[Federal Register Volume 78, Number 210 (Wednesday, October 30, 2013)]
[Rules and Regulations]
[Pages 65046-65105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-25326]



[[Page 65045]]

Vol. 78

Wednesday,

No. 210

October 30, 2013

Part II





Department of Health and Human Services





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45 CFR Parts 144, 146, 147, et al.





Patient Protection and Affordable Care Act; Program Integrity: 
Exchange, Premium Stabilization Programs, and Market Standards; 
Amendments to the HHS Notice of Benefit and Payment Parameters for 
2014; Final Rule

  Federal Register / Vol. 78 , No. 210 / Wednesday, October 30, 2013 / 
Rules and Regulations  

[[Page 65046]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, 147, 153, 155, and 156

[CMS-9957-F2; CMS-9964-F3]
RIN 0938-AR82; RIN 0938-AR74


Patient Protection and Affordable Care Act; Program Integrity: 
Exchange, Premium Stabilization Programs, and Market Standards; 
Amendments to the HHS Notice of Benefit and Payment Parameters for 2014

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

ACTION: Final rule.

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SUMMARY: This final rule implements provisions of the Patient 
Protection and Affordable Care Act and the Health Care and Education 
Reconciliation Act of 2010 (collectively referred to as the Affordable 
Care Act). Specifically, this final rule outlines financial integrity 
and oversight standards with respect to Affordable Insurance Exchanges, 
qualified health plan (QHP) issuers in Federally-facilitated Exchanges 
(FFEs), and States with regard to the operation of risk adjustment and 
reinsurance programs. It also establishes additional standards for 
special enrollment periods, survey vendors that may conduct enrollee 
satisfaction surveys on behalf of QHP issuers, and issuer participation 
in an FFE, and makes certain amendments to definitions and standards 
related to the market reform rules. These standards, which include 
financial integrity provisions and protections against fraud and abuse, 
are consistent with Title I of the Affordable Care Act. This final rule 
also amends and adopts as final interim provisions set forth in the 
Amendments to the HHS Notice of Benefit and Payment Parameters for 2014 
interim final rule, published in the Federal Register on March 11, 
2013, related to risk corridors and cost-sharing reduction 
reconciliation.

DATES: These regulations are effective on December 30, 2013.

FOR FURTHER INFORMATION CONTACT: Leigha Basini at (301) 492-4380 for 
general information.
    Jacob Ackerman at (301) 492-4179 for matters relating to Parts 144 
and 147, single risk pool and catastrophic plans.
    Adam Shaw at (410) 786-1091 for matters relating to the oversight 
of risk adjustment and reinsurance.
    Jaya Ghildiyal at (301) 492-5149 for matters relating to risk 
corridors.
    Shelley Bain at (301) 492-4453 or Anne Pesto at (410) 786-3492 for 
matters relating to Part 155, Subpart M.
    Ariel Novick at (301) 492-4309 for matters relating to the 
oversight of cost-sharing reductions and advance payments of the 
premium tax credit.
    Johanna Lauer at (301) 492-4397 for matters relating to cost-
sharing reduction reconciliation.
    Rebecca Zimmermann at (301) 492-4396 for matters relating to 
quality standards, Part 156, Subpart L.
    Cindy Yen at (301) 492-5142 for matters relating to Part 156 other 
than cost-sharing reductions, advance payments of the premium tax 
credit, and quality standards.
    Pat Meisol at (410) 786-1917 for matters relating to confirmation 
of HHS payment and collections reports.

SUPPLEMENTARY INFORMATION:

Electronic Access

    This Federal Register document is also available from the Federal 
Register online database through Federal Digital System (FDsys), a 
service of the U.S. Government Printing Office. This database can be 
accessed via the internet at http://www.gpo.gov/fdsys.

Executive Summary

    Starting October 1, 2013, qualified individuals and qualified 
employees may purchase private health insurance coverage through 
competitive marketplaces called Affordable Insurance Exchanges, or 
``Exchanges'' (also called Health Insurance Marketplaces). This final 
rule sets forth oversight and financial integrity standards with 
respect to Exchanges, Qualified Health Plan (QHP) issuers in Federally-
facilitated Exchanges (FFEs), and States with regard to the operation 
of risk adjustment and reinsurance programs. It establishes additional 
standards for special enrollment periods, survey vendors that may 
conduct enrollee satisfaction surveys on behalf of QHP issuers in 
Exchanges, and issuer participation in an FFE, and makes certain 
amendments to definitions and standards related to the market reform 
rules. These standards were proposed in a proposed rule, titled 
``Patient Protection and Affordable Care Act; Program Integrity: 
Exchange, SHOP, Premium Stabilization Programs, and Market Standards'' 
(78 FR 37032), which was published in the Federal Register on June 19, 
2013. Finally, this final rule amends standards and adopts as final 
interim provisions set forth in the Amendments to the HHS Notice of 
Benefit and Payment Parameters for 2014 interim final rule, published 
in the Federal Register on March 11, 2013 (78 FR 15541), related to 
risk corridors and cost-sharing reduction reconciliation.
    Although many of the provisions in this rule become effective by 
January 1, 2014, we believe that affected parties will not have 
difficulty complying with the provisions by their effective dates, 
because most of the standards are based on existing standards currently 
in effect in the private market, were previously proposed through the 
Blueprint process, were discussed in agency-issued sub-regulatory 
guidance, or were discussed in the preambles to the Exchange 
Establishment Rule,\1\ Premium Stabilization Rule,\2\ Market Reform 
Rule,\3\ or the HHS Notice of Benefit and Payment Parameters for 2014 
(2014 Payment Notice).\4\ In addition to soliciting general comments on 
the substance of the proposed provisions, we sought input on ways to 
implement these policies to minimize burden.
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    \1\ Patient Protection and Affordable Care Act; Establishment of 
Exchanges and Qualified Health Plans; Exchange Standards for 
Employers, 77 FR 18310 (March 27, 2012).
    \2\ Patient Protection and Affordable Care Act; Standards 
Related to Reinsurance, Risk Corridors and Risk Adjustment, 77 FR 
17220 (March 23, 2012).
    \3\ Patient Protection and Affordable Care Act; Health Insurance 
Market Rules; Rate Review, 78 FR 13406 (February 27, 2013).
    \4\ Patient Protection and Affordable Care Act; HHS Notice of 
Benefit and Payment Parameters for 2014, 78 FR 15410 (March 11, 
2013).
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Table of Contents

I. Background
    A. Legislative Overview
    B. Stakeholder Consultation and Input
II. Provisions of the Final Regulation and Analysis of and Responses 
to Public Comments
    A. Part 144--Requirements Relating to Health Insurance Coverage
    1. Subpart A--General Provisions
    a. Scope and Applicability (Sec.  144.102(c))
    b. Definitions (Sec.  144.103)
    B. Part 147--Health Insurance Reform Requirements for the Group 
and Individual Health Insurance Markets
    1. Guaranteed Availability and Renewability of Coverage (Sec.  
147.104 and Sec.  147.106)
    C. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment Under the Affordable Care Act
    1. Subpart A--General Provisions
    a. Definitions (Sec.  153.20)
    2. Subpart C--State Standards Related to the Reinsurance Program
    a. Maintenance of Records (Sec.  153.240(c))
    b. General Oversight Requirements for State-Operated Reinsurance 
Programs (Sec.  153.260)
    c. Restrictions on Use of Reinsurance Funds for Administrative 
Expenses (Sec.  153.265)
    3. Subpart D--State Standards Related to the Risk Adjustment 
Program

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    a. Maintenance of Records (Sec.  153.310(c)(4))
    b. Interim Report and State Summary Report (Sec.  153.310(d))
    c. General Oversight Requirements for State-Operated Risk 
Adjustment Programs (Sec.  153.365)
    4. Risk Adjustment Methodology
    a. Modification to the Transfer Formula in the HHS Risk 
Adjustment Methodology
    5. Subpart E--Health Insurance Issuer and Group Health Plan 
Standards Related to the Reinsurance Program
    a. Reinsurance Contribution Funds (Sec.  153.400)
    b. Maintenance of Records (Sec.  153.405(h) and Sec.  
153.410(c))
    6. Subpart F--Health Insurance Issuer Standards Related to the 
Risk Corridors Program
    a. Definitions (Sec.  153.500)
    b. Calculation of Allowable Costs, Attribution and Allocation of 
Revenue and Expense Items, and Risk Corridors Data Requirements 
(Sec.  153.500, Sec.  153.520, and Sec.  153.530)
    7. Subpart G--Health Insurance Issuer Standards Related to the 
Risk Adjustment Program
    8. Subpart H--Distributed Data Collection for HHS-Operated 
Programs
    a. Failure To Comply With HHS-Operated Risk Adjustment and 
Reinsurance Data Requirements (Sec.  153.740(a))
    b. Default Risk Adjustment Charge (Sec.  153.740(b))
    D. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
    1. Subpart D--Exchange Functions in the Individual Market: 
Eligibility Determinations for Exchange Participation and Insurance 
Affordability Programs
    a. Administration of Advance Payments of the Premium Tax Credit 
and Cost-Sharing Reductions (Sec.  155.340)
    2. Subpart E--Exchange Functions in the Individual Market: 
Enrollment in Qualified Health Plans
    a. Special Enrollment Periods (Sec.  155.420)
    3. Subpart H--Exchange Functions: Small Business Health Options 
Program (SHOP)
    a. Enrollment Periods Under SHOP (Sec.  155.725)
    4. Subpart M--Oversight and Program Integrity Standards for 
State Exchanges
    a. General Program Integrity and Oversight Requirements (Sec.  
155.1200)
    b. Maintenance of Records (Sec.  155.1210)
    E. Part 156--Health Insurance Issuer Standards Under the 
Affordable Care Act, Including Standards Related to Exchanges
    1. Subpart A--General Provisions
    a. Definitions (Sec.  156.20)
    b. Single Risk Pool (Sec.  156.80)
    2. Subpart B--Essential Health Benefits Package
    a. Enrollment in Catastrophic Plans (Sec.  156.155)
    3. Subpart D--Federally-Facilitated Exchange Qualified Health 
Plan Issuer Standards
    a. Changes of Ownership of Issuers of Qualified Health Plans in 
Federally-Facilitated Exchanges (Sec.  156.330)
    4. Subpart E--Health Insurance Issuer Responsibilities With 
Respect to Advance Payments of the Premium Tax Credit and Cost-
Sharing Reductions
    a. Definitions (Sec.  156.400)
    b. Improper Plan Assignment and Application of Cost-Sharing 
Reductions (Sec.  156.410(c) Through (d))
    c. Payment for Cost-Sharing Reductions (Sec.  156.430)
    d. Failure To Reduce an Enrollee's Premium To Account for 
Advance Payments of the Premium Tax Credit (Sec.  156.460(c))
    e. Oversight of the Administration of Cost-Sharing Reductions 
and Advance Payments of the Premium Tax Credit Programs (Sec.  
156.480)
    5. Subpart H--Oversight & Financial Integrity Requirements for 
Issuers of Qualified Health Plans in Federally-Facilitated Exchanges
    a. Maintenance of Records for Federally-Facilitated Exchanges 
(Sec.  156.705)
    b. Compliance Reviews of QHP Issuers in Federally-Facilitated 
Exchanges (Sec.  156.715)
    6. Subpart J--Administrative Review of QHP Issuer Sanctions in a 
Federally-Facilitated Exchange
    a. Administrative Review in a Federally-Facilitated Exchange 
(Sec. Sec.  156.901 Through 156.963)
    7. Subpart L--Quality Standards
    a. Establishment of Standards for HHS-Approved Enrollee 
Satisfaction Survey Vendors for Use by QHP Issuers in Exchanges 
(Sec.  156.1105)
    8. Subpart M--Qualified Health Plan Issuer Responsibilities
    a. Confirmation of HHS Payment and Collections Reports (Sec.  
156.1210)
III. Collection of Information Requirements
IV. Regulatory Impact Analysis
V. Regulations Text

Acronyms and Short Forms

    Because of the many organizations and terms to which we refer by 
acronym in this final rule, we are listing these acronyms and their 
corresponding terms in alphabetical order below:

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))
ALJ Administrative Law Judge
ARF Allowable Rating Factor
AV Actuarial Value
CAHPS[supreg] Consumer Assessment of Healthcare Providers and 
Systems
CFR Code of Federal Regulations
CMP Civil money penalty
CMS Centers for Medicare & Medicaid Services
DOI State Department of Insurance
DOL U.S. Department of Labor
EHB Essential Health Benefits
FEHB Federal Employees Health Benefits
FFE Federally-facilitated Exchange
FF-SHOP Federally-facilitated Small Business Health Options Program
GAAP Generally accepted accounting principles
GAAS Generally accepted auditing standards
GAGAS Generally accepted governmental auditing standards
GAO U.S. Government Accountability Office
HHS U.S. Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
IRS Internal Revenue Service
MAGI Modified Adjusted Gross Income
MLR Medical Loss Ratio
NCQA National Committee for Quality Assurance
OIG Office of the Inspector General of the U.S. Department of Health 
and Human Services
OMB Office of Management and Budget
PHSAct Public Health Service Act
PRA Paperwork Reduction Act
QHP Qualified Health Plan
SHOP Small Business Health Options Program
The Code Internal Revenue Code of 1986
TIN Taxpayer Identification Number

I. Background

A. Legislative Overview

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010. The Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), which amended and revised 
several provisions of the Patient Protection and Affordable Care Act, 
was enacted on March 30, 2010. In this final rule, we refer to the two 
statutes collectively as the ``Affordable Care Act.''
    Subtitles A and C of Title I of the Affordable Care Act 
reorganized, amended, and added to the provisions of Title XXVII of the 
Public Health Service Act (PHS Act) relating to health insurance 
issuers in the group and individual markets and to group health plans 
that are non-Federal governmental plans. As relevant here, section 2702 
of the PHS Act (guaranteed availability of coverage) directs a health 
insurance issuer offering non-grandfathered health insurance coverage 
in the group or individual market in a State to accept every employer 
and individual in the State who applies for coverage, subject to 
certain exceptions. Section 2703 of the PHS Act (guaranteed 
renewability of coverage) requires a health insurance issuer offering 
non-grandfathered health insurance coverage in the group or individual 
market to renew or continue in force such coverage at the option of the 
plan sponsor or individual, subject to certain exceptions.
    As of October 2013 for coverage starting as soon as January 1, 
2014, qualified individuals and qualified employers will be able to 
enroll in QHPs--private health insurance that has

[[Page 65048]]

been certified as meeting certain standards--through competitive 
marketplaces called ``Exchanges'' or ``Health Insurance Marketplaces.'' 
The Departments of Health and Human Services, Labor, and the Treasury 
have been working in close coordination to release guidance related to 
QHPs and Exchanges in several phases. The word ``Exchanges'' refers to 
both State Exchanges, also called State-based Exchanges, and FFEs. In 
this final rule, we use the terms ``State Exchange'' or ``FFE'' when we 
are referring to a particular type of Exchange. When we refer to 
``FFEs,'' we are also referring to State Partnership Exchanges, which 
are a form of FFE.
    In this final rule, we encourage State flexibility within the 
boundaries of the law. Sections 1311(b) and 1321(b) of the Affordable 
Care Act provide that each State has the opportunity to establish an 
Exchange. Section 1311(b)(1) gives each State the opportunity to 
establish an Exchange that both facilitates the purchase of QHPs and 
provides for the establishment of a Small Business Health Options 
Program (SHOP) that will help qualified employers enroll their 
employees in QHPs.
    Section 1302(e) of the Affordable Care Act outlines standards for 
offering catastrophic plans in the individual market for certain young 
adults and people who obtain certification of exemption from the 
requirement to maintain minimum essential coverage because they cannot 
afford health insurance or experience other hardship.
    Section 1311(c)(4) of the Affordable Care Act directs the Secretary 
to establish an enrollee satisfaction survey system that would evaluate 
the level of enrollee satisfaction with QHPs offered through an 
Exchange for each such QHP with more than 500 enrollees in the previous 
year.
    Section 1311(d)(4)(A) of the Affordable Care Act directs that each 
Exchange must implement procedures for the certification, 
recertification, and decertification of health plans as QHPs, 
consistent with guidelines developed by the Secretary.
    Section 1311(d)(5)(A) of the Affordable Care Act provides that 
States, when establishing Exchanges, must ensure that such Exchanges 
are self-sustaining beginning on January 1, 2015, and permits Exchanges 
to charge assessments or user fees to participating health insurance 
issuers to generate funding to support their operations. When operating 
an FFE under section 1321(c)(1) of the Affordable Care Act, HHS has the 
authority under sections 1321(c)(1) and 1311(d)(5)(A) to collect and 
spend such user fees. In addition, 31 U.S.C. 9701 permits a Federal 
agency to establish a charge for a service provided by the agency. 
Office of Management and Budget (OMB) Circular A-25 Revised establishes 
Federal policy regarding user fees and specifies that a user charge 
will be assessed against each identifiable recipient for special 
benefits derived from Federal activities beyond those received by the 
general public. Section 1311(d)(5)(B) contains a prohibition on the 
wasteful use of funds.
    Section 1312(c) of the Affordable Care Act directs a health 
insurance issuer to consider all enrollees in all health plans (other 
than grandfathered health plans) offered by such issuer to be members 
of a single risk pool for each of its individual and small group 
markets. Section 1312(c) of the Affordable Care Act gives States the 
option to merge the individual and small group markets within the State 
into a single risk pool (merged market).
    Section 1313 of the Affordable Care Act, combined with section 1321 
of the Affordable Care Act, provides the Secretary with the authority 
to oversee financial integrity, compliance with HHS standards, and 
efficient and non-discriminatory administration of State Exchange 
activities. Section 1313(a)(6)(A) of the Affordable Care Act specifies 
that payments made by, through, or in connection with an Exchange are 
subject to the False Claims Act (31 U.S.C. 3729, et seq.) if those 
payments include any Federal funds.
    Section 1341 of the Affordable Care Act establishes a transitional 
reinsurance program that begins in 2014 and is designed to provide 
issuers with greater stability as insurance market reforms are 
implemented and individuals begin to enroll in QHPs sold through 
Exchanges. Section 1342 of the Affordable Care Act establishes a 
temporary risk corridors program which permits the Federal government 
and QHPs to share in gains or losses resulting from inaccurate rate 
setting from 2014 through 2016. Section 1343 of the Affordable Care Act 
establishes a permanent risk adjustment program which is intended to 
provide payments to health insurance issuers that attract higher-risk 
populations, such as those with chronic conditions, and eliminate 
incentives for issuers to avoid higher-risk enrollees.
    Section 1321(a)(1) of the Affordable Care Act provides general 
authority for the Secretary of Health and Human Services (referred to 
throughout this rule as the Secretary) to establish standards and 
regulations to implement the statutory requirements related to 
Exchanges, QHPs, and other components of Title I of the Affordable Care 
Act.
    Section 1401 of the Affordable Care Act amended the Internal 
Revenue Code (26 U.S.C.) to add section 36B, allowing a refundable 
premium tax credit to help individuals and families afford health 
insurance coverage. Under sections 1401, 1411, and 1412 of the 
Affordable Care Act and 45 CFR part 155, subpart D, an Exchange will 
make a determination of advance payments of the premium tax credit for 
individuals who enroll in QHP coverage through an Exchange and seek 
financial assistance. Section 1402 of the Affordable Care Act provides 
for the reduction of cost sharing for certain individuals enrolled in a 
QHP through an Exchange, and section 1412 of the Affordable Care Act 
provides for the advance payment of these reductions to issuers.
    Under section 1411 of the Affordable Care Act, the Secretary is 
directed to establish a program for determining whether an individual 
meets the eligibility standards for Exchange participation, advance 
payments of the premium tax credit, cost-sharing reductions, and 
exemptions from the shared responsibility payment under section 5000A 
of the Code.
    Sections 1412 and 1413 of the Affordable Care Act and section 1943 
of the Social Security Act (the Act), as added by section 2201 of the 
Affordable Care Act, contain additional provisions regarding 
eligibility for advance payments of the premium tax credit and cost-
sharing reductions, as well as provisions regarding simplification and 
coordination of eligibility determinations and enrollment with other 
health programs.
    Unless otherwise specified, the provisions in this final rule 
related to the establishment of minimum functions of an Exchange are 
based on the general authority of the Secretary under section 
1321(a)(1) of the Affordable Care Act.

B. Stakeholder Consultation and Input

    HHS has consulted with stakeholders on a number of polices related 
to the operation of Exchanges, including the SHOP and premium 
stabilization programs. HHS has held a number of listening sessions 
with consumers, providers, employers, health plans, and State 
representatives to gather public input. HHS consulted with stakeholders 
through regular meetings with the National Association of Insurance 
Commissioners; regular contact with States through the Exchange 
establishment grant process and the Exchange Blueprint approval 
process; and meetings with tribal leaders and

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representatives, health insurance issuers, trade groups, consumer 
advocates, employers, and other interested parties. We considered all 
of the public input as we developed the policies in the proposed rule, 
the interim final rule, and this final rule.

II. Provisions of the Final Regulations and Analysis of and Responses 
to Public Comments

    A proposed rule, titled ``Patient Protection and Affordable Care 
Act; Program Integrity: Exchange, SHOP, Premium Stabilization Programs, 
and Market Standards'' (78 FR 37032), was published in the Federal 
Register on June 19, 2013 with a comment period ending on July 19, 
2013. In total, we received approximately 99 public comments from 
various stakeholders including States, health insurance issuers, 
consumer groups, agents and brokers, provider groups, Members of 
Congress, tribal organizations, and other stakeholders. We received a 
few comments that were outside the scope of the proposed rule. A number 
of the provisions in the proposed rule were finalized in the final rule 
published in the Federal Register on August 30, 2013, titled ``Patient 
Protection and Affordable Care Act; Program Integrity: Exchange, SHOP, 
and Eligibility Appeals'' (78 FR 54070), hereinafter referred to as the 
``first Program Integrity final rule.'' We are finalizing the remaining 
provisions of the proposed rule here.
    The interim final rule, titled ``Patient Protection and Affordable 
Care Act; Amendments to the HHS Notice of Benefit and Payment 
Parameters for 2014'' (78 FR 15541) was published in the Federal 
Register on March 11, 2013 with a comment period that ended on April 
30, 2013. Provisions of this rule align risk corridors calculations 
with the single risk pool provision, and finalize standards permitting 
issuers of QHPs the option of using an alternate methodology for 
calculating the value of cost-sharing reductions provided for the 
purpose of reconciliation of advance payments of cost-sharing 
reductions. We received seven comments on the interim final rule from 
issuers, advocacy organizations, and tribal organizations. We amend 
standards from the interim final rule and adopt interim provisions as 
final.
    In this final rule, we provide a summary of each proposed or 
interim provision, a summary of the public comments received and our 
responses to them, and the provisions we are finalizing. We note that 
nothing in these regulations would limit the authority of the Office of 
the Inspector General (OIG) as set forth by the Inspector General Act 
of 1978 or other applicable law.

A. Part 144--Requirements Relating to Health Insurance Coverage

1. Subpart A--General Provisions
a. Scope and Applicability (Sec.  144.102(c))
    In Sec.  144.102(c), we proposed a technical amendment to clarify 
whether coverage sold through associations is group or individual 
coverage under the PHS Act. Specifically, we proposed to delete a 
reference to coverage offered in connection with a ``group health plan 
that has fewer than two participants who are current employees on the 
first day of the plan year'' (very small plans) as being individual 
health insurance coverage under title XXVII of the PHS Act. This 
correction aligns with the amendments made by the Affordable Care Act 
redefining a small employer to include groups consisting of only one 
common law employee.
    Comment: Commenters expressed support for the proposed 
clarification in Sec.  144.102(c).
    Response: We are finalizing the regulation as proposed.
Summary of Regulatory Changes
    We are finalizing the amendments to Sec.  144.102(c) as proposed.
b. Definitions (Sec.  144.103)
    Under Sec.  144.103, we proposed to amend several definitions of 
terms that are used throughout parts 146 (group market requirements), 
148 (individual market requirements), and 150 (enforcement) of 
subchapter B of title 45 of the Code of Federal Regulations (CFR), 
consistent with the Affordable Care Act. These included definitions of 
``group market,'' ``individual market,'' ``large employer,'' ``policy 
year,'' and ``small employer.'' Unless otherwise provided, the 
definitions in Sec.  144.103 also apply for purposes of part 147 (group 
and individual market insurance reform requirements), and we make this 
explicit in this final rule.
    We noted that, although the Affordable Care Act made changes to the 
definition of ``small employer'' for purposes of the PHS Act, the 
Employee Retirement Income Security Act (ERISA) and the Internal 
Revenue Code (the Code) continue to define a ``small employer'' as 
having 2 to 50 employees. Similarly, we noted that the Affordable Care 
Act deleted the exception for very small plans in PHS Act section 
2721,\5\ without removing parallel provisions in ERISA section 732(a) 
and Code section 9831(a)(2). We requested comments on how to interpret 
the PHS Act, ERISA, and the Code to ensure that shared provisions of 
the Departments of HHS, Labor, and the Treasury are administered 
consistently.
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    \5\ The Affordable Care Act redesignated section 2721 as section 
2722 of the PHS Act.
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    Comment: Several commenters were in favor of adopting a consistent 
definition of ``small employer'' for purposes of the PHS Act, ERISA, 
and the Code. Some commenters thought the upper limit of small employer 
size should be 50 employees consistent with ERISA and the Code, while 
others suggested an upper limit of 100 employees consistent with the 
PHS Act and the Affordable Care Act. One commenter requested 
clarification that, although employers with one common law employee are 
now treated as small employer groups under the Affordable Care Act, 
retiree-only plans continue to be exempt from the group market reforms 
under the Health Insurance Portability and Accountability Act of 1996 
(HIPAA) and the Affordable Care Act.
    Response: Consistent with section 2791(e)(4) of the PHS Act and 
section 1304(b) of the Affordable Care Act, in this final rule, we 
maintain the definition of ``small employer,'' for purposes of health 
coverage, as an employer who employed an average of at least one but 
not more than 100 employees on business days during the preceding 
calendar year and who employs at least one employee on the first day of 
the plan year. Prior to 2016, States have discretion to set the upper 
limit of small employer size at 50 employees. Additionally, we conform 
the definitions of ``individual market'' and ``group market,'' as 
proposed, by removing references to group health plans with fewer than 
two participants who are current employees from being treated as being 
in the individual market rather than the group market. In the proposed 
rule, we noted the change to the law and proposed to make conforming 
amendments to update our rules to reflect the law with the intention of 
doing so for all applicable rules. While we inadvertently omitted 
reference to the exception for certain small group plans in Sec.  
146.145(b), we note that we believe that our intention to conform our 
rules to the law amended by the Affordable Care Act was clear and, 
accordingly, we make this conforming amendment in this final rule. As 
we pointed out earlier, identical language exempting group health plans 
with fewer than two participants from certain provisions of the PHS Act 
that formerly was in PHS Act section 2721(a) was stricken by the 
Affordable Care Act. We note that nothing in this final rule

[[Page 65050]]

should be construed as affecting the Departments' position regarding 
retiree-only plans.\6\
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    \6\ 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 at 34539-40 (June 17, 2010).
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    Comment: Several commenters addressed the issue of how employees 
should be counted in determining employer size. Commenters noted that 
States use different methods to calculate employer group size and noted 
that there are also different Federal methods for determining employer 
size for different purposes. These commenters suggested that there are 
compelling practical and efficiency reasons to use a consistent 
counting method for all Affordable Care Act purposes and between 
Federal and State law.
    Response: HHS has previously set forth the method for determining 
employer size for purposes relating to the Exchange and SHOP 
regulations based on the full-time equivalent method used in section 
4980H(c)(2) of the Code, generally effective for plan years beginning 
on or after January 1, 2016.\7\ We expect to address the counting 
method for purposes of the PHS Act in future rulemaking or guidance.
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    \7\ For operations of a Federally-facilitated SHOP, the method 
set forth in section 4980H(c)(2) of the Code is effective for plan 
years beginning on or after January 1, 2014, including in connection 
with open enrollment activities beginning October 1, 2013.
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Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  144.103 of the 
proposed rule with the following minor modifications for consistency 
and clarity. We state expressly that the definitions in this section 
which are based on PHS Act requirements enacted by HIPAA and other 
statutes (implemented in parts 146, 148, and 150) are equally 
applicable to PHS Act requirements enacted by the Affordable Care Act 
(implemented in part 147). In the proposed definition of ``policy 
year,'' we replace the reference to January 1, 2015 with the phrase, 
``for coverage issued or renewed beginning January 1, 2014,'' to 
clarify the definition's applicability to calendar year plans, as 
discussed in connection with Sec.  147.104(b)(2) of this final rule. 
Finally, we remove the exception for certain small group health plans 
in Sec.  146.145(b) to conform to the amendments in Sec.  144.102 and 
Sec.  144.103 of this final rule.

B. Part 147--Health Insurance Reform Requirements for the Group and 
Individual Health Insurance Markets

1. Guaranteed Availability and Renewability of Coverage (Sec.  147.104 
and Sec.  147.106)
    In the proposed rule, we proposed to recognize the distinction of 
the large group and small group segments of the group market for 
purposes of sections 2702 and 2703 of the PHS Act, as amended by the 
Affordable Care Act, and their implementing regulations at 45 CFR 
147.104 and 147.106, respectively. These proposed amendments would 
clarify that under the guaranteed availability provisions, an issuer is 
required to offer to an employer only those products that are approved 
for sale in the applicable market segment (large group or small group 
market) based on the employer's group size (rather than all group 
market products). The proposed amendments would also clarify that under 
the guaranteed renewability provisions, an issuer could, in accordance 
with applicable State law and subject to the other requirements of 
Sec.  147.106(d), elect to discontinue all products in one segment of 
the group market (for example, the large group market) without having 
to discontinue all products in the other segment of the group market 
(for example, small group market).\8\
---------------------------------------------------------------------------

    \8\ These clarifications were consistent with the information we 
provided in ``Frequently Asked Questions on Health Insurance 
Marketplaces'' (May 14, 2013). Available at: http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/marketplace-faq-5-14-2013.pdf.
---------------------------------------------------------------------------

    We also proposed to clarify in Sec.  147.104(b)(2) that all non-
grandfathered coverage in the individual or merged market must be 
offered on a calendar year basis as of January 1, 2015. We specified 
that, for purposes of new enrollment effective on any date other than 
January 1, the first policy year following such enrollment may comprise 
a prorated policy year ending on December 31.
    Comment: Commenters generally expressed support for the proposed 
revisions in Sec.  147.104 and Sec.  147.106. However, one commenter 
disagreed with proposed Sec.  147.104(b)(2), in which all non-
grandfathered individual or merged market plans would be offered on a 
calendar year basis. The commenter suggested that individuals with non-
calendar year plans should be permitted to maintain their plans' 
current renewal date.
    Response: We seek consistency between the Exchange and non-Exchange 
markets to mitigate adverse selection, reduce consumer confusion, and 
ensure compliance with the single risk pool requirements. For these 
reasons, in the Market Reform Rule at Sec.  147.104(b), we aligned 
individual market open enrollment periods and coverage effective dates 
with those in the individual market Exchanges (which are based on a 
calendar policy year) and, to facilitate the transition to calendar 
policy years, established a one-time enrollment period allowing 
individuals with non-calendar year plans the opportunity to enroll in a 
calendar year plan upon renewal in 2014. This final rule simply affirms 
the intent of the Market Reform Rule and does not represent a change in 
policy. We reiterate that, for purposes of new enrollment effective on 
any date other than January 1, the first policy year following such 
enrollment may comprise a prorated policy year ending on December 31 of 
that year.
    Comment: A few commenters sought clarification on whether an issuer 
is required to renew coverage purchased by an employer whose size 
shifts between the small and large group markets.
    Response: HHS has previously issued guidance on how the guaranteed 
renewability requirement applies to employers whose size shifts between 
the small and large group markets after purchasing coverage in one or 
the other of these markets.\9\ The general rule set forth in section 
2703 of the PHS Act and its implementing regulations at Sec.  147.106 
makes clear that a health insurance issuer must guarantee the renewal 
of coverage at the option of the plan sponsor. The exceptions to this 
rule do not include the situation in which the employer that sponsors 
the group health plan grows from a small employer to a large employer, 
or the reverse, between the time the policy is purchased and the time 
it comes up for renewal. Therefore, the law guarantees the employer the 
right to renew or continue in force the coverage it purchased in the 
small (or large) group market even though the employer ceases to be a 
small (or large) employer by reason of an increase (or decrease) in its 
number of employees.
---------------------------------------------------------------------------

    \9\ HCFA Insurance Standards Bulletin Series No. 99-03 
(September 1999). Available at: https://www.cms.gov/HealthInsReformforConsume/downloads/HIPAA-99-03.pdf.
---------------------------------------------------------------------------

    For example, an employer that originally purchased coverage in the 
small group market and that increases in size beyond the definition of 
a small employer has the option of keeping the product it purchased in 
the small group market. Furthermore, any changes to

[[Page 65051]]

that product must satisfy the uniform modification of coverage 
requirements set forth in section 2703(d) of the PHS Act and Sec.  
147.106(e). Under these provisions, an issuer is permitted at the time 
of renewal to modify the coverage for that product, but only if the 
modification is consistent with State law and effective uniformly to 
all employers with that product. Thus, if other employers with that 
product were still participating in the small group market, the issuer 
could not modify the benefits or cost sharing for the product in a 
manner inconsistent with the rules that apply to small group coverage. 
We note that under this scenario, if the employer drops coverage it 
purchased in the small group market, it will not be able to purchase 
the same coverage again if it no longer meets the definition of a small 
employer.
    The requirements of guaranteed renewability do not change the 
underlying employer group's size for other provisions of the PHS Act 
and the Affordable Care Act. For example, the premium rating rules (PHS 
Act section 2701 and implementing regulations at Sec.  147.102) and the 
single risk pool provision (Affordable Care Act section 1312(c) and 
implementing regulations at Sec.  156.80) apply to health insurance 
coverage in the individual and small group markets, but generally do 
not apply to health insurance coverage in the large group market.\10\ 
These provisions of Federal law generally would not therefore apply 
where an employer increases in size to become a large employer, even if 
the employer is renewing a product originally purchased in the small 
group market.\11\
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    \10\ Beginning in 2017, States will have the option to allow 
issuers to offer QHPs in the large group market through the SHOP. If 
a State elects this option, the rating rules under PHS Act section 
2701 will apply to all coverage offered in such State's large group 
market (except for self-insured group health plans) pursuant to 
section 2701(a)(5) of the PHS Act and Sec.  147.102(f).
    \11\ However, pursuant to section 1304(b)(4)(D) of the 
Affordable Care Act, a qualified employer that is a small employer 
participating in the SHOP may continue to participate in the SHOP, 
and will continue to be treated as a small employer for purposes of 
subtitle D of the Affordable Care Act, even if the employer ceases 
to be a small employer by reason of an increase in its number of 
employees. Subtitle D includes the provisions governing SHOP 
Exchanges, EHB, the single risk pool, and the premium stabilization 
programs but not premium rating requirements under section 2701 of 
the PHS Act. We intend to propose in future rulemaking how plans 
that are sold through the SHOP to employers that grow from small to 
large will be required to comply with single risk pool and premium 
rating requirements and how these plans, therefore, participate in 
the risk corridors programs.
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Summary of Regulatory Changes
    We are finalizing these provisions with the following minor 
modification. In Sec.  147.104(b)(2), we remove the reference to 
January 1, 2015 to avoid unwarranted confusion as to when non-
grandfathered plans in the individual or merged market must be offered 
on a calendar year basis. Pursuant to Sec.  147.104(f), all non-
grandfathered individual and merged market coverage issued or renewed 
on or after January 1, 2014 must be offered on a calendar year basis, 
with a policy year ending on December 31 of each year and the next 
policy year beginning on January 1 of the following year. The proposed 
rule included January 1, 2015 as the latest date by which a non-
calendar year plan renewing in 2014 (i.e., a plan renewing on December 
31, 2014) would be subject to this requirement. We believe the proposed 
text may have been subject to unintended ambiguity and are finalizing 
revised text to eliminate that concern.

C. Part 153--Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment Under the Affordable Care Act

    In the proposed rule, we proposed certain provisions related to 
program integrity for State-operated risk adjustment and reinsurance 
programs, including provisions governing reporting requirements and 
restricting the use of reinsurance funds for administrative expenses. 
In addition, we proposed record retention standards for States 
operating risk adjustment, for contributing entities, and for 
reinsurance-eligible plans when HHS operates reinsurance on behalf of a 
State. We intend to propose additional standards related to the 
oversight of the premium stabilization programs in future regulations 
and guidance.
    We also note that, to alleviate the upfront burden of the 
reinsurance contributions, we intend to propose in future rulemaking to 
collect reinsurance contributions in two installments--the reinsurance 
contributions for reinsurance payments and administrative expenses 
would be collected at the beginning of the calendar year following the 
applicable benefit year, and the contributions for payments to the U.S. 
Treasury would be collected at the end of the calendar year following 
the applicable benefit year. We also intend to propose in future 
rulemaking to exempt certain self-insured, self-administered plans from 
the requirement to make reinsurance contributions for the 2015 and 2016 
benefit years.
1. Subpart A--General Provisions
a. Definitions (Sec.  153.20)
    We proposed an amendment to the definition of a ``contributing 
entity'' to address a situation in which the healthcare coverage 
provided to a participant under a group health plan is partially 
insured and partially self-insured--for example, if medical benefits 
are provided under a self-insured arrangement but prescription drug 
benefits are provided under an insured arrangement. We proposed this 
amendment to clarify that, for purposes of determining whether an 
entity bears liability for reinsurance contributions, a self-insured 
group health plan includes a group health plan that is partially self-
insured and partially insured, but only where the insured coverage does 
not constitute major medical coverage (whether or not the self-insured 
coverage is major medical coverage). This amendment clarifies that if a 
group health plan is structured in such a manner, the group health plan 
would be liable for reinsurance contributions under the counting rules 
applicable to self-insured group health plans at 45 CFR 153.405(f), but 
if the insured component of the group health plan is major medical 
coverage, the issuer remains liable for the contributions.
    We also sought comment on whether we should adopt a definition for 
``major medical coverage'' that would provide additional clarity on 
when a contributing entity would have the responsibility to make 
reinsurance contributions.
    Comment: Several commenters supported the proposed amendment. One 
commenter sought clarification as to which party is liable for 
reinsurance contributions with respect to a group health plan that is 
partially self-insured and partially insured when both forms of 
coverage are major medical coverage. The commenter recommended that the 
issuer be liable for reinsurance contributions in a situation in which 
the in-network coverage is insured, because the insured in-network 
coverage would account for the majority of the total health coverage 
for the covered individuals.
    Response: We clarify that the amendment to the definition of 
``contributing entity'' does not alter the responsibility of the issuer 
for the reinsurance contributions under these facts. The amendment to 
the definition of ``contributing entity'' addresses a scenario in which 
a self-insured plan includes insured coverage that is not major medical 
coverage; however, the fact pattern described above concerns a self-
insured plan that includes insured

[[Page 65052]]

major medical coverage. Under Sec.  153.400(a)(1)(i) and Sec.  153.20, 
an issuer that offers major medical coverage to its covered lives is a 
``contributing entity,'' and is responsible for reinsurance 
contributions for the covered lives, and under these facts the self-
insured plan under this proposed amendment would not be a contributing 
entity because the insured component of the plan is major medical 
coverage.
    Comment: Certain commenters requested that HHS codify a definition 
of major medical coverage for purposes of reinsurance contributions. 
One commenter asked HHS to codify in regulation text the definition of 
major medical coverage set forth in the preamble to the 2014 Payment 
Notice (78 FR at 15456), while continuing to carefully examine this 
issue to determine if the definition should be revised, expanded, or 
made more specific in the future. One commenter asked HHS to include in 
a definition of ``major medical coverage'' the set of health benefits 
defined in the American Academy of Pediatrics' Scope of Health Care 
Benefits for Children from Birth through Age 26.
    Response: We agree that a more specific definition of ``major 
medical coverage'' for purposes of reinsurance contributions would add 
certainty for some contributing entities. We therefore intend to 
propose a specific definition in the HHS Notice of Benefit and Payment 
Parameters for 2015.
Summary of Regulatory Changes
    We are finalizing the amendment to the definition of ``contributing 
entity'' as proposed.
2. Subpart C--State Standards Related to the Reinsurance Program
a. Maintenance of Records (Sec.  153.240(c))
    We proposed to amend 45 CFR 153.240(c) to be consistent with the 
maintenance of records requirement for State-operated risk adjustment 
programs proposed in Sec.  153.310(c)(4). We proposed to amend Sec.  
153.240(c) such that a State establishing a reinsurance program would 
be directed to maintain documents and records relating to the 
reinsurance program, whether paper, electronic, or in other media, for 
each benefit year for at least 10 years, and make them available upon 
request from HHS, the OIG, the Comptroller General, or their designees, 
to any such entity. The documents and records must be sufficient to 
enable HHS to evaluate whether the State-operated reinsurance program 
complies with Federal standards. States would also be directed to 
ensure that their contractors, subcontractors, and agents similarly 
maintain and make relevant documents and records available upon request 
from HHS, the OIG, the Comptroller General, or their designees.
    Comment: Several commenters asked that HHS reduce the 10-year 
record retention standard, while other commenters supported the 10-year 
retention timeframe. One commenter suggested that a 10-year record 
retention standard is not needed for the False Claims Act.
    Response: We are finalizing the maintenance of records provisions 
as proposed, in alignment with the statute of limitations for the False 
Claims Act and existing related regulations. A civil action may be 
brought under the False Claims Act ``no more than 10 years after the 
date on which the violation is committed.'' Additionally, similar 10-
year record retention standards were previously finalized in the 
Exchange Establishment Rule and the Premium Stabilization Rule. We 
believe that maintaining consistency in our record retention standards 
will help ensure that entities maintain records across programs in a 
consistent manner, allowing HHS and States to coordinate oversight 
efforts across those program areas and reduce the burden on 
stakeholders. We note that the 10-year obligation to retain records 
begins when the record is created.
    Comment: One commenter recommended that electronic maintenance of 
records should satisfy the maintenance of records standard.
    Response: An entity subject to the maintenance of records standard 
may satisfy the standard by maintaining the records electronically and 
ensuring that they are accessible if needed in the event of an 
investigation, audit, or other review.
    Comment: Several commenters asked HHS to provide details on the 
specific documents and records that States, contributing entities or 
issuers would be required to maintain for oversight purposes. In 
particular, one commenter suggested that issuers should not be required 
to retain medical records in connection with the risk adjustment 
program.
    Response: We will provide further details on the documents and 
records to be maintained in future guidance or rulemaking. Because risk 
adjustment-eligible claims, medical documents, and medical records will 
be subject to medical record review as part of the risk adjustment data 
validation process, issuers of risk adjustment covered plans must 
maintain these documents. We note that this record maintenance and 
medical record review is subject to applicable privacy law, including 
the protections of HIPAA.
    Comment: One commenter asked that HHS reserve the authority to use 
the documents and records maintained pursuant to these provisions to 
verify whether issuers are in compliance with certain other 
requirements under the Affordable Care Act. For example, these 
documents and records could be used to help determine whether issuers 
are in compliance with the single risk pool premium rating requirement.
    Response: We do not intend to use the documents and records 
maintained pursuant to these provisions for purposes other than 
monitoring compliance with the applicable statutes and regulations for 
those programs. In general, primary enforcement jurisdiction over the 
single risk pool premium rating requirement lies with the States.
Summary of Regulatory Changes
    We are finalizing the maintenance of records provision set forth in 
Sec.  153.240(c) as proposed, as well as the maintenance of records 
provisions set forth in Sec.  153.310(c)(4). We are also finalizing the 
maintenance of records provision set forth in Sec.  153.405(h), Sec.  
153.410(c) and Sec.  153.620(b) with conforming technical corrections. 
In these provisions, to conform with our other record retention 
standards in this rule, we are clarifying that in each provision it is 
the ``documents and records'' that must be made available upon request. 
In Sec.  153.620(b), we clarify that records must be maintained for 10 
years. Finally, we are making a conforming amendment to Sec.  
153.520(e) so that the risk corridors recordkeeping requirement is 
consistent with the foregoing provisions. Section 153.520(e) will read: 
``A QHP issuer must maintain documents and records whether paper, 
electronic, or in other media, sufficient to enable the evaluation of 
the issuer's compliance with applicable risk corridors standards, for 
each benefit year for at least 10 years, and must make those documents 
and records available upon request from HHS, the OIG, the Comptroller 
General, or their designees, to any such entity, for purposes of 
verification, investigation, audit or other review.''
b. General Oversight Requirements for State-Operated Reinsurance 
Programs (Sec.  153.260)
    HHS expects that States will operate the reinsurance program under 
section 1341 of the Affordable Care Act in an effective and efficient 
manner and in accordance with the provisions of subparts B and C of 45 
CFR part 153.

[[Page 65053]]

Therefore, pursuant to our authority under sections 1321(a)(1) and 1341 
of the Affordable Care Act, we proposed certain general oversight 
requirements for State-operated reinsurance programs. In Sec.  
153.260(a), we proposed that a State establishing the reinsurance 
program ensure that its applicable reinsurance entity keeps, for each 
benefit year, an accounting of the following: (1) All reinsurance 
contributions received from HHS for reinsurance payments and for 
administrative expenses; (2) all claims for reinsurance payments 
received from issuers of reinsurance-eligible plans; (3) all 
reinsurance payments made to issuers of reinsurance-eligible plans; and 
(4) all administrative expenses incurred for the State's reinsurance 
program. We proposed to require that this accounting be kept in 
accordance with GAAP, consistently applied.
    In Sec.  153.260(b), we proposed that a State that establishes the 
reinsurance program submit to HHS and make public a summary report on 
its reinsurance program operations for each benefit year. This report 
would include a summary of the accounting for the benefit year as set 
forth in proposed Sec.  153.260(a).
    In Sec.  153.260(c), we proposed that a State that establishes the 
reinsurance program engage an independent qualified auditing entity to 
perform a financial and programmatic audit of the program for each 
benefit year in accordance with GAAS. Pursuant to Sec.  153.260(c)(2), 
the State would be directed to ensure that this audit addresses the 
prohibitions set forth in Sec.  153.265 (concerning improper use of 
reinsurance funds for administrative expenses).
    In paragraph (c)(1), we proposed that the State provide to HHS the 
results of the independent external audit for each benefit year, and in 
paragraph (c)(3), we proposed that the State identify to HHS any 
material weakness or significant deficiency identified in the audit (as 
these terms are defined in GAAS issued by the American Institute of 
Certified Public Accountants, and Government Auditing Standards issued 
by the Government Accountability Office (GAO) \12\). We further 
proposed that the State address in writing to HHS how the State intends 
to correct any such material weakness or significant deficiency. To 
ensure transparency and accountability of a State-operated reinsurance 
program's finances and activities, we proposed in paragraph (c)(4) that 
the State make public a summary of the results of the external audit, 
including any material weakness or significant deficiency. We believe 
that these measures are necessary to ensure the proper use of 
reinsurance contributions under the uniform contribution rate, which 
HHS will collect from all contributing entities pursuant to 45 CFR 
153.220. We received several comments supporting these provisions.
---------------------------------------------------------------------------

    \12\ See, Government Auditing Standards (2011 Revision), 
available at: http://www.gao.gov/yellowbook. For public companies, 
the Public Company Accounting Oversight Board (PCAOB) sets audit 
standards. See, http://pcaobus.org/Standards/Auditing/Pages/default.aspx. For non-public companies, the AICPA sets audit 
standards. See, http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx.
---------------------------------------------------------------------------

Summary of Regulatory Changes
    We are finalizing these provisions as proposed. We are finalizing 
these provisions with one modification. We are clarifying in paragraph 
(c)(4) that in making public any material weakness or significant 
deficiency from the external audit, the State must also make public how 
it intends to correct the material weakness or significant deficiency.
Summary of Regulatory Changes
    We are finalizing these provisions with one modification. We are 
clarifying that when the State makes public a summary of the results of 
the external audit, including any material weakness or significant 
deficiency, it must also make public how it intends to correct the 
material weakness or significant deficiency, in the manner and 
timeframe to be specified by HHS.
c. Restrictions on Use of Reinsurance Funds for Administrative Expenses 
(Sec.  153.265)
    To achieve the intended purpose of the reinsurance program, 
reinsurance contributions collected must be spent on reinsurance 
payments, payments to the U.S. Treasury, and on reasonable expenses to 
administer the reinsurance program. In Sec.  153.260(a), we proposed 
that a State operating reinsurance would be directed to keep an 
accurate accounting of the reinsurance funds received from HHS for 
administrative expenses and all the administrative expenses incurred 
for the State-operated reinsurance program. If a State incurs fewer 
expenses in operating reinsurance for a benefit year than are allocated 
to it under the uniform reinsurance contribution rate the State would 
be directed to use those funds to operate reinsurance in subsequent 
benefit years.
    Section 1311(d)(5)(B) of the Affordable Care Act prohibits an 
Exchange from using any funds intended for the administrative and 
operational expenses of the Exchange for staff retreats, promotional 
giveaways, excessive executive compensation, or the promotion of 
Federal or State legislative and regulatory modifications. In Sec.  
153.265, we proposed to extend these prohibitions to State-operated 
reinsurance programs, so that a State establishing a reinsurance 
program would be directed to ensure that its applicable reinsurance 
entity did not use funds that were intended to support reinsurance 
program operations (including any reinsurance contributions collected 
under the national contribution rate for administrative expenses) for 
any purpose prohibited in section 1311(d)(5)(B) of the Affordable Care 
Act. We received comments supporting this provision.
Summary of Regulatory Changes
    We are finalizing this provision as proposed.
3. Subpart D--State Standards Related to the Risk Adjustment Program
    In the first Program Integrity final rule (78 FR 54070), we revised 
the definition of ``Exchange'' in Sec.  155.20 and amended various 
other provisions of Part 155 to permit a State to establish and operate 
only a State-based SHOP while the individual market Exchange for the 
State is established and operated as an FFE. Because Sec.  
153.310(a)(1) provides that a State that elects to operate an Exchange 
is eligible to establish a risk adjustment program, when proposing 
these amendments, we sought comment on whether a State that elects to 
establish and operate a SHOP but not an individual market Exchange 
should also be eligible to establish a risk adjustment program. 
Additionally, we sought comment on whether such a State would be 
eligible to establish a risk adjustment program only for the small 
group market or would be required to establish the program for both 
markets. All these amendments were finalized in the first Program 
Integrity final rule, and we are not re-proposing or finalizing any of 
them in this rulemaking. However, we elected to address the comments we 
received on the risk adjustment options for States electing to 
establish and operate only a SHOP in the preamble to this final rule, 
rather than in the preamble to the first Program Integrity final rule.
    Comment: Several commenters asked that HHS permit a State that is 
operating a SHOP-only Exchange to operate a risk adjustment program for 
both the small group market and the individual market. One commenter 
opposed permitting a State that elects to operate a SHOP-only Exchange 
to establish a risk adjustment program only in the small group market.

[[Page 65054]]

Several commenters stated that restricting a State's ability to operate 
risk adjustment to the small group market could deprive the State of 
economies of scale, add compliance burdens to issuers who operate in 
both markets, and add complexity to operational requirements such as 
data collection and reporting.
    Response: For 2015 and later years, HHS will permit a State 
operating a SHOP-only Exchange to propose an alternate risk adjustment 
methodology that covers both the individual and small group markets, 
and to apply for approval to operate a risk adjustment program in both 
markets. HHS will evaluate the proposed alternate risk adjustment 
methodology using the same alternate risk adjustment methodology 
certification process set forth in the Premium Stabilization Rule and 
2014 Payment Notice, in accordance with the standards set forth in 45 
CFR 153.330(b), to ensure that it appropriately addresses risk 
selection in both markets, and will evaluate the State's application to 
operate risk adjustment in accordance with the standards set forth in 
45 CFR 153.310(d) to ensure the State is ready to operate risk 
adjustment in both markets. We emphasize that this policy does not 
alter the definition of ``Exchange'' or any of the other amendments to 
provide States with the option of establishing and operating only a 
SHOP Exchange that we finalized in the first Program Integrity final 
rule.
a. Maintenance of Records (Sec.  153.310(c)(4))
    In Sec.  153.310(c)(4), we proposed that a State operating a risk 
adjustment program would be directed to maintain documents and records 
relating to the risk adjustment program, whether paper, electronic, or 
in other media, for each benefit year for at least 10 years, and make 
them available upon request from HHS, the OIG, the Comptroller General, 
or their designees, to any such entity. The documents and records must 
be sufficient to enable the evaluation of a State-operated risk 
adjustment program's compliance with Federal standards. States would 
also be directed to ensure that their contractors, subcontractors, and 
agents maintain and make those documents and records available upon 
request from HHS, the OIG, the Comptroller General, or their designees. 
We noted that a State may satisfy this standard by archiving these 
documents and records and ensuring that they are accessible if needed 
in the event of an investigation, audit, or other review. This 
provision is consistent with the requirements set forth in Sec.  
153.240(c), which contains record retention standards for State-
operated reinsurance programs. We note that the 10-year obligation to 
retain records begins when the record is created.
    We addressed the comments received on the proposed maintenance of 
records provisions in the preamble discussion of Sec.  153.240(c) 
above. Below we address a comment specific to this provision.
    Comment: One commenter asked HHS to amend this standard to provide 
that these documents and records be made available to the State 
validation auditor as well as HHS, the OIG, the Comptroller General, or 
their designees.
    Response: We are not making this amendment because risk adjustment 
data validation validates the records of an issuer, not the records of 
the State entity operating risk adjustment. Thus, a State validation 
auditor should not need to review the State risk adjustment entity's 
documents.
Summary of Regulatory Changes
    We are finalizing this provision as proposed.
b. Interim Report and State Summary Report (Sec.  153.310(d))
    In Sec.  153.310(d)(3), we proposed that, in addition to the 
requirements set forth in 45 CFR 153.310(d)(1) and (d)(2), a State 
would be directed to provide to HHS an interim report, in a manner 
specified by HHS, that includes a detailed summary of its risk 
adjustment activities in the first 10 months of the benefit year in 
order to obtain re-approval from HHS to operate risk adjustment for a 
third benefit year.\13\ This report would be due no later than December 
31 of the first benefit year for which a State operates risk 
adjustment. We note that because the process for obtaining re-approval 
to operate risk adjustment begins more than one year before the 
beginning of the applicable benefit year, the first benefit year for 
which an interim report based on the first year's operations could be 
used for approval purposes is the third benefit year.
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    \13\ In the 2014 Payment Notice, we finalized a process for 
approving the operational aspects of a State's risk adjustment 
program. This process is distinct from the previously established 
process through which a State may obtain Federal certification of an 
alternate risk adjustment methodology. In an attempt to clarify 
these two related but distinct concepts, we have made minor 
technical corrections to ensure that the terms ``approval'' and 
``re-approval'' refer to HHS's evaluation of a State's risk 
adjustment operations and the terms ``certification'' and 
``recertification'' refer to our evaluation of a proposed alternate 
risk adjustment methodology.
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    We proposed to amend 45 CFR 153.310(f) and re-designate it as Sec.  
153.310(d)(4). In Sec.  153.310(d)(4), we proposed that in order to 
obtain re-approval from HHS to operate risk adjustment for each benefit 
year after the third benefit year for which it is approved, each State 
operating a risk adjustment program would be directed to submit to HHS 
and make public a detailed summary of risk adjustment program 
operations for the most recent benefit year for which risk adjustment 
operations have been completed, in the manner and timeframe specified 
by HHS. We proposed that the summary report must include the results of 
a programmatic and financial audit for the benefit year of the State-
operated risk adjustment program conducted by an independent qualified 
auditing entity in accordance with GAAS. In Sec.  153.310(d)(4)(ii), we 
proposed that the summary report would identify to HHS any material 
weakness or significant deficiency (as these terms are defined in GAAS 
issued by the American Institute of Certified Public Accountants, and 
Government Auditing Standards issued by the GAO \14\) identified in the 
independent external audit and address in writing to HHS how the State 
intends to correct any such material weakness or significant 
deficiency.
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    \14\ See, Government Auditing Standards (2011 Revision), 
available at: http://www.gao.gov/yellowbook. For public companies, 
the Public Company Accounting Oversight Board (PCAOB) sets audit 
standards. See, http://pcaobus.org/Standards/Auditing/Pages/default.aspx. For non-public companies, the AICPA sets audit 
standards. See, http://www.aicpa.org/Research/Standards/AuditAttest/Pages/SAS.aspx.
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    We are finalizing these provisions with minor changes in paragraph 
(d)(4)(ii). We are deleting references in that paragraph to HHS to make 
clear that any material weakness or significant deficiency identified 
in the audit, including the methods the State intends to use to correct 
any such material weakness or significant deficiency, must be made 
public, and not only provided to HHS.
    Comment: One commenter asked HHS to clarify its expectations for 
the interim report and summary report, and the programmatic components 
HHS anticipates a State would report through audit findings.
    Response: The interim report will help HHS verify the ongoing 
implementation of the risk adjustment program and review concerns 
identified by HHS or stakeholders (for example, we may request more 
information on the State's oversight plan). We will expect the State to 
report to HHS regarding the State's implementation of the processes 
outlined in the State's application for certification of its alternate 
risk adjustment methodology (or

[[Page 65055]]

recertification), if applicable, and its application for approval of 
its operations.
    We expect that the summary report will include a review of the 
State-operated program's operations over a benefit year, including the 
State's implementation of the risk adjustment methodology over a full 
payment transfer cycle. A full year of risk adjustment operations will 
extend beyond a benefit year because payment transfers are not 
determined until the year following the applicable benefit year. 
Therefore, the State will not need to submit this summary report until 
after the end of the benefit year, upon completion of the full payment 
transfer cycle. We will provide further details on the risk adjustment 
interim and summary reports in future guidance.
    Comment: One commenter asked HHS to permit State flexibility in 
reporting, and asked that re-approval be based on an assessment of a 
State's success in meeting the goals specific to its risk adjustment 
program.
    Response: We anticipate that we will require standardized reporting 
of certain metrics, but that a State will be able to focus on the 
specific characteristics of the State's risk adjustment program within 
the report.
    Comment: One commenter asked whether the summary report in Sec.  
153.310(d)(4) will also be required at the conclusion of the first 
benefit year and whether an interim report would be required at any 
time after the first benefit year.
    Response: As required by Sec.  153.310(d)(4), each State operating 
a risk adjustment program is required to submit to HHS an annual 
summary of risk adjustment program operations in the manner and 
timeframe specified by HHS. The summary report will be required after 
the conclusion of the first benefit year's risk adjustment operations 
(and after the conclusion of each later benefit year's risk adjustment 
operations), including the completion of the payment transfer cycle. 
However, an interim report will be required only for the first benefit 
year.
    Comment: One commenter asked whether the interim report must 
include an independent external audit.
    Response: An independent external audit will not be required for 
the interim report.
    Comment: One commenter asked how HHS will review a State-operated 
risk adjustment program's operations in the second year of operation, 
including whether any additional information will be required during 
the second year of operation.
    Response: Only a summary report, as required by Sec.  
153.310(d)(4), will be required for the second year of operation. We 
are requiring an interim report for the first year of operations to 
inform HHS re-approval for a third benefit year of operation because we 
will not yet have access to any summary reports covering a full year at 
the time of re-approval. For example, a State operating risk adjustment 
in 2014 would submit an interim report no later than December 31, 2014. 
HHS would use the information provided in this interim report to 
determine if the State will be re-approved to operate risk adjustment 
for the 2016 benefit year. We would indicate this re-approval in the 
HHS Notice of Benefit and Payment Parameters for 2016, which is 
published in 2015.
    Comment: One commenter supported the requirement that a State-
operated risk adjustment program submit summary reports, and 
recommended that the summary report include an analysis of coding 
intensity trends.
    Response: We will not require a State operating risk adjustment to 
include an analysis of coding intensity trends in the State's summary 
report. However, a State may choose to review this information as part 
of the State's oversight strategy.
Summary of Regulatory Changes
    We are finalizing these provisions with minor changes. We are 
deleting references to HHS in paragraph (d)(4)(ii) to make clear that 
any material weakness or significant deficiency identified in the 
audit, including the methods the State intends to use to correct any 
such material weakness or significant deficiency, must be made public, 
and not only provided to HHS. We are also including minor conforming 
changes so that references to ``certification'' and ``recertification'' 
in connection with the evaluation of a State's operation of risk 
adjustment are changed to references to ``approval'' and ``re-
approval.''
c. General Oversight Requirements for State-Operated Risk Adjustment 
Programs (Sec.  153.365)
    To enable HHS to re-approve States to operate risk adjustment 
pursuant to 45 CFR 153.310(d), HHS proposed in Sec.  153.365 that a 
State operating a risk adjustment program keep an accounting of all 
receipts and expenditures related to risk adjustment payments and 
charges and the administration of risk adjustment-related functions and 
activities for each benefit year. This accounting would be kept in 
accordance with GAAP, and would apply consistently to all risk 
adjustment-related activities. This standard is similar to the standard 
proposed at Sec.  153.260(a), which applies to the reinsurance program 
when operated by a State. We received no comment on this proposed 
provision.
Summary of Regulatory Changes
    We are finalizing this provision as proposed.
4. Risk Adjustment Methodology
a. Modification to the Transfer Formula in the HHS Risk Adjustment 
Methodology (78 FR at 15430-34)
    In the 2014 Payment Notice (78 FR at 15430-34), we noted our intent 
to modify the risk adjustment payment transfer formula in order to 
accommodate community rated States that utilize family tiering rating 
factors. In non-family tiering States, family policy premiums must be 
developed by adding up the applicable rates of each individual covered 
under the policy, as required under 45 CFR 147.102(c)(1). In the case 
of families with more than three children in non-family tiering States, 
only the applicable rates of the three oldest covered children under 
age 21 are counted towards the family policy premium rate (for example, 
for a family with four children under age 21, only the applicable 
individual rates of the three oldest children would count towards the 
family policy premium). These family rating requirements do not apply 
to States that use family tiering rating factors. In family tiering 
States, family tiering rating factors are not required to yield 
premiums that are equal to the sum of the individual policy members' 
applicable rates, nor must they be set in a way that counts only the 
rates of the oldest three children under age 21 within a family policy. 
For example, a family tiering State could establish a family tiering 
rating factor of 1.0 for an adult policy, 1.8 for a policy covering one 
adult and one or more children, 2.0 for a policy covering two adults, 
and 2.8 for a policy covering two adults and one or more children.
    In order to account for the differences in family rating practices 
between family tiering States and non-family tiering States, we 
proposed two changes to the risk adjustment payment transfer formula 
that HHS will use when operating risk adjustment on behalf of a State. 
These changes would only apply to States that are using family tiering 
rating structures. In the 2014 Payment Notice, we stated that billable 
members exclude children who do not count towards family rates (that 
is, children

[[Page 65056]]

who do not count toward family policy premiums are excluded) (78 FR at 
15432, 15434). We proposed to clarify that in the case of family 
tiering States, billable members would be based on the number of 
children that implicitly count towards the premium under a State's 
family rating factors. For example, assume a State has the following 
four family tiers: One adult; one adult plus one or more children; two 
adults; and two adults plus one or more children. Under this tiering 
structure, only one child would be counted as a billable member in the 
payment transfer formula, because additional children covered under a 
family policy would not affect the policy's premium.
    Additionally, we proposed a modification to the allowable rating 
factor (ARF) formula that would be used for family tiering States. In 
the 2014 Payment Notice (78 FR at 15433), the ARF is calculated as the 
member month weighted average of the age factor applied to each 
billable enrollee. In non-family tiering States, the ARF is intended to 
measure the extent to which plans are increasing or decreasing their 
premiums based on allowable age rating factors. In the case of family 
tiering States, premium revenue will not vary by age-specific rating 
factors. Rather, policy level premiums will vary only based on the 
family tiering factors. In order to capture the impact of the family 
tiering factors on plans' premium revenue we proposed that the ARF 
formula for family tiering States be based on the family tiering 
factors instead of age rating factors.
    Specifically, under our proposal, the ARF for family tiering States 
would be calculated at the level of the subscriber, as follows:
[GRAPHIC] [TIFF OMITTED] TR30OC13.000

Where:

ARFs is the rating factor for the subscriber(s) (based on 
family size/composition), and
Ms is the number of billed person-months that are counted 
in determining the subscriber(s) premium.

    We noted that, apart from the changes to the billable member months 
definition and the ARF formula discussed above, payment transfers in 
family tiering States will be calculated using the formulas provided in 
the 2014 Payment Notice (78 FR at 15431-34). The changes to the 
billable member month definition and the ARF formula would not apply to 
States that do not implement family tiering rating factors.
    Comment: Several commenters supported the proposed modification to 
the payment transfer formula for a family tiering State, agreeing with 
the proposal to base billable members on the number of children that 
implicitly count towards the premium under the State's family rating 
factors. These commenters also supported modifying the ARF formula to 
address rating limitations based on the family tiering factors instead 
of the age rating factors. However, these commenters asked that the ARF 
formula be modified to make the numerator a summation over all 
subscribers of the product of the family tiering factor and the 
subscriber member months, and the denominator the sum of billable 
member months.
    Response: We agree with the commenters that the ARF formula should 
be modified so that the numerator is a summation over all subscribers 
of the product of the family tiering factor and the subscriber member 
months, and the denominator the sum of billable member months. We are 
making this technical correction so that the ARF formula accurately 
reflects a member month weighted average of the family tiering factor, 
as described in the preamble to the proposed rule (78 FR at 37039-040). 
Because of a typographical error, the formula did not align with this 
proposal. We are correcting the formula to align with our proposal, 
which we are finalizing in this final rule. Therefore, the ARF for 
family tiering States would be calculated at the level of the 
subscriber, as follows:
[GRAPHIC] [TIFF OMITTED] TR30OC13.001

Where:

ARFs is the rating factor for the subscriber(s) (based on 
family size/composition), and
Ms is the number of billed person-months that are counted 
in determining the premium(s) for the subscriber(s).
Summary of Regulatory Changes
    We are finalizing the two proposed modifications to the risk 
adjustment payment transfer formula as proposed, with one technical 
correction. We are modifying the ARF formula by making the numerator a 
summation over all subscribers of the product of the family tiering 
factor and the subscriber member months, and the denominator the sum of 
billable member months.
5. Subpart E--Health Insurance Issuer and Group Health Plan Standards 
Related to the Reinsurance Program
a. Reinsurance Contribution Funds (Sec.  153.400)
    In some health coverage arrangements, an insured group health plan 
may provide benefits through more than one policy to the same covered 
lives, where each policy standing alone does not constitute major 
medical coverage, but the total benefits do.\15\ To clarify the 
application of the rules (solely for the purpose of reinsurance 
contributions), we proposed to amend paragraph (a)(1)(i) of 45 CFR 
153.400(a) and add a new paragraph (a)(3) that would address liability 
for reinsurance contributions in the foregoing fact pattern. This 
paragraph (a)(3) would be an exception to the rule under paragraph 
(a)(1)(i), which provides that an issuer of health insurance coverage 
is not required to make reinsurance contributions for coverage to the 
extent the coverage is not major medical coverage.
---------------------------------------------------------------------------

    \15\ We note that, after 2014, such arrangements generally would 
only be permissible in the large employer group context, because 
issuers of small employer group market insurance coverage are 
required to provide all EHB under any policy they offer that does 
not qualify as ``excepted benefits.''
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    Under the proposed paragraph (a)(3), a health insurance issuer 
providing coverage under a group health plan would make reinsurance 
contributions for lives under its health insurance coverage even if the 
insurance coverage does not constitute major medical coverage, if: (i) 
The group health plan provides health insurance coverage for the same 
covered lives through more than one insurance policy that in 
combination constitute major medical coverage but individually do not; 
(ii) the lives are not covered by self-insured coverage of the group 
health plan (except for self-insured coverage limited to excepted 
benefits); and (iii) the health insurance coverage under the policy 
offered by the health insurance issuer represents a percentage of the 
total health insurance coverage offered in combination by the group 
health plan greater than the percentage offered under any of the other 
policies. We further proposed that for purposes of paragraph (a)(3), 
the percentage of coverage offered under various policies would be 
determined based on the average premium per covered life for these 
policies. In the event that the percentage of coverage is equal, the 
issuer of the policy that provides the greatest portion of in-network 
hospitalization benefits would be responsible for reinsurance 
contributions.
    Because an issuer of group health insurance coverage that does not, 
by itself, constitute major medical coverage may not be aware of the 
existence of, or premium for, other health insurance coverage obtained 
by a plan sponsor covering the same lives under a group health plan, we 
sought comment on whether and in what circumstances an

[[Page 65057]]

issuer should be entitled to rely upon representations from a plan 
sponsor regarding the relative percentage of coverage offered by the 
issuer. We also sought comment on what other means we should consider 
for ensuring that the relevant issuer knows of its obligation to make 
the reinsurance contributions, including any role that the employer 
should have in ensuring that issuers have the information necessary to 
determine which issuer is responsible for reinsurance contributions, as 
well as alternative approaches that should be considered for 
determining responsibility for reinsurance contributions in such 
circumstances.
    Finally, we addressed in the proposed rule certain inquiries as to 
how reinsurance contribution obligations would be allocated in the case 
of a group health plan under which some benefit options for employees 
are insured by an issuer, and some options offer benefits without the 
involvement of an issuer in insuring the benefits (because either the 
group health plan or some non-issuer entity assumes the risk for that 
coverage option). We proposed that in such a case, if a coverage option 
is insured by an issuer, the issuer would be responsible for the 
reinsurance contribution associated with that coverage option. If an 
employee coverage option under such a group health plan is not insured 
(because either the group health plan or other non-issuer assumes the 
risk), we proposed that the group health plan would be responsible for 
the reinsurance contribution associated with that coverage option. 
After considering the comments received, we are modifying the proposed 
provisions by amending the ``percentage of benefits'' provision to 
state that the issuer of the plan that provides the greatest portion of 
the inpatient hospitalization benefits would be responsible for 
reinsurance contributions. We also are making two minor revisions to 
the language in proposed paragraph (a)(3) to clarify its scope.
    Comment: Several commenters suggested that the ``higher percentage 
of benefits'' approach in proposed Sec.  153.400(a)(3) is 
administratively burdensome and presents significant operational 
problems. A number of commenters suggested an alternative approach that 
would require the issuer that covers hospitalizations to be responsible 
for reinsurance contributions.
    One commenter agreed with HHS's statement in the preamble to the 
proposed rule that issuers may not know about other coverage purchased 
by a plan sponsor, so directing issuers to seek representations from 
plan sponsors concerning the relative percentage of coverage offered by 
the issuer was reasonable. The commenter suggested that issuers be able 
to rely on employer representations regarding other coverage, and that 
issuers be held harmless from compliance actions if they do not receive 
such information from employers, or if the information is inaccurate. 
However, another commenter stated that plans or plan sponsors should 
not be required to provide information to issuers and that a rule that 
``looks to the types of coverage provided'' is appropriate. One 
commenter requested clarification on which entity would be liable for 
reinsurance contributions where a group health plan has two insured 
major medical components offered by different issuers. The commenter 
stated that some States prohibit HMOs from providing out-of-network 
coverage for non-emergency services. HMOs in those States package their 
in-network coverage with out-of-network coverage issued by a non-HMO 
health insurance issuer, so that enrollees in the HMO have simultaneous 
coverage under both products. The commenter suggested that the rule 
should provide the issuer of the in-network coverage (the HMO, which 
would be expected to account for the majority of the total health 
coverage under the group health plan) is responsible for reinsurance 
contributions.
    Response: We are revising proposed Sec.  153.400(a)(3) to state 
that the issuer of the plan that provides the greatest portion of 
inpatient hospitalization coverage will be responsible for reinsurance 
contributions, and note that the issuer should be the issuer that 
provides the majority of the dollar value of the benefits in most 
situations. We believe this option will mitigate the operational 
difficulties discussed by the commenters, and will significantly reduce 
the need for plan sponsors to provide information to issuers. Because 
we recognize that there may be circumstances in which an issuer is 
unsure whether its coverage provides the greatest portion of inpatient 
hospitalization benefits, we intend to hold an issuer harmless from 
non-compliance actions for failure to pay reinsurance contributions if 
the issuer relies in good faith upon a written representation by the 
plan sponsor that the issuer's coverage does not provide the greatest 
portion of inpatient hospitalization benefits.
    Comment: One commenter asked HHS to clarify the type of group 
health plan coverage intended to be addressed by the proposed addition 
of paragraph (a)(3) to Sec.  153.400.
    Response: Section 153.400(a)(3) applies to fully insured group 
health plans that offer health insurance coverage through more than one 
policy. For example, a fully insured group health plan with two 
insurance policies, one of which covers inpatient hospitalization and 
another that covers doctors' office visits, prescriptions, vision and 
dental benefits, or other similar arrangements, would be covered by 
this paragraph.
    Comment: One commenter requested a clarification on the proposed 
approach to allocating responsibility for reinsurance contributions, in 
the case of a group health plan where some options offered under a plan 
are insured and some options offer benefits without the involvement of 
an issuer (because either the group health plan or a non-issuer entity 
assumes the risk for that coverage option). The commenter requested 
that HHS clarify that the reinsurance contribution will not be imposed 
with respect to the same covered life more than once.
    Response: Under the proposed approach, in such a group health plan, 
the issuer would be liable for reinsurance contributions with respect 
to an insured coverage option, and the group health plan would be 
liable for reinsurance contributions with respect to a coverage option 
that is not insured. Consequently, reinsurance contributions would not 
be required more than once for the same covered life.
    In general, it is our intent not to require payment of reinsurance 
contributions more than once for the same covered life. We recognize 
that certain complex group health plan arrangements can lead to 
situations in which lives are covered multiple arrangements and where 
it is unclear whether more than one health plan or issuer must make 
reinsurance contributions on the same covered life.
    To provide clarity on the matter, we intend to clarify in future 
rulemaking the principle that reinsurance contributions are required 
only once with respect to the same covered life. We also intend to 
propose that no reinsurance contributions are required under a group 
health plan where the group health plan coverage applies to lives that 
are also covered by individual market health insurance coverage for 
which reinsurance contributions are required, or where the coverage is 
supplemental or secondary to group health coverage for which 
reinsurance contributions must be made for the same covered lives.

[[Page 65058]]

Summary of Regulatory Changes
    We are finalizing the reinsurance contribution provision discussed 
above as proposed, with the following modifications. We are modifying 
the ``percentage of benefits'' provision to state that the issuer of 
the plan that provides the greatest portion of the inpatient 
hospitalization benefits will be responsible for reinsurance 
contributions. We also are making two minor revisions to language in 
proposed paragraph (a)(3) to clarify its scope.
b. Maintenance of Records (Sec.  153.405(h) and Sec.  153.410(c))
    To meet our obligation to safeguard Federal funds, we proposed to 
amend Sec.  153.405 by adding paragraph (h), which would require a 
contributing entity to maintain documents and records, whether paper, 
electronic, or in other media, that are sufficient to substantiate the 
enrollment count submitted under Sec.  153.405 for at least 10 years, 
and would direct the contributing entity to make that evidence 
available upon request from HHS, the OIG, the Comptroller General, or 
their designees, for the purpose of verifying reinsurance contribution 
amounts. We also proposed to amend Sec.  153.410 by adding paragraph 
(c), which would direct an issuer of a reinsurance-eligible plan in a 
State where HHS operates reinsurance to maintain documents and records, 
whether paper, electronic, or in other media, sufficient to 
substantiate the requests for reinsurance payments made pursuant to 
Sec.  153.410 for at least 10 years, and would require the issuer to 
make that evidence available upon request from HHS, the OIG, the 
Comptroller General, or their designees, (or, in a State where the 
State is operating reinsurance, the State or its designee) for the 
purpose of verifying reinsurance payment requests. We note that these 
standards could be satisfied if the contributing entity or issuer of a 
reinsurance-eligible plan archived the documents and records and 
ensured that they were accessible in the event of an investigation, 
audit, or other review. We note that the 10-year obligation to retain 
records begins when the record is created.
    We addressed the comments received on the proposed maintenance of 
records provisions in the preamble discussion related to Sec.  
153.240(c) above.
Summary of Regulatory Changes
    We are finalizing these provisions as proposed, with one 
clarification in each provision to conform with the other record 
retention standards in this rule. We are clarifying that in each 
provision it is the ``documents and records'' that must be made 
available upon request.
6. Subpart F--Health Insurance Issuer Standards Related to the Risk 
Corridors Program
a. Definitions (Sec.  153.500 and Sec.  153.510)
    Section 1342(a) of the Affordable Care Act provides that ``a 
qualified health plan offered in the individual or small group market'' 
is to participate in the risk corridors program. In the Exchange 
Establishment Rule, we stated that a stand-alone dental plan is ``a 
type of qualified health plan.'' However, we did not intend for all 
requirements applicable to a QHP to apply to stand-alone dental plans. 
For example, under 45 CFR 155.1065(a)(3), certain QHP standards are not 
applicable to a stand-alone dental plan if they cannot be met, given 
the limited benefit package offered by the plan. We believe that it 
would not be appropriate to subject stand-alone dental plans to the 
risk corridors program because such plans are considered excepted 
benefits plans under section 2791(c) of the PHS Act, and are therefore 
not subject to the rating rules--that is, the Federal prohibition on 
underwriting premiums, the requirement to base premium rating using the 
single risk pool, and the fair health insurance premiums limitations. 
Thus, although States have the option to prohibit underwriting for 
excepted benefits plans, and issuers of stand-alone dental plans may 
voluntarily choose not to underwrite these plans, we believe that, in 
general, an issuer of a stand-alone dental plan will not be subject to 
the same rate-setting uncertainty in 2014 as the issuer of a major 
medical plan, and will not need the risk-sharing protections of risk 
corridors.\16\ In the proposed rule, we noted that stand-alone dental 
plans are similarly excluded from participation in the two other 
premium stabilization programs--reinsurance and risk adjustment. We 
also noted that, consistent with the exclusion of excepted benefits 
plans from the medical loss ratio (MLR) requirements, stand-alone 
dental claims would not be pooled along with an issuer's other claims 
for the purposes of determining ``allowable costs'' in the risk 
corridors calculation, as defined at 45 CFR 153.500. We received 
several comments, all of which were supportive of this approach.
---------------------------------------------------------------------------

    \16\ In the preamble to the Exchange Establishment Rule, we note 
that each Exchange has the authority to require, as a condition of 
certification, comprehensive medical QHPs to offer and price the 
pediatric dental EHB (if covered) separately, if doing so would be 
in the best interest of consumers. For the 2014 benefit year, an FFE 
will not require comprehensive medical QHP issuers that provide 
pediatric dental coverage to do so. We have provided this guidance 
in Chapter 4 of the 2014 Letter to Issuers on Federal and 
Partnership Marketplaces (April 5, 2013).
---------------------------------------------------------------------------

Summary of Regulatory Changes
    We are finalizing this policy as proposed, and are adding a new 
paragraph (e) to Sec.  153.510, which provides that a QHP issuer is not 
subject to the provisions under subpart F of part 153 with respect to a 
stand-alone dental plan.
b. Calculation of Allowable Costs, Attribution and Allocation of 
Revenue and Expense Items, and Risk Corridors Data Requirements (Sec.  
153.500, Sec.  153.520, and Sec.  153.530)
    In the interim final rule (78 FR 15541), we noted that, consistent 
with the single risk pool provision at 45 CFR 156.80, which directs an 
issuer to pool claims costs across all of its non-grandfathered health 
plans in a market within a State, a QHP issuer must pool allowable 
costs across all its non-grandfathered plans in the relevant market for 
the purposes of risk corridors calculation. We therefore amended the 
regulatory definition of ``allowable costs'' for purposes of the risk 
corridors program so that allowable costs for a QHP are equal to the 
pro rata portion of the QHP issuer's incurred claims. We also modified 
the provision related to attribution and allocation of revenue and 
expense items in 45 CFR 153.520 to conform to the changes for the risk 
corridors calculation described above.
    We are finalizing the policy set forth in the interim final rule 
with respect to the definition of ``allowable costs,'' and are making a 
number of modifications to maintain consistency with this policy in 
response to comment, as described below.
    Comment: Several commenters recommended that we exclude the 
experience of non-QHPs from the risk corridors calculation, and include 
only the experience of an issuer's QHPs in our definition of allowable 
costs. These commenters were concerned that tying allowable costs to 
the experience of all of a QHP issuer's non-grandfathered health plans 
would have the effect of diluting the pricing protections afforded to 
QHPs through the risk corridors program. One commenter believed that it 
would be inconsistent to disconnect the premiums used for the risk 
corridors target amount from the claims used to develop the allowable 
costs, and suggested an alternate approach that would direct issuers to 
aggregate incurred claims for all QHPs and then allocate these incurred 
claims to each QHP pro rata based on the earned

[[Page 65059]]

premium of each QHP as a percentage of total earned premium for all 
QHPs. The commenter believed that, while this proposal would not affect 
the risk corridors calculation, it would require issuers to separate 
QHP and non-QHP claims and risk adjustment payments and charges.
    Response: We are finalizing the definition of allowable costs as 
set forth in the interim final rule without change. As discussed in the 
preamble to the interim final rule, this approach is consistent with 
how issuers will determine premiums pursuant to the single risk pool 
requirement at 45 CFR 156.80. As stated in the interim final rule, 
allowable costs will be calculated based on an issuer's experience for 
all non-grandfathered plans in a State market, such that the actual 
risk corridors payment or charge will be calculated based on a QHP's 
pro rata share (based on premiums) of the QHP issuer's market-wide 
allowable costs and premiums. This approach ensures that the incurred 
claims used to develop the allowable costs in the numerator of the risk 
corridors calculation are consistent with the projected claims used to 
develop the premiums used to calculate the target amount in the 
denominator of the risk corridors calculation. We also note that this 
approach aligns with existing processes for the MLR program, and helps 
to maintain overall consistency between the MLR and risk corridors 
programs.
    We agree with the comment that it is inconsistent to disconnect the 
projected claims used to develop premiums used to calculate the risk 
corridor target amount from the incurred claims used to develop the 
allowable costs, and are therefore modifying our risk corridors expense 
allocation rules at 45 CFR 153.520 to ensure that the numerator and the 
denominator of the risk corridors calculation are calculated in a fully 
consistent manner. We are revising the risk corridors allocation rules 
in Sec.  153.520 to clarify that administrative expenses in the target 
amount, like allowable costs, should be calculated based on expenses 
across all non-grandfathered health plans in the market, and allocated 
pro rata to a QHP based on the QHP's premiums. Because certain 
administrative expenses, such as Exchange user fees are, like incurred 
claims costs, required to be spread across the relevant risk pool, 
their treatment should conform with the market-wide risk corridors 
calculation for allowable costs and premiums. Thus, we are clarifying 
that administrative expenses should be similarly allocated. We note 
that this change is consistent with our intention to align the risk 
corridors calculation with the single risk pool provision, will further 
align the calculations for the MLR and risk corridors programs, and 
will reduce the burden on issuers of allocating expenses on a plan-by-
plan basis.
    Finally, we are also making conforming corrections to the risk 
corridors data requirements in Sec.  153.530(b) and (c) to specify that 
issuers must submit risk corridors data in a manner that is consistent 
with the calculation of allowable costs and allowable administrative 
costs, as defined at Sec.  153.500. We provide that a QHP issuer must 
submit to HHS data on allowable costs and allowable administrative 
costs incurred for all of its non-grandfathered plans in a market 
within a State. Without these corrections, issuers would be required to 
make plan-specific allocations and submit plan-specific amounts that 
are not necessary for the risk corridors calculation, while not 
providing the QHP aggregate premium data required for the risk 
corridors calculation as amended. We believe that these corrections 
will alleviate potential confusion among issuers with regard to 
submission of pooled risk corridors data.
    Comment: One commenter noted that the risk corridors calculation 
compares allowable costs for QHPs and non-QHPs in the numerator of the 
calculation to target amounts for only QHPs in the denominator. The 
commenter recommended that the numerator of the calculation should only 
pool incurred claims across an issuer's QHPs to ensure a consistent 
comparison. One commenter noted that the single risk pool provision at 
45 CFR 156.80 permits specific plan level premium adjustments, such 
that QHP premiums would reflect certain factors that relate 
particularly to QHPs, in addition to market-wide factors. Consequently, 
the commenter believed that an approach that limited the risk corridors 
calculation to the experience of only an issuer's QHPs would still be 
consistent with the single risk pool provision. However, another 
commenter supported the modification to the calculation of allowable 
costs that was set forth in the interim final rule, and believed that 
our policy was consistent with the single risk pool provision.
    Response: Because a QHP's target amount is based on the QHP's 
premiums, which are principally set based on the index rate for QHPs 
and non-QHPs in the relevant market, we believe it is more consistent 
to set allowable costs based on the pooled claims costs of both QHPs 
and non-QHPs. We believe the allocation of the allowable costs by plan 
premiums addresses the plan-specific premium variation.
    Comment: All commenters supported the modification to the risk 
corridors formula to calculate allowable costs based on incurred claims 
at an aggregate level, rather than using incurred claims specific to 
each QHP.
    Response: We are finalizing our definition of allowable costs to 
calculate allowable costs based on aggregate incurred claims as set 
forth in the interim final rule.
Summary of Regulatory Changes
    We are finalizing the definition of ``allowable costs'' in Sec.  
153.500 without change. We are modifying Sec.  153.520(a) and (b) to 
provide that expenses in the target amount of the risk corridors 
calculation should be based on market-wide expenses, and must be 
allocated across a QHP issuer's plans in proportion to the plans' 
premiums. Finally, we are making conforming modifications to the risk 
corridors data requirements in Sec.  153.530(b) and (c) to require a 
QHP issuer to submit data on allowable costs and allowable 
administrative costs for its non-grandfathered health plans in a market 
within a State.
7. Subpart G--Health Insurance Issuer Standards Related to the Risk 
Adjustment Program
    We proposed to amend Sec.  153.620(b) to add a standard that would 
direct an issuer that offers risk adjustment covered plans to maintain 
documents and records, whether paper, electronic, or in other media, 
sufficient to enable the evaluation of the issuer's compliance with 
applicable risk adjustment standards, and to make that evidence 
available upon request from HHS, the OIG, the Comptroller General, or 
their designees (or in a State where the State is operating risk 
adjustment, the State or its designee), to any such entity. This 
standard, which is consistent with other records maintenance standards 
in this rule, would direct an issuer of a risk adjustment covered plan 
to retain additional records--not only those pertaining to data 
validation--to substantiate its compliance with risk adjustment 
standards, whether risk adjustment is operated by HHS or a State.
    We addressed the comments received on the proposed maintenance of 
records provisions in the preamble discussion of Sec.  153.240(c) 
above.
    Comment: Several commenters asked HHS to clarify the record 
retention timeframe for this proposed provision.

[[Page 65060]]

    Response: We are amending this proposed provision to specify the 
record retention timeframe for this proposed provision. We clarify that 
an issuer that offers risk adjustment covered plans must maintain 
documents and records, whether paper, electronic, or in other media, 
sufficient to enable the evaluation of the issuer's compliance with 
applicable risk adjustment standards for each benefit year, for at 
least 10 years, and make those documents and records available upon 
request from HHS, the OIG, the Comptroller General, or their designees 
(or in a State where the State is operating risk adjustment, the State 
or its designee), to any such entity. We note that the 10-year 
obligation to retain records begins when the record is created.
    Comment: One commenter encouraged HHS to prohibit QHP issuers from 
demanding documentation or paperwork from physician practices or 
independently auditing physician practices in order to comply with 
HHS's proposed oversight requirements.
    Response: This regulation does not seek to regulate the 
relationships between issuers of risk adjustment covered plans and 
health care providers. Rather, we expect that risk adjustment covered 
plans will make appropriate arrangements with providers to ensure 
compliance with this regulation.
    Comment: One commenter asked HHS to amend this standard to provide 
that these documents and records be made available to the issuer's data 
validation auditor as well as HHS, the OIG, the Comptroller General, or 
their designees.
    Response: We are not extending this provision to require an issuer 
of a risk adjustment covered plan to make available its documents and 
records to its data validation auditor. A data validation auditor's 
authority to review an issuer's relevant documents will be addressed 
under the risk adjustment data validation regulations in 45 CFR 
153.630.
Summary of Regulatory Changes
    We are making two corrections to this provision, to conform with 
our other record retention provisions throughout this rule. We are 
clarifying that it is the ``documents and records'' that must be made 
available upon request. We are also clarifying that documents and 
records must be maintained for each benefit year, for at least 10 
years.
8. Subpart H--Distributed Data Collection for HHS-Operated Programs
a. Failure To Comply With HHS-Operated Risk Adjustment and Reinsurance 
Data Requirements (Sec.  153.740(a))
    In Sec.  153.740(a), we proposed that HHS may pursue an enforcement 
action for CMPs against an issuer in a State where HHS operates the 
reinsurance or risk adjustment program, if the issuer fails to: (a) 
Establish a secure, dedicated distributed data environment pursuant to 
45 CFR 153.700(a); (b) provide HHS with access to enrollee-level plan 
enrollment information, enrollee claims data, or enrollee encounter 
data through its dedicated distributed data environment pursuant to 45 
CFR 153.710(a); (c) otherwise comply with the requirements of 45 CFR 
153.700 through 153.730; (d) adhere to the reinsurance data submission 
requirements set forth in 45 CFR 153.420; or (e) adhere to the risk 
adjustment data submission and data storage requirements set forth in 
45 CFR 153.610 through 153.630. As discussed above, under the data 
collection approach that we are implementing when we operate risk 
adjustment or reinsurance on behalf of a State, an issuer must use 
masked enrollee identification numbers when making data accessible 
through the dedicated distributed data environment. In addition, we 
will not store any personally identifiable enrollee information or 
individual claim-level information from the data that issuers make 
accessible to HHS through the dedicated distributed data environment 
except when conducting data validation or audits.
    Risk Adjustment: Risk adjustment covered plans must provide access 
to the risk adjustment enrollee-level plan enrollment information, 
enrollee claims data, or enrollee encounter data from the issuer by 
April 30 of the year following the applicable benefit year in order for 
HHS to calculate payment transfers based on claims experience and 
premiums as set forth in 45 CFR 153.730. In order to enforce risk 
adjustment standards when operating risk adjustment on behalf of a 
State pursuant to our authority under section 1321(c)(2) of the 
Affordable Care Act, we proposed establishing HHS authority to impose 
CMPs, and applying the related enforcement standards set forth in Sec.  
156.805 to non-compliant issuers. If a risk adjustment covered plan 
does not comply with the requirements set forth in 45 CFR 153.610 
through 153.630 and 45 CFR 153.700 through 153.730, we proposed to 
apply a sanction so that the level of the enforcement action would be 
proportional to the level of the violation. While we would reserve the 
right to impose penalties up to the maximum amounts set forth in Sec.  
156.805(c), as a general principle, we stated our intent to work 
collaboratively with issuers to address problems in establishing 
dedicated distributed data environments in 2014. We noted that HHS 
would reserve the right to impose, or not impose, CMPs as appropriate. 
We proposed that in our application of CMPs, we would take into account 
the totality of the issuer's circumstances, including such factors as 
an issuer's previous record of non-compliance (if any), the frequency 
and level of the violation, and any aggravating or mitigating 
circumstances. Our intent is to encourage issuers to address non-
compliance and not to severely affect their financial condition, 
especially where the issuer demonstrates good faith in monitoring 
compliance with applicable standards, identifies any suspected 
occurrences of non-compliance, and attempts to remedy any non-
compliance. For instance, if an issuer of a risk adjustment covered 
plan did not establish a dedicated distributed data environment or 
provide access to the necessary risk adjustment data to permit HHS to 
timely calculate the applicable risk adjustment transfer amounts, HHS 
would assess a default risk adjustment charge as described below. HHS 
might also elect to impose CMPs in conjunction with the imposition of 
the default risk adjustment charge if an issuer failed to comply with 
applicable data security or privacy standards placing the interests of 
third-parties at risk.
    Reinsurance: We proposed that an issuer of a reinsurance-eligible 
plan may be subject to CMPs for failure to comply with 45 CFR 153.420, 
or 45 CFR 153.700 through 153.730. Under this proposal, HHS would take 
into account the totality of the issuer's circumstances, including such 
factors as an issuer's previous record of non-compliance (if any), the 
frequency and level of the violation, and any aggravating or mitigating 
circumstances when determining how to apply CMPs. In the proposed rule, 
we indicated that we might not impose CMPs in certain cases. For 
example, HHS might not impose CMPs on an issuer of a reinsurance-
eligible plan if it fails to set up a dedicated distributed data 
environment or meet certain data requirements stated above if, as a 
consequence, HHS simply does not have the necessary claims data from 
the dedicated distributed data environment to calculate or distribute

[[Page 65061]]

reinsurance payments for the reinsurance-eligible plan, and as a 
result, the reinsurance-eligible plan would forgo significant 
reinsurance payments that it otherwise might have received. Regardless, 
HHS reserves the right to impose CMPs irrespective of whether an issuer 
becomes ineligible for reinsurance payments as a result of failing to 
comply with 45 CFR 153.420, or 45 CFR 153.700 through 153.730. After 
considering the comments received, we are finalizing Sec.  153.740(a) 
with one modification. We are including a compliance standard, parallel 
to that set forth in 45 CFR 156.800(c), providing that CMPs will not be 
imposed under this provision during the 2014 calendar year, if the 
issuer has made good faith efforts to comply with the applicable 
requirements.
    Comment: Several commenters supported HHS's proposed flexibility 
and cooperation with issuers when imposing CMPs on issuers that fail to 
establish a dedicated distributed data environment or provide HHS 
access to all necessary data. Commenters supported taking into account 
an issuer's good faith attempts to comply with the data requirements. 
One commenter suggested that HHS provide standards that would allow 
issuers to demonstrate that they have complied with the data 
requirements. Another commenter asked HHS to adopt a ``safe harbor'' 
that would defer the imposition of any CMPs for two years, and to 
require only good faith compliance. One commenter specifically 
suggested that issuers be subject to CMPs if they are out of compliance 
with risk adjustment and reinsurance data requirements for two or more 
consecutive benefit years, or if they fail to correct significant 
deficiencies discovered during the risk adjustment initial and 
secondary validation audit processes that result in substantially 
inaccurate data or produce upcoding trends significantly greater than 
those found among other issuers in the State.
    Response: As we described in the proposed rule, HHS will take into 
account the totality of an issuer's circumstances, including such 
factors as the issuer's previous record of non-compliance (if any), the 
frequency and level of the violation, and any aggravating or mitigating 
circumstances, including the issuer's good faith in monitoring 
compliance with applicable standards and attempts to remedy any non-
compliance. In addition, consistent with our policy and standards with 
respect to sanctions for non-compliance with FFE standards set forth in 
45 CFR 156.800, 45 CFR 156.805, and 45 CFR 156.810, we are clarifying 
that if HHS is able to determine that an issuer of a risk adjustment 
covered plan or reinsurance-eligible plan, as applicable, is making 
good faith efforts to comply with the standards set forth in Sec.  
153.740(a), we will not seek to impose CMPs for non-compliance with 
those standards during 2014. Based on the comments received in 
connection with the proposed rule, in 45 CFR 156.800(c), we provided 
that for 2014, sanctions under that subpart will not be imposed if the 
QHP issuer has made good faith efforts to comply with applicable 
requirements. We are adopting a similar CMP enforcement strategy here. 
However, we note that nothing in this provision prohibits HHS from 
imposing CMPs in 2015 for non-compliance that occurred in 2014. At the 
appropriate time, we will consider extending this good faith compliance 
policy through 2015. We also note that this good faith compliance 
policy does not apply to the imposition of the default risk adjustment 
charge described in Sec.  153.740(b), which is intended as an 
administrative measure to ensure that HHS may properly calculate risk 
adjustment payments and charges for the entire market. Finally, we note 
that HHS's determination of good faith may require issuers of risk 
adjustment covered plans and reinsurance-eligible plans to allow HHS to 
conduct reviews of the issuer's risk adjustment and reinsurance 
materials and to review the issuer's good faith efforts to comply with 
corrective action plans.
    Comment: One commenter asked whether the enforcement authority 
proposed in Sec.  153.740 will apply to issuers in States where HHS 
operates reinsurance but the State operates the risk adjustment 
program.
    Response: The enforcement actions set forth in Sec.  153.740 apply 
to issuers that fail to comply with HHS-operated risk adjustment and 
reinsurance data requirements. As such, in States where HHS operates 
reinsurance but the State operates the risk adjustment program, the 
enforcement authority proposed in Sec.  153.740 would apply with 
respect to non-compliance with reinsurance-related standards to issuers 
of reinsurance-eligible plans, but not to non-compliance with respect 
to risk adjustment-related standards to issuers of risk adjustment 
covered plans.
    Comment: One commenter asked that HHS permit issuers to appeal any 
HHS enforcement actions.
    Response: As noted in the proposed rule, HHS may impose CMPs in 
accordance with the procedures set forth in Sec.  156.805 of this 
subchapter. Sections 156.805(d) and (e) provide a process for issuers 
that are assessed a CMP to request a hearing. We intend to propose an 
administrative process in the HHS Notice of Benefit and Payment 
Parameters for 2015 through which an issuer may appeal the assessment 
of a default risk adjustment charge.
Summary of Regulatory Changes
    To clarify our 2014 policy of nonenforcement of CMPs for good 
faith, we are adding a new sentence to Sec.  153.740(a).
b. Default Risk Adjustment Charge (Sec.  153.740(b))
    As described in the Premium Stabilization Rule (77 FR 17220) and 
the 2014 Payment Notice (78 FR 15410), HHS will employ a distributed 
data collection approach when it operates a risk adjustment program on 
behalf of a State. Under this approach, issuers in States where HHS 
operates a risk adjustment program will be required to establish 
dedicated, secure data environments, and provide HHS with access to 
``masked'' \17\ enrollee-level plan enrollment information, enrollee 
claims data, and enrollee encounter data pursuant to 45 CFR 153.710 and 
45 CFR 153.720. Pursuant to 45 CFR 153.730, issuers must provide access 
to required risk adjustment data by April 30 of the year following the 
applicable benefit year in order for HHS to calculate risk adjustment 
payment transfer amounts. As discussed above, under the data collection 
approach we are implementing when we operate risk adjustment or 
reinsurance on behalf of a State, we will not store any personally 
identifiable enrollee information or individual claim-level information 
from the data that issuers make accessible to HHS through the dedicated 
distributed data environment except for purposes of data validation and 
audit.
---------------------------------------------------------------------------

    \17\ As described at 45 CFR 153.720(b), masked data means data 
associated with a unique identifier, where the unique identifier 
does not include the enrollee's personally identifiable information.
---------------------------------------------------------------------------

    As discussed in the proposed rule, if an issuer does not set up a 
dedicated distributed data environment or submits inadequate risk 
adjustment data, HHS would not have the required risk adjustment data 
from the issuer to calculate risk scores or payment transfers. This 
data is necessary to properly calculate risk adjustment payments and 
charges for the entire applicable market for the State. If HHS cannot 
perform this calculation for a particular issuer, risk adjustment 
payment transfers would be affected for all other issuers in the State 
market because payment transfers are determined within a market within 
a State such that they will net to zero. In the proposed rule, we 
invoked our

[[Page 65062]]

authority pursuant to section 1343(b) of the Affordable Care Act to 
develop and apply criteria and methods for carrying out risk adjustment 
activities to apply a default risk adjustment charge to issuers in the 
individual or small group market that fail to provide the risk 
adjustment data necessary for HHS to calculate payments and charges for 
the market in the State.
    In Sec.  153.740(b), we proposed that if an issuer of a risk 
adjustment covered plan fails to establish a dedicated distributed data 
environment or fails to provide HHS with access to risk adjustment data 
in such environment by April 30 of the year following the applicable 
benefit year in accordance with Sec. Sec.  153.610(a), 153.700, 
153.710, or 153.730, such that HHS cannot apply its Federally certified 
risk adjustment methodology to calculate the plan's risk adjustment 
payment transfer amount in a timely fashion, HHS would assess a default 
risk adjustment charge.
    We proposed two different methods for determining the per member 
per month amount used to calculate the default risk adjustment charge. 
One option would be to use the highest per member per month charge 
among risk adjustment covered plans in a risk pool in the market in the 
plan's geographic rating area. A second option would be to use a per 
member per month amount that is two standard deviations above the mean 
charge in the market in the plan's geographic rating area.
    We noted in the proposed rule that in order to calculate a plan's 
risk adjustment default charge, we must multiply the per member per 
month amount by an enrollment count. We proposed to base the default 
charge on the average enrollment in the State market. If enrollment 
data is provided, we proposed that the default charge would be based on 
average annual enrollment for the plan in a risk pool in the State 
market. We sought comment on these methods, other appropriate methods 
for calculating a default risk adjustment charge, and other sources of 
data HHS could use to determine enrollment data for the issuers in 
question. We also sought comment on whether to allocate an issuer's 
default charge to other issuers in the market as part of payments and 
charges in the concurrent benefit year, during a subsequent benefit 
year, or sometime between annual payments and charges processes.
    We received a number of comments strongly supporting our proposal 
to impose a default risk adjustment charge if an issuer of a risk 
adjustment covered plan fails to establish a dedicated distributed data 
environment or fails to provide HHS with access to the required data. 
We are finalizing that regulation text as proposed.
    Comment: Several commenters suggested that we tie the default 
charge to the issuer's actual enrollment based on an appropriate public 
filing by the issuer, such as MLR or NAIC filings, or information 
supplied by a State Department of Insurance (DOI), rather than average 
enrollment in the State.
    Response: We agree with the comments, and are finalizing an 
approach based on the issuer's actual enrollment. Because the total 
risk adjustment default charge is a function of both a per member per 
month amount as well as a total enrollment amount, we recognize that 
actual enrollment would better align the risk adjustment default charge 
with the overall goal of market stabilization. Thus, if an issuer of a 
risk adjustment covered plan does not provide access to required risk 
adjustment data by April 30 of the year following the applicable 
benefit year, then we will seek from the issuer an attestation of total 
billable member months, which we would use to calculate the total risk 
adjustment default charge. That attestation would be subject to later 
HHS validation processes, which we will describe in future rulemaking 
and guidance, along with compliance with other risk adjustment-related 
requirements. If an issuer does not submit enrollment data, HHS will 
seek enrollment data from the issuer's MLR and risk corridors filings 
for the applicable benefit year, or, if unavailable, other reliable 
data sources, such as the State DOI.
    Comment: We received several comments suggesting that HHS allocate 
an issuer's default charge to other issuers in the market as part of 
the payments and charges calculation in the concurrent benefit year.
    Response: We agree that the default risk adjustment charge should 
be part of the concurrent benefit year payment and charges calculation. 
However, our ability to apply that charge to the current year will 
depend upon when we are able to obtain the enrollment data for the plan 
in question. As discussed above, HHS will assess the risk adjustment 
default charge once HHS receives actual enrollment data. Once 
calculated, we would transfer the risk adjustment default charge on a 
per member per month basis to all compliant risk adjustment covered 
plans in the plan's risk pool in the market in the State in the 
earliest possible payment and charges cycle. We further note that we 
would not include the non-compliant risk adjustment covered plan in the 
risk adjustment transfer formula calculations because of the complexity 
of doing so. We intend to establish a methodology for allocating the 
default risk adjustment charge among plans in the risk pool in future 
rulemaking.
    Comment: A number of commenters made suggestions on the specific 
methodology to be used to determine the per member per month amount for 
calculating the default risk adjustment charge. One commenter supported 
the second option for calculating the per member per month amount--
assessing a per member per month amount two standard deviations above 
the mean per member per month charge. One commenter supported the use 
of the second option for calculating the per member per month amount 
for the first occurrence of non-compliance, but stated that setting a 
higher amount, such as the highest per member per month charge among 
risk adjustment covered plans in the market, would be appropriate for 
repeated violations. Other commenters asked that HHS adopt a third 
methodology for calculating the per member per month amount--
specifically, a fixed percentage of State-wide average premium. They 
stated that this methodology could be more appropriate if a market has 
a limited number of issuers that submit risk adjustment data.
    Response: In light of the comments received, we will not finalize a 
methodology to calculate the per member per month amount used in the 
default risk adjustment charge. We intend to establish that methodology 
in future rulemaking.
Summary of Regulatory Changes
    We are finalizing our regulation text providing the authority to 
impose a default risk adjustment charge as proposed. We are finalizing 
aspects of the methodology for calculating the default risk adjustment 
charge--our use of the plan's actual enrollment and our application of 
the default risk charge to adjust payments to other plans in the market 
in the State on a per member per month basis in the earliest available 
payment and charges cycle. We are not finalizing our approach to 
determining the per member per month amount used to calculate the 
default risk charge at this time, and will propose that methodology in 
future rulemaking.

[[Page 65063]]

D. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act

1. Subpart D--Exchange Functions in the Individual Market: Eligibility 
Determinations for Exchange Participation and Insurance Affordability 
Programs
a. Administration of Advance Payments of the Premium Tax Credit and 
Cost-Sharing Reductions (Sec.  155.340)
    We proposed to amend Sec.  155.340 by adding paragraph (h), which 
sets forth additional requirements applicable when an Exchange is 
facilitating the collection and payment of premiums to QHP issuers and 
stand-alone dental plans. Specifically, we proposed that if the 
Exchange did not reduce an enrollee's premium by the amount of the 
advance payment of the premium tax credit in accordance with 45 CFR 
155.340(g), the Exchange would be required to refund to the enrollee 
any excess premium paid by or for the enrollee. The Exchange would also 
be required to notify the enrollee of the improper application of the 
advance payment of the premium tax credit no later than 30 calendar 
days after the Exchange discovers the error. We noted that an Exchange 
may provide the refund to the enrollee by reducing the enrollee's 
portion of the premium in the following month, as long as the reduction 
is provided no later than 30 calendar days after the Exchange discovers 
the improper application of the advance payment of the premium tax 
credit. We proposed that if the Exchange elects to provide the refund 
by reducing the enrollee's portion of the premium for following month, 
and the refund exceeds the enrollee's portion of the premium for the 
following month, then the Exchange would need to refund to the enrollee 
the excess, no later than 30 calendar days after the Exchange discovers 
the improper application of the advance payment of the premium tax 
credit. These provisions are similar to the policy we proposed in Sec.  
156.460, when a QHP issuer is collecting premiums directly from 
enrollees. We also noted that we were considering requiring the 
Exchange to provide to HHS for each quarter, a report detailing the 
occurrence of any improper application of the advance payments of the 
premium tax credit beginning in the 2015 benefit year. We sought 
comment on whether HHS should establish a minimum error rate or 
threshold before an Exchange is required to inform HHS of such improper 
applications of the advance payment of the premium tax credit in a 
quarterly report, as well as what an appropriate error rate or 
threshold should be. For example, we noted that we were considering 
requiring issuers to report the number of enrollees for whom the 
Exchange improperly applied the advance payment of the premium tax 
credit compared to the total number of enrollees in the Exchange 
receiving Federal premium subsidies. We also sought comment on whether 
such reports should be provided to HHS less frequently than quarterly.
    Comment: Several commenters supported the proposed policy and some 
commenters suggested that the enrollee should have the option of 
receiving the refund directly, especially upon termination of coverage. 
One commenter expressed concern that Exchanges would not have money to 
refund enrollees, since premiums and subsidies are paid to issuers, and 
asked HHS to clarify that plans are not responsible for sending the 
Exchange or consumers money to correct mistakes made by the Exchange.
    Response: In Sec.  156.460 of the proposed rule we sought comment 
on the timeframe for QHP issuers to refund any excess premiums to 
enrollees. We also noted that the policy proposed in Sec.  155.340(h) 
is similar to the policy proposed in Sec.  156.460(c), when a QHP 
issuer is collecting premiums directly from enrollees and fails to 
apply the advance payment of the premium tax credit to the enrollee's 
portion of the premiums, and that these parallel requirements are 
designed to ensure that all enrollees, regardless of whether a QHP 
issuer or the Exchange is collecting premiums, are afforded the same 
level of protection. As discussed further in section II.E.4.d, we 
received a number of comments to the policy proposed in Sec.  
156.460(c) requesting that the timeframe for QHP issuers to refund any 
excess premiums to enrollees be extended. In response to comments to 
the policies proposed in this section and Sec.  156.460(c), and in 
order to align with parallel modifications in this final rule in Sec.  
156.460(c), we are modifying the proposed policy. We are finalizing a 
policy such that if an Exchange discovers that it did not reduce an 
enrollee's premium by the amount of the advance payment of the premium 
tax credit, then, if requested by or for the enrollee, the Exchange 
must refund any excess premium paid by or for the enrollee within 45 
calendar days of the request. However, if the enrollee does not request 
a refund, the Exchange may refund the excess premium paid by applying 
the excess to the enrollee's portion of the premium each month for the 
remainder of the period of enrollment or benefit year until the excess 
premium is fully refunded. Any excess amounts not refunded at the end 
of the period of enrollment or benefit year would have to be refunded 
within 45 days of the end of such period.
    As a discussed above, this provision applies when an Exchange 
facilitates collection and payment of the premiums to QHP issuers and 
stand-alone dental plans on behalf of an enrollee and collects a 
greater premium from the enrollee than required by the issuer, taking 
into account the advance payment of the premium tax credit. As an 
intermediary in this process, if the Exchange collects excess premiums 
from the enrollee on behalf of the issuer, it should be responsible for 
recouping the overpayments from the issuer and returning the funds to 
the enrollee. This standard would not prevent an Exchange for recouping 
excess funds, in the event the Exchange reduced the enrollee's portion 
of the premium by more than the advance payment of the premium tax 
credit. We also note that State Exchanges may not use funding for 
States establishing an Exchange provided under Section 1311 of the 
Affordable Care Act for such refunds.
    Comment: One commenter asked HHS to limit Exchange errors that must 
be refunded to the current tax year, since income tax reconciliation 
should resolve any errors from the previous tax year. Another commenter 
asked that the enrollee be able to reduce the advance payment of the 
premium tax credit portion of premium for the remainder of the year, if 
the refund would result in the enrollee owing $600 more than would 
otherwise be available to the enrollee in premium tax credits.
    Response: This provision is intended to remedy instances when an 
Exchange overbills an enrollee for his or her portion of the monthly 
premium based on the eligibility determination that was made by the 
Exchange. This standard does not address the reconciliation of the tax 
credit, eligibility redeterminations, or Exchange errors regarding 
eligibility and enrollment.
    Comment: Several commenters supported a requirement for quarterly 
reporting. One commenter suggested that such reports should be publicly 
available and required for all Exchanges, including an FFE, and that 
Exchanges should have the ability to refute and correct these reports. 
Another commenter asked HHS to set a minimum threshold for reporting 
errors, while another commenter opposed a minimum threshold.
    Response: We believe that it is important to monitor the 
appropriate application of these advance payments

[[Page 65064]]

of the premium tax credits, regardless of whether an Exchange or the 
QHP issuer is facilitating the collection and payment of premiums. 
However, following review of the comments, we are no longer considering 
a quarterly reporting requirement. In parallel with the standards being 
finalized under Sec.  156.480 of this final rule applicable to QHP 
issuers, when a State Exchange is facilitating the collection of 
premiums, the Exchange will be required to report on an annual basis if 
it did not reduce an enrollee's premium by the amount of the advance 
payment of the premium tax credit in accordance with 45 CFR 
155.340(g)(1)-(2). We have modified Sec.  155.1200 to incorporate this 
provision because Sec.  155.1200 includes other annual reporting 
requirements applicable to State Exchanges (see section II.D.1.a 
below). We note that since issuers in an FFE are responsible for 
collecting premiums directly from enrollees, such errors will be 
reported to HHS by the QHP issuers.
Summary of Regulatory Changes
    We are finalizing the proposed provisions with the following 
modifications. We are increasing the time period for notifying the 
enrollee of the improper application of the advance payment of the 
premium tax credit and issuing refunds from 30 days to 45 days. We are 
also providing that the Exchange may issue the refund by applying the 
total excess premium paid by or for the enrollee to the enrollee's 
portion of the premium each month for the remainder of the period of 
enrollment or benefit year until the excess premium is fully refunded, 
except that the Exchange must refund any remaining excess premium, 
within 45 days of a request by or for the enrollee for the refund or 
within 45 days of the end of the period of enrollment or benefit year.
2. Subpart E--Exchange Functions in the Individual Market: Enrollment 
in Qualified Health Plans
a. Special Enrollment Periods (Sec.  155.420)
    In Sec.  155.420 we proposed to amend Sec.  155.420(d) to provide 
that a special enrollment period will be available when the Exchange 
determines that a consumer has been incorrectly or inappropriately 
enrolled in coverage due to misconduct on the part of a non-Exchange 
entity. Specifically we proposed to add a new paragraph Sec.  
155.420(d)(10) to create this new special enrollment period for 
qualified individuals. This amendment would extend a special enrollment 
period to a qualified individual when, in the determination of the 
Exchange, misconduct on the part of a non-Exchange entity has caused 
the qualified individual to be enrolled incorrectly or inappropriately 
in coverage such that they are not enrolled in QHP coverage as desired, 
are not enrolled in their selected QHP, or have been determined 
eligible for but are not receiving advance payments of the premium tax 
credit or cost-sharing reductions. We proposed to limit this special 
enrollment opportunity to the individual market Exchange and not extend 
it to the SHOPs.
    We proposed that a non-Exchange entity providing enrollment 
assistance or conducting enrollment activities would include, but not 
be limited to, those individuals and entities that are authorized by 
the Exchange to assist with enrollment in QHP, such as a Navigator, as 
described in Sec.  155.210; non-Navigator assistance personnel, as 
authorized by Sec.  155.205(d) and (e); a certified application 
counselor, as described in Sec.  155.225; an agent or broker assisting 
consumers in an Exchange under Sec.  155.220; issuer application 
assisters under Sec.  155.415; or a QHP conducting direct enrollment 
under Sec.  156.1230.
    Comment: We received several comments supporting this proposed 
amendment to Sec.  155.420(d) to ensure that consumers have an 
available remedy if misconduct on the part of a non-Exchange entity 
results in harm.
    Response: We are finalizing the rule as proposed to ensure that 
consumers will have a special enrollment period if harmed by misconduct 
on the part of non-Exchange entities. We further clarify here that for 
purposes of Sec.  155.420(d)(10) only, a non-Exchange entity includes 
an individual or entity fraudulently claiming to be an authorized 
entity approved by an Exchange, such as a Navigator, non-Navigator 
assister, or Exchange-approved agent or broker.
    Comment: We received a comment recommending that the special 
enrollment period be available to consumers if a non-Exchange entity 
provides erroneous information to a consumer, regardless of whether the 
consumer can demonstrate harm.
    Response: We believe that creating a special enrollment period for 
consumers who have been harmed by non-Exchange entity misconduct will 
help ensure that consumers have a remedy to address enrollment harms 
while limiting uncertainty for QHP issuers. We believe that this remedy 
is necessary for consumers who have been harmed, to allow them to 
mitigate the harm caused. However, we do not believe this remedy would 
be necessary for consumers who have not suffered any harm resulting 
from misconduct. In addition, as stated in the preamble to the proposed 
rule, a qualified individual may also seek to demonstrate the existence 
of exceptional circumstances to the Exchange under Sec.  155.420(d)(9) 
if the qualified individual is harmed due to error or inaction on the 
part of a non-Exchange entity. We intend to provide future guidance on 
the process for demonstrating harm as necessary.
    Comment: We received several comments recommending that this 
special enrollment period be extended to the SHOPs, stating that SHOP 
consumers may be exposed to the same risk as consumers purchasing 
coverage in an Exchange.
    Response: We believe that it is less likely for an employee 
enrolled in coverage through a SHOP to be harmed in the ways the new 
special enrollment period is intended to address than is the case for a 
qualified individual enrolled in coverage through the individual market 
Exchange. For example, advance payments of the premium tax credit and 
cost-sharing reductions are not available to employees enrolled in 
coverage through a SHOP, such that it would not be possible for them to 
be determined eligible for but not receive advance payments of the 
premium tax credit or cost-sharing reductions, one of the harms the 
special enrollment period was specifically designed to address. 
However, we are persuaded by the comments that some risk of harm does 
exist for employees enrolled in coverage through a SHOP, and are 
therefore extending the special enrollment period to SHOPs. We intend 
to monitor whether employees avail themselves of the special enrollment 
period and the circumstances surrounding each such election. We are 
making minor changes to the proposed rule text to clarify that the 
special enrollment period would be extended to employees enrolled in 
coverage through a SHOP and their dependents, and are also making a 
conforming change to 45 CFR 155.725(j) to clarify that this special 
enrollment period applies in the SHOPs.
    Comment: We received several comments recommending that misconduct 
on the part of a non-Exchange entity should also result in a special 
enrollment period for enrollment into public programs the consumer may 
otherwise be eligible for, such as Medicaid or CHIP.
    Response: Medicaid and CHIP have year round enrollment, so 
individuals eligible for these programs do not need a special 
enrollment period to enroll in these programs if they have been

[[Page 65065]]

incorrectly enrolled in private health insurance coverage.
    Comment: We received one comment requesting clarification about 
what actions might be considered misconduct.
    Response: As stated in the preamble of the proposed rule, 
misconduct includes the failure of a non-Exchange entity to comply with 
applicable requirements set forth in Exchange regulations, or other 
applicable Federal or State laws. For example, this might include a 
Navigator's failure to comply with the requirements set forth in 45 CFR 
155.210.
    Comment: We received comments stating that the special enrollment 
period, as proposed, might result in adverse selection or gaming by 
consumers. One commenter requested that this provision not be codified 
to eliminate the risk of adverse selection and another commenter 
requested that the duration of this special enrollment period be 
limited to 30-days, rather than the 60-days from the date of the 
triggering event, as proposed.
    Response: We believe that any risk that this special enrollment 
period might result in adverse selection is mitigated by the fact that 
consumers will need to demonstrate to the Exchange that they have been 
harmed in order to receive this special enrollment period. We believe 
that this special enrollment period is important to protect consumers 
from certain kinds of misconduct on the part of non-Exchange entities. 
In addition, the 60-day time period for the new special enrollment 
period in the individual market Exchanges is consistent with special 
enrollment periods otherwise available to Exchange consumers in the 
individual market and we believe provides consumers with adequate time 
to review available plan options and make informed decisions to correct 
the harm. Consistent with other special enrollment periods available in 
the SHOPs, this special enrollment period will be for 30 days, not 60 
days, in the SHOPs.
Summary of Regulatory Changes
    We are finalizing the provision proposed in Sec.  155.420(d)(10) 
with amendments reflecting our decision to extend the special 
enrollment period to SHOPs, and with a minor correction to remove ``of 
this subchapter'' following ``part 156'' from the proposed regulation 
text.
3. Subpart H--Exchange Functions: Small Business Health Options Program 
(SHOP)
a. Enrollment Periods Under SHOP (Sec.  155.725)
    In section II.D.2 of this final rule, we describe our decision, 
made in response to comment, to extend to SHOPs the new special 
enrollment period that will be available when the Exchange determines 
that a consumer has been incorrectly or inappropriately enrolled in 
coverage due to misconduct on the part of a non-Exchange entity. 
Accordingly, we are making a conforming amendment to Sec.  
155.725(j)(2)(i) to add a cross-reference to Sec.  155.420(d)(10), the 
new special enrollment period.
4. Subpart M--Oversight and Program Integrity Standards for State 
Exchanges
a. General Program Integrity and Oversight Requirements (Sec.  
155.1200)
    We proposed that the State Exchange maintain an accounting of all 
its receipts and expenditures, in accordance with GAAP. We also 
proposed that the State Exchange develop and implement a process for 
monitoring all Exchange-related activities for effectiveness, 
efficiency, integrity, transparency, and accountability. We stated our 
belief that these activities would help to ensure State Exchange 
compliance with Federal requirements as set forth in Part 155 and 
ensure the appropriate administration of Federal funds, including 
advance payment of the premium tax credit and cost-sharing reductions.
    In Sec.  155.1200(b), we proposed that the State Exchange submit 
several types of reports to HHS. The State Exchange would submit at 
least annually a report to allow for transparency of State Exchange 
activities. The report must include a financial statement presented in 
accordance with GAAP. The report is due to HHS by April 1 of each year. 
Additionally, the State Exchange must submit reports in a form and 
manner to be specified by HHS regarding eligibility and enrollment. 
These reports will focus on eligibility determination errors, non-
discrimination safeguards, accessibility of information, and fraud and 
abuse incidences. The State Exchange must also submit performance 
monitoring data that includes financial sustainability, operational 
efficiency, and consumer satisfaction. We sought comments on our 
approach, including comments on the content, format, and timing of such 
reports.
    In Sec.  155.1200(c) we proposed that the State Exchange engage an 
independent qualified auditing entity, whether governmental or private, 
which meets accepted professional and business standards and follows 
generally accepted governmental auditing standards (GAGAS) to perform 
an independent external financial and programmatic audit of the State 
Exchange. This entity should be selected to avoid any real or potential 
perception of conflict of interest, including being free from personal, 
external and organizational impairments to independence or the 
appearance of such impairments of independence. We stated that an 
external audit will help ensure the consistency and accuracy of State 
Exchange financial reporting and program activities. We proposed that 
this requirement may be satisfied through an audit by an independent 
State-government entity. We proposed that the State Exchange will 
submit to HHS, concurrent with the annual report, the results on the 
audit along with proposals on how it will remedy any material weakness 
or significant deficiency (the terms ``material weakness'' and 
``significant deficiency'' are defined in OMB Circular A-133, Audits of 
States, Local Governments and Non-Profit Organizations).
    In Sec.  155.1200(d) we proposed that independent audits address 
specific processes and activities of State Exchanges including 
financial and programmatic activities and those related to the 
verification and determination of applicants' eligibility for 
enrollment in the State Exchanges and the subsequent enrollments. We 
also proposed that the external audit address whether the Exchange is 
complying with Sec.  155.1200(a)(1) by keeping an accurate accounting 
of Exchange receipts and expenditures in accordance with generally 
accepted accounting principles (GAAP). We also proposed that external 
audits and annual reports required under paragraphs (b) and (c) address 
State Exchange processes and procedures to comply with the standards 
for Exchanges under Part 155 related to advance payments of the premium 
tax credits and cost-sharing reductions. These standards include the 
requirements under subpart D regarding eligibility determinations, 
including the requirements regarding the confidentiality, disclosure, 
maintenance, and use of information as set forth in 45 CFR 
155.302(d)(3); subpart E regarding individual market enrollment in 
QHPs; and subpart K regarding QHP certification. We also proposed that 
such audits and annual reports assess whether a State Exchange has 
processes and procedures in place

[[Page 65066]]

to prevent improper eligibility determinations and enrollment 
transactions. We sought comment on the proposed annual audits, and 
other activities that State Exchanges should specifically be required 
to audit annually or on an interim basis. Comment: We received comments 
on the timing of the annual financial statement. We also received 
comments requesting additional reporting requirements including 
reporting for fraud and abuse incidences and suggesting that we specify 
in regulation text the types of reporting requirements we described in 
the preamble. Additionally, commenters suggested that we make reports 
publicly available.
    Response: We do not believe any additional reporting requirements 
are needed because the financial statement is intended to ensure the 
transparency of State Exchange activity and the eligibility and 
enrollment reporting is intended to ensure that processes and 
procedures are appropriately in place to ensure that Federal 
requirements are being met.
    The performance monitoring data provide insight into the 
performance and impact of State Exchanges, including the cost of 
insurance, the scope of coverage, and access issues. This limited set 
of standardized metrics also ensures basic transparency and allows 
consistent cross-state comparisons of the impacts of varying approaches 
to State Exchange implementation. We anticipate providing further 
guidance on the format and timing of the reports, as well as, whether 
the public will have access to them.
    Comment: One commenter suggested that we make these independent 
annual audits available to the public and increase the scope of the 
independent audit.
    Response: We accept the commenter's suggestion regarding public 
availability and we will require the State to make public a summary of 
the results of the independent annual audit. Publicizing the audit 
summary will increase the transparency and accountability of State 
Exchange activities. We are finalizing our proposal that the 
independent audit address the elements in Sec.  155.1200(d) as 
described above, as well as all subparts of Part 155. While we are not 
accepting the commenter's suggestion that independent audits include 
incomplete applications or application questions most commonly left 
unanswered, we believe that the criteria in Part 155 and in Sec.  
155.1200(d) adequately address areas of compliance including 
eligibility denials and information to improve the eligibility process. 
We anticipate issuing further guidance on the elements of financial and 
programmatic activities that should be included in the external 
financial audit.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.1200 with 
the following modification. As discussed in II.D.1.a of this final 
rule, if the Exchange is collecting premiums under 45 CFR 155.240, we 
are adding subparagraph (b)(4) to require the Exchange to annually 
report if it did not reduce an enrollee's premium by the amount of the 
advance payment of the premium tax credit in accordance with 45 CFR 
155.340(g)(1)-(2). In paragraph (c) we are adding a requirement that 
the State make public a summary of the results of external financial 
audit.
b. Maintenance of Records (Sec.  155.1210)
    We proposed that State Exchanges and its contractors, 
subcontractors, and agents maintain records for 10 years, including 
documents and records (whether paper, electronic, or other media) and 
other evidence of accounting procedures and practices of the State 
Exchanges to prepare for targeted audits. We stated that these records 
must be sufficient and appropriate to respond to any periodic auditing, 
inspection, or investigation of the State Exchange's financial records 
or to enable HHS or its designee to appropriately evaluate the State 
Exchange's compliance with Federal requirements. We anticipate that 
targeted audits will be conducted based on information from the 
external audit, annual report, prospective measurement programs of 
improper payments, consumer complaints, or other data sources. In 
addition, we proposed that the State Exchange must make all records of 
this section available to HHS, the OIG, the Comptroller General, or 
their designees, upon request.
    Comment: Commenters suggested that the proposed maintenance of 
records requirements for State Exchanges and their contractors, 
subcontractors, and agents should specifically outline additional 
records to be kept, which could include data related not only to 
appeals but to the outcome of the appeals. In addition, commenters 
suggested that the requirement apply only to those eligible entities 
contracted with the State Exchanges to carry out one or more 
responsibilities of the Exchange (see 45 CFR 155.110), and should not 
apply to QHP issuers.
    Response: The maintenance of records provision we are finalizing in 
Sec.  155.1210 (b) sufficiently addresses the minimum types of records 
that we would require State Exchanges to retain. The maintenance of 
records provision in Sec.  155.1210 only applies to entities that are 
carrying out one or more responsibilities of the Exchange in the 
capacity of a contractor, subcontractor, or agent, and does not apply 
to QHP issuers because these entities do not provide services or carry 
out one or more responsibilities of the Exchange. Furthermore, the 
oversight standards with respect to cost-sharing reductions and advance 
payments of the premium tax credit finalized in 45 CFR 156.480 of this 
final rule ensure that CMS can sufficiently monitor compliance with 
federal standards with respect to the federal funds distributed to QHP 
issuers through these programs. Therefore, requiring QHP issuers to 
maintain records is not necessary.
    Comment: One commenter suggested that HHS articulate how consumers, 
advocates, Navigators, and other entities will be able to file 
complaints with HHS in a meaningful way such as triggering a targeted 
audit.
    Response: We expect that the consumer satisfaction section of the 
performance monitoring data will include reporting on consumer 
complaints that will be used in determining whether we will conduct a 
targeted audit.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  155.1210, and 
note that the 10 year record retention requirement begins when the 
record is created.

E. Part 156--Health Insurance Issuer Standards Under the Affordable 
Care Act, Including Standards Related To Exchanges

1. Subpart A--General Provisions
a. Definitions (Sec.  156.20)
    We proposed amending 45 CFR 156.20 by adding the definition for 
``Enrollee satisfaction survey vendor'' and ``Registered user of the 
enrollee satisfaction survey data warehouse.''
    We are making a technical correction to our regulation text, which 
inadvertently left out the word ``that'' from the definition. The 
definition for ``enrollee satisfaction survey vendor'' should begin, 
``an organization that has . . .''
    We received no comments in regards to these definitions, and 
finalize these definitions as proposed, but with the technical 
corrections as mentioned above.
Summary of Regulatory Changes
    We are finalizing this provision as proposed.

[[Page 65067]]

b. Single Risk Pool (Sec.  156.80)
    To ensure consistency with rate setting schedules in the Exchanges 
and thus reduce the risk of adverse selection, we proposed in Sec.  
156.80 to add paragraph (d)(3) to clarify when issuers may establish 
and update premium rates under the single risk pool requirements. 
Specifically, in paragraph (d)(3)(i), we proposed that issuers in the 
individual market or in a market in which the individual and small 
group risk pools were merged by the State would be permitted to make 
changes to their market-wide adjusted index rate and plan-specific 
pricing on an annual basis. In paragraph (d)(3)(ii), we proposed that 
issuers in the small group market would be permitted to make such 
changes on a quarterly basis once the Federally-Facilitated Small 
Business Health Options Program's (FF-SHOP) capability to process 
quarterly rate updates is established. Until that time, we proposed 
that issuers in the small group market may make changes to rates no 
more frequently than annually.
    Comment: Commenters generally acknowledged the reasons for the 
proposal to prohibit quarterly index rate and plan-level adjustments 
for issuers in FF-SHOPs until the issues are resolved, but asserted 
this policy should not apply in States with SHOPs that have the 
capability to accept quarterly rate adjustments, nor should they apply 
to issuers offering coverage in the small group market solely outside 
of the SHOPs.
    Response: HHS, in operating both the FF-SHOPs as well as the 
market-wide rate review program under section 2794 of the PHS Act, 
cannot accept quarterly rate changes at this time. Accordingly, we are 
finalizing our proposal that issuers offering coverage in the small 
group market through the SHOPs or outside of the SHOPs must refrain 
from making index rate and plan-level adjustments more frequently than 
annually, until notified of the system capability to process quarterly 
rate changes. We expect to establish this capability by the third 
quarter of 2014.
    Comment: One commenter requested clarification as to whether States 
could require less frequent index rate and plan-level adjustments in 
the small group market than those specified in the regulation.
    Response: Nothing in this final rule prevents a State from 
requiring less frequent rate changes in the small group market than the 
quarterly changes permitted under this final rule. At a minimum, 
however, an issuer in small group or individual market must establish 
an index rate each calendar year with an effective date of January 1, 
and, in the small group market, ensure that any rate changes at other 
times during the year are effective only on April 1, July 1, or October 
1, the only dates for which Federal systems will be in place for 
processing rate updates. We believe Sec.  156.80(d)(1) already provides 
for the establishment of an index rate by January 1 of each calendar 
year, and that the proposed rule contemplates small group market rate 
changes that correspond to the calendar quarters. Nonetheless, for 
precision and clarity, we are revising the regulation text to include 
these clarifications. We note that any new rates set by an issuer would 
apply for new or renewing coverage on or after the rate effective date, 
and would apply for the entire the plan year.
    Comment: Some commenters sought assurance that the single risk pool 
requirements would not prevent issuers from filing new products for 
sale outside of Exchanges nor prevent issuers from entering a market 
until January 1 of each year.
    Response: As described above, under the guaranteed availability 
standard, all non-grandfathered plans in the individual or merged 
market must be offered on a calendar year basis starting January 1, 
2014. Furthermore, under the single risk pool standard, an index rate 
must be established and adjusted only once annually in the individual 
and merged markets. The interaction of these provisions is such that an 
issuer cannot introduce new products throughout the year without 
affecting the pricing of all of the issuer's other products in the risk 
pool, in violation of the single risk pool provision. We note that 
issuers will have greater flexibility to introduce new products in the 
small group market, where coverage may be issued on a rolling basis 
throughout the year and rates generally will be able to be updated on a 
quarterly basis.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  156.80 of the 
proposed rule with the following modifications. We are revising 
existing paragraph (d)(1) to provide that an index rate must be 
established and effective for a State market (individual, small group, 
or merged market) by January 1 of each calendar year. We are also 
restructuring proposed paragraph (d)(3) to clearly state that an issuer 
is prohibited for making index rate and plan-level adjustments on any 
basis other than annually, except in the small group market once 
quarterly rate changes are permitted. We also now clearly state the 
effective dates of quarterly rate updates in the small group market.
2. Subpart B--Standards for Essential Health Benefits, Actuarial Value, 
and Cost Sharing
a. Enrollment in Catastrophic Plans (Sec.  156.155)
    We are making a technical correction to our regulation text in 
Sec.  156.155, which inadvertently omitted the statutory language in 
section 1302(e) of the Affordable Care Act indicating that a 
catastrophic plan provides ``no benefits'' for any plan year (except 
for providing coverage for at least 3 primary care visits and 
preventive health services in accordance with section 2713 of the PHS 
Act) until the individual has incurred cost-sharing expenses in an 
amount equal to the annual limitation on cost sharing in effect under 
section 1302(c)(1) of the Affordable Care Act. Although this provision 
was not addressed in the proposed rule, it is part of the law governing 
benefits under catastrophic plans, and we believe it is appropriate to 
revise the regulation text in this final rule to reflect this fact.
3. Subpart D--Qualified Health Plan Minimum Certification Standards
a. Changes of Ownership of Issuers of Qualified Health Plans in 
Federally-Facilitated Exchanges (Sec.  156.330)
    In Sec.  156.330, we proposed that when a QHP issuer in the FFE 
undergoes a change in ownership, it notify HHS of the change at least 
30 days prior to the date of the change and provide the legal name and 
taxpayer identification number (TIN) of the new owner, as well as the 
effective date of the change. We also proposed that the new owner must 
agree to adhere to applicable statutes and regulations.
    Comment: One commenter expressed support for the proposed standard 
and urged HHS to examine any relevant compliance and other issues 
impacted by the change of ownership at the time notified, such as 
accreditation status.
    Response: HHS intends to examine possible compliance issues related 
to the change of ownership, including impact on accreditation status, 
as part of its overall oversight framework.
    Comment: One commenter urged flexibility in assessing what 
constitutes a change in ownership and expressed concern that the 
standard in Sec.  156.330 could be triggered when transferring blocks 
of business from one affiliated entity to another.
    Response: HHS believes that the notice requirement is minimally 
burdensome. Further, we believe that it

[[Page 65068]]

will be apparent to issuers when the standard is triggered--if 
recognized by the applicable State, then an issuer would need to comply 
with Sec.  156.330.
    Comment: One commenter asked HHS to exempt changes of ownership 
within the same holding company from the notice provision and requested 
additional flexibility in implementing this provision for the 2014 plan 
year.
    Response: We believe that the standard, which would only require 
notification if the change of ownership is recognized at the State 
level, is clear. If a change of ownership within the same holding 
company is required by a State at the State level, then the issuer 
would need to report it pursuant to Sec.  156.330. We believe that the 
notice standard is the most minimally burdensome way for HHS to be 
aware of these important changes, particularly as compared to standards 
that may be required under State law. Therefore, we do not believe that 
a transition period is necessary.
Summary of Regulatory Changes
    We are finalizing this section as proposed.
4. Subpart E--Health Insurance Issuer Responsibilities With Respect to 
Advance Payments of the Premium Tax Credit and Cost-Sharing Reductions
a. Definitions (Sec.  156.400)
    Section 156.400 of this subpart includes definitions of a ``most 
generous,'' and a ``more generous,'' plan variation. We proposed to 
supplement those definitions by clarifying that the definitions of a 
``least generous,'' and a ``less generous,'' plan variation have the 
opposite meanings of the existing definitions of a ``most generous,'' 
or a ``more generous'' plan variation. Specifically, we proposed that, 
as between two plan variations (or a plan variation and a standard plan 
without cost-sharing reductions), the plan variation or standard plan 
without cost-sharing reductions designed for the category of 
individuals first listed in 45 CFR 155.305(g)(3) would be deemed the 
less generous one. The term less generous was used in the proposed rule 
to address circumstances in which a QHP issuer would reassign an 
enrollee from a more generous plan variation to a less generous plan 
variation (or standard plan without cost-sharing reductions), as 
discussed in greater detail below. We also proposed a technical 
modification to change ``QHP or plan variation'' to ``standard plan or 
plan variation'' to clarify that a plan variation is not distinct from 
a QHP. We received no comments on these proposed provisions and are 
finalizing these provisions as proposed.
b. Improper Plan Assignment and Application of Cost-Sharing Reductions 
(Sec.  156.410(c) Through (d))
    In Sec.  156.410, we proposed to add new paragraphs (c) and (d) to 
specify the actions a QHP issuer would take if it does not provide the 
appropriate cost-sharing reductions to an individual, or if it does not 
assign an individual to the appropriate plan variation (or standard 
plan without cost-sharing reductions) in accordance with Sec.  
156.410(a) through (b) or Sec.  156.425(a) through (b) of this subpart.
    Specifically, in paragraph (c)(1), we proposed that if a QHP issuer 
fails to ensure that an individual assigned to a QHP plan variation 
receives the cost-sharing reductions required under the applicable plan 
variation (taking into account the requirement regarding cost sharing 
previously paid under other plan variations of the same QHP under Sec.  
156.425(b) if applicable), the QHP would notify the enrollee of the 
improper application of the cost-sharing reductions and refund any 
excess cost sharing paid by or for the enrollee during such period no 
later than 30 calendar days after discovery of the improper application 
of the cost-sharing reductions. This refund would be paid to the person 
or entity that paid the excess cost sharing, whether the enrollee or 
the provider.
    In paragraph (c)(2), we proposed that if a QHP issuer provides an 
enrollee assigned to a plan variation with greater cost-sharing 
reductions than required under the applicable plan variation (taking 
into account Sec.  156.425(b) concerning continuity of deductibles and 
out-of-pocket amounts if applicable) then the QHP issuer will not be 
eligible for reimbursement of any excess cost-sharing reductions 
provided to the enrollee, and may not seek reimbursement from the 
enrollee or the provider for any of the excess cost-sharing reductions. 
Because the QHP issuer is responsible for ensuring the cost-sharing 
reduction is provided appropriately, we noted that we do not believe 
that the QHP issuer should be able to recoup overpayments of cost-
sharing reductions that resulted from the QHP issuer's own errors.
    In paragraph (d), we proposed that if a QHP issuer improperly 
assigns an enrollee to a plan variation (or standard plan without cost-
sharing reductions), or does not change the enrollee's assignment due 
to a change in eligibility in accordance with Sec.  156.425(a), in each 
case, based on the eligibility and enrollment information or 
notification provided by the Exchange, then the QHP issuer would, no 
later than 30 calendar days after discovery of the improper assignment, 
reassign the enrollee to the applicable plan variation (or standard 
plan without cost-sharing reductions) and notify the enrollee of the 
improper assignment.
    Conversely, paragraph (d)(2) proposed that, if a QHP issuer 
reassigns an enrollee from a less generous plan variation (or a 
standard plan without cost-sharing reductions) to a more generous plan 
variation of a QHP to correct an improper assignment on the part of the 
issuer, the QHP issuer would recalculate the individual's liability for 
cost sharing paid between the effective date of eligibility required by 
the Exchange and the date on which the issuer effectuated the change. 
The QHP issuer would refund any excess cost sharing paid by or for the 
enrollee during such period, no later than 30 calendar days after 
discovery of the incorrect assignment. This refund would be paid to the 
person or entity that paid the excess cost sharing, whether the 
enrollee or the provider. We sought comment on the proposed approach, 
including the 30-calendar-day timeframe for QHP issuers to reassign an 
individual to the correct plan variation and refund any excess cost 
sharing paid by or for the enrollee. We also sought comment on whether 
the timeframe should depend on the point in the month the issuer 
discovers the improper assignment, considering the amount of time 
issuers may require to effectuate the reassignment, as well as the 
impact on enrollees due to a delay in reassignment. We noted that the 
date of the reassignment would not affect the initial effective date of 
eligibility, and that the enrollee would still be refunded any excess 
cost sharing paid by or for the enrollee between the effective date of 
eligibility and the date of the reassignment.
    We also noted that we were considering requiring that, for each 
quarter, a QHP issuer provide to HHS and the Exchange a report 
beginning in the 2015 benefit year detailing the occurrence of any 
improper applications of cost-sharing reductions in violation of the 
standards finalized and proposed in Sec.  156.410(a) and (c) and Sec.  
156.425(b), as well as instances when it did not refund any excess cost 
sharing paid by or for an enrollee in accordance with proposed Sec.  
156.410(c)(1) and Sec.  156.410(d)(2), or was reimbursed for excess 
cost sharing provided in violation of proposed Sec.  156.410(d)(1).
    Comment: Several commenters supported holding enrollees harmless 
for issuer mistakes. A number of

[[Page 65069]]

commenters requested clarification that issuers will not be penalized 
for errors made by Exchanges or enrollee income misrepresentations, and 
asked HHS to institute policies or procedures that would make it easy 
for issuers to identify enrollment errors. One commenter suggested that 
restitution should only occur when the agencies can prove a pattern of 
willful misconduct, while another commenter suggested that HHS request 
compensation from an Exchange for errors by the Exchange.
    Response: We are clarifying that QHP issuers may rely on the 
validity of an eligibility determination sent to the QHP issuer by the 
Exchange, and are not responsible for providing refunds under this 
provision resulting from an Exchange or enrollee error. However, as 
noted in the proposed rule, because of the reliance interests of an 
enrollee in the application of cost-sharing reductions when purchasing 
particular services, we believe that the QHP issuer should not be able 
to recover excess funds resulting from issuer error with respect to the 
application of cost-sharing reductions. We note that this is a 
different standard from the one we are finalizing for misapplications 
of the advance payments of the premium tax credit because we believe 
that an enrollee has lesser reliance interest in miscalculated premiums 
because the enrollee would have been clearly notified of both the 
monthly premium and advance payment of the premium tax credit when they 
enroll in the plan. In contrast, an enrollee may not be aware of the 
cost-sharing amount for a specific service and might not be able to 
determine whether the cost-sharing reduction was correctly applied for 
that particular service at the point the cost sharing is collected.
    Comment: Several commenters noted that requiring issuers to provide 
refunds of cost-sharing reductions to enrollees is inconsistent with 
standard billing practices in which an issuer bills or credits the 
enrollee, noting that issuing refunds would require additional 
resources. Another commenter noted that consistent with current 
practices and procedures applicable to non-subsidized enrollees, 
issuers should be able to reprocess claims under the correct plan 
variation and recoup any excess payment.
    Response: In consideration of standard issuer billing practices, 
the final rule provides that a QHP issuer may apply any excess cost 
sharing paid by or for an enrollee (except by a provider) to the 
enrollee's portion of the premium for the remainder of the period of 
enrollment or benefit year until the excess is fully applied unless the 
enrollee requests the refund. (The issuer may also elect to directly 
refund the enrollee, regardless of whether the enrollee requests the 
refund.) However, if requested by the enrollee, the QHP issuer would be 
required to directly refund the enrollee any excess cost sharing paid 
by or for the enrollee within 45 calendar days of the request. The QHP 
issuer would refund the enrollee any remaining excess cost-sharing paid 
by the individual at the end of the period of enrollment or benefit 
year, and if the excess cost sharing amount was paid by the provider, 
the QHP issuer would refund to the provider any excess cost sharing 
paid by provider within 45 calendar days of discovery of the error. We 
believe that this standard will allow issuers to reimburse enrollees 
without incurring additional operational costs outside the standard 
billing practice, while still providing the option for direct refund to 
the enrollee.
    Comment: One commenter asked HHS to clarify that consumer 
protections also apply to enrollees who are not eligible for a cost-
sharing reduction but who are mistakenly enrolled in a silver plan 
variation by the issuer.
    Response: We clarify that the standards in Sec.  156.410(c) and (d) 
would apply when an enrollee should not be eligible for cost-sharing 
reductions but is erroneously assigned to a silver plan variation by 
the QHP issuer.
    Comment: One commenter suggested HHS set a threshold date such 
that, if a QHP issuer discovers an enrollee was assigned to an 
incorrect plan variation before the 15th of a month, the enrollee would 
be reassigned to the proper plan variation by the 1st day of the 
following month, and errors discovered afterwards would be corrected in 
the following month. Another recommended that consumers be provided 
advance notice of plan reassignment, and that plans ensure that 
enrollees have full access to services while the errors are being 
corrected.
    Response: In response to comments, we are modifying the proposed 
policy to align with existing Exchange regulations regarding the 
effective date of coverage with respect to special enrollment periods 
under 45 CFR 155.420(b)(i) and (ii). Section 156.410(d)(1) and (2) now 
provide that if the QHP issuer discovered the error between the first 
and fifteenth day of the month, the QHP must reassign the enrollee to 
the correct plan variation (or standard plan without cost-sharing 
reductions) by the first day of the following month. If the QHP issuer 
discovers the error between the sixteen and the last day of the month, 
the QHP issuer must reassign the individual to correct plan variation 
by the first day of the second following month. We note that as with 
reassignment, we expect issuers to notify enrollees prior to the 
effective date of the reassignment to prevent enrollee confusion.
    Comment: While some commenters supported the 30-day timeframe for 
refunds, a number of commenters felt that this timeframe is not 
feasible, given enrollment reconciliation and payment discrepancy 
processes. One commenter suggested that the final rule adopt a 45-day 
timeframe, in line with Medicare Part D. Other commenters recommended 
increasing the timeframe to 60 or 90 days. One commenter suggested that 
issuers in State Exchanges have the flexibility to work with the 
Exchange to establish appropriate timelines.
    Response: Because cost sharing-reductions are Federal outlays, we 
believe that it is appropriate to set uniform timeframes for correcting 
errors related to the underpayment of cost-sharing reductions, 
regardless of whether the individual receives coverage through a QHP 
issuer participating in a State Exchange or an FFE. However, taking 
into consideration current industry practice and the monthly enrollment 
reconciliation process, as well as the refunds standards specified 
under 42 CFR 423.800(e) and 42 CFR 423.466(a) with respect to the 
Medicare Part D low-income subsidy program, we are modifying the 
proposed policy and are requiring issuers to provide refunds to 
enrollees within 45 days of the discovery of the error. We believe that 
this will permit issuers to rectify errors in a timely manner 
consistent with their current monthly operational cycles, without 
significantly delaying the reimbursement to the enrollee or provider as 
applicable.
    Comment: Some commenters suggested a de minimis threshold for 
required refunds, similar to the threshold for the medical loss ratio 
program.
    Response: Unlike the minimum threshold for medical loss ratio 
rebates under 45 CFR 158.243, the standards proposed under this section 
were intended to ensure that Federal funds are being used to 
appropriately subsidize enrollee cost sharing, so that individuals 
receive the full cost-sharing reductions for which they were determined 
eligible. Because these refund standards are designed protect low-
income individuals from unforeseen costs, we do not believe there 
should be a de minimis threshold for refunds of cost-sharing 
reductions.

[[Page 65070]]

    Comment: Several commenters supported a standard under which an 
issuer is not required to report on misapplication of cost-sharing 
reductions unless a minimum error rate occurs, while other commenters 
stated that all issuers should submit these reports without respect to 
such a threshold. Other commenters stated that a semi-annual or annual 
report should be required for the initial years. One commenter believed 
that such quarterly reports would duplicate the information provided 
via enrollment reconciliation and the payment discrepancy reporting 
process. The same commenter was also concerned about the implications 
of such self-reporting under Federal laws, and recommended a safe 
harbor from enforcement remedies for any good faith reporting. Another 
commenter suggested that HHS give State Exchanges flexibility to decide 
the timing of such reports.
    Response: In response to comments, we are not establishing a 
quarterly reporting standard with respect to the improper application 
of cost-sharing reductions or improper assignments to plan variations 
(or standard plans without cost-sharing reductions). However, we 
require this reporting as part of the annual reporting requirement set 
forth under Sec.  156.480(b). We believe that annual reporting of these 
errors will allow HHS to track the occurrence of these errors and 
identify any problems that affect multiple issuers without duplicating 
any existing interim reporting requirements. We do not intend to create 
a safe harbor for misreported information, and expect that issuers will 
make a good faith effort to accurately report these errors.\18\
---------------------------------------------------------------------------

    \18\ We note that many of the errors that will be the subject of 
the first annual report and to our 2014 policy of nonenforcement of 
CMPs for good faith, which we codified at 45 CFR 156.800(c).
---------------------------------------------------------------------------

    Comment: One commenter asked how claims submitted for premium 
stabilization programs would be affected by erroneous cost-sharing 
reduction amounts.
    Response: As noted in 45 CFR 156.430(d), HHS will perform periodic 
reconciliations of any advance payments of cost-sharing reductions 
provided to the QHP issuer with the actual amount of cost-sharing 
reductions provided to enrollees and reimbursed to providers by the QHP 
issuers. This calculation is not required for the risk adjustment or 
reinsurance programs, and will be completed prior to the deadline for 
the risk corridors program.
Summary of Regulatory Changes
    We are finalizing these provisions with the following 
modifications. We are amending paragraphs (c) and (d) to increase the 
time period for issuing refunds from 30 days to 45 days of discovery of 
the error. We are also modifying these paragraphs to provide that the 
QHP issuer may provide the refund by applying the total excess cost 
sharing paid by or for the enrollee to the enrollee's portion of the 
premium for the remainder of the period of enrollment or benefit year 
until the excess is fully applied, except that the QHP issuer must 
refund the enrollee the excess cost sharing within 45 days of the 
enrollee's request or the end of the period of enrollment or benefit 
year. (Any cost-sharing paid by the provider will still be refunded to 
the provider within 45 days of discovery of the error.) Additionally, 
we are re-designating subparagraphs (d)(1) and (d)(2) as (d)(3) and 
(4), and adding two new subparagraphs (d)(1) and (d)(2), which set 
forth a timeframe for effectuating a reassignment to the correct plan 
variation.
c. Payment for Cost-Sharing Reductions (Sec.  156.430)
    In the 2014 Payment Notice, we established a payment approach under 
which monthly advance payments will be made to QHP issuers to cover 
projected cost-sharing reduction amounts, and then, after the close of 
the benefit year, the advance payments and the actual cost-sharing 
reduction amounts provided during the benefit year will be reconciled. 
In 45 CFR 156.430(c)(1), we established standards for QHP issuers to 
submit data to HHS detailing the amount of cost sharing the enrollees 
in each plan variation paid, as well as the amount of cost sharing the 
enrollees would have paid under the standard plan. The value of the 
cost-sharing reductions provided is the difference of these two 
amounts. We also finalized at 45 CFR 156.430(c)(2) a methodology 
(referred to as the ``standard methodology'') for calculating the 
amount of cost sharing that the enrollees would have paid under the 
standard plan, but for the cost-sharing reductions. Under the standard 
methodology, QHP issuers apply the cost-sharing requirements for the 
standard plan to the allowed costs for each plan variation policy; in 
effect, each claim would be processed twice: once using the cost-
sharing structure that would have been in place if the individual were 
ineligible for cost-sharing reductions, and once using the reduced 
cost-sharing structure in the applicable plan variation for which the 
individual is eligible.
    In the Amendments to the HHS Notice of Benefit and Payment 
Parameters for 2014 interim final rule, we established in Sec.  
156.430(c)(4) an alternate methodology for calculating the amount of 
cost sharing that the enrollees would have paid under the standard plan 
for the purpose of reconciliation of the advance payments of the cost-
sharing reductions. Under this alternate methodology (referred to as 
the ``simplified methodology''), QHP issuers calculate the amount of 
cost sharing that the enrollees would have paid under the standard plan 
by using formulas based on certain summary cost-sharing parameters of 
the standard plan, applied to the total allowed costs for each policy. 
With this approach, we sought to balance the need to safeguard Federal 
funds with the goal of lessening the administrative burden on QHP 
issuers. We stated that we anticipated that after an appropriate 
transition period, all QHP issuers would be required to use the 
standard methodology, and sought comments on how long the transition 
period should be. We also noted that in later years, we would consider 
alternative approaches for reimbursing QHP issuers. For example, once 
more data is available, we could change to a capitated payment system 
as permitted in section 1402(c)(3)(B) of the Affordable Care Act. 
However, such a change would require access to data on the utilization 
and cost-sharing patterns of individuals eligible for cost-sharing 
reductions.
    In Sec.  156.430(c)(3)(i) of the interim final rule, we provided 
that a QHP issuer must notify HHS prior to the start of each benefit 
year whether or not it is selecting the simplified methodology for the 
benefit year. In paragraph (c)(3)(ii), we specified that if the QHP 
issuer selects the simplified methodology, it must apply the simplified 
methodology to all plan variations it offers on the Exchange for a 
benefit year. Since the simplified methodology is intended for issuers 
whose systems are not yet capable of implementing the standard 
methodology, in paragraph (c)(3)(iii) we specified that the QHP issuer 
may not select the simplified methodology if it did not select the 
simplified methodology for the prior benefit year. We also set forth 
standards governing the selection of a methodology if a QHP issuer 
merges with or acquires another QHP issuer on the Exchange, or acquires 
a QHP offered on the Exchange from another issuer. In paragraph 
(c)(3)(iv), we provided that if each of the affected parties had 
selected a different methodology for the benefit year, then

[[Page 65071]]

notwithstanding paragraphs (c)(3)(ii) and (iii), for the benefit year 
in which the merger or acquisition took place, the QHP issuer must 
continue to use the methodology selected prior to the start of the 
benefit year for each plan variation (whether or not the selection was 
made by that issuer), and for the next benefit year, the QHP issuer may 
select either methodology, subject to the requirement in paragraph 
(c)(3)(ii) that a QHP issuer select the same methodology for all plan 
variations it offers on the Exchange for the benefit year.
    In this final rule, we are generally finalizing the standards 
related to the simplified methodology as established in the interim 
final rule, with minor clarifying edits to paragraph (c)(3)(iii) and 
(iv), and we are modifying paragraph (c)(3) to specify that QHP issuers 
may only choose to use the simplified methodology for benefit years 
2014 through 2016. For the 2014 benefit year, HHS intends to contact 
each QHP offering individual market coverage through an Exchange in 
November, which will prompt the issuer to notify HHS prior to the start 
of the benefit year whether or not it selects the simplified 
methodology for the benefit year. We received a number of comments on 
the selection of the methodology and the transition period.
    Comment: The majority of commenters supported the simplified 
methodology. Many noted that the simplified methodology will likely 
reduce QHP issuers' short-term costs and administrative burden. Two 
commenters argued that issuers should be permitted to choose between 
the simplified and standard methodologies indefinitely because of the 
many new functions that issuers will be performing in Exchanges and 
because the simplified methodology should produce results that are 
similar to the standard methodology. However, one commenter argued that 
the choice of methodologies could inflate Federal costs because QHP 
issuers will likely choose whichever methodology results in the largest 
payments. That commenter suggested that QHP issuers should only be 
permitted to choose between the simplified and standard methodologies 
for the first two years. Other commenters argued that the standards in 
Sec.  156.430(c)(3) on selecting a methodology should adequately 
safeguard against potential gaming. In addition, commenters noted that 
it could take QHP issuers up to 18 months to develop the systems 
necessary to support the standard methodology, and that therefore HHS 
should provide at least one year's notice before requiring a transition 
to the standard methodology. Several commenters also supported a shift 
to a capitated payment system in future years, though one noted that it 
will be important to require QHP issuers to use the standard 
methodology for at least two years so that adequate data can be 
collected on the value of the cost-sharing reductions, which may vary 
significantly between plan variations and enrollees. The same commenter 
suggested that HHS should ensure that QHP issuers are adequately 
compensated so that issuers provide cost-sharing reductions as 
required, including cost-sharing reductions for American Indians and 
Alaska Natives.
    Response: To allow QHP issuers adequate time to develop their 
systems to support the standard methodology, we are establishing a 
three-year transition period during which QHP issuers may use the 
simplified methodology, provided that they choose the simplified 
methodology prior to the start of benefit year 2014. We are modifying 
Sec.  156.430(c)(3) to specify that the option to use the simplified 
methodology will extend only through benefit year 2016. As a result, 
all QHP issuers offering coverage through the individual market of an 
Exchange must use the standard methodology to submit the data described 
in 45 CFR 156.430(c)(1) for cost-sharing reductions provided for 
benefit year 2017. We will continue to consider alternative approaches 
for reimbursing QHP issuers for the future, including a capitated 
payment system. We believe that both methods of calculating the value 
of cost-sharing reductions provided will be accurate so that QHP 
issuers are adequately compensated for providing cost-sharing 
reductions to all populations.
    In Sec.  156.430(c)(4) of the interim final rule we set forth a 
simplified methodology for calculating the amount of cost sharing that 
enrollees would have paid under the standard plan without cost-sharing 
reductions. We established that a QHP issuer selecting the simplified 
methodology must calculate the amount that the enrollees would have 
paid under the standard plan by applying four summary, or ``effective 
cost-sharing parameters'' for the standard plan--the effective 
deductible, the effective pre-deductible coinsurance rate, the 
effective post-deductible coinsurance rate, and the effective claims 
ceiling--to the total allowed costs paid for EHB under the policy (that 
is, the policy with cost-sharing reductions) for the benefit year. This 
simplified methodology allows QHP issuers to calculate enrollee 
liability under the standard plan using a standardized methodology that 
does not require complex readjudication of claims. Specifically, in 
Sec.  156.430(c)(4)(i), we detailed the process for calculating the 
amount that enrollees would have paid under the standard plan under the 
simplified methodology, depending on the utilization pattern under the 
policy. We described these calculations using Formulas A, B, and C, 
detailed in Sec.  156.430(c)(4)(i)(A), (B) and (C). In Sec.  
156.430(c)(4)(ii) (renumbered as (c)(4)(iii) in this final rule), we 
defined the effective cost-sharing parameters for the standard plan, 
and established that these parameters must be calculated separately for 
self-only coverage and other than self-only coverage. We also noted 
that if a QHP issuer has entirely separate cost-sharing parameters for 
pharmaceutical and medical services, the QHP issuer may elect to 
develop separate sets of effective cost-sharing parameters for 
pharmaceutical and medical services.
    We sought comments on these effective cost-sharing parameters and 
formulas for calculating the amount that enrollees would have paid 
under the standard plan, and whether this methodology appropriately 
categorizes policies based on utilization patterns. We also sought 
suggestions for alternative methodologies that might provide more 
accurate estimates of the amount that enrollees would have paid under 
the standard plan, while preserving the administrative efficiency of 
the simplified methodology. In response to comments, we are generally 
finalizing the simplified methodology as established in the interim 
final rule, with some modifications to address unique benefit 
structures and to reduce potential biases in the formulas identified by 
commenters. We are also clarifying how QHP issuers should calculate the 
effective cost-sharing parameters for self-only coverage, other than 
self-only coverage, medical coverage, and pharmaceutical coverage. 
Lastly, we are clarifying how the simplified methodology should apply 
when an enrollee is assigned to a different plan variation or is 
assigned from a plan variation to the standard plan (or vice versa) 
during the course of the benefit year.
    Comment: In general, commenters supported the simplified 
methodology, and no commenters suggested any significantly different 
methodology. Some commenters stated that the simplified methodology 
will produce results that are not substantially different from the 
standard methodology, but others proposed certain modifications that 
they said would improve the accuracy of the

[[Page 65072]]

methodology, particularly when applied to certain types of plan 
designs.
    Specifically, three commenters noted that the effective deductible 
and effective claims ceiling parameters, as established in the interim 
final rule, may result in the overestimation or underestimation of 
enrollee liability under a standard plan with certain benefit 
structures. For example, because the effective deductible was defined 
as the weighted average of the deductibles for the standard plan, 
excluding services not subject to the deductible, Formula B (described 
in Sec.  156.430(c)(4)(i)(B)) may overestimate the cost sharing under 
the standard plan for those enrollees who incur claims costs greater 
than the effective deductible, because they receive services that are 
not subject to the deductible. In addition, because the effective 
claims ceiling was calculated based on the annual limitation on cost 
sharing, which may only apply to in-network benefits (as described in 
45 CFR 156.130(c)), Formula C (described in Sec.  156.430(c)(4)(i)(C)) 
may underestimate cost sharing under the standard plan for enrollees 
who incur large out-of-network claims. In light of these potential 
biases, one commenter suggested that in-network cost sharing should be 
calculated separately from out-of-network cost sharing. Other 
commenters suggested that the QHP issuer's actuary should be allowed 
greater flexibility in the calculation of an average deductible and an 
average claims ceiling, based on the actual claims experience of 
enrollees in the standard plan. One commenter suggested that the 
issuer's actuary should be required to submit an actuarial memorandum 
with a justification of any modifications to the effective cost-sharing 
parameters, demonstrating that the modifications were necessary due to 
the benefit design and result in a more accurate replication of the 
standard plan's cost sharing.
    We also received a comment asking how mid-year changes in enrollee 
eligibility for cost-sharing reductions would affect the application of 
the simplified methodology.
    Response: Overall, we believe the simplified methodology will yield 
results that are substantially similar to the results that would be 
produced using the standard methodology. In addition, we believe it is 
important that issuers choosing the simplified methodology use standard 
formulas and parameters to reduce the analytical burden on issuers, 
ensure the transparency of the calculations, and reduce the potential 
for gaming. Nevertheless, in response to these comments, we are 
finalizing several modifications to the simplified methodology to 
improve the accuracy of the calculations.
    First, we are making several minor edits to clarify the standards 
originally established. We are reordering some of the text in the 
definitions of the effective pre-deductible and effective post-
deductible coinsurance rates to mirror the structure of the other 
definitions. Also, in response to the comment asking about mid-year 
changes in eligibility for cost-sharing reductions, we are clarifying 
in Sec.  156.430(c)(4) that the effective cost-sharing parameters, or 
one minus the actuarial value of the standard plan, as appropriate, 
should be applied to the total allowed costs for EHB for the benefit 
year under each policy that was assigned to a plan variation for any 
portion of the benefit year. We note that a similar standard would 
apply to the standard methodology. This will ensure that QHP issuers 
are reimbursed for cost-sharing reductions provided to enrollees that 
are only assigned to a plan variation for a portion of the year. We are 
also clarifying in paragraphs (c)(4)(ii) and (iii) that the effective 
cost-sharing parameters should be calculated based on policies assigned 
to the standard plan without cost-sharing reductions for the entire 
benefit year. If a particular enrollee cancels his or her standard plan 
policy mid-year, or is re-assigned to a plan variation, the costs 
incurred by that enrollee should not be included in the calculation of 
the effective cost-sharing parameters for the standard plan because 
partial-year data could reduce the accuracy of the parameters. We also 
considered requiring QHP issuers to separate costs by month based on 
the assignment of an enrollee to a particular plan variation or 
standard plan, or requiring QHP issuers to annualize costs across the 
benefit year. However, these approaches would have significantly 
complicated the methodology and potentially reduced its accuracy.
    Second, in response to comments that Formula B (described in Sec.  
156.430(c)(4)(i)(B)) may overestimate the cost sharing under the 
standard plan if the enrollees receive services that are not subject to 
a deductible, we are modifying several of the formulas and effective 
cost-sharing parameters to more accurately estimate cost sharing for 
services that are subject to a deductible and services that are not 
subject to a deductible. Specifically, in paragraph (c)(4)(iii)(A), we 
are defining the average deductible to be the weighted average 
deductible for the standard plan (weighted by allowed costs for EHB 
under the standard plan for the benefit year that are subject to each 
separate deductible, and excluding services that are not subject to any 
deductible). Conversely, in paragraph (c)(4)(iii)(B), we are defining 
effective non-deductible cost sharing to be calculated based only on 
standard plan policies with total allowed costs for EHB for the benefit 
year that are above the effective deductible but for which associated 
cost sharing for EHB is less than the annual limitation on cost 
sharing, and equal to the average portion of total allowed costs for 
EHB that are not subject to any deductible for the standard plan for 
the benefit year incurred for standard plan enrollees and payable by 
the enrollees as cost sharing. We are also modifying the definition of 
effective deductible (which was initially set forth in paragraph 
(c)(4)(ii)(A), but has been renumbered in this final rule to be 
paragraph (c)(4)(iii)(C)), to be the sum of the average deductible and 
the average total allowed costs for EHB that are not subject to any 
deductible for the standard plan for the benefit year. The average 
total allowed costs for EHB that are not subject to any deductible for 
the standard plan for the benefit year must be calculated based only on 
standard plan policies with total allowed costs for EHB for the benefit 
year that are above the average deductible but for which associated 
cost sharing for EHB is less than the annual limitation on cost 
sharing. Lastly, we are making conforming modifications to the 
definition of effective claims ceiling (which was initially set forth 
in paragraph (c)(4)(ii)(D), but has been renumbered in this final rule 
to be paragraph (c)(4)(iii)(F)), to be calculated as follows:

ECC = ED + ((AL - AD - NDCS)/PostD)
Where,
ECC = the effective claims ceiling;
ED = the effective deductible;
AL = the annual limitation on cost sharing;
AD = the average deductible;
NDCS = the effective non-deductible cost sharing; and
PostD = the effective post-deductible coinsurance rate.

    Building off of these new definitions, we are modifying the 
definition of effective post-deductible coinsurance rate (initially set 
forth in paragraph (c)(4)(ii)(C), but renumbered as paragraph 
(c)(4)(iii)(E)) to be calculated as follows:
PostD = (CSDp)/(TACDp - AD)

Where,
PostD = the effective post-deductible coinsurance rate;
CSDp = the portion of average allowed costs for EHB 
subject to a deductible incurred for enrollees for the benefit year, 
and

[[Page 65073]]

payable by the enrollees as cost sharing other than through a 
deductible;
AD = the average deductible; and
TACDp = the average total allowed costs for EHB subject 
to a deductible incurred for those enrollees for the benefit year 
(we distinguish TACDp from the TACDi; 
TACDp refers to average total allowed costs for EHB 
subject to a deductible for all the policies that are part of the 
calculation--which in this case, are standard plan policies with 
total allowed costs for EHB for the benefit year that are above the 
effective deductible but for which associated cost sharing for EHB 
is less than the annual limitation on cost sharing (that is, 
policies that do not incur enough cost sharing for the annual 
limitation on cost sharing to affect the cost sharing), while 
TACDi refers to the total allowed costs for EHB subject 
to a deductible for a particular policy).

    These terms are then used in a modified Formula B (described in 
Sec.  156.430(c)(4)(i)(B)), and detailed below, for plan variation 
policies with total allowed costs for EHB for the benefit year that are 
greater than the effective deductible but less than the effective 
claims ceiling, to calculate the amount that enrollees would have paid 
under the standard plan without cost-sharing reductions.
Formula B: C = AD + NDCS + ((TACDi - AD) * PostD)

Where,
C = the amount that the enrollees in a particular policy would have 
paid under the standard plan without cost-sharing reductions;
AD = the average deductible;
NDCS = the effective non-deductible cost sharing;
TACDi = the total allowed costs under the policy for the 
benefit year for EHB that are subject to a deductible;
PostD = the effective post-deductible coinsurance rate; and
((TACDi - AD) * PostD) is calculated only if positive.

We believe this formula will more accurately capture cost sharing in 
plans that subject certain services to deductibles but exempt others 
(while imposing other forms of cost sharing).
    In addition, we note that the new definition of effective 
deductible will likely cause some plan variation policies that 
previously would have been subject to calculation under Formula B to 
become subject to Formula A, which we are finalizing as established in 
the interim final rule. As described in paragraph (c)(4)(i)(A), Formula 
A applies to plan variation policies with total allowed costs for EHB 
for the benefit year that are less than or equal to the effective 
deductible, and calculates the amount that the enrollees would have 
paid under the standard plan as the total allowed costs for EHB under 
the policy for the benefit year, multiplied by the effective pre-
deductible coinsurance rate.
    We are also adding a paragraph to clarify how the simplified 
methodology should be applied to HMO-like plans (or plans with HMO-like 
characteristics in certain subgroups) with no costs or few costs that 
are subject to a deductible. Specifically, in paragraph (c)(4)(vi) we 
provide that if more than eighty percent of the total allowed costs for 
EHB for the benefit year under a standard plan for a subgroup that 
requires a separate set of effective cost-sharing parameters pursuant 
to paragraph (c)(4)(ii) are not subject to a deductible, then (i) The 
average deductible, the effective non-deductible cost sharing, and the 
effective deductible for the subgroup equal zero; (ii) the effective 
pre-deductible coinsurance rate for the subgroup is equal to the 
effective post-deductible coinsurance rate for the subgroup, which is 
determined based on all standard plan policies for the applicable 
subgroup for which associated cost sharing for EHB is less than the 
annual limitation on cost sharing, and calculated for the applicable 
subgroup as the proportion of the total allowed costs for EHB under the 
standard plan for the benefit year incurred for standard plan enrollees 
and payable as cost sharing (including cost sharing payable through a 
deductible); and (iii) the amount that enrollees in the applicable 
subgroup in plan variation policies with total allowed costs for EHB 
for the benefit year that are less than the effective claims ceiling 
would have paid under the standard plan must be calculated using the 
formula in Sec.  156.430(c)(4)(i)(A). In effect, we are merging 
Formulas A and B for these plans (or these subgroups), and are removing 
the distinction between the calculation of cost sharing for costs 
incurred before the deductible is met versus the calculation after the 
deductible is met. This modification should simplify calculations for 
issuers of these plans (or these subgroups), and improve the accuracy 
of the simplified methodology we are finalizing here for these plans 
(or these subgroups).
    Lastly, in response to comments, we are modifying Formula C 
(described in Sec.  156.430(c)(4)(i)(C)), which applies to plan 
variation policies with total allowed costs for EHB for the benefit 
year that are greater than or equal to the effective claims ceiling, 
and is used to calculate the amount of cost sharing that those 
enrollees would have paid under the standard plan. First, we are 
simplifying the formula established in the interim final rule. Second, 
because the annual limitation on cost sharing may not apply to benefits 
provided out-of-network (as allowed under 45 CFR 156.130(c)), we are 
allowing issuers to elect to use, on a policy-by-policy basis, the 
standard methodology to calculate the amount of cost sharing that such 
enrollees would have paid under the standard plan. This modification 
will allow QHP issuers to capture the value of cost-sharing reductions 
for enrollees who incur large claim amounts for services from out-of-
network providers.
    Comment: Commenters noted that due to statistical aberrations under 
the simplified methodology, it is possible--though unlikely--that the 
calculated amount of cost sharing that enrollees would have paid under 
the standard plan could be less than what they actually paid under the 
plan variation. The commenter suggested that the amount that the 
enrollees would have paid in cost sharing under the standard plan be 
set at no less than what they paid under the plan variation.
    Response: Although we acknowledge that in certain cases, the 
calculated amount of cost sharing that enrollees would have paid under 
the standard plan could be less than what the enrollees in a particular 
policy actually paid under the plan variation, any such results would 
likely be balanced by results for other policies that overestimate the 
cost sharing that the enrollees would have paid under the standard 
plan. As a result, we do not believe it is necessary to modify the 
simplified methodology. However, we note that we do not intend to 
charge a QHP issuer for cost-sharing reductions across all enrollees in 
a plan variation in the very unlikely event that the simplified 
methodology suggests that a negative amount of cost-sharing reductions 
were provided to all such enrollees in the aggregate during the benefit 
year.
    Comment: We received comments on Sec.  156.430(c)(4)(ii) of the 
interim final rule, which directs issuers to calculate the effective 
cost-sharing parameters separately for self-only coverage and other 
than self-only coverage, and provides the option to calculate separate 
parameters for pharmaceutical and medical services if the QHP has 
entirely separate cost-sharing parameters for each of these types of 
services. Two commenters suggested that issuers should be allowed to 
calculate a single set of effective cost-sharing parameters if the 
cost-sharing parameters of the other than self-only coverage are better 
replicated at the individual level (for example, for plan designs 
applying individual level deductibles first). The same commenters also 
suggested that issuers should be allowed to calculate

[[Page 65074]]

separate parameters for pharmaceutical and medical services even when 
the costs are not adjudicated by a separate vendor. Similarly, for QHPs 
in which a large portion of allowed charges are subject to co-pays but 
not deductibles, the commenters suggested that issuers should be 
allowed to calculate separate effective cost-sharing parameters for 
those services. Another commenter suggested that QHP issuers should 
calculate separate effective cost-sharing parameters for benefits 
provided in-network versus benefits provided out-of-network because 
enrollee liability often differs significantly for these benefits. The 
commenter also suggested that if the QHP issuer made no reductions in 
cost sharing for benefits provided out-of-network (that is, the out-of-
network cost-sharing parameters for the standard plan match the out-of-
network cost-sharing parameters for the plan variation), the QHP issuer 
should be able to exclude costs for benefits provided out-of-network 
and the applicable cost-sharing parameters from the simplified 
methodology calculations. Similarly, the QHP issuer should be allowed 
to exclude costs for benefits paid in full by the issuer for both the 
standard plan and plan variations, with no enrollee liability, since 
there are no cost-sharing reductions for these benefits. Lastly, one 
commenter requested clarification on whether the effective cost-sharing 
parameters for a QHP should be calculated separately for each rating 
area, or across an entire State.
    Response: In response to comments, we are adding a new paragraph 
(c)(4)(ii) and making conforming edits to paragraphs (c)(4)(i) through 
(v) of this section to clarify which subgroups of costs require a 
unique set of effective cost-sharing parameters. In paragraph 
(c)(4)(ii)(A), we state that if the standard plan has separate cost-
sharing parameters for self-only coverage and other than self-only 
coverage, but does not have separate cost-sharing parameters for 
pharmaceutical and medical services, the QHP issuer must calculate and 
apply separate sets of effective cost-sharing parameters based on the 
costs of enrollees in the standard plan with self-only coverage, and 
the costs of enrollees in the standard plan with other than self-only 
coverage. We clarify that if the cost-sharing parameters for other than 
self-only coverage accumulate at the enrollee-level and match the 
parameters for self-only coverage, then the standard plan would not be 
subject to subparagraph (c)(4)(ii)(A) or (C).
    In paragraph (c)(4)(ii)(B), we clarify that if the standard plan 
has separate cost-sharing parameters for pharmaceutical and medical 
services, but does not have separate cost-sharing parameters for self-
only coverage and other than self-only coverage, the QHP issuer must 
calculate and apply separate sets of effective cost-sharing parameters 
based on the medical costs of the enrollees in the standard plan, and 
the pharmaceutical costs of the enrollees in the standard plan. This 
standard is not tied to whether or not the pharmaceutical costs are 
adjudicated separately by a vendor, but depends on whether or not the 
cost sharing accumulates to separate deductibles and annual limitations 
on cost sharing.
    Lastly, in paragraph (c)(4)(ii)(C), we state that if the standard 
plan has separate cost-sharing parameters for self-only coverage and 
other than self-only coverage, and also has separate cost-sharing 
parameters for pharmaceutical and medical services, the QHP issuer must 
calculate and apply separate sets of effective cost-sharing parameters 
based on the medical costs of enrollees in the standard plan with self-
only coverage, the pharmaceutical costs of enrollees in the standard 
plan with self-only coverage, the medical costs of enrollees in the 
standard plan with other than self-only coverage, and the 
pharmaceutical costs of enrollees in the standard plan with other than 
self-only coverage. While these new standards in paragraph (c)(4)(ii) 
may require additional calculations, enrollee liability can vary 
significantly between these subgroups, as noted by commenters, and as a 
result, we believe that separate effective cost-sharing parameters for 
each subgroup of costs will often lead to more accurate results.
    For example, if a QHP is subject to the standards in paragraph 
(c)(4)(ii)(C), the QHP issuer must create four sets of effective cost-
sharing parameters. One of the sets of effective cost-sharing 
parameters would be calculated based on self-only coverage of medical 
services (for example, the average deductible would be the medical 
deductible for self-only coverage). The effective cost-sharing 
parameters for the subgroup would then be applied to the total allowed 
medical costs for EHB of enrollees with self-only coverage under a plan 
variation policy, as described in paragraph (c)(4)(i). To determine the 
total amount that enrollees in the plan variation policy with self-only 
coverage would have paid under the standard plan without cost-sharing 
reductions, the QHP issuer would add the amounts calculated pursuant to 
paragraph (c)(4)(i) for each subgroup of costs (self-only medical costs 
and self-only pharmaceutical costs).
    In relation to in-network and out-of-network costs, we clarify that 
although QHP issuers are not required to reduce out-of-network cost 
sharing to meet the actuarial value requirements for the silver plan 
variations, as described on page 15481 of the 2014 Payment Notice, if a 
QHP issuer chooses to reduce out-of-network cost sharing, they will 
receive reimbursement for those reductions. In addition, QHP issuers 
must eliminate cost sharing for both in-network and out-of-network 
covered EHB for the zero cost sharing plan variation, as well as for 
the limited cost sharing plan variation when the service is furnished 
by the Indian Health Service, an Indian Tribe, Tribal Organization, or 
Urban Indian Organization, or through referral under contract health 
services, as described in 45 CFR 156.420(b). Nevertheless, we are not 
requiring, nor allowing, QHP issuers to calculate separate effective 
cost-sharing parameters for in-network and out-of-network costs. We 
believe that the modifications to Formula C should address much of the 
bias in the simplified methodology that could be caused by differences 
in cost-sharing parameters for in-network and out-of-network services. 
In addition, we hope to limit the number of plans that do not meet the 
minimum credibility standard, which as described below and in paragraph 
(c)(4)(v), requires QHP issuers to use an actuarial value methodology 
to calculate the amount that enrollees would have paid under the 
standard plan, if a standard plan has enrollment of fewer than 12,000 
member months for a particular subgroup. We believe that it is possible 
that a large number of standard plans would not have 12,000 member 
months for enrollees with out-of-network claims costs above the 
applicable effective deductible. Therefore, we will not provide for 
separate calculations for in-network and out-of-network costs.
    In response to the comments suggesting that QHP issuers should be 
allowed to exclude costs for benefits without cost-sharing reductions, 
we note that in many cases, these costs would accumulate towards 
certain cost-sharing parameters, such as a deductible or the annual 
limitation on cost sharing. Therefore, we are not finalizing any change 
permitting an issuer to exclude such claims. As discussed above, to 
address plans with cost-sharing structures where a large proportion of 
costs are not subject to a deductible, we have provided for a 
simplified, coinsurance-based calculation in paragraph (c)(4)(vi). 
Finally, we note

[[Page 65075]]

that QHP issuers cannot create separate effective cost-sharing 
parameters for each rating area.
    In Sec.  156.430(c)(4)(iii) of the interim final rule, we 
established reporting standards for QHP issuers that elect to use the 
simplified methodology. We specified that QHP issuers must submit to 
HHS, in the manner and timeframe established by HHS: The effective 
deductible; the effective pre-deductible coinsurance rate; the 
effective post-deductible coinsurance rate; the effective claims 
ceiling; and a memorandum developed by a member of the American Academy 
of Actuaries in accordance with generally accepted actuarial principles 
and methodologies that describes how the QHP issuer calculated the 
effective cost-sharing parameters for the standard plan. This 
information will allow HHS to ensure that QHP issuers are calculating 
the effective cost-sharing parameters correctly. We sought comments on 
whether HHS should require any other data submissions or establish any 
additional standards to oversee these provisions.
    Comment: One commenter recommended that HHS put in place robust 
processes to monitor QHP issuers using the simplified methodology to 
limit the potential for overpayments. The commenter suggested that HHS 
reserve the authority to review and approve all QHP issuer submissions 
for the simplified methodology and the resulting reconciliation 
amount--particularly if such amounts are substantially different from 
the advance payment amounts. Another commenter suggested that HHS 
collect detailed data on the payments made by QHP issuers to providers 
to ensure that providers are reimbursed, particularly providers 
associated with the Indian Health Service, an Indian Tribe, Tribal 
Organization, or Urban Indian Organization.
    Response: To ensure that QHP issuers using either the standard or 
simplified methodology submit accurate information for cost-sharing 
reduction payment reconciliation, we are finalizing cost-sharing 
reduction oversight standards in Sec.  156.480 of this final rule. 
Specifically, Sec.  156.480(c) provides HHS with the authority to audit 
an issuer to assess compliance with the cost-sharing reduction 
standards, including standards related to reconciliation and provider 
reimbursement, detailed in 45 CFR 156.430(c).
    We are also clarifying in this final rule the standards for 
reporting information on the effective cost-sharing parameters. 
Specifically, we are renumbering the paragraph on reporting as 
paragraph (c)(4)(iv), and specifying that a QHP issuer using the 
simplified methodology must submit to HHS, in the manner and timeframe 
established by HHS, the effective cost-sharing parameters, calculated 
pursuant to paragraph (c)(4)(iii), for each standard plan offered by 
the QHP issuer in the individual market through the Exchange for each 
set of circumstances described in paragraph (c)(4)(ii). Therefore, if a 
QHP issuer must calculate multiple sets of effective cost-sharing 
parameters as described in paragraph (c)(4)(ii), the QHP issuer must 
submit each set of parameters to HHS. A QHP issuer may submit one 
actuarial memorandum as long as it describes how the QHP issuer 
calculated each set of effective cost-sharing parameters for each 
standard plan. We will provide guidance on the manner and timeframe of 
this submission in the future.
    As discussed in the interim final rule, we recognize that because 
the effective pre- and post-deductible coinsurance rates are calculated 
based on the average experience of the enrollees in the standard plan, 
low enrollment in the standard plan could lead to inaccurate effective 
coinsurance rates. Therefore, we provided additional standards related 
to the simplified methodology in Sec.  156.430(c)(4)(iv) to address 
credibility concerns that may result from low enrollment in the 
standard plan. We established that if a standard plan has an enrollment 
during the benefit year of fewer than 12,000 member months (that is, 
the sum of the months that each enrollee is covered by the plan) in any 
of four subgroups, and the QHP issuer has selected the simplified 
methodology, then the QHP issuer must calculate the amount that all 
enrollees in the plan variation (in all subgroups) would have paid 
under the standard plan by applying the standard plan's actuarial 
value, as calculated under Sec.  156.135, to the allowed costs for EHB 
for the enrollees for the benefit year. The credibility standard of 
12,000 member months aligns with a similar standard used by the 
Medicare Part D program; however, we sought comments on the appropriate 
number of member months to achieve credible use of the simplified 
methodology. We also sought comments on whether the standard plan's 
actuarial value applied to the allowed costs for EHB for enrollees for 
the benefit year would provide an appropriate estimate of the amount of 
cost sharing that enrollees would have paid under the standard plan 
without cost-sharing reductions, or whether an alternative approach 
would be more appropriate. Last, we requested comments on the 
composition of the subgroups, whether they appropriately divide 
enrollees based on their utilization patterns, whether any subgroups 
are required, and whether low enrollment in one subgroup should prompt 
the QHP issuer to use the actuarial value for enrollees in all 
subgroups or just the subgroup with low enrollment.
    Comment: We received one comment on this section, suggesting that 
the credibility standard should apply to both the standard plan and the 
plan variations because even if the effective cost-sharing parameters 
are based on at least 12,000 member months, applying them to a small 
number of plan variation policies could produce unusual results. The 
same commenter noted that because actuarial value is a measure of the 
issuer's liability, one minus the actuarial value should be applied to 
the total allowed costs for EHB for each policy offered under the plan 
variation for the benefit year in order to determine the cost sharing 
that enrollees would have paid under the standard plan.
    Response: In response to these comments, we are correcting the 
instructions for calculating enrollee cost sharing based on actuarial 
value in the renumbered paragraph (c)(4)(v). We are not expanding the 
credibility standard to apply to enrollment in each plan variation 
since this would likely require many more QHP issuers to use the 
standard or actuarial value methodology, rather than the simplified 
methodology. However, we are adding a ``cap'' to the actuarial 
methodology, such that QHP issuers whose standard plan does not meet 
the credibility standard must calculate the amount that enrollees would 
have paid under the standard plan as the lesser of the annual 
limitation on cost sharing for the standard plan or the amount derived 
through the actuarial value methodology. This approach will reduce the 
likelihood that plan variations with small enrollment will report 
amounts that are materially inaccurate.
    We are also modifying paragraph (c)(4)(v) to align with the 
standards established in paragraph (c)(4)(ii) and to clarify how the 
minimum credibility standard should be applied to each subgroup. In 
addition, we are removing the minimum credibility standard described in 
the interim final rule in subparagraphs (c)(4)(iv)(A) and (C), related 
to enrollees with total allowed costs for EHB for the benefit year that 
are less than or equal to the effective deductible. This change should 
simplify the credibility analysis, with little

[[Page 65076]]

impact on the ultimate credibility of the effective cost-sharing 
parameters because it is unlikely that a standard plan would have 
adequate enrollment with costs above the effective deductible, but low 
enrollment with costs below the effective deductible. As discussed in 
the interim final rule, a subgroup is not necessary for enrollees with 
cost sharing for EHB above the annual limitation on cost sharing 
because the experience of this population is not used to calculate the 
effective cost-sharing parameters.
    Therefore, in Sec.  156.430(c)(4)(v) of this final rule, we 
establish that if a QHP issuer's standard plan meets certain criteria, 
and the QHP issuer has selected the simplified methodology described in 
this paragraph (c)(4), then the QHP issuer must calculate the amount 
that enrollees in the plan variation would have paid under the standard 
plan without cost-sharing reductions as the lesser of the annual 
limitation on cost sharing for the standard plan or the amount equal to 
the product of, (x) one minus the standard plan's actuarial value, as 
calculated under 45 CFR 156.135, and (y) the total allowed costs for 
EHB for the benefit year under each policy that was assigned to a plan 
variation for any portion of the benefit year.
    In subparagraphs (A) through (D) of Sec.  156.430(c)(4)(v), we 
detail the minimum credibility criteria that prompt a QHP issuer to use 
the actuarial value methodology:
    (A) The standard plan has separate cost-sharing parameters for 
self-only coverage and other than self-only coverage, does not have 
separate cost-sharing parameters for pharmaceutical and medical 
services, and has an enrollment during the benefit year of fewer than 
12,000 member months for coverage with total allowed costs for EHB for 
the benefit year that are greater than the effective deductible, but 
for which associated cost sharing for EHB is less than the annual 
limitation on cost sharing, in either of the following categories: (i) 
Self-only coverage, or (ii) other than self-only coverage.
    (B) The standard plan has separate cost-sharing parameters for 
pharmaceutical and medical services, does not have separate cost-
sharing parameters for self-only coverage and other than self-only 
coverage, and has an enrollment during the benefit year of fewer than 
12,000 member months for coverage with total allowed costs for EHB for 
the benefit year that are greater than the effective deductible, but 
for which associated cost sharing for EHB is less than the annual 
limitation on cost sharing, in either of the following categories: (i) 
Coverage of medical services, or (ii) coverage of pharmaceutical 
services.
    (C) The standard plan has separate cost-sharing parameters for 
self-only coverage and other than self-only coverage, has separate 
cost-sharing parameters for pharmaceutical and medical services, and 
has an enrollment during the benefit year of fewer than 12,000 member 
months for coverage with total allowed costs for EHB for the benefit 
year that are greater than the effective deductible, but for which 
associated cost sharing for EHB is less than the annual limitation on 
cost sharing, in any of the following categories: (i) Self-only 
coverage of medical services, (ii) self-only coverage of pharmaceutical 
services, (iii) other than self-only coverage of medical services, or 
(iv) other than self-only coverage of pharmaceutical services.
    (D) The standard plan does not have separate cost-sharing 
parameters for pharmaceutical and medical services, does not have 
separate cost-sharing parameters for self-only coverage and other than 
self-only coverage, and has an enrollment during the benefit year of 
fewer than 12,000 member months with total allowed costs for EHB for 
the benefit year that are greater than the effective deductible, but 
for which associated cost sharing for EHB is less than the annual 
limitation on cost sharing.
    In the interim final rule, we noted the possibility that for a very 
small number of plans with unique cost-sharing structures, the amounts 
that enrollees would have been paid under the plan might not be fairly 
estimated using the simplified methodology. We considered a process in 
which a QHP issuer of such a plan may notify HHS if it believes that 
this is the case for one or more of its plans. We considered requiring 
such a notification within ninety days of the beginning of the 
applicable benefit year, and we considered requiring the QHP issuer to 
provide information on the unique plan design supporting the QHP 
issuer's assessment.
    Under this approach, if HHS were to agree with the assessment, we 
considered requiring the QHP issuer to calculate the amount that 
enrollees would have paid under the standard plan without cost-sharing 
reductions by applying the standard plan's actuarial value, as 
calculated pursuant to 45 CFR156.135, to the allowed costs for EHB for 
the enrollees for the benefit year. If HHS were to disagree with the 
issuer's assessment, the QHP issuer would calculate such amounts using 
the effective cost-sharing parameters under the approach described in 
paragraphs (4)(i) through (4)(iii) of the interim final rule (or 
paragraph (4)(iv), if applicable).
    We sought comments on whether we should adopt such an approach, and 
on the specifics outlined above. In particular, we sought comments on 
the types of plans, if any, for which it would be difficult to fairly 
calculate the amount that enrollees would have paid under the standard 
plan without cost-sharing reductions using the simplified methodology, 
and their prevalence. We sought comments on the standard that should 
apply for determining whether the plan will be exempted from using the 
simplified methodology, and how HHS should make that determination. 
Finally, we requested comments on what estimation methodology should be 
used if the plan is determined to be exempt, and if it is not.
    We did not receive any specific comments on this proposal, though 
as noted above, some commenters suggested that for certain plan 
designs, the simplified methodology may result in the overestimation or 
underestimation of enrollee liability, and as a result, the QHP 
issuer's actuary should be allowed greater flexibility in the 
calculation of an average deductible and an average claims ceiling, as 
long as the calculations are justified in the actuarial memorandum.
    Because we did not receive any comments supporting this proposal, 
or any examples of plans for which the simplified methodology would not 
adequately approximate cost sharing, we are not finalizing this 
approach.
    Comment: We received a comment that relates generally to the 
reconciliation of cost-sharing reduction payments. The commenter asked 
whether a QHP issuer that is using the standard methodology must re-
adjudicate the claims sequentially as if the enrollees were in the 
standard plan.
    Response: QHP issuers using the standard methodology should 
adjudicate the claims in a manner that will yield an accurate 
calculation of the amount of cost sharing that enrollees would have 
paid under the standard plan. If sequential adjudication of claims is 
not necessary to do so, the issuer is not required to engage in 
sequential adjudication.
Summary of Regulatory Changes
    We are modifying Sec.  156.430(c)(3) to specify that QHP issuers 
may only choose the simplified methodology for calculating the amounts 
that would have been paid under the standard plan without cost-sharing 
reductions for benefit years 2014 through 2016. We also are modifying 
Sec.  156.430(c)(4) to address unique benefit structures and

[[Page 65077]]

reduce potential biases in the formulas. We are clarifying how QHP 
issuers should calculate the effective cost-sharing parameters for 
self-only coverage, other than self-only coverage, medical services, 
and pharmaceutical services.
d. Failure To Reduce an Enrollee's Premium To Account for Advance 
Payments of the Premium Tax Credit (Sec.  156.460(c))
    We also proposed to add new paragraph (c) to Sec.  156.460, 
providing that if a QHP issuer discovers that it did not reduce the 
portion of the premium charged to or for the enrollee for the 
applicable month(s) by the amount of the advance payment of the premium 
tax credit as required in Sec.  156.460(a)(1), the QHP issuer would be 
required to refund to the enrollee any excess premium paid by or for 
the enrollee and notify the enrollee of the improper application no 
later than 30 calendar days after the QHP issuer discovers the error. 
We noted that a QHP issuer may provide the refund to the enrollee by 
reducing the enrollee's portion of the premium in the following month, 
as long as the reduction is provided no later than 30 calendar days 
after the QHP issuer discovers the improper reduction. If the QHP 
issuer elects to provide the refund by reducing the enrollee's portion 
of the premium for the following month, and the refund exceeds the 
enrollee's portion of the premium for the following month, then the QHP 
issuer would need to refund to the enrollee the excess no later than 30 
calendar days after the QHP issuer discovers the improper reduction. We 
also noted that we were also considering that for each quarter 
beginning in 2015, a QHP issuer would be required to provide a report 
to HHS and the Exchange, in a manner and timeframe specified by HHS, 
detailing the occurrence of instances of improper applications of the 
requirements of Sec.  156.460.
    Comment: Several commenters supported a 30-day timeframe for 
issuers to refund excess advance payment of the premium tax credit to 
enrollees, while other commenters stated that a 60-day timeframe is 
more realistic. Another recommended a 90-day timeframe given the 
challenges of enrollment reconciliation and resolution of 
discrepancies. One commenter noted that associated refunds are commonly 
performed through batch processing which could take more than 30 
calendar days to correct, and suggested that HHS allow a longer 
timeframe to account for such administrative processes.
    Response: In consideration of the timeframes for enrollment 
reconciliation and resolution processes we are extending the timeframe 
for QHP issuers to provide refunds in such cases to within 45 days of 
discovery of the error. This timeframe aligns with the timeframe 
established under Sec.  156.410 with respect to misapplication of cost-
sharing reductions.
    Comment: Several commenters suggested that issuers be allowed to 
apply such refundable amounts to the premium due in subsequent months 
through the end of the benefit year, and that a refund be provided only 
at the request of the enrollee. One commenter noted that issuing a 
partial refund and partial credit in a given month may be confusing to 
consumers, and does not align with standard practice today. Another 
commenter recommended that consumers should have the option of 
receiving a refund directly.
    Response: In response to comments, we are modifying the proposed 
policy in this final rule. In particular, if a QHP issuer discovers 
that it did not reduce an enrollee's premium by the amount of the 
advance payment of the premium tax credit, then, upon request by or for 
the enrollee, the QHP issuer must refund to the enrollee any excess 
premium paid by or for the enrollee within 45 calendar days of 
discovery of the improper reduction. However, if a direct refund is not 
requested, the QHP issuer may apply the total remaining excess premium 
paid by or for the enrollee to the enrollee's portion of the premium 
each month for the remainder of the period of enrollment or benefit 
year, until the excess is fully applied. If any excess premium paid by 
or for the enrollee remains at the end of the period of enrollment or 
benefit year, the QHP issuer would be required to refund the excess 
within 45 calendar days of discovery or the error.
    Additionally, we clarify that this provision would not prevent a 
QHP issuer from recouping excess funds from the enrollee, if the QHP 
reduced the enrollee's portion of the premium by more than the advance 
payment of the premium tax credit.
    Comment: Two commenters supported a standard requiring quarterly 
error reports, although one suggested that such reports be delayed 
until 2016. One commenter recommended a semi-annual report. Another 
commenter stated that such reports duplicate information in the monthly 
enrollment reconciliation reports.
    Response: Taking into consideration the comments received and to 
align with the policy finalized in Sec.  156.410, we are not 
establishing a quarterly reporting standard. We require issuers to 
report if they did not reduce the portion of the premium charged to or 
for the enrollee for the applicable month(s) by the amount of the 
advance payment of the premium tax credit as part of the annual 
reporting requirements set forth in Sec.  156.480(b) of this final 
rule.
Summary of Regulatory Changes
    We are finalizing these provisions as proposed with the following 
modifications. We are increasing the time period for issuing refunds 
from 30 to 45 days. We are also permitting the QHP issuer to apply the 
total excess premium paid by or for the enrollee to the enrollee's 
portion of the premium each month for the remainder of the period of 
enrollment or benefit year, except that the QHP issuer must refund the 
excess premium within 45 days of a request for the refund by or for the 
enrollee or within 45 days following the end of the period of 
enrollment or benefit year.
e. Oversight of the Administration of Cost-Sharing Reductions and 
Advance Payments of the Premium Tax Credit Programs (Sec.  156.480)
    In Sec.  156.480, we proposed general provisions related to the 
oversight of QHP issuers in relation to cost-sharing reductions and 
advance payments of the premium tax credit. We proposed to apply 
certain standards proposed in Part 156, subpart H for QHP issuers 
participating in FFEs to QHP issuers participating in the individual 
market on a State Exchange. In paragraph (a), we proposed to extend the 
standards set forth in proposed Sec.  156.705 concerning maintenance of 
records to a QHP issuer in the individual market on a State Exchange in 
relation to cost-sharing reductions and advance payments of the premium 
tax credit. We also proposed that QHP issuers ensure that any delegated 
and downstream entities adhere to these requirements. We noted that a 
QHP issuer and its delegated and downstream entities may satisfy this 
standard by maintaining the relevant records for a period of 10 years 
and ensuring that they are accessible if needed in the event of an 
investigation or audit.
    We also proposed that QHP issuers participating in State Exchanges 
and FFEs be subject to reporting and oversight requirements. In 
particular, in paragraph (b), we proposed that an issuer that offers a 
QHP in the individual market through a State Exchange or an FFE report 
to HHS annually, in a timeframe and manner required by HHS, summary 
statistics with respect to administration of cost-

[[Page 65078]]

sharing reductions and advance payments of the premium tax credit. 
Additionally, in paragraph (c) we proposed that HHS or its designee may 
audit an issuer that offers a QHP in the individual market through a 
State Exchange or an FFE to assess compliance with the requirements of 
this subpart and ensure appropriate use of Federal funds.
    Comment: In response to proposed Sec.  156.480(b), several 
commenters stated that the annual reports will be critical to 
protecting consumer rights, while others argued that this information 
will already be in HHS's possession. Another commenter recommended that 
HHS rely on market conduct examinations to conduct oversight. One 
commenter asked for more information on the rationale for and content 
of these reports.
    Response: As discussed in the proposed rule, the annual reports 
will permit HHS to obtain summary information regarding cost-sharing 
reductions and advance payments of the premium tax credit across a 
broad range of issuers and identify any systemic issues and errors, 
without requiring annual audits. These reports will contain information 
not available to HHS through other channels, such as data on 
misapplications of cost-sharing reductions and advance payments of the 
premium tax credit. We believe that a consolidated report from all 
applicable issuers with respect to these programs will assist HHS in 
effectively targeting oversight activities and identifying problems 
that affect multiple issuers.
    Comment: One commenter asked HHS to clarify the meaning of 
``delegated entities'' and ``downstream entities'' that are subject to 
the requirement, and noted that the requirement should only apply to 
entities responsible for keeping records associated with advance 
payments of the premium tax credit or cost-sharing reductions.
    Response: The terms ``delegated entity'' and ``downstream entity'' 
are defined at Sec.  156.20. Furthermore, as noted in Sec.  156.480(a), 
the maintenance of records standard applies to relevant delegated 
entities and downstream entities only in connection with cost-sharing 
reductions and advance payments of the premium tax credit.
    Comment: We received a comment asking for further guidance on how 
Navigators, consumers, and other entities can report instances of non-
compliance to HHS.
    Response: We note that consumers, Navigators, and other entities 
can report issuer non-compliance to HHS through communication channels 
offered to consumers, such as the Health Insurance Marketplace Call 
Center, where such reports will be entered into the casework tracking 
system and addressed by CMS.
    Comment: One commenter asked HHS to clarify that any self-reported 
error rates will not be used as a basis for civil money penalties or 
decertification, since both penalties may be imposed for non-compliance 
with cost-sharing reduction and advance payment of the premium tax 
credit requirements. Another commenter asked HHS to provide guidance on 
how it will collect and respond to reports of non-compliance by QHP 
issuers and others.
    Response: HHS will collect information from QHP issuers on the 
administration of cost-sharing reductions and advance payments of the 
premium tax credit, including error rates, through the annual reports 
described in Sec.  156.480(b). We anticipate that this information will 
be used to inform an oversight and audit strategy with respect to these 
programs, and will be provided to the State Exchanges and utilized by 
the FFE as applicable for oversight and enforcement activities such as 
decertification and CMPs. We note that the 2014 policy of 
nonenforcement of CMPs in instances of good faith established in Sec.  
156.800 would apply in 2014 with respect to such errors.
    Comment: One commenter suggested limiting the record retention 
requirement to 6 years, while another supported the proposed timeframe.
    Response: As previously noted in this final rule, we are finalizing 
the maintenance of records provisions retention standard as proposed, 
in alignment with the statute of limitations for the False Claims Act 
and existing Exchange regulations.
    Comment: One commenter requested that HHS provide further 
information on the timeframe and procedure of proposed audits, 
suggested that audits should be limited to three years after the 
completion of a benefit year, and recommended that HHS specify a 
mechanism by which issuers can challenge the audit findings.
    Response: We intend to provide detailed guidance in the future and 
will seek comment on our audit process prior to finalization in order 
to ensure a transparent program and consistent audits. We are 
considering conducting audits in a manner that is coordinated across 
all programs and FFE compliance reviews to limit the number of 
potential audits that an organization would experience.
Summary of Regulatory Changes
    We are finalizing these provisions and modifying paragraph (b) to 
specify that the annual reports must contain summary statistics with 
respect to the application of cost-sharing reductions and advance 
payments of the premium tax credit, including any failure to adhere to 
the standards set forth under Sec.  156.410(a) through (d), Sec.  
156.425(a) through (b), and Sec.  156.460(a) through (c) of this Part.
5. Subpart H--Oversight & Financial Integrity Requirements for Issuers 
of Qualified Health Plans in Federally-Facilitated Exchanges
a. Maintenance of Records for Federally-Facilitated Exchanges (Sec.  
156.705)
    We proposed in Sec.  156.705(a) that issuers offering QHPs in an 
FFE maintain all documents and records (whether paper, electronic, or 
other media) and other evidence of accounting procedures and practices, 
which are critical for HHS to conduct activities necessary to safeguard 
the financial and programmatic integrity of the FFEs. We proposed that 
such activities include: (1) Periodic auditing of the QHP issuer's 
financial records related to the QHP issuer's participation in an FFE, 
and to evaluate the ability of the QHP issuer to bear the risk of 
potential financial losses; and (2) compliance reviews and other 
monitoring of a QHP issuer's compliance with all Exchange standards 
applicable to issuers offering QHPs in the FFE listed in part 156. We 
proposed limiting the scope of this requirement to Exchange-specific 
records as applicable to the FFEs. In Sec.  156.705(b), we proposed 
that the records described in proposed paragraph (a) of this section 
include the sources listed in proposed Sec.  155.1210(b)(2), (b)(3), 
and (b)(5) in order to align the record maintenance standards of the 
FFEs and State Exchanges to the extent possible. In Sec.  156.705(c), 
we proposed that issuers offering QHPs in an FFE must maintain the 
records described in this section, as well as records required by Sec.  
155.710 (to determine SHOP eligibility), for 10 years. Proposed Sec.  
156.705(d) explained that the records referenced in paragraph (a) must 
be made available to HHS, the OIG, the Comptroller General, or their 
designees, upon request. We stated that the proposed standards pertain 
only to Exchange-specific areas of concern (for example, matters 
pertaining to advance payments of premium tax credits or cost-sharing 
reductions) within the FFEs, as HHS would expect the State DOI to 
oversee the maintenance of records pertaining to other aspects of

[[Page 65079]]

QHP issuer operations as required under State law.
    Comment: Several commenters requested that HHS require maintenance 
and review of records related to particular standards in part 156, 
including QHP provider network adequacy, and the availability of 
essential community providers. Commenters also requested that HHS 
review documentation related to wellness programs, rating rules, 
essential health benefit requirements, and other applicable market 
reforms included in the Affordable Care Act, particularly in direct 
enforcement States.
    Response: Under Sec.  156.715, which we are finalizing in this 
final rule, HHS will be conducting compliance reviews to ensure that 
issuers offering QHPs in the FFE comply with Exchange standards as 
applicable to them. These include the standards related to network 
adequacy under Sec.  156.230 and the standards related to essential 
community providers under Sec.  156.235. Section 156.705 only applies 
to maintenance of records pertaining to FFEs, as we expect that QHP 
issuers will also have to comply with other aspects of issuer 
operations as required under state law.
    Comment: Several commenters recommended the 10-year record 
maintenance standards be reduced to 6 or 7 years.
    Response: We are finalizing the maintenance of records provisions 
as proposed, in alignment with the statute of limitations for the False 
Claims Act and existing related regulations. A civil action may be 
brought under the False Claims Act ``no more than 10 years after the 
date on which the violation is committed.'' Additionally, similar 10-
year record retention standards were previously finalized in the 
Exchange Establishment Rule and the Premium Stabilization Rule. We 
believe that maintaining consistency in our record retention standards 
will help ensure that entities maintain records across programs in a 
consistent manner, allowing HHS and States to coordinate oversight 
efforts across those program areas and reduce the burden on 
stakeholders. QHP issuers have the choice to maintain records in either 
paper or electronic format. We note that the 10-year obligation to 
retain records begins when the record is created.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  156.705 without 
modification.
b. Compliance Reviews of QHP Issuers in Federally-Facilitated Exchanges 
(Sec.  156.715)
    In Sec.  156.715 we proposed that QHP issuers will be subject to 
compliance review by HHS to ensure ongoing compliance with Exchange 
standards applicable to issuers offering QHPs in FFEs. We proposed the 
scope of the compliance reviews and the window of time that such 
compliance reviews could be conducted.
    Comment: We received comments supporting HHS's authority to conduct 
compliance reviews of QHP issuers in the FFEs and no comments opposing 
this provision.
    Response: We are finalizing our policy as proposed.
Summary of Regulatory Changes
    We are finalizing this provision with the correction of a 
typographical error in paragraph (c).
6. Subpart J--Administrative Review of QHP Issuer Sanctions in a 
Federally-Facilitated Exchange
a. Administrative Review in a Federally-Facilitated Exchange 
(Sec. Sec.  156.901 Through 156.963)
    In Subpart J, we proposed the administrative hearing process for 
issuers of QHPs in an FFE against which an enforcement action has been 
taken. The process is intended to provide the issuer an opportunity to 
submit evidence to be considered by the administrative law judge (ALJ) 
in determining whether a basis exists to assess a CMP against or 
decertify a QHP offered by the respondent, and whether the amount of 
the assessed CMP is reasonable, if applicable. Our proposed process is 
modeled after the appeals process for individuals and entities against 
which a CMP has been imposed in the individual and group health 
coverage markets. We did not receive any comments on our proposed 
regulations in this Subpart J.
    In Sec.  156.805(d), we proposed that, if HHS proposes to assess a 
CMP under subpart I, HHS will send written notice of intent to issue a 
CMP to the QHP issuer concerned. Similarly, in Sec.  156.810(c) and 
(d), we proposed that, for standard and expedited decertifications, HHS 
will notify the QHP issuer, enrollees in the QHP, and the State DOI in 
the State in which the QHP is being decertified of HHS's intent 
decertify a QHP offered by the issuer. We note that the notice under 45 
CFR 156.805(d) and 156.810(c) and (d) is different from, and in 
addition to, the notice required under 45 CFR 155.1080. In Sec.  
156.805 and Sec.  156.810, we set forth the process by which QHP 
issuers will be notified formally of HHS's intent to issue a CMP or 
decertify one or more of their QHPs, the grounds for the enforcement 
action, and other specified information, including information about 
the process for requesting an appeal. The 30-day clock for requesting 
an appeal under 45 CFR 156.905(a) starts on the date of issuance of 
HHS's notice of intent to issue a CMP under Sec.  156.805 or notice of 
decertification of a QHP under Sec.  156.810(c) or (d). By contrast, 45 
CFR 155.1080 requires that notice be sent to the QHP issuer, enrollees 
in the QHP, and the State DOI when the decertification is final and no 
longer appealable. Furthermore, 45 CFR 155.1080 does not apply in the 
case of a CMP. We are finalizing 45 CFR part 156, subpart J as 
proposed, except for a minor change to Sec.  156.963, described below.
Summary of Regulatory Changes
    We are finalizing these provisions of 45 CFR part 156, subpart J as 
proposed, with two exceptions. We are not finalizing Sec.  156.949, and 
we are making a minor change to correct the reference to the ``final 
order'' in Sec.  156.963. We are replacing ``the final order described 
in Sec.  156.945'' with ``the final order imposing a civil money 
penalty.''
7. Subpart L--Quality Standards
a. Establishment of Standards for HHS-Approved Enrollee Satisfaction 
Survey Vendors for Use by QHP Issuers in Exchanges (Sec.  156.1105)
    In Sec.  156.1105, we proposed processes by which HHS would approve 
and oversee enrollee satisfaction survey vendors that will administer 
enrollee satisfaction surveys on behalf of QHP issuers. We proposed 
that enrollee satisfaction survey vendors be approved for one year 
terms and would be required to submit an annual application 
demonstrating that they meet all of the application and approval 
standards. We also proposed listing HHS-approved enrollee satisfaction 
survey vendors on an HHS Web site. We received several comments and our 
responses to Sec.  156.1105 are set forth below.
    Comment: Commenters generally supported the proposal to establish 
an application and review process for enrollee satisfaction survey 
vendors. Commenters supported the proposed requirements that will 
ensure that enrollee satisfaction survey vendors abide by standards for 
integrity, including privacy and security standards. Commenters also 
supported establishing standards for QHP issuers

[[Page 65080]]

to use only HHS-approved vendors to ensure consistency and integrity in 
enrollee satisfaction survey administration.
    Response: We are adopting the regulation as proposed to have HHS 
approve and oversee enrollee satisfaction survey vendors that meet 
certain standards. As stated in the proposed rule, we intend to 
promulgate future rulemaking requiring QHP issuers to contract with 
HHS-approved survey vendors to administer enrollee satisfaction 
surveys. By finalizing as proposed, we are ensuring that enrollee 
satisfaction survey vendors will be approved by mid-2014. We believe 
that this will allow QHP issuers adequate time to contract with these 
vendors by late 2014, prior to the implementation of any relevant 
quality reporting standards.
    Comment: Commenters suggested that HHS utilize one enrollee 
satisfaction survey vendor on behalf of all QHPs. Commenters also 
suggested that issuers have a role in the survey vendor application 
process.
    Response: We believe that allowing multiple enrollee satisfaction 
survey vendors the opportunity to apply for approval will encourage a 
competitive market of qualified enrollee satisfaction survey vendors. 
Therefore, HHS is finalizing the proposal to establish a standardized 
process to review and approve multiple enrollee satisfaction survey 
vendors. We intend for QHP issuers, along with the public, to have an 
opportunity to provide comments on other draft documents related to the 
enrollee satisfaction survey vendor application and approval process. 
Further, while QHP issuers will not have a direct role in HHS review 
and approval of enrollee satisfaction survey vendors, QHP issuers are 
expected to have a choice of enrollee satisfaction survey vendors with 
which to contract, including those with which the issuers may already 
have a business relationship, for example, to administer other surveys 
like the Consumer Assessment of Healthcare Providers and Systems 
(CAHPS[supreg]) survey on behalf of the issuer. Additionally, QHP 
issuers will have the opportunity to provide to HHS comment and 
feedback related to the work of approved enrollee satisfaction survey 
vendors.
    Comment: Commenters requested affirmation that enrollee 
satisfaction survey vendors would be required to adhere to non-
discrimination standards.
    Response: Enrollee satisfaction survey vendors, as ``delegated 
entities'' of QHP issuers defined in 45 CFR 156.20 and set forth in 45 
CFR 156.340, would be required to meet any non-discrimination standards 
required of QHP issuers, as specified in 45 CFR 156.200(e).
    Comment: Commenters requested that enrollee satisfaction survey 
vendors translate the enrollee satisfaction survey into different 
languages for populations representing a certain enrollment threshold, 
for example any language for which a QHP issuer's enrollment meets a 
threshold of 5 percent or 1000 primary speakers.
    Response: Enrollee satisfaction survey vendors will not be 
responsible for translating the enrollee satisfaction survey. HHS is 
developing the enrollee satisfaction survey system as required by 
section 1311(c)(4) of the Affordable Care Act and will provide 
translated versions of the survey to ensure consistency across all 
surveys. HHS will provide enrollee satisfaction survey vendors with 
versions in English, Spanish, and Chinese, which align with current 
translation standards for the Medicare Advantage CAHPS[supreg] Health 
Plan surveys.
    Comment: Commenters supported the recommendation that HHS utilize 
the CAHPS[supreg] Health Plan survey as a model for the enrollee 
satisfaction survey to assess patient experience with QHP issuers. 
Another commenter suggested using the existing CAHPS[supreg] Health 
Plan survey without modification.
    Response: As stated in the proposed rule, we intend to establish in 
future rulemaking that the enrollee satisfaction survey will be modeled 
on the CAHPS[supreg] 5.0 Health Plan survey, which assesses patients' 
satisfaction and experience with their health care, personal doctors, 
and health plans. In a Federal Register Notice published June 28, 
2013,\19\ we sought public comment on the Enrollee Satisfaction Survey 
Data Collection, including the draft surveys. Commenters may wish to 
review the draft enrollee satisfaction surveys.
---------------------------------------------------------------------------

    \19\ Agency Information Collection Activities: Proposed 
Collection; Comment Request, 78 FR 38986 (June 28, 2013).
---------------------------------------------------------------------------

    Comment: Commenters requested that CMS articulate detailed 
implementation standards for the enrollee satisfaction survey. 
Commenters also requested that results of the survey be shared with 
State Exchanges.
    Response: As indicated in the proposed rule, we are planning to 
issue future regulations that will include detailed implementation 
standards for the enrollee satisfaction surveys as they relate to QHP 
issuers and Exchanges. Further, 45 CFR 155.205(a)(iv) requires 
Exchanges to display the enrollee satisfaction results on their Web 
sites.
    Comment: Several commenters made remarks about the content of the 
enrollee satisfaction survey, including requests that the survey 
assess: Provider satisfaction with QHP issuers and the experience of 
families and pediatricians that interact with the Exchange for their 
children's coverage, and satisfaction with Exchanges overall, including 
the eligibility determination processes, plan selection, and in-person 
and telephonic assistance. Other commenters requested that HHS ensure 
experience of the Exchange is not attributed to QHP issuer performance. 
Finally, commenters cited their previously submitted comments in 
response to an HHS solicitation for comments on enrollee satisfaction 
measures and asked that their comments be considered.\20\
---------------------------------------------------------------------------

    \20\ Request for Domains, Instruments, and Measures for 
Development of a Standardized Instrument for Use in Public Reporting 
of Enrollee Satisfaction With Their Qualified Health Plan and 
Exchange 77 FR 37409 (June 21, 2012).
---------------------------------------------------------------------------

    Response: Comments with regard to the content of the surveys are 
outside the scope of this final rule, which includes standards for the 
application and approval process for enrollee satisfaction survey 
vendors. However, as previously mentioned, commenters can review the 
draft surveys as part of the Enrollee Satisfaction Survey Data 
Collection, including the QHP Survey and the Marketplace Survey. 
Comments submitted in response to the June 21, 2013 call for measures 
will be considered in the development of the enrollee satisfaction 
survey.
Summary of Regulatory Changes
    We are finalizing the provisions proposed in Sec.  156.1105 without 
modification.
8. Subpart M--Qualified Health Plan Issuer Responsibilities
a. Confirmation of HHS Payment and Collections Reports (Sec.  156.1210)
    We noted in the proposed rule that we anticipate sending each 
applicable issuer a monthly payment and collections report. This report 
will show, with respect to certain provisions under Title I of the 
Affordable Care Act, payments the Federal government owes to the 
issuer, as well as those the issuer owes the Federal government. For 
the 2014 benefit year, we anticipate issuing a detailed monthly report, 
also known as the HIX 820, that will describe the advance payments of 
the premium tax credit and advance payments of cost-sharing reductions 
that the Federal government is paying to the issuer for each policy 
listed on the payment report, any amounts owed by the issuer for FFE 
user fees, as well as any adjustments from previous payments

[[Page 65081]]

under those programs. The issuer will need to review this detailed 
payment and collections report against the payments it expects for each 
policy based on the eligibility and enrollment information transmitted 
by the Exchange, and any amounts it expects the Federal government to 
collect for FFE user fees.\21\ In Sec.  156.1210 we proposed that, 
within 15 calendar days of the date of a payment and collections 
report, the issuer would either confirm to HHS that the payment and 
collections report accurately lists payments owed by and to the issuer 
for the timeframe specified in the payment and collections report, or 
would describe to HHS any inaccuracy it identifies in these amounts 
(including incorrect payment amounts, or extra or missing policies in 
the report). These notifications would be provided in a format 
specified by HHS. We stated that HHS will work with issuers to resolve 
any discrepancies between the amounts listed in the HIX 820 payment and 
collections report and the amounts the issuer believes it should 
receive for the time period specified in the report. This proposed 
provision's verification timeframe helps align enrollment and 
eligibility data transmitted by the Exchange, payments provided by and 
collected by the Federal government, and the issuer's own records of 
payments due. This provision will also help ensure that the correct 
amounts of advance payments of the premium tax credit and cost-sharing 
reductions are paid to issuers on behalf of eligible individuals in a 
timely manner. The ability of HHS to identify and correct these errors 
promptly protects enrollees from unanticipated tax liability that could 
result if the advance payments of the premium tax credit they receive 
are greater than the amounts of premium tax credit authorized by the 
Exchange and accepted by the enrollee.
---------------------------------------------------------------------------

    \21\ We note that in order to provide issuers with more lead 
time to review the payment and collections report, HHS also 
anticipates providing an initial statement listing anticipated 
payments and charges. Issuers will not be under any obligation to 
respond to this initial statement.
---------------------------------------------------------------------------

    Comment: We received several comments seeking further information 
about the HIX 820 payment and collections report.
    Response: In the fall of 2013, HHS intends to publish a Companion 
Guide to the HIX 820 payment and collections report. HHS offered 
related issuer training in September.
    Comment: Some commenters suggested that issuers would need at least 
30 days to analyze and respond to the HIX 820 payment and collections 
report. Another commenter suggested that there should be at least a 60-
day lag between the dates covered by the payment and collections report 
and the date it is sent to issuers.
    Response: We are aware that in some cases, particularly in this 
first year of operations, issuers may find it difficult to perform a 
full analysis of the payment and collections report and provide a 
response. However, it is largely due to the challenges of the first 
year of operations that we proposed a 15-day verification period--this 
short time lag will help HHS adjust any discrepancies as soon as 
possible. As we discuss below, if an issuer is unable to meet the 15-
day timeline, it will have later opportunities to note discrepancies.
    Comment: Several commenters expressed concern about the potential 
consequences of failing to report a discrepancy. Other commenters 
suggested that there should be a retroactive payment correction 
process, or an appeals process, to update eligibility and enrollment 
determinations based upon information received late.
    Response: We recognize that there are legitimate circumstances in 
which an issuer might not discover an inaccuracy within the 15-day 
timeline set forth in Sec.  156.1210, and we do not wish to penalize an 
issuer in such circumstances. Therefore, we are adding a new paragraph 
(b) to Sec.  156.1210 stating that HHS will work with issuers to 
resolve discrepancies reported by an issuer after the 15-day deadline, 
as long as the late discovery of the discrepancy was not due to 
misconduct on the part of the issuer. We are also considering 
establishing in future rulemaking a final deadline after which 
discrepancies cannot be reported, as well as an administrative appeals 
process that would be available to issuers that are not satisfied with 
the result of that process.
Summary of Regulatory Changes
    We are finalizing Sec.  156.1210, with the following modifications. 
We are redesignating paragraphs (a) and (b) as paragraphs (a)(1) and 
(a)(2) and are adding a new paragraph (b) to state that if an issuer 
reports a discrepancy in a payment and collections report later than 15 
calendar days after the date of the report, HHS will work with the 
issuer to resolve the discrepancy as long the late reporting by the 
issuer was not due to misconduct on the part of the issuer. And because 
HHS's payments will technically be made by the U.S. Treasury, we are 
modifying Sec.  155.1210(a)(1) to clarify that the payments owed by and 
to the issuer listed on the payment and collections report are payments 
to and from the Federal government.

III. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-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.
    The following sections of this document contain estimates of burden 
imposed by the associated information collection requirements (ICRs); 
however, not all of these estimates are subject to the ICRs under the 
PRA for the reasons noted. Estimated salaries for the positions cited 
were mainly taken from the Bureau of Labor Statistics (BLS) Web site 
(http://www.bls.gov/oco/ooh_index.htm). The estimated salaries for the 
health policy analyst and the senior manager were taken from the Office 
of Personnel Management Web site. Fringe Benefits estimates were taken 
from the BLS March 2013 Employer Costs for Employee Compensation 
Report.\22\
---------------------------------------------------------------------------

    \22\ BLS March 2013 Employer Costs for Employee Compensation 
Report (March 12, 2013). Available at: http://www.bls.gov/news.release/ecec.toc.htm.
---------------------------------------------------------------------------

    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 Program Integrity Provisions Related to State 
Operation of the Reinsurance Program (Sec.  153.260)

    In Sec.  153.260, we direct a State-operated reinsurance program 
to: (1) Keep an accurate accounting of reinsurance contributions, 
payments, and administrative expenses; (2) submit to HHS and make 
public a summary report on program operations; and (3) engage an 
independent qualified auditing entity to perform a financial

[[Page 65082]]

and programmatic audit for each benefit year, provide the audit results 
to HHS, and make public a summary of the audit results. Fewer than 10 
States have informed HHS that they will operate reinsurance for the 
2014 benefit year. While these reinsurance records requirements are 
subject to the PRA, we believe the associated burden is exempt under 5 
CFR 1320.3(c)(4) and 44 U.S.C. 3502(3)(A)(i), since fewer than 10 
entities would be affected. Therefore, we are not seeking approval from 
OMB for these information collection requirements.

B. ICRs Regarding Program Integrity Provisions Related to State 
Operation of the Risk Adjustment Program (Sec.  153.310(c)(4) and Sec.  
153.310(d)(3)-(4), and Sec.  153.365)

    In Sec.  153.310(c)(4), Sec.  153.310(d)(3)-(4), and Sec.  153.365, 
we require a State operating risk adjustment to: (1) Retain records for 
a 10-year period; (2) submit an interim report in its first year of 
operation; (3) submit to HHS and make public a summary report on 
program operations for each benefit year; and (4) keep an accurate 
accounting for each benefit year of all receipts and expenditures 
related to risk adjustment payments, charges, and administrative 
expenses. Fewer than 10 States have informed HHS that they will operate 
risk adjustment for the 2014 benefit year. Since the burden associated 
with collections from fewer than 10 entities is exempt from the PRA 
under 5 CFR 1320.3(c)(4) and 44 U.S.C. 3502(3)(A)(i), we are not 
seeking approval from OMB for the risk adjustment information 
collection requirements. However, if more than nine States elect to 
operate risk adjustment in the future, we will seek approval from OMB 
for these information collections.

C. ICRs Regarding Maintenance of Records for Contributing Entities and 
Issuers of Reinsurance-Eligible Plans (Sec.  153.405(h) and Sec.  
153.410(c))

    In Sec.  153.405(h) and Sec.  153.410(c), we included record 
retention standards for contributing entities and issuers of 
reinsurance-eligible plans. In Sec.  153.405(h), we require 
contributing entities to maintain documents and records, whether paper, 
electronic, or in other media, sufficient to substantiate the 
enrollment count submitted pursuant to Sec.  153.405(b) for a period of 
at least 10 years, and to make those documents and records available 
upon request to HHS, the OIG, the Comptroller General, or their 
designees, for purposes of verification of reinsurance contribution 
amounts. This requirement may be satisfied if the contributing entity 
archives the documents and records and ensures that they are accessible 
if needed in the event of an investigation or audit.
    We estimate that 26,200 contributing entities will be subject to 
this requirement, based on the Department of Labor's (DOL) estimated 
count of self-insured plans and the number of fully insured issuers 
that we estimate will make reinsurance contributions.\23\ We believe 
that most of these contributing entities will already have the systems 
in place for record maintenance, and that the additional burden 
associated with this requirement is the time, effort, and additional 
labor cost required to maintain the records. On average, we estimate 
that it will take each contributing entity approximately 5 hours 
annually to maintain records. We estimate that it will take an 
insurance operations analyst 5 hours (at $38.49 per hour) to meet the 
requirements in Sec.  153.405(h). On average, the cost for each 
contributing entity would be approximately $192.45 annually. Therefore, 
for 26,200 contributing entities, we estimate an aggregate burden of 
$5,042,190.00 and 131,000 hours as a result of this requirement.
---------------------------------------------------------------------------

    \23\ We use an estimate of self-insured entities published by 
the DOL in the March 2013 ``Report to Congress: Annual Report of 
Self-insured Group Health Plans,'' which reflects only those self-
insured health plans (including 19,800 self-insured plans and 4,000 
plans that mixed self-insurance and insurance) that are required to 
file a Form 5500 with the DOL.
---------------------------------------------------------------------------

    In Sec.  153.410(c), we require issuers of reinsurance-eligible 
plans to maintain documents and records, whether paper, electronic, or 
in other media, sufficient to substantiate the requests for reinsurance 
payments made pursuant to Sec.  153.410(a) for a period of at least 10 
years, and must make that evidence available upon request to HHS, the 
OIG, the Comptroller General, or their designees, (or, in the case of a 
State operating reinsurance, the State or its designees), for purposes 
of verification of reinsurance payment requests. We estimate that 1,900 
issuers of reinsurance-eligible plans will be subject to this 
requirement, based on HHS's most recent estimate of the number of fully 
insured issuers that will submit requests for reinsurance payments. On 
average, we estimate that it will take each issuer of a reinsurance-
eligible plan approximately 10 hours annually to maintain the records. 
We estimate that it will take an insurance operations analyst 10 hours 
(at $38.49 per hour) to meet these requirements. On average, the cost 
estimate for each issuer is approximately $384.90 annually. Therefore, 
for 1,900 issuers, we estimate an aggregate burden of $731,310.00 and 
19,000 hours as a result of this requirement.
    The burden estimates for these two recordkeeping requirements are 
broad estimates that include not only the maintenance of data, but all 
records and documents that may be necessary to substantiate the 
enrollment count and requests for reinsurance payments made pursuant to 
45 CFR 153.405 and 153.410, respectively. Because the scope of these 
requirements is substantially narrower than the scope of the 
recordkeeping requirement applicable to a State operating reinsurance, 
these estimates are lower than those that were set forth for the State-
operated reinsurance programs record maintenance requirement (45 CFR 
153.240(c)) in the Premium Stabilization Rule published March 23, 2012 
(77 FR 17220), and the associated information collection request 
approved under OMB Control Number 0938-1155. We note that we will 
account for the additional burden associated with submitting this 
information to HHS in a future information collection request that will 
go through the requisite notice and comment period and subsequent OMB 
review and approval process.

D. ICRs Related to Oversight and Financial Integrity Standards for 
State Exchanges (Sec.  155.1200 to Sec.  155.1210)

    In subpart M of part 155, we describe the information collection 
and third-party disclosure standards related to the oversight and 
financial integrity of State Exchanges.
    Section 155.1200(a)(1) through (3) requires the State Exchange to 
follow GAAP and to monitor and report to HHS all Exchange-related 
activities. This includes keeping an accurate accounting of all 
Exchange receipts and expenditures. The burden associated with this 
reporting requirement is the time and effort needed to develop and 
submit reports of Exchange-related activities to HHS. The State 
Exchanges will electronically maintain the information as a result of 
normal business practices; therefore, the burden does not include the 
time and effort needed to maintain the Exchange-related activity 
information. State Exchanges most likely will already have accounting 
systems in place to store accounting information. The burden associated 
with this requirement includes a computer programmer taking 8 hours (at 
$48.61 an hour) to modify the system to maintain and monitor the 
information required under Sec.  155.1200(a)(1) through (3), an analyst 
taking 8 hours (at $58.05 an hour) to pull the necessary data under

[[Page 65083]]

Sec.  155.1200(a)(1) through (3) in the State Exchange accounting 
system, and a senior manager taking 2 hours (at $77.00 an hour) to 
oversee the development and transmission of the reported data. We 
estimate that it will take 18 total hours at a cost of $1,007.28 for 
each State Exchange. Therefore, for the 18 State Exchanges, we estimate 
an aggregate burden of $18,131.04 and 324 hours as a result of this 
requirement.
    Section 155.1200(b)(1) requires the State Exchange to submit a 
financial statement, in accordance with GAAP to HHS. The information 
under Sec.  155.1200(b) must be submitted at least annually by April 1 
to HHS and must also be publicly displayed. The burden associated with 
this reporting requirement is the time and effort needed to develop and 
submit the financial statement to HHS. The State Exchanges will 
electronically submit the information. Therefore, the burden is the 
time and effort needed to develop and publically display the financial 
statement. The State Exchanges will electronically maintain the 
information as a result of normal business practices, therefore the 
burden does not include the time and effort needed to develop and 
maintain the financial information. The burden associated with this 
requirement includes a computer programmer taking 40 hours (at $48.61 
an hour) to design the financial statement report, an analyst taking 8 
hours (at $58.05 an hour) pulling the necessary data and inputting it 
into the financial statement report, and a senior manager taking 2 
hours (at $77.00 an hour) overseeing the development and transmission 
of the reported data. We estimate a burden of 50 total hours for each 
State Exchange at a cost of $2,562.80. Therefore, for the 18 State 
Exchanges, we estimate an aggregate burden of $45,410.40 and 900 hours 
as a result of this requirement.
    Section 155.1200(b)(2) requires the State Exchange to submit 
eligibility and enrollment reports to HHS. The State Exchanges will 
electronically maintain the information as a result of normal business 
practices, therefore the burden does not include the time and effort 
required to develop and maintain the source information. The burden 
associated with this reporting requirement includes the time and effort 
necessary for a computer programmer taking 40 hours (at $48.61 an hour) 
to design the report template, an analyst taking 8 hours (at $58.05 an 
hour) to compile the statistics for the report for submission to HHS, a 
privacy officer taking 8 hours (at $64.98 an hour) and senior manager 
taking 2 hours (at $77.00 an hour) overseeing the development and 
submission of the reported data. The burden also includes the time and 
effort necessary to post the data on the State Exchange Web site. We 
estimate an initial year burden of 58 hours at a cost of $3,082.64 to 
each State Exchange. Therefore, for the 18 State Exchanges, we estimate 
an aggregate burden of $55,487.52 and 1,044 hours as a result of this 
requirement.
    As discussed in Sec.  155.1200(b)(3), the State Exchange will 
report performance monitoring data to HHS. The performance monitoring 
data includes information on financial sustainability, operational 
efficiency, and consumer satisfaction which will be reported on an 
annual basis. The State Exchanges will electronically maintain the 
information as a result of normal business practices developed under 
Establishment Grants from HHS for this purpose. Therefore the burden 
does not include the time and effort needed to develop and maintain the 
performance data. The burden associated with meeting the reporting 
requirement includes the time and effort necessary for a computer 
programmer taking 40 hours (at $48.61 an hour) to design the report, 
for an analyst taking 12 hours (at $58.05 an hour) to pull data into 
the report and prepare for submission to HHS and for a senior manager 
taking 2 hours (at $77.00 an hour) to oversee the development and 
transmission of the reported data. Section 155.1200(b) requires the 
State Exchange to submit to HHS and to display publicly financial, 
eligibility and enrollment reports and performance data at least 
annually. For those measures reported annually, we estimate that in the 
initial year a burden of 54 hours at a cost of $2,795.00 for each State 
Exchange. Therefore, for the 18 State Exchanges, we estimate an 
aggregate burden of $50,031.00 and 972 hours as a result of this 
requirement. For subsequent years, when the Establishment Grant project 
period ends we estimate an additional burden of 208 hours necessary for 
the computer programmer (at $48.61 an hour) to maintain the performance 
data. For the first year, the burden for maintaining the data was 
already accounted for in the PRA package for the Exchange Establishment 
Grants (OMB Control Number 0938-1119); therefore, we are only including 
subsequent years in the ICR. We estimate that the total burden from 
year 1 will decrease to $25,016.00 assuming a decreased effort and an 
additional burden of $18,1996.00 for maintaining the data, yielding a 
total burden of $44,012.00 for subsequent years.
    Section 155.1200(b)(4) requires the State Exchange to make public a 
summary of the results of the external financial audit. The burden 
associated with this requirement is the time and effort for a computer 
programmer taking 1 hour (at $48.61 an hour) to design the summary and 
for an analyst to take 1 hour (at $58.05 an hour) to pull data into the 
summary and prepare for public display. For this requirement we 
estimate in the initial year a burden of 2 hours for the State 
Exchanges at a cost of $107.00 each and a total burden of $1926.00. 
Therefore, for the 18 State Exchanges, we estimate an aggregate burden 
of $1926.00 and 36 hours as a result of this requirement.
    Section 155.1200(c)(1) through (3) directs the State Exchange to 
engage an independent audit/review organization to perform an external 
financial and programmatic audit of the State Exchange. The State 
Exchange must provide the results of the audit and identify any 
material weakness or significant deficiency and any intended corrective 
action. The State Exchange must also make public a summary of the audit 
results. The burden associated with meeting this third party disclosure 
requirement includes the burden for an analyst level employee taking 3 
hours (at $48.61 an hour) to pull data into a report, the time and 
effort necessary for a health policy analyst taking 2 hours (at $58.05 
an hour) to prepare the report of the audit results, and the time for 
senior management taking 1 hour (at $77.00 an hour) to review and 
submit to HHS. We estimate a burden of 6 hours at a cost of $338.93 for 
each State Exchange. Therefore, for the 18 State Exchanges, we estimate 
an aggregate burden of $6,100.74 and 108 hours as a result of this 
requirement.
    As stated in Sec.  155.1210(a), the State Exchange and its 
contractors, subcontractors, and agents must maintain for 10 years, 
books, records, documents, and other evidence of accounting procedures 
and practices. Section 155.1210(b) specifies that the records include 
information concerning management and operation of the State Exchange's 
financial and other record keeping systems. The records must also 
include financial statements, including cash flow statements, and 
accounts receivable and matters pertaining to the costs of operation. 
Additionally, the records must contain any financial report filed with 
other Federal programs or State authorities. Finally, the records must 
contain data and records relating to the State Exchange's eligibility 
verifications and determinations, enrollment transactions, appeals, 
plan variation certifications, QHP contracting data, consumer outreach, 
and Navigator grant oversight information. State

[[Page 65084]]

Exchanges most likely already have systems in place to store records. 
The burden associated with this record keeping requirement includes the 
time and effort necessary for a network administrator taking 16 hours 
(at $46.86 an hour) to modify the State systems to maintain the 
information required under Sec.  155.1210(b), for a health policy 
analyst taking 8 hours (at $58.05 an hour) to enter the data under 
Sec.  155.1210(b) into the State Exchange record retention system, and 
for senior management taking 2 hours (at $77.00 an hour) to oversee 
record collection and retention. We estimate that it will take 26 hours 
at a cost of $1,368.16 for each State Exchange. Therefore, for the 18 
State Exchanges, we estimate an aggregate burden of $24,626.88 and 468 
hours as a result of this requirement.

E. ICRs Related to Change of Ownership (Sec.  156.330)

    The QHP issuer must notify HHS of the change in a manner to be 
specified by HHS and provide the legal name and tax identification 
number of the new owner of the QHP and the effective date of the change 
of ownership. The information must be submitted at least 30 days prior 
to the effective date of the change of ownership. We estimate fewer 
than 10 QHP issuers will report changes of ownership. While this 
reporting requirement is subject to the PRA, we believe the associated 
burden is exempt under 5 CFR 1320.3(c)(4) and 44 U.S.C. 3502(3)(A)(i), 
since fewer than 10 entities would be affected. Therefore, we are not 
seeking approval from OMB for these information collection 
requirements.

F. ICRs Related to Payment for Cost-Sharing Reductions (Sec.  156.430)

    Several of the provisions established in the interim final rule and 
finalized in this final rule require the collection of information.
    First, under paragraph (c)(3)(i) as established in the interim 
final rule, and finalized in this rule, a QHP issuer must notify HHS 
prior to the start of each benefit year whether or not it selects the 
simplified methodology for the benefit year. Pursuant to the Paperwork 
Reduction Act of 1995, we detailed this information collection in a 
notice requesting comment in the Federal Register (78 FR 38983), and 
estimated the total burden of this request to be $3,600,000 for 2014 
through 2016.
    In Sec.  156.430(c)(4) of the interim final rule, we established a 
simplified methodology for calculating the value of the amount that the 
enrollees would have paid under the standard plan without cost-sharing 
reductions. To estimate the incremental effect of the simplified 
methodology, we compared the burden of the standard methodology to the 
simplified methodology for those issuers that we assumed would select 
the simplified methodology. As discussed in the Collection of 
Information section in the 2014 Payment Notice, we estimated that 1,200 
issuers will participate in an Exchange nationally and will incur total 
costs of approximately $138 million using the standard methodology. In 
contrast, in the interim final rule, we estimated that each issuer 
using the simplified methodology would incur labor costs of 40 hours of 
work by an actuary (at a wage rate of $56.89) and 20 hours of work by 
an insurance manager (at a wage rate of $67.44) to develop the 
effective cost-sharing parameters and actuarial memorandum, and 
calculate the amount of cost-sharing reductions provided, resulting in 
a cost of approximately $3,624 per issuer.\24\
---------------------------------------------------------------------------

    \24\ HHS relied on the Bureau of Labor Statistics, U.S. 
Department of Labor, National Compensation Survey Occupational 
Earnings in the United States, 2011, for estimates of job 
descriptions and wages.
---------------------------------------------------------------------------

    Because we have modified the simplified methodology in this final 
rule, we are updating this estimate to require 42 hours of work by an 
actuary and 22 hours of work by an insurance manager, resulting in a 
cost of approximately $3,873 per issuer. Although we cannot predict the 
precise number of issuers that will select either the standard or 
simplified methodology, we estimate that approximately half of QHP 
issuers (600 issuers) will implement the simplified methodology. 
Therefore, we estimate that the provisions of this rule will result in 
an incremental savings of approximately $57,676,164 ($60 million that 
would have been incurred by these issuers under the standard 
methodology, minus 600 multiplied by $3,873) by reducing the overall 
administrative costs that issuers incur.
    The information collections associated with these provisions are 
subject to the Paperwork Reduction Act; however, the information 
collection process and instruments are currently under development. We 
will seek OMB approval and solicit public comments upon their 
completion.

G. ICRs Related to Oversight of Cost-Sharing Reductions and Advance 
Payments of the Premium Tax Credit (Sec.  155.340, Sec.  156.410, Sec.  
156.460 and Sec.  156.480)

    Section 156.460 requires a QHP issuer to notify the enrollee within 
45 calendar days of the QHP issuer's discovery of the error, when the 
QHP issuer improperly reduces the premium by the amount of the advance 
payment of the premium tax. A parallel provision is established under 
Sec.  155.340 when the Exchange is facilitating the collection of 
premiums. Additionally, in Sec.  156.410(c) and (d) a QHP issuer must 
notify the enrollee within 45 calendar days of the QHP issuer's 
discovery of the error of a misapplication of the cost-sharing 
reduction or the improper assignment to a plan variation (or standard 
plan without cost-sharing reductions) and subsequent reassignment. We 
believe that these notifications will be effectuated as part of 
standard billing practices and therefore will not create an additional 
burden on the Exchange or QHP issuers. Therefore, we do not estimate a 
burden for this notification.
    In Sec.  156.480(a), we extend the standards set forth in proposed 
Sec.  156.705 concerning maintenance of records to a QHP issuer in the 
individual market on State Exchange with respect to cost-sharing 
reductions and advance payments of the premium tax credit. We believe 
that the burden of maintaining records related to cost-sharing 
reductions and advance payments of the premium tax credit for QHP 
issuers in an FFE is already accounted for in the burden for finalized 
Sec.  156.705, described elsewhere in the Collection of Information 
section of this final rule. In Sec.  156.480(b), we establish that, for 
each benefit year, an issuer that offers a QHP in the individual market 
through a State Exchange or an FFE report to HHS annually, in a 
timeframe and manner required by HHS, summary statistics with respect 
to cost-sharing reductions and advance payments of the premium tax 
credit. In the proposed rule we stated that we believed that QHP 
issuers would already have the information and data systems in place 
necessary to generate a summary report, and that there would only be a 
small additional burden as a result of this submission requirement. We 
estimated that it would take an insurance operations analyst 16 hours 
(at $38.49 an hour) annually and one senior manager 2 hours (at $77.00 
an hour) to gather summary information and prepare a report for 
submission to HHS. Therefore, we estimated an additional burden of 
21,600 hours and total costs of approximately $923,808 for 1,200 QHP 
issuers ($769.84, on average, for each QHP issuer) as a result of this 
requirement. However, in this final rule, we are adding a requirement 
that these summary reports include information on misapplication of 
cost-sharing reductions and advance payments of the

[[Page 65085]]

premium tax credit. We estimate that will take an insurance operations 
analyst 3 hours (at $38.49 an hour) annually and one senior manager 1 
hours (at $77.00 an hour) to gather and prepare this additional 
information for the summary report, resulting in an additional burden 
of 4,800 hours and total costs of approximately $230,964 for 1,200 QHP 
issuers ($192.84, on average, for each issuer). This would increase the 
total burden for the summary reports to 26,400 hours and total costs to 
approximately $1,154,772.

H. ICRs Related to Oversight and Financial Integrity Standards for 
Issuers of Qualified Health Plans in Federally-facilitated Exchanges 
(Sec.  156.705 to Sec.  156.715)

    The burden estimates for the collections of information in Part 
156, Subpart H, of the regulation reflect the assumption that the FFEs 
will include 475 QHP issuers. We update the number of issuers in the 
FFEs from the estimated number in the proposed rule to reflect more 
current information on the number of issuers expected to participate in 
the FFEs. The labor categories and salary estimates used to calculate 
the cost burden of these collections on issuers are derived from the 
Bureau of Labor Statistics' (BLS) May 2012 Occupational Employment 
Statistics data for selected occupations. These burden estimates 
generally reflect burden for the first year.
    Section 156.705 provides that issuers offering QHPs in an FFE must 
maintain all documents and records (whether paper, electronic or other 
media), and other evidence of accounting procedures and practices 
necessary for HHS to conduct activities necessary to safeguard the 
financial and programmatic integrity of the FFEs. Such activities 
include: (1) periodic auditing of the QHP issuer's financial records, 
including data related to the QHP issuer's ability to bear the risk of 
potential financial losses; and (2) compliance reviews and other 
monitoring of a QHP issuer's compliance with all Exchange standards 
applicable to issuers offering QHPs in the FFEs listed in part 156. 
These standards are limited to Exchange-specific records as applicable 
to the FFEs, and are not enforced by States as primary regulators. This 
standard mirrors the maintenance of records standard applicable to 
State Exchanges and set forth in Sec.  155.1210. The burden includes 
utilizing existing technology and systems to process and maintain this 
information. This reflects 60 hours of work by an actuary (at $56.89 an 
hour), 15 hours by a network administrator (at $46.86 an hour), 15 
hours by a compliance officer (at $53.75 an hour), and 10 hours for a 
senior manager to review (at $77.00 an hour). We estimate that it will 
take 100 hours total at a cost of $5,693.00 for a QHP issuer to 
maintain these records for an aggregate burden of 47,500 hours and 
$2,704,175 for all 475 QHP issuers.
    Section 156.705(d) provides that QHP issuers must make all records 
described in paragraph (a) of this section available to HHS, the OIG, 
the Comptroller General, or their designees, upon request. In 
estimating the annual hour and cost burden on QHP issuers of making 
these records available to such authorities upon request, we assumed 
that such requests would normally be made in connection with a formal 
audit or compliance review or a similar process. Our burden estimates 
for this section address the hour and cost burden of making records 
available to HHS, the OIG, the Comptroller General, or their designees, 
for audit. Our estimates reflect our assumptions that about 47 QHP 
issuers would be subject to a formal audit in a given year and that the 
burden on issuers of making the records available would include the 
time, effort, and associated cost of compiling the information, 
reviewing it for completeness, submitting it to the auditor(s), and 
participating in telephone or in-person interviews. We anticipate using 
a risk-based approach to selection of the majority of QHP issuers for 
compliance review so that burdens to the issuer community would 
generally be linked to the QHP issuers' risk. This reflects 75 hours of 
work by an actuary (at $56.89 an hour), 10 hours by a compliance 
officer (at $53.75 an hour), and 5 hours for a senior manager to review 
(at $77.00 an hour).We estimate it will take 90 hours at a cost of 
$5,189.25 for an issuer to make its records available for an audit for 
a total of 4,230 hours and $243,894.75 across all QHP issuers subject 
to this requirement, which we estimate at an upper end as 100 issuers.
    Section 156.715 establishes the general standard that QHP issuers 
are subject to compliance reviews. Our burden estimates for Sec.  
156.715 address the estimated annual hour and cost burden on QHP 
issuers of complying with the records disclosure requirements 
associated with compliance reviews conducted by an FFE.
    Section 156.715 provides standards for compliance reviews in the 
FFEs, stating that QHP issuers offering QHPs in the FFEs may be subject 
to compliance reviews. This section also describes the categories of 
records and information issuers must make available to an FFE in 
conducting such reviews.
    Compliance reviews evaluate a QHP issuer's compliance with the 
Affordable Care Act and applicable regulations. Compliance reviews will 
target high-risk QHP issuers and not every issuer will be reviewed each 
year. The results of compliance reviews will also provide insight into 
trends across the compliance statuses of QHP issuers, enabling HHS to 
prioritize areas of oversight and technical assistance.
    We assume that HHS will conduct desk reviews of 31 QHP issuers each 
year. For each QHP issuer desk review we estimate an average of 40 
hours of administrative work to assemble the requested information by a 
health policy analyst (at $58.05 an hour), 19.5 hours to review the 
information for completeness and an additional 30 minutes for a 
compliance officer to submit the information to HHS (at $53.75 an 
hour). There will also be an additional 10 hours to spend on phone 
interviews conducted by the compliance reviewer and 2 hours to spend 
speaking through processes with the compliance reviewer (at $53.75 an 
hour). We estimate it will take 72 hours at a cost of $4,042.00 for an 
issuer to make information available to HHS for a desk review for a 
total of 2,232 hours and $125,302.00 across all issuers that may be 
subject to this information collection requirement.
    We assume that HHS will conduct onsite reviews of 16 QHP issuers 
each year. For each onsite review we estimate it will take an average 
of 40 hours for a health policy analyst (at $58.05 an hour) to assemble 
the requested information, and 19.5 hours for a compliance officer (at 
$53.75 an hour) to review the information for completeness and 30 
minutes to submit the information to HHS in preparation for an onsite 
review. An onsite review requires an additional 2 hours to schedule the 
onsite activities with the compliance officer (at $53.75 an hour), 4 
hours for introductory meeting, 8 hours to tour reviewers onsite, 10 
hours of interview time, 2 hours to walk through processes with the 
reviewer, and 4 hours for concluding meetings. This is a total of 
approximately 60 hours of preparation time and an additional 30 hours 
for onsite time for each QHP. We estimate it will take 90 hours at a 
cost of $5,009.50 for an issuer to make information available to HHS 
for an onsite review. We estimate that the burden for all respondents 
that may be subject to this information collection will be 1,440 hours 
at a cost of $80,152.00

[[Page 65086]]

    In cases in which HHS could potentially require clarification 
around submitted information, HHS may need to contact QHP issuers 
within 30 days of information submission. This would be the case for 
approximately 20 issuers. We estimate it will take an issuer 2 hours 
(at $53.75 an hour) to respond to questions for a total of 40 hours and 
$1,075.00.

I. ICRs Regarding Administrative Review of QHP Issuer Sanctions in a 
Federally-facilitated Exchange (Sec.  156.901 to Sec.  156.963)

    Subpart J of Part 156 sets forth the administrative process for 
issuers subject to a CMP or decertification of a QHP offered by the 
issuer to appeal the enforcement action. In this process, an ALJ 
decides whether there is a basis for HHS to assess a CMP against the 
issuer and whether the amount of an assessed penalty is reasonable, or 
whether there is a basis for decertifying a QHP offered by the issuer, 
as applicable. Section 156.905 (intended to parallel 45 CFR 150.405) 
provides that a party has a right to a hearing before an ALJ if it 
files a valid request for a hearing within 30 days after the date of 
issuance of HHS's notice of proposed assessment or decertification. An 
issuer's request for a hearing must include the information listed in 
Sec.  156.907. Under Sec.  156.907, the request for a hearing must 
identify any factual or legal bases for the assessment or 
decertification with which the issuer disagrees. It must also describe 
with reasonable specificity the basis for the disagreement, including 
any affirmative facts or legal arguments on which the respondent is 
relying. The request must also identify the relevant notice of 
assessment or decertification by date and attach a copy of the notice.
    The burden associated with this request includes the time and 
effort needed by the issuer to create the written request and submit it 
to the appropriate entity. The associated costs are labor costs for 
gathering the necessary background information described under Sec.  
156.907 and then preparing and submitting the written statement.
    We base our burden estimate on the assumptions that one issuer will 
be subject to a CMP and that one issuer will have a QHP that it offers 
in an FFE decertified. We assume that the issuer in each case will 
choose to exercise its right to a hearing and will submit a valid 
request for hearing. The hours involved in preparing this request may 
vary; for the purpose of this burden estimate we estimate an average of 
24 hours will be needed: 10 hours for the compliance officer to gather 
and assemble the necessary background materials described under Sec.  
156.907, and prepare the written request (at $53.75 an hour), 12 hours 
for an attorney (at $90.14 an hour) to review the background materials 
and written request and provide recommendations to the senior manager, 
and 2 hours for the senior manager (at $77.00 an hour) to discuss and 
act upon the attorney's recommendations and submit the written request. 
We estimate that it will take 24 hours at a cost of $1,773.18 for an 
issuer to prepare and submit a request for a hearing for a total of 48 
hours and $3546.36 for each issuer subject to an enforcement action 
under this scenario. This estimate includes any statement of good cause 
under Sec.  156.805(e)(3) or request for extension under Sec.  
156.905(b), if applicable. Because we only estimate that one issuer per 
year would appeal a CMP and one issuer will have its QHP offered in an 
FFE decertified, we do not include this burden estimate in our overall 
calculation of burden for this rule.

J. ICRs Related to Quality Standards (Sec.  156.1105)

    In subpart L of part 156, we describe the information collection 
and disclosure requirements that pertain to the approval of enrollee 
satisfaction survey vendors. The burden estimate associated with these 
disclosure requirements includes the time and effort required for 
enrollee satisfaction survey vendors to develop, compile, and submit 
the application information and any documentation necessary to support 
oversight in the form and manner required by HHS. HHS is developing a 
model enrollee satisfaction survey vendor application that will include 
data elements necessary for HHS review and approval. In the near 
future, HHS will publish the model application and will solicit public 
comment. At that time, and per the requirements outlined in the PRA, we 
will estimate the burden on survey vendors for complying with this 
provision of the regulation. We solicit comment on the burden for the 
application and review process for these entities.

K. ICRs Related to Confirmation of Payment and Collection Reports 
(Sec.  156.1210)

    In Sec.  156.1210, we establish that, within 15 calendar days of 
the date of a HIX 820 payment and collections report from HHS, the 
issuer must, in a format specified by HHS, either confirm to HHS that 
the HIX 820 payment and collections report accurately lists, for the 
timeframe specified in the report, applicable payments owed by the 
Federal government and the issuer; or describe to HHS any inaccuracy it 
identifies in the payment and collections report. We believe that 
issuers will generally be able to perform this confirmation 
automatically, and that there will only be a small additional burden as 
a result of this requirement. We estimate that it will take an 
insurance operations analyst 1 hour (at $38.49 an hour) monthly to make 
the comparison and note any discrepancies to HHS (approximately $461.88 
for each issuer annually). Based on our most recent estimates, we 
believe that 2,400 issuers will be affected by this requirement, 
resulting in aggregate burden of approximately $1,108,512.
    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 rule; or
    2. Submit your comments to the Office of Information and Regulatory 
Affairs, Office of Management and Budget, Attention: CMS Desk Officer, 
[CMS-9957-F2], Fax: (202) 395-6974; or Email: [email protected].

IV. Regulatory Impact Analysis

    In accordance with the provisions of Executive Order 12866, this 
rule was reviewed by the OMB.

A. Summary

    This final rule sets financial integrity and oversight standards 
with respect to Exchanges; QHP issuers in an FFE; and States in regards 
to the operation of the risk adjustment and reinsurance programs. It 
also provides additional standards for special enrollment periods; 
survey vendors that may conduct enrollee satisfaction surveys on behalf 
of QHP issuers in Exchanges; and issuer participation in an FFE. In 
addition, this final rule amends and adopts as final interim provisions 
related to risk corridors and cost-sharing reduction reconciliation. 
Finally, it provides additional standards for guaranteed availability 
and renewability and makes certain amendments to the definitions and 
standards related to the market reform rules.
    HHS has crafted this final rule to implement the protections 
intended by Congress in an economically efficient manner. We have 
examined the effects of this final rule as required by 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

[[Page 65087]]

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 OMB Circular A-4, HHS has 
quantified the benefits and costs where possible, and has also provided 
a qualitative discussion of some of the benefits and costs 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 one year, or adversely and materially affecting a sector of 
the economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order.
    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 
the OMB. OMB has designated this final rule as a ``significant 
regulatory action.'' Even though it is not certain whether it will have 
economic impacts of $100 million or more in any one year, HHS has 
provided an assessment of the potential costs and benefits associated 
with this final regulation.
1. Need for Regulatory Action
    Starting in 2014, qualified individuals and qualified employers 
will be able to use coverage provided by QHPs--private health insurance 
that has been certified as meeting certain standards--through 
Exchanges. The premium stabilization programs--the reinsurance, risk 
corridors and risk adjustment programs--will be in place to ensure 
premium stability for health insurance issuers as enrollment increases 
and issuers enroll high-risk individuals. This final rule establishes 
general oversight requirements for State-operated reinsurance and risk 
adjustment programs; establishes oversight of issuers inside and 
outside of the Exchange when HHS operates risk adjustment or 
reinsurance on behalf of a State; and establishes oversight and 
monitoring of State Exchanges, FFEs, SHOPs (both State Exchanges and 
FFEs) and issuers of QHPs, specifically with respect to financial 
integrity, and maintenance of records. This final rule also restricts 
the use of funds for administrative expenses generated for State 
Exchanges and State-operated reinsurance programs; specifies procedures 
for oversight of advance payments of the premium tax credit and cost-
sharing reductions; provides procedures to ensure the accuracy of data 
collection, calculations, and submissions; establishes requirements for 
enrollee satisfaction survey vendors; establishes standards related to 
risk corridors and cost-sharing reduction reconciliation; and provides 
additional standards for special enrollment periods.
2. Summary of Impacts
    In accordance with OMB Circular A-4, Table IV.1 below depicts an 
accounting statement summarizing HHS's assessment of the benefits and 
costs associated with this regulatory action. The period covered by the 
RIA is 2014-2017.
    HHS anticipates that the provisions of this final rule will ensure 
smooth operation of Exchanges, integrity of the reinsurance, risk 
adjustment and risk corridors programs, safeguard the use of Federal 
funds, prevent fraud and abuse, and increase access to healthcare 
coverage. Affected entities such as States and QHP issuers will incur 
costs to maintain records, submit reports to HHS and Exchanges, and 
provide records for compliance reviews. In addition, QHP issuers that 
adopt the simplified methodology for calculating cost sharing 
reductions will incur lower administrative costs during a transitional 
period. In accordance with Executive Order 12866, HHS believes that the 
benefits of this regulatory action justify the costs.

                                          Table IV.1--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                                    Benefits:
Qualitative:....................................................................................................
    * Ensure integrity of the reinsurance and risk adjustment programs, smooth functioning of State Exchanges
     and FFEs.
    * Prevent fraud and abuse...................................................................................
    * Ensure prompt refund of any excess premium or cost-sharing paid...........................................
    * Safeguard the use of Federal funds provided as cost-sharing reductions and advance payments of the premium
     tax credit and provide value for taxpayers' dollars.
----------------------------------------------------------------------------------------------------------------
                Costs:                          Estimate            Year dollar    Discount rate  Period covered
                                                                                      percent
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year).........  $15.4 million \1\.......            2013               7       2014-2017
                                        $15.3 million \1\.......            2013               3       2014-2017
----------------------------------------------------------------------------------------------------------------
Annual costs related to financial oversight, maintenance of records and reporting requirements for State
 Exchanges and State-operated reinsurance and risk-adjustment programs; record retention requirements for
 contributing entities and issuers of reinsurance-eligible plans; audit costs for State Exchanges and State-
 operated risk adjustment and reinsurance programs; costs for QHP issuers related to reporting requirements,
 record maintenance, audits, and training for customer service representatives..
----------------------------------------------------------------------------------------------------------------
Qualitative:....................................................................................................
    * Costs incurred by enrollee satisfaction survey vendors related to annual application and meeting HHS
     standards.

[[Page 65088]]

 
    * Reduce administrative costs for QHP issuers by allowing the use of a simplified methodology to calculate
     cost-sharing reductions during a transitional period.
    * Reduce compliance costs for issuers by allowing a State operating a SHOP-only Exchange to establish and
     operate risk adjustment programs for both the small group and individual markets.
----------------------------------------------------------------------------------------------------------------
Note: 1. Approximately $2.7 million of these costs are estimated below in the RIA, including the audit costs in
  Table IV.2 and the rest of these costs are estimated in section III.

3. Anticipated Benefits and Costs
    Starting in 2014, individuals and small businesses will be able to 
use health insurance coverage purchased through Exchanges. The 
Congressional Budget Office estimated that the number of people 
enrolled in coverage through Exchanges will increase from 7 million in 
2014 to 24 million in 2017.\25\ Exchanges will create competitive 
marketplaces where qualified individuals and qualified employers can 
shop for insurance coverage, and are expected to reduce the unit price 
of quality insurance for the average consumer by pooling risk and 
promoting competition.
---------------------------------------------------------------------------

    \25\ ``Effects on Health Insurance and the Federal Budget for 
the Insurance Coverage Provisions in the Affordable Care Act--May 
2013 Baseline,'' Congressional Budget Office, May 14, 2013.
---------------------------------------------------------------------------

    The final rule specifies the standards and processes for the 
oversight and accountability of entities responsible for operations of 
the Exchanges and reinsurance and risk adjustment programs. Affected 
entities include States that establish and operate Exchanges and 
administer reinsurance and risk adjustment programs; FFEs; issuers of 
QHPs; health insurance issuers offering coverage both through and 
outside of an Exchange when HHS operates risk adjustment or reinsurance 
on behalf of the State; and contractors of these organizations.
a. Benefits
    This final rule implements oversight, record maintenance, and 
enforcement provisions that will ensure integrity of the reinsurance 
and risk adjustment programs, State Exchanges and FFE functions, and 
prevent fraud and abuse.
    This final rule includes provisions that will create a system of 
oversight, financial integrity and program integrity in the Exchanges 
and the premium stabilization programs. The oversight requirements for 
the reinsurance and risk-adjustment programs will ensure that these 
programs are effective and efficient, and use program funds 
appropriately. The provisions of this final rule will also ensure that 
Federal funds are used appropriately by State Exchanges. By monitoring 
financial reports and overseeing State Exchange activities, HHS will 
safeguard the use of Federal funds provided as cost-sharing reductions 
and advance payments of the premium tax credit, and provide value for 
taxpayers' dollars.
    The provisions of this final rule also ensure that enrollees are 
promptly refunded any excess premium paid or any excess cost sharing 
they should not have paid. Individuals harmed by misconduct on the part 
of non-Exchange entities will also be eligible for a special enrollment 
period. A QHP is also required to promptly reassign an enrollee 
improperly assigned to a plan variation (or standard plan without cost-
sharing reductions), minimizing consumer harm.
    The annual application requirement for enrollee satisfaction survey 
vendors allows HHS to ensure that these entities participate in 
relevant training and post-training certification, follow protocols 
related to quality assurance and the use of HHS data, and adhere to 
privacy and security standards when handling data. This will help to 
ensure that ultimately the enrollee satisfaction survey data are 
reliable and valid and that the information is sufficiently protected.
b. Costs
    Affected entities will incur costs to comply with the provisions of 
this final rule. Costs related to information collection requirements 
subject to PRA are discussed in detail in section III and include 
administrative costs incurred by States and issuers related to record 
maintenance and reporting requirements; and oversight and financial 
integrity standards. In this section we discuss other costs related to 
the provisions in this final rule.
    States operating reinsurance programs are required to keep an 
accurate accounting for each benefit year, of all reinsurance funds 
received from HHS for reinsurance payments and for administrative 
expenses, as well as all claims for reinsurance payments from issuers 
of reinsurance-eligible plans, all payments made to those issuers, and 
all administrative expenses incurred. State-operated reinsurance 
programs will already have a system in place to track reinsurance funds 
received from HHS, claims from and payments to issuers, and expenses 
incurred to operate the reinsurance program. The cost for States 
operating reinsurance programs to maintain any records associated with 
the reinsurance program was previously estimated in the RIA of the 2014 
Payment Notice as being part of State administrative costs associated 
with operating the reinsurance program and are not included in this 
RIA.
    State-operated reinsurance programs will submit to HHS annually and 
make public a summary report of their program operations, which will 
include a summary of the accounting kept pursuant to Sec.  153.260(a). 
We assume that the data already collected and used to report to issuers 
and HHS will be the same used to prepare this annual report. Therefore, 
the cost associated with this requirement is the incremental time and 
cost to prepare an annual report to HHS and the public on program 
operations. We estimate it will take an insurance management analyst 16 
hours (at $51 per hour) and a senior manager 2 hours (at $77 per hour) 
to prepare the report. Therefore, we estimate it will cost each State 
that operates reinsurance approximately $970 to submit this report to 
HHS. Because two States will operate reinsurance programs in the 2014 
benefit year, we estimate that an aggregate cost of $1,940 as a result 
of this requirement in the first year. We note that HHS will provide a 
portion of the reinsurance contributions it collects to States 
operating reinsurance programs to support State administration of 
reinsurance payments, which will likely cover the costs associated with 
this requirement.
    A State operating a risk adjustment program is required to maintain 
documents and records relating to the risk adjustment program, whether 
paper, electronic or in other media, for each benefit year for at least 
10 years, and make them available upon request from HHS, the OIG, the 
Comptroller General, or their designees, to any such entity. The 
documents and records must be sufficient to enable the evaluation of a 
State-operated risk adjustment program's compliance with Federal 
standards. States are also directed to ensure that their contractors, 
subcontractors, and agents maintain and make those documents and 
records available upon request from HHS, the OIG, the Comptroller 
General, or their

[[Page 65089]]

designees. States operating risk adjustment programs should already 
have the documents and records of accounting procedures needed for 
periodic audits. Therefore, we estimate that the additional burden 
associated with this requirement is the time, effort, and additional 
labor cost required to maintain and archive the records. We assume that 
it will take an insurance operations analyst 10 hours (at $38.49 an 
hour) to maintain records. Therefore, the average cost for each State 
will be approximately $385. Because one State will operate risk 
adjustment for the 2014 benefit year, we estimate an aggregate cost of 
$385 to comply with this requirement in the first year.
    A State operating a risk adjustment program is required to submit 
by December 31st of the first benefit year of operation an interim 
summary report on the first 10 months of risk adjustment activities, in 
order to obtain re-certification for the third benefit year. The cost 
of complying with this provision is the time and effort to write the 
interim report and submit it to HHS. We estimate it will take an 
insurance management analyst 16 hours (at $51 per hour) and a senior 
manager 2 hours (at $77 per hour) to prepare the interim summary 
report. Therefore, we estimate that it will cost each State operating 
risk adjustment $970 to submit this report to HHS (an aggregate cost of 
$970 in the 2014 benefit year). A State operating a risk adjustment 
program will submit and make public, a summary report of its risk 
adjustment program operations for each benefit year after the first 
benefit year for which the State operates the program. This summary 
report will include the results of a programmatic and financial audit 
for each benefit year conducted by an independent qualified auditing 
entity. We believe the cost of this annual report will be the same as 
the cost of producing the interim first-year report described above, 
except for the cost of independent external audits required in 
subsequent years. The costs related to the annual external audit are 
estimated later in this RIA. These estimates also include the 
administrative costs related to the requirement for State-operated risk 
adjustment programs to keep accurate accounting for each benefit year 
of all receipts and expenditures related to risk adjustment payments, 
charges, and administration of the program.
    States face a variety of costs due to the monitoring requirements 
in this final rule. Conducting oversight of the Exchanges, State-
operated risk adjustment and reinsurance programs, administration of 
the advance payments of the premium tax credit or cost-sharing 
reductions, and other activities require independent external audits, 
investigations, rectification of errors, and the development of summary 
reports which will be submitted to HHS. The estimated total costs for 
independent external audits for State-operated reinsurance, risk 
adjustment and Exchange programs are presented in Table IV.2. It is 
expected that 18 States will establish State Exchanges in 2014 and, 
without further information; we assume that number will stay the same 
during the period covered by the RIA. We also assume that each State 
will conduct a financial audit and a programmatic audit annually, which 
will encompass the reinsurance and risk adjustment programs if the 
State operates these programs. Financial audit costs are estimated 
based on prices among the big four audit firms for governmental 
entities of similar size to those of the anticipated State Exchanges 
for a financial statement audit and Yellowbook Report (report on 
internal controls) that reflects different levels of cost for small, 
medium, and large entities, for entities with low, medium, and high 
risk. Programmatic audit estimates reflect the experience of Federal 
entitlement programs similar to Medicaid, audited under an A-133 
program compliance supplement, and vary only by the size of the program 
(small, medium and large). For example, a small Exchange judged to have 
low risk is estimated to have a combined financial and programmatic 
audit cost of $90,000; a large Exchange, in a State that also 
administers a reinsurance program (which implies a more complex, high 
risk operation) is estimated to have combined financial and 
programmatic audit costs of $360,000. Audit prices are based on 2012 
pricing and reflect an annual increase of 3 percent each year, based on 
recent industry experience. It is expected that there will be four 
small State Exchanges, 12 medium size State Exchanges and two large 
State Exchanges. The lower bound of the range in Table IV.2 below 
assumes that all State Exchanges have low risk and the upper bound is 
calculated assuming that all State Exchanges have high risk.

                            Table IV.2--Estimated Audit Costs for State Programs: Exchanges, Risk Adjustment and Reinsurance
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                         2014                       2015                       2016                       2017
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mid-range point estimate....................                 $2,572,000                 $2,649,160                 $2,728,635                 $2,810,494
Range.......................................      $2,320,000-$2,820,000      $2,389,600-$2,904,600      $2,461,288-$2,991,738      $2,535,127-$3,081,490
--------------------------------------------------------------------------------------------------------------------------------------------------------

    A State operating a SHOP-only Exchange will be able to establish 
and operate a risk adjustment program for both the small group and 
individual markets starting in 2015, which will allow it to minimize 
costs by achieving economies of scale and reduce compliance costs for 
issuers. The approach to allowable costs will be operationally simpler 
for issuers to implement and thus minimize related costs.
    The final rule permits QHP issuers to use the simplified 
methodology to calculate cost-sharing reductions during a transitional 
period and postpone a more costly IT implementation that would be 
required for the standard methodology. The costs related to the 
administration of cost-sharing reductions using the standard 
methodology are accounted for in the 2014 Payment Notice and are not 
included here. However, as explained in section III, the provisions of 
this final rule allowing the use of a simplified methodology during the 
transitional period are likely to result in a reduction in costs 
estimated to be approximately $57.7 million.\26\
---------------------------------------------------------------------------

    \26\ These cost savings have not been accounted for in the RIA 
since they are mostly due to a postponement of IT implementation 
necessary for using the standard methodology. QHP issuers will incur 
those costs at the end of the transitional period.
---------------------------------------------------------------------------

    The final rule requires the enrollee satisfaction survey vendors 
engaged by issuers to meet HHS standards. Survey vendors will apply for 
approval annually in order to administer enrollee satisfaction surveys 
to QHP enrollees on behalf of a QHP issuer. Survey vendors will incur 
costs to submit the annual applications to HHS and to meet the 
requirements necessary to meet approval.

C. Regulatory Alternatives

    Under the Executive Order, HHS is required to consider alternatives 
to

[[Page 65090]]

issuing rules and alternative regulatory approaches. HHS considered the 
following alternatives while developing this final rule:
1. Increased Uniformity of FFE and State Exchange Standards
    Under this alternative, HHS would have required a single standard 
for Exchanges across the nation regardless of whether the Exchange was 
established and operated by a State or was Federally-facilitated. The 
final rule defers to State discretion in oversight of QHPs. This 
element of State flexibility would have been precluded if greater 
uniformity in operations and standards were to be imposed. Greater 
standardization would have had an uncertain impact on Federal oversight 
activities but would have likely imposed greater costs of compliance on 
State operations and issuers of QHPs in those States.
2. Place More Responsibility on the States To Oversee Standards, 
Including Those for FFEs
    Under this alternative, HHS would have placed more responsibility 
on States and State Exchanges to interpret and meet statutory 
requirements. This approach could have created a number of problems. If 
every State developed its own monitoring standards, oversight of 
different Exchanges could be quite uneven, as States across the country 
have varying levels of fiscal resources with which to monitor 
activities. States currently have certain levels of responsibility 
under the Affordable Care Act to oversee standards for Exchanges, QHPs, 
and other programs. State Exchanges also have latitude in the number, 
type, and standardization of plans they certify and accept into the 
Exchange as QHPs.
    There are a number of provisions in the Affordable Care Act that 
devolve responsibilities from the Federal government to States. 
Increased devolution could have decreased the need of Federal 
oversight, while granting States increased flexibility to regulate 
Exchanges within their borders. There would also have been a decrease 
in oversight-related activities for the Federal government such as HHS 
investigations or audits. On the other hand, States would have likely 
faced an increase in their own oversight activities and related costs.
3. Require QHP Issuers To Use the Standard Methodology To Reconcile 
Cost-Sharing Reductions.
    HHS considered not promulgating the simplified methodology during a 
transition period. However, doing so could have imposed costly IT 
system build requirements on many issuers at a time when QHP issuers 
are required to make many significant IT and operational changes.
    HHS believes that the options adopted in this final rule strike the 
best balance of ensuring efficient operation and integrity of Exchanges 
and the premium stabilization programs while providing flexibility to 
the States and minimizing the burden on States.

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''). HHS uses as its measure of significant 
economic impact on a substantial number of small entities a change in 
revenues of more than 3 percent to 5 percent. HHS anticipates that this 
final rule will not have a significant economic impact on a substantial 
number of small entities.
    As discussed in the Web Portal interim final rule with comment 
period published on May 5, 2010 (75 FR 24481), HHS examined the health 
insurance industry in depth in the RIA we prepared for the proposed 
rule on the 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 
$35.5 million in annual receipts for health insurance issuers).\27\ In 
addition, HHS used the data from Medical Loss Ratio (MLR) annual report 
submissions for the 2012 MLR reporting year to develop an estimate of 
the number of small entities that offer comprehensive major medical 
coverage. These estimates may overstate the actual number of small 
health insurance issuers that will be affected, since they do not 
include receipts from these companies' other lines of business. It is 
estimated that out of 510 issuers nationwide, there are 58 small 
entities each with less than $35.5 million in earned premiums that 
offer individual or group health insurance coverage and will therefore 
be subject to the requirements of this final regulation. Forty three 
percent of these small issuers belong to larger holding groups, and 
many if not all of these small issuers are likely to have other lines 
of business that will result in their revenues exceeding $35.5 million. 
It is uncertain how many of these 510 issuers will offer QHPs and be 
subject to the provisions of this final rule. Based on this analysis, 
however, HHS expects that this final rule will not affect small 
issuers.
---------------------------------------------------------------------------

    \27\ ``Table of Small Business Size Standards Matched To North 
American Industry Classification System Codes,'' effective July 23, 
2013, U.S. Small Business Administration, available at http://www.sba.gov.
---------------------------------------------------------------------------

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 expenditure in any one 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 2013, that 
threshold level is approximately $141 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.
    The final rule directs States to undertake oversight activities for 
State Exchanges, State-operated reinsurance and risk adjustment 
programs. The costs related to oversight activities, recordkeeping, 
reporting and audits are estimated to be approximately $2.8 million in 
2014. There are no mandates on local or tribal governments. The private 
sector, for example, QHP issuers and agents and brokers, will incur 
costs to comply with the record maintenance and reporting requirements 
set forth in this final rule. The related costs are estimated to be 
approximately $14.2 million in 2014. However, QHP issuers are also 
expected to experience a cost savings of approximately $57.7 million by 
adopting the simplified methodology to calculate cost sharing 
reductions during a transitional period and postponing costly IT 
implementation.

[[Page 65091]]

Consistent with the policy embodied in UMRA, this final rule has been 
designed to be a low-burden alternative for State, local and tribal 
governments, and the private sector while achieving the objectives of 
the Affordable Care Act.

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.
    States are the primary regulators of health insurance coverage. 
States will continue to apply State laws regarding health insurance 
coverage. However, if any State law or requirement prevents the 
application of a Federal standard, then that particular State law or 
requirement would be preempted. State requirements that are more 
stringent than the Federal requirements would be not be preempted by 
this final rule. Accordingly, States have significant latitude to 
impose requirements with respect to health insurance coverage that are 
more restrictive than the Federal law.
    The State Exchange oversight program builds on State oversight 
efforts, where possible, by coordinating with State authorities to 
address compliance issues and concerns. Because QHPs are one of several 
commercial market insurance products operating in State markets, HHS 
will not seek to inappropriately duplicate or interfere with the 
traditional regulatory roles played by the State DOIs. HHS will 
generally confine its QHP oversight to Exchange-specific requirements 
and attributes. HHS will also seek to work collaboratively with State 
DOIs on topics of mutual concern, in the interest of efficiently 
deploying oversight resources and avoiding needlessly duplicative 
regulatory roles. QHP issuers are expected to comply with standards 
established by State law and regulation for cases forwarded to an 
issuer by a State in which it offers QHPs.
    The requirements specified in this final rule will impose direct 
costs on State and local governments and HHS has attempted to minimize 
those costs. State Exchanges and State-operated reinsurance and risk 
adjustment programs are required to undertake oversight, record 
maintenance and reporting activities.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have Federalism 
implications or limit the policymaking discretion of the States, HHS 
has engaged in efforts to consult with and work cooperatively with 
affected States. Throughout the process of developing this final rule, 
HHS has attempted to balance the 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 HHS's 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 
the CMS Center for Consumer Information and Insurance Oversight 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

45 CFR Part 144

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements, and State regulation of health insurance.

45 CFR Part 153

    Administrative practice and procedure, Adverse selection, Health 
care, Health insurance, Health records, Organization and functions 
(Government agencies), Premium stabilization, Reporting and 
recordkeeping requirements, Reinsurance, Risk adjustment, Risk 
corridors, Risk mitigation, State and local governments.

45 CFR Part 155

    Administrative practice and procedure, Health care access, Health 
insurance, Reporting and recordkeeping requirements, State and local 
governments, Cost-sharing reductions, Advance payments of premium tax 
credit, Administration and calculation of advance payments of the 
premium tax credit, Plan variations, Actuarial value.

45 CFR Part 156

    Administrative practice and procedure, Advertising, Advisory 
Committees, Brokers, Conflict of interest, Consumer protection, Cost-
sharing reductions, Cost-sharing reduction reconciliation, 
Administration and calculation of advance payments of the premium tax 
credit, Payment and Collection Reports, Grant programs--health, Grants 
administration, Health care, Health insurance, Health maintenance 
organization (HMO), Health records, Hospitals, American Indian/Alaska 
Natives, Individuals with disabilities, Loan programs--health, 
Organization and functions (Government agencies), Medicaid, Public 
assistance programs, Reporting and recordkeeping requirements, State 
and local governments, Sunshine Act, Technical assistance, Women, and 
Youth.

    For the reasons set forth in the preamble, the Department of Health 
and Human Services amends 45 CFR parts 144, 146, 147, 153, 155, and 156 
as set forth below:

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

0
1. The authority citation for part 144 continues to read as follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act 42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92.


0
2. Section 144.102 is amended by revising the second sentence of 
paragraph (c) to read as follows:


Sec.  144.102  Scope and applicability.

* * * * *
    (c) * * * If the coverage is offered to an association member other 
than in connection with a group health plan, the coverage is considered 
individual health insurance coverage for purposes of 45 CFR parts 144 
through 148.
* * * * *

0
3. Section 144.103 is amended by revising the introductory text and the 
definitions of ``Group market,'' ``Individual market,'' ``Large 
employer,'' ``Policy year,'' and ``Small employer'' to read as follows:

[[Page 65092]]

Sec.  144.103  Definitions.

    For purposes of parts 146 (group market), 147 (group and individual 
market), 148 (individual market), and 150 (enforcement) of this 
subchapter, the following definitions apply unless otherwise provided:
* * * * *
    Group market means the market for health insurance coverage offered 
in connection with a group health plan.
* * * * *
    Individual market means the market for health insurance coverage 
offered to individuals other than in connection with a group health 
plan.
* * * * *
    Large employer means, in connection with a group health plan with 
respect to a calendar year and a plan year, an employer who employed an 
average of at least 101 employees on business days during the preceding 
calendar year and who employs at least 1 employee on the first day of 
the plan year. In the case of plan years beginning before January 1, 
2016, a State may elect to define large employer by substituting ``51 
employees'' for ``101 employees.''
* * * * *
    Policy year means, with respect to--
    (1) A grandfathered health plan offered in the individual health 
insurance market, the 12-month period that is designated as the policy 
year in the policy documents of the individual health insurance 
coverage. If there is no designation of a policy year in the policy 
document (or no such policy document is available), then the policy 
year is the deductible or limit year used under the coverage. If 
deductibles or other limits are not imposed on a yearly basis, the 
policy year is the calendar year.
    (2) A non-grandfathered health plan offered in the individual 
health insurance market, or in a market in which the State has merged 
the individual and small group risk pools, for coverage issued or 
renewed beginning January 1, 2014, a calendar year for which health 
insurance coverage provides coverage for health benefits.
* * * * *
    Small employer means, in connection with a group health plan with 
respect to a calendar year and a plan year, an employer who employed an 
average of at least 1 but not more than 100 employees on business days 
during the preceding calendar year and who employs at least 1 employee 
on the first day of the plan year. In the case of plan years beginning 
before January 1, 2016, a State may elect to define small employer by 
substituting ``50 employees'' for ``100 employees.''
* * * * *

PART 146--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
4. The authority citation for part 146 continues to read as follows:

    Authority: Secs. 2702 through 2705, 2711 through 2723, 2791, and 
2792 of the Public Health Service Act (42 U.S.C. 300gg-1 through 
300gg-5, 300gg-11 through 300gg-23, 200gg-91, and 300gg-92) (1996).
    Section 146.145 also issued under secs. 2701 through 2763, 2791, 
and 2792 of the Public Health Service Act (42 U.S.C. 300gg through 
300gg-63, 300gg-91, and 300gg-92), as amended (2010).


Sec.  146.145  [Amended]

0
5. Section 146.145 is amended by--
0
A. Removing paragraph (b).
0
B. Redesignating paragraphs (c) through (e) as paragraphs (b) through 
(d).
0
C. In redesignated paragraph (b), removing references to ``paragraph 
(c)'' and adding in their place ``paragraph (b)'' wherever they appear 
in the following places:
0
i. Paragraph (b)(1).
0
ii. Paragraph (b)(3)(i).
0
iii. Paragraph (b)(3)(ii).
0
iv. Paragraph (b)(4)(i).
0
v. Paragraph (b)(4)(ii).
0
vi. Paragraph (b)(4)(iii) and Conclusion.
0
vii. Paragraph (b)(5)(ii) and Conclusion.
0
D. In redesignated paragraph (c), removing references to ``paragraph 
(d)'' and adding in their place ``paragraph (c)'' wherever they appear 
in the following places:
0
i. Paragraph (c)(1).
0
ii. Paragraph (c)(3).

PART 147--HEALTH INSURANCE REFORM REQUIREMENTS FOR THE GROUP AND 
INDIVIDUAL HEALTH INSURANCE MARKETS

0
6. The authority citation for part 147 continues to read as follows:

    Authority: Secs. 2701 through 2763, 2791, and 2792 of the Public 
Health Service Act (42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92), as amended.


0
7. Section 147.104 is amended by revising paragraph (a), adding a 
sentence at the end of paragraph (b)(2), and revising paragraphs 
(c)(2), (d)(1)(ii), and (d)(2) introductory text to read as follows:


Sec.  147.104  Guaranteed availability of coverage.

    (a) Guaranteed availability of coverage in the individual and group 
market. Subject to paragraphs (b) through (d) of this section, a health 
insurance issuer that offers health insurance coverage in the 
individual, small group, or large group market in a State must offer to 
any individual or employer in the State all products that are approved 
for sale in the applicable market, and must accept any individual or 
employer that applies for any of those products.
* * * * *
    (b) * * *
    (2) * * * Health insurance coverage in the individual market or in 
a market in which the State has merged the individual and small group 
risk pools must be offered on a calendar year basis.
* * * * *
    (c) * * *
    (2) An issuer that denies health insurance coverage to an 
individual or an employer in any service area, in accordance with 
paragraph (c)(1)(ii) of this section, may not offer coverage in the 
individual, small group, or large group market, as applicable, for a 
period of 180 calendar days after the date the coverage is denied. This 
paragraph (c)(2) does not limit the issuer's ability to renew coverage 
already in force or relieve the issuer of the responsibility to renew 
that coverage.
* * * * *
    (d) * * *
    (1) * * *
    (ii) It is applying this paragraph (d)(1) uniformly to all 
employers or individual in the large group, small group, or individual 
market, as applicable, in the State consistent with applicable State 
law and without regard to the claims experience of those individuals, 
employers and their employees (and their dependents) or any health 
status-related factor relating to such individuals, employees, and 
dependents.
    (2) An issuer that denies health insurance coverage to any employer 
or individual in a state under paragraph (d)(1) of this section may not 
offer coverage in the large group, small group, or individual market, 
as applicable, in the State before the later of either of the following 
dates:
* * * * *

0
8. Section 147.106 is amended by revising paragraphs (a) and (d)(1) 
introductory text to read as follows:

[[Page 65093]]

Sec.  147.106  Guaranteed renewability of coverage.

    (a) General rule. Subject to paragraphs (b) through (d) of this 
section, a health insurance issuer offering health insurance coverage 
in the individual, small group, or large group market is required to 
renew or continue in force the coverage at the option of the plan 
sponsor or the individual, as applicable.
* * * * *
    (d) * * *
    (1) An issuer may elect to discontinue offering all health 
insurance coverage in the individual, small group, or large group 
market, or all markets, in a State in accordance with applicable State 
law only if--
* * * * *

PART 153--STANDARDS RELATED TO REINSURANCE, RISK CORRIDORS, AND 
RISK ADJUSTMENT UNDER THE AFFORDABLE CARE ACT

0
9. The authority citation for part 153 is revised to read as follows:

    Authority: Secs. 1311, 1321, 1341-1343, Pub. L. 111-148, 24 
Stat. 119.


0
10. Section 153.20 is amended by revising the definition of 
``contributing entity'' to read as follows:


Sec.  153.20  Definitions.

* * * * *
    Contributing entity means a health insurance issuer or a self-
insured group health plan (including a group health plan that is 
partially self-insured and partially insured, where the health 
insurance coverage does not constitute major medical coverage). A self-
insured group health plan is responsible for the reinsurance 
contributions, although it may elect to use a third party administrator 
or administrative services-only contractor for transfer of the 
reinsurance contributions.
* * * * *

0
11. Section 153.240 is amended by revising paragraph (c) to read as 
follows:


Sec.  153.240  Disbursement of reinsurance payments.

* * * * *
    (c) Maintenance of records. If a State establishes a reinsurance 
program, the State must maintain documents and records relating to the 
reinsurance program, whether paper, electronic, or in other media, for 
each benefit year for at least 10 years, and make them available upon 
request from HHS, the OIG, the Comptroller General, or their designees, 
to any such entity. The documents and records must be sufficient to 
enable the evaluation of the State-operated reinsurance program's 
compliance with Federal standards. The State must also ensure that its 
contractors, subcontractors, and agents similarly maintain and make 
relevant documents and records available upon request from HHS, the 
OIG, the Comptroller General, or their designees, to any such entity.
* * * * *

0
12. Section 153.260 is added to subpart C to read as follows:


Sec.  153.260  General oversight requirements for State-operated 
reinsurance programs.

    (a) Accounting requirements. A State that establishes a reinsurance 
program must ensure that its applicable reinsurance entity keeps an 
accounting for each benefit year of:
    (1) All reinsurance contributions received from HHS for reinsurance 
payments and for administrative expenses;
    (2) All claims for reinsurance payments received from issuers of 
reinsurance-eligible plans;
    (3) All reinsurance payments made to issuers of reinsurance-
eligible plans; and
    (4) All administrative expenses incurred for the reinsurance 
program.
    (b) State summary report. A State that establishes a reinsurance 
program must submit to HHS and make public a report on its reinsurance 
program operations for each benefit year in the manner and timeframe 
specified by HHS. The report must summarize the accounting for the 
benefit year kept pursuant to paragraph (a) of this section.
    (c) Independent external audit. A State that establishes a 
reinsurance program must engage an independent qualified auditing 
entity to perform a financial and programmatic audit for each benefit 
year of its State-operated reinsurance program in accordance with 
generally accepted auditing standards (GAAS). The State must:
    (1) Provide to HHS the results of the audit, in the manner and 
timeframe to be specified by HHS;
    (2) Ensure that the audit addresses the prohibitions set forth in 
Sec.  153.265;
    (3) Identify to HHS any material weakness or significant deficiency 
identified in the audit, and address in writing to HHS how the State 
intends to correct any such material weakness or significant 
deficiency; and
    (4) Make public a summary of the results of the audit, including 
any material weakness or significant deficiency and how the State 
intends to correct the material weakness or significant deficiency, in 
the manner and timeframe to be specified by HHS.

0
13. Section 153.265 is added to subpart C to read as follows:


Sec.  153.265  Restrictions on use of reinsurance funds for 
administrative expenses.

    A State that establishes a reinsurance program must ensure that its 
applicable reinsurance entity does not use any funds for the support of 
reinsurance operations, including any reinsurance contributions 
provided under the national contribution rate for administrative 
expenses, for any of the following purposes:
    (a) Staff retreats;
    (b) Promotional giveaways;
    (c) Excessive executive compensation; or
    (d) Promotion of Federal or State legislative or regulatory 
modifications.

0
14. Section 153.310 is amended by:
    A. Adding paragraph (c)(4).
    B. Revising the paragraph (d) subject heading and adding paragraphs 
(d)(3) and (4).
    C. Removing paragraph (f).
    The additions and revision read as follows:


Sec.  153.310  Risk adjustment administration.

* * * * *
    (c) * * *
    (4) Maintenance of records. A State operating a risk adjustment 
program must maintain documents and records relating to the risk 
adjustment program, whether paper, electronic, or in other media, for 
each benefit year for at least 10 years, and make them available upon 
request from HHS, the OIG, the Comptroller General, or their designees, 
to any such entity. The documents and records must be sufficient to 
enable the evaluation of the State-operated risk adjustment program's 
compliance with Federal standards. A State operating a risk adjustment 
program must also ensure that its contractors, subcontractors, and 
agents similarly maintain and make relevant documents and records 
available upon request from HHS, the OIG, the Comptroller General, or 
their designees, to any such entity.
    (d) Approval for a State to operate risk adjustment. * * *
    (3) In addition to requirements set forth in paragraphs (d)(1) and 
(2) of this section, to obtain re-approval from HHS to operate risk 
adjustment for a third benefit year, the State must, in the first 
benefit year for which it operates risk adjustment, provide to HHS an 
interim report, in a manner specified by HHS, including a detailed 
summary of its risk adjustment activities in the first 10 months of the 
benefit year, no later than December 31 of the applicable benefit year.
    (4) To obtain re-approval from HHS to operate risk adjustment for 
each benefit year after the third benefit year, each

[[Page 65094]]

State operating a risk adjustment program must submit to HHS and make 
public a detailed summary of its risk adjustment program operations for 
the most recent benefit year for which risk adjustment operations have 
been completed, in the manner and timeframe specified by HHS.
    (i) The summary must include the results of a programmatic and 
financial audit for each benefit year of the State-operated risk 
adjustment program conducted by an independent qualified auditing 
entity in accordance with generally accepted auditing standards (GAAS).
    (ii) The summary must identify any material weakness or significant 
deficiency identified in the audit and address how the State intends to 
correct any such material weakness or significant deficiency.

0
15. Section 153.365 is added to subpart D to read as follows:


Sec.  153.365  General oversight requirements for State-operated risk 
adjustment programs.

    If a State is operating a risk adjustment program, it must keep an 
accounting of all receipts and expenditures related to risk adjustment 
payments and charges and the administration of risk adjustment-related 
functions and activities for each benefit year.

0
16. Section 153.400 is amended by revising paragraph (a)(1)(i) and 
adding paragraph (a)(3) to read as follows:


Sec.  153.400  Reinsurance contribution funds.

    (a) * * *
    (1) * * *
    (i) Such plan or coverage is not major medical coverage, subject to 
paragraph (a)(3) of this section.
* * * * *
    (3) Notwithstanding paragraph (a)(1)(i) of this section, a health 
insurance issuer must make reinsurance contributions for lives covered 
by its group health insurance coverage whether or not the insurance 
coverage constitutes major medical coverage, if--
    (i) The group health plan provides health insurance coverage for 
those covered lives through more than one insurance policy that in 
combination constitute major medical coverage;
    (ii) The lives are not covered by self-insured coverage of the 
group health plan (except for self-insured coverage limited to excepted 
benefits); and
    (iii) The health insurance coverage under the policy offered by the 
health insurance issuer constitutes the greatest portion of inpatient 
hospitalization benefits under the group health plan.
* * * * *

0
17. Section 153.405 is amended by adding paragraph (h) to read as 
follows:


Sec.  153.405  Calculation of reinsurance contributions.

* * * * *
    (h) Maintenance of records. A contributing entity must maintain 
documents and records, whether paper, electronic, or in other media, 
sufficient to substantiate the enrollment count submitted pursuant to 
this section for a period of at least 10 years, and must make those 
documents and records available upon request from HHS, the OIG, the 
Comptroller General, or their designees, to any such entity, for 
purposes of verification, investigation, audit, or other review of 
reinsurance contribution amounts.

0
18. Section 153.410 is amended by adding paragraph (c) to read as 
follows:


Sec.  153.410  Requests for reinsurance payment.

* * * * *
    (c) Maintenance of records. An issuer of a reinsurance-eligible 
plan must maintain documents and records, whether paper, electronic, or 
in other media, sufficient to substantiate the requests for reinsurance 
payments made pursuant to this section for a period of at least 10 
years, and must make those documents and records available upon request 
from HHS, the OIG, the Comptroller General, or their designees, or, in 
a State where the State is operating reinsurance, the State or its 
designee, to any such entity, for purposes of verification, 
investigation, audit, or other review of reinsurance payment requests.

0
19. Section 153.510 is amended by adding paragraph (e)


Sec.  153.510  Risk corridors establishment and payment methodology

* * * * *
    (e) A QHP issuer is not subject to the provisions of this subpart 
with respect to a stand-alone dental plan.

0
20. Section 153.520 is amended by revising paragraphs (a), (b), and (e) 
to read as follows:


Sec.  153.520  Attribution and allocation of revenue and expense items.

    (a) Attribution to plans. Each item of expense in the target amount 
with respect to a QHP must be reasonably attributable to the operation 
of the QHP issuer's non-grandfathered health plans in a market within a 
State, with the attribution based on a generally accepted accounting 
method, consistently applied. To the extent that a QHP issuer utilizes 
a specific method for allocating expenses for purposes of Sec.  158.170 
of this subchapter, the method used for purposes of this paragraph must 
be consistent.
    (b) Allocation across plans. Each item of expense in the target 
amount must reflect an amount equal to the pro rata portion of the 
aggregate amount of such expense across all of the QHP issuer's non-
grandfathered health plans in a market within a State, allocated to the 
QHP based on premiums earned.
* * * * *
    (e) Maintenance of records. A QHP issuer must maintain documents 
and records, whether paper, electronic, or in other media, sufficient 
to enable the evaluation of the issuer's compliance with applicable 
risk corridors standards, for each benefit year for at least 10 years, 
and must make those documents and records available upon request from 
HHS, the OIG, the Comptroller General, or their designees, to any such 
entity, for purposes of verification, investigation, audit or other 
review.

0
21. Section 153.530 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec.  153.530  Risk corridors data requirements.

* * * * *
    (b) Allowable costs. A QHP issuer must submit to HHS data on the 
allowable costs incurred with respect to the QHP issuer's non-
grandfathered health plans in a market within a State in a manner 
specified by HHS. For purposes of this subpart, allowable costs must be 
--
    (1) Increased by any risk adjustment charges paid by the issuer for 
the non-grandfathered health plans under the risk adjustment program 
established under subpart D of this part.
    (i) Any risk adjustment charges paid by the issuer for the non-
grandfathered health plans under the risk adjustment program 
established pursuant to subpart D of this part; and
    (ii) Any reinsurance contributions made by the issuer for the non-
grandfathered health plans under the transitional reinsurance program 
established pursuant to subpart C of this part.
    (2) Reduced by --
    (i) Any risk adjustment payments received by the issuer for the 
non-grandfathered health plans under the risk adjustment program 
established pursuant to subpart D of this part;
    (ii) Any reinsurance payments received by the issuer for the non-
grandfathered health plans under the transitional reinsurance program 
established pursuant to subpart C of this part; and

[[Page 65095]]

    (iii) Any cost-sharing reduction payments received by the issuer 
for the QHP issuer's QHPs in a market within a State to the extent not 
reimbursed to the provider furnishing the item or service.
    (c) Allowable administrative costs. A QHP issuer must submit to HHS 
data on the allowable administrative costs incurred with respect to the 
QHP issuer's non-grandfathered health plans in a market within a State 
in a manner specified by HHS.
* * * * *

0
22. Section 153.620 is amended by revising paragraph (b) to read as 
follows:


Sec.  153.620  Compliance with risk adjustment standards.

* * * * *
    (b) Issuer records maintenance requirements. An issuer that offers 
risk adjustment covered plans must also maintain documents and records, 
whether paper, electronic, or in other media, sufficient to enable the 
evaluation of the issuer's compliance with applicable risk adjustment 
standards, for each benefit year for at least 10 years, and must make 
those documents and records available upon request to HHS, the OIG, the 
Comptroller General, or their designees, or in a State where the State 
is operating risk adjustment, the State or its designee to any such 
entity, for purposes of verification, investigation, audit or other 
review.

0
23. Section 153.740 is added to subpart H to read as follows:


Sec.  153.740  Failure to comply with HHS-operated risk adjustment and 
reinsurance data requirements.

    (a) Enforcement actions. If an issuer of a risk adjustment covered 
plan or reinsurance-eligible plan fails to establish a dedicated 
distributed data environment in a manner and timeframe specified by 
HHS; fails to provide HHS with access to the required data in such 
environment in accordance with Sec.  153.700(a) or otherwise fails to 
comply with the requirements of Sec. Sec.  153.700 through 153.730; 
fails to adhere to the reinsurance data submission requirements set 
forth in Sec.  153.420; or fails to adhere to the risk adjustment data 
submission and data storage requirements set forth in Sec. Sec.  
153.610 through 153.630, HHS may impose civil money penalties in 
accordance with the procedures set forth in Sec.  156.805 of this 
subchapter. Civil monetary penalties will not be imposed for non-
compliance with these requirements during 2014 pursuant to this 
paragraph (a) if the issuer has made good faith efforts to comply with 
these requirements.
    (b) Default risk adjustment charge. If an issuer of a risk 
adjustment covered plan fails to establish a dedicated distributed data 
environment or fails to provide HHS with access to the required data in 
such environment in accordance with Sec.  153.610(a), Sec.  153.700, 
Sec.  153.710, or Sec.  153.730 such that HHS cannot apply the 
applicable Federally certified risk adjustment methodology to calculate 
the risk adjustment payment transfer amount for the risk adjustment 
covered plan in a timely fashion, HHS will assess a default risk 
adjustment charge.

PART 155--EXCHANGE ESTABLISHMENT STANDARDS AND OTHER RELATED 
STANDARDS UNDER THE AFFORDABLE CARE ACT

0
24. The authority citation for part 155 is revised to read as follows:

    Authority: Title I of the Affordable Care Act, sections 1301, 
1302, 1303, 1304, 1311, 1312, 1313, 1321, 1322, 1331, 1332, 1334, 
1402, 1411, 1412, 1413, Pub. L. 111-148, 124 Stat. 119 (42 U.S.C. 
18021-18024, 18031-18033, 18041-18042, 18051, 18054, 18071, and 
18081-18083).


0
25. Section 155.340 is amended by adding paragraph (h) to read as 
follows:


Sec.  155.340  Administration of advance payments of the premium tax 
credit and cost-sharing reductions.

* * * * *
    (h) Failure to reduce enrollee's premiums to account for advance 
payments of the premium tax credit. If the Exchange discovers that it 
did not reduce an enrollee's premium by the amount of the advance 
payment of the premium tax credit, then the Exchange must notify the 
enrollee of the improper reduction within 45 calendar days of discovery 
of the improper reduction and refund the enrollee any excess premium 
paid by or for the enrollee as follows:
    (1) Unless a refund is requested by or for the enrollee, the 
Exchange must, within 45 calendar days of discovery of the error, apply 
the excess premium paid by or for the enrollee to the enrollee's 
portion of the premium (or refund the amount directly). If any excess 
premium remains, the Exchange must then apply the excess premium to the 
enrollee's portion of the premium for each subsequent month for the 
remainder of the period of enrollment or benefit year until the excess 
premium is fully refunded (or refund the remaining amount directly). If 
any excess premium remains at the end of the period of enrollment or 
benefit year, the Exchange must refund any excess premium within 45 
calendar days of the end of the period of enrollment or benefit year, 
whichever comes first.
    (2) If a refund is requested by or for the enrollee, the refund 
must be provided within 45 calendar days of the date of the request.

0
26. Section 155.420 is amended by adding paragraph (d)(10) to read as 
follows:


Sec.  155.420  Special enrollment periods.

* * * * *
    (d) * * *
    (10) It has been determined by the Exchange that a qualified 
individual or enrollee, or his or her dependents, was not enrolled in 
QHP coverage; was not enrolled in the QHP selected by the qualified 
individual or enrollee; or is eligible for but is not receiving advance 
payments of the premium tax credit or cost-sharing reductions as a 
result of misconduct on the part of a non-Exchange entity providing 
enrollment assistance or conducting enrollment activities. For purposes 
of this provision, misconduct includes, but is not limited to, the 
failure of the non-Exchange entity to comply with applicable standards 
under this part, part 156 of this subchapter, or other applicable 
Federal or State laws, as determined by the Exchange.
* * * * *


Sec.  155.725  [Amended]

0
27. Section 155.725(j)(2)(i) is revised to read as follows:
* * * * *
    (j) * * *
    (2) * * *
    (i) Experiences an event described in Sec.  155.420(d)(1), (2), 
(4), (5), (7), (8), (9), or (10);
* * * * *

0
28. Subpart M is added to read as follows:
Subpart M--Oversight and Program Integrity Standards for State 
Exchanges
Sec.
155.1200 General program integrity and oversight requirements.
155.1210 Maintenance of records.

Subpart M--Oversight and Program Integrity Standards for State 
Exchanges


Sec.  155.1200  General program integrity and oversight requirements.

    (a) General requirement. A State Exchange must:
    (1) Keep an accurate accounting of Exchange receipts and 
expenditures in accordance with generally accepted accounting 
principles (GAAP).
    (2) Monitor and report to HHS on Exchange related activities.

[[Page 65096]]

    (3) Collect and report to HHS performance monitoring data.
    (b) Reporting. The State Exchange must, at least annually, provide 
to HHS, in a manner specified by HHS, the following data and 
information:
    (1) A financial statement presented in accordance with GAAP by 
April 1 of each year,
    (2) Eligibility and enrollment reports,
    (3) Performance monitoring data, and
    (4) If the Exchange is collecting premiums under Sec.  155.240, a 
report on instances in which it did not reduce an enrollee's premium by 
the amount of the advance payment of the premium tax credit in 
accordance with Sec.  155.340(g)(1) and (2).
    (c) External audits. The State Exchange must engage an independent 
qualified auditing entity which follows generally accepted governmental 
auditing standards (GAGAS) to perform an annual independent external 
financial and programmatic audit and must make such information 
available to HHS for review. The State must:
    (1) Provide to HHS the results of the annual external audit; and
    (2)) Inform HHS of any material weakness or significant deficiency 
identified in the audit and must develop and inform HHS of a corrective 
action plan for such material weakness or significant deficiency;
    (3) Make public a summary of the results of the external audit.
    (d) External audit standard. The State Exchange must ensure that 
independent audits of State Exchange financial statements and program 
activities in paragraph (c) of this section address:
    (1) Compliance with paragraph (a)(1) of this section;
    (2) Compliance with requirements under this part;
    (3) Processes and procedures designed to prevent improper 
eligibility determinations and enrollment transactions; and
    (4) Identification of errors that have resulted in incorrect 
eligibility determinations.


Sec.  155.1210  Maintenance of records.

    (a) General. The State Exchange must maintain and must ensure its 
contractors, subcontractors, and agents maintain for 10 years, 
documents and records (whether paper, electronic, or other media) and 
other evidence of accounting procedures and practices, which are 
sufficient to do the following:
    (1) Accommodate periodic auditing of the State Exchange's financial 
records; and
    (2) Enable HHS or its designee(s) to inspect facilities, or 
otherwise evaluate the State- Exchange's compliance with Federal 
standards.
    (b) Records. The State Exchange and its contractors, 
subcontractors, and agents must ensure that the records specified in 
paragraph (a) of this section include, at a minimum, the following:
    (1) Information concerning management and operation of the State 
Exchange's financial and other record keeping systems;
    (2) Financial statements, including cash flow statements, and 
accounts receivable and matters pertaining to the costs of operations;
    (3) Any financial reports filed with other Federal programs or 
State authorities;
    (4) Data and records relating to the State Exchange's eligibility 
verifications and determinations, enrollment transactions, appeals, and 
plan variation certifications; and
    (5) Qualified health plan contracting (including benefit review) 
data and consumer outreach and Navigator grant oversight information.
    (c) Availability. A State Exchange must make all records and must 
ensure its contractors, subcontractors, and agents must make all 
records in paragraph (a) of this section available to HHS, the OIG, the 
Comptroller General, or their designees, upon request.

PART 156--HEALTH INSURANCE ISSUER STANDARDS UNDER THE AFFORDABLE 
CARE ACT, INCLUDING STANDARDS RELATED TO EXCHANGES

0
29. The authority citation for part 156 continues to read as follows:

    Authority: Title I of the Affordable Care Act, sections 1301-
1304, 1311-1313, 1321-1322, 1324, 1334, 1342-1343, 1401-1402, Pub. 
L. 111-148, 124 Stat. 119 42 U.S.C. 18021-18024, 18031-18032, 18041-
18042, 18044, 18054, 18061, 18063, 18071, 18082, 26 U.S.C. 36B, and 
31 U.S.C. 9701).


0
30. Section 156.20 is amended by adding definitions in alphabetical 
order for ``Enrollee satisfaction survey vendor'' and ``Registered user 
of the enrollee satisfaction survey data warehouse'' to read as 
follows:


Sec.  156.20  Definitions

* * * * *
    Enrollee satisfaction survey vendor means an organization that has 
relevant survey administration experience (for example, CAHPS[supreg] 
surveys), organizational survey capacity, and quality control 
procedures for survey administration.
* * * * *
    Registered user of the enrollee satisfaction survey data warehouse 
means enrollee satisfaction survey vendors, QHP issuers, and Exchanges 
authorized to access CMS's secure data warehouse to submit survey data 
and to preview survey results prior to public reporting.

0
31. Section 156.80 is amended by revising the first sentence of 
paragraph (d)(1) and adding paragraph (d)(3) to read as follows:


Sec.  156.80  Single risk pool.

* * * * *
    (d) * * *
    (1) In general. A health insurance issuer must establish an index 
rate that is effective January 1 of each calendar year for a state 
market described in paragraphs (a) through (c) of this section based on 
the total combined claims costs for providing essential health benefits 
within the single risk pool of that state market. * * *
* * * * *
    (3) Frequency of index rate and plan-level adjustments. (i) A 
health insurance issuer may not establish an index rate and make the 
market-wide adjustments pursuant to paragraph (d)(1) of this section, 
or make the plan-level adjustments pursuant to paragraph (d)(2) of this 
section, more or less frequently than annually, except as provided in 
paragraph (d)(3)(ii) of this section.
    (ii) Beginning the quarter after HHS issues notification that the 
FF-SHOP can process quarterly rate updates, a health insurance issuer 
in the small group market (not including a merged market) may establish 
index rates and make the market-wide adjustments pursuant to paragraph 
(d)(1) of this section, and make the plan-level adjustments pursuant to 
paragraph (d)(2) of this section, no more frequently than quarterly, 
provided that any changes to rates must have effective dates of January 
1, April 1, July 1, or October 1.
* * * * *

0
32. Section 156.155 is amended by revising paragraph (a)(3) to read as 
follows:


Sec.  156.155  Enrollment in catastrophic plans.

    (a) * * *
    (3) Provides coverage of the essential health benefits under 
section 1302(b) of the Affordable Care Act, except that the plan 
provides no benefits for any plan year (except as provided in 
paragraphs (a)(4) and (b) of this section) until the annual limitation 
on cost sharing in section 1302(c)(1) of the act is reached.
* * * * *

0
33. Section 156.330 is added to subpart D to read follows:

[[Page 65097]]

Sec.  156.330  Changes of Ownership of Issuers of Qualified Health 
Plans in Federally-facilitated Exchanges.

    When a QHP issuer that offers one or more QHPs in a Federally-
facilitated Exchange undergoes a change of ownership as recognized by 
the State in which the issuer offers the QHP, the QHP issuer must 
notify HHS of the change in a manner to be specified by HHS, and 
provide the legal name and Taxpayer Identification Number (TIN) of the 
new owner and the effective date of the change at least 30 days prior 
to the effective date of the change of ownership. The new owner must 
agree to adhere to all applicable statutes and regulations.

0
34. Section 156.400 is amended by revising the definition of ``Most 
generous or more generous'' to read as follows:


Sec.  156.400  Definitions.

* * * * *
    Most generous or more generous means, as between a QHP (including a 
standard silver plan) or plan variation and one or more other plan 
variations of the same QHP, the standard plan or plan variation 
designed for the category of individuals last listed in Sec.  
155.305(g)(3) of this subchapter. Least generous or less generous has 
the opposite meaning.
* * * * *

0
35. Section 156.410 is amended by adding paragraphs (c) and (d) to read 
as follows:


Sec.  156.410  Cost-sharing reductions for enrollees.

* * * * *
    (c) Improper cost-sharing reductions. (1) If a QHP issuer fails to 
ensure that an individual assigned to a plan variation receives the 
cost-sharing reductions required under the applicable plan variation, 
taking into account Sec.  156.425(b) concerning continuity of 
deductibles and out-of-pocket amounts (if applicable), then the QHP 
issuer must notify the enrollee of the improper application of any 
cost-sharing reduction within 45 calendar days of discovery of such 
improper application, and refund any resulting excess cost sharing paid 
by or for the enrollee as follows:
    (i) If the excess cost sharing was paid by the provider, the QHP 
issuer must refund the excess cost sharing to the provider within 45 
calendar days of discovery of the improper application.
    (ii) If the excess cost sharing was not paid by the provider and is 
not requested by the enrollee as a refund, the QHP issuer must, within 
45 calendar days of discovery of the error, apply the excess cost 
sharing paid by or for the enrollee to the enrollee's portion of the 
premium (or refund the amount directly). If any excess premium remains, 
the QHP issuer must apply the excess premium to the enrollee's portion 
of the premium for each subsequent month for the remainder of the 
period of enrollment or benefit year until the excess is fully applied 
(or refund any remaining amount directly). If any excess premium 
remains at the end of the period of enrollment or benefit year, the QHP 
issuer must refund the enrollee any remaining excess cost sharing paid 
by or for the enrollee within 45 calendar days of the end of the period 
of enrollment or benefit year, whichever comes first.
    (iii) If the excess cost sharing was not paid by the provider, and 
if a refund is requested by the enrollee, the refund must be provided 
to the enrollee within 45 calendar days of the date of the request.
    (2) If a QHP issuer provides an individual assigned to a plan 
variation greater cost-sharing reductions than required under the 
applicable plan variation, taking into account Sec.  156.425(b) 
concerning continuity of deductibles and out-of-pocket amounts (if 
applicable), then the QHP issuer will not be eligible for reimbursement 
of any excess cost-sharing reductions provided to the enrollee, and may 
not seek reimbursement from the enrollee or the applicable provider for 
any of the excess cost-sharing reductions.
    (d) Improper assignment. If a QHP issuer does not assign an 
individual to the applicable plan variation (or standard plan without 
cost-sharing reductions) in accordance with Sec.  156.410(b) and Sec.  
156.425(a) based on the eligibility and enrollment information or 
notification provided by the Exchange, then the QHP issuer must 
reassign the enrollee to the applicable plan variation (or standard 
plan without cost-sharing reductions) and notify the enrollee of the 
improper assignment such that:
    (1) If the QHP issuer discovers the improper assignment between the 
first and fifteenth day of the month, the QHP issuer must reassign the 
enrollee to the correct plan variation (or standard plan without cost-
sharing reductions) by the first day of the following month.
    (2) If the QHP issuer discovers the improper assignment between the 
sixteen and the last day of the month, the QHP issuer must reassign the 
individual to the correct plan variation (or standard plan without 
cost-sharing reductions) by the first day of the second following 
month.
    (3) If, pursuant to a reassignment under this paragraph (d), a QHP 
issuer reassigns an enrollee from a more generous plan variation to a 
less generous plan variation of a QHP (or a standard plan without cost-
sharing reductions), the QHP issuer will not be eligible for 
reimbursement for any of the excess cost-sharing reductions provided to 
the enrollee following the effective date of eligibility required by 
the Exchange, and may not seek reimbursement from the enrollee or the 
applicable provider for any of the excess cost-sharing reductions.
    (4) If, pursuant to a reassignment under this paragraph (d), a QHP 
issuer reassigns an enrollee from a less generous plan variation (or a 
standard plan without cost-sharing reductions) to a more generous plan 
variation of a QHP, the QHP issuer must recalculate the enrollee's 
liability for cost sharing paid between the effective date of 
eligibility required by the Exchange and the date on which the issuer 
effectuated the change, and must refund any excess cost sharing paid by 
or for the enrollee during such period as follows:
    (i) If the excess cost sharing was paid by the provider, the QHP 
issuer must refund the excess cost sharing to the provider within 45 
calendar days of discovery of the improper assignment.
    (ii) If the excess cost sharing was not paid by the provider and is 
not requested by the enrollee as a refund, the QHP issuer must, within 
45 calendar days of discovery of the improper assignment, apply the 
excess cost sharing paid by or for the enrollee to the enrollee's 
portion of the premium (or refund the amount directly). If any excess 
premium remains, the QHP issuer must apply the excess premium to the 
enrollee's portion of the premium for each subsequent month for the 
remainder of the period of enrollment or benefit year until the excess 
is fully applied (or refund the remaining amount directly). If any 
excess premium remains at the end of the period of enrollment or 
benefit year, the QHP issuer must refund the enrollee any remaining 
excess cost sharing paid by or for the enrollee within 45 calendar days 
of the end of the period of enrollment or benefit year, whichever comes 
first.
    (ii) If the excess cost sharing was not paid by the provider, then, 
if the enrollee requests a refund, the refund must be provided to the 
enrollee within 45 calendar days of the date of the request.

0
36. Section 156.430 is amended by revising paragraphs (c)(3) 
introductory text, (c)(3)(iii) through (iv), and (c)(4) to read as 
follows:

[[Page 65098]]

Sec.  156.430  Payment for cost-sharing reductions.

* * * * *
    (c) * * *
    (3) Selection of methodology. For benefit years 2014 through 2016, 
notwithstanding paragraph (c)(2) of this section, a QHP issuer may 
choose to calculate the amounts that would have been paid under the 
standard plan without cost-sharing reductions using the simplified 
methodology described in paragraph (c)(4) of this section.
* * * * *
    (iii) The QHP issuer may not select the simplified methodology for 
a benefit year if the QHP issuer did not select the simplified 
methodology for the prior benefit year.
    (iv) Notwithstanding paragraphs (c)(3)(ii) and (iii) of this 
section, if a QHP issuer merges with or acquires another issuer of a 
QHP on the Exchange, or acquires a QHP offered on the Exchange from 
another QHP issuer, and if one, but not all, of the merging, acquiring, 
or acquired parties had selected the simplified methodology for the 
benefit year, then for the benefit year in which the merger or 
acquisition took place, the QHP issuer must calculate the amounts that 
would have been paid using the methodology (whether the standard 
methodology described in paragraph (c)(2) of this section or the 
simplified methodology described in paragraph (c)(4) of this section) 
selected with respect to the plan variation prior to the start of the 
benefit year (even if the selection was not made by that QHP issuer). 
For the next benefit year (if such benefit year is 2015 or 2016), the 
QHP issuer may select the simplified methodology (subject to paragraph 
(c)(3)(ii) of this section but, for that benefit year, not paragraph 
(c)(3)(iii) of this section) or the standard methodology.
    (4) Simplified methodology. Subject to paragraph (c)(4)(v) of this 
section, a QHP issuer that selects the simplified methodology described 
in this paragraph (c)(4) must calculate the amount that the enrollees 
would have paid under the standard plan without cost-sharing reductions 
for each policy that was assigned to a plan variation for any portion 
of the benefit year by applying each set of the standard plan's 
effective cost-sharing parameters (as calculated under paragraphs 
(c)(3)(ii) and (iii) of this section) to the corresponding subgroup of 
total allowed costs for EHB for the policy (as described in paragraph 
(c)(4)(i) of this section).
    (i) For plan variation policies with total allowed costs for EHB 
for the benefit year that are:
    (A) Less than or equal to the effective deductible, the amount that 
the enrollees would have paid under the standard plan is equal to the 
total allowed costs for EHB under the policy for the benefit year 
multiplied by the effective pre-deductible coinsurance rate.
    (B) Greater than the effective deductible but less than the 
effective claims ceiling, the amount that the enrollees would have paid 
under the standard plan is equal to the sum of (x) the average 
deductible, plus (y) the effective non-deductible cost sharing, plus 
(z) the difference, if positive, between the total allowed costs under 
the policy for the benefit year for EHB that are subject to a 
deductible and the average deductible, multiplied by the effective 
post-deductible coinsurance rate.
    (C) Greater than or equal to the effective claims ceiling, the 
amount that the enrollees would have paid under the standard plan is 
equal to the annual limitation on cost sharing for the standard plan 
(as defined at 45 CFR 156.400), or, at the QHP issuer's election on a 
policy-by-policy basis, the amount calculated pursuant to the standard 
methodology described in paragraph (c)(2) of this section,
    (ii) The QHP issuer must calculate one or more sets of effective 
cost-sharing parameters, as described in paragraph (c)(4)(iii) of this 
section, based on policies assigned to the standard plan without cost-
sharing reductions for the entire benefit year and must separately 
apply each set of effective cost-sharing parameters to the 
corresponding subgroup of total allowed costs for EHB for each plan 
variation policy, as described in paragraph (c)(4)(i) of this section, 
as follows:
    (A) If the standard plan has separate cost-sharing parameters for 
self-only coverage and other than self-only coverage, but does not have 
separate cost-sharing parameters for pharmaceutical and medical 
services, the QHP issuer must calculate and apply separate sets of 
effective cost-sharing parameters based on the costs of enrollees in 
the standard plan with self-only coverage, and based on the costs of 
enrollees in the standard plan with other than self-only coverage.
    (B) If the standard plan has separate cost-sharing parameters for 
pharmaceutical and medical services, but does not have separate cost-
sharing parameters for self-only coverage and other than self-only 
coverage, the QHP issuer must calculate and apply separate sets of 
effective cost-sharing parameters based on the medical costs of the 
enrollees in the standard plan, and based on the pharmaceutical costs 
of the enrollees in the standard plan.
    (C) If the standard plan has separate cost-sharing parameters for 
self-only coverage and other than self-only coverage, and also has 
separate cost-sharing parameters for pharmaceutical and medical 
services, the QHP issuer must calculate and apply separate sets of 
effective cost-sharing parameters based on the medical costs of 
enrollees in the standard plan with self-only coverage, based on the 
pharmaceutical costs of enrollees in the standard plan with self-only 
coverage, based on the medical costs of enrollees in the standard plan 
with other than self-only coverage, and based on the pharmaceutical 
costs of enrollees in the standard plan with other than self-only 
coverage.
    (iii) The effective cost-sharing parameters for the standard plan 
without cost-sharing reductions must be calculated based on policies 
assigned to the standard plan for the entire benefit year for each of 
the required subgroups under paragraph (c)(4)(ii) of this section as 
follows:
    (A) If the standard plan has only one deductible (for the 
applicable subgroup), the average deductible of the standard plan is 
that deductible amount. If the standard plan has more than one 
deductible (for the applicable subgroup), the average deductible is the 
weighted average of the deductibles, weighted by allowed costs for EHB 
under the standard plan for the benefit year that are subject to each 
separate deductible. Services that are not subject to any deductible 
(including services subject to copayments or coinsurance but not any 
deductible) are not to be incorporated into the calculation of the 
average deductible.
    (B) The effective non-deductible cost sharing for the applicable 
subgroup is the average portion of total allowed costs for EHB that are 
not subject to any deductible for the standard plan for the benefit 
year incurred for standard plan enrollees and payable by the enrollees 
as cost sharing. The effective non-deductible cost sharing must be 
calculated based only on standard plan policies with total allowed 
costs for EHB for the benefit year that are above the effective 
deductible but for which associated cost sharing for EHB is less than 
the annual limitation on cost sharing.
    (C) The effective deductible for the applicable subgroup is equal 
to the sum of the average deductible and the average total allowed 
costs for EHB that are not subject to any deductible for the standard 
plan for the benefit year. The average total allowed costs for EHB that

[[Page 65099]]

are not subject to any deductible for the standard plan for the benefit 
year must be calculated based only on standard plan policies with total 
allowed costs for EHB for the benefit year that are above the average 
deductible but for which associated cost sharing for EHB is less than 
the annual limitation on cost sharing.
    (D) The effective pre-deductible coinsurance rate for the 
applicable subgroup is the proportion of the total allowed costs for 
EHB under the standard plan for the benefit year incurred for standard 
plan enrollees and payable as cost sharing. The effective pre-
deductible coinsurance rate must be calculated based only on standard 
plan policies with total allowed costs for EHB for the benefit year 
that are less than or equal to the effective deductible.
    (E) The effective post-deductible coinsurance rate for the 
applicable subgroup is the quotient of (x) the portion of average 
allowed costs for EHB subject to a deductible incurred for enrollees 
for the benefit year, and payable by the enrollees as cost sharing 
other than through a deductible, over the difference of (y) the average 
allowed costs for EHB subject to a deductible incurred for enrollees 
for the benefit year, and (z) the average deductible. The effective 
post-deductible coinsurance rate must be calculated based only on 
standard plan policies with total allowed costs for EHB for the benefit 
year that are above the effective deductible but for which associated 
cost sharing for EHB is less than the annual limitation on cost 
sharing.
    (F) The effective claims ceiling for the applicable subgroup is 
calculated as the effective deductible plus the quotient of (x) the 
difference between the annual limitation on cost sharing and the sum of 
the average deductible and the effective non-deductible cost sharing, 
divided by (y) the effective post-deductible coinsurance rate.
    (iv) If a QHP issuer uses the simplified methodology described in 
this paragraph (c)(4), and the QHP issuer's standard plan does not meet 
any of the criteria in paragraphs (c)(4)(v)(A) through (D) of this 
section, the QHP issuer must also submit to HHS, in the manner and 
timeframe established by HHS, the following information for each 
standard plan offered by the QHP issuer in the individual market 
through the Exchange for each of the required subgroups described in 
paragraph (c)(4)(ii) of this section:
    (A) The average deductible for each applicable subgroup;
    (B) The effective deductible for each applicable subgroup;
    (C) The effective non-deductible cost sharing amount for each 
applicable subgroup;
    (D) The effective pre-deductible coinsurance rate for each 
applicable subgroup;
    (E) The effective post-deductible coinsurance rate for each 
applicable subgroup;
    (F) The effective claims ceiling for each applicable subgroup; and
    (G) A memorandum developed by a member of the American Academy of 
Actuaries in accordance with generally accepted actuarial principles 
and methodologies that describes how the QHP issuer calculated the 
effective cost-sharing parameters for each applicable subgroup for the 
standard plan.
    (v) Notwithstanding paragraphs (c)(4)(i) through (iii) of this 
section, if a QHP issuer's standard plan meets the criteria in any of 
the following subparagraphs, and the QHP issuer has selected the 
simplified methodology described in this paragraph (c)(4), then the QHP 
issuer must calculate the amount that the enrollees in the plan 
variation would have paid under the standard plan without cost-sharing 
reductions as the lesser of the annual limitation on cost sharing for 
the standard plan or the amount equal to the product of, (x) one minus 
the standard plan's actuarial value, as calculated under 45 CFR 
156.135, and (y) the total allowed costs for EHB for the benefit year 
under each policy that was assigned to a plan variation for any portion 
of the benefit year.
    (A) The standard plan has separate cost-sharing parameters for 
self-only coverage and other than self-only coverage, does not have 
separate cost-sharing parameters for pharmaceutical and medical 
services, and has an enrollment during the benefit year of fewer than 
12,000 member months for coverage with total allowed costs for EHB for 
the benefit year that are greater than the effective deductible, but 
for which associated cost sharing for EHB is less than the annual 
limitation on cost sharing, in either of the following categories -
    (1) Self-only coverage; or
    (2) Other than self-only coverage.
    (B) The standard plan has separate cost-sharing parameters for 
pharmaceutical and medical services, does not have separate cost-
sharing parameters for self-only coverage and other than self-only 
coverage, and has an enrollment during the benefit year of fewer than 
12,000 member months for coverage with total allowed costs for EHB for 
the benefit year that are greater than the effective deductible, but 
for which associated cost sharing for EHB is less than the annual 
limitation on cost sharing, in either of the following categories:
    (1) Coverage of medical services; or
    (2) Coverage of pharmaceutical services.
    (C) The standard plan has separate cost-sharing parameters for 
self-only coverage and other than self-only coverage and for 
pharmaceutical and medical services, and has an enrollment during the 
benefit year of fewer than 12,000 member months for coverage with total 
allowed costs for EHB for the benefit year that are greater than the 
effective deductible, but for which associated cost sharing for EHB is 
less than the annual limitation on cost sharing, in any of the 
following categories:
    (1) Self-only coverage of medical services;
    (2) Self-only coverage of pharmaceutical services;
    (3) Other than self-only coverage of medical services; or
    (4) Other than self-only coverage of pharmaceutical services.
    (D) The standard plan does not have separate cost-sharing 
parameters for pharmaceutical and medical services, or for self-only 
coverage and other than self-only coverage, and has an enrollment 
during the benefit year of fewer than 12,000 member months with total 
allowed costs for EHB for the benefit year that are greater than the 
effective deductible, but for which associated cost sharing for EHB is 
less than the annual limitation on cost sharing.
    (vi) Notwithstanding paragraphs (c)(4)(i)(A) and (B) of this 
section, and paragraphs (c)(4)(iii)(A) through (E) of this section, if 
more than eighty percent of the total allowed costs for EHB for the 
benefit year under a standard plan for a subgroup that requires a 
separate set of effective cost-sharing parameters pursuant to paragraph 
(c)(4)(ii) are not subject to a deductible, then:
    (A) The average deductible, the effective non-deductible cost 
sharing, and the effective deductible for the subgroup equal zero;
    (B) The effective pre-deductible coinsurance rate for the subgroup 
is equal to the effective post-deductible coinsurance rate for the 
subgroup, which is determined based on all standard plan policies for 
the applicable subgroup for which associated cost sharing for EHB is 
less than the annual limitation on cost sharing, and calculated for the 
applicable subgroup as the proportion of the total allowed costs for 
EHB under the standard plan for the benefit year incurred for standard 
plan enrollees and payable as

[[Page 65100]]

cost sharing (including cost sharing payable through a deductible); and
    (C) The amount that enrollees in the applicable subgroup in plan 
variation policies with total allowed costs for EHB for the benefit 
year that are less than the effective claims ceiling would have paid 
under the standard plan must be calculated using the formula in 
paragraph (c)(4)(i)(A).
* * * * *

0
37. Section 156.460 is amended by adding paragraph (c) to read as 
follows:


Sec.  156.460  Reduction of enrollee's share of premium to account for 
advance payments of the premium tax credit.

* * * * *
    (c) Refunds to enrollees for improper reduction of enrollee's share 
of premium to account for advance payments of the premium tax credit. 
If a QHP issuer discovers that it did not reduce the portion of the 
premium charged to or for an enrollee for the applicable month(s) by 
the amount of the advance payment of the premium tax credit in 
accordance with paragraph (a)(1) of this section, the QHP issuer must 
notify the enrollee of the improper reduction within 45 calendar days 
of the QHP issuer's discovery of the improper reduction and refund any 
excess premium paid by or for the enrollee, as follows:
    (1) Unless a refund is requested by or for the enrollee, the QHP 
issuer must, within 45 calendar days of discovery of the error, apply 
the excess premium paid by or for the enrollee to the enrollee's 
portion of the premium (or refund the amount directly). If any excess 
premium remains, the QHP issuer must apply the excess premium to the 
enrollee's portion of the premium for each subsequent month for the 
remainder of the period of enrollment or benefit year until the excess 
is fully applied (or refund the remaining amount directly). If any 
excess premium remains at the end of the period of enrollment or 
benefit year, the QHP issuer must refund any excess premium within 45 
calendar days of the end of the period of enrollment or benefit year, 
whichever comes first.
    (2) If a refund is requested by or for the enrollee, the refund 
must be provided within 45 calendar days of the date of the request.

0
38. Section 156.480 is added to subpart E to read as follows:


Sec.  156.480  Oversight of the administration of the cost-sharing 
reductions and advance payments of the premium tax credit programs.

    (a) Maintenance of records. An issuer that offers a QHP in the 
individual market through a State Exchange must adhere to, and ensure 
that any relevant delegated entities and downstream entities adhere to, 
the standards set forth in Sec.  156.705 concerning maintenance of 
documents and records, whether paper, electronic, or in other media, by 
issuers offering QHPs in a Federally-facilitated Exchange, in 
connection with cost-sharing reductions and advance payments of the 
premium tax credit.
    (b) Annual reporting requirements. For each benefit year, an issuer 
that offers a QHP in the individual market through an Exchange must 
report to HHS, in the manner and timeframe required by HHS, summary 
statistics specified by HHS with respect to administration of cost-
sharing reduction and advance payments of the premium tax credit 
programs, including any failure to adhere to the standards set forth 
under Sec.  156.410(a) through (d), Sec.  156.425(a) through (b), and 
Sec.  156.460(a) through (c) of this Part.
    (c) Audits. HHS or its designee may audit an issuer that offers a 
QHP in the individual market through an Exchange to assess compliance 
with the requirements of this subpart.

0
39. Subpart H is added to read as follows:
Subpart H--Oversight and Financial Integrity Standards for Issuers of 
Qualified Health Plans in Federally-Facilitated Exchanges
Sec.
156.705 Maintenance of records for Federally-facilitated Exchange.
156.715 Investigations and compliance reviews in Federally-
facilitated Exchanges.

Subpart H--Oversight and Financial Integrity Standards for Issuers 
of Qualified Health Plans in Federally-Facilitated Exchanges


Sec.  156.705  Maintenance of records for Federally-facilitated 
Exchanges.

    (a) General standard. Issuers offering QHPs in a Federally-
facilitated Exchange must maintain all documents and records (whether 
paper, electronic, or other media) and other evidence of accounting 
procedures and practices, necessary for HHS to do the following:
    (1) Periodically audit financial records related to QHP issuers' 
participation in a Federally-facilitated Exchange, and evaluate the 
ability of QHP issuers to bear the risk of potential financial losses; 
and
    (2) Conduct compliance reviews or otherwise monitor QHP issuers' 
compliance with all Exchange standards applicable to issuers offering 
QHPs in a federally-facilitated Exchange as listed in this part.
    (b) Records. The records described in paragraph (a) of this section 
include the sources listed in Sec.  155.1210(b)(2), (3), and (5) of 
this subchapter.
    (c) Record retention timeframe. Issuers offering QHPs in a 
Federally-facilitated Exchange must maintain all records referenced in 
paragraph (a) of this section for 10 years.
    (d) Record availability. Issuers offering QHPs in a Federally-
facilitated Exchange must make all records in paragraph (a) of this 
section available to HHS, the OIG, the Comptroller General, or their 
designees, upon request.


Sec.  156.715  Compliance Reviews of QHP Issuers in Federally-
facilitated Exchanges.

    (a) General standard. Issuers offering QHPs in a Federally-
facilitated Exchange may be subject to compliance reviews to ensure 
ongoing compliance with Exchange standards applicable to issuers 
offering QHPs in a Federally-facilitated Exchange.
    (b) Records. In preparation for or in the course of the compliance 
review, a QHP issuer must make available for HHS to review the records 
of the QHP issuer that pertain to its activities within a Federally-
facilitated Exchange. Such records may include, but are not limited to 
the following:
    (1) The QHP issuer's books and contracts, including the QHP 
issuer's policy manuals and other QHP plan benefit information provided 
to the QHP issuer's enrollees;
    (2) The QHP issuer's policies and procedures, protocols, standard 
operating procedures, or other similar manuals related to the QHP 
issuer's activities in a Federally-facilitated Exchange;
    (3) Any other information reasonably necessary for HHS to--
    (i) Evaluate the QHP issuer's compliance with QHP certification 
standards and other Exchange standards applicable to issuers offering 
QHPs in a Federally-facilitated Exchange;
    (ii) Evaluate the QHP's performance, including its adherence to an 
effective compliance plan, within a Federally-facilitated Exchange;
    (iii) Verify that the QHP issuer has performed the duties attested 
to as part of the QHP certification process; and
    (iv) Assess the likelihood of fraud or abuse.
    (c) Interest of Qualified Individuals and Qualified Employers. 
HHS's findings from the compliance reviews under this section may be in 
conjunction with other findings related to the QHP issuers' compliance 
with certification standards, used to confirm

[[Page 65101]]

that permitting the issuer's QHPs to be available through a Federally-
facilitated Exchange is in the interest of the qualified individuals 
and qualified employers as provided under Sec.  155.1000(c)(2) of this 
subchapter.
    (d) Onsite and desk reviews. The QHP issuer will make available, 
for the purposes listed in paragraph (c) of this section, its premises, 
physical facilities and equipment (including computer and other 
electronic systems), for HHS to conduct a compliance review as provided 
under this section.
    (1) A compliance review under this section will be carried out as 
an onsite or desk review based on the specific circumstances.
    (2) Unless otherwise specified, nothing in this section is intended 
to preempt Federal laws and regulations related to information privacy 
and security.
    (e) Compliance review timeframe. A QHP issuer may be subject to a 
compliance review up to 10 years from the last day of that plan benefit 
year, or 10 years from the last day that the QHP certification is 
effective if the QHP is no longer available through a Federally-
facilitated Exchange; provided, however, that if the 10 year review 
period falls during an ongoing compliance review, the review period 
would be extended until the compliance review is completed.

0
40. Subpart J is added to read as follows:
Subpart J--Administrative Review of QHP Issuer Sanctions in Federally-
Facilitated Exchanges
Sec.
156.901 Definitions.
156.903 Scope of Administrative Law Judge's (ALJ) authority.
156.905 Filing of request for hearing.
156.907 Form and content of request for hearing.
156.909 Amendment of notice of assessment or decertification request 
for hearing.
156.911 Dismissal of request for hearing.
156.913 Settlement.
156.915 Intervention.
156.917 Issues to be heard and decided by ALJ.
156.919 Forms of hearing.
156.921 Appearance of counsel.
156.923 Communications with the ALJ.
156.925 Motions.
156.927 Form and service of submissions.
156.929 Computation of time and extensions of time.
156.929 Computation of time and extensions of time.
156.931 Acknowledgment of request for hearing.
156.935 Discovery.
156.937 Submission of briefs and proposed hearing exhibits.
156.939 Effect of submission of proposed hearing exhibits.
156.941 Prehearing conferences.
156.943 Standard of proof.
156.945 Evidence.
156.947 The record.
156.951 Posthearing briefs.
156.953 ALJ decision.
156.955 Sanctions.
156.957 Review by Administrator.
156.959 Judicial review.
156.961 Failure to pay assessment.
156.963 Final order not subject to review.

Subpart J--Administrative Review of QHP Issuer Sanctions in 
Federally-Facilitated Exchanges


Sec.  156.901  Definitions.

    In this subpart, unless the context indicates otherwise:
    ALJ means administrative law judge of the Departmental Appeals 
Board of HHS.
    Filing date means the date postmarked by the U.S. Postal Service, 
deposited with a carrier for commercial delivery, or hand delivered.
    Hearing includes a hearing on a written record as well as an in-
person or telephone hearing.
    Party means HHS or the respondent.
    Receipt date means five days after the date of a document, unless 
there is a showing that it was in fact received later.
    Respondent means an entity that received a notice of proposed 
assessment of a civil money penalty issued pursuant to Sec.  156.805 or 
a notice of decertification pursuant to Sec.  156.810(c) or (d).


Sec.  156.903  Scope of Administrative Law Judge's (ALJ) authority.

    (a) The ALJ has the authority, including all of the authority 
conferred by the Administrative Procedure Act (5 U.S.C. 554a), to adopt 
whatever procedures may be necessary or proper to carry out in an 
efficient and effective manner the ALJ's duty to provide a fair and 
impartial hearing on the record and to issue an initial decision 
concerning the imposition of a civil money penalty or the 
decertification of a QHP offered in a Federally-facilitated Exchange.
    (b) The ALJ's authority includes the authority to modify, 
consistent with the Administrative Procedures Act (5 U.S.C. 552a), any 
hearing procedures set out in this subpart.
    (c) The ALJ does not have the authority to find invalid or refuse 
to follow Federal statutes or regulations.


Sec.  156.905  Filing of request for hearing.

    (a) A respondent has a right to a hearing before an ALJ if it files 
a request for hearing that complies with Sec.  156.907(a), within 30 
days after the date of issuance of either HHS' notice of proposed 
assessment under Sec.  156.805, notice of decertification of a QHP 
under Sec.  156.810(c) or Sec.  156.810(d). The request for hearing 
should be addressed as instructed in the notice of proposed 
determination. ``date of issuance'' is five (5) days after the filing 
date, unless there is a showing that the document was received earlier.
    (b) The ALJ may extend the time for filing a request for hearing 
only if the ALJ finds that the respondent was prevented by events or 
circumstances beyond its control from filing its request within the 
time specified above. Any request for an extension of time must be made 
promptly by written motion.


Sec.  156.907  Form and content of request for hearing.

    (a) The request for hearing must do the following:
    (1) Identify any factual or legal bases for the assessment or 
decertifications with which the respondent disagrees.
    (2) Describe with reasonable specificity the basis for the 
disagreement, including any affirmative facts or legal arguments on 
which the respondent is relying.
    (b) Identify the relevant notice of assessment or decertification 
by date and attach a copy of the notice.


Sec.  156.909  Amendment of notice of assessment or decertification 
request for hearing.

    The ALJ may permit CMS to amend its notice of assessment or 
decertification, or permit the respondent to amend a request for 
hearing that complies with Sec.  156.907(a), if the ALJ finds that no 
undue prejudice to either party will result.


Sec.  156.911  Dismissal of request for hearing.

    An ALJ will order a request for hearing dismissed if the ALJ 
determines that:
    (a) The request for hearing was not filed within 30 days as 
specified by Sec.  156.905(a) or any extension of time granted by the 
ALJ pursuant to Sec.  156.905(b).
    (b) The request for hearing fails to meet the requirements of Sec.  
156.907.
    (c) The entity that filed the request for hearing is not a 
respondent under Sec.  156.901.
    (d) The respondent has abandoned its request.
    (e) The respondent withdraws its request for hearing.


Sec.  156.913  Settlement.

    HHS has exclusive authority to settle any issue or any case, 
without the consent of the ALJ at any time before or after the ALJ's 
decision.

[[Page 65102]]

Sec.  156.915  Intervention.

    (a) The ALJ may grant the request of an entity, other than the 
respondent, to intervene if all of the following occur:
    (1) The entity has a significant interest relating to the subject 
matter of the case.
    (2) Disposition of the case will, as a practical matter, likely 
impair or impede the entity's ability to protect that interest.
    (3) The entity's interest is not adequately represented by the 
existing parties.
    (4) The intervention will not unduly delay or prejudice the 
adjudication of the rights of the existing parties.
    (b) A request for intervention must specify the grounds for 
intervention and the manner in which the entity seeks to participate in 
the proceedings. Any participation by an intervenor must be in the 
manner and by any deadline set by the ALJ.
    (c) The Department of Labor (DOL) or the Internal Revenue Service 
(IRS) may intervene without regard to paragraphs (a)(1) through (3) of 
this section.


Sec.  156.917  Issues to be heard and decided by ALJ.

    (a) The ALJ has the authority to hear and decide the following 
issues:
    (1) Whether a basis exists to assess a civil money penalty against 
the respondent.
    (2) Whether the amount of the assessed civil money penalty is 
reasonable.
    (3) Whether a basis exists to decertify a QHP offered by the 
respondent in a Federally-facilitated Exchange.
    (b) In deciding whether the amount of a civil money penalty is 
reasonable, the ALJ--
    (1) Will apply the factors that are identified in Sec.  156.805 for 
civil money penalties.
    (2) May consider evidence of record relating to any factor that HHS 
did not apply in making its initial determination, so long as that 
factor is identified in this subpart.
    (c) If the ALJ finds that a basis exists to assess a civil money 
penalty, the ALJ may sustain, reduce, or increase the penalty that HHS 
assessed.


Sec.  156.919  Forms of hearing.

    (a) All hearings before an ALJ are on the record. The ALJ may 
receive argument or testimony in writing, in person, or by telephone. 
The ALJ may receive testimony by telephone only if the ALJ determines 
that doing so is in the interest of justice and economy and that no 
party will be unduly prejudiced. The ALJ may require submission of a 
witness' direct testimony in writing only if the witness is available 
for cross-examination.
    (b) The ALJ may decide a case based solely on the written record 
where there is no disputed issue of material fact the resolution of 
which requires the receipt of oral testimony.


Sec.  156.921  Appearance of counsel.

    Any attorney who is to appear on behalf of a party must promptly 
file, with the ALJ, a notice of appearance.


Sec.  156.923   Communications with the ALJ.

    No party or person (except employees of the ALJ's office) may 
communicate in any way with the ALJ on any matter at issue in a case, 
unless on notice and opportunity for both parties to participate. This 
provision does not prohibit a party or person from inquiring about the 
status of a case or asking routine questions concerning administrative 
functions or procedures.


Sec.  156.925  Motions.

    (a) Any request to the ALJ for an order or ruling must be by 
motion, stating the relief sought, the authority relied upon, and the 
facts alleged. All motions must be in writing, with a copy served on 
the opposing party, except in either of the following situations:
    (1) The motion is presented during an oral proceeding before an ALJ 
at which both parties have the opportunity to be present.
    (2) An extension of time is being requested by agreement of the 
parties or with waiver of objections by the opposing party.
    (b) Unless otherwise specified in this subpart, any response or 
opposition to a motion must be filed within 20 days of the party's 
receipt of the motion. The ALJ does not rule on a motion before the 
time for filing a response to the motion has expired except where the 
response is filed at an earlier date, where the opposing party consents 
to the motion being granted, or where the ALJ determines that the 
motion should be denied.


Sec.  156.927  Form and service of submissions.

    (a) Every submission filed with the ALJ must be filed in 
triplicate, including one original of any signed documents, and 
include:
    (1) A caption on the first page, setting forth the title of the 
case, the docket number (if known), and a description of the submission 
(such as ``Motion for Discovery'').
    (2) The signatory's name, address, and telephone number.
    (3) A signed certificate of service, specifying each address to 
which a copy of the submission is sent, the date on which it is sent, 
and the method of service.
    (b) A party filing a submission with the ALJ must, at the time of 
filing, serve a copy of such submission on the opposing party. An 
intervenor filing a submission with the ALJ must, at the time of 
filing, serve a copy of the submission on all parties. Service must be 
made by mailing or hand delivering a copy of the submission to the 
opposing party. If a party is represented by an attorney, service must 
be made on the attorney.


Sec.  156.929  Computation of time and extensions of time.

    (a) For purposes of this subpart, in computing any period of time, 
the time begins with the day following the act, event, or default and 
includes the last day of the period unless it is a Saturday, Sunday, or 
legal holiday observed by the Federal government, in which event it 
includes the next business day. When the period of time allowed is less 
than seven days, intermediate Saturdays, Sundays, and legal holidays 
observed by the Federal government are excluded from the computation.
    (b) The period of time for filing any responsive pleading or papers 
is determined by the date of receipt (as defined in Sec.  156.901) of 
the submission to which a response is being made.
    (c) The ALJ may grant extensions of the filing deadlines specified 
in these regulations or set by the ALJ for good cause shown (except 
that requests for extensions of time to file a request for hearing may 
be granted only on the grounds specified in Sec.  156.905(b)).


Sec.  156.931  Acknowledgment of request for hearing.

    After receipt of the request for hearing, the ALJ assigned to the 
case or someone acting on behalf of the ALJ will send a letter to the 
parties that acknowledges receipt of the request for hearing, 
identifies the docket number assigned to the case, provides 
instructions for filing submissions and other general information 
concerning procedures, and sets out the next steps in the case.


Sec.  156.935  Discovery.

    (a) The parties must identify any need for discovery from the 
opposing party as soon as possible, but no later than the time for the 
reply specified in Sec.  156.937(c). Upon request of a party, the ALJ 
may stay proceedings for a reasonable period pending completion of 
discovery if the ALJ determines that a party would not be able to make 
the submissions required by Sec.  156.937 without discovery. The 
parties should attempt to resolve any discovery issues informally 
before seeking an order from the ALJ.

[[Page 65103]]

    (b) Discovery devices may include requests for production of 
documents, requests for admission, interrogatories, depositions, and 
stipulations. The ALJ orders interrogatories or depositions only if 
these are the only means to develop the record adequately on an issue 
that the ALJ must resolve to decide the case.
    (c) Each discovery request must be responded to within 30 days of 
receipt, unless that period of time is extended for good cause by the 
ALJ.
    (d) A party to whom a discovery request is directed may object in 
writing for any of the following reasons:
    (1) Compliance with the request is unduly burdensome or expensive.
    (2) Compliance with the request will unduly delay the proceedings.
    (3) The request seeks information that is wholly outside of any 
matter in dispute.
    (4) The request seeks privileged information. Any party asserting a 
claim of privilege must sufficiently describe the information or 
document being withheld to show that the privilege applies. If an 
asserted privilege applies to only part of a document, a party 
withholding the entire document must state why the nonprivileged part 
is not segregable.
    (5) The disclosure of information responsive to the discovery 
request is prohibited by law.
    (e) Any motion to compel discovery must be filed within 10 days 
after receipt of objections to the party's discovery request, within 10 
days after the time for response to the discovery request has elapsed 
if no response is received, or within 10 days after receipt of an 
incomplete response to the discovery request. The motion must be 
reasonably specific as to the information or document sought and must 
state its relevance to the issues in the case.


Sec.  156.937  Submission of briefs and proposed hearing exhibits.

    (a) Within 60 days of its receipt of the acknowledgment provided 
for in Sec.  156.931, the respondent must file the following with the 
ALJ:
    (1) A statement of its arguments concerning CMS's notice of 
assessment or decertification (respondent's brief), including citations 
to the respondent's hearing exhibits provided in accordance with 
paragraph (a)(2) of this section. The brief may not address factual or 
legal bases for the assessment or decertification that the respondent 
did not identify as disputed in its request for hearing or in an 
amendment to that request permitted by the ALJ.
    (2) All documents (including any affidavits) supporting its 
arguments, tabbed and organized chronologically and accompanied by an 
indexed list identifying each document.
    (3) A statement regarding whether there is a need for an in-person 
hearing and, if so, a list of proposed witnesses and a summary of their 
expected testimony that refers to any factual dispute to which the 
testimony will relate.
    (4) Any stipulations or admissions.
    (b) Within 30 days of its receipt of the respondent's submission 
required by paragraph (a) of this section, CMS will file the following 
with the ALJ:
    (1) A statement responding to the respondent's brief, including the 
respondent's proposed hearing exhibits, if appropriate. The statement 
may include citations to CMS's proposed hearing exhibits submitted in 
accordance with paragraph (b)(2) of this section.
    (2) Any documents supporting CMS's response not already submitted 
as part of the respondent's proposed hearing exhibits, organized and 
indexed as indicated in paragraph (a)(2) of this section (CMS's 
proposed hearing exhibits).
    (3) A statement regarding whether there is a need for an in-person 
hearing and, if so, a list of proposed witnesses and a summary of their 
expected testimony that refers to any factual dispute to which the 
testimony will relate.
    (4) Any admissions or stipulations.
    (c) Within 15 days of its receipt of CMS's submission required by 
paragraph (b) of this section, the respondent may file with the ALJ a 
reply to CMS's submission.


Sec.  156.939  Effect of submission of proposed hearing exhibits.

    (a) Any proposed hearing exhibit submitted by a party in accordance 
with Sec.  156.937 is deemed part of the record unless the opposing 
party raises an objection to that exhibit and the ALJ rules to exclude 
it from the record. An objection must be raised either in writing prior 
to the prehearing conference provided for in Sec.  156.941 or at the 
prehearing conference. The ALJ may require a party to submit the 
original hearing exhibit on his or her own motion or in response to a 
challenge to the authenticity of a proposed hearing exhibit.
    (b) A party may introduce a proposed hearing exhibit following the 
times for submission specified in Sec.  156.937 only if the party 
establishes to the satisfaction of the ALJ that it could not have 
produced the exhibit earlier and that the opposing party will not be 
prejudiced.


Sec.  156.941  Prehearing conferences.

    An ALJ may schedule one or more prehearing conferences (generally 
conducted by telephone) on the ALJ's own motion or at the request of 
either party for the purpose of any of the following:
    (a) Hearing argument on any outstanding discovery request.
    (b) Establishing a schedule for any supplements to the submissions 
required by Sec.  156.937 because of information obtained through 
discovery.
    (c) Hearing argument on a motion.
    (d) Discussing whether the parties can agree to submission of the 
case on a stipulated record.
    (e) Establishing a schedule for an in-person hearing, including 
setting deadlines for the submission of written direct testimony or for 
the written reports of experts.
    (f) Discussing whether the issues for a hearing can be simplified 
or narrowed.
    (g) Discussing potential settlement of the case.
    (h) Discussing any other procedural or substantive issues.


Sec.  156.943  Standard of proof.

    (a) In all cases before an ALJ--
    (1) CMS has the burden of coming forward with evidence sufficient 
to establish a prima facie case;
    (2) The respondent has the burden of coming forward with evidence 
in response, once CMS has established a prima facie case; and
    (3) CMS has the burden of persuasion regarding facts material to 
the assessment or decertification; and
    (4) The respondent has the burden of persuasion regarding facts 
relating to an affirmative defense.
    (b) The preponderance of the evidence standard applies to all cases 
before the ALJ.


Sec.  156.945  Evidence.

    (a) The ALJ will determine the admissibility of evidence.
    (b) Except as provided in this part, the ALJ will not be bound by 
the Federal Rules of Evidence. However, the ALJ may apply the Federal 
Rules of Evidence where appropriate; for example, to exclude unreliable 
evidence.
    (c) The ALJ excludes irrelevant or immaterial evidence.
    (d) Although relevant, evidence may be excluded if its probative 
value is substantially outweighed by the danger of unfair prejudice, 
confusion of the issues, or by considerations of undue delay or 
needless presentation of cumulative evidence.
    (e) Although relevant, evidence is excluded if it is privileged 
under Federal law.

[[Page 65104]]

    (f) Evidence concerning offers of compromise or settlement made in 
this action will be inadmissible to the extent provided in the Federal 
Rules of Evidence.
    (g) Evidence of acts other than those at issue in the instant case 
is admissible in determining the amount of any civil money penalty if 
those acts are used under Sec.  156.805 of this part to consider the 
entity's prior record of compliance, or to show motive, opportunity, 
intent, knowledge, preparation, identity, or lack of mistake. This 
evidence is admissible regardless of whether the acts occurred during 
the statute of limitations period applicable to the acts that 
constitute the basis for liability in the case and regardless of 
whether HHS' notice sent in accordance with Sec.  156.805 referred to 
them.
    (h) The ALJ will permit the parties to introduce rebuttal witnesses 
and evidence.
    (i) All documents and other evidence offered or taken for the 
record will be open to examination by all parties, unless the ALJ 
orders otherwise for good cause shown.
    (j) The ALJ may not consider evidence regarding the willingness and 
ability to enter into and successfully complete a corrective action 
plan when that evidence pertains to matters occurring after HHS' notice 
under Sec.  156.805(d) or Sec.  156.810(c) or Sec.  156.810(d).


Sec.  156.947  The record.

    (a) Any testimony that is taken in-person or by telephone is 
recorded and transcribed. The ALJ may order that other proceedings in a 
case, such as a prehearing conference or oral argument of a motion, be 
recorded and transcribed.
    (b) The transcript of any testimony, exhibits and other evidence 
that is admitted, and all pleadings and other documents that are filed 
in the case constitute the record for purposes of an ALJ decision.
    (c) For good cause, the ALJ may order appropriate redactions made 
to the record.


Sec.  156.951  Posthearing briefs.

    Each party is entitled to file proposed findings and conclusions, 
and supporting reasons, in a posthearing brief. The ALJ will establish 
the schedule by which such briefs must be filed. The ALJ may direct the 
parties to brief specific questions in a case and may impose page 
limits on posthearing briefs. Additionally, the ALJ may allow the 
parties to file posthearing reply briefs.


Sec.  156.953  ALJ decision.

    The ALJ will issue an initial agency decision based only on the 
record and on applicable law; the decision will contain findings of 
fact and conclusions of law. The ALJ's decision is final and appealable 
after 30 days unless it is modified or vacated under Sec.  156.957.


Sec.  156.955  Sanctions.

    (a) The ALJ may sanction a party or an attorney for failing to 
comply with an order or other directive or with a requirement of a 
regulation, for abandonment of a case, or for other actions that 
interfere with the speedy, orderly or fair conduct of the hearing. Any 
sanction that is imposed will relate reasonably to the severity and 
nature of the failure or action.
    (b) A sanction may include any of the following actions:
    (1) In the case of failure or refusal to provide or permit 
discovery, drawing negative fact inferences or treating such failure or 
refusal as an admission by deeming the matter, or certain facts, to be 
established.
    (2) Prohibiting a party from introducing certain evidence or 
otherwise advocating a particular claim or defense.
    (3) Striking pleadings, in whole or in part.
    (4) Staying the case.
    (5) Dismissing the case.
    (6) Entering a decision by default.
    (7) Refusing to consider any motion or other document that is not 
filed in a timely manner.
    (8) Taking other appropriate action.


Sec.  156.957  Review by Administrator.

    (a) The Administrator of CMS (which for purposes of this section 
may include his or her delegate), at his or her discretion, may review 
in whole or in part any initial agency decision issued under Sec.  
156.953.
    (b) The Administrator may decide to review an initial agency 
decision if it appears from a preliminary review of the decision (or 
from a preliminary review of the record on which the initial agency 
decision was based, if available at the time) that:
    (1) The ALJ made an erroneous interpretation of law or regulation.
    (2) The initial agency decision is not supported by substantial 
evidence.
    (3) The ALJ has incorrectly assumed or denied jurisdiction or 
extended his or her authority to a degree not provided for by statute 
or regulation.
    (4) The ALJ decision requires clarification, amplification, or an 
alternative legal basis for the decision.
    (5) The ALJ decision otherwise requires modification, reversal, or 
remand.
    (c) Within 30 days of the date of the initial agency decision, the 
Administrator will mail a notice advising the respondent of any intent 
to review the decision in whole or in part.
    (d) Within 30 days of receipt of a notice that the Administrator 
intends to review an initial agency decision, the respondent may 
submit, in writing, to the Administrator any arguments in support of, 
or exceptions to, the initial agency decision.
    (e) This submission of the information indicated in paragraph (d) 
of this section must be limited to issues the Administrator has 
identified in his or her notice of intent to review, if the 
Administrator has given notice of an intent to review the initial 
agency decision only in part. A copy of this submission must be sent to 
the other party.
    (f) After receipt of any submissions made pursuant to paragraph (d) 
of this section and any additional submissions for which the 
Administrator may provide, the Administrator will affirm, reverse, 
modify, or remand the initial agency decision. The Administrator will 
mail a copy of his or her decision to the respondent.
    (g) The Administrator's decision will be based on the record on 
which the initial agency decision was based (as forwarded by the ALJ to 
the Administrator) and any materials submitted pursuant to paragraphs 
(b), (d), and (f) of this section.
    (h) The Administrator's decision may rely on decisions of any 
courts and other applicable law, whether or not cited in the initial 
agency decision.


Sec.  156.959  Judicial review.

    (a) Filing of an action for review. Any responsible entity against 
whom a final order imposing a civil money penalty or decertification of 
a QHP is entered may obtain review in the United States District Court 
for any district in which the entity is located or in the United States 
District Court for the District of Columbia by doing the following:
    (1) Filing a notice of appeal in that court within 30 days from the 
date of a final order.
    (2) Simultaneously sending a copy of the notice of appeal by 
registered mail to HHS.
    (b) Certification of administrative record. HHS promptly certifies 
and files with the court the record upon which the penalty was 
assessed.
    (c) Standard of review. The findings of HHS and the ALJ may not be 
set aside unless they are found to be unsupported by substantial 
evidence, as provided by 5 U.S.C. 706(2)(E).

[[Page 65105]]

Sec.  156.961  Failure to pay assessment.

    If any entity fails to pay an assessment after it becomes a final 
order, or after the court has entered final judgment in favor of CMS, 
CMS refers the matter to the Attorney General, who brings an action 
against the entity in the appropriate United States district court to 
recover the amount assessed.


Sec.  156.963  Final order not subject to review.

    In an action brought under Sec.  156.961, the validity and 
appropriateness of the final order imposing a civil money penalty is 
not subject to review.

0
41. Subpart L is added to read as follows:

Subpart L--Quality Standards


Sec.  156.1105  Establishment of standards for HHS-approved enrollee 
satisfaction survey vendors for use by QHP issuers in Exchanges.

    (a) Application for approval. An enrollee satisfaction survey 
vendor must be approved by HHS, in a form and manner to be determined 
by HHS, to administer, on behalf of a QHP issuer, enrollee satisfaction 
surveys to QHP enrollees. HHS will approve enrollee satisfaction survey 
vendors on an annual basis, and each enrollee satisfaction survey 
vendor must submit an application for each year that approval is 
sought.
    (b) Standards. To be approved by HHS, an enrollee satisfaction 
survey vendor must meet each of the following standards:
    (1) Sign and submit an application form for approval in accordance 
with paragraph (a) of this section;
    (2) Ensure, on an annual basis, that appropriate staff participate 
in enrollee satisfaction survey vendor training and successfully 
complete a post-training certification exercise as established by HHS;
    (3) Ensure the accuracy of their data collection, calculation and 
submission processes and attest to HHS the veracity of the data and 
these processes;
    (4) Sign and execute a standard HHS data use agreement, in a form 
and manner to be determined by HHS, that establishes protocols related 
to the disclosure, use, and reuse of HHS data;
    (5) Adhere to the enrollee satisfaction survey protocols and 
technical specifications in a manner and form required by HHS;
    (6) Develop and submit to HHS a quality assurance plan and any 
supporting documentation as determined to be relevant by HHS. The plan 
must describe in adequate detail the implementation of and compliance 
with all required protocols and technical specifications described in 
paragraph (b)(5) of this section;
    (7) Adhere to privacy and security standards established and 
implemented under Sec.  155.260 of this subchapter by the Exchange with 
which they are associated;
    (8) Comply with all applicable State and Federal laws;
    (9) Become a registered user of the enrollee satisfaction survey 
data warehouse to submit files to HHS on behalf of its authorized QHP 
contracts;
    (10) Participate in and cooperate with HHS oversight for quality-
related activities, including, but not limited to: review of the 
enrollee satisfaction survey vendor's quality assurance plan and other 
supporting documentation; analysis of the vendor's submitted data and 
sampling procedures; and site visits and conference calls; and,
    (11) Comply with minimum business criteria as established by HHS.
    (c) Approved list. A list of approved enrollee satisfaction survey 
vendors will be published on an HHS Web site.

0
42. Section 156.1210 is added to subpart M to read as follows:


Sec.  156.1210  Confirmation of HHS payment and collections reports.

    (a) Responses to reports. Within 15 calendar days of the date of a 
payment and collections report from HHS, the issuer must, in a format 
specified by HHS, either:
    (1) Confirm to HHS that the amounts identified in the payment and 
collections report for the timeframe specified in the report accurately 
reflect applicable payments owed by the issuer to the Federal 
government and the payments owed to the issuer by the Federal 
government; or
    (2) Describe to HHS any inaccuracy it identifies in the payment and 
collections report.
    (b) Late discovery of a discrepancy. If an issuer reports a 
discrepancy in a payment and collections report later than 15 calendar 
days after the date of the report, HHS will work with the issuer to 
resolve the discrepancy as long as the late reporting was not due to 
misconduct on the part of the issuer.

(Catalog of Federal Domestic Assistance Program No. 93.778, Medical 
Assistance Program)
(Catalog of Federal Domestic Assistance Program No. 93.773, 
Medicare--Hospital Insurance; and Program No. 93.774, Medicare--
Supplementary Medical Insurance Program)

    Dated: September 27, 2013.
Marilyn Tavenner,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: Approved: October 18, 2013
Kathleen Sebelius,
Secretary, Department of Health and Human Services.
[FR Doc. 2013-25326 Filed 10-24-13; 4:15 pm]
BILLING CODE 4120-01-P