[Federal Register Volume 81, Number 39 (Monday, February 29, 2016)]
[Rules and Regulations]
[Pages 10091-10105]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-03902]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2396-FN]
RIN 0938-ZB21


Basic Health Program; Federal Funding Methodology for Program 
Years 2017 and 2018

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

ACTION: Final methodology.

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SUMMARY: This document provides the methodology and data sources 
necessary to determine Federal payment amounts made in program years 
2017 and 2018 to states that elect to establish a Basic Health Program 
under the Affordable Care Act to offer health benefits coverage to low-
income individuals otherwise eligible to purchase coverage through 
Affordable Insurance Exchanges (hereinafter referred to as the 
Exchanges).

DATES: These regulations are effective on January 1, 2017.

FOR FURTHER INFORMATION CONTACT: Christopher Truffer, (410) 786-1264; 
or Stephanie Kaminsky (410) 786-4653.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Background
II. Summary of Proposed Provisions and Analysis of and Responses to 
Public Comments on the Proposed Methodology
    A. Background
    B. Overview of the Funding Methodology and Calculation of the 
Payment Amount
    C. Required Rate Cells
    D. Sources and State Data Considerations
    E. Discussion of Specific Variables Used in Payment Equations
    F. Adjustments for American Indians and Alaska Natives
    G. State Option To Use 2016 or 2017 QHP Premiums for BHP 
Payments
    H. State Option To Include Retrospective State-Specific Health 
Risk Adjustment in Certified Methodology
III. Provisions of the Final Methodology
    A. Overview of the Funding Methodology and Calculation of the 
Payment Amount
    B. Federal BHP Payment Rate Cells
    C. Sources and State Data Considerations
    D. Discussion of Specific Variables Used in Payment Equations
    E. Adjustments for American Indians and Alaska Natives
    F. State Option To Use 2016 or 2017 QHP Premiums for BHP 
Payments
    G. State Option To Include Retrospective State-Specific Health 
Risk Adjustment in Certified Methodology
IV. Collection of Information Requirements
V. Regulatory Impact Statement
    A. Overall Impact
    B. Unfunded Mandates Reform Act
    C. Regulatory Flexibility Act
    D. Federalism

Acronyms

    To assist the reader, the following acronyms are used in this 
document.

[Delta]AV Change in Actuarial Value
APTC Advance payment of the premium tax credit
ARP Adjusted reference premium
AV Actuarial value
BHP Basic Health Program
CCIIO CMS' Center for Consumer Information and Insurance Oversight
CDC Centers for Disease Control and Prevention
CHIP Children's Health Insurance Program
CPI-U Consumer price index for all urban consumers
CSR Cost-sharing reduction
EHB Essential Health Benefit
FPL Federal poverty line
FRAC Factor for removing administrative costs
IRF Income reconciliation factor
IRS Internal Revenue Service
IUF Induced utilization factor
QHP Qualified health plan
OTA Office of Tax Analysis [of the U.S. Department of Treasury]
PHF Population health factor
PTC Premium tax credit
PTCF Premium tax credit formula
PTF Premium trend factor
RP Reference premium
SBE State Based Exchange

[[Page 10092]]

TRAF Tobacco rating adjustment factor

I. Background

    Section 1331 of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148, enacted on March 23, 2010), as amended by the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted 
on March 30, 2010) (collectively referred as the Affordable Care Act) 
provides states with an option to establish a Basic Health Program 
(BHP). In the states that elect to operate BHP, BHP will make 
affordable health benefits coverage available for individuals under age 
65 with household incomes between 133 percent and 200 percent of the 
Federal poverty level (FPL) who are not otherwise eligible for 
Medicaid, the Children's Health Insurance Program (CHIP), or affordable 
employer-sponsored coverage, or for individuals whose income is below 
these levels but are lawfully present non-citizens ineligible for 
Medicaid. (For those states that have expanded Medicaid coverage under 
section 1902(a)(10)(A)(i)(VIII) of the Social Security Act (the Act), 
the lower income threshold for BHP eligibility is effectively 138 
percent due to the application of a required 5 percent income disregard 
in determining the upper limits of Medicaid income eligibility (section 
1902(e)(14)(I) of the Act)).
    BHP provides another option for states in providing affordable 
health benefits to individuals with incomes in the ranges previously 
described. States may find BHP a useful option for several reasons, 
including the ability to potentially coordinate standard health plans 
in BHP with their Medicaid managed care plans, or to potentially reduce 
the costs to individuals by lowering premiums or cost-sharing 
requirements.
    Federal funding will be available for BHP based on the amount of 
premium tax credit (PTC) and cost-sharing reductions (CSRs) that BHP 
enrollees would have received had they been enrolled in qualified 
health plans (QHPs) through Exchanges. These funds are paid to trust 
funds dedicated to BHP in each state, and the states then administer 
the payments to standard health plans within BHP.
    In the March 12, 2014 Federal Register (79 FR 14112), we published 
a final rule entitled the ``Basic Health Program: State Administration 
of Basic Health Programs; Eligibility and Enrollment in Standard Health 
Plans; Essential Health Benefits in Standard Health Plans; Performance 
Standards for Basic Health Programs; Premium and Cost Sharing for Basic 
Health Programs; Federal Funding Process; Trust Fund and Financial 
Integrity'' (hereinafter referred to as the BHP final rule) 
implementing section 1331 of the Affordable Care Act), which directs 
the establishment of BHP. The BHP final rule establishes the standards 
for state and Federal administration of BHP, including provisions 
regarding eligibility and enrollment, benefits, cost-sharing 
requirements and oversight activities. While the BHP final rule 
codifies the overall statutory requirements and basic procedural 
framework for the funding methodology, it does not contain the specific 
information necessary to determine Federal payments. We anticipated 
that the methodology would be based on data and assumptions that would 
reflect ongoing operations and experience of BHP programs, as well as 
the operation of the Exchanges. For this reason, the BHP final rule 
indicated that the development and publication of the funding 
methodology, including any data sources, would be addressed in a 
separate annual BHP Payment Notice.
    In the BHP final rule, we specified that the BHP Payment Notice 
process would include the annual publication of both a proposed and 
final BHP Payment Notice. The proposed BHP Payment Notice would be 
published in the Federal Register each October, and would describe the 
proposed methodology for the upcoming BHP program year, including how 
the Secretary considered the factors specified in section 1331(d)(3) of 
the Affordable Care Act, along with the proposed data sources used to 
determine the Federal BHP payment rates. The final BHP Payment Notice 
would be published in the Federal Register in February, and would 
include the final BHP funding methodology, as well as the Federal BHP 
payment rates for the next BHP program year. For example, payment rates 
published in February 2016 would apply to BHP program year 2017, 
beginning in January 2017. As discussed in section III.C of this 
methodology, and as referenced in Sec.  600.610(b)(2), state data 
needed to calculate the Federal BHP payment rates for the final BHP 
Payment Notice must be submitted to CMS.
    As described in the BHP final rule, once the final methodology has 
been published, we will only make modifications to the BHP funding 
methodology on a prospective basis with limited exceptions. The BHP 
final rule provided that retrospective adjustments to the state's BHP 
payment amount may occur to the extent that the prevailing BHP funding 
methodology for a given program year permits adjustments to a state's 
Federal BHP payment amount due to insufficient data for prospective 
determination of the relevant factors specified in the payment notice. 
Additional adjustments could be made to the payment rates to correct 
errors in applying the methodology (such as mathematical errors).
    Under section 1331(d)(3)(A)(ii) of the Affordable Care Act, the 
funding methodology and payment rates are expressed as an amount per 
eligible individual enrolled in a BHP standard health plan (BHP 
enrollee) for each month of enrollment. These payment rates may vary 
based on categories or classes of enrollees. Actual payment to a state 
would depend on the actual enrollment of individuals found eligible in 
accordance with a state's certified blueprint eligibility and 
verification methodologies in coverage through the state BHP. A state 
that is approved to implement BHP must provide data showing quarterly 
enrollment of eligible individuals in the various Federal BHP payment 
rate cells. Such data should include the following:
     Personal identifier;
     Date of birth;
     County of residence;
     Indian status;
     Family size;
     Household income;
     Number of person in household enrolled in BHP;
     Family identifier;
     Months of coverage;
     Plan information; and
     Any other data required by CMS to properly calculate the 
payment.
    In the February 24, 2015 Federal Register (80 FR 9636), we 
published the final payment notice entitled ``Basic Health Program; 
Federal Funding Methodology for Program Year 2016'' (hereinafter 
referred to as the 2016 payment methodology) that sets forth the 
methodology that will be used to calculate the Federal BHP payments for 
the 2016 program year.

II. Summary of Proposed Provisions and Analysis of and Responses to 
Public Comments on the Proposed Methodology

    The following sections, arranged by subject area, include a summary 
of the public comments that we received, and our responses. For a 
complete and full description of the BHP proposed funding methodology, 
see the ``Basic Health Program; Federal Funding Methodology for Program 
Years 2017 and 2018'' proposed rule published in the October 22, 2015 
Federal Register (80 FR 63936).
    We received a total of 5 timely comments from individuals and

[[Page 10093]]

organizations. The public comments received ranged from general support 
or opposition to the BHP, but did not address the proposed methodology.

A. Background

    In the October 22, 2015 (80 FR 63936) proposed rule, we specified 
the methodology of how the Federal BHP payments would be calculated. 
For specific discussions, please refer to the October 22, 2015 proposed 
rule (80 FR 63936).
    We received the following comments on the background information 
included in the proposed methodology:
    Comment: Some commenters expressed general opposition to or support 
for the BHP.
    Response: The comments were outside of the scope of the BHP payment 
methodology.
    Comment: Some commenters expressed general support for the BHP 
payment methodology.
    Response: We appreciate the comments in support of the payment 
methodology.
    Final Decision: We are finalizing our proposed methodology for how 
the Federal BHP payments will be calculated.

B. Overview of the Funding Methodology and Calculation of the Payment 
Amount

    We proposed in the overview of the funding methodology to calculate 
the PTC and CSR as consistently as possible and in general alignment 
with the methodology used by Exchanges to calculate the advance 
payments of the PTC and CSR, and by the Internal Revenue Service (IRS) 
to calculate the allowable PTC. We proposed in this section 4 equations 
that compose the overall BHP funding methodology. For specific 
discussions, please refer to the October 22, 2015 proposed rule (80 FR 
63936).
    We received no comments regarding the overview of the funding 
methodology and calculation of the payment amount. We are finalizing 
the BHP overview of the funding methodology and the payment amount for 
2017 and 2018 as proposed.

C. Required Rate Cells

    In this section, we proposed that a state implementing BHP provide 
us with an estimate of the number of BHP enrollees it will enroll in 
the upcoming BHP program, by applicable rate cell, to determine the 
Federal BHP payment amounts. For each state, we proposed using rate 
cells that separate the BHP population into separate cells based on the 
following 5 factors: Age; geographic rating area; coverage status; 
household size; and income. For specific discussions, please refer to 
the October 22, 2015 proposed rule (80 FR 63936).
    We received no comments regarding the rate cells used to calculate 
the Federal BHP payment amounts. We are finalizing the criteria and 
definitions of the rate cells to determine the Federal BHP payment 
amounts for 2017 and 2018.

D. Sources and State Data Considerations

    We proposed in this section to use, to the extent possible, data 
submitted to the Federal government by QHP issuers seeking to offer 
coverage through an Exchange to determine the Federal BHP payment cell 
rates. However, in states operating a State Based Exchange (SBE), we 
proposed that such states submit required data for CMS to calculate the 
Federal BHP payment rates in those states. For specific discussions, 
please refer to the October 22, 2015 proposed rule (80 FR 63936).
    We did not receive any comments on the ``Sources and State Data 
Considerations'' section and are finalizing the BHP methodology as 
proposed.

E. Discussion of Specific Variables Used in Payment Equations

    In this section, we proposed 11 specific variables to use in the 
payment equations that compose the overall BHP funding methodology. (10 
variables are described in section III.D of this document, and the 
premium trend factor is described in section III.F.) For each proposed 
variable, we included a discussion on the assumptions and data sources 
used in developing the variables. For specific discussions, please 
refer to the October 22, 2015 proposed rule (80 FR 63936).
    We did not receive any comments on the ``Specific Variables Used in 
Payment Equations'' section and are finalizing the BHP methodology as 
proposed.

F. Adjustments for American Indians and Alaska Natives

    We proposed to make several adjustments for American Indians and 
Alaska Natives when calculating the CSR portion of the Federal BHP 
payment rate to be consistent with the Exchange rules. For specific 
discussions, please refer to the October 22, 2015 proposed rule (80 FR 
63936).
    We did not receive any comments on the ``Adjustments for American 
Indians and Alaska Natives'' section and are finalizing the BHP 
methodology as proposed.

G. State Option To Use 2016 or 2017 QHP Premiums for BHP Payments

    In this section, we proposed to provide states implementing BHP 
with the option to use the 2016 or 2017 QHP premiums multiplied by a 
premium trend factor to calculate the Federal BHP payment rates instead 
of using the 2017 or 2018 QHP premiums, for the 2017 and 2018 BHP 
program years, respectively. For specific discussions, please refer to 
the October 22, 2015 proposed rule (80 FR 63936).
    We did not receive any comments on the ``State Option to Use 2016 
or 2017 QHP Premiums for BHP Payments'' section and are finalizing the 
BHP methodology as proposed.

H. State Option To Include Retrospective State-Specific Health Risk 
Adjustment in Certified Methodology

    In this section, we proposed to provide states implementing BHP the 
option to develop a methodology to account for the impact that 
including the BHP population in the Exchange would have had on QHP 
premiums based on any differences in health status between the BHP 
population and persons enrolled through the Exchange. For specific 
discussions, please refer to the October 22, 2015 proposed rule (80 FR 
63936).
    We did not receive any comments on the ``State Option to Include 
Retrospective State-specific Health Risk Adjustment in Certified 
Methodology'' section and are finalizing the BHP methodology as 
proposed.

III. Provisions of the Final Methodology

A. Overview of the Funding Methodology and Calculation of the Payment 
Amount

    Section 1331(d)(3) of the Affordable Care Act directs the Secretary 
to consider several factors when determining the Federal BHP payment 
amount, which, as specified in the statute, must equal 95 percent of 
the value of the PTC and CSRs that BHP enrollees would have been 
provided had they enrolled in a QHP through an Exchange. Thus, the BHP 
funding methodology is designed to calculate the PTC and CSRs as 
consistently as possible and in general alignment with the methodology 
used by Exchanges to calculate the PTC and CSR components of advance 
payments, and by the IRS to calculate final PTCs. In general, we rely 
on values for factors in the payment methodology specified in statute 
or other regulations as available, and we have developed values for 
other factors not otherwise specified in statute, or previously 
calculated in other

[[Page 10094]]

regulations, to simulate the values of the PTC and CSRs that BHP 
enrollees would have received if they had enrolled in QHPs offered 
through an Exchange. In accordance with section 1331(d)(3)(A)(iii) of 
the Affordable Care Act, the final funding methodology must be 
certified by the Chief Actuary of CMS, in consultation with the Office 
of Tax Analysis (OTA) of the Department of the Treasury, as having met 
the requirements of section 1331(d)(3)(A)(ii) of the Affordable Care 
Act.
    Section 1331(d)(3)(A)(ii) of the Affordable Care Act specifies that 
the payment determination shall take into account all relevant factors 
necessary to determine the value of the premium tax credits and CSRs 
that would have been provided to eligible individuals, including the 
age and income of the enrollee, whether the enrollment is for self-only 
or family coverage, geographic differences in average spending for 
health care across rating areas, the health status of the enrollee for 
purposes of determining risk adjustment payments and reinsurance 
payments that would have been made if the enrollee had enrolled in a 
qualified health plan through an Exchange, and whether any 
reconciliation of PTC and CSR would have occurred if the enrollee had 
been so enrolled. This payment methodology takes each of these factors 
into account. This methodology is the same as the 2016 payment 
methodology, with minor changes to update the value of certain factors 
used to calculate the payments, but with no changes in methods. These 
updates are explained in later sections of this notice.
    Through this notice, we are establishing a payment methodology for 
the 2017 and 2018 BHP program years. The same methodology will apply 
for both years, but the values of a number of factors will be updated 
for 2018, as noted throughout this notice. We reserve the right to 
specify a different methodology for 2018.
    The methodology will be the same methodology as used for 2015 and 
2016. We have developed a methodology that the total Federal BHP 
payment amount would be based on multiple rate cells in each state. 
Each rate cell would represent a unique combination of age range, 
geographic area, coverage category (for example, self-only or two-adult 
coverage through BHP), household size, and income range as a percentage 
of FPL. Thus, there would be distinct rate cells for individuals in 
each coverage category within a particular age range who reside in a 
specific geographic area and are in households of the same size and 
income range. We note that the development of the BHP payment rates 
will be consistent with those states' rules on age rating. Thus, in the 
case of a state that does not use age as a rating factor on the 
Marketplace, the BHP payment rates would not vary by age.
    The rate for each rate cell would be calculated in 2 parts. The 
first part (as described in Equation (1)) will equal 95 percent of the 
estimated PTC that would have been paid if a BHP enrollee in that rate 
cell had instead enrolled in a QHP in the Exchange. The second part (as 
described in Equation (2)) will equal 95 percent of the estimated CSR 
payment that would have been made if a BHP enrollee in that rate cell 
had instead enrolled in a QHP in the Exchange. These 2 parts will be 
added together and the total rate for that rate cell would be equal to 
the sum of the PTC and CSR rates.
    To calculate the total Federal BHP payment, Equation (1) will be 
used to calculate the estimated PTC for eligible individuals enrolled 
in the BHP in each rate cell and Equation (2) will be used to calculate 
the estimated CSR payments for eligible individuals enrolled in the BHP 
in each rate cell. (Indeed, we note that throughout the payment notice, 
when we refer to enrollees and enrollment data, we mean data regarding 
individuals who are enrolled in the BHP who have been found eligible 
for the BHP using the eligibility and verification requirements that 
are applicable in the state's most recent certified Blueprint.) By 
applying the equations separately to rate cells based on age, income 
and other factors, we effectively take those factors into account in 
the calculation. In addition, the equations reflect the estimated 
experience of individuals in each rate cell if enrolled in coverage 
through the Exchange, taking into account additional relevant 
variables. Each of the variables in the equations is defined in this 
section, and further detail is provided later in this section of the 
payment notice.
    In addition, we describe how we will calculate the adjusted 
reference premium (ARP), which is the value of the premium accounting 
for specified adjustments (such as the relative health status of BHP 
enrollees or the projected annual increase in the premium) (described 
later in this section of the payment notice) that is used in Equations 
(1) and (2). This is defined in Equation (3a) and Equation (3b).
Equation 1: Estimated PTC by Rate Cell
    The estimated PTC, on a per enrollee basis, will be calculated for 
each rate cell for each state based on age range, geographic area, 
coverage category, household size, and income range. The PTC portion of 
the rate will be calculated in a manner consistent with the methodology 
used to calculate the PTC for persons enrolled in a QHP, with 3 
adjustments. First, the PTC portion of the rate for each rate cell will 
represent the mean, or average, expected PTC that all persons in the 
rate cell would receive, rather than being calculated for each 
individual enrollee. Second, the reference premium (RP) used to 
calculate the PTC (described in more detail later in the section) will 
be adjusted for BHP population health status, and in the case of a 
state that elects to use 2016 premiums for the basis of the BHP Federal 
payment, for the projected change in the premium from the 2016 to 2017, 
to which the rates announced in the final payment methodology would 
apply. These adjustments are described in Equation (3a) and Equation 
(3b). Third, the PTC will be adjusted prospectively to reflect the 
mean, or average, net expected impact of income reconciliation on the 
combination of all persons enrolled in BHP; this adjustment, as 
described in section III.D.5. of this methodology, will account for the 
impact on the PTC that would have occurred had such reconciliation been 
performed. Finally, the rate is multiplied by 95 percent, consistent 
with section 1331(d)(3)(A)(i) of the Affordable Care Act. We note that 
in the situation where the average income contribution of an enrollee 
would exceed the ARP, we would calculate the PTC to be equal to 0 and 
would not allow the value of the PTC to be negative.
    Consistent with this description, Equation (1) is defined as:
    [GRAPHIC] [TIFF OMITTED] TR29FE16.017
    

[[Page 10095]]


PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate.
a = Age range.
g = Geographic area.
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP.
h = Household size.
i = Income range (as percentage of FPL).
ARP a,g,c = Adjusted reference premium.
Ih,i,j = Income (in dollars per month) at each 1 percentage-point 
increment of FPL.
j = jth percentage-point increment FPL.
n = Number of income increments used to calculate the mean PTC.
PTCFh,i,j = Premium Tax Credit Formula percentage.
IRF = Income reconciliation factor.
Equation 2: Estimated CSR Payment by Rate Cell
    The CSR portion of the rate will be calculated for each rate cell 
for each state based on age range, geographic area, coverage category, 
household size, and income range defined as a percentage of FPL. The 
CSR portion of the rate will be calculated in a manner consistent with 
the methodology used to calculate the CSR component of advance payments 
for persons enrolled in a QHP, as described in the ``HHS Notice of 
Benefit and Payment Parameters for 2016''final rule published in the 
February 27, 2015 Federal Register (80 FR 10749), with 3 principal 
adjustments. (We will make a separate calculation that includes 
different adjustments for American Indian/Alaska Native BHP enrollees, 
as described in section III.D.1 of this methodology.) For the first 
adjustment, the CSR rate, like the PTC rate, will represent the mean 
expected CSR subsidy that would be paid on behalf of all persons in the 
rate cell, rather than being calculated for each individual enrollee. 
Second, this calculation will be based on the ARP, as described in 
section III.A.3. of this methodology. Third, this equation uses an ARP 
that reflects premiums charged to non-tobacco users, rather than the 
actual premium that is charged to tobacco users to calculate the CSR 
component of advance payments for tobacco users enrolled in a QHP. 
Accordingly, the equation will include a tobacco rating adjustment 
factor that would account for BHP enrollees' estimated tobacco-related 
health costs that are outside the premium charged to non-tobacco-users. 
Finally, the rate will be multiplied by 95 percent, as provided in 
section 1331(d)(3)(A)(i) of the Affordable Care Act.
    Consistent with the methodology previously described, Equation (2) 
is defined as:
[GRAPHIC] [TIFF OMITTED] TR29FE16.018

CSRa,g,c,h,i = Cost-sharing reduction subsidy portion of BHP payment 
rate.
a = Age range.
g = Geographic area.
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP.
h = Household size.
i = Income range (as percentage of FPL).
ARPa,g,c = Adjusted reference premium.
TRAF = Tobacco rating adjustment factor.
FRAC = Factor removing administrative costs.
AV = Actuarial value of plan (as percentage of allowed benefits 
covered by the applicable QHP without a cost-sharing reduction 
subsidy).
IUFh,i = Induced utilization factor.
[Delta]AVh,i = Change in actuarial value (as percentage of allowed 
benefits).
Equation 3a and Equation 3b: Adjusted Reference Premium Variable (Used 
in Equations 1 and 2)
    As part of these calculations for both the PTC and CSR components, 
we will calculate the value of the ARP as described below in this 
methodology. Consistent with the approach in previous years, we will 
allow states to choose between using the actual 2017 and 2018 QHP 
premiums or the 2016 and 2017 QHP premiums multiplied by the premium 
trend factor (for the 2017 and 2018 program years, respectively, and as 
described in section III.F). Therefore, we describe how we would 
calculate the ARP under each option.
    In the case of a state that elected to use the RP based on the 2017 
premiums for the 2017 program year, we will calculate the value of the 
ARP as specified in Equation (3a). The ARP will be equal to the RP, 
which will be based on the second lowest cost silver plan premium in 
2017, multiplied by the BHP population health factor (described in 
section III.D of this methodology), which will reflect the projected 
impact that enrolling BHP-eligible individuals in QHPs on an Exchange 
would have had on the average QHP premium.
[GRAPHIC] [TIFF OMITTED] TR29FE16.019

ARPa,g,c = Adjusted reference premium.
a = Age range.
g = Geographic area.
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP.
RPa,g,c = Reference premium.
PHF = Population health factor.

    In the case of a state that elected to use the RP based on the 2016 
premiums for the 2017 program year (as described in section III.F of 
this methodology), we will calculate the value of the ARP as specified 
in Equation (3b). The ARP will be equal to the RP, which will be based 
on the second lowest cost silver plan premium in 2016, multiplied by 
the BHP population health factor (described in section III.D of this 
methodology), which will reflect the projected impact that enrolling 
BHP-eligible individuals in QHPs on an Exchange would have had on the 
average QHP premium, and by the premium trend factor, which will 
reflect the projected change in the premium level between 2016 and 2017 
(including the estimated impact of changes resulting from the 
transitional reinsurance program established in section 1341 of the 
Affordable Care Act).
[GRAPHIC] [TIFF OMITTED] TR29FE16.020


[[Page 10096]]


ARPa,g,c = Adjusted reference premium.
a = Age range.
g = Geographic area.
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP.
RPa,g,c = Reference premium.
PHF = Population health factor.
PTF = Premium trend factor.

    This methodology will also apply for the 2018 program year, using 
either actual 2018 QHP premiums or the 2017 QHP premiums multiplied by 
a premium trend factor.
Equation 4: Determination of Total Monthly Payment for BHP Enrollees in 
Each Rate Cell
    In general, the rate for each rate cell will be multiplied by the 
number of BHP enrollees in that cell (that is, the number of enrollees 
that meet the criteria for each rate cell) to calculate the total 
monthly BHP payment. This calculation is shown in Equation 4.
[GRAPHIC] [TIFF OMITTED] TR29FE16.021

PMT = Total monthly BHP payment.
PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate.
CSRa,g,c,h,i = Cost-sharing reduction subsidy portion of BHP payment 
rate.
Ea,g,c,h,i = Number of BHP enrollees.
a = Age range.
g = Geographic area.
c = Coverage status (self-only or applicable category of family 
coverage) obtained through BHP.
h = Household size.
i = Income range (as percentage of FPL).

B. Federal BHP Payment Rate Cells

    The use of Federal BHP payment rate cells will be the same as in 
the 2015 and 2016 methodologies. We will require that a state 
implementing BHP provide us an estimate of the number of BHP enrollees 
it projects will enroll in the upcoming BHP program year, by applicable 
rate cell, prior to the first quarter and each subsequent quarter of 
program operations until actual enrollment data is available. Upon our 
approval of such estimates as reasonable, they will be used to 
calculate the prospective payment for the first and subsequent quarters 
of program operation until the state has provided us actual enrollment 
data. These data will be required to calculate the final BHP payment 
amount, and make any necessary reconciliation adjustments to the prior 
quarters' prospective payment amounts due to differences between 
projected and actual enrollment. Subsequent, quarterly deposits to the 
state's trust fund will be based on the most recent actual enrollment 
data submitted to us. Actual enrollment data must be based on 
individuals enrolled for the quarter submitted who the state found 
eligible and whose eligibility was verified using eligibility and 
verification requirements as agreed to by the state in its applicable 
BHP Blueprint for the quarter that enrollment data is submitted. 
Procedures will ensure that Federal payments to a state reflect actual 
BHP enrollment during a year, within each applicable category, and 
prospectively determined Federal payment rates for each category of BHP 
enrollment, with such categories defined in terms of age range, 
geographic area, coverage status, household size, and income range, as 
explained above in this section.
    We will require the use of certain rate cells as part of the 
methodology. For each state, we will use rate cells that separate the 
BHP population into separate cells based on the 5 factors described as 
follows:
    Factor 1--Age: We will separate enrollees into rate cells by age, 
using the following unchanged age ranges that capture the widest 
variations in premiums under Department of Health and Human Services' 
(HHS) Default Age Curve: \1\
---------------------------------------------------------------------------

    \1\ This curve is used to implement the Affordable Care Act's 
3:1 limit on age-rating in states that do not create an alternative 
rate structure to comply with that limit. The curve applies to all 
individual market plans, both within and outside the Exchange. The 
age bands capture the principal allowed age-based variations in 
premiums as permitted by this curve. More information can be found 
at http://www.cms.gov/CCIIO/Resources/Files/Downloads/market-reforms-guidance-2-25-2013.pdf. Both children and adults under age 
21 are charged the same premium. For adults age 21-64, the age bands 
in this notice divide the total age-based premium variation into the 
three most equally-sized ranges (defining size by the ratio between 
the highest and lowest premiums within the band) that are consistent 
with the age-bands used for risk-adjustment purposes in the HHS-
Developed Risk Adjustment Model. For such age bands, see Table 5, 
``Age-Sex Variables,'' in HHS-Developed Risk Adjustment Model 
Algorithm Software, June 2, 2014, http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/ra-tables-03-27-2014.xlsx.
---------------------------------------------------------------------------

     Ages 0-20.
     Ages 21-34.
     Ages 35-44.
     Ages 45-54.
     Ages 55-64.
    Factor 2--Geographic area: For each state, we will separate 
enrollees into rate cells by geographic areas within which a single RP 
is charged by QHPs offered through the state's Exchange. Multiple, non-
contiguous geographic areas will be incorporated within a single cell, 
so long as those areas share a common RP.\2\ This provision would also 
be unchanged from the current method.
---------------------------------------------------------------------------

    \2\ For example, a cell within a particular state might refer to 
``County Group 1,'' ``County Group 2,'' etc., and a table for the 
state would list all the counties included in each such group. These 
geographic areas are consistent with the geographic areas 
established under the 2014 Market Reform Rules. They also reflect 
the service area requirements applicable to qualified health plans, 
as described in 45 CFR 155.1055, except that service areas smaller 
than counties are addressed as explained in this methodology.
---------------------------------------------------------------------------

    Factor 3--Coverage status: We will separate enrollees into rate 
cells by coverage status, reflecting whether an individual is enrolled 
in self-only coverage or persons are enrolled in other-than-self-only 
coverage (or ``family coverage'') through BHP, as provided in section 
1331(d)(3)(A)(ii) of the Affordable Care Act, consistent with the 
current methodology. Among recipients of family coverage through BHP, 
separate rate cells, as explained below in this methodology, will apply 
based on whether such coverage involves 2 adults alone or whether it 
involves children.
    Factor 4--Household size: We will separate enrollees into rate 
cells by household size that states use to determine BHP enrollees' 
income as a percentage of the FPL under Sec.  600.320 (Administration, 
eligibility, essential health benefits, performance standards, service 
delivery requirements, premium and cost sharing, allotments, and 
reconciliation; Determination of eligibility for and enrollment in a 
standard health plan), consistent with the current methodology. We will 
require separate rate cells for several specific household sizes. For 
each additional member above the largest specified size, we will 
publish instructions for how we will develop additional rate cells and 
calculate an appropriate payment rate based on data for the rate cell 
with the closest specified household size. We will

[[Page 10097]]

publish separate rate cells for household sizes of 1 through 10.
    Factor 5--Income: For households of each applicable size, we will 
create separate rate cells by income range, as a percentage of FPL, 
consistent with the current methodology. The PTC that a person would 
receive if enrolled in a QHP varies by income, both in level and as a 
ratio to the FPL, and the CSR varies by income as a percentage of FPL. 
Thus, separate rate cells will be used to calculate Federal BHP payment 
rates to reflect different bands of income measured as a percentage of 
FPL. We will use the following income ranges, measured as a ratio to 
the FPL:
     0 to 50 percent of the FPL.
     51 to 100 percent of the FPL.
     101 to 138 percent of the FPL.\3\
---------------------------------------------------------------------------

    \3\ The three lowest income ranges would be limited to lawfully 
present immigrants who are ineligible for Medicaid because of 
immigration status.
---------------------------------------------------------------------------

     139 to 150 percent of the FPL.
     151 to 175 percent of the FPL.
     176 to 200 percent of the FPL.
    These rate cells will only be used to calculate the Federal BHP 
payment amount. A state implementing BHP will not be required to use 
these rate cells or any of the factors in these rate cells as part of 
the state payment to the standard health plans participating in BHP or 
to help define BHP enrollees' covered benefits, premium costs, or out-
of-pocket cost-sharing levels.
    We will use averages to define Federal payment rates, both for 
income ranges and age ranges, rather than varying such rates to 
correspond to each individual BHP enrollee's age and income level. We 
believe that this approach will increase the administrative feasibility 
of making Federal BHP payments and reduce the likelihood of 
inadvertently erroneous payments resulting from highly complex 
methodologies. We believe that this approach should not significantly 
change Federal payment amounts, since within applicable ranges, the 
BHP-eligible population is distributed relatively evenly.

C. Sources and State Data Considerations

    To the extent possible, we will continue to use data submitted to 
the Federal government by QHP issuers seeking to offer coverage through 
an Exchange to perform the calculations that determine Federal BHP 
payment cell rates. In this methodology, we make some clarifications 
regarding the submission of state data in this section, and is 
otherwise consistent with the current methodology.
    States operating a State Based Exchange in the individual market, 
however, must provide certain data, including premiums for second 
lowest cost silver plans, by geographic area, for CMS to calculate the 
Federal BHP payment rates in those states. A state operating a State 
Based Exchange interested in obtaining the applicable Federal BHP 
payment rates for its state must submit such data accurately, 
completely, and as specified by CMS, by no later than October 15, 2016, 
for CMS to calculate the applicable rates for 2017 and by October 15, 
2017 for 2018. If additional state data (that is, in addition to the 
second lowest cost silver plan premium data) are needed to determine 
the Federal BHP payment rate, such data must be submitted in a timely 
manner, and in a format specified by CMS to support the development and 
timely release of annual BHP payment notices. The specifications for 
data collection to support the development of BHP payment rates will be 
published in CMS guidance and will be available at http://www.medicaid.gov/Federal-Policy-Guidance/Federal-Policy-Guidance.html.
    States must submit to CMS enrollment data on a quarterly basis and 
should be technologically prepared to begin submitting data at the 
start of their BHP. This requirement is necessary for us to implement 
the payment methodology that is tied to a quarterly reconciliation 
based on actual enrollment data.
    We make 2 additional clarifications regarding state-submitted data. 
First, for states that have BHP enrollees who do not file Federal tax 
returns (non-filers), the state must develop a methodology which they 
must submit to CMS at the time of their Blueprint submission to 
determine the enrollees' household income and household size 
consistently with Exchange requirements. We reserve the right to 
approve or disapprove the state's methodology to determine income and 
household size for non-filers.
    Second, as the Federal payments are determined quarterly and the 
enrollment data is required to be submitted by the states to CMS 
quarterly, we clarify that the quarterly payment would be based on the 
characteristics of the enrollee at the beginning of the quarter (or 
their first month of enrollment in BHP in each quarter). Thus, if an 
enrollee were to experience a change in county of residence, income, 
household size, or other factors related to the BHP payment 
determination during the quarter, the payment for the quarter would be 
based on the data as of the beginning of the quarter. Payments will 
still be made only for months that the person is enrolled in and 
eligible for BHP. We do not anticipate that this will have a 
significant effect on the Federal BHP payment. The states must maintain 
data that are consistent with our verification requirements, including 
auditable records for each individual enrolled, indicating an 
eligibility determination and a determination of income and other 
criteria relevant to the payment methodology as of the beginning of 
each quarter.
    As described in Sec.  600.610 (Secretarial determination of BHP 
payment amount), the state is required to submit certain data in 
accordance with this Notice. We require that this data be collected and 
validated by states operating BHP and that this data be submitted to 
CMS.

D. Discussion of Specific Variables Used in Payment Equations

1. Reference Premium (RP)
    To calculate the estimated PTC that would be paid if individuals 
enrolled in QHPs through the Exchange, we must calculate a RP because 
the PTC is based, in part, on the premiums for the applicable second 
lowest cost silver plan as explained in section III.C.4 of this 
methodology, regarding the Premium Tax Credit Formula (PTCF). 
Accordingly, for the purposes of calculating the BHP payment rates, the 
RP, in accordance with 26 U.S.C. 36B(b)(3)(C), is defined as the 
adjusted monthly premium for an applicable second lowest cost silver 
plan. The applicable second lowest cost silver plan is defined in 26 
U.S.C. 36B(b)(3)(B) as the second lowest cost silver plan of the 
individual market in the rating area in which the taxpayer resides, 
which is offered through the same Exchange. We will use the adjusted 
monthly premium for an applicable second lowest cost silver plan in 
2017 and 2018 as the RP (except in the case of a state that elects to 
use the 2016 or 2017 premium, respectively, as the basis for the 
Federal BHP payment, as described in section III.F of this final 
notice). The use of the RP and the determination of the RP is 
consistent with the current methodology.
    The RP will be the premium applicable to non-tobacco users. This is 
consistent with the provision in 26 U.S.C. 36B(b)(3)(C) that bases the 
PTC on premiums that are adjusted for age alone, without regard to 
tobacco use, even for states that allow insurers to vary premiums based 
on tobacco use in accordance with 42 U.S.C. 300gg(a)(1)(A)(iv).
    Consistent with the policy set forth in 26 CFR 1.36B-3(f)(6) to 
calculate the PTC for those enrolled in a QHP through

[[Page 10098]]

an Exchange, we will not update the payment methodology, and 
subsequently the Federal BHP payment rates, in the event that the 
second lowest cost silver plan used as the RP, or the lowest cost 
silver plan, changes (that is, terminates or closes enrollment during 
the year).
    The applicable second lowest cost silver plan premium will be 
included in the BHP payment methodology by age range, geographic area, 
and self-only or applicable category of family coverage obtained 
through BHP.
    American Indians and Alaska Natives with household incomes between 
100 percent and 300 percent of the FPL are eligible for a full cost 
sharing subsidy regardless of the plan they select (as described in 
sections 1402(d) and 2901(a) of the Affordable Care Act). We assume 
that American Indians and Alaska Natives would be more likely to enroll 
in bronze plans as a result, as it would reduce the amount of the 
premium they would pay compared to the costs of enrolling in a silver 
plan; thus, for American Indian/Alaska Native BHP enrollees, we will 
use the lowest cost bronze plan as the basis for the RP for the 
purposes of calculating the CSR portion of the Federal BHP payment as 
described further in section III.E of this methodology.
    We note that the choice of the second lowest cost silver plan for 
calculating BHP payments relies on several simplifying assumptions in 
its selection. For the purposes of determining the second lowest cost 
silver plan for calculating PTC for a person enrolled in a QHP through 
an Exchange, the applicable plan may differ for various reasons. For 
example, a different second lowest cost silver plan may apply to a 
family consisting of 2 adults, their child, and their niece than to a 
family with 2 adults and their children, because 1 or more QHPs in the 
family's geographic area might not offer family coverage that includes 
the niece. We believe that it would not be possible to replicate such 
variations for calculating the BHP payment and believe that in 
aggregate they would not result in a significant difference in the 
payment. Thus, we will use the second lowest cost silver plan available 
to any enrollee for a given age, geographic area, and coverage 
category.
    This choice of RP relies on 2 assumptions about enrollment in the 
Exchanges. First, we assume that all persons enrolled in BHP would have 
elected to enroll in a silver level plan if they had instead enrolled 
in a QHP through the Exchanges. It is possible that some persons would 
have chosen not to enroll at all or would have chosen to enroll in a 
different metal-level plan (in particular, a bronze level plan with a 
premium that is less than the PTC for which the person was eligible). 
We do not believe it is appropriate to adjust the payment for an 
assumption that some BHP enrollees would not have enrolled in QHPs for 
purposes of calculating the BHP payment rates, since section 
1331(d)(3)(A)(ii) of the Affordable Care Act requires the calculation 
of such rates as if the enrollee had enrolled in a qualified health 
plan through an Exchange.
    Second, we assume that, among all available silver plans, all 
persons enrolled in BHP would have selected the second-lowest cost 
plan. Both this and the prior assumption allow an administratively 
feasible determination of Federal payment levels. They also have some 
implications for the CSR portion of the rate. If persons were to enroll 
in a bronze level plan through the Exchange, they would not be eligible 
for CSRs, unless they were an eligible American Indian or Alaska 
Native; thus, assuming that all persons enroll in a silver level plan, 
rather than a plan with a different metal level, would increase the BHP 
payment. Assuming that all persons enroll in the second lowest cost 
silver plan for the purposes of calculating the CSR portion of the rate 
may result in a different level of CSR payments than would have been 
paid if the persons were enrolled in different silver level plans on 
the Exchanges (with either lower or higher premiums). We believe that 
it would be difficult to project how many BHP enrollees would have 
enrolled in different silver level QHPs, and thus will use the second 
lowest cost silver plan as the basis for the RP and calculating the CSR 
portion of the rate. While some data is available from the Exchanges, 
developing projections of how persons in different income ranges choose 
plans and extrapolating that to other states, with different numbers of 
plans and different premiums, would not be an improvement upon the 
current methodology. For American Indian/Alaska Native BHP enrollees, 
we will use the lowest cost bronze plan as the basis for the RP as 
described further in section III.E. of this methodology.
    The applicable age bracket will be one dimension of each rate cell. 
We will assume a uniform distribution of ages and estimate the average 
premium amount within each rate cell. We believe that assuming a 
uniform distribution of ages within these ranges is a reasonable 
approach and will produce a reliable determination of the PTC and CSR 
components. We also believe this approach will avoid potential 
inaccuracies that could otherwise occur in relatively small payment 
cells if age distribution were measured by the number of persons 
eligible or enrolled.
    We will use geographic areas based on the rating areas used in the 
Exchanges. We will define each geographic area so that the RP is the 
same throughout the geographic area. When the RP varies within a rating 
area, we are defining geographic areas as aggregations of counties with 
the same RP. Although plans are allowed to serve geographic areas 
smaller than counties after obtaining our approval, no geographic area, 
for purposes of defining BHP payment rate cells, will be smaller than a 
county. We do not believe that this assumption will have a significant 
impact on Federal payment levels and it would likely simplify both the 
calculation of BHP payment rates and the operation of BHP.
    Finally, in terms of the coverage category, the Federal payment 
rates will only recognize self-only and two-adult coverage, with 
exceptions that account for children who are potentially eligible for 
BHP. First, in states that set the upper income threshold for 
children's Medicaid and CHIP eligibility below 200 percent of FPL 
(based on modified adjusted gross income), children in households with 
incomes between that threshold and 200 percent of FPL would be 
potentially eligible for BHP. Currently, the only states in this 
category are Arizona, Idaho, and North Dakota.\4\ Second, BHP would 
include lawfully present immigrant children with incomes at or below 
200 percent of FPL in states that have not exercised the option under 
the sections 1903(v)(4)(A)(ii) and 2107(e)(1)(E) of the Act to qualify 
all otherwise eligible, lawfully present immigrant children for 
Medicaid and CHIP. States that fall within these exceptions would be 
identified based on their Medicaid and CHIP State Plans, and the rate 
cells would include appropriate categories of BHP family coverage for 
children. For example, Idaho's Medicaid and CHIP eligibility is limited 
to families with MAGI at or below 185 percent FPL. If Idaho implemented 
BHP, Idaho children with incomes between 185 and 200 percent could 
qualify. In other states, BHP eligibility will generally be restricted 
to adults, since children who are citizens or lawfully present 
immigrants and who live in households with incomes at or below 200 
percent of FPL will qualify for Medicaid or CHIP and thus be ineligible 
for BHP under

[[Page 10099]]

section 1331(e)(1)(C) of the Affordable Care Act, which limits BHP to 
individuals who are ineligible for minimum essential coverage (as 
defined in section 5000A(f) of the Internal Revenue Code of 1986).
---------------------------------------------------------------------------

    \4\ CMCS. ``State Medicaid and CHIP Income Eligibility Standards 
Effective January 1, 2014.''
---------------------------------------------------------------------------

2. Population Health Factor (PHF)

    The population health factor will be included in the methodology to 
account for the potential differences in the average health status 
between BHP enrollees and persons enrolled in the Exchange. To the 
extent that BHP enrollees would have been enrolled in the Exchange in 
the absence of BHP in a state, the exclusion of those BHP enrollees in 
the Exchange may affect the average health status of the overall 
population and the expected QHP premiums. The use and determination of 
the PHF as described below is consistent with the current methodology.
    We currently do not believe that there is evidence that the BHP 
population would have better or poorer health status than the Exchange 
population. At this time, there is a lack of experience available in 
the Exchange that limits the ability to analyze the health differences 
between these groups of enrollees. Exchanges have been in operation 
since 2014, and 2 states have operated BHP in 2015, but we do not have 
the data available to do the analysis necessary to make this adjustment 
at this time. In addition, differences in population health may vary 
across states. Thus, at this time, we believe that it is not feasible 
to develop a methodology to make a prospective adjustment to the 
population health factor that is reliably accurate.
    Given these analytic challenges and the limited data about Exchange 
coverage and the characteristics of BHP-eligible consumers that will be 
available by the time we establish Federal payment rates for 2017 and 
2018, we believe that the most appropriate adjustment for 2017 and 2018 
would be 1.00.
    In the 2015 and 2016 payment methodologies, we included an option 
for states to include a retrospective population health status 
adjustment. Similarly, for the 2017 and 2018 payment methodology we 
will provide states with the same option, as described further in 
section III.G of this methodology, to include a retrospective 
population health status adjustment in the certified methodology, which 
is subject to our review and approval. (Regardless of whether a state 
elects to include a retrospective population health status adjustment, 
we anticipate that, in future years, when additional data become 
available about Exchange coverage and the characteristics of BHP 
enrollees, we may estimate this factor differently.)
    While the statute requires consideration of risk adjustment 
payments and reinsurance payments insofar as they would have affected 
the PTC and CSRs that would have been provided to BHP-eligible 
individuals had they enrolled in QHPs, we will not require that a BHP 
program's standard health plans receive such payments. As explained in 
the BHP final rule, BHP standard health plans are not included in the 
risk adjustment program operated by HHS on behalf of states. Further, 
standard health plans do not qualify for payments from the transitional 
reinsurance program established under section 1341 of the Affordable 
Care Act.\5\ To the extent that a state operating a BHP determines 
that, because of the distinctive risk profile of BHP-eligible 
consumers, BHP standard health plans should be included in mechanisms 
that share risk with other plans in the state's individual market, the 
state would need to use other methods for achieving this goal.
---------------------------------------------------------------------------

    \5\ See 45 CFR 153.400(a)(2)(iv) (BHP standard health plans are 
not required to submit reinsurance contributions), 45 CFR 153.20 
(definition of ``Reinsurance-eligible plan'' as not including 
``health insurance coverage not required to submit reinsurance 
contributions''), and 45 CFR 153.230(a) (reinsurance payments under 
the national reinsurance parameters are available only for 
``Reinsurance-eligible plans'').
---------------------------------------------------------------------------

3. Income (I)
    Household income is a significant determinant of the amount of the 
PTC and CSRs that are provided for persons enrolled in a QHP through 
the Exchange. Accordingly, the BHP payment methodology incorporates 
income into the calculations of the payment rates through the use of 
income-based rate cells. The use and determination of income is 
consistent with the current methodology. We will define income in 
accordance with the definition of modified adjusted gross income in 26 
U.S.C. 36B(d)(2)(B) and consistent with the definition in 45 CFR 
155.300. Income will be measured relative to the FPL, which is updated 
periodically in the Federal Register by the Secretary under the 
authority of 42 U.S.C. 9902(2), based on annual changes in the consumer 
price index for all urban consumers (CPI-U). In this methodology, 
household size and income as a percentage of FPL will be used as 
factors in developing the rate cells. We will use the following income 
ranges measured as a percentage of FPL: \6\
---------------------------------------------------------------------------

    \6\ These income ranges and this analysis of income apply to the 
calculation of the PTC. Many fewer income ranges and a much simpler 
analysis apply in determining the value of CSRs, as specified in 
this methodology.
---------------------------------------------------------------------------

     0-50 percent.
     51-100 percent.
     101-138 percent.
     139-150 percent.
     151-175 percent.
     176-200 percent.

    We will assume a uniform income distribution for each Federal BHP 
payment cell. We believe that assuming a uniform income distribution 
for the income ranges will be reasonably accurate for the purposes of 
calculating the PTC and CSR components of the BHP payment and would 
avoid potential errors that could result if other sources of data were 
used to estimate the specific income distribution of persons who are 
eligible for or enrolled in BHP within rate cells that may be 
relatively small.
    Thus, when calculating the mean, or average, PTC for a rate cell, 
we will calculate the value of the PTC at each 1 percentage point 
interval of the income range for each Federal BHP payment cell and then 
calculate the average of the PTC across all intervals. This calculation 
would rely on the PTC formula described in section III.4 of this 
methodology.
    As the PTC for persons enrolled in QHPs would be calculated based 
on their income during the open enrollment period, and that income 
would be measured against the FPL at that time, we will adjust the FPL 
by multiplying the FPL by a projected increase in the CPI-U between the 
time that the BHP payment rates are calculated and the QHP open 
enrollment period, if the FPL is expected to be updated during that 
time. The projected increase in the CPI-U will be based on the 
intermediate inflation forecasts from the most recent OASDI and 
Medicare Trustees Reports.\7\
---------------------------------------------------------------------------

    \7\ See Table IV A1 from the 2015 reports in http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2015.pdf.
---------------------------------------------------------------------------

4. Premium Tax Credit Formula (PTCF)
    As is consistent with the current methodology, in Equation 1 
described in section III.A.1 of this methodology, we will use the 
formula described in 26 U.S.C. 36B(b) to calculate the estimated PTC 
that would be paid on behalf of a person enrolled in a QHP on an 
Exchange as part of the BHP payment methodology. This formula is used 
to determine the contribution amount (the

[[Page 10100]]

amount of premium that an individual or household theoretically would 
be required to pay for coverage in a QHP on an Exchange), which is 
based on (A) the household income; (B) the household income as a 
percentage of FPL for the family size; and (C) the schedule specified 
in 26 U.S.C. 36B(b)(3)(A) and shown below in this section. The 
difference between the contribution amount and the adjusted monthly 
premium for the applicable second lowest cost silver plan is the 
estimated amount of the PTC that would be provided for the enrollee.
    The PTC amount provided for a person enrolled in a QHP through an 
Exchange is calculated in accordance with the methodology described in 
26 U.S.C. 36B(b)(2). The amount is equal to the lesser of the premium 
for the plan in which the person or household enrolls, or the adjusted 
premium for the applicable second lowest cost silver plan minus the 
contribution amount.
    The applicable percentage is defined in 26 U.S.C. 36B (b)(3)(A) and 
26 CFR 1.36B-3(g) as the percentage that applies to a taxpayer's 
household income that is within an income tier specified in Table 1, 
increasing on a sliding scale in a linear manner from an initial 
premium percentage to a final premium percentage specified in Table 1. 
The methodology is unchanged, but we will update the percentages:

          Table 1--Applicable Percentage Table for CY 2016 \8\
------------------------------------------------------------------------
                                            The initial      The final
     In the case of household income          premium         premium
   (expressed as  a percent of poverty    percentage is-- percentage is--
 line) within the following income tier:
------------------------------------------------------------------------
Up to 133%..............................           2.03%           2.03%
133% but less than 150%.................            3.05            4.07
150% but less than 200%.................            4.07            6.41
200% but less than 250%.................            6.41            8.18
250% but less than 300%.................            8.18            9.66
300% but not more than 400%.............            9.66            9.66
------------------------------------------------------------------------

     
---------------------------------------------------------------------------

    \8\ IRS Revenue Procedure 2014-56, 2014-50 I.R.B. 948, 
Examination of returns and claims for refund, credit, or abatement; 
determination of correct tax liability. http://www.irs.gov/pub/irs-drop/rp-14-62.pdf.
---------------------------------------------------------------------------

    These are the applicable percentages for calendar year (CY) 2016 
and will be used for the 2017 payment methodology. We plan to use the 
CY 2017 percentages when they become available for the 2018 payment 
methodology, as the percentages are indexed annually and published by 
the IRS. The applicable percentages will be updated in future years in 
accordance with 26 U.S.C. 36B (b)(3)(A)(ii).
5. Income Reconciliation Factor (IRF)
    For persons enrolled in a QHP through an Exchange who receive the 
benefit of advance payments of the premium tax credit (APTC), there 
will be an annual reconciliation following the end of the year to 
compare the advance payments to the correct amount of PTC based on 
household circumstances shown on the Federal income tax return. Any 
difference between the latter amounts and the advance payments made 
during the year would either be refundable to the taxpayer (if too 
little APTC was paid) or charged to the taxpayer as additional tax (if 
too much APTC was made, subject to any limitations in statute or 
regulation), as provided in 26 U.S.C. 36B(f).
    Section 1331(e)(2) of the Affordable Care Act specifies that an 
individual eligible for BHP may not be treated as a qualified 
individual under section 1312 eligible for enrollment in a QHP offered 
through an Exchange. We are defining ``eligible'' to mean anyone for 
whom the state agency or the Exchange assesses or determines, based on 
the single streamlined application or renewal form, as eligible for 
enrollment in the BHP. Because enrollment in a QHP is a requirement for 
PTC for the enrolled individual's coverage, individuals determined or 
assessed as eligible for a BHP are not eligible to receive APTC 
assistance for coverage in the Exchange. Because they do not receive 
APTC assistance, BHP enrollees, on whom the 2017 and 2018 payment 
methodology is based, are not subject to the same income reconciliation 
as Exchange consumers. Nonetheless, there may still be differences 
between a BHP enrollee's household income reported at the beginning of 
the year and the actual income over the year. These may include small 
changes (reflecting changes in hourly wage rates, hours worked per 
week, and other fluctuations in income during the year) and large 
changes (reflecting significant changes in employment status, hourly 
wage rates, or substantial fluctuations in income). There may also be 
changes in household composition. Thus, we believe that using 
unadjusted income as reported prior to the BHP program year may result 
in calculations of estimated PTC that are inconsistent with the actual 
incomes of BHP enrollees during the year. Even if the BHP program 
adjusts household income determinations and corresponding claims of 
Federal payment amounts based on household reports during the year or 
data from third-party sources, such adjustments may not fully capture 
the effects of tax reconciliation that BHP enrollees would have 
experienced had they been enrolled in a QHP through an Exchange and 
received APTC assistance.
    Therefore, in accordance with current practice, we will include in 
Equation 1 an income adjustment factor that would account for the 
difference between calculating estimated PTC using: (a) Income relative 
to FPL as determined at initial application and potentially revised 
mid-year, under proposed Sec.  600.320, for purposes of determining BHP 
eligibility and claiming Federal BHP payments; and (b) actual income 
relative to FPL received during the plan year, as it would be reflected 
on individual Federal income tax returns. This adjustment will 
prospectively account for the average effect of income reconciliation 
aggregated across the BHP population had those BHP enrollees been 
subject to tax reconciliation after receiving APTC assistance for 
coverage provided through QHPs. For 2017 and 2018, we will estimate the 
reconciliation effects based on tax data for 2 years, reflecting income 
and tax unit composition changes over time among BHP-eligible 
individuals.
    The OTA maintains a model that combines detailed tax and other 
data, including Marketplace enrollment and PTC claimed, to project 
Exchange premiums, enrollment, and tax credits. For each enrollee, this 
model compares the APTC based on household income

[[Page 10101]]

and family size estimated at the point of enrollment with the PTC based 
on household income and family size reported at the end of the tax 
year. The former reflects the determination using enrollee information 
furnished by the applicant and tax data furnished by the IRS. The 
latter would reflect the PTC eligibility based on information on the 
tax return, which would have been determined if the individual had not 
enrolled in BHP. The ratio of the reconciled PTC to the initial 
estimation of PTC will be used as the income reconciliation factor in 
Equation (1) for estimating the PTC portion of the BHP payment rate.
    For 2017, OTA has estimated that the income reconciliation factor 
for states that have implemented the Medicaid eligibility expansion to 
cover adults up to 133 percent of the FPL will be 100.40 percent, and 
for states that have not implemented the Medicaid eligibility expansion 
and do not cover adults up to 133 percent of the FPL will be 100.35 
percent. The value of the income reconciliation factor for 2017 will be 
100.38 percent, which is the average of the factors, rounded to the 
nearest hundredth of one-percent.
6. Tobacco Rating Adjustment Factor (TRAF)
    As described previously, the RP is estimated, for purposes of 
determining both the PTC and related Federal BHP payments, based on 
premiums charged for non-tobacco users, including in states that allow 
premium variations based on tobacco use, as provided in 42 U.S.C. 
300gg(a)(1)(A)(iv). In contrast, as described in 45 CFR 156.430, the 
CSR component of the advance payments is based on the total premium for 
a policy, including any adjustment for tobacco use. Accordingly, we 
will incorporate a tobacco rating adjustment factor into Equation 2 
that reflects the average percentage increase in health care costs that 
results from tobacco use among the BHP-eligible population and that 
would not be reflected in the premium charged to non-users. This factor 
will also take into account the estimated proportion of tobacco users 
among BHP-eligible consumers. The use and determination of this factor 
is consistent with the current methodology.
    To estimate the average effect of tobacco use on health care costs 
(not reflected in the premium charged to non-users), we will calculate 
the ratio between premiums that silver level QHPs charge for tobacco 
users to the premiums they charge for non-tobacco users at selected 
ages. To calculate estimated proportions of tobacco users, we will use 
data from the Centers for Disease Control and Prevention (CDC) to 
estimate tobacco utilization rates by state and relevant population 
characteristic.\9\ For each state, we will calculate the tobacco usage 
rate based on the percentage of persons by age who use cigarettes and 
the percentage of persons by age that use smokeless tobacco, and 
calculate the utilization rate by adding the 2 rates together. The data 
is available for 3 age intervals: 18-24; 25-44; and 45-64. For the BHP 
payment rate cell for persons ages 21-34, we will calculate the factor 
as (4/14 * the utilization rate of 18-24 year olds) plus (10/14 * the 
utilization rate of 25-44 year olds), which will be the weighted 
average of tobacco usage for persons 21-34 assuming a uniform 
distribution of ages; for all other age ranges used for the rate cells, 
we will use the age range in the CDC data in which the BHP payment rate 
cell age range is contained.
---------------------------------------------------------------------------

    \9\ Centers for Disease Control and Prevention, Tobacco Control 
State Highlights 2012: http://www.cdc.gov/tobacco/data_statistics/state_data/state_highlights/2012/index.htm.
---------------------------------------------------------------------------

    We will provide tobacco rating factors that may vary by age and by 
geographic area within each state. To the extent that the second lowest 
cost silver plans have a different ratio of tobacco user rates to non-
tobacco user rates in different geographic areas, the tobacco rating 
adjustment factor may differ across geographic areas within a state. In 
addition, to the extent that the second lowest cost silver plan has a 
different ratio of tobacco user rates to non-tobacco user rates by age, 
or that there is a different prevalence of tobacco use by age, the 
tobacco rating adjustment factor may differ by age.
7. Factor for Removing Administrative Costs (FRAC)
    The Factor for Removing Administrative Costs represents the average 
proportion of the total premium that covers allowed health benefits, 
and we will include this factor in our calculation of estimated CSRs in 
Equation 2. The product of the RP and the Factor for Removing 
Administrative Costs will approximate the estimated amount of Essential 
Health Benefit (EHB) claims that would be expected to be paid by the 
plan. This step is needed because the premium also covers such costs as 
taxes, fees, and QHP administrative expenses. We will set this factor 
equal to 0.80, which is the same percentage for the factor to remove 
administrative costs for calculating the CSR component of advance 
payments for established in the 2016 HHS Notice of Benefit and Payment 
Parameters. This is consistent with the current methodology.
8. Actuarial Value (AV)
    The actuarial value is defined as the percentage paid by a health 
plan of the total allowed costs of benefits, as defined under Sec.  
156.20. (For example, if the average health care costs for enrollees in 
a health insurance plan were $1,000 and that plan has an actuarial 
value of 70 percent, the plan would be expected to pay on average $700 
($1,000 x 0.70) for health care costs per enrollee.) By dividing such 
estimated costs by the actuarial value in the methodology, we will 
calculate the estimated amount of total EHB-allowed claims, including 
both the portion of such claims paid by the plan and the portion paid 
by the consumer for in-network care. (To continue with that same 
example, we would divide the plan's expected $700 payment of the 
person's EHB-allowed claims by the plan's 70 percent actuarial value to 
ascertain that the total amount of EHB-allowed claims, including 
amounts paid by the consumer, is $1,000.)
    For the purposes of calculating the CSR rate in Equation 2, we will 
use the standard actuarial value of the silver level plans in the 
individual market, which is equal to 70 percent. This is consistent 
with the current methodology.
9. Induced Utilization Factor (IUF)
    The induced utilization factor will be used in calculating 
estimated CSRs in Equation 2 to account for the increase in health care 
service utilization associated with a reduction in the level of cost 
sharing a QHP enrollee would have to pay, based on the cost-sharing 
reduction subsidies provided to enrollees. This is consistent with the 
current methodology.
    The 2016 HHS Notice of Benefit and Payment Parameters provided 
induced utilization factors for the purposes of calculating the cost-
sharing reduction component of advance payments for 2016. In that 
Notice, the induced utilization factors for silver plan variations 
ranged from 1.00 to 1.12, depending on income. Using those utilization 
factors, the induced utilization factor for all persons who would 
qualify for BHP based on their household income as a percentage of FPL 
is 1.12; this would include persons with household income between 100 
percent and 200 percent of FPL, lawfully present non-citizens below 100 
percent of FPL who are ineligible for Medicaid because of immigration 
status, and American Indians and Alaska Natives with household income

[[Page 10102]]

between 100 and 300 percent of FPL, not subject to any cost-sharing. 
Thus, consistent with last year, we will set the induced utilization 
factor equal to 1.12 for the BHP payment methodology.
    We note that for CSRs for QHPs, there will be a final 
reconciliation at the end of the year and the actual level of induced 
utilization could differ from the factor used in the rule. This 
methodology for BHP funding does not include any reconciliation for 
utilization.
10. Change in Actuarial Value ([Delta]AV)
    The increase in actuarial value will account for the impact of the 
CSR subsidies on the relative amount of EHB claims that would be 
covered for or paid by eligible persons, and it is included as a factor 
in calculating estimated CSRs in Equation 2. This is consistent with 
the current methodology.
    The actuarial values of QHPs for persons eligible for CSR subsidies 
are defined in Sec.  156.420(a), and eligibility for such subsidies is 
defined in Sec.  155.305(g)(2)(i) through (iii). For QHP enrollees with 
household incomes between 100 percent and 150 percent of FPL, and those 
below 100 percent of FPL who are ineligible for Medicaid because of 
their immigration status, CSRs increase the actuarial value of a QHP 
silver plan from 70 percent to 94 percent. For QHP enrollees with 
household incomes between 150 percent and 200 percent of FPL, CSRs 
increase the actuarial value of a QHP silver plan from 70 percent to 87 
percent.
    We will apply this factor by subtracting the standard AV from the 
higher AV allowed by the applicable cost-sharing reduction. For BHP 
enrollees with household incomes at or below 150 percent of FPL, this 
factor will be 0.24 (94 percent minus 70 percent); for BHP enrollees 
with household incomes more than 150 percent but not more than 200 
percent of FPL, this factor will be 0.17 (87 percent minus 70 percent).

E. Adjustments for American Indians and Alaska Natives

    There are several exceptions made for American Indians and Alaska 
Natives enrolled in QHPs through an Exchange to calculate the PTC and 
CSRs. Thus, we will make adjustments to the payment methodology 
previously described to be consistent with the Exchange rules. These 
adjustments are consistent with the current methodology.
    We will make the following adjustments:
     The ARP for use in the CSR portion of the rate will use 
the lowest cost bronze plan instead of the second lowest cost silver 
plan, with the same adjustment for the population health factor (and in 
the case of a state that elects to use the 2016 or 2017 premiums as the 
basis of the Federal BHP payment, the same adjustment for the premium 
trend factor). American Indians and Alaska Natives are eligible for 
CSRs with any metal level plan, and thus we believe that eligible 
persons would be more likely to select a bronze level plan instead of a 
silver level plan. (It is important to note that this would not change 
the PTC, as that is the maximum possible PTC payment, which is always 
based on the applicable second lowest cost silver plan.)
     The actuarial value for use in the CSR portion of the rate 
will be 0.60 instead of 0.70, which is consistent with the actuarial 
value of a bronze level plan.
     The induced utilization factor for use in the CSR portion 
of the rate would be 1.15 for 2017 and 2018, which is consistent with 
the 2016 HHS Notice of Benefit and Payment Parameters induced 
utilization factor for calculating the CSR component of advance 
payments for persons enrolled in bronze level plans and eligible for 
CSRs up to 100 percent of actuarial value.
     The change in the actuarial value for use in the CSR 
portion of the rate will be 0.40. This reflects the increase from 60 
percent actuarial value of the bronze plan to 100 percent actuarial 
value, as American Indians and Alaska Natives with household incomes 
between 100 and 300 percent FPL are eligible to receive CSRs up to 100 
percent of actuarial value.

F. State Option To Use 2016 or 2017 QHP Premiums for BHP Payments

    In the interest of allowing states greater certainty in the total 
BHP Federal payments for 2017 or 2018, we will provide states the 
option to have their final 2017 and 2018 Federal BHP payment rates, 
respectively, calculated using the projected 2017 and 2018 ARP (that 
is, using 2016 or 2017 premium data multiplied by the premium trend 
factor defined below in this methodology), as described in Equation 
(3b). This approach and the determination of the premium trend factor 
is consistent with the current methodology.
    For a state that would elect to use the 2016 or 2017 premiums as 
the basis for the 2017 and 2018 BHP Federal payments, respectively, we 
will require that the state inform us no later than May 15, 2016 for 
the 2017 program year and May 15, 2017 for the 2018 program year. (Our 
experience to date has been that states have elected to use the premium 
data that correlates to the year of payment. If this trend continues, 
we will consider in future payment notices whether to eliminate the 
choice of the premium from the prior year moving forward.)
    For Equation (3b), we define the premium trend factor, with minor 
changes in calculation sources and methods, as follows:
    Premium Trend Factor (PTF): In Equation (3b), we calculate an ARP 
based on the application of certain relevant variables to the ARP, 
including a premium trend factor (PTF). In the case of a state that 
would elect to use the 2016 or 2017 premiums as the basis for 
determining the BHP payment, it is appropriate to apply a factor that 
would account for the change in health care costs between the year of 
the premium data and the BHP plan year. We define this as the premium 
trend factor in the BHP payment methodology. This factor will 
approximate the change in health care costs per enrollee, which would 
include, but not be limited to, changes in the price of health care 
services and changes in the utilization of health care services. This 
will provide an estimate of the adjusted monthly premium for the 
applicable second lowest cost silver plan that will be more accurate 
and reflective of health care costs in the BHP program year, which 
would be the year following issuance of the final Federal payment 
notice. In addition, we believe that it would be appropriate to adjust 
the trend factor for the estimated impact of changes to the 
transitional reinsurance program on the average QHP premium.
    For the trend factor we will use the annual growth rate in private 
health insurance expenditures per enrollee from the National Health 
Expenditure projections, developed by the Office of the Actuary in CMS 
(https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html, Table 17). For 2017, the 
projected increase in private health insurance premiums per enrollee is 
4.4 percent.
    The adjustment for changes in the transitional reinsurance program 
is developed from analysis by CMS' Center for Consumer Information and 
Insurance Oversight (CCIIO). In unpublished analysis, CCIIO estimated 
that the end of the transitional reinsurance program in 2016 would 
contribute 4.0 percent to QHP premium increases between 2016 and 2017.
    Combining these 2 factors together, we calculate that the premium 
trend

[[Page 10103]]

factor for 2017 would be 8.6 percent (1 + 0.044) x (1 + 0.040)-1 = 8.6 
percent.
    States may want to consider that the increase in premiums for QHPs 
from 2016 to 2017 or from 2017 to 2018 may differ from the premium 
trend factor developed for the BHP funding methodology for several 
reasons. In particular, states may want to consider that the second 
lowest cost silver plan for 2016 or 2017 may not be the same as the 
second lowest cost silver plan in 2017 or 2018, respectively. This may 
lead to the premium trend factor being greater than or less than the 
actual change in the premium of the second lowest cost silver plan in 
2016 compared to the premium of the second lowest cost silver plan in 
2017 (or from 2017 to 2018).

G. State Option To Include Retrospective State-Specific Health Risk 
Adjustment in Certified Methodology

    To determine whether the potential difference in health status 
between BHP enrollees and consumers in the Exchange would affect the 
PTC, CSRs, risk adjustment and reinsurance payments that would have 
otherwise been made had BHP enrollees been enrolled in coverage on the 
Exchange, we will continue to provide states implementing the BHP the 
option to propose and to implement, as part of the certified 
methodology, a retrospective adjustment to the Federal BHP payments to 
reflect the actual value that would be assigned to the population 
health factor (or risk adjustment) based on data accumulated during 
program years 2017 and 2018 for each rate cell. This is consistent with 
the approach in the current methodology.
    We acknowledge that there is uncertainty for this factor due to the 
lack of experience of QHPs on the Exchange and other payments related 
to the Exchange, which is why, absent a state election, we will use a 
value for the population health factor to determine a prospective 
payment rate which assumes no difference in the health status of BHP 
enrollees and QHP enrollees. There is considerable uncertainty 
regarding whether the BHP enrollees will pose a greater risk or a 
lesser risk compared to the QHP enrollees, how to best measure such 
risk, and the potential effect such risk would have had on PTC, CSRs, 
risk adjustment and reinsurance payments that would have otherwise been 
made had BHP enrollees been enrolled in coverage on the Exchange. To 
the extent, however, that a state would develop an approved protocol to 
collect data and effectively measure the relative risk and the effect 
on Federal payments, we will permit a retrospective adjustment that 
would measure the actual difference in risk between the 2 populations 
to be incorporated into the certified BHP payment methodology and used 
to adjust payments in the previous year.
    For a state electing the option to implement a retrospective 
population health status adjustment, we will require the state to 
submit a proposed protocol to CMS, which would be subject to approval 
by us and would be required to be certified by the Chief Actuary of 
CMS, in consultation with the Office of Tax Analysis, as part of the 
BHP payment methodology. We describe the protocol for the population 
health status adjustment in guidance in Considerations for Health Risk 
Adjustment in the Basic Health Program in Program Year 2015 (http://www.medicaid.gov/Basic-Health-Program/Downloads/Risk-Adjustment-and-BHP-White-Paper.pdf). We will require a state to submit its proposed 
protocol by August 1, 2016 for our approval for the 2017 program year, 
and by August 1, 2017 for the 2018 program year. This submission would 
also include descriptions of how the state would collect the necessary 
data to determine the adjustment, including any contracting 
contingences that may be in place with participating standard health 
plan issuers. We will provide technical assistance to states as they 
develop their protocols. To implement the population health status, we 
must approve the state's protocol no later than December 31, 2016 for 
the 2017 program year, and by December 31, 2017 for the 2018 program 
year. Finally, we will require that the state complete the population 
health status adjustment at the end of 2017 (or 2018) based on the 
approved protocol. After the end of the 2017 and 2018 program years, 
and once data is made available, we will review the state's findings, 
consistent with the approved protocol, and make any necessary 
adjustments to the state's Federal BHP payment amounts. If we determine 
that the Federal BHP payments were less than they would have been using 
the final adjustment factor, we would apply the difference to the 
state's next quarterly BHP trust fund deposit. If we determine that the 
Federal BHP payments were more than they would have been using the 
final reconciled factor, we would subtract the difference from the next 
quarterly BHP payment to the state.

IV. Collection of Information Requirements

    This 2017 and 2018 methodology is mostly unchanged from the 2016 
final notice published on February 24, 2015 (80 FR 9636). For states 
that have BHP enrollees who do not file Federal tax returns (``non-
filers''), this methodology notice clarifies that the state must 
develop a methodology to determine the enrollee's household income and 
household size consistent with Exchange requirements. Since the 
requirement applies to fewer than 10 states, and states would not 
reasonably be expected to transmit the methodology to any independent 
entities (5 CFR 1320.3(c)(4)) the 2017 and 2018 methodology does not 
require additional OMB review under the authority of the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3501 et seq.). Otherwise, the 
methodology's information collection requirements and burden estimates 
are not affected by this action and are approved by OMB under control 
number 0938-1218 (CMS-10510). With regard to state elections, 
protocols, certifications, and status adjustments, this action would 
not revise or impose any additional reporting, recordkeeping, or third-
party disclosure requirements or burden on qualified health plans or on 
states operating State Based Exchanges.

V. Regulatory Impact Statement

A. Overall Impact

    We have examined the impacts of this methodology as required by 
Executive Order 12866 on Regulatory Planning and Review (September 30, 
1993), Executive Order 13563 on Improving Regulation and Regulatory 
Review (January 18, 2011), the Regulatory Flexibility Act (RFA) 
(September 19, 1980, Pub. L. 96-354), section 1102(b) of the Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4, 
March 22, 1995) (UMRA), Executive Order 13132 on Federalism (August 4, 
1999) and the Congressional Review Act (5 U.S.C. 804(2)).
    Executive Orders 12866 and 13563 direct 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). Section 
3(f) of Executive Order 12866 defines a ``significant regulatory 
action'' as an action that is likely to result in a rule: (1) Having an 
annual effect on the economy of $100 million or more in any 1 year, or 
adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or state, local or tribal

[[Page 10104]]

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). As noted in the BHP final rule, BHP provides states the 
flexibility to establish an alternative coverage program for low-income 
individuals who would otherwise be eligible to purchase coverage 
through the Exchange. Because we make no changes in methodology that 
would have a consequential effect on state participation incentives, or 
on the size of either the BHP program or offsetting PTC and CSR 
expenditures, the effects of the changes made in this methodology 
notice would not approach the $100 million threshold, and hence it is 
neither an economically significant rule under E.O. 12866 nor a major 
rule under the Congressional Review Act. The size of the BHP program 
depends on several factors, including the number of and which 
particular states choose to implement or continue BHP in 2017 or 2018, 
the level of QHP premiums in 2016 and 2017, the number of enrollees in 
BHP, and the other coverage options for persons who would be eligible 
for BHP. In particular, while we generally expect that many enrollees 
would have otherwise been enrolled in a QHP through the Exchange, some 
persons may have been eligible for Medicaid under a waiver or a state 
health coverage program. For those who would have enrolled in a QHP and 
thus would have received PTCs or CSRs, the Federal expenditures for BHP 
would be expected to be more than offset by a reduction in Federal 
expenditures for PTCs and CSRs. For those who would have been enrolled 
in Medicaid, there would likely be a smaller offset in Federal 
expenditures (to account for the Federal share of Medicaid 
expenditures), and for those who would have been covered in non-Federal 
programs or would have been uninsured, there likely would be an 
increase in Federal expenditures. None of these factors or incentives 
would be materially affected by the updates we have made here.
    In accordance with the provisions of Executive Order 12866, this 
notice was reviewed by the Office of Management and Budget.
1. Need for the Final Methodology Notice
    Section 1331 of the Affordable Care Act (codified at 42 U.S.C. 
18051) requires the Secretary to establish a BHP, and paragraph (d)(1) 
specifically provides that if the Secretary finds that a state meets 
the requirements of the program established under section (a) [of 
section 1331 of the Affordable Care Act], the Secretary shall transfer 
to the State Federal BHP payments described in paragraph (d)(3). This 
methodology provides for the funding methodology to determine the 
Federal BHP payment amounts required to implement these provisions in 
program years 2017 and 2018.
2. Alternative Approaches
    Many of the factors used in this notice are specified in statute; 
therefore, we are limited in the alternative approaches we could 
consider. One area in which we had a choice was in selecting the data 
sources used to determine the factors included in the methodology. 
Except for state-specific RPs and enrollment data, we are using 
national rather than state-specific data. This is due to the lack of 
currently available state-specific data needed to develop the majority 
of the factors included in the methodology. We believe the national 
data will produce sufficiently accurate determinations of payment 
rates. In addition, we believe that this approach will be less 
burdensome on states. In many cases, using state-specific data would 
necessitate additional requirements on the states to collect, validate, 
and report data to CMS. By using national data, we are able to collect 
data from other sources and limit the burden placed on the states. To 
RPs and enrollment data, we are using state-specific data rather than 
national data as we believe state-specific data will produce more 
accurate determinations than national averages.
    In addition, we considered whether or not to provide states the 
option to develop a protocol for a retrospective adjustment to the 
population health factor in 2017 and 2018 as we did in the 2015 and 
2016 payment methodologies. We believe that providing this option again 
in 2017 and 2018 is appropriate and likely to improve the accuracy of 
the final payments.
    We also considered whether or not to require the use of 2017 and 
2018 QHP premiums to develop the 2017 and 2018 Federal BHP payment 
rates. We believe that the payment rates can still be developed 
accurately using either the 2016 and 2017 QHP premiums (for the 2017 
and 2018 program years, respectively) or the 2017 and 2018 program year 
premiums and that it is appropriate to provide the states the option, 
given the interests and specific considerations each state may have in 
operating the BHP.
3. Transfers
    The provisions of this notice are designed to determine the amount 
of funds that will be transferred to states offering coverage through a 
BHP rather than to individuals eligible for Federal financial 
assistance for coverage purchased on the Exchange. We are uncertain 
what the total Federal BHP payment amounts to states will be as these 
amounts will vary from state to state due to the varying nature of 
state composition. For example, total Federal BHP payment amounts may 
be greater in more populous states simply by virtue of the fact that 
they have a larger BHP-eligible population and total payment amounts 
are based on actual enrollment. Alternatively, total Federal BHP 
payment amounts may be lower in states with a younger BHP-eligible 
population as the RP used to calculate the Federal BHP payment will be 
lower relative to older BHP enrollees. While state composition will 
cause total Federal BHP payment amounts to vary from state to state, we 
believe that the methodology, like the methodology used in 2015 and 
2016, accounts for these variations to ensure accurate BHP payment 
transfers are made to each state.

B. Unfunded Mandates Reform Act

    Section 202 of the UMRA requires that agencies assess anticipated 
costs and benefits before issuing any rule whose mandates require 
spending in any 1 year of $100 million in 1995 dollars, updated 
annually for inflation, by state, local, or tribal governments, in the 
aggregate, or by the private sector. In 2015, that threshold is 
approximately $144 million. States have the option, but are not 
required, to establish a BHP. Further, the methodology would establish 
Federal payment rates without requiring states to provide the Secretary 
with any data not already required by other provisions of the 
Affordable Care Act or its implementing regulations. Thus, neither this 
payment methodology nor the methodologies used in 2015 and 2016 mandate 
expenditures by state governments, local governments, or tribal 
governments.

[[Page 10105]]

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA) 
requires agencies to prepare a final regulatory flexibility analysis to 
describe the impact of the final rule on small entities, unless the 
head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The Act generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA); 
(2) a not-for-profit organization that is not dominant in its field; or 
(3) a small government jurisdiction with a population of less than 
50,000. Individuals and states are not included in the definition of a 
small entity. Few of the entities that meet the definition of a small 
entity as that term is used in the RFA would be impacted directly by 
this methodology.
    Because this methodology is focused solely on Federal BHP payment 
rates to states, it does not contain provisions that would have a 
direct impact on hospitals, physicians, and other health care providers 
that are designated as small entities under the RFA. Accordingly, we 
have determined that the methodology, like the previous methodology and 
the final rule that established the BHP program, will not have a 
significant economic impact on a substantial number of small entities.
    Section 1102(b) of the Act requires us to prepare a regulatory 
impact analysis if a methodology may have a significant economic impact 
on the operations of a substantial number of small rural hospitals. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. For the preceding 
reasons, we have determined that the methodology will not have a 
significant impact on a substantial number of small rural hospitals.

D. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct effects on states, preempts state law, or otherwise 
has federalism implications. The BHP is entirely optional for states, 
and if implemented in a state, provides access to a pool of funding 
that would not otherwise be available to the state. Accordingly, the 
requirements of the Executive Order do not apply to this final 
methodology notice.

    Dated: January 6, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: February 10, 2016.
Sylvia Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-03902 Filed 2-25-16; 4:15 pm]
 BILLING CODE 4120-01-P