[Federal Register Volume 77, Number 95 (Wednesday, May 16, 2012)]
[Rules and Regulations]
[Pages 28790-28797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-11753]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 158

[CMS-9998-F]
RIN 0938-AR41


Medical Loss Ratio Requirements Under the Patient Protection and 
Affordable Care Act

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

ACTION: Final rule.

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SUMMARY: This final rule amends the regulations implementing medical 
loss ratio (MLR) standards for health insurance issuers under the 
Public Health Service Act in order to establish notice requirements for 
issuers in the group and individual markets that meet or exceed the 
applicable MLR standard in the 2011 MLR reporting year.

DATES: Effective date. This rule is effective on June 15, 2012.
    Applicability date. The amendments to part 158 generally apply 
beginning

[[Page 28791]]

July 1, 2012, to health insurance issuers offering group or individual 
health insurance coverage.

FOR FURTHER INFORMATION CONTACT: Carol Jimenez, (301) 492-4457.

SUPPLEMENTARY INFORMATION: 

I. Background

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010; the Health Care and Education 
Reconciliation Act (Pub. L. 111-152) was enacted on March 30, 2010. In 
this preamble, we refer to the two statutes collectively as the 
Affordable Care Act. The Affordable Care Act reorganizes, amends, and 
adds to the provisions of Part A of title XXVII of the Public Health 
Service Act (PHS Act) relating to group health plans and health 
insurance issuers in the group and individual markets.
    A request for information relating to the medical loss ratio (MLR) 
provisions of section 2718 of the PHS Act was published in the Federal 
Register on April 14, 2010 (75 FR 19297). On December 1, 2010, the 
Department of Health and Human Services (HHS) published an interim 
final rule (75 FR 74864) with a 60-day public comment period, entitled 
``Health Insurance Issuers Implementing Medical Loss Ratio (MLR) 
Requirements Under the Patient Protection and Affordable Care Act,'' 
that added a new 45 CFR part 158. A technical correction to the interim 
final rule was issued on December 30, 2010 (75 FR 82277).
    On December 7, 2011, the Centers for Medicare & Medicaid Services 
(CMS) published an interim final rule (76 FR 76596) with a 60-day 
public comment period entitled, ``Medical Loss Ratio Rebate 
Requirements for Non-Federal Governmental Plans,'' establishing rules 
governing the distribution of rebates by health insurance issuers in 
group markets for non-Federal governmental plans. Also on December 7, 
2011, CMS published a final rule (76 FR 76574) with a 30-day public 
comment period, entitled ``Medical Loss Ratio Requirements Under the 
Patient Protection and Affordable Care Act,'' that addressed the 
treatment of ``mini-med'' and expatriate policies under the MLR 
regulations for years after 2011; modified the way the regulations 
treat International Statistical Classification of Diseases and Related 
Health Problems, 10th Revision (ICD-10) conversion costs; changed the 
rules on deducting community benefit expenditures; and revised the 
rules governing the distribution of rebates by issuers in group 
markets.
    In the December 7, 2011 final rule with comment period, we noted 
that the notice requirements finalized in the rule only applied to 
issuers that owed rebates as a result of not meeting the applicable MLR 
standard. Consequently, policyholders and subscribers of issuers 
meeting or exceeding the MLR standard would not receive MLR 
information, an important tool to increase transparency to consumers. 
In the rule, we noted that extending a notice requirement to such cases 
would serve the policy goal of greater transparency in how premium 
dollars are used, and provide an additional incentive for issuers that 
already met the minimum standard to achieve the highest MLR possible. 
We therefore solicited comments on whether an issuer that meets or 
exceeds the MLR standard for the applicable MLR reporting year should 
send a notice to policyholders and subscribers with information about 
the MLR standard and its own MLR, as a measurement of issuer 
performance. We also solicited comments on whether it would be useful 
to include information in the notices about the issuer's prior year MLR 
in addition to the current year MLR. We noted that this approach would 
allow enrollees to determine if the issuer was doing a better or worse 
job of efficiently using premium revenue than in the prior year.
    Based on the comments received and weighing consumer transparency 
and competition gains with burden on issuers, this final rule 
establishes a simple, straightforward notice requirement for health 
insurance issuers that meet or exceed the MLR standards established by 
the Affordable Care Act, but only requires the notice for the 2011 MLR 
reporting year, the first year that the MLR rules are in effect, and 
does not require issuers to include information about the current or 
prior year MLR. The notice will direct enrollees to the HHS Web site 
for specific information about issuers' MLRs.

II. Analysis of and Responses to Public Comments

    We received 56 public comments on the December 7, 2011 final rule 
with comment period. Commenters included consumer and patient advocacy 
organizations, insurance regulators, health insurance issuers, business 
advocacy organizations, provider groups, an actuarial professional 
group, and others. In addition, we received 11 public comments in 
response to the draft MLR Notices and Instructions contained in the MLR 
Paperwork Reduction Act (PRA) package (CMS-10418) posted on February 
16, 2012. Commenters consisted of consumer groups, health insurance 
issuers, an issuer trade association, and a business trade association. 
Several of these commenters recommended technical corrections to the 
draft notices and instructions. We note that their comments will be 
addressed through the PRA process. In addition, commenters recommended 
several amendments to the December 1, 2010 interim final rule that were 
beyond the scope of this final rulemaking; therefore, we are not making 
changes in this final rule based on these comments. In this final rule, 
we only address the public comments received on the following issues: 
(1) Whether a notice requirement should apply to issuers that meet or 
exceed the applicable MLR standards in a particular MLR reporting year; 
and (2) whether MLR notices should include information on an issuer's 
prior year MLR. The comments received are summarized below with our 
responses.
    Comments: We received comments that both support and oppose 
expanding the notice to issuers that do not owe rebates because they 
meet or exceed the MLR standards. Commenters who opposed expanding the 
notice rules generally claimed that requiring issuers that do not owe 
rebates to provide an MLR notice would impose a burden on issuers that 
meet the MLR requirement and provide little value to consumers. 
Specifically, issuers, an issuer trade association, and a business 
advocacy organization stated that MLR data would confuse or mislead 
consumers who may misinterpret the information or who may mistakenly 
believe they are owed a rebate. Commenters in support of expanding the 
notice rules, such as consumer and patient advocacy organizations, 
stated that expanding the notice rules would increase health plan 
transparency and ensure that every enrollee receives information about 
the meaning of the MLR, rather than only those owed a rebate.
    We also received several comments on the question of whether all 
MLR notices should include the issuer's MLR from the prior MLR 
reporting year. Issuers and trade associations opposed this 
requirement, noting that an issuer's MLR from the prior MLR reporting 
year is not necessarily a reliable indicator of health plan 
performance. These commenters stated that numerous factors other than 
health plan efficiency, such as variation in incurred claims, premium 
revenue, and adjustments, affect issuers' year-to-year MLRs and that 
consumers may be misled when comparing MLRs for multiple years. Several 
commenters noted that MLR information will be publicly available on the 
HHS Web site and suggested that CMS maintain historical data so that 
consumers may monitor changes in

[[Page 28792]]

issuers' MLR over time. In contrast, consumer and patient advocacy 
organizations expressed support for including an issuer's prior year 
MLR, noting that it would help consumers to better use the MLR 
information when making plan selections and better understand how 
premium dollars are spent by health insurers. They indicated that 
consumers could benefit from more detailed information and that the 
notice should include specific information that explains how premium 
dollars are being spent, not just whether the MLR was being met.
    Response: Expanding the notice of MLR information to all issuers 
would further the goals of improving transparency of health insurance 
markets, supporting more informed purchase decisions, and promoting 
competition and efficiency. At the same time, we appreciate the 
concerns about administrative costs. Further, we recognize that under 
the Affordable Care Act, issuers' MLR information will be available on 
the HHS Web site, HealthCare.gov, providing an efficient method of 
public disclosure.\1\
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    \1\ Section 2718(a) of the PHS Act provides that ``The Secretary 
shall make reports [concerning an issuer's MLR and its components] 
received under this section available to the public on the Internet 
Web site of the Department of Health and Human Services.'' In 
addition, section 1103(b) of the Affordable Care Act provides that 
the Federal health care reform insurance Web portal created by the 
Secretary under section 1103 to present information relating to 
affordable coverage options shall, among other things, ``require the 
inclusion of information on the percentage of total premium revenue 
expended on nonclinical costs (as reported under section 2718(a) of 
the Public Health Service Act).''
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    In light of these considerations and after further review and 
consideration of the costs and benefits of different notice 
alternatives, we are adding a new 45 CFR 158.251 that establishes a 
basic notice requirement for issuers in the group and individual 
markets that meet or exceed the applicable MLR standard. This new 
notice will use standard language to inform policyholders and 
subscribers of group health plans, and subscribers in the individual 
market, that the issuer has met the minimum MLR standards established 
by the Affordable Care Act, but it will not include the issuer's MLR 
for the current or prior reporting year or other specific measures of 
issuer performance. Instead, the notice will help educate consumers 
about the MLR measures and direct them to the HHS Web site, 
HealthCare.gov, for information about issuers' actual MLRs. 
Additionally, under this final rule, issuers will only need to produce 
this notice for the 2011 MLR reporting year, when consumer knowledge of 
the MLR is low and the greatest benefit can be achieved by providing 
enrollees with educational information. By leveraging existing Federal 
information resources while ensuring adequate notice to enrollees in 
the first year of applicability, we believe this new notice requirement 
balances issuers' interest in administrative efficiency and consumers' 
interest in health plan transparency.
    This notice rule will ensure that all consumers, not just those 
owed a rebate, are informed whether their issuer meets the minimum MLR 
standards established by the Affordable Care Act. It will provide 
greater transparency to consumers regarding how their premium dollars 
are used, promote informed decision-making in the purchase of health 
insurance, and ensure that efficiency in the use of premium dollars is 
properly valued by consumers. Notifying consumers of the MLR standards 
will also reduce confusion as to why certain individuals receive 
rebates, while others, such as coworkers or family members with 
different insurance plans, do not. Finally, the distribution of MLR 
notices to consumers with the HHS Web site, HealthCare.gov, will 
promote a more competitive market by creating an incentive for issuers 
to spend as high a percentage of premium dollars on health care and 
quality improvement as possible, rather than spending just enough to 
avoid paying rebates.

III. Provisions of the Final Rule

    In paragraph (a)(1) of new Sec.  158.251 of this final rule, we set 
forth the general requirement that an issuer whose MLR meets or exceeds 
the applicable MLR standard required by Sec.  158.210 or Sec.  158.211 
must provide each policyholder and subscriber of a group health plan, 
and each subscriber in the individual market, a notice of MLR 
information. The required language for the notice is specified in 
paragraph (a)(4). This notice requirement applies only for the 2011 MLR 
reporting year.
    In paragraph (a)(2), we generally align the timing of this new 
notice with the timing specified in Sec.  158.240(d) for providing any 
rebates that are due and the accompanying notice of rebates. We specify 
that the MLR notice must be provided with the first plan document (for 
example, open enrollment materials) that is provided to enrollees on or 
after July 1, 2012.
    In paragraph (a)(3), we direct that the notice be prominently 
displayed in clear, conspicuous 14-point bold type on the front of the 
plan document, insurance policy or certificate, or as a separate 
notice. The MLR notice may be included in the same mailing as other 
mailed notices. Further, we specify that the notice may be provided 
electronically, consistent with the policy for providing the summary of 
benefits and coverage under section 2715 of the PHS Act.
    In paragraph (b), we specify certain exceptions to the MLR notice 
requirement. We are not requiring health insurance issuers that sell 
plans with total annual benefit limits of $250,000 or less (``mini-
med'' plans) or expatriate policies, as described in Sec.  
158.120(d)(3) and (d)(4), respectively, to provide MLR notices to 
policyholders and subscribers if they meet or exceed the applicable MLR 
standard. As discussed in the preamble to the December 7, 2011 final 
rule with comment period, issuers of mini-med and expatriate policies 
will use a separate methodology for calculating the MLR numerator for 
reporting and rebate purposes and are subject to separate notice rules. 
We note that issuers of mini-med and expatriate plans must continue to 
provide notice of rebates, if any, to current group health plan 
policyholders and subscribers, and to subscribers in the individual 
market, as provided under Sec.  158.250.
    In addition, we are not requiring issuers whose experience is non-
credible, as defined in Sec.  158.230(c)(3) and determined in 
accordance with Sec.  158.231, to provide MLR notices to policyholders 
and subscribers. An issuer that has fewer than 1,000 covered life-years 
does not have sufficiently credible data to determine whether the MLR 
standard has been met and thus, under Sec.  158.230(d), is presumed to 
meet or exceed the applicable minimum MLR standard. Because non-
credible issuers do not have an MLR to report, the MLR notice 
requirement in this final rule does not apply.
    Finally, we note that issuers of student health insurance coverage 
are not required to provide the MLR notices under this final rule, 
because the MLR reporting and rebate requirements of 45 CFR part 158 
generally apply for such experience beginning January 1, 2013.

IV. Collection of Information Requirements

    This final rule establishes a notification requirement. Although 
third-party disclosures (for example, notification requirements) are 
generally subject to the Paperwork Reduction Act of 1995 (PRA), the 
implementing regulations at 5 CFR 1320.3(c)(2) include an exclusion for 
``information originally supplied by the Federal government to the 
recipient for the purpose of disclosure to the public.'' Because the 
notification will be

[[Page 28793]]

provided by the Federal government, and does not contain text that must 
be customized, this exclusion applies.

V. Regulatory Impact Analysis

A. Summary

    This final rule amends the regulations implementing MLR standards 
for health insurance issuers under section 2718 of the Public Health 
Service Act in order to establish notice requirements for issuers in 
the group and individual markets that meet or exceed the applicable MLR 
standard in the 2011 MLR reporting year.
    CMS developed this rule to accomplish its intended benefits in the 
most economically efficient manner possible. We have examined the 
effects of this rule as required by Executive Order 13563 (76 FR 3821, 
January 21, 2011), Executive Order 12866 (58 FR 51735, September 1993, 
Regulatory Planning and Review), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Social 
Security Act, the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4), 
Executive Order 13132 on Federalism, and the Congressional Review Act 
(5 U.S.C. 804(2)). In accordance with the Office of Management and 
Budget (OMB) Circular A-4, CMS has quantified the benefits, costs, and 
transfers where possible and provided a qualitative discussion of some 
of the benefits, costs, and transfers that may stem from this final 
rule.

B. Executive Orders 13563 and 12866

    Executive Order 12866 (58 FR 51735) directs agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects; distributive impacts; and equity). Executive 
Order 13563 (76 FR 3821, January 21, 2011) is supplemental to and 
reaffirms the principles, structures, and definitions governing 
regulatory review as established in Executive Order 12866.
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a final 
rule--(1) having an annual effect on the economy of $100 million or 
more in any 1 year, or adversely and materially affecting a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    A regulatory impact analysis (RIA) must be prepared for major rules 
with economically significant effects ($100 million or more in any 1 
year), and a ``significant'' regulatory action is subject to review by 
OMB. As discussed below, CMS has concluded that this rule is not likely 
to have an economic impact of $100 million or more in any 1 year, and 
therefore does not meet the definition of a ``significant rule'' under 
Executive Order 12866. Nevertheless, CMS has provided an assessment of 
the potential costs, benefits, and transfers associated with this final 
rule. Accordingly, OMB has reviewed this final rule pursuant to the 
Executive Order.
1. Need for Regulatory Action
    On December 7, 2011, CMS published a final rule (76 FR 76574) that 
invited comment on whether the MLR notice requirement finalized in that 
rule should apply not only to issuers that owe rebates but also to 
issuers that meet or exceed the applicable MLR standard and therefore 
do not owe rebates. For the reasons discussed above and in section 
V.B.3.a. below, and based on public comments we received, this final 
rule establishes a basic, one-time notice requirement for issuers in 
the group and individual markets that meet or exceed the applicable MLR 
standard in the 2011 MLR reporting year. This approach is consistent 
with Executive Order 13563, which directs agencies to ``identify and 
consider regulatory approaches that reduce burdens and maintain 
flexibility and freedom of choice for the public. These approaches 
include * * * disclosure requirements as well as provision of 
information to the public in a form that is clear and intelligible.''
2. Summary of Impacts
    In accordance with OMB Circular A-4, Table 1 below depicts an 
accounting statement summarizing CMS's assessment of the benefits, 
costs, and transfers associated with this regulatory action. The RIA is 
limited to 2012 when the notice for the 2011 MLR reporting year will be 
provided.
    CMS anticipates that the provisions of this final rule will help 
ensure greater transparency for consumers regarding how their premium 
dollars are used, educate consumers about the MLR standards established 
by the Affordable Care Act, and provide an incentive for issuers to 
maximize the percentage of premium dollars they spend on health care 
and activities that improve health care quality, promoting greater 
efficiency in health insurance markets. Issuers that meet or exceed the 
applicable MLR standards will incur administrative costs related to 
providing the notices to policyholders and subscribers. In accordance 
with Executive Order 12866, CMS believes that the benefits of this 
regulatory action justify the costs.

                        Table 1--Accounting Table
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                                Benefits
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Qualitative:
    * Greater transparency regarding how premium dollars are used by
     issuers.
    * Incentive for issuers to maximize the percentage of premium
     dollars they spend on health care and activities that improve
     health care quality.
    * Improved information to assist consumers in making plan choices.
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                                                              Low       Medium      High       Year      Period
                   Costs and transfers                      estimate   estimate   estimate    dollar    covered
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Annualized Monetized ($millions/year)....................       $2.8       $2.9       $3.0       2012       2012
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[[Page 28794]]

3. Anticipated Benefits, Costs, and Transfers
    This final rule extends a notice requirement to issuers in the 
group and individual markets that meet or exceed the applicable MLR 
standard in the 2011 MLR reporting year. The notice must use standard 
language specified in this final rule. Issuers may provide the notice 
with other plan documents or through electronic transmittal, as 
permitted for the summary of benefits and coverage under section 2715 
of the PHS Act.
a. Benefits
    The MLR notices will ensure that consumers are informed whether 
their issuer's coverage meets or exceeds the applicable minimum MLR 
thresholds established by the Affordable Care Act. Accordingly, the 
notices will provide greater transparency to consumers and may help to 
reduce consumers' confusion regarding why they did not receive a 
rebate. The MLR notices will also provide consumers with educational 
information in the first year of applicability when consumer knowledge 
of the MLR is low. Additionally, the notices will inform enrollees of 
the HHS Web site where they can find issuers' actual MLRs and compare 
MLR information across issuers and over years. This will provide an 
incentive to issuers to spend as high a percentage of premium dollars 
on health care and quality improvement as possible, rather than just 
enough to avoid paying rebates. Finally, notice of MLR information will 
assist individuals in comparing plans and making plan choices. We 
believe that such information disclosure will result in a more 
efficient, competitive market.
b. Costs and Transfers
    Issuers that meet or exceed the applicable MLR standard will incur 
the administrative cost of preparing and mailing the notices. It is 
estimated that these costs will total approximately $3 million in 2012.
4. Overview of Data Sources, Methods, and Limitations
    On December 1, 2010, we published an interim final rule (75 FR 
74864) with a 60-day public comment period. In that rule, we indicated 
that the most complete source of data on the number of licensed 
entities offering fully insured, private comprehensive major medical 
coverage in the individual and group markets is the National 
Association of Insurance Commissioners' (NAIC) Annual Financial 
Statements and Policy Experience Exhibits database. These data contain 
multiple years of information on issuers' revenues, expenses, and 
enrollment, collected on various NAIC financial exhibits (commonly 
referred to as ``Blanks'') including Supplemental Health Care Exhibits 
(SHCEs) that issuers submit to State insurance regulators through the 
NAIC. The NAIC has four different Blanks for different types of 
issuers: Health; Life; Property & Casualty; and Fraternal issuers.\2\
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    \2\ If a company's premiums and reserve ratios for its health 
insurance products equals 95 percent or more of their total business 
for both the current and prior reporting years, a company files its 
annual statement using the Health Blank. Otherwise, a company files 
the annual statement associated with the type of license held in its 
domiciliary State, for example, the Life, Property & Casualty, or 
Fraternal Blank.
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    In the December 1, 2010 interim final rule, our analysis relied on 
2009 data from the NAIC database. A total of 618 issuers offering 
comprehensive major medical coverage filed annual financial statements 
in 2009, with the Health and Life Blank filers accounting for 
approximately 99 percent of all comprehensive major medical premiums 
earned. For this reason, we restricted our analysis to Health and Life 
Blank companies. Comprehensive major medical coverage \3\--including 
coverage offered in the individual and group markets subject to this 
final rule--accounted for approximately 47.8 percent of all Accident 
and Health (A&H) premiums in 2009. Although the NAIC data represent the 
best available data source with which to estimate impacts of the MLR 
rule, the data contain certain limitations; we developed imputation 
methods to account for these limitations, and we made several 
additional data edits that led us to exclude 176 companies from the 
analysis. We used the remaining 442 companies to estimate the 
regulatory impacts that were discussed in the December 1, 2010 interim 
final rule, as well as the regulatory impacts that are discussed below. 
We refer readers to the regulatory impact analysis of the December 1, 
2010 interim final rule (75 FR 74892) for additional methodological 
information.
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    \3\ Comprehensive major medical coverage sold to associations 
and trusts has been included in individual comprehensive major 
medical coverage for purposes of the RIA. CMS's estimates exclude 
Medigap coverage, which in the NAIC data is reported separately from 
comprehensive major medical coverage offered in the individual and 
group markets, and which is not subject to the MLR requirements 
under 45 CFR part 158.
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5. Estimated Number of Affected Entities
    Given the combination of data limitations and behavioral 
uncertainties, the December 1, 2010 interim final rule provided a range 
of estimates, based on a various assumptions. For the analysis in this 
final rule, the high range estimates correspond to the low rebate 
estimates in the December 1, 2010 interim final rule, while the medium 
range estimates correspond to the medium rebate estimates, and the low 
range estimates correspond to the high rebate estimates.
    As discussed above in the preamble, health insurance issuers that 
sell plans with total annual benefit limits of $250,000 or less 
(``mini-med'' plans) or expatriate policies, as described in Sec.  
158.120(d)(3) and (d)(4), respectively, are not required to provide 
notice of MLR information to policyholders and subscribers. The 2009 
NAIC data does not allow us to identify these types of policies 
separately. Under the December 1, 2010 interim final rule, for the 2011 
MLR reporting year, issuers of mini-med and expatriate policies were 
required to report MLR data on a quarterly schedule under Sec.  
158.110(b). Based on the quarterly reports, it was estimated that, in 
2011, there were 25 issuers of mini-med policies with approximately 1 
million enrollees and 8 issuers of expatriate policies with 
approximately 300,000 enrollees.\4\ To the extent that enrollees in 
mini-med and expatriate plans were included in the 2009 NAIC data, this 
analysis overestimates the number of entities affected by these 
requirements, the number of notices to be sent by issuers of such 
policies, and the administrative costs of providing notices.
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    \4\ For details, see final rule with comment period, entitled 
``Medical Loss Ratio Requirements Under the Patient Protection and 
Affordable Care Act, published on December 7, 2011 (76 FR 76574).
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    In addition, issuers whose experience is non-credible, as defined 
in Sec.  158.230(c)(3) and determined in accordance with Sec.  158.231, 
are not required to provide notice of MLR information to policyholders 
and subscribers. As discussed in the December 1, 2010 interim final 
rule, based on 2009 NAIC data, it was estimated that approximately 68 
percent of licensed entities (State/company combinations) had less than 
1,000 enrollees in at least one State in 2011 and accounted for 
approximately 1 percent of enrollees. The number of issuers with less 
than 1,000 enrollees in all market/State combinations is estimated to 
be 45 in 2011.
    Further, issuers of student health insurance coverage are not 
required to provide the MLR notice since the MLR requirements apply 
beginning January 1, 2013 for such experience. In the Student

[[Page 28795]]

Health Insurance Coverage Final Rule (77 FR 16453) published on March 
21, 2012, we estimated that there are 75 issuers of student health 
insurance plans with approximately 1.1 million to 1.5 million 
enrollees. To the extent that enrollees in student health insurance 
plans were included in the 2009 NAIC data, this analysis overestimates 
the number of entities affected by these requirements, the number of 
notices to be provided by issuers of such policies, and the 
administrative costs of providing notices.
    Table 2 includes estimates of the number of issuers that will need 
to provide MLR notices pursuant to this final rule. Issuers are 
required to provide notices to group policyholders and each of their 
subscribers, and to subscribers in the individual market. If there are 
multiple enrollees in the same household enrolled in the same health 
plan, issuers would need to provide only one notice to the subscriber. 
It is estimated that in the 2011 MLR reporting year, between 278 and 
337 issuers with 65.8 million to 72.2 million enrollees will meet or 
exceed the applicable MLR standard. According to a large issuer, there 
are 2.2 covered lives per family. Therefore, it is estimated that in 
2012, between 278 and 337 issuers will send MLR notices for the 2011 
MLR reporting year to 29.9 million to 32.7 million individual market 
and group market subscribers.
    In addition, issuers are required to provide MLR notices to group 
policyholders. In the regulatory impact analysis for the Interim Final 
Rule for Group Health Plans and Health Insurance Coverage Relating to 
Status as a Grandfathered Health Plan Under the Patient Protection and 
Affordable Care Act (75 FR 34538) published on June 17, 2010, it was 
estimated that there are approximately 3 million large and small group 
plans, which include self-insured plans (self-insured experience is not 
subject to the MLR requirements). According to Medical Expenditure 
Panel Survey data, in 2010, 35.8 percent of all private sector 
employers that offered health insurance self-insured at least one 
plan.\5\ In the December 1, 2010 MLR interim final rule, it was 
estimated that between 1 percent and 3 percent of enrollees in fully 
insured group health plans would receive rebates during the 2011 MLR 
reporting year. In the absence of data on the number of group health 
plans in the NAIC database used for this analysis, we use the 
percentages of enrollees not receiving rebates and employers offering 
self-insured plans to estimate the number of fully insured group health 
plans whose enrollees would not receive rebates for the 2011 MLR 
reporting year. Therefore, it is estimated that approximately 1.9 
million fully insured group policyholders would receive MLR notices, 
pursuant to this final rule, for the 2011 MLR reporting year.
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    \5\ Source: Agency for Healthcare Research and Quality, Center 
for Financing, Access and Cost Trends, 2010 Medical Expenditures 
Panel Survey-Insurance Component, Table I.A.2.a, ``Percent of 
private-sector establishments that offer health insurance that self-
insure at least one plan by firm size and selected characteristics: 
United States, 2010'', available at http://meps.ahrq.gov/mepsweb/data_stats/summ_tables/insr/national/series_1/2010/tia2a.pdf.
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6. Estimated Costs Related to Notice Requirement
    CMS specifies in this rule standard language to be used for the 
notices, which will minimize the burden for issuers. Issuers have the 
option of providing the notices with other plan documents or, if the 
requirements for electronic disclosure under section 2715 of the PHS 
Act are satisfied, by using electronic methods. In the Summary of 
Benefits and Coverage and Uniform Glossary Final Rule (77 FR 8668) 
published on February 14, 2012, we estimated that electronic 
distribution would account for 38 percent of all disclosures in the 
group market.\6\ In addition, according to a report by the Department 
of Commerce, 71 percent of homes in the U.S. had home Internet access 
in 2010.\7\ We therefore estimate that 38 percent of notices to 
subscribers in the group market and 71 percent of notices to 
subscribers in the individual market will be sent electronically, and 
the remaining notices will be sent by mail. Further, we assume that all 
notices to group policyholders or employers will be sent 
electronically. We assume that issuers will use clerical staff to 
prepare the notices that are distributed with other plan materials by 
mail and will need approximately 0.25 minutes (or 0.004 hours) to 
prepare each notice. The cost of supplies is assumed to be $0.03 per 
notice, and labor costs are assumed to be $30.67 per hour (or $0.13 per 
notice). Since the notice may be included with other plan documents, we 
assume there will be no additional mailing costs.
---------------------------------------------------------------------------

    \6\ The estimate was based on the methodology used to analyze 
the cost burden for the Department of Labor's claims procedure 
regulation (OMB Control Number 1210-0053), and refers to the ERISA 
e-disclosure rule at 29 CFR 2520.104b-1.
    \7\ U.S. Department of Commerce, Exploring the Digital Nation--
Computer and Internet Use at Home (November, 2011), available at 
http://www.ntia.doc.gov/report/2011/exploring-digital-nation-computer-and-internet-use-home.
---------------------------------------------------------------------------

    Table 2 includes the estimated total and average administrative 
costs to issuers of preparing and sending the notices by mail. We 
estimate that in 2012, issuers will incur total annual costs of about 
$3 million and average costs between $9,000 and $10,000 per issuer to 
provide notices for the 2011 MLR reporting year. The average cost of 
preparing and sending a notice by mail is about $0.16 (including labor 
and supply costs).

                                              Table 2--Estimated Administrative Cost of MLR Notices in 2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Estimated
                                                             Estimated       Estimated      total hours      Estimated       Estimated       Estimated
                                                             number of       number of     for preparing   supplies cost   total cost of   average cost
                   MLR reporting year                        affected         notices         notices       per notice     distributing    per affected
                                                              issuers     distributed by  distributed by  distributed by    notices by        issuer
                                                                               mail            mail            mail            mail
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   High Range Estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................................             337      19,000,000          79,000           $0.03      $3,002,919          $8,911
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                  Medium Range Estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................................             305      18,700,000          78,000           $0.03      $2,946,544          $9,661
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Low Range Estimate
--------------------------------------------------------------------------------------------------------------------------------------------------------
2011....................................................             278      17,700,000          74,000           $0.03      $2,800,587         $10,074
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 28796]]

C. Regulatory Alternatives

    Under the Executive Order, CMS is required to consider alternatives 
to issuing rules and alternative regulatory approaches. CMS considered 
the regulatory alternative of not requiring issuers that meet or exceed 
the applicable MLR standard to provide notices with MLR information to 
policyholders and subscribers. However, that would result in reduced 
transparency for consumers regarding the MLR of their issuer for their 
State and market, and how it compares to the applicable standard. CMS 
also considered the regulatory alternatives of requiring issuers that 
meet or exceed the applicable MLR standard to provide notices that 
include the issuer's MLR from the current and prior MLR reporting years 
and of making the notice an ongoing annual requirement. However, this 
would result in increased burden for issuers, particularly since their 
MLR information will be available on the HHS Web site and consumer 
knowledge of MLR is expected to increase after rebates and MLR notices 
are provided in 2012. As discussed earlier, we believe that the 
greatest benefit can be achieved by providing consumers with 
educational information in the first year of applicability, when 
consumer knowledge of the MLR is low, and helping to reduce consumers' 
confusion regarding why they did not receive a rebate. CMS believes 
that the option adopted in this final rule strikes the best balance of 
providing valuable information to consumers while providing an 
incentive for issuers to maximize the percentage of premium dollars 
they spend on health care and quality improving activities.

D. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires agencies that issue a 
rule to analyze options for regulatory relief of small businesses if a 
rule has a significant impact on a substantial number of small 
entities. The RFA generally defines a ``small entity'' as--(1) A 
proprietary firm meeting the size standards of the Small Business 
Administration (SBA), (2) a nonprofit organization that is not dominant 
in its field, or (3) a small government jurisdiction with a population 
of less than 50,000 (States and individuals are not included in the 
definition of ``small entity''). CMS uses as its measure of significant 
economic impact on a substantial number of small entities a change in 
revenue of more than 3 to 5 percent.
    As discussed in the interim final rule with comment period 
published on May 5, 2010 (75 FR 24470) relating to the Federal health 
care reform insurance Web Portal requirements, CMS examined the health 
insurance industry in depth in the Regulatory Impact Analysis prepared 
for the proposed rule on establishment of the Medicare Advantage 
program (69 FR 46866, August 3, 2004). In that analysis, it was 
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 issuers).\8\
---------------------------------------------------------------------------

    \8\ ``Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes,'' effective March 26, 
2012, U.S. Small Business Administration, available at www.sba.gov.
---------------------------------------------------------------------------

    For the December 1, 2010 interim final rule (75 FR 74892), we used 
the data set created from the 2009 NAIC Health and Life Blank annual 
financial statement data to develop an updated estimate of the number 
of small entities that offer comprehensive major medical coverage in 
the individual and small group markets, and are therefore subject to 
the MLR reporting requirements. For purposes of this analysis, we used 
total Accident and Health (A&H) earned premiums as a proxy for annual 
receipts. These estimates may overstate the actual number of small 
health insurance issuers that would be affected, since they do not 
include receipts from these companies' other lines of business.
    In the December 1, 2010 interim final rule, it was estimated that 
there are 28 small entities with less than $7 million in A&H earned 
premiums that offer individual or group comprehensive major medical 
coverage, and would therefore be subject to the requirements of this 
final rule. These small entities accounted for 6 percent of the 
estimated 442 total issuers that would be affected by the MLR 
requirements. It was estimated that 86 percent of these small issuers 
are subsidiaries of larger issuers, 75 percent only offer coverage in a 
single State, 68 percent only offer individual or group comprehensive 
coverage in a single market, 46 percent also offer other types of A&H 
coverage, and 29 percent are Life Blank filers.
    CMS estimates that in 2012, of the 28 small entities discussed 
above, 8 are subject to the requirements of this final rule and will 
incur approximately $100 per issuer in administrative costs related to 
providing notices for the 2011 MLR reporting year (accounting for less 
than 0.002 percent of their total A&H premiums).
    CMS believes that these estimates overstate the number of small 
entities that will be affected by the requirements in this final rule, 
as well as the relative impact of these requirements on these entities, 
because CMS has based its analysis on issuers' total A&H earned 
premiums (rather than their total annual receipts). Therefore, the 
Secretary certifies that this final rule will not have significant 
impact on a substantial number of small entities.
    In addition, section 1102(b) of the Social Security Act requires us 
to prepare a regulatory impact analysis if a final rule may have a 
significant economic impact on the operations of a substantial number 
of small rural hospitals. This analysis must conform to the provisions 
of section 604 of the RFA. This final rule would not affect small rural 
hospitals. Therefore, the Secretary has determined that this final rule 
would not have a significant impact on the operations of a substantial 
number of small rural hospitals.

E. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act (UMRA) of 1995 
requires that agencies assess anticipated costs and benefits before 
issuing any final rule that includes a Federal mandate that could 
result in expenditures in any 1 year by State, local or tribal 
governments, in the aggregate, or by the private sector, of $100 
million in 1995 dollars, updated annually for inflation. In 2012, that 
threshold level is approximately $139 million.
    UMRA does not address the total cost of a final rule. Rather, it 
focuses on certain categories of cost, mainly those ``Federal mandate'' 
costs resulting from--(1) Imposing enforceable duties on State, local, 
or tribal governments, or on the private sector; or (2) increasing the 
stringency of conditions in, or decreasing the funding of, State, 
local, or tribal governments under entitlement programs.
    Consistent with policy embodied in UMRA, this final rule has been 
designed to be the least burdensome alternative for State, local and 
tribal governments, and the private sector, while achieving the 
objectives of the Affordable Care Act.
    This final rule contains MLR notice requirements for private sector 
firms (for example, health insurance issuers providing coverage in the 
individual and group markets), but it is estimated that these 
requirements will not cost

[[Page 28797]]

issuers more than approximately $3 million dollars in administrative 
costs in 2012. The rule contains no mandates on State, local or tribal 
governments. Thus, this final rule does not impose an unfunded mandate 
on State, local or tribal governments.

F. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct requirement costs on State and local governments, 
preempts State law, or otherwise has federalism implications. The 
requirements specified in this final rule would not impose substantial 
direct costs on State and local governments.
    Throughout the process of developing this final rule, CMS has 
attempted to balance States' interests in regulating health insurance 
issuers and the Congress' intent to provide uniform protections to 
consumers in every State. By doing so, it is CMS' view that it has 
complied with the requirements of Executive Order 13132. Under the 
requirements set forth in section 8(a) of Executive Order 13132, and by 
the signatures affixed to this rule, HHS certifies that CMS has 
complied with the requirements of Executive Order 13132 for the 
attached final rule in a meaningful and timely manner.

G. Congressional Review Act

    This final rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801 et seq.), which specifies that before a rule can 
take effect, the Federal agency promulgating the rule shall submit to 
each House of the Congress and to the Comptroller General a report 
containing a copy of the rule along with other specified information, 
and has been transmitted to the Congress and the Comptroller General 
for review.

List of Subjects in 45 CFR Part 158

    Administrative practice and procedure, Claims, Health care, Health 
insurance, Health plans, Penalties, Reporting and recordkeeping 
requirements.

    For the reasons stated in the preamble, the Department of Health 
and Human Services amends 45 CFR part 158 as set forth below:

PART 158--ISSUER USE OF PREMIUM REVENUE: REPORTING AND REBATE 
REQUIREMENTS

0
1. The authority citation for part 158 continues to read as follows:

    Authority: Section 2718 of the Public Health Service Act (42 
U.S.C. 300gg-18), as amended.

0
2. Section 158.251 is added to read as follows:


Sec.  158.251  Notice of MLR information.

    (a) Notice of MLR information when the MLR standard is met or 
exceeded.--(1) General requirement. Except as provided in paragraph (b) 
of this section, for the 2011 MLR reporting year, an issuer whose MLR 
meets or exceeds the applicable MLR standard required by Sec.  158.210 
or Sec.  158.211 must provide each policyholder and subscriber of a 
group health plan, and each subscriber in the individual market, a 
notice in accordance with the requirements of this section.
    (2) Timing. An issuer must provide the notice required in this 
paragraph (a) with the first plan document that the issuer provides to 
enrollees on or after July 1, 2012.
    (3) Form and appearance. The notice must be prominently displayed 
in clear, conspicuous 14-point bold type on the front of the plan 
document or as a separate notice. The notice may be provided 
electronically, if the requirements for electronic disclosure under 
section 2715 of the Public Health Service Act are met.
    (4) Language. The following language must be used to satisfy the 
notice requirement of this paragraph (a):
    Medical Loss Ratio Information--The Affordable Care Act requires 
health insurers in the individual and small group markets to spend at 
least 80 percent of the premiums they receive on health care services 
and activities to improve health care quality (in the large group 
market, this amount is 85 percent). This is referred to as the Medical 
Loss Ratio (MLR) rule or the 80/20 rule. If a health insurer does not 
spend at least 80 percent of the premiums it receives on health care 
services and activities to improve health care quality, the insurer 
must rebate the difference.
    A health insurer's Medical Loss Ratio is determined separately for 
each State's individual, small group and large group markets in which 
the health insurer offers health insurance. In some States, health 
insurers must meet a higher or lower Medical Loss Ratio. No later than 
August 1, 2012, health insurers must send any rebates due for 2011 and 
information to employers and individuals regarding any rebates due for 
2011.
    You are receiving this notice because your health insurer had a 
Medical Loss Ratio for 2011 that met or exceeded the required Medical 
Loss Ratio. For more information on Medical Loss Ratio and your health 
insurer's Medical Loss Ratio, visit www.HealthCare.gov.''
    (b) Exceptions. The requirements of paragraph (a) of this section 
do not apply to an issuer that reports its experience separately under 
Sec.  158.120(d)(3) or (d)(4), or to an issuer whose experience is non-
credible as defined in Sec.  158.230(c)(3) and determined in accordance 
with Sec.  158.231.

    Dated: March 8, 2012.
Marilyn Tavenner,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Approved: May 10, 2012.
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2012-11753 Filed 5-11-12; 11:15 am]
BILLING CODE 4120-01-P