by the State. In other words, the
State may not reject a HIPAA compliant transaction strictly on the
basis that it contains more data than the State requires.
In paragraph (c), we propose that States with existing all payer
claims databases may request an exception from the minimum standards
for data collection. We are contemplating syncing the timing of the
request submission with requirements for alternate risk adjustment
models. Similarly, we are contemplating that HHS will notify States as
to exception status concurrently with the publication of the
forthcoming annual Federal notice of benefit and payment parameters. We
seek comment on these contemplated timelines. We propose that requests
for exception from minimum data collection standards must include
technical specifications, as well as proposed modifications to support
risk adjustment and other claims-related activities.
Seeking data submission efficiencies, in paragraph (d), we propose
that the State must make certain claims and encounter data collected
under risk adjustment available to support other activities including:
recalibrating Federally-certified risk adjustment models; verifying of
risk corridor submissions; and verifying and auditing reinsurance
claims. We also anticipate encounter and claims data collected for risk
adjustment may be required to support other Exchange-related functions
such as cost-sharing requirements and quality reporting. We solicit
comment on these alternative uses of risk adjustment data.
6. Risk Adjustment Data Validation Standards (Sec. 153.350)
In Sec. 153.350, we propose that States have a reliable data
validation process, which is essential to the establishment of a
credible risk adjustment program. The credibility of risk adjustment is
important to establishing the issuer confidence required for risk
adjustment to have a positive impact on premium reduction. We propose
that States, and HHS, when HHS performs the risk adjustment function on
behalf of States, will perform some form of validation regarding the
data submitted. We also believe that issuers will want such data
validations to be performed since the effect of risk adjustment will be
a transfer of premiums between issuers. One of the critical aspects of
risk adjustment under the Affordable Care Act is that it represents a
relative actuarial risk calculation. Therefore, for any data validation
to have the capacity to extrapolate to adjust specific charges and
payments, the validation must cover a sufficient number of plans to
allow an equitable adjustment to all health plan risk adjustment
factors.
In paragraph (a) of Sec. 153.350, we propose that the State, or
HHS on behalf of the State, validate a statistically valid sample of
all issuers that submit data for risk adjustment every year. We also
propose an appropriate use of the information derived from the data
validation. For a validation to work under this form of risk
adjustment, States must be able to adjust the average actuarial risk of
each plan to account for the inaccuracies noted during the data
validation process. As such, we propose in paragraph (b) that the
State, or HHS on behalf of the State, may adjust the average actuarial
risk for each plan based on the error rate found in the validation. In
paragraph (c), we further propose that the State, or HHS on behalf of
the State, adjust payments and charges based on the changes to average
actuarial risk. We seek comment on appropriate timeframes for
completion of the data validation process. For example, we may propose
a three-year deadline for completing data validation, so as to ensure
some finality in the risk adjustment process. Finally, in paragraph
(d), we propose that States, or HHS on behalf of the State, must
provide an appeals process for issuers. We believe that there may be
alternative methods that allow sufficient coverage to estimate the
validation impact on all plans. We solicit comments on this data
validation provision and any alternatives that may be able to satisfy
the need to provide assurance that the charges and payments truly
represent relative plan risk.
[[Page 41942]]
E. Subpart E--Health Insurance Issuer Standards Related to the
Transitional Reinsurance Program
In this subpart, we propose requirements for health insurance
issuers that complement the requirements for the transitional
reinsurance program fully described in the preamble for subpart C.
Since the reinsurance program is operated at the State level, many
elements related to the purpose, methods, and operation of this program
will vary across States and are discussed in greater detail in the
preamble for subpart C. In this subpart, we discuss the elements of the
program that relate specifically to the requirements for health
insurance issuers and third party administrators on behalf of self-
insured group health plans.
1. Reinsurance Contribution Funds (Sec. 153.400)
In Sec. 153.400, we codify section 1341 of the Affordable Care
Act, which requires that the reinsurance program be funded by
contribution funds from contributing entities. In paragraph (a), we
propose that all contributing entities make contributions, in a
frequency and manner to be determined by the State or HHS, to the
applicable reinsurance entity in the State. For example, contributing
entities may be required to submit contributions on a monthly or
quarterly basis starting in January 2014. We invite comments on the
appropriate frequency and manner in which payments should be made by
contributing entities.
In paragraph (b), we propose that if any State establishes multiple
applicable reinsurance entities, the contributing entities must
contribute an appropriate payment to each applicable reinsurance entity
according to the formula established by the State. We propose in
paragraph (c) that contributing entities will be required to provide
the data necessary for the applicable reinsurance entity to calculate
the amounts due from each contributing entity. The type of data
required will depend on the contributing entity. For contributing
entities in the individual and fully insured market, we propose that
data on enrollment and premiums be required. For contributing entities
in the self-insured market, data on covered lives and total medical
expenses would be required. This data, for example, could be collected
on a monthly or quarterly basis beginning January 2014. We invite
comments on the appropriate timing to collect data submissions from
contributing entities. We also seek comment on whether there are
existing sources of this data that can be drawn upon.
2. Requests for Reinsurance Payment (Sec. 153.410)
The reinsurance program as proposed in subpart C will make payments
to reinsurance-eligible plan issuers. In paragraph (a), we propose that
reinsurance-eligible plan issuers must submit a request for reinsurance
payment to the applicable reinsurance entity. We propose in paragraph
(b) that this request is made according to the method that will be
specified in the forthcoming annual Federal notice of benefit and
payment parameters. We invite comments regarding methods for requesting
payments, and the frequency and deadline for such requests. We also
invite comments on how to manage late claims from reinsurance eligible
plan issuers.
F. Subpart F--Health Insurance Issuer Standards Related to the
Temporary Risk Corridors Program
In this subpart, we propose requirements on health insurance
issuers related to the temporary risk corridor program. Section 1342 of
the Affordable Care Act establishes a program of risk corridors for the
first three years of Exchange operation. In addition to risk adjustment
and reinsurance, the risk corridor program limits adverse selection and
stabilizes markets as changes are implemented starting in 2014. Risk
corridors create a mechanism for sharing risk for allowable costs
between the Federal government and QHP issuers. QHP issuers of QHPs
with costs that are less than 97 percent of the QHP's costs projections
will remit charges for a percentage of those savings to HHS, while QHP
issuers of QHP's with costs greater than 103 percent of cost
projections will receive payments from HHS to offset a percentage of
those losses. The Affordable Care Act directs HHS to administer the
risk corridors program.
1. Definitions (Sec. 153.500)
In Sec. 153.500, we propose a number of definitions for the
purpose of administering risk corridors. First, we define ``allowable
costs'' as an amount equal to the total medical costs, which include
clinical costs, excluding allowable administrative costs, paid by the
QHP issuer in providing benefits covered by the QHP. We define
``allowable administrative costs'' as total non-medical costs defined
in Sec. 158.160(b), including costs for the administration and
operation of the health insurance issuer. We invite comment on whether
we should consider costs for activities that improve health care
quality as described in Sec. 158.150 and Sec. 158.151 for allowable
costs to be consistent with the medical loss ratio (MLR) policy in the
Affordable Care Act. We also invite comment on whether we should limit
administrative costs to 20 percent consistent with MLR. If the
allowable administrative costs differ from calculations for the MLR
rebate, issuers may be incentivized to use risk corridors payments to
pay for their MLR rebates.
We define ``charge'' as the flow of funds from QHP issuers to HHS.
We define ``direct and indirect remuneration'' in the same way it was
defined in the risk corridor provision implemented as a result of
Medicare Prescription Drug, Improvement, and Modernization Act of 2003.
It means prescription drug price concessions or similar benefits from
manufacturers, pharmacies or similar entities obtained by a QHP issuer
or an intermediary contracting organization with which a QHP issuer has
contracted. Such concessions include but are not limited to: discounts,
charge backs, rebates, free goods contingent on a purchase agreement,
up-front payments, coupons, goods in kind, free or reduced-price
services, and grants. We further specify that the term applies
regardless of whether the intermediary contracting organization retains
all or a portion of the direct and indirect remuneration or passes the
entire direct and indirect remuneration to the QHP issuer and
regardless of the terms of the contract between the issuer and the
intermediary contracting organization.
We define ``payment'' as the flow of funds from HHS to QHP issuers.
We define ``qualified health plan'' consistent with the term proposed
in the general definitions section of the Patient Protection and
Affordable Care Act; Establishment of Exchanges and Qualified Health
Plans, published in this issue of the Federal Register. We define
``risk corridor'' as any payment adjustment system based on the ratio
of allowable costs of a plan to the plan's target amount. Finally, we
define ``target amount'' to be the amount equal to the total premiums
incurred by the QHP, including any premium tax credits or financial
assistance from any governmental program, reduced by the allowable
administrative costs of the health insurance issuer.
2. Risk Corridor Establishment and Payment Methodology (Sec. 153.510)
The risk corridor provision in 1342 of the Affordable Care Act
directs HHS to
[[Page 41943]]
establish and administer a program of risk corridors. In Sec. 153.510,
HHS proposes to establish risk corridors by specifying risk percentages
above and below the target amount. In paragraph (a), we propose to
require a QHP issuer to adhere to the requirements set by HHS for the
establishment and administration of a risk corridor program for
calendar years 2014 through 2016. We will issue guidance in the
forthcoming annual Federal notice of benefits and payment parameters
for QHPs regarding reporting and the administration of payments and
charges similar to part 158. Risk corridors guidance will be plan
specific and not issuer specific as indicated in part 158. We interpret
the risk corridor provision to apply to all QHPs offered in the
Exchange.
In Sec. 153.510, we also establish the payment methodology for the
risk corridor program, using the thresholds and risks-sharing levels
specified in statute. The risk corridor thresholds are applied when a
QHP's allowable costs reach plus or minus three percent of the target
amount. Accordingly, HHS will pay a QHP issuer whose QHP incurred
allowable costs for a benefit year that are greater than 103 percent of
its target amount. Conversely, a QHP issuer must pay HHS if its QHP's
allowable costs for a benefit year are less than 97 percent of its
target amount. A QHP issuer whose QHP's allowable costs for a benefit
year are greater than 97 percent but less than 103 percent of the
target amount will neither make nor receive payments for risk
corridors. For example, a QHP issuer with a QHP that has a target
amount of $10 million will not receive or pay a risk corridor payment
if its allowable charges range between $9.7 million and $10.3 million.
Paragraph (b) of this section describes the method for determining
payment amounts to QHP issuers as well as the timing of those payments.
For a QHP with allowable costs in excess of 103 percent but not more
than 108 percent of the target amount, HHS will pay the QHP issuer 50
percent of the amount in excess of 103 percent of the target amount.
For example, a QHP has a target amount of $10 million, and the QHP has
allowable costs of $10.5 million, or 105 percent of the target amount.
Since 103 percent of the target amount would equal $10.3 million, the
amount of allowable costs that exceed 103 percent of the target amount
is $200,000. Therefore, HHS would pay 50 percent of that amount, or
$100,000 to the QHP issuer.
For QHPs that have allowable costs that exceed 108 percent of the
target amount, the Affordable Care Act directs HHS to pay the QHP
issuer an amount equal to 2.5 percent of the target amount plus 80
percent of the amount in excess of 108 percent of the target amount.
For example, a QHP has a target amount of $10 million. The QHP has
allowable costs of $11.5 million, or 115 percent of the target amount.
Since 108 percent of the target amount would be $10.8 million, the
amount of allowable costs that exceed 108 percent of the target amount
is $700,000. Therefore, HHS pays 2.5 percent of the target amount, or
$250,000, plus 80 percent of $700,000, or $560,000, for a total of
$810,000.
Paragraph (c) describes the circumstances under which QHP issuers
will remit charges to HHS, as well as the means by which HHS will
determine those charge amounts. We propose that QHP issuers will begin
to remit charges to HHS for the first dollar of allowable charges less
than 97 percent of the target amount. For a QHP that has allowable
costs that are less than 97 percent of the target amount but greater
than 92 percent of the target amount, HHS will charge the QHP issuer an
amount equal to 50 percent of the difference between 97 percent of the
target amount and the actual value of allowable costs. For example, a
QHP has a target amount of $10 million. The amount of allowable costs
for this QHP is $9.3 million, or 93 percent of the target amount. The
difference between 97 percent of the target amount, or $9.7 million,
and the actual allowable charges is $400,000. The QHP issuer must pay
HHS 50 percent of that amount, or $200,000.
For QHPs with allowable costs below 92 percent of the target
amount, the QHP issuer will remit charges to HHS an amount equal to 2.5
percent of the target amount plus 80 percent of the difference between
92 percent of the target amount and the actual value of allowable
costs. For that same QHP with a $10 million target amount, assume the
allowable charges are now $8.8 million, or 88 percent of the target
amount. Ninety-two percent of the target amount would be $9.2 million,
and the difference between 92 percent of the target amount and the
actual value of allowed costs is $400,000. The QHP issuer will remit
charges to HHS an amount equal to 2.5 percent of the target amount, or
$250,000, plus 80 percent of $400,000, or $320,000, for a total of
$570,000.
While we are not proposing deadlines at this time, HHS has
considered timeframes for QHP issuers to remit charges to HHS. For
example, a QHP issuer required to make a risk corridor payment may be
required to remit charges within 30 days of receiving notice from HHS.
Similarly, HHS would make payments to QHP issuers that are owed risk
corridor amounts from HHS within a 30-day period after HHS determines
that a payment should be made to the QHP issuer. We believe that QHP
issuers who are owed these amounts will want prompt payment, and also
believe that the payment deadlines should be the same for HHS and QHP
issuers. We invite comments as to the appropriate frequency QHP issuers
should remit charges to HHS.
3. Risk Corridor Standards for QHP Issuers (Sec. 153.520)
To support the risk corridor program calculations, we propose in
Sec. 153.520 that all QHP issuers submit data needed to determine
actual performance relative to their target amounts. The data would be
collected in standard formats specified by HHS. We propose in paragraph
Sec. 153.520(a) that QHP issuers must submit data related to actual
premium amounts collected by QHP issuers, including premium amounts
paid by parties other than the enrollee in a QHP and specifically
advance premium tax credits paid by the government. We also regard risk
adjustment and reinsurance as an after-the-fact adjustment to premiums
for purposes of determining risk corridor amounts. Medicare Advantage,
Medicare Prescription Drug Benefit Program and Medicaid managed care
risk adjustment programs similarly result in adjustments to total
payments to plans. However, in these programs, the adjustment occurs
concurrently with payments because they are made by the government
(excluding monthly premium payments made by beneficiaries). For
reinsurance, we anticipate health insurance issuers will reduce their
premiums by an amount that would approximate the average reinsurance
that they expect to receive, filling in the gap between the premium
charged and the health insurance issuer's revenue needs.
Therefore, in paragraph (a)(1), we propose that the reported
premium amounts must be increased by the amounts paid to the QHP issuer
for risk adjustment and reinsurance. Similarly, we propose in paragraph
(a)(2) that the reported premium amounts be reduced for any risk
adjustment charges the QHP issuer pays on behalf of the plan,
reinsurance contributions that the QHP issuer makes on behalf of the
plan, and Exchange user fees that the QHP issuer pays on behalf of the
plan. We invite comment on the treatment of reinsurance and risk
adjustment as after-the-fact adjustments to premium for purposes of
determining risk corridor amounts.
[[Page 41944]]
In paragraph (a)(3), we propose rules for accounting for
reinsurance claims submitted on a date to be determined by HHS for a
given reinsurance benefit year. Specifically, we propose that QHP
issuers attribute reinsurance payments to risk corridors based on the
date on which the valid reinsurance claim was submitted. For example,
if the QHP issuer submits a claim on or before the deadline for a
benefit year, that QHP issuer would attribute the claim payment to risk
corridor calculation for the benefit year in which the costs were
accrued. Conversely, if the QHP issuer submits a claim after the
deadline for a benefit year, that health QHP would attribute the claim
payment to risk corridor calculation for the following benefit year. We
invite comments on how the risk corridor calculations would interact
with the MLR process.
We propose in paragraph (b) that QHP issuers must submit allowable
cost data to calculate the risk corridors in a format specified by HHS.
We propose that allowable costs must be reduced for any direct or
indirect remuneration received in paragraph (b)(1). In paragraph
(b)(2), we also propose that the allowable costs must be reduced by the
amount of any cost-sharing reductions received from HHS. We invite
comment on an appropriate deadline for QHP issuers to complete
submission of all risk corridor data especially since this would
interact with the MLR process. We also invite comment as to how HHS
could determine allowable costs for QHP issuers in calculating risk
corridors, if a QHP issuer fails to comply with the reporting
provisions in paragraph (b).
HHS seeks to limit the reporting requirements on issuers in
submitting this information and would like to prevent duplicative data
collection requirements on issuers for the temporary risk corridors
program. As such, we seek comment on how we can utilize data from 2718
to meet the data submission requirements for risk corridors.
G. Subpart G--Health Insurance Issuer Standards Related to the Risk
Adjustment Program
Section 1343 of the Affordable Care Act provides for a program of
risk adjustment for all non-grandfathered plans in the individual and
small group market both inside and outside of the Exchange. We noted in
the introduction to subpart D of this part that the risk adjustment
program described in section 1343 employs a model to determine
comparative actuarial risk of plans within a State. That overview can
serve as a reference for this subpart as well. We note that subpart D
of this part describes some of the comments to the RFC related to risk
adjustment and our approach to the process, methodology, and model for
implementing the risk adjustment program under section 1343 of the
Affordable Care Act. This subpart proposes the health issuer standards
that are necessary to carry out risk adjustment as described in subpart
D.
1. Definitions (Sec. 153.600)
In Sec. 153.600, we define ``risk adjustment data'' to mean any
data that is used in a risk adjustment model.
2. Risk Adjustment Issuer Requirements (Sec. 153.610)
We propose in paragraph (a) of Sec. 153.610 that all issuers of
risk adjustment covered plans submit risk adjustment data according to
the timetable and format prescribed by the State, or HHS on behalf of
the State. Since there will be some variety in approaches to risk
adjustment, both across States as well as over time, we expect that
these data will include demographic data; encounter data for items and
services provided in conjunction with a risk adjustment covered plan;
and prescription drug utilization data. We seek comment on whether
other categories of data such as methods for setting rates should be
required in support of risk adjustment.
We considered proposing the following timelines for risk adjustment
data submission: claims and encounter data must be submitted every 30
days and no later than the end of 180 days following the date of
service; enrollment and demographic information must be submitted by
the end of the month following enrollment; issuer rate-setting rules
must be submitted by the end of the month in which they become
effective; prescription drug utilization data must be submitted every
30 days, and no later than the end of 90 days following date of
service. We recognize that these timeframes may limit the ability of
States to collect a full calendar year of data on risk adjustment.
However, given the traditional lag of claims submissions, we did not
think a shortened timeframe was feasible. Additionally, monthly data
submission would address anticipated issuer difficulty in transmitting
large volumes of data at the end of the data collection period. We
solicit comments on these and alternative data submission timeframes.
We interpret the Affordable Care Act to require participation in
the risk adjustment program for all risk adjustment covered plans. We
believe that any voluntary participation provisions would result in
non-participation by the lowest actuarial risk plans, which in turn
would defeat the purpose of the provision. Additionally, in paragraph
(b), we propose to permit contractual arrangements between issuers and
providers, suppliers, physicians, and other practitioners to ensure
that issuers receive the necessary risk adjustment data.
We discuss the calculation of payments and charges extensively
describing the methods by which we propose States could perform that
function. After the State, or HHS on behalf of the State, has
calculated all payments and charges for all risk adjustment covered
plans, the State, or HHS on behalf of the State, will determine a net
value of payments and charges for each risk adjustment covered plan
issuer. In paragraph (c), we propose that risk adjustment covered plan
issuers who owe a net balance of risk adjustment charges will be
assessed those net charges upon completion of the risk adjustment
process. We interpret the Affordable Care Act to mean that the payment
of charges is mandatory for issuers who have a net charges payable
balance based on the difference between the charges calculated for
their low actuarial risk plans and the payments calculated for their
high actuarial risk plans. Additionally, we considered proposing that
issuers be given a 30 day timeframe in which to pay all these net
charges to the State that assessed those charges, or to HHS on behalf
of the State. We solicit comment on this and alternative timelines.
Since risk adjustment pools individual and small group market risk on a
State level, payments and charges will be netted out at the State
level, and issuers in multiple States must settle with each State
individually.
3. Compliance With Risk Adjustment Standards (Sec. 153.620)
The credibility of risk adjustment is important to making health
insurance premiums in Exchanges stable. Issuers should have confidence
that, if they experience adverse selection, their actuarial risk as
calculated under this risk adjustment program will reflect the degree
to which they have experienced adverse selection and that, if competing
plans have low actuarial risk, that those plans cannot inflate their
risk score. Therefore, a data validation program is necessary.
Consistent with proposed Sec. 153.350, we propose in Sec. 153.620
that risk adjustment covered plan issuers provide the required
documentation in response to any HHS or State validation to
substantiate the risk adjustment data that they have submitted. We
believe
[[Page 41945]]
that all risk adjustment covered plans should support such an audit to
ensure the integrity of charges they may be required to pay, as well as
to ensure that any payments they receive are sufficient to cover
additional medical costs incurred due to adverse selection. In
paragraph (b), we propose that risk adjustment covered plan issuers
must retain the required documentation to substantiate the risk
adjustment data that they have submitted for a period of ten years.
III. 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.
Below is a summary of the proposed information collection
requirements outlined in this regulation. Throughout this section we
employ assumptions regarding the frequency of data collection as this
level of detail is not proposed in regulation text, but is discussed in
preamble. A number of assumptions are made regarding the wages of
personnel needed to accomplish the proposed collection of information.
Wage rates are based on the Employer Costs for Employee Compensation
report by U.S. Bureau of Labor Statistics and represent a national
average. Some states or employers may face higher or lower wage
burdens. Wage rates estimates include a 35% fringe benefit estimate for
state employees and a 30% fringe benefit estimate for private sector
employees. For purposes of presenting an estimate of paperwork burden
for States, we reflect full participation of all States and the
District of Columbia in operating an Exchange and assume all States
operate the reinsurance and risk adjustment programs. However, we
recognize that not all States will elect to operate their own
Exchanges, so these estimates should be considered an upper bound of
burden estimates. These estimates may be adjusted proportionally in the
final rule based upon additional information as States progress in
their Exchange development processes.
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 the State Notice of Insurance Benefits and Payment
Parameters (Sec. 153.100)
As discussed in Sec. 153.100, States would issue an annual notice
of benefits and payment parameters specific to that State. We estimate
a minimum burden for the development of the State notice as States have
the option to adopt the parameters in the forthcoming annual Federal
notice of benefits and payments parameters, and would only have to
indicate their intention of using these parameters in their annual
notice.
We assume that all 50 States and the District of Columbia would be
subject to these reporting requirements. Again, this estimate should be
considered an upper bound, and we may revise these estimates in the
final rule based upon additional information as States progress in
their Exchange development processes. We estimate that it will take
each State approximately 160 hours to meet the requirements of this
subpart with a total estimated burden of 8,160 hours. We estimate that
it will take a financial analyst 120 hours (at an average wage rate of
$62 an hour) and a senior manager 40 hours (at $77 an hour) to meet
these requirements. The cost estimate for each State is $10,520 for a
total estimated cost burden of $536,520.
B. ICRs Regarding State Standards for the Transitional Reinsurance
Program in the Individual Market (Sec. 153.240)
Within Part 153, subpart C we describe reporting requirements and
maintenance of records for States for reinsurance. States would ensure
that the applicable reinsurance entity collects the data required from
issuers to make reinsurance payments. The type of data required is
currently not described in this proposed rule to allow for State
flexibility in determining the data type and collection method.
However, the type of data that might be used to make reinsurance
payments may include claims data or encounter data. We estimate that it
will take about 12 hours on an annual basis for the applicable
reinsurance entity to collect this information in an electronic format
from issuers on an annual basis. This estimate is similar to estimates
provided in Medicare Part D rule for data submission. For example,
Medicare Part D estimated that it would take plan sponsors
approximately 10 hours annually for plan sponsors to submit data on
aggregated negotiated drug pricing from pharmaceutical companies
described in Sec. 423.104. We provide a slightly higher estimate for
the collection of data from issuers for reinsurance payments due to the
complexity of the program.
States that operate an Exchange would also maintain any records
associated with the reinsurance program. For this requirement, we
estimate that it will take approximately 52 hours annually for States
to maintain records. This is a broad estimate that includes not only
the maintenance of data for the reinsurance program, but all books,
records, documents, and other evidence of accounting procedures and
practices related to the reinsurance program. This estimate is similar
to Medicare Part D, where is was estimated that it will take 52 hours
on an annual basis for plan sponsors to maintain books, records, and
documents on accounting procedures and practices as described in Sec.
423.505.
We assume that 50 States and the District of Columbia will be
subject to the reporting requirements in this subpart. This estimate is
an upper bound of burden as a result of the reporting requirements in
this subpart; we will revise these estimates in the final rule as
States progress in their Exchange development. We estimate that it will
take each State approximately 64 hours to meet the provisions of this
subpart for a total burden estimate of 3,264 hours. We presume that it
will take a financial analyst 54 hours (at $55 an hour) and a senior
manager 10 hours (at $77 an hour) to meet the reporting requirements.
The burden cost estimate for each State is $3,740 for a total burden
cost estimate of $190,740.
C. ICRs Regarding State Standards for the Risk Adjustment Program
(Sec. 153.310-Sec. 153.340)
Part 153, subpart D describes reporting requirements for States
related to the risk adjustment program. We provide minimum burden
estimates in this section for the collection and submission of risk-
related data, particularly encounter data, as States would be required
to collect this information for Medicaid beginning in 2012.
States would be required to implement privacy standards for all
data
[[Page 41946]]
to be collected for the risk adjustment program. We estimate it will
take States approximately 40 hours to create and implement privacy
standards for this data collection. This estimate presumes it will take
a policy analyst 10 hours (at $55 per hour), an operations analyst 25
hours (at $55 per hour) and a senior manager 5 hours (at $77 per hour).
We expect it will cost each state $2,310 to create and implement
privacy standards. The total burden of this requirement is $117,810.
States may file for an exception from minimum data collection
standards, as described in Sec. 153.430(c). We estimate that filing
for an exception would take 17 hours and that 5 states will elect to
file for exception. This includes 15 hours for an operations analyst
(at $55 per hour) and 2 hours for a senior manager (at $77 per hour).
The total burden of a minimum data reporting exception is $979 and a
total of $4,895.
States would also collect risk-related data from health insurance
issuers. This risk-related data includes claims, encounter,
demographic, and enrollment data as described in Sec. 153.340. While
we do not specify the data collection timeframe for risk adjustment
data, we provide an assumption on the timing of submission of this
data. We estimate that it will take an issuer approximately 12 hours to
collect this data electronically on an annual basis. We estimate that
it will take an operations analyst 12 hours (at $55 per hour) to
collect this data annually.
States would submit to HHS de-identified claims and encounter data
for use in recalibrating Federally-certified risk adjustment models. We
estimate that it will take 3 hours for States to submit this
information to HHS. This estimate is slightly lower that Medicare Part
D estimates for data submission as discussed previously and is a
minimum burden estimate for this requirement since States will have
already collected this data in the format requested for the risk
adjustment program. States would submit summarized claims cost for use
in verifying risk corridor submissions. Again we provide a minimum
burden estimate of 2 hours since States would have already collected
this information for risk adjustment.
States would submit summarized and individual-level claims and
encounter data from reinsurance-eligible plans for audit purposes. We
estimate a minimum burden of 2 hours for States to submit this
information to HHS. Finally, States would also provide claims and
encounter data for Exchange-related activities such as cost-sharing
requirements and quality reporting. We estimate a minimum burden of 3
hours for States to submit this information for this purpose.
We assume that all 50 States and the District of Columbia will be
subject to these reporting requirements. This estimate is an upper
bound of burden as a result of the reporting requirements in this
subpart; we will revise these estimates in the final rule as States
progress in their Exchange development. We estimate that it will take
each State approximately 30 hours to meet these requirements with a
total estimated burden of 1,530 hours. We presume that it will take an
operations analyst 22 hours (at $55 an hour) and a senior manager 8
hours (at $77 an hour) to meet these requirements for a cost estimate
of $1,826. The total estimated cost burden is $93,126.
As discussed in Sec. 153.330, States must submit a request to HHS
for review and approval of an alternate risk adjustment methodology. We
estimate that 5 States will request an approval for an alternate risk
adjustment methodology. We presume all states requesting approval of an
alternative risk adjustment methodology will update their methodology
once. We presume that it will take an operations analyst 22 hours (at
$55 an hour) and a senior manager 6 hours (at $77 an hour). Updating
the methodology is expected to take an operations analyst 8 hours and a
senior manager 2 hours. In total, we estimate that it will take
approximately 38 hours for a State electing to establish an alternate
risk adjustment methodology to meet the reporting requirements with a
total estimated burden of 190 hours. We expect it will cost each state
$2,266 to meet these requirements. The total estimated cost burden for
five States is $11,330.
States choosing to run a risk adjustment program must validate
their risk adjustment data annually. We estimate data collection and
validation will take an operations analyst 25 hours (at $55 per hour)
and a senior manager 5 hours (at $77 per hour). The cost estimate for
validating the risk adjustment data annually is $1,760 per state and a
total burden of $89,760.
D. ICRs Regarding Health Insurance Issuer Standards Related to the
Transitional Reinsurance Program (Sec. 153.400 and Sec. 153.410)
Within part 153, subpart E we discuss reporting requirements for
health insurance issuers related to the transitional reinsurance
program. We would require all health insurance issuers both inside and
outside of the exchange to provide enrollment and premium data (covered
lives and total expenses for the self-insured market) to the applicable
reinsurance entity for the estimation and collection of contributions.
We also would require that health insurance issuers of reinsurance-
eligible plans submit data necessary in order to receive reinsurance
payment.
For the purpose of this estimate and whenever we refer to burden
requirements for issuers, we utilize estimates of the number of issuers
provided by the Healthcare.gov Web site as this site provides the best
estimate of possible issuers at this time. Based on preliminary
findings there are approximately 1827 issuers in the individual and
small group markets. While we recognize that not all issuers will offer
QHPs, we use the estimate of 1827 issuers as the upper bound of
participation and burden.
We further estimate that it will take each issuer approximately 12
hours to submit enrollment and premium data electronically on an annual
basis and 12 hours to submit data for reinsurance payment on an annual
basis. This estimate is similar to Medicare Part D estimates as
discussed previously.
As such, we estimate that it will take each issuer approximately 24
hours to comply with these requirements for a total estimated annual
burden of 43,848 hours. We presume that it will take a financial
analyst 16 hours (at $57 an hour) and a senior manager 8 hours (at $72
an hour) to meet these requirements. The cost estimate for meeting
these requirements for each issuer is of $1,488. The total burden cost
estimate for all issuers is $2,718,576.
E. ICRs Regarding Health Insurance Issuer Standards Related to the
Temporary Risk Corridors Program (Sec. 153.520)
Within part 153, subpart F we discuss reporting requirements for
qualified health plan issuers related to the risk corridors program. We
would require all qualified health plan issuers to submit data on
premiums collected and allowable costs. While we recognize that not all
issuers will offer QHPs, we use the estimate of 1827 issuers as the
upper bound of participation and burden. We further estimate that it
will take each issuer approximately 12 hours to comply with this
requirement on an annual basis. This estimate is similar to estimates
for data submission in Medicare Part D as discussed previously with a
slight increase due to the complexity of the risk corridor program. The
total estimated annual burden is 21, 924 hours. We presume that it will
take a financial analyst 8 hours (at $57 an hour) and a senior manager
4 hours (at
[[Page 41947]]
$72 an hour) for a cost estimate of $744. The total burden cost
estimate for all issuers is $1,359,288.
F. ICRs Regarding Health Insurance Issuer Standards for the Risk
Adjustment Program (Sec. 153.610-Sec. 153.630)
Within part 153, subpart G, we described reporting requirements for
health insurance issuers related to the risk adjustment program. Health
insurance issuers would be required to submit data required for risk
adjustment. This data may include claims and encounter data for items
and services rendered; enrollment and demographic information; issuer
rate-setting rules; and prescription drug utilization data. While we do
not specify the data collection timeframe for risk adjustment data, we
provide an assumption on the timing of submission of this data. We
estimate that it will take an issuer approximately 20 hours to submit
this data electronically on an annual basis. This estimate is a slight
increase from the Medicare Advantage requirements for submitting data
for drug claims as described for Sec. 423.329 for Medicare Part D and
reflects the complexity of risk adjustment for the Exchange program.
Health insurance issuers would also submit data for validation and
verification activities to HHS and States. Again, we estimate that it
will take an issuer approximately 12 hours to submit this data
electronically on an annual basis as this should be data they already
collect for risk adjustment. Finally, health insurance issuers would
maintain risk adjustment data for a period of ten years. We estimate
that it will take approximately 2 hours annually for issuers to
maintain this data.
We estimate that 1827 issuers must comply with these requirements.
We further estimate that it will take each issuer approximately 34
hours to meet the reporting provisions in this subpart for a total of
62,118 hours. We presume that it will take a financial analyst 30 hours
(at $57 an hour) and a senior manager 4 hours (at $72 an hour) for a
cost estimate of $2,002 for each issuer. The total estimated annual
burden cost for all issuers is $3,657,654.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Burden per Labor cost of
Regulation section(s) Respondents Responses response Total annual reporting per Total labor cost
(hours) burden (hours) response ($) of reporting ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
153.100..................................... 51 1 160 8,160 10,520 536,520
153.240..................................... 51 1 64 3,264 3,740 190,740
153.310 & 153.340........................... 51 1 62 3,162 3,674 187,374
153.340(c).................................. 5 1 17 85 979 4,895
153.330..................................... 5 1 38 190 2,266 11,330
153.350..................................... 51 1 30 1,530 1,760 89,760
153.400 & 153.410........................... 1827 1 24 43,848 1,488 2,717,576
153.520..................................... 1827 1 12 21,924 744 1,359,288
153.610 & 153.630........................... 1827 1 34 62,118 2,002 3,657,654
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: Salaries and fringe benefit estimates were taken from the Bureau of Labor Statistics Web site (http://www.bls.gov/oco/ooh_index.htm).
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,
CMS-9975-P; Fax: (202) 395-5806; or E-mail: [email protected]
IV. Summary of Preliminary Regulatory Impact Analysis
The summary analysis of benefits and costs included in this
proposed rule is drawn from the detailed Preliminary Regulatory Impact
Analysis, available at http://cciio.cms.gov under ``Regulations and
Guidance.'' That preliminary impact analysis evaluates the impacts of
this proposed rule and a second proposed rule ``Patient Protection and
Affordable Care Act; Establishment of Exchanges and Qualified Health
Plans.'' The second proposed rule is published in this issue of the
Federal Register. The following summary focuses on the benefits and
costs of this proposed rule.
A. Introduction
HHS has examined the impacts of the proposed rule under Executive
Orders 12866 and 13563, the Regulatory Flexibility Act (5 U.S.C. 601-
612), and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4).
Executive Orders 13563 and 12866 direct agencies to assess all costs
and benefits (both quantitative and qualitative) of available
regulatory alternatives and, if regulation is necessary, to select
regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety effects, distributive
impacts, and equity). Executive Order 13563 emphasizes the importance
of quantifying both costs and benefits, of reducing costs, of
harmonizing rules, and of promoting flexibility. This rule has been
designated an ``economically'' significant rule, under section 3(f)(1)
of Executive Order 12866. Accordingly, the rule has been reviewed by
the Office of Management and Budget.
The Regulatory Flexibility Act requires agencies to analyze
regulatory options that would minimize any significant impact of a rule
on small entities. Few if any insurance issuers offering comprehensive
health insurance policies fell below the size thresholds for ``small''
business established by the SBA. CMS tentatively concludes that this
NPRM would not have a significant impact on a substantial number of
small entities. We request comment on whether the small entities
affected by this rule have been fully identified.
Section 202(a) of the Unfunded Mandates Reform Act of 1995 requires
that agencies prepare a written statement, which includes an assessment
of anticipated costs and benefits, before proposing ``any rule that
includes any Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the
private sector, of $100,000,000 or more (adjusted annually for
inflation) in any one year.'' The current threshold after adjustment
for inflation is approximately $136 million, using the most current
(2011) Implicit Price Deflator for the Gross Domestic Product. Because
States are not required to set up an Exchange or operate reinsurance
and risk adjustment, the NPRM does not impose a mandate to incur costs
above that $136 million UMRA threshold on State, local, or tribal
governments.
[[Page 41948]]
B. Need for This Regulation
This proposed rule would implement standards for States related to
reinsurance and risk adjustment, and for health insurance issuers
related to reinsurance, risk corridors, and risk adjustment consistent
with title I of the Patient Protection and Affordable Care Act (Pub. L.
111-148) as amended by the Health Care and Education Reconciliation Act
of 2010 (Pub. L. 111-152), referred to collectively as the Affordable
Care Act. These programs will mitigate the impacts of potential adverse
selection and stabilize the individual and small group markets as
insurance reforms and the Affordable Insurance Exchanges
(``Exchanges'') are implemented, starting in 2014. The transitional
State-based reinsurance program serves to reduce the uncertainty of
insurance risk in the individual market by making payments for high-
cost cases. The temporary Federally-administered risk corridor program
serves to protect against rate-setting uncertainty in the Exchange by
limiting the extent of issuer losses (and gains). On an ongoing basis,
the State-based risk adjustment program is intended to protect health
insurance issuers that attract high-risk populations (such as
individuals with chronic conditions).
C. Summary of Costs and Benefits of the Proposed Requirements
Two proposed regulations are being published simultaneously to
implement components of the Exchange and health insurance premium
stabilization policies in the Affordable Care Act. The detailed PRIA
evaluates the impacts of both proposed rules, while this summary
focuses on the benefits and costs of the proposed requirements in this
NPRM.
Methods of Analysis
This preliminary impact analysis references the estimates of the
CMS Office of the Actuary (OACT) (CMS, April 22, 2010), but primarily
uses the underlying assumptions and analysis done by the Congressional
Budget Office (CBO) and the staff of the Joint Committee on Taxation.
Their modeling effort accounts for all of the interactions among the
interlocking pieces of the Affordable Care Act including its tax
policies, and estimates premium effects that are important to assessing
the benefits of the NPRM. A description of CBO's methods used to
estimate budget and enrollment impacts is available.\1\ The CBO
estimates are not significantly different than the comparable
components produced by OACT; the Administration is working on
developing an integrated modeling capacity that will estimate Federal
spending, revenue, and private premium impacts comparable to those of
CBO. Based on our review, we expect that the requirements in these
NPRMs will not substantially alter the estimates of the budget impact
of Exchanges or enrollment. The proposed requirements are well within
the parameters used in the CBO modeling of the Affordable Care Act and
do not diverge from assumptions embedded in the model. Our review and
analysis of the proposed requirements indicate that the impacts are
within the model's margin of error.
---------------------------------------------------------------------------
\1\ CBO. ``CBO's Health Insurance Simulation Model: A Technical
Description.'' (2007, October).
---------------------------------------------------------------------------
Summary of Costs and Benefits
CBO estimated program payments and receipts for reinsurance and
risk adjustment. As Exchanges do not begin operation until 2014, there
are no outlays for reinsurance and risk adjustment in 2012 and 2013.
CBO estimates that risk adjustment payments and collections are equal
in the aggregate, but that risk adjustment payments lag revenues by one
quarter. CBO did not score the impact of risk corridors, but assumed
collections would equal payments to plans in the aggregate. The
payments and receipts in risk adjustment, reinsurance, and risk
corridors are financial transfers between issuers.
Table 1--Estimated Outlays and Receipts for Reinsurance and Risk Adjustment Programs FY 2012-FY2016
[In billions of dollars]
----------------------------------------------------------------------------------------------------------------
Year 2012 2013 2014 2015 2016
----------------------------------------------------------------------------------------------------------------
Reinsurance and Risk Adjustment Program ........... ........... 11 18 18
Payments \a\..................................
Reinsurance and Risk Adjustment Program ........... ........... 12 16 18
Receipts \a\..................................
----------------------------------------------------------------------------------------------------------------
\a\ Risk-adjustment payments lag receipts by one quarter.
Source: CBO. 2011. Letter to Hon. Nancy Pelosi. March 20, 2010. Available at http://www.cbo.gov/ftpdocs/113xx/doc11379/AmendReconProp.pdf.
Benefits. Payments through reinsurance, risk adjustment, and risk
corridors reduce the increased risk of financial loss that health
insurance issuers might otherwise expect to incur in 2014 due to market
reforms such as guaranteed issue and the elimination of medical
underwriting. Insurers charge premiums for expected costs plus a risk
premium, in order to build up reserve funds in case medical costs are
higher than expected. Reinsurance, risk adjustment and risk corridors
payments reduce the risk to the issuer and the issuer can pass on a
reduced risk premium to beneficiaries.
Costs. There are administrative costs to States and Exchanges to
set up and administer these risk mitigation programs. It is important
to note that per section 1311 of the Affordable Care Act, States may
use Exchange Planning and Establishment Grant funding to help with the
development of these programs. For issuers not receiving payments, any
contribution is an additional cost, which is typically passed on to
beneficiaries through premium increases. There are also reporting costs
for issuers to submit data and financial information.
Regulatory Options Considered
Options considered for reinsurance, risk adjustment and risk
corridor programs parallel the options considered for Exchanges. These
programs aim to mitigate the impacts of potential adverse selection and
stabilize the individual and small group markets as insurance reforms
and the Affordable Insurance Exchanges are implemented, starting in
2014. The Affordable Care Act structures reinsurance and risk
adjustment as State-run programs with Federal guidelines on
methodology, while it establishes risk corridors as a Federally-run
program.
In addition to the proposed baseline, HHS has identified two
regulatory options for this proposed rule as required by Executive
Order 12866.
[[Page 41949]]
Uniform Standard for Operations of Exchange and Exchange-Related
Programs
Under this option HHS would require a single standard for State
operations of Exchanges, reinsurance, risk adjustment and risk
corridors. This alternative model would restrict State flexibility,
requiring a more uniform standard that States must enact in order to
achieve certification.
State Flexibility for Operation of Exchange and Exchange-Related
Programs
Under this option, States would have a great deal of flexibility
around whether and how to implement Exchanges, reinsurance and risk
adjustment. This alternative would allow States to develop these
programs to fit their State-specific characteristics. The programs
would be subject to few Federal standards.
Summary of Estimate Costs for Each Option
HHS notes that a single standard for State operations of Exchanges,
reinsurance, risk adjustment and risk corridors could produce a benefit
of reduced Federal oversight cost. However this option may reduce
innovation and therefore limit diffusion of successful policies. HHS
also notes that while State flexibility could allow for innovation for
States, it would increase administrative burden on the Federal
government and national issuers, as policies and procedures would vary
between States. HHS proposes a middle approach that aims to limit
administrative costs for temporary programs while also ensuring that
the policy aims of these risk mitigation programs are met. These costs
and benefits are discussed more fully in the detailed impact analysis.
D. Accounting Statement
----------------------------------------------------------------------------------------------------------------
Unit discount
Category Primary estimate Year dollar rate (percent) Period covered
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Annualized......................... Not estimated........ 2011 7 2012-2016
Monetized ($millions/year)......... Not estimated........ 2011 3 2012-2016
====================================
Costs
----------------------------------------------------------------------------------------------------------------
Annualized......................... Not estimated........ 2011 7 2012-2016
Monetized ($millions/year)......... Not estimated........ 2011 3 2012-2016
====================================
Transfers
----------------------------------------------------------------------------------------------------------------
Federal Annualized................. 9925................. 2011 7 2012-2016
Monetized ($millions/year)......... 9633................. 2011 3 2012-2016
====================================
Reinsurance collects funds from all issuers and distributes it to
individual market issuers.
----------------------------------------------------------------------------------------------------------------
Note: For full documentation and discussion of these estimated costs and benefits see the detailed PRIA,
available at http://cciio.cms.gov under ``Regulations and Guidance.''
V. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
requires agencies to prepare an initial regulatory flexibility analysis
to describe the impact of the proposed rule on small entities, unless
the head of the agency can certify that the rule will not have a
significant economic 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 not-for-profit 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.'' HHS uses as its measure of significant economic
impact on a substantial number of small entities a change in revenues
of more than 3 to 5 percent.
As discussed above, this proposed rule is necessary to implement
standards for States related to reinsurance and risk adjustment, and
for health insurance issuers related to reinsurance, risk corridors,
and risk adjustment consistent with title I of the Patient Protection
and Affordable Care Act (Pub. L. 111-148) as amended by the Health Care
and Education Reconciliation Act of 2010 (Pub. L. 111-152), referred to
collectively as the Affordable Care Act. For purpose of the Regulatory
Flexibility Analysis, we expect entities offering health insurance
plans including fully insured health plan issuers, self-insured health
plan issuers, TPAs and other organizations to be affected by this
proposed rule. We believe that health insurers would be classified
under the North American Industry Classification System (NAICS) Codes
524114 (Direct Health and Medical Insurance Carriers) According to SBA
size standards, entities with average annual receipts of $7 million or
less would be considered small entities for both of these NAICS codes.
Health issuers could possibly be classified in 621491 (HMO Medical
Centers) and, if this is the case, the SBA size standard would be $10
million or less.
As discussed in the Web Portal interim final rule (75 FR 24481),
HHS examined the health insurance industry in depth in the Regulatory
Impact Analysis we prepared for the proposed rule on establishment of
the Medicare Advantage program (69 FR 46866, August 3, 2004). In that
analysis, we determined that there were few, if any, insurance firms
underwriting comprehensive health insurance policies (in contrast, for
example, to travel insurance policies or dental discount policies) that
fell below the size thresholds for ``small'' business established by
the SBA (currently $7 million in annual receipts for health insurers,
based on North American Industry Classification System Code 524114).\2\
Additionally, as discussed in the Medical Loss Ratio interim final
rule (75 FR 74918), the Department used a data set created from 2009
National Association of Insurance Commissioners (NAIC) Health and Life
Blank annual
[[Page 41950]]
financial statement data to develop an updated estimate of the number
of small entities that offer comprehensive major medical coverage in
the individual and group markets. For purposes of that analysis, the
Department used total Accident and Health (A&H) earned premiums as a
proxy for annual receipts. The Department estimated that there were 28
small entities with less than $7 million in A&H earned premiums
offering individual or group comprehensive major medical coverage;
however, this estimate may overstate the actual number of small health
insurance issuers offering such coverage, since it does not include
receipts from these companies' other lines of business.
As discussed earlier in this summary of the preliminary RIA, the
Department is seeking comments on the potential impacts of the
requirements in this proposed regulation on issuers' administrative
costs. The Department is also seeking comments relating to potential
impacts on small issuers.
This rule proposes standards for premium stabilization programs
required of health plan issuers including the risk adjustment program
as well as the transitional reinsurance and risk corridors programs.
Because health plan issuers are the only entities impacted by this rule
and as evidenced above, few if any insurance firms offering
comprehensive health insurance policies fell below the size thresholds
for ``small'' business established by the SBA. We request comment on
whether the small entities affected by this rule have been fully
identified. We also request comment and information on potential costs
for these entities and on any alternatives that we should consider.
VI. Unfunded Mandates
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing proposed rule (and subsequent
final rule) that includes any Federal mandate that may result in
expenditures in any one year by a State, local, or tribal governments,
in the aggregate, or by the private sector, of $100 million in 1995
dollars, updated annually for inflation. In 2011, that threshold is
approximately $136 million. Because States are not required to set up
an Exchange or operate reinsurance and risk adjustment, the NPRM does
not impose a mandate to incur costs above the $136 million UMRA
threshold on State, local, or tribal governments.
VII. 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 costs on State and local
governments, pre-empts State law, or otherwise has Federalism
implications. Because States have flexibility in designing their
Exchange and Exchange-related programs, State decisions will ultimately
influence both administrative expenses and overall premiums. States are
not required to operate an Exchange, risk adjustment, or reinsurance.
For States electing to operate an Exchange, risk adjustment and
reinsurance, much of the initial costs to the creation of Exchanges and
Exchange-related programs will be funded by Exchange Planning and
Establishment Grants. After this time, Exchanges will be financially
self-sustaining with revenue sources at the discretion of the State.
Current State Exchanges charge user fees to issuers.
In compliance with the requirement of Executive Order 13132 that
agencies examine closely any policies that may have Federalism
implications or limit the policy making discretion of the States, the
Department has engaged in efforts to consult with and work
cooperatively with affected States, including participating in
conference calls with and attending conferences of the National
Association of Insurance Commissioners, and consulting with State
insurance officials on an individual basis.
Throughout the process of developing this NPRM, the Department has
attempted to balance the States' interests in regulating health
insurance issuers, and Congress' intent to provide access to Affordable
Insurance Exchanges for consumers in every State. By doing so, it is
the Department's view that we have complied with the requirements of
Executive Order 13132.
Pursuant to the requirements set forth in section 8(a) of Executive
Order 13132, and by the signatures affixed to this regulation, the
Department certifies that CMS has complied with the requirements of
Executive Order 13132 for the attached proposed regulation in a
meaningful and timely manner.
VIII. Regulations Text
List of Subjects in 45 CFR Part 153
Administrative practice and procedure, Adverse selection, Consumer
protection, Health care, Health insurance, Health records, Hospitals,
Indians, Individuals with disabilities, Organization and functions
(Government agencies), Reporting and recordkeeping requirements,
Reinsurance, Risk adjustment, Risk corridors, Risk mitigation, State
and local governments.
For the reasons set forth in the preamble, the Department of Health
and Human Services proposes to amend 45 CFR subtitle A, subchapter B,
as set forth below:
SUBTITLE A--DEPARTMENT OF HEALTH AND HUMAN SERVICES
SUBCHAPTER B--REQUIREMENTS RELATING TO HEALTH CARE ACCESS
Part 153 is added as follows:
PART 153--STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND
RISK ADJUSTMENT UNDER THE AFFORDABLE CARE ACT
Subpart A--General Provisions
Sec.
153.10 Basis and scope.
153.20 Definitions.
Subpart B--State Notice of Insurance Benefits and Payment Parameters
153.100 Establishment of State insurance benefits and payment
parameters.
153.110 Standards for the State Notice.
Subpart C--State Standards for the Transitional Reinsurance Program for
the Individual Market
153.200 Definitions.
153.210 State establishment of a reinsurance program.
153.220 Collection of reinsurance contribution funds.
153.230 Calculation of reinsurance payments.
153.240 Disbursement of reinsurance payments.
153.250 Coordination with high-risk pools.
Subpart D--State Standards for the Risk Adjustment Program
153.300 Definitions.
153.310 Risk adjustment administration.
153.320 Federally-certified risk adjustment methodology.
153.330 State alternate risk adjustment methodology.
153.340 Data collection under risk adjustment.
153.350 Risk adjustment data validation requirements.
Subpart E--Health Insurance Issuer Standards Related to the
Transitional Reinsurance Program
153.400 Reinsurance contribution funds.
153.410 Requests for reinsurance payment.
Subpart F--Health Insurance Issuer Standards Related to the Temporary
Risk Corridors Program
153.500 Definitions.
153.510 Risk corridor establishment and payment methodology.
[[Page 41951]]
153.520 Risk corridors standards for QHP issuers.
Subpart G--Health Insurance Issuer Standards Related to the Risk
Adjustment Program
153.600 Definitions.
153.610 Risk adjustment issuer requirements.
153.620 Compliance with risk adjustment standards.
Authority: Title I of the Affordable Care Act, Sections 1321,
1341-1343.
Subpart A--General Provisions
Sec. 153.10 Basis and scope.
(a) Basis. This part is based on the following sections of title I
of the Affordable Care Act:
1321. State flexibility in operation and enforcement of
Exchanges and related requirements.
1341. Transitional reinsurance program for individual market in
each State.
1342. Establishment of risk corridors for plans in individual
and small group markets.
1343. Risk adjustment.
(b) Scope. This part establishes standards for the establishment
and operation of a transitional reinsurance program, temporary risk
corridors, and a permanent risk adjustment program.
Sec. 153.20 Definitions.
The following definitions apply to this part, unless the context
indicates otherwise:
Applicable reinsurance entity means a not-for-profit organization
that carries out the reinsurance program established under this part.
Benefit year has the meaning given to the term in Sec. 155.20.
Contributing entity means any health insurance issuer and, in the
case of a self-insured group health plan, the third party administrator
of the group health plan.
Enrollee has the meaning given to the term in Sec. 155.20.
Exchange has the meaning given to the term in Sec. 155.20.
Grandfathered health plan means coverage provided by a group health
plan, or a health insurance issuer as provided in accordance with
requirements under Sec. 147.140.
Group health plan has the meaning given to the term in Sec.
144.103.
Health insurance issuer or issuer has the meaning given to the term
in Sec. 144.103.
Health plan has the meaning given to the term in Sec. 155.20.
Individual market means the market for health insurance coverage
offered to individuals other than in connection with a group health
plan.
Reinsurance-eligible plan means, for the purpose of the reinsurance
program, any health plan offered in the individual market with the
exception of grandfathered plans.
Risk adjustment covered plan means, for the purpose of the risk
adjustment program, any plan offered in the individual or small group
market with the exception of grandfathered plans.
Small group market has the meaning given to the term in Sec.
155.20.
State has the meaning given to the term in Sec. 155.20.
Subpart B--State Notice of Insurance Benefits and Payment
Parameters
Sec. 153.100 Establishment of State insurance benefits and payment
parameters.
(a) General requirement. A State operating an Exchange, as well as
a State establishing a reinsurance program, must issue an annual notice
of benefits and payment parameters specific to that State if that State
intends to modify any reinsurance or risk adjustment parameters from
those specified in the forthcoming annual Federal notice of benefit and
payment parameters.
(b) State notice deadlines. If a State elects to publish an annual
notice of benefits and payment parameters, the State must issue the
notice by early March of the year prior to the benefit year.
(c) State failure to publish notice. Any State operating an
Exchange or establishing a reinsurance program that fails to publish a
notice within the period specified in paragraph (b) of this section
must adhere to the parameters, as specified in the forthcoming annual
Federal notice of benefit and payment parameters.
Sec. 153.110 Standards for the State Notice.
(a) Reinsurance content. If a State operating an Exchange or
establishing a reinsurance program intends to modify a Federal
reinsurance payment parameter, the State notice must specify at least
the following information:
(1) The data requirements and data collection frequency for health
insurance issuers to receive reinsurance payment.
(2) The reinsurance attachment point, reinsurance cap, and
coinsurance rate, as specified in Sec. 153.230, if different from the
corresponding parameters specified in the forthcoming annual Federal
notice of benefit and payment parameters;
(3) If a State plans to use more than one applicable reinsurance
entity, for each applicable reinsurance entity, the geographic
boundaries for that entity and estimates of:
(i) The number of enrollees in group health plans, including the
fully insured and self insured market;
(ii) The number of enrollees in the individual market;
(iii) The amount of reinsurance payments that will be made to
issuers; and
(iv) The amount of all premiums in the geographic region that will
be available for contributions for each reinsurance entity.
(b) Risk adjustment content. If a State operating an Exchange
intends to modify a Federal risk adjustment parameter, the State notice
must provide a detailed description of and rationale for any
modifications, including:
(1) The methodology for determining average actuarial risk,
including the establishment of risk pools and the Federally-certified
risk adjustment model as specified in Sec. 153.320; and
(2) The risk adjustment data validation methodology set forth in
Sec. 153.350.
Subpart C--State Standards for the Transitional Reinsurance Program
for the Individual Market
Sec. 153.200 Definitions.
The following definitions apply to this subpart.
Attachment point means the threshold dollar amount of costs
incurred by a health insurance issuer for payment of essential health
benefits, as defined in section 1302(b) of the Affordable Care Act,
provided for an enrolled individual, after which threshold, the costs
for covered essential health benefits, as defined in section 1302(b) of
the Affordable Care Act, are eligible for reinsurance payments.
Coinsurance rate means the rate at which the applicable reinsurance
entity will reimburse the health insurance issuer for costs incurred to
cover essential health benefits, as defined in section 1302(b) of the
Affordable Care Act, after the attachment point and before the
reinsurance cap.
Contribution rate means the rate, based on a percent of premium,
used to determine the dollar amounts each health insurance issuer and
third party administrator, on behalf of a self-insured group health
plan, must contribute to a State reinsurance program.
Percent of premium means the percent of total revenue, based on
earned premiums as described in Sec. 158.130(a), in a fully insured
market or the percent of total medical expenses in a self-insured
market.
Reinsurance cap means the threshold dollar amount for costs
incurred by a
[[Page 41952]]
health insurance issuer for payment of essential health benefits, as
defined in section 1302(b) of the Affordable Care Act, provided for an
enrolled individual, after which threshold, the costs for covered
essential health benefits, as defined in section 1302(b) of the
Affordable Care Act, are no longer eligible for reinsurance payments.
Third party administrator means the claims processing entity for a
self-insured group health plan.
Sec. 153.210 State establishment of a reinsurance program.
(a) General requirement. Each State that elects to operate an
Exchange must establish a reinsurance program for the years 2014
through 2016.
(1) The State must enter into a contract with an existing
applicable reinsurance entity or establish an applicable reinsurance
entity to carry out the provisions of this subpart.
(2) If a State establishes or contracts with more than one
applicable reinsurance entity, the State must:
(i) Ensure that each applicable reinsurance entity operates in a
distinct geographic area with no overlap of jurisdiction with any other
applicable reinsurance entity; and
(ii) Publish the geographic boundaries for each applicable
reinsurance entity in a State notice described in Sec. 153.110.
(3) Under authority granted by the State, an applicable reinsurance
entity may subcontract specific administrative functions required under
this subpart and part 156 subpart G.
(4) States must review and approve subcontracting arrangements to
ensure efficient and appropriate expenditures of administrative funds
collected under this subpart.
(5) States must ensure that the contract or establishment of the
applicable reinsurance entity is of sufficient duration to cover
completion of all reinsurance-related activities for benefit years
commencing in 2014 through 2016 and any activities required to be
undertaken in subsequent periods.
(b) Multi-State reinsurance arrangements. Multiple States may
contract with a single not-for-profit entity to serve as the applicable
reinsurance entity for each State. In such cases, each contractual
arrangement between the not-for-profit entity and the individual State
will be treated as an individual State applicable reinsurance entity
separate and distinct from all other applicable reinsurance entities
operated by the not-for-profit entity.
(c) Special State circumstances for establishing a reinsurance
program. For each State that does not elect to establish an Exchange,
the State may determine to operate its own reinsurance program and must
carry out all of the provisions in this subpart.
(d) Non-electing States. For each State that does not elect to
establish an Exchange and does not determine to operate its own
reinsurance program, HHS will carry out all of the provisions of this
subpart on behalf of the State and establish the reinsurance program to
perform all the reinsurance functions for that State.
(e) Oversight. Each State that establishes an Exchange or operates
a reinsurance program must ensure that each applicable reinsurance
entity complies with all provisions of this subpart and subpart E
throughout the duration of its contract or establishment.
Sec. 153.220 Collection of reinsurance contribution funds.
(a) General requirement. The State must ensure that the applicable
reinsurance entity collects contributions to fund the following:
(1) Reinsurance contributions that will total, on a national basis,
$10 billion in 2014, $6 billion in 2015, and $4 billion in 2016.
(2) U.S. Treasury contributions that will total, on a national
basis, $2 billion in 2014, $2 billion in 2015, and $1 billion in 2016.
(b) Contribution rate. The State must adhere to a national
contribution rate set by HHS for the amounts listed in paragraph (a)(1)
and (a)(2) of this section.
(1) HHS will set the contribution rate as a percent of premium
through a forthcoming annual Federal notice of benefit and payment
parameters.
(2) At a minimum, the State must ensure that all applicable
reinsurance entities operating in a State collect from all contributing
entities the amount set forth by the national rate. The contributions
allocated for--
(i) Reinsurance payments must be used for reinsurance payments.
(ii) Payments to the U.S. Treasury must be paid to the U.S.
Treasury.
(3) An applicable reinsurance entity may collect more than the
amounts collected from the set national rate to provide--
(i) Additional funding for reinsurance payments if the State
believes the amount is not sufficient to fund required reinsurance
payments; and
(ii) Funding for administrative expenses of the applicable
reinsurance entity.
Sec. 153.230 Calculation of reinsurance payments.
(a) General requirement. A health insurance issuer of a non-
grandfathered individual market plan becomes eligible for reinsurance
payments when its expenses for items and services within the essential
health benefits, as defined in section 1302(b) of the Affordable Care
Act, of an individual enrollee exceed an attachment point.
(b) Reinsurance payment. States may use the payment formula and
values for the attachment point, reinsurance cap, and coinsurance rate
for each year commencing in 2014 and ending in 2016, established in the
forthcoming annual Federal notice of benefit and payment parameters.
(1) States must ensure that the reinsurance payment represents the
product of the coinsurance rate times all health insurance issuer costs
for an individual's essential health benefits, as defined in section
1302(b) of the Affordable Care Act, which the health insurance issuer
incurs between the attachment point and the reinsurance cap.
(2) The State, or the applicable reinsurance entity on behalf of
the State, must remit the amounts in paragraph Sec. 153.220(a)(2) of
this section to the general fund of the U.S. Treasury at a frequency to
be determined by HHS.
(c) State modification of reinsurance payment formula. States may
modify the reinsurance payment formula to values determined appropriate
by the State.
(1) States may use one or all of the following methods:
(i) Increasing or decreasing the attachment point;
(ii) Increasing, decreasing, or eliminating the reinsurance cap;
and
(iii) Increasing or decreasing the coinsurance rate.
(2) States must publish any modification to the reinsurance payment
formula and parameters in a State notice as described in Sec. 153.110.
(3) States that develop a State formula for reinsurance payments
must ensure that contributions toward reinsurance are sufficient to
cover:
(i) All payments that the applicable reinsurance entity is
obligated to make under that State formula for the given calendar year
for the reinsurance program;
(ii) All contributions to the U.S. Treasury described in Sec.
153.220(a)(2).
Sec. 153.240 Disbursement of reinsurance payments.
(a) Data collection. The State must ensure that the applicable
reinsurance entity collects from health insurance issuers of
reinsurance-eligible plans data required to calculate payments
described in Sec. 153.230, according to the data requirements and data
collection
[[Page 41953]]
frequency specified by the State in the notice described in Sec.
153.110 or in the forthcoming annual Federal notice of benefit and
payment parameters.
(b) Reinsurance entity payments. The State must ensure that each
applicable reinsurance entity make payments to health insurance issuers
that do not exceed contributions.
(1) Payments must be made to health insurance issuers of
reinsurance-eligible plans based on the applicable payment notice
identified in Sec. 153.230(b) or the payment parameters set pursuant
to Sec. 153.230(c).
(2) Payments may be reduced on a pro rata basis to match the amount
of contributions received by the State in a given reinsurance year. Any
pro rata reductions that the State determines are necessary must be
fair and equitable for all health insurance issuers in the individual
market.
(3) The State must ensure that an applicable reinsurance entity
makes payment as specified in Sec. 153.410(b) to the health insurance
issuer of a reinsurance-eligible plan after receiving a valid claim for
payment from that health insurance issuer.
(c) Maintenance of Records. The State must maintain books, records,
documents, and other evidence of accounting procedures and practices of
the reinsurance program for each benefit year for at least 10 years.
Sec. 153.250 Coordination with high-risk pools.
(a) General requirement. The State shall eliminate or modify any
State high risk pool to the extent necessary to carry out the
reinsurance program established under this subpart.
(b) Coordination with high-risk pools. The State may coordinate the
State high risk pool with the reinsurance program to the extent it
conforms to the provisions of this subpart.
Subpart D--State Standards for the Risk Adjustment Program
Sec. 153.300 Definitions.
The following definitions apply to this subpart:
Alternate risk adjustment methodology means a risk adjustment
methodology proposed by a State for use instead of existing Federally-
certified risk adjustment models, but not yet certified by HHS.
Federally-certified risk adjustment methodology means a risk-
adjustment methodology that has been either developed and promulgated
by HHS or has been certified by HHS.
Risk adjustment methodology means the specific procedures used to
determine average actuarial risk.
Risk adjustment model means an actuarial tool used to predict
health plan costs based on the relative actuarial risk of enrollees in
risk adjustment covered plans.
Risk pool means the population across which risk is distributed in
risk adjustment.
Sec. 153.310 Risk adjustment administration.
(a) State eligibility to establish a risk adjustment program. (1) A
State that elects to operate an Exchange is eligible to establish a
risk adjustment program.
(2) Any State that does not elect an Exchange, or that HHS has not
approved to operate an Exchange, will forgo implementation of all State
functions in this subpart and HHS will carry out all of the provisions
of this subpart on behalf of the State.
(3) Any State that elects to establish an Exchange but does not
elect to administer risk adjustment will forgo implementation of all
State functions in this subpart and HHS will carry out all of the
provisions of this subpart on behalf of the State.
(b) Entities eligible to carry out risk adjustment activities. A
State may elect to have an entity other than the Exchange perform the
risk adjustment functions of this subpart provided that the entity
selected meets the requirements proposed in Sec. 155.110 of the notice
of proposed rulemaking entitled, ``Patient Protection and Affordable
Care Act; Establishment of Exchanges and Qualified Health Plans,''
published in this issue of the Federal Register.
(c) Timeframes. A State, or HHS on behalf of the State, must
commence calculating payment and charges with the 2014 benefit year.
Sec. 153.320 Federally-certified risk adjustment methodology.
(a) General requirement. Any risk adjustment methodology used by a
State, or HHS on behalf of the State, must be established as a
Federally-certified risk adjustment methodology. A risk adjustment
methodology may become Federally-certified by one of the following
processes:
(1) A risk adjustment methodology developed by HHS, with its use
authorized and published in a forthcoming annual Federal notice of
benefits and payment parameters; or
(2) An alternative risk adjustment methodology submitted by a State
in accordance with Sec. 153.330, and reviewed and certified by HHS.
After HHS approves a State alternative risk adjustment methodology,
that methodology is considered a Federally-certified risk adjustment
methodology.
(b) Publication of methodology in notices. A State must use one of
the Federally-certified risk adjustment methodologies that will be
published by HHS in a forthcoming annual Federal notice of benefits and
payment parameters or that has been published by the State in the
annual State notice described in Sec. 153.110(b). Each methodology
will include:
(1) A complete description of the risk adjustment model,
including--
(i) Factors to be employed in the model, including but not limited
to demographic factors, diagnostic factors, and utilization factors, if
any;
(ii) The qualifying criteria for establishing that an individual is
eligible for a specific factor;
(iii) Weights assigned to each factor; and
(iv) The schedule for collection of risk adjustment data and
determination of factors; and
(2) Any adjustments made to the risk adjustment model weights to
determine average actuarial risk.
(c) Use of methodology for States that do not elect an Exchange.
HHS will specify in the forthcoming annual Federal notice of benefits
and payment parameters the Federally-certified risk adjustment
methodology that will apply in States that do not elect to operate an
Exchange.
Sec. 153.330 State alternate risk adjustment methodology.
(a) State request for alternate methodology certification.
(1) The State request to HHS for the certification of an
alternative risk adjustment model must include:
(i) A description of specific risk pools to which the methodology
will be applied;
(ii) A complete description of the risk adjustment model,
including--
(A) Factors to be employed in the methodology, including but not
limited to demographic factors, diagnostic factors, and utilization
factors, if any;
(B) The qualifying criteria for establishing that an individual is
eligible for a specific factor;
(C) Weights assigned to each factor;
(D) The schedule for collection of risk adjustment data and the
method of data collection;
(E) Calibration methodology and frequency of calibration; and
(F) Statistical performance metrics, as specified by HHS; and
(iii) Any adjustments made to the base risk adjustment model
weights to determine average actuarial risk.
(2) The request must include the extent to which the methodology:
(i) Accurately explains the variation in the expenses of a given
population;
[[Page 41954]]
(ii) Links risk factors to daily clinical practice and are
clinically meaningful to providers;
(iii) Encourages favorable behavior among providers and health
plans and discourages unfavorable behavior;
(iv) Uses data that is complete, high in quality and available in a
timely fashion;
(v) Is easy for stakeholders to understand and implement;
(vi) Provides stable risk scores over time and across plans; and
(vii) Minimizes administrative costs.
(b) State renewal of alternate methodology. The State may not
implement a recalibrated risk adjustment model or otherwise altered
methodology without first obtaining HHS certification.
(1) Recalibration of the risk adjustment model must be performed at
least as frequently as described in paragraph (a)(1)(ii)(E);
(2) Request must include any changes to the parameters described in
paragraph (a)(1).
Sec. 153.340 Data collection under risk adjustment.
(a) Data collection requirements. The State, or HHS on behalf of
the State, must collect risk-related data to determine individual risk
scores that form the basis for risk adjustment.
(b) Minimum standards. The State, or HHS on behalf of the State,
may vary the amount and type of data collected provided that the State,
or HHS on behalf of the State, uses the following standards for risk
adjustment data collection:
(1) The NCPDP claims transaction or the HIPAA standard ASC X12N 837
Health Care Claim transaction for all claims and encounter data;
(2) The HIPAA standard ASC X12N 834 Benefit Enrollment and
Maintenance transaction for all demographic and enrollment data; and
(3) To ensure adequate data privacy standards, the State, or any
official, employee, agent or representative of the State must use
individually identifiable information only as specifically required or
permitted by this part and must not disclose individually identifiable
information except as provided in paragraph (d) of this section.
(i) The State should interpret this provision as separate from the
authority of other applicable laws for disclosing individual
identifiable information under paragraph (d) of this section.
(ii) The State must implement security standards that provide
administrative, physical, and technical safeguards for the individually
identifiable information consistent with the security standards
described at 45 CFR 164.308, 164.310, and 164.312.
(iii) The State must establish privacy standards that set forth
approved uses and disclosures of individually identifiable information.
(c) Exception for States with all payer claims databases. Any State
with an all payer claims database that is operational on or before
January 1, 2013 may request an exception from the data collection
minimum standards described in paragraph (b) of this section by
submitting:
(1) Technical specifications for the all payer claims database
including data formats;
(2) Proposed system modifications to support risk adjustment
activities;
(3) Proposed system modifications to meet requirements set forth in
paragraph (d) of this section and other Exchange-related activities.
(d) Uses of risk adjustment data. The State, or HHS on behalf of
the State, must make relevant claims and encounter data collected under
risk adjustment available to support claims-related activities as
follows:
(1) Provide HHS with de-identified claims and encounter data for
use in recalibrating Federally-certified risk adjustment models;
(2) Provide HHS with summarized claims cost for use in verifying
risk corridor submissions; and
(3) Provide the reinsurance entity with summarized claims and
encounter data from reinsurance-eligible plans for payment verification
purposes and individual-level from reinsurance-eligible plans for audit
purposes.
Sec. 153.350 Risk adjustment data validation standards.
(a) General requirement. The State, or HHS on behalf of the State,
must validate a statistically valid sample of risk adjustment data from
each issuer that offers at least one risk adjustment covered plan in
that State.
(b) Use of data validation to adjust risk. The State, or HHS on
behalf of the State, may adjust the average actuarial risk calculated
in Sec. 153.310 for all risk adjustment covered plans offered by an
issuer based on the risk score error determined in the data validation
conducted pursuant to paragraph (a) of this section.
(c) Adjustment to charges and payments. The State may adjust
charges and payments to all risk adjustment covered plan issuers based
on the adjustments calculated in paragraph (b) of this section.
(d) Appeals. The State must provide an administrative process to
appeal data validation findings.
Subpart E--Health Insurance Issuer Standards Related to the
Transitional Reinsurance Program
Sec. 153.400 Reinsurance contribution funds.
(a) General requirement. Each contributing entity must make
payments of contributions, in a frequency and manner determined by the
State or HHS, to the applicable reinsurance entity for each State in
which the contributing entity issues health insurance for the
contributions specified pursuant to Sec. 153.220(b).
(b) Multiple reinsurance entities. If the State establishes or
contracts with more than one reinsurance entity, the contributing
entity must make payments to each applicable reinsurance entity that
covers each geographic area in which the contributing entity issues
health insurance.
(c) Data requirements. Each contributing entity must submit to each
applicable reinsurance entity data required to substantiate the
contribution amounts for the contributing entity.
(1) Each contributing entity in the individual and fully insured
market must submit enrollment and premium data.
(2) Each contributing entity in the self-insured market must submit
data on covered lives and total expenses.
Sec. 153.410 Requests for reinsurance payment.
(a) General requirement. A reinsurance-eligible plan issuer may
make a request for payment when an enrollee of that reinsurance-
eligible plan has met the criteria for reinsurance payment.
(b) Manner of request. Reinsurance-eligible plan issuers must make
requests for payment in a manner that will be specified by the State as
described in Sec. 153.110 or in the forthcoming annual Federal notice
of benefit and payment parameters.
Subpart F--Health Insurance Issuer Standards Related to the
Temporary Risk Corridors Program
Sec. 153.500 Definitions.
Allowable administrative costs means the total non-medical costs as
defined in Sec. 158.160(b), including costs for the administration and
operation incurred by the plan as set forth in Sec. 158.160(b)(2).
Allowable costs means an amount equal to the total medical costs,
which include clinical costs, excluding allowable administrative costs,
paid by the QHP issuer in providing benefits covered by the QHP.
Charge means the flow of funds from QHP issuers to HHS.
[[Page 41955]]
Direct and indirect remuneration means prescription drug price
concessions or similar benefits from manufacturers, pharmacies or
similar entities obtained by a QHP issuer or an intermediary
contracting organization with which a QHP issuer has contracted. Such
concessions include but are not limited to: Discounts, charge backs,
rebates, free goods contingent on a purchase agreement, up-front
payments, coupons, goods in kind, free or reduced-price services, and
grants. We further specify that the term applies regardless of whether
the intermediary contracting organization retains all or a portion of
the direct and indirect remuneration or passes the entire direct and
indirect remuneration to the QHP issuer and regardless of the terms of
the contract between the issuer and the intermediary contracting
organization.
Payment means the flow of funds from HHS to QHP issuers.
Qualified Health Plan, or QHP, has the meaning given to the term
proposed in the general definitions section of the Patient Protection
and Affordable Care Act; Establishment of Exchanges and Qualified
Health Plans, published in this issue of the Federal Register.
Risk corridor means any payment adjustment system based on the
ratio of allowable costs of a plan to the plan's target amount.
Target amount means an amount equal to the total premiums incurred
by a QHP, including any premium tax credit under any governmental
program, reduced by the allowable administrative costs of the plan.
Sec. 153.510 Risk corridor establishment and payment methodology.
(a) General requirement. A QHP issuer must adhere to the
requirements set by HHS in this subpart and in the forthcoming annual
Federal notice of benefits and payment parameters for the establishment
and administration of a program of risk corridors for calendar years
2014, 2015, and 2016.
(b) HHS payments to health insurance issuers. QHP issuers will
receive payment from HHS in the following amounts under the following
circumstances:
(1) When a QHP's allowable costs for any benefit year are more than
103 percent but not more than 108 percent of the target amount, HHS
pays the QHP issuer an amount equal to 50 percent of the target amount
in excess of 103 percent of the target amount; and
(2) When a QHP's allowable costs for any benefit year are more than
108 percent of the target amount, HHS pays to the QHP issuer an amount
equal to the sum of 2.5 percent of the target amount plus 80 percent of
allowable costs in excess of 108 percent of the target amount.
(c) Health insurance issuers' remittance of charges. QHP issuers
must remit charges to HHS in the following amounts under the following
circumstances:
(1) If a QHP's allowable costs for any benefit year are less than
97 percent but not less than 92 percent of the target amount, the QHP
issuer must remit charges to HHS an amount equal to 50 percent of the
difference between 97 percent of the target amount and the allowable
costs; and
(2) When a QHP's allowable costs for any benefit year are less than
92 percent of the target amount, the QHP issuer must remit charges to
HHS an amount equal to the sum of 2.5 percent of the target amount plus
80 percent of the difference between 92 percent of the target amount
and the allowable costs.
Sec. 153.520 Risk corridor standards for QHP issuers.
(a) Adjusted premium data. QHP issuers must submit to HHS data on
the premiums collected for each QHP that the issuer offers in a format
specified by HHS. These premium amounts must be adjusted in the
following manner:
(1) Increased by the amount of any payments received for--
(i) Risk adjustment, and
(ii) Reinsurance as described in Sec. 153.230; and
(2) Reduced for any--
(i) Risk adjustment charges assessed,
(ii) Reinsurance contributions made as described in Sec. 153.220,
and
(iii) User fees paid.
(3) Accounting for reinsurance payments. QHP issuers must attribute
reinsurance payments to risk corridors based on the date, to be
determined by HHS, on which the valid reinsurance claim was submitted.
(b) Allowable costs. All QHP issuers offering QHP's must submit to
HHS the allowable costs incurred for each QHP that the QHP issuer
offers in a format to be specified in the forthcoming annual Federal
notice of benefits and payment parameters.
(1) Allowable costs must be net of direct and indirect
remuneration.
(2) Allowable costs must be reduced for any cost-sharing reductions
payments received from HHS.
Subpart G--Health Insurance Issuer Standards Related to the Risk
Adjustment Program
Sec. 153.600 Definitions.
Risk adjustment data means all data that are used in the
application of a risk adjustment payment model.
Sec. 153.610 Risk adjustment issuer requirements.
(a) Data submission. All issuers that offer risk adjustment covered
plans must submit all required risk adjustment data for those risk
adjustment covered plans in the manner and timeframes established by
the State, or by HHS on behalf of the State. This data may include but
is not limited to:
(1) Claims and encounter data for items and services rendered;
(2) Enrollment and demographic information; and
(3) Prescription drug utilization data.
(b) Issuer contracts. Issuers that offer risk adjustment covered
plans may include in their contracts with providers, suppliers,
physicians, and other practitioners, provisions that require such
contractor's submission of complete and accurate risk adjustment data
in the manner and timeframes established by the State, or HHS on behalf
of the State. These provisions may include financial penalties for
failure to submit complete, timely, or accurate data.
(c) Assessment of charges. After charges and payments for all risk
adjustment covered plans have been calculated, issuers that offer risk
adjustment covered plans with a net balance of risk adjustment charges
payable will be notified by the State, or by HHS on behalf of the
State, for those net charges and must remit those risk adjustment
charges to the State, or to HHS on behalf of the State.
Sec. 153.620 Compliance with risk adjustment standards.
(a) Issuer support of data validation. All issuers that offer risk
adjustment covered plans must make available to HHS and the State any
data requested to support validation of risk adjustment data reported
under this subpart of this part.
(b) Issuer records maintenance requirements. All issuers that offer
risk adjustment covered plans must retain any risk adjustment data
reported under this subpart of this part for a period of at least ten
years after the date of the report.
(Catalog of Federal Domestic Assistance Program No. 93.773,
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)
[[Page 41956]]
Dated: June 29, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
Dated: July 7, 2011.
Kathleen Sebelius,
Secretary.
[FR Doc. 2011-17609 Filed 7-11-11; 11:15 am]
BILLING CODE 4120-01-P