[Federal Register Volume 81, Number 172 (Tuesday, September 6, 2016)]
[Proposed Rules]
[Pages 61456-61536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-20896]



[[Page 61455]]

Vol. 81

Tuesday,

No. 172

September 6, 2016

Part III





Department of Health and Human Services





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45 CFR Parts 144, 146, 147, 148, et al.





Patient Protection and Affordable Care Act; HHS Notice of Benefit and 
Payment Parameters for 2018; Proposed Rule

Federal Register / Vol. 81 , No. 172 / Tuesday, September 6, 2016 / 
Proposed Rules

[[Page 61456]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 144, 146, 147, 148, 153, 154, 155, 156, 157, and 158

[CMS-9934-P]
RIN 0938-AS95


Patient Protection and Affordable Care Act; HHS Notice of Benefit 
and Payment Parameters for 2018

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule sets forth payment parameters and 
provisions related to the risk adjustment program; cost-sharing 
parameters and cost-sharing reductions; and user fees for Federally-
facilitated Exchanges and State-based Exchanges on the Federal 
platform. It also provides additional guidance relating to standardized 
options; qualified health plans; consumer assistance tools; network 
adequacy; the Small Business Health Options Program; stand-alone dental 
plans; fair health insurance premiums; guaranteed renewability; the 
medical loss ratio program; eligibility and enrollment; appeals; and 
other related topics.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on October 6, 2016.

ADDRESSES: In commenting, please refer to file code CMS-9934-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-9934-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-9934-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period: a. For delivery in Washington, DC--
Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Room 445-G, Hubert H. Humphrey Building, 200 
Independence Avenue SW., Washington, DC 20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.) b. For delivery in Baltimore, MD--Centers for Medicare & 
Medicaid Services, Department of Health and Human Services, 7500 
Security Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Jeff Wu, (301) 492-4305, Lindsey 
Murtagh, (301) 492-4106, or Michelle Koltov, (301) 492-4225 for general 
information.
    Lisa Cuozzo, (410) 786-1746, for matters related to fair health 
insurance premiums, guaranteed renewability, and single risk pool.
    Michael Cohen, (301) 492-4277, for matters related to the Pre-
Existing Condition Insurance Plan Program.
    Kelly Drury, (410) 786-0558, or Krutika Amin, (301) 492-5153, for 
matters related to risk adjustment.
    Adrianne Patterson, (410) 786-0686, for matters related to 
sequestration, risk adjustment data validation discrepancies, and 
administrative appeals.
    Emily Ames, (301) 492-4246, for matters related to language access.
    Dana Krohn, (301) 492-4412, for matters related to periodic data 
matching, redeterminations of advance payments of the premium tax 
credit, and appeals.
    Ryan Mooney, (301) 492-4405, for matters related to premium 
payment, billing, and terminations due to fraud.
    Christelle Jang, (410) 786-8438, for matters related to the Small 
Business Health Options Program (SHOP).
    Krutika Amin, (301) 492-5153, for matters related to the Federally-
facilitated Exchange user fee.
    Leigha Basini, (301) 492-4380, for matters related to mid-year 
withdrawals, and other standards for QHP issuers.
    Ielnaz Kashefipour, (301) 492-4376, for matters related to 
standardized options.
    Rebecca Zimmermann, (301) 492-4396, for matters related to stand-
alone dental plans.
    Cindy Chiou, (301) 492-5142, for matters related to QHP issuer 
oversight and direct enrollment.
    Allison Yadsko, (410) 786-1740, for matters related to levels of 
coverage and actuarial value.
    Pat Meisol, (410) 786-1917, for matters related to cost-sharing 
reductions, reconciliation of the cost-sharing reduction portion of 
advance payments discrepancies, and the premium adjustment percentage.
    Christina Whitefield, (301) 492-4172, for matters related to the 
medical loss ratio program.

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

Table of Contents

I. Executive Summary
II. Background
    A. Legislative and Regulatory Overview
    B. Stakeholder Consultation and Input
    C. Structure of Proposed Rule
III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2018
    A. Part 144--Requirements Relating to Health Insurance Coverage
    B. Part 146--Requirements for the Group Health Insurance Market

[[Page 61457]]

    C. Part 147--Health Insurance Reform Requirements for the Group 
and Individual Health Insurance Markets
    D. Part 148--Requirements for the Individual Health Insurance 
Market
    E. Part 152--Pre-Existing Condition Insurance Plan Program
    F. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment Under the Affordable Care Act
    G. Part 154--Health Insurance Issuer Rate Increases: Disclosure 
and Review Requirements
    H. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
    I. Part 156--Health Insurance Issuer Standards Under the 
Affordable Care Act, Including Standards Related to Exchanges
    J. Part 157--Employer Interactions With Exchanges and Shop 
Participation
    K. Part 158--Issuer Use of Premium Revenue: Reporting and Rebate 
Requirements
IV. Collection of Information Requirements
    A. ICRs Regarding Upload of Risk Adjustment Data
    B. ICRs Regarding Data Validation Requirements When HHS Operates 
Risk Adjustment
    C. ICR Regarding the Interim and Final Discrepancy Reporting 
Processes for Risk Adjustment Data Validation When HHS Operates Risk 
Adjustment
    D. ICR Regarding Standardized Options in SBE-FPs
    E. ICR Regarding Differential Display of Standardized Options on 
the Web sites of Agents and Brokers and QHP Issuers
    F. ICR Regarding Ability of States To Permit Agents and Brokers 
To Assist Qualified Individuals, Qualified Employers, or Qualified 
Employees Enrolling in QHPs
    G. ICR Regarding Eligibility Redeterminations
    H. ICR Regarding Termination of Exchange Enrollment or Coverage
    I. ICR Regarding QHP Issuer Request for Reconsideration
    J. ICR Regarding Notification by Issuers Denied Certification
    K. ICR Regarding the Discrepancy Reporting Processes for the 
Reconciliation of the Cost-Sharing Reduction Portion of Advance 
Payments
    L. ICRs Regarding Administrative Appeals
    M. ICR Regarding Medical Loss Ratio
V. Response to Comments
VI. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Impact Estimates of the Payment Notice Provisions and 
Accounting Table
    D. Regulatory Alternatives Considered
    E. Regulatory Flexibility Act
    F. Unfunded Mandates
    G. Federalism
    H. Congressional Review Act

Acronyms and Abbreviations

Affordable Care Act The collective term for the Patient Protection 
and Affordable Care Act (Pub. L. 111-148) and the Health Care and 
Education Reconciliation Act of 2010 (Pub. L. 111-152), as amended
APTC Advance payments of the premium tax credit
AV Actuarial value
CBO Congressional Budget Office
CFR Code of Federal Regulations
CHIP Children's Health Insurance Program
CMP Civil money penalties
CMS Centers for Medicare & Medicaid Services
CPI Consumer price index
ECP Essential community provider
ED Enrollment duration
EDGE External data gathering environment
EHB Essential health benefits
ESRD End Stage Renal Disease
FDA Food and Drug Administration
FFE Federally-facilitated Exchange
FF-SHOP Federally-facilitated Small Business Health Options Program
FPL Federal poverty level
FR Federal Register
FTE Full-time equivalent
HCC Hierarchical condition category
HDHP High deductible health plan
HHS United States Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996 
(Pub. L. 104-191)
HMO Health maintenance organization
IRS Internal Revenue Service
LEP Limited English proficient/proficiency
MLR Medical loss ratio
NAIC National Association of Insurance Commissioners
NDC National Drug Code
NHEA National Health Expenditure Accounts
OMB Office of Management and Budget
PCIP Pre-Existing Condition Insurance Plan
PHS Act Public Health Service Act
PI Personal income
PMPM Per member per month
PPO Preferred provider organization
QHP Qualified health plan
QIA Quality improvement activities
RXC Prescription Drug Categories
SADP Stand-alone dental plan
SBC Summary of benefits and coverage
SBE-FP State-based Exchange on the Federal platform
SHOP Small Business Health Options Program
The Code Internal Revenue Code of 1986 (26 U.S.C. 1, et seq.)
USP United States Pharmacopeia

I. Executive Summary

    The Affordable Care Act enacted a set of reforms that are making 
high quality health insurance coverage and care more affordable and 
accessible to millions of Americans. These reforms include the creation 
of competitive marketplaces called Affordable Insurance Exchanges, or 
``Exchanges'' (in this proposed rule, we also call an Exchange a Health 
Insurance Marketplace \SM\,\1\ or Marketplace\SM\), through which 
qualified individuals and qualified employers can purchase health 
insurance coverage. In addition, many individuals who enroll in 
qualified health plans (QHPs) through individual market Exchanges are 
eligible to claim a premium tax credit to make health insurance 
premiums more affordable, and reductions in cost-sharing payments to 
reduce out-of-pocket expenses for health care services. These 
Affordable Care Act reforms also include the risk adjustment program 
and rules that are intended to mitigate the potential impact of adverse 
selection and stabilize the price of health insurance in the individual 
and small group markets. In previous rulemaking, we have outlined the 
major provisions and parameters related to many Affordable Care Act 
programs.
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    \1\ Health Insurance Marketplace\SM\ and Marketplace\SM\ are 
service marks of the U.S. Department of Health & Human Services.
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    In this proposed rule, to further promote stable premiums in the 
individual and small group markets, we propose several updates to the 
risk adjustment methodology based on our experience with the program to 
date that are intended to refine the methodology's ability to estimate 
risk. In particular, we propose updates to better estimate the risk 
associated with enrollees who are not enrolled for a full 12 months, to 
use prescription drug data to update the predictive ability of our risk 
adjustment models, and to establish transfers that will better account 
for the risk of high-cost enrollees. We propose a number of policies 
relating to the use of external data gathering environment (EDGE) 
server data for recalibration of our risk adjustment models, and the 
use of more recent data for future calibrations. We also propose 
several amendments to the risk adjustment data validation process, 
including proposals relating to the review of prescription drug data 
and the establishment of a discrepancy identification and 
administrative appeals process.
    In addition to provisions aimed at stabilizing premiums, we propose 
several provisions related to cost-sharing parameters. First, we 
propose the premium adjustment percentage for 2018, which is used to 
set the rate of increase for several parameters detailed in the 
Affordable Care Act, including the maximum annual limitation on cost 
sharing for 2018. We also propose the maximum annual limitations on 
cost sharing for the 2018 benefit year for cost-sharing reduction plan 
variations. This proposed rule also proposes standards for stand-alone 
dental plans (SADPs) related to the annual limitation on cost sharing.
    We also propose a number of amendments that we believe would help 
promote consumer choice in health

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plans. These include a proposal specifying that at least one QHP in the 
silver coverage level and at least one QHP in the gold coverage level 
must be offered throughout each service area in which a QHP issuer 
offers coverage through the Exchange; and a proposal to permit a 
broader de minimis range for the actuarial value of bronze plans to 
permit greater flexibility in benefit design and to accommodate 
proposed updates to the 2018 Actuarial Value (AV) Calculator.
    Our proposal requiring QHP issuers on an Exchange to participate in 
the Exchange for a full plan year (unless a basis for suppression 
applies) as a QHP certification requirement would help ensure that 
individuals enrolling through special enrollment periods and newly 
qualified employees have access to a range of plans that is generally 
comparable to the range of plans that can be accessed by those who 
enroll during an open enrollment period. We also seek comment on 
whether to remove a requirement tying participation in the individual 
market Federally-facilitated Exchanges to participation in the 
Federally-facilitated Small Business Health Options Programs.
    We also propose to expand the medical loss ratio (MLR) provision 
allowing issuers to defer reporting of policies newly issued with a 
full 12 months of experience (rather than policies newly issued and 
with less than 12 months of experience) in that MLR reporting year, and 
to limit the total rebate liability payable with respect to a given 
calendar year. We propose several changes to our guaranteed 
renewability regulations that would address instances where issuers may 
inadvertently trigger a 5-year prohibition on re-entering an applicable 
market. In these select instances, we believe it is appropriate to 
allow issuers to remain in the applicable market, and believe allowing 
so will improve the availability of choice for consumers. We also 
propose a change to our age rating rules for children.
    In this proposed rule, we propose several provisions regarding when 
and how consumers may choose and enroll in plans. This rule includes 
proposals relating to codifying several special enrollment periods that 
are already available to consumers in order to ensure the rules are 
clear and to limit abuse; the enrollment processes in the Small 
Business Health Options Program (SHOP); and binder payment deadlines. 
We also propose several amendments related to insurance affordability 
programs, including regarding eligibility determinations, and periodic 
data matching.
    We are proposing a number of amendments to assist consumers in 
selecting and enrolling in QHPs and insurance affordability programs. 
In the HHS Notice of Benefit and Payment Parameters for 2017 Final Rule 
(2017 Payment Notice), we established standardized options, which we 
will display on HealthCare.gov in a manner that distinguishes them from 
other QHPs, and a categorization of network depth. We believe both 
policies will make it easier for consumers to select health plans 
through HealthCare.gov. In this proposed rule, we expand upon both 
policies. For standardized options, we propose four bronze standardized 
options (including one health savings account-eligible high deductible 
health plan), and three standardized options at each of the silver, 
silver cost-sharing reduction variations, and gold metal levels. We 
propose to select one standardized option at each metal level and one 
at each cost-sharing reduction plan variation level for use in each 
State. We hope that by increasing the scope of potential standardized 
designs, we will better accommodate State cost-sharing laws. We also 
propose to make differential display of standardized options available 
in State-based Exchanges on the Federal platform (SBE-FPs) at the 
State's option, as well as to require differential display of 
standardized options by QHP issuers and web-brokers using a direct 
enrollment pathway to facilitate enrollment through a Federally-
facilitated Exchange (FFE) or SBE-FP. Additionally, we propose a number 
of standards and consumer protections that would apply to a web-broker 
or issuer using the direct enrollment pathway. We propose to augment 
our network adequacy display policy to account for QHPs that are part 
of an integrated delivery system. We also make proposals relating to 
the essential community provider requirements and propose amendments to 
the standards regarding providing taglines in non-English languages 
indicating the availability of language services.
    We seek comment on potential ways to further support the transition 
of former Pre-Existing Condition Insurance Plan (PCIP) Program 
enrollees into the Exchange to ensure that they do not experience a 
lapse in coverage.
    We also propose several amendments that would strengthen Exchanges' 
oversight capabilities. These include proposals requiring issuers 
attempting to rescind coverage purchased through the Exchange to show 
that the rescission is appropriate; and making explicit HHS's authority 
to impose civil money penalties (CMPs) in situations where QHP issuers 
are non-responsive or uncooperative with compliance reviews. We also 
propose an avenue through which issuers can appeal a non-certification 
or decertification.
    Finally, in this proposed rule, we propose minor adjustments to our 
rules governing the single risk pool, SHOP, user fees, and notices, 
including notices related to SHOP, decertification, and appeals.

II. Background

A. Legislative and Regulatory Overview

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010. The Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), which amended and revised 
several provisions of the Patient Protection and Affordable Care Act, 
was enacted on March 30, 2010. In this proposed rule, we refer to the 
two statutes collectively as the ``Affordable Care Act.''
    The Affordable Care Act reorganizes, amends, and adds to the 
provisions of title XXVII of the Public Health Service Act (PHS Act) 
relating to group health plans and health insurance issuers in the 
group and individual markets.
    Section 2701 of the PHS Act, as added by the Affordable Care Act, 
restricts the variation in premium rates charged by a health insurance 
issuer for non-grandfathered health insurance coverage in the 
individual or small group market to certain specified factors. The 
factors are: Family size, geographic area, age, and tobacco use.
    Section 2701 of the PHS Act operates in coordination with section 
1312(c) of the Affordable Care Act. Section 1312(c) of the Affordable 
Care Act generally requires a health insurance issuer to consider all 
enrollees in all health plans (except grandfathered health plans) 
offered by such issuer to be members of a single risk pool for each of 
its individual and small group markets. States have the option to merge 
the individual and small group market risk pools under section 
1312(c)(3) of the Affordable Care Act.
    Section 2702 of the PHS Act, as added by the Affordable Care Act, 
requires health insurance issuers that offer health insurance coverage 
in the group or individual market in a State to offer coverage to and 
accept every employer and individual in the State that applies for such 
coverage, unless an exception applies.\2\
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    \2\ Before enactment of the Affordable Care Act, the Health 
Insurance Portability and Accountability Act of 1996 amended the PHS 
Act (formerly section 2711) to generally require guaranteed 
availability of coverage for employers in the small group market.

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    Section 2703 of the PHS Act, as added by the Affordable Care Act, 
and former section 2712 and section 2742 of the PHS Act, as added by 
the Health Insurance Portability and Accountability Act of 1996 
(HIPAA), require health insurance issuers that offer health insurance 
coverage in the group or individual market to renew or continue in 
force such coverage at the option of the plan sponsor or individual 
unless an exception applies.
    Section 2718 of the PHS Act, as added by the Affordable Care Act, 
generally requires health insurance issuers to submit an annual medical 
loss ratio report to HHS, and provide rebates to enrollees if the 
issuers do not achieve specified MLR thresholds.
    Section 2794 of the PHS Act, as added by the Affordable Care Act, 
directs the Secretary of HHS (the Secretary), in conjunction with the 
States, to establish a process for the annual review of unreasonable 
increases in premiums for health insurance coverage.\3\ The law also 
requires health insurance issuers to submit to the Secretary and the 
applicable State justifications for unreasonable premium increases 
prior to the implementation of the increases. Section 2794(b)(2) of the 
PHS Act further directs the Secretary, in conjunction with the States, 
to monitor premium increases of health insurance coverage offered 
through an Exchange or outside of an Exchange beginning with plan years 
starting in 2014.
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    \3\ The implementing regulations in part 154 limit the scope of 
the requirements under section 2794 of the PHS Act to health 
insurance issuers offering health insurance coverage in the 
individual market or small group market.
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    Section 1101 of the Affordable Care Act required the Secretary to 
establish a temporary high-risk health insurance pool program to 
provide health insurance coverage from the establishment of the program 
until January 1, 2014 for eligible individuals, namely U.S. residents 
who are U.S. citizens or lawfully present in the U.S.; did not have 
other health insurance coverage in the 6 months preceding enactment; 
and have a pre-existing condition. Section 1101 also requires that the 
Secretary develop procedures to provide for the transition of eligible 
individuals enrolled in this health insurance coverage into qualified 
health plans offered through an Exchange to avoid a lapse in coverage.
    Section 1302 of the Affordable Care Act provides for the 
establishment of an essential health benefits (EHB) package that 
includes coverage of EHB (as defined by the Secretary), cost-sharing 
limits, and actuarial value (AV) requirements. The law directs that 
EHBs be equal in scope to the benefits covered by a typical employer 
plan and that they cover at least the following 10 general categories: 
Ambulatory patient services; emergency services; hospitalization; 
maternity and newborn care; mental health and substance use disorder 
services, including behavioral health treatment; prescription drugs; 
rehabilitative and habilitative services and devices; laboratory 
services; preventive and wellness services and chronic disease 
management; and pediatric services, including oral and vision care.
    Section 1301(a)(1)(B) of the Affordable Care Act directs all 
issuers of QHPs to cover the EHB package described in section 1302(a) 
of the Affordable Care Act, including coverage of the services 
described in section 1302(b) of the Affordable Care Act, to adhere to 
the cost-sharing limits described in section 1302(c) of the Affordable 
Care Act and to meet the AV levels established in section 1302(d) of 
the Affordable Care Act. Section 2707(a) of the PHS Act, which is 
effective for plan or policy years beginning on or after January 1, 
2014, extends the coverage of the EHB package to non-grandfathered 
individual and small group market coverage, irrespective of whether 
such coverage is offered through an Exchange. In addition, section 
2707(b) of the PHS Act directs non-grandfathered group health plans to 
ensure that cost sharing under the plan does not exceed the limitations 
described in section 1302(c)(1) of the Affordable Care Act.
    Section 1302(d) of the Affordable Care Act describes the various 
levels of coverage based on actuarial value. Consistent with section 
1302(d)(2)(A) of the Affordable Care Act, AV is calculated based on the 
provision of EHB to a standard population. Section 1302(d)(3) of the 
Affordable Care Act directs the Secretary to develop guidelines that 
allow for de minimis variation in AV calculations.
    Section 1311(b)(1)(B) of the Affordable Care Act directs that the 
Small Business Health Options Program assist qualified small employers 
in facilitating the enrollment of their employees in qualified health 
plans offered in the small group market. Sections 1312(f)(1) and (2) of 
the Affordable Care Act define qualified individuals and qualified 
employers. Under section 1312(f)(2)(B) of the Affordable Care Act, 
beginning in 2017, States will have the option to allow issuers to 
offer QHPs in the large group market through an Exchange.\4\
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    \4\ If a State elects this option, the rating rules in section 
2701 of the PHS Act and its implementing regulations will apply to 
all coverage offered in such State's large group market under 
section 2701(a)(5) of the PHS Act.
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    Section 1311(c)(1)(B) of the Affordable Care Act requires the 
Secretary to establish minimum criteria for provider network adequacy 
that a health plan must meet to be certified as a QHP.
    Section 1311(c)(5) of the Affordable Care Act requires the 
Secretary to continue to operate, maintain, and update the Internet 
portal developed under section 1103 of the Affordable Care Act to 
provide information to consumers and small businesses on affordable 
health insurance coverage options.
    Section 1311(c)(6)(C) of the Affordable Care Act states that the 
Secretary is to provide for special enrollment periods specified in 
section 9801 of the Internal Revenue Code of 1986 (the Code) and other 
special enrollment periods under circumstances similar to such periods 
under part D of title XVIII of the Social Security Act (the Act).
    Section 1312(e) of the Affordable Care Act directs the Secretary to 
establish procedures under which a State may permit agents and brokers 
to enroll qualified individuals and qualified employers in QHPs through 
an Exchange, and to assist individuals in applying for financial 
assistance for QHPs sold through an Exchange.
    Section 1321(a) of the Affordable Care Act provides broad authority 
for the Secretary to establish standards and regulations to implement 
the statutory requirements related to Exchanges, QHPs and other 
components of title I of the Affordable Care Act. Section 1321(a)(1) 
directs the Secretary to issue regulations that set standards for 
meeting the requirements of title I of the Affordable Care Act with 
respect to, among other things, the establishment and operation of 
Exchanges.
    Sections 1313 and 1321 of the Affordable Care Act provide the 
Secretary with the authority to oversee the financial integrity of 
State Exchanges, their compliance with HHS standards, and the efficient 
and non-discriminatory administration of State Exchange activities. 
Section 1321 of the Affordable Care Act provides for State flexibility 
in the operation and enforcement of Exchanges and related requirements.
    When operating a Federally-facilitated Exchange under section 
1321(c)(1) of the Affordable Care Act, HHS has the

[[Page 61460]]

authority under sections 1321(c)(1) and 1311(d)(5)(A) of the Affordable 
Care Act to collect and spend user fees. In addition, 31 U.S.C. 9701 
permits a Federal agency to establish a charge for a service provided 
by the agency. Office of Management and Budget (OMB) Circular A-25 
Revised establishes Federal policy regarding user fees and specifies 
that a user charge will be assessed against each identifiable recipient 
for special benefits derived from Federal activities beyond those 
received by the general public. Furthermore, these user fees are 
appropriated to CMS in the CMS Program Management appropriation.
    Section 1321(c)(2) of the Affordable Care Act authorizes the 
Secretary to enforce the Exchange standards using CMPs on the same 
basis as detailed in section 2723(b) of the PHS Act. Section 2723(b) of 
the PHS Act authorizes the Secretary to impose CMPs as a means of 
enforcing the individual and group market reforms contained in part A 
of title XXVII of the PHS Act with respect to health insurance issuers 
when a State fails to substantially enforce these provisions.
    Section 1321(d) of the Affordable Care Act provides that nothing in 
title I of the Affordable Care Act should be construed to preempt any 
State law that does not prevent the application of title I of the 
Affordable Care Act. Section 1311(k) of the Affordable Care Act 
specifies that Exchanges may not establish rules that conflict with or 
prevent the application of regulations issued by the Secretary.
    Section 1343 of the Affordable Care Act establishes a risk 
adjustment program in which States, or HHS on behalf of States, 
collects charges from health insurance issuers that attract lower-risk 
populations in order to use those funds to provide payments to health 
insurance issuers that attract higher-risk populations, such as those 
with chronic conditions, thereby reducing incentives for issuers to 
avoid higher-risk enrollees.
    Sections 1402 and 1412 of the Affordable Care Act provide for, 
among other things, reductions in cost sharing for essential health 
benefits for qualified low- and moderate-income enrollees in silver 
level health plans offered through the individual market Exchanges. 
These sections also provide for reductions in cost sharing for Indians 
enrolled in QHPs at any metal level.
1. Premium Stabilization Programs
    In the July 15, 2011 Federal Register (76 FR 41929), we published a 
proposed rule outlining the framework for the premium stabilization 
programs. We implemented the premium stabilization programs in a final 
rule, published in the March 23, 2012 Federal Register (77 FR 17219) 
(Premium Stabilization Rule). In the December 7, 2012 Federal Register 
(77 FR 73117), we published a proposed rule outlining the benefit and 
payment parameters for the 2014 benefit year to expand the provisions 
related to the premium stabilization programs and set forth payment 
parameters in those programs (proposed 2014 Payment Notice). We 
published the 2014 Payment Notice final rule in the March 11, 2013 
Federal Register (78 FR 15409).
    In the December 2, 2013 Federal Register (78 FR 72321), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2015 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2015 Payment Notice). We published the 2015 Payment Notice 
final rule in the March 11, 2014 Federal Register (79 FR 13743).
    In the November 26, 2014 Federal Register (79 FR 70673), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2016 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2016 Payment Notice). We published the 2016 Payment Notice 
final rule in the February 27, 2015 Federal Register (80 FR 10749).
    In the December 2, 2015 Federal Register (80 FR 75487), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2017 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2017 Payment Notice). We published the 2017 Payment Notice 
final rule in the March 8, 2016 Federal Register (81 FR 12203).
2. Program Integrity
    In the June 19, 2013 Federal Register (78 FR 37031), we published a 
proposed rule that proposed certain program integrity standards related 
to Exchanges and the premium stabilization programs (proposed Program 
Integrity Rule). The provisions of that proposed rule were finalized in 
two rules, the ``first Program Integrity Rule'' published in the August 
30, 2013 Federal Register (78 FR 54069) and the ``second Program 
Integrity Rule'' published in the October 30, 2013 Federal Register (78 
FR 65045).
3. Exchanges
    We published a request for comment relating to Exchanges in the 
August 3, 2010 Federal Register (75 FR 45584). We issued initial 
guidance to States on Exchanges on November 18, 2010. We proposed a 
rule in the July 15, 2011 Federal Register (76 FR 41865) to implement 
components of the Exchanges, and a rule in the August 17, 2011 Federal 
Register (76 FR 51201) regarding Exchange functions in the individual 
market, eligibility determinations, and Exchange standards for 
employers. A final rule implementing components of the Exchanges and 
setting forth standards for eligibility for Exchanges was published in 
the March 27, 2012 Federal Register (77 FR 18309) (Exchange 
Establishment Rule).
    We established standards for SHOP in the 2014 Payment Notice and in 
the Amendments to the HHS Notice of Benefit and Payment Parameters for 
2014 interim final rule, published in the March 11, 2013 Federal 
Register (78 FR 15541). We also set forth standards related to Exchange 
user fees in the 2014 Payment Notice.
    In the 2017 Payment Notice we established additional Exchange 
standards, including requirements for State Exchanges using the Federal 
platform and standardized options.
    In an interim final rule with comment published in the May 11, 2016 
Federal Register (81 FR 29146) we amended the parameters of certain 
special enrollment periods.
4. Essential Health Benefits and Actuarial Value
    On December 16, 2011, HHS released a bulletin \5\ (the EHB 
Bulletin) that outlined an intended regulatory approach for defining 
EHB, including a benchmark-based framework. HHS also published a 
bulletin that outlined its intended regulatory approach to calculations 
of AV on February 24, 2012.\6\ A proposed rule relating to EHBs and AVs 
was published in the November 26, 2012 Federal Register (77 FR 70643). 
We established requirements relating to EHBs and AVs in the Standards 
Related to Essential Health Benefits, Actuarial Value, and

[[Page 61461]]

Accreditation Final Rule, which was published in the February 25, 2013 
Federal Register (78 FR 12833) (EHB Rule).
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    \5\ Essential Health Benefits Bulletin. (Dec. 16, 2011). 
Available at: https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf.
    \6\ Actuarial Value and Cost-Sharing Reductions Bulletin. Feb. 
24, 2012. Available at: https://www.cms.gov/CCIIO/Resources/Files/Downloads/Av-csr-bulletin.pdf.
---------------------------------------------------------------------------

5. Market Rules
    A proposed rule relating to the 2014 health insurance market rules 
was published in the November 26, 2012 Federal Register (77 FR 70584). 
A final rule implementing the health insurance market rules was 
published in the February 27, 2013 Federal Register (78 FR 13406) (2014 
Market Rules).
    A proposed rule relating to Exchanges and Insurance Market 
Standards for 2015 and Beyond was published in the March 21, 2014 
Federal Register (79 FR 15808) (2015 Market Standards Proposed Rule). A 
final rule implementing the Exchange and Insurance Market Standards for 
2015 and Beyond was published in the May 27, 2014 Federal Register (79 
FR 30240) (2015 Market Standards Rule).
6. Rate Review
    A proposed rule to establish the rate review program was published 
in the December 23, 2010 Federal Register (75 FR 81003). A final rule 
with comment period implementing the rate review program was published 
in the May 23, 2011 Federal Register (76 FR 29963) (Rate Review Rule). 
The provisions of the Rate Review Rule were amended in final rules 
published in the September 6, 2011 Federal Register (76 FR 54969), the 
February 27, 2013 Federal Register (78 FR 13405), the May 27, 2014 
Federal Register (79 FR 30339), and the February 27, 2015 Federal 
Register (80 FR 10749).
7. Medical Loss Ratio
    We published a request for comment on section 2718 of the PHS Act 
in the April 14, 2010 Federal Register (75 FR 19297), and published an 
interim final rule relating to the MLR program on December 1, 2010 (75 
FR 74863). A final rule was published in the December 7, 2011 Federal 
Register (76 FR 76573). An interim final rule was published in the 
December 7, 2011 Federal Register (76 FR 76595). A final rule was 
published in the Federal Register on May 16, 2012 (77 FR 28790).
8. Pre-Existing Condition Insurance Plan Program
    We published an interim final rule in the July 30, 2010 Federal 
Register (75 FR 45013) setting forth implementing regulations for the 
Pre-Existing Condition Insurance Plan Program. An amendment to this 
interim final rule was published in the August 30, 2012 Federal 
Register (77 FR 52614). We published an interim final rule in the May 
22, 2013 Federal Register (78 FR 30218).

B. Stakeholder Consultation and Input

    HHS has consulted with stakeholders on policies related to the 
operation of Exchanges, including the SHOPs, and the premium 
stabilization programs. We have held a number of listening sessions 
with consumers, providers, employers, health plans, the actuarial 
community, and State representatives to gather public input. We 
consulted with stakeholders through regular meetings with the National 
Association of Insurance Commissioners (NAIC), regular contact with 
States through the Exchange Establishment grant and Exchange Blueprint 
approval processes, and meetings with Tribal leaders and 
representatives, health insurance issuers, trade groups, consumer 
advocates, employers, and other interested parties.
    On March 31, 2016, we hosted a public conference to discuss the 
potential improvements to the Federally certified HHS-operated risk 
adjustment methodology. Prior to the conference, we published the 
``March 31, 2016, HHS-Operated Risk Adjustment Methodology Meeting: 
Discussion Paper'' (``White Paper''),\7\ on which we received public 
comment. These comments are available at: https://www.regtap.info/uploads/library/RA_Onsite_Discussion_Paper_Comments_5CR_080916.pdf.
---------------------------------------------------------------------------

    \7\ Available at: https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/RA-March-31-White-Paper-032416.pdf.
---------------------------------------------------------------------------

    We considered all public input we received as we developed the 
policies in this proposed rule.

C. Structure of Proposed Rule

    The regulations outlined in this proposed rule would be codified in 
45 CFR parts 144, 146, 147, 148, 153, 154, 155, 156, 157 and 158.
    The proposed regulations in parts 144 and 154 would make conforming 
revisions to the regulatory definitions of ``plan'' and ``product.''
    The proposed regulations in parts 146, 147 and 148 would address 
two scenarios in which the discontinuation of all coverage currently 
offered by an issuer within a market and State will not be treated as a 
market withdrawal for purposes of the guaranteed renewability 
requirements. The proposed regulations in part 147 would also create 
multiple child age bands for rating purposes, and would amend the 
provision regarding limited open enrollment periods (also known as 
special enrollment periods) in the individual market to reflect the 
proposed amendments regarding special enrollment periods in the 
Exchanges.
    The discussion in part 152 seeks comment on potential approaches to 
ensure the successful transition of former Pre-Existing Condition 
Insurance Plan (PCIP) Program enrollees to the Exchange without a lapse 
in coverage, under the PCIP statute.
    The proposed regulations in part 153 include the risk adjustment 
user fee for 2018 and outline a number of proposed modifications to the 
HHS risk adjustment methodology, including modifications to: (1) 
Address partial year enrollment; (2) use prescription drug data to 
predict actuarial risk; and (3) alter the methodology to better account 
for high-cost enrollees. We also propose to use EDGE server data to 
recalibrate the risk adjustment models, and propose revisions to the 
risk adjustment data validation process.
    The proposed regulations in part 155 include several amendments 
regarding standardized options, including the 2018 cost-sharing 
structures for standardized options. Other proposals in part 155 are 
related to the eligibility and verification processes for insurance 
affordability programs. We propose to amend rules related to enrollment 
of qualified individuals into QHPs and make various proposals related 
to the SHOPs. We propose to amend the regulations requiring Exchanges, 
QHP issuers, and web-brokers to provide taglines in non-English 
languages. We propose the required contribution percentage for 2018. We 
propose a new policy regarding appealing denials of QHP certification. 
We also propose amendments to the standards applicable in State 
Exchanges using the Federal platform for SHOP functions in parts 155 
and 156. We also propose amendments to the regulations applicable to 
qualified employers in the SHOPs in part 157.
    The proposed regulations in part 156 set forth proposals related to 
cost-sharing parameters, including the premium adjustment percentage, 
the maximum annual limitation on cost sharing, and the reductions in 
the maximum annual limitation for cost-sharing plan variations for 
2018. We also propose the user fee rate applicable in the FFEs and SBE-
FPs. The proposed regulations also include an amendment providing for 
calibration of the single risk pool index rate. We also propose changes 
regarding AV, levels of coverage, and essential community provider 
requirements.
    The proposed amendments to the regulations in part 158 propose

[[Page 61462]]

revisions related to deferral of reporting of experience for newer 
business, as well as revisions related to limiting the total rebate 
liability payable with respect to a given calendar year.

III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2018

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

1. Definitions (Sec.  144.103)
    We propose to revise the regulatory definitions of ``plan'' and 
``product'' in Sec.  144.103. Specifically, we propose to remove 
language from each definition that would restrict a plan or product 
from being considered the same plan or product when it is no longer 
offered by the same issuer, but is still offered by a different issuer 
in the same controlled group. We also propose to add a second sentence 
to clarify that, in the case of a product that has been modified, 
transferred, or replaced, the product will be considered to be the same 
product when it meets the standards for uniform modification of 
coverage at Sec.  146.152(f), Sec.  147.106(e), or Sec.  148.122(g), as 
applicable. For further discussion of the provisions of this proposed 
rule related to the transfer or replacement of all products in a market 
in a State, please see the preamble to Sec.  147.106. Finally, for 
purposes of clarity, we propose to include examples of product network 
types in the definition of ``product'' in Sec.  144.103, including 
health maintenance organization (HMO), preferred provider organization 
(PPO), exclusive provider organization, point of service, and 
indemnity.

B. Part 146--Requirements for the Group Health Insurance Market

1. Guaranteed Renewability of Coverage for Employers in the Group 
Market (Sec.  146.152)
    For a discussion of the provisions of this proposed rule related to 
part 146, please see the preamble to Sec.  147.106.

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

1. Fair Health Insurance Premiums (Sec.  147.102)
    Section 2701 of the PHS Act, as implemented at 45 CFR 
147.102(a)(3), permits premium rates to vary based on age within a 
ratio of 3 to 1 for adults. Section 147.102(d) provides for uniform age 
bands, including a single age band for individuals age 0 through 20. In 
the proposed 2017 Payment Notice (80 FR 75496), we stated that we 
recognized that the Federal child age band and factor may need to be 
updated to better reflect the health risk of children. While average 
health care costs vary by the age of the child, in general, claim costs 
are highest for children age 0 through 4, followed by individuals age 
15 through 20. Children age 5 through 14 generally have lower claim 
costs. Having one age band for individuals age 0 through 20, together 
with the current child age factor, may result in significant premium 
increases for an individual when reaching age 21. In general, the 
premium at age 21 is 57% higher than the premium at age 20. Therefore, 
we sought comment regarding age rating for children to inform our 
reconsideration of the child age rating factor in the Federal uniform 
age curve.\8\
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    \8\ Under 45 CFR 147.102(e), each State may establish a uniform 
age rating curve in the individual or small group market, or both 
markets, for rating purposes. If a State does not establish a 
uniform age rating curve or provide information on such age curve in 
accordance with Sec.  147.103, a default uniform age rating curve 
specified in guidance by the Secretary will apply in that State that 
takes into account the rating variation permitted for age under 
State law.
---------------------------------------------------------------------------

    Most comments submitted to HHS in response to the proposed 2017 
Payment Notice supported continuing to spread the cost of newborns 
across a broader age band, and supported a more gradual transition in 
premiums up to age 21. Some stakeholders also indicated that the 
default child age factor of 0.635 should be higher, stating that the 
relatively low child age factor currently leads to insufficient 
premiums for children. We conducted an analysis of total annual cost 
from a national commercial database that incorporates 2015 claims data 
from the individual and small group markets. Based on this analysis, we 
propose to amend Sec.  147.102(d) to create multiple child age bands 
and propose a corresponding increase in the overall child age factor.
    We propose one age band for individuals age 0 through 14 and then 
single-year age bands for individuals age 15 through 20, effective for 
plan years or policy years beginning on or after January 1, 2018. 
Establishing single-year age bands beginning at age 15 would be likely 
to result in small annual increases in premiums for children age 15 to 
20, which would help mitigate large premium increases attributable to 
age due to the transition from a child to an adult age rating. However, 
we solicit comments on alternative approaches that would achieve these 
objectives.
    We recognize that age rating factors have a significant impact on 
issuers' approach to developing health insurance rates and therefore 
also propose age rating factors for the default Federal standard child 
age curve. These factors, listed in Table 1, correspond to the proposed 
change to child age bands. We solicit comments on these child age 
rating factors and whether they should be implemented at one time or 
phased in over a 3-year period. As stated in the preamble to the 2014 
Market Rules (78 FR at 13413), we intend to revise the default Federal 
standard age curve periodically in guidance, but no more frequently 
than annually, to reflect market patterns in the individual and small 
group markets. We propose to reflect this approach by amending Sec.  
147.102(e). We intend to monitor the effect of these new age bands and 
rating factors, if finalized, to determine whether further refinements 
are needed.

              Table 1--CMS Standard Age Curve for Children
------------------------------------------------------------------------
                                              Current        Proposed
                   Age                     premium ratio   premium ratio
------------------------------------------------------------------------
0-14....................................           0.635           0.765
15......................................           0.635           0.833
16......................................           0.635           0.859
17......................................           0.635           0.885
18......................................           0.635           0.913
19......................................           0.635           0.941
20......................................           0.635           0.970
------------------------------------------------------------------------

2. Guaranteed Availability of Coverage (Sec.  147.104)
    For a discussion of the provisions of this proposed rule related to 
limited open enrollment periods (also known as special enrollment 
periods) in Sec.  147.104, please see the preamble to Sec.  155.420.
    The guaranteed availability requirement in section 2702 of the PHS 
Act generally requires each health insurance issuer that offers health 
insurance coverage in the group or individual market in a State to 
accept every employer or individual in the State that applies for such 
coverage. However, in the case of an issuer that offers coverage 
through a network plan, the issuer may limit its offer of coverage to 
individuals in the individual market who live or reside in the service 
area of such network plan, and to employers in the small group or large 
group market with employees who live, work, or reside in the service 
area of such network plan.\9\
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    \9\ In the 2014 Market Rules, we codified in regulation the 
ability of an issuer of a network plan to limit the availability to 
individuals who live or reside in the service area, noting that 
``[w]hile PHS Act section 2702(c)(1)(A) does not explicitly include 
a corresponding exception allowing issuers to limit the sale of 
individual market coverage to individuals who live or reside in the 
individual market plan's service area, failing to recognize such an 
exception would eliminate an issuer's ability to define a service 
area for its individual market business within a State. Moreover, 
references to persons with individual market coverage in paragraph 
(c)(1) and subparagraph (c)(1)(B) of PHS Act section 2702 suggest 
that such persons with individual market coverage also were intended 
to be described in paragraph (c)(1)(A).''

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[[Page 61463]]

    This protection under Federal law does not require that the 
employer have a principal business address within the issuer's service 
area.\10\ In the 2017 Payment Notice, we amended Sec.  147.102 to 
ensure that a network plan could be appropriately rated for sale to an 
employer with employees in multiple geographical rating areas, 
consistent with both the rating rules and the guaranteed availability 
requirements.
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    \10\ However, this provision does not require an issuer to offer 
coverage to an employer whose place of business is located outside 
the State in which the issuer is licensed to do business. Further, 
this provision does not require an issuer to offer coverage to an 
employer if doing so would exceed the scope of the issuer's State 
licensure (for example, the issuer's product is not approved for 
sale to an employer where the situs of the contract is outside the 
issuer's service area).
---------------------------------------------------------------------------

    We understand that some issuers have unique network sharing 
agreements with other affiliated issuers through which an employer's 
employees may access in-network coverage outside the service area of 
the primary issuer, using the provider network of the affiliated 
issuers. Under the terms of these agreements, the affiliated issuers 
require the employer itself to be located in the issuer's service area 
in order to be eligible to purchase coverage, and the issuers agree not 
to offer products to an employer whose business headquarters is outside 
of the primary issuer's service area. For example, affiliated issuers A 
and B have service areas A and B, respectively. Under the terms of the 
agreements, an employer with business headquarters in service area A 
could purchase coverage from issuer A to cover its employees in both 
service areas A and B, but that employer could not purchase coverage 
from issuer B.
    We understand these issuers believe issuer B satisfies the 
guaranteed availability requirements because the employer is guaranteed 
coverage from issuer A, and its employees in service area B can have 
access to the coverage under the plan issued by issuer A using issuer 
B's network. These issuers explain that this system promotes simplicity 
for employers, who can purchase a single plan from one of the locally 
affiliated issuers serving the employer's area to cover their employees 
in multiple service areas.
    We seek comment on whether and how restricting an employer's 
ability to purchase coverage from an issuer, when the offering of such 
coverage would not exceed the scope of the issuer's license from the 
applicable State authority, may limit employers' options.
    We also seek comments on these and other similar arrangements and 
whether or how they could be structured, consistent with State 
licensure requirements, to satisfy the guaranteed availability right of 
employers to purchase all products that are approved for sale from an 
issuer when the employer has employees who live, work, or reside within 
the issuer's service area.
3. Guaranteed Renewability of Coverage (Sec.  147.106)
a. Market Withdrawal Exception to Guaranteed Renewability Requirements
    PHS Act section 2703(c)(2)(B) provides that a health insurance 
issuer that elects to discontinue all health insurance coverage in the 
individual or group market in a State is prohibited from re-entering 
the applicable market for at least 5 years. The 5-year ban on market 
re-entry is codified at Sec.  147.106(d)(2). However, we recognize that 
interpreting certain issuer transactions or reorganizations to be 
withdrawals from the market, triggering the 5-year ban on market re-
entry, may have unintended effects and may not be necessary to ensure 
the continuity of coverage for consumers, which is a primary focus of 
the protections in the guaranteed renewability statute.
    For example, as part of a corporate reorganization, an issuer could 
transfer all of its products to another related issuer, where the 
products otherwise would be considered the same products based on the 
uniform modification standards at Sec.  147.106(e). More specifically, 
an issuer with multiple lines of business, such as a Medicaid managed 
care line and a commercial line, could decide to create a subsidiary 
and transfer its commercial line of business to the subsidiary. In such 
cases, enrollees in the commercial products maintain continuity of 
coverage when their plans and products are not changed beyond what is 
permitted by the scope of the uniform modification provisions. We also 
note that several States evaluate transactions at the holding company 
level and have informed HHS that a transaction of the type described in 
this example would not trigger the 5-year ban on market re-entry and 
corresponding notice requirement under State law.
    We recognize that interpreting such a transfer to constitute a 
market withdrawal could have the unintended consequences of potentially 
raising conflicts with State approaches and unnecessarily limiting 
issuer corporate structuring transactions. Therefore, to align with 
State approaches to corporate structuring or other transactions within 
a controlled group of issuers, and to avoid unintended market bans 
where continuity of coverage is effectively provided, we propose to 
amend Sec.  147.106(e)(3)(i) to provide that, for purposes of 
guaranteed renewability, a product will be considered to be the same 
product when offered by a different issuer within an issuer's 
controlled group, provided it otherwise meets the standards for uniform 
modification of coverage.\11\
---------------------------------------------------------------------------

    \11\ As we explained in an FAQ related to Market Reforms, 
https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/qa_hmr.html, enrollees in a grandfathered product can maintain that 
coverage if that coverage continues to be offered and the coverage 
does not make a change that would cause the product to cease to be 
grandfathered as provided for in regulations. See 26 CFR 54.9815-
1251(g)(1); 29 CFR 2590.715-1251(g)(1); and 45 CFR 147.140(g)(1).
---------------------------------------------------------------------------

    For this purpose, we propose to use a definition based on the 
Internal Revenue Service (IRS) definition of controlled group that 
applies for purposes of determining whether a group of two or more 
persons is treated as a single covered entity under the health 
insurance providers fee under section 9010 of the Affordable Care Act 
and 26 CFR 57.2(c). Specifically, for purposes of guaranteed 
renewability, we propose that ``controlled group'' means a group of two 
or more persons that is treated as a single employer under section 
52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code of 1986, 
as amended. We propose that definition for consistency with other 
Affordable Care Act provisions, including sections 9008 and 9010, which 
pertain to the branded prescription drug fee and health insurance 
providers fee, respectively, and are familiar to health insurance 
issuers. We note that the definition of issuer group under 45 CFR 
156.20 is also familiar to issuers and we are considering whether to 
use a similar definition for purposes of these regulations. That 
section provides that the term issuer group means all entities treated 
under subsection (a) or (b) of section 52 of the Code as a member of 
the same controlled group of corporations as (or under common control 
with) a health insurance issuer, or issuers affiliated by the common 
use of a nationally licensed service mark. We solicit comment on 
whether this or another definition would be appropriate.
    As a result of this proposal, issuers transferring products to 
another issuer in their controlled group that otherwise remain within 
the scope of a uniform modification would not be required to

[[Page 61464]]

send discontinuation notices under paragraph (c)(1) or (d)(1), as 
applicable. However, because this interpretation considers the 
transferred product to be the same as the product previously offered, 
the issuer of the coverage at the time notice must be provided (whether 
the current issuer or the acquiring issuer) would be required to 
provide a renewal notice in accordance with the timeframe specified in 
the regulation. We also propose that States that interpret or apply 
market withdrawal provisions differently under State law would not be 
prohibited by this interpretation from considering products transferred 
to a different issuer within a controlled group to be a new product and 
the scenario a market withdrawal. We propose to make conforming 
amendments at Sec. Sec.  146.152(f)(3)(i) and 148.122(g)(3)(i). 
Because, under this interpretation, the products would be considered 
the same products for purposes of continuity of coverage for the 
enrollees, we also propose that the products be considered the same 
products for purposes of the Federal rate review requirements, to the 
extent applicable, and therefore we propose conforming amendments as 
described in the preamble to Sec.  154.102. For States where HHS is 
responsible for enforcement of the guaranteed renewability provisions 
of the PHS Act, we propose to adopt this interpretation and not 
consider the transfer of products to a different issuer within a 
controlled group to be a market withdrawal when the conditions in this 
proposed rule are met, where permitted under applicable State law.
    There is a second situation where we have determined that it may 
not be appropriate to interpret an issuer's actions to constitute a 
market withdrawal resulting in a 5-year ban on market re-entry. When an 
issuer discontinues offering all of its products and seeks to offer new 
products within the same market, if the changes made to the new 
products exceed the scope of a uniform modification of coverage, we 
have considered such an action to be a market withdrawal, subject to 
the 5-year ban on market re-entry.\12\ In such a scenario an issuer 
might, for example, offer only products A, B, and C one year, but then 
offer only products D, E, and F the next year, where products D, E and 
F differ from products A, B and C in ways that do not meet the criteria 
for uniform modification of coverage. This scenario is different from 
the first scenario mentioned above because the new products are offered 
by the same issuer that previously offered the discontinued products. 
State regulators and other interested parties have indicated that this 
scenario is not viewed by some States as a market withdrawal under 
State law, as long as the issuer continues to provide a product in the 
same market in which it previously offered the discontinued 
products.\13\ As noted above, we believe ensuring continuity of 
coverage for consumers is a primary focus of the protections in the 
guaranteed renewability statute. Unlike the circumstances described in 
the prior scenario, where the enrollee has continuity of the product, 
but with a related issuer, in the situation described here, enrollees 
would have continuity with the same issuer, but would not have the 
protection of the limitations imposed by the uniform modification 
provision. Notwithstanding our prior interpretation described in the 
Uniform Modification and Plan/Product Withdrawal FAQ,\14\ we recognize 
that the statute could be interpreted to mean that, as long as an 
issuer has a product available in the applicable market (even if that 
issuer discontinues all of its previously offered products), it has not 
withdrawn from the applicable market. Adopting this interpretation may 
be in the best interest of consumers, as imposing the 5-year ban on 
market re-entry in these circumstances could diminish consumer choice 
and market competition.
---------------------------------------------------------------------------

    \12\ Uniform Modification and Plan/Product Withdrawal FAQ (Jun. 
15, 2015), available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/uniform-mod-and-plan-wd-FAQ-06-15-2015.pdf.
    \13\ We also note that, in the context of reenrollment through 
an Exchange in coverage under a different product, we stated that, 
under certain limited circumstances, enrollments completed under the 
hierarchy specified in 45 CFR 155.335(j) will be considered to be a 
renewal of the enrollee's coverage.
    \14\ Uniform Modification and Plan/Product Withdrawal FAQ (Jun. 
15, 2015). Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/uniform-mod-and-plan-wd-FAQ-06-15-2015.pdf.
---------------------------------------------------------------------------

    We note that, under our current interpretation requiring that the 
issuer leave at least one product in place that meets uniform 
modification standards to avoid the 5-year market ban on re-entry, the 
issuer would remain subject to Federal rate review under section 2794 
with respect to at least one product. Under the new interpretation, an 
issuer would be able to avoid Federal rate review altogether without 
triggering the 5-year ban by sufficiently altering all of its existing 
products. To prevent issuers from avoiding Federal rate review 
requirements in this manner, we propose to permit issuers to replace 
their entire portfolio of products without triggering the 5-year ban 
under the market withdrawal provision when an issuer replaces its 
entire portfolio of products in a market with products that are 
different in ways that are not within the scope of uniform 
modifications, provided the issuer reasonably identifies which newly 
offered product (or products) replace which discontinued product (or 
products) and subjects the new product (or products) to the Federal 
rate review process under part 154 (to the extent otherwise applicable 
to coverage of the same type and in the same market (for example, the 
Federal rate review process does not apply in the U.S. territories)) as 
if it were the same product as the discontinued product it 
replaces.\15\ An issuer's identification of which new product replaces 
which discontinued product would be considered reasonable if it 
reflects the issuer's expectations regarding significant transfer of 
enrollment from one product to the other (for example, because the 
products have been cross-walked for auto-reenrollment). We also propose 
that States that interpret or apply market withdrawal provisions 
differently under State law would not be prohibited from continuing to 
consider the scenario described here as a market withdrawal. For States 
where HHS is responsible for enforcement of the guaranteed renewability 
provisions of the PHS Act, we propose to adopt this interpretation and 
not consider this scenario to constitute a market withdrawal when the 
conditions outlined in this proposed rule are met, where permitted 
under applicable State law.
---------------------------------------------------------------------------

    \15\ Under this interpretation, issuers of health insurance 
products offered in the U.S. territories would be able to replace 
their products in those markets without subjecting the new products 
to the Federal rate review process and without triggering the 5-year 
ban.
---------------------------------------------------------------------------

    We note that in the second scenario, consumers generally will still 
get the protection required under the product discontinuance provision 
under guaranteed renewability, including a special enrollment period 
for loss of minimum essential coverage to select another product made 
available by the same or a different issuer, and a notice from the 
issuer of the product discontinuance at least 90 days in advance of the 
termination of coverage.\16\
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    \16\ As noted earlier, under certain limited circumstances, 
enrollments through an Exchange into a different product that are 
completed under the hierarchy specified in 45 CFR 155.335(j) will be 
considered to be a renewal of the enrollee's coverage. In such 
cases, a special enrollment period is not available, and a renewal 
notice is sent.
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    To reflect our proposed interpretations in these two scenarios,

[[Page 61465]]

we propose to add a new paragraph (d)(3) to Sec.  147.106 to provide 
that an issuer has not discontinued offering all health insurance 
coverage in a market if a member of the issuer's controlled group 
continues to offer and make available for enrollment at least one 
product of the original issuer that is considered to be the same 
product (as proposed to be amended in Sec.  144.103 of this proposed 
rule), meaning that any change to the product is within the scope of a 
uniform modification of coverage under Sec.  147.106(e), or if the 
issuer continues to offer and make available a product in the 
applicable market in a State and subjects the new product to the rate 
review requirements under part 154 of this title (to the extent 
otherwise applicable to coverage of the same type and in the same 
market) as if that part applied to that product, and reasonably 
identifies a discontinued product that corresponds to the new product 
for purposes of such rate review. We also propose to make conforming 
amendments to Sec. Sec.  146.152(d)(3) and 148.122(e)(4).
    We solicit comment on all aspects of these proposals.
b. Guaranteed Renewability in the Individual Market and Medicare 
Eligibility
    The guaranteed renewability provision at Sec.  147.106(h)(2) states 
that Medicare eligibility or entitlement is not a basis for nonrenewal 
or termination of an individual's health insurance coverage in the 
individual market. The anti-duplication provision at section 1882(d)(3) 
of the Act prohibits the sale or issuance of an individual health 
insurance policy to an individual entitled to benefits under Part A or 
enrolled under Part B of Medicare \17\ with knowledge that the policy 
duplicates health benefits to which the individual is otherwise 
entitled under Medicare or Medicaid, but does not expressly prohibit 
the renewal of individual health insurance coverage to someone who 
becomes entitled to benefits under Part A or enrolls under Part B while 
enrolled in the individual market coverage. There also is no 
prohibition on issuers covering Medicare beneficiaries under group 
health insurance policies.
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    \17\ For information on when individuals are entitled to, 
eligible for, or able to enroll in Medicare, see https://www.cms.gov/medicare/eligibility-and-enrollment/origmedicarepartabeligenrol/index.html.
---------------------------------------------------------------------------

    Under 45 CFR 147.106, in certain circumstances, issuers can satisfy 
their guaranteed renewability obligations by, at the end of a policy 
year, reenrolling Medicare beneficiaries who were enrolled in 
individual market health insurance coverage when they obtained Medicare 
coverage into a different plan within the same individual health 
insurance product, or into a different plan within a different 
individual health insurance product issued by the same issuer of the 
beneficiary's existing individual market coverage. This may occur, for 
example, when an issuer makes revisions to a product that exceed the 
scope of uniform modification of coverage, thus replacing the existing 
product with a new product. Under our proposal earlier in this section 
of the preamble, issuers also could satisfy their guaranteed 
renewability obligations by reenrolling Medicare beneficiaries into 
individual market health insurance coverage that is considered the same 
product but that is issued by a different issuer within the issuer's 
controlled group. We solicit comments on whether the guaranteed 
renewability statute and the anti-duplication provision at section 
1882(d)(3) of the Act should together be interpreted to require or 
prohibit renewal of a Medicare beneficiary's individual market 
coverage, if the issuer has knowledge that the renewed coverage would 
duplicate the Medicare beneficiary's benefits: (1) In a plan under the 
same contract of insurance; (2) under a plan that was modified but is 
considered under the guaranteed renewability provisions to be the same 
plan but that would require a new contract; (3) under a different plan 
within the same product; (4) under a different product with the same 
issuer; or, as discussed earlier in this preamble; (5) under the same 
product offered by a different issuer within the issuer's controlled 
group. We are particularly interested in information about how 
requiring or prohibiting renewal in these circumstances could affect 
individuals' decisions to enroll in the Medicare program, their 
premiums and out-of-pocket costs if they were insured in the Medicare 
program versus the individual market, and the effect on Medicare's and 
the insurance plans' risk pools.
    We have become aware of an issue that has arisen with respect to 
coordination of benefits between Medicare and individual health 
insurance coverage. Since Medicare Secondary Payer rules do not apply 
to health coverage in the individual health insurance market, Medicare 
always pays primary to individual health insurance coverage. Some 
issuers have a provision in their individual health insurance policies 
indicating that the coverage will pay secondary to Medicare not only 
for individuals who are currently covered by Medicare but also for 
those who could obtain Medicare coverage (such as those individuals who 
must pay for Part A coverage) but who are not currently covered. We 
solicit comments on the effects of such provisions on consumers, their 
premiums, and out-of-pocket costs, how these provisions could affect 
individuals' decisions to enroll in the Medicare program or individual 
market coverage, and the effects these provisions and those decisions 
could have on the Medicare and individual market risk pools, as well as 
whether this is a permissible coordination of benefits provision with 
respect to the individuals who could but do not have Medicare coverage. 
Given that the Medicare Secondary Payer rules have different provisions 
for End Stage Renal Disease (ESRD) beneficiaries, we also welcome 
comments on whether a legal basis exists to treat coordination of 
benefit provisions that relate to coverage in the individual market for 
Medicare beneficiaries differently for Medicare beneficiaries who are 
entitled to benefits under Medicare Part A and eligible to enroll under 
Part B under the ESRD provisions at 42 U.S.C. 426-1.

D. Part 148--Requirements for the Individual Health Insurance Market

1. Guaranteed Renewability of Individual Health Insurance Coverage 
(Sec.  148.122)
    For a discussion of the provisions of this proposed rule related to 
part 148, please see the preamble to Sec.  147.106.

E. Part 152--Pre-Existing Condition Insurance Plan Program

1. Pre-Existing Condition Insurance Plan Program (Sec.  152.45)
    Section 1101 of the Affordable Care Act directed HHS to establish a 
temporary Federal high risk pool program in 2010 to provide health 
insurance coverage to individuals who were U.S. citizens or nationals 
or lawfully present in the United States, did not have other health 
insurance coverage in the 6 months preceding enactment, and had a pre-
existing condition. Section 1101(g)(3)(B) directed HHS to develop 
procedures to provide for the transition of eligible individuals 
enrolled in health insurance coverage offered through the high risk 
pool HHS established into qualified health plans offered through an 
Exchange. Those procedures should, in particular, ensure that there is 
no lapse in coverage with respect to the individual and may extend 
coverage after the termination of the risk pool involved, if the 
Secretary determines necessary to avoid such a lapse.

[[Page 61466]]

    Starting in 2010, shortly after the Affordable Care Act was 
enacted, HHS established and began operating the risk pool program 
required under section 1101, which it called the Pre-Existing Condition 
Insurance Plan (PCIP) Program, to provide health insurance coverage to 
eligible individuals, as defined in the Affordable Care Act. Beginning 
in 2013, HHS worked to enroll these individuals in QHPs through the 
Exchanges. However, for a variety of reasons, individuals from the 
high-risk pool established under section 1101 may find it difficult to 
obtain and maintain coverage in QHPs without a lapse in coverage.
    We are therefore seeking information regarding whether and how the 
remaining funds provided under section 1101 might be used to ensure the 
successful transition of former PCIP enrollees to the Exchange without 
a lapse in coverage, consistent with section 1101(g)(3)(B) and its 
objective of ensuring that high-risk individuals with preexisting 
conditions are able to transition successfully into the new Exchanges 
without a lapse in coverage. We seek information, in particular, on the 
best ways to identify former PCIP enrollees in a QHP of an issuer that 
has participated in the Exchange from 2014 to 2017, available methods 
for determining their claims costs, and the necessity of taking steps 
to ensure that they do not experience a lapse in coverage. If it is not 
possible to identify former PCIP enrollees, HHS also seeks information 
about other appropriate measures to assess the size and impact of 
former PCIP enrollment on existing issuers.

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

1. Sequestration
    In accordance with the OMB Report to Congress on the Joint 
Committee Reductions for Fiscal Year 2017,\18\ both the transitional 
reinsurance program and risk adjustment program are subject to the 
fiscal year 2017 sequestration. The Federal government's 2017 fiscal 
year will begin on October 1, 2016. The reinsurance program will be 
sequestered at a rate of 6.9 percent for payments made from fiscal year 
2017 resources (that is, funds collected during the 2017 fiscal year). 
To meet the sequestration requirement for the risk adjustment program 
for fiscal year 2017, HHS will sequester risk adjustment payments made 
using fiscal year 2017 resources in all States where HHS operates risk 
adjustment, at a sequestration rate of 7.1 percent. HHS estimates that 
increasing the sequestration rate for all risk adjustment payments made 
in fiscal year 2017 to all issuers in the States where HHS operates 
risk adjustment by 0.16 percent will permit HHS to meet the required 
national risk adjustment program sequestration percentage of 6.9 
percent noted in the OMB Report to Congress.
---------------------------------------------------------------------------

    \18\ OMB Report to the Congress on the Joint Committee 
Reductions for Fiscal Year 2017 (Feb. 9, 2016). Available at: 
https://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/sequestration/jc_sequestration_report_2017_house.pdf.
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    HHS, in coordination with the OMB, has determined that, under 
section 256(k)(6) of the Balanced Budget and Emergency Deficit Control 
Act of 1985, as amended, and the underlying authority for these 
programs, the funds that are sequestered in fiscal year 2017 from the 
reinsurance and risk adjustment programs will become available for 
payment to issuers in fiscal year 2018 without further Congressional 
action. If the Congress does not enact deficit reduction provisions 
that replace the Joint Committee reductions, these programs would be 
sequestered in future fiscal years, and any sequestered funding would 
become available in the fiscal year following that in which it was 
sequestered.
2. Definition of Large Employer for the Risk Adjustment and Risk 
Corridors Programs (Sec.  153.20)
    We propose deleting the definition of ``large employer'' set forth 
in Sec.  153.20, which defines a large employer as having the meaning 
given to the term at 45 CFR 155.20.\19\ HHS provided notice of our 
intent to propose these changes in a public FAQ \20\ which clarified 
how an issuer should count an employer's employees to determine whether 
an employer is a small employer or large employer for purposes of the 
risk adjustment and risk corridors programs.
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    \19\ 45 CFR 155.20 defines a large employer, in connection with 
a group health plan with respect to a calendar year and a plan year, 
as an employer who employed an average of at least 51 employees on 
business days during the preceding calendar year and who employs at 
least 1 employee on the first day of the plan year. In the case of 
an employer that was not in existence throughout the preceding 
calendar year, the determination of whether the employer is a large 
employer is based on the average number of employees that it is 
reasonably expected the employer will employ on business days in the 
current calendar year. A State may elect to define large employer by 
substituting ``101 employees'' for ``51 employees.'' The number of 
employees must be determined using the method set forth in section 
4980H(c)(2) of the Code.
    \20\ FAQs #15450 and #15449, published on April 12, 2016 
available at: https://www.regtap.info/faq_viewu.php?id=15450 and 
https://www.regtap.info/faq_viewu.php?id=15449.
---------------------------------------------------------------------------

    In that FAQ, we clarified that for the risk adjustment program, the 
issuer should use the employee counting method used to determine group 
size under State law, unless that counting method does not account for 
employees that are not full-time. If the State counting method does not 
take non-full-time employees into account, then the issuer should use 
the counting method under section 4980H(c)(2) of the Code.\21\ The FAQ 
also noted that under section 1304(b)(4)(D) of the Affordable Care Act 
and Sec.  155.710(d), when a small employer participating in a SHOP 
ceases to be a small employer solely by reason of an increase in the 
number of its employees, it will continue to be treated as a small 
employer for purposes of SHOP participation for as long as it continues 
to purchase coverage through the SHOP, and the issuer should treat such 
an employer as a small employer for purposes of risk adjustment. We 
note that nothing in this proposal supersedes or conflicts with the 
option under section 1312(f)(2)(B)(i) of the Affordable Care Act, which 
would allow large employers to participate in a SHOP, at the option of 
a State.
---------------------------------------------------------------------------

    \21\ See 79 FR 8544.
---------------------------------------------------------------------------

    In the FAQ, HHS also clarified that for the risk corridors program, 
the issuer should use the employee counting method used to determine 
group size under State law (see Sec.  153.510(f)). However, under 
section 1304(b)(4)(D) of the Affordable Care Act and Sec.  155.710(d), 
when a small employer participating in a SHOP ceases to be a small 
employer solely by reason of an increase in the number of its 
employees, it will continue to be treated as a small employer for 
purposes of SHOP participation for as long as it continues to purchase 
coverage through the SHOP, and the issuer should treat such an employer 
as a small employer for purposes of risk corridors.
    We seek comment on this proposal.
3. Provisions and Parameters for the Permanent Risk Adjustment Program
    In subparts D and G of 45 CFR part 153, we established standards 
for the administration of the risk adjustment program. The risk 
adjustment program is a program created by section 1343 of the 
Affordable Care Act that transfers funds from lower risk, non-
grandfathered plans to higher risk, non-grandfathered plans in the 
individual and small group markets, inside and outside the Exchanges. 
In accordance with Sec.  153.310(a), a State that is approved or 
conditionally approved by

[[Page 61467]]

the Secretary to operate an Exchange may establish a risk adjustment 
program, or have HHS do so on its behalf.
    On March 31, 2016, HHS convened a public conference to discuss 
potential updates to the HHS risk adjustment methodology for the 2018 
benefit year and beyond. Prior to the conference, we also issued a 
White Paper that was available for public comment.\22\ The conference 
and White Paper focused on what we have learned from the 2014 benefit 
year of the risk adjustment program, and specific areas of potential 
refinements to the methodology, including prescription drug modeling, 
addressing partial year enrollment, future recalibrations using risk 
adjustment data, and a discussion of the risk adjustment transfer 
formula. We received numerous thoughtful and substantive comments to 
the White Paper and at the conference, which directly informed the 
policy proposals in this Payment Notice.
---------------------------------------------------------------------------

    \22\ March 31, 2016, HHS-Operated Risk Adjustment Methodology 
Meeting: Discussion Paper (Mar. 24, 2016). Available at https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/RA-March-31-White-Paper-032416.pdf.
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a. Risk Adjustment Applied to Plans in the Individual and Small Group 
Markets (Sec.  153.20)
    Section 1312(c) of the Affordable Care Act directs issuers to use a 
single risk pool for a market--the individual or small group market--
when developing rates and premiums. Section 1312(c)(3) of the 
Affordable Care Act gives States the option to merge the individual and 
small group market into a single risk pool. To align risk pools for the 
risk adjustment program and rate development, we stated in the 2014 
Payment Notice that we would merge markets when operating risk 
adjustment on behalf of a State if the State elects to do the same for 
single risk pool purposes.\23\ When the individual and small group 
markets are merged, we stated that the State average premium would be 
the average premium of all applicable individual and small group market 
plans in the applicable risk pool, and calculations under the transfer 
equation would occur across all plans in the applicable risk pool in 
the individual and small group markets.
---------------------------------------------------------------------------

    \23\ See 78 FR at 15419.
---------------------------------------------------------------------------

    Under the section 1312(c)(3) definition of a merged market and its 
implementing regulations at Sec. Sec.  156.80 and 147.104, issuers in a 
merged individual and small group market must offer the same plans at 
the same rates to all applicants in the merged market, must offer 
coverage on a calendar year basis, and may not make quarterly rate 
adjustments to rates for small group market plans. Some States with 
markets that are not merged under the Federal merged market provisions 
require issuers to use a combined individual and small group experience 
to establish a market-adjusted index rate, but separate the markets for 
applying plan adjustment factors and for other purposes. This allows 
small group issuers to make quarterly rate changes that would not 
otherwise be allowable under the definition at section 1312(c)(3).
    Because States that use a combined individual and small group 
experience to establish a market-adjusted index rate operate in large 
part as a merged market for purposes of rate setting, we believe they 
should be risk adjusted as merged markets if the State so elects. Risk 
adjustment directly impacts rate setting, and as such, should reflect 
the markets in which States allow issuers to set premiums. Beginning 
for 2017 benefit year risk adjustment, when HHS will operate risk 
adjustment on behalf of all States, we propose to expand our 
interpretation of merged market for purposes of HHS risk adjustment as 
described in the 2014 Payment Notice to include States that meet the 
definition of merged market at section 1312(c)(3), as well as States 
that use a combined individual and small group experience to establish 
a market-adjusted index rate. HHS will communicate with States that use 
a combined individual and small group experience to establish a market-
adjusted index rate to determine whether they elect to be treated as a 
merged market for purposes of HHS risk adjustment. We seek comment on 
this proposal.
b. Overview of the HHS Risk Adjustment Model (Sec.  153.320)
    The HHS risk adjustment model predicts plan liability for an 
average enrollee based on that person's age, sex, and diagnoses (risk 
factors), producing a risk score. The HHS risk adjustment methodology 
utilizes separate models for adults, children, and infants to account 
for cost differences in each of these age groups. In each of the adult 
and child models, the relative costs assigned to an individual's age, 
sex, and diagnoses are added together to produce a risk score. Infant 
risk scores are determined by inclusion in one of 25 mutually exclusive 
groups, based on the infant's maturity and the severity of its 
diagnoses. If applicable, the risk score for adults, children, or 
infants is multiplied by a cost-sharing reductions adjustment.
    The enrollment-weighted average risk score of all enrollees in a 
particular risk adjustment covered plan, also referred to as the plan 
liability risk score, within a geographic rating area is one of the 
inputs into the risk adjustment payment transfer formula, which 
determines the payment or charge that an issuer will receive or be 
required to pay for that plan. Thus, the HHS risk adjustment model 
predicts average group costs to account for risk across plans, which 
accords with the Actuarial Standards Board's Actuarial Standards of 
Practice for risk classification.
c. Proposed Updates to the Risk Adjustment Model (Sec.  153.320)
    For the 2018 benefit year risk adjustment model, HHS will continue 
to incorporate the methodological improvements finalized in the 2017 
Payment Notice, such as incorporating preventive services in our 
simulation of plan liability and using more granular trend rates that 
better reflect the growth in specialty drug expenditures and drugs 
generally as compared to medical and surgical expenditures. Consistent 
with our discussion in the White Paper, we are proposing a number of 
updates to the risk adjustment model, including: (1) Adjustment factors 
for partial year enrollment; (2) prescription drug utilization factors; 
and (3) modifying transfers to account for high-cost enrollees. We also 
propose to recalibrate our risk adjustment models using the most recent 
available data following the publication of the final Payment Notice 
for the applicable benefit year, and seek comments on other 
considerations to improve the model's risk prediction in future 
rulemaking.
i. Partial Year Enrollment
    After the 2014 benefit year of risk adjustment, we received 
feedback indicating that some issuers experienced higher than expected 
claims costs for partial year enrollees. We sought comment in the 2017 
Payment Notice on how the risk adjustment methodology could be adjusted 
to more directly reflect the experience of partial year enrollees, and 
we received comments generally supporting an adjustment addressing 
partial year enrollees in the risk adjustment model. We also received 
feedback to the White Paper that some believe the methodology does not 
fully capture the risk associated with enrollees with chronic 
conditions who may not have accumulated diagnoses in their partial year 
of enrollment.
    In general, we believe that individual and small group health plans 
are risk adjusted accurately under the HHS risk

[[Page 61468]]

adjustment methodology. In light of our experience with the 2014 
benefit year, we have observed that risk adjustment may not fully 
account for when a plan's enrollees differ substantially from the 
market average with respect to characteristics that are not adjusted 
for in the risk adjustment model. For example, if a plan has an 
enrollee population with enrollment duration that differs from the 
market average, and the risk associated with the enrollment duration is 
not fully captured through other aspects of the methodology, then for 
that plan, partial year enrollment may not be fully accounted for in 
the HHS risk adjustment methodology. As we noted in the White Paper, if 
the risk adjustment methodology does not fully capture risk for partial 
year enrollment, and if the plan had lower than average enrollment 
duration, the plan's risk score might be lower than it might have been 
otherwise.\24\
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    \24\ White Paper at p. 36. Available at: https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/RA-March-31-White-Paper-032416.pdf.
---------------------------------------------------------------------------

    As we discussed in the White Paper, we reviewed the predicted 
expenditures, actual expenditures, and predictive ratios (that is, the 
ratios of predicted to actual weighted mean plan liability 
expenditures) by enrollment duration groups (for each: 1 Month, 2 
months, and so on up to 12 months) annualized for 2014 
MarketScan[supreg] adults in our risk adjustment concurrent modeling 
sample. We found that actuarial risk for all adult enrollees with short 
enrollment periods tends to be slightly under predicted, and for adult 
enrollees with full enrollment periods (12 months) tends to be over 
predicted in our methodology. One potential explanation for these 
results is that because risk adjustment is calculated on a per member 
per month basis, the model predicts costs for chronic conditions, which 
are often spread more evenly over time, better than costs for sudden 
acute events, which are often concentrated in a small number of months, 
when the enrollment is only for part of the year.
    We discussed various approaches to address this issue in the White 
Paper, including the use of additional factors and the use of wholly 
separate models that account for duration of enrollment and metal 
level.
    There was a broadly held preference among commenters to the White 
Paper for adding enrollment duration (for each: 1 Month, 2 months, and 
so on up to 11 months \25\) binary indicator variables as additional 
risk factors, as opposed to separate models based on enrollment 
duration. After reviewing this feedback, we announced on June 8, 2016, 
that we intended to propose that, beginning for the 2017 benefit year, 
the risk adjustment model include adjustment factors for partial year 
enrollees in risk adjustment covered plans.\26\
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    \25\ Twelve months is the reference group and therefore is not 
included.
    \26\ Available at: https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf.
---------------------------------------------------------------------------

    Based on analysis we performed on the MarketScan[supreg] data, the 
use of additional risk factors by number of enrollment months that 
decrease monotonically as the number of months of enrollment increases 
(with 12 months being the reference group) appears to best address 
partial year enrollment in the risk adjustment model in the short term, 
starting in 2017. We also believe that our proposal to add prescription 
drug utilization in the risk adjustment model will capture additional 
costs for partial year enrollees beginning in the 2018 benefit year 
(see discussion below).
    We are proposing to recalibrate the 2017 risk adjustment adult 
model to reflect the incorporation of partial year enrollment duration 
(ED) factors. Those factors are labeled ``ED_01 . . . ED_11'' in the 
list of factors for the 2017 risk adjustment adult model at the bottom 
of Table 3 below.\27\ We are proposing to incorporate partial year ED 
factors in the risk adjustment model methodology for the reasons 
discussed above, starting with the 2017 benefit year. We are proposing 
to amend our regulations at Sec.  153.320(a)(1) to allow for HHS to 
make this update for the 2017 benefit year. Currently, this provision 
states that a risk adjustment methodology must be Federally certified, 
and one way a risk adjustment methodology may become Federally 
certified is to be developed by HHS and published in the annual HHS 
notice of benefit and payment parameters for the applicable benefit 
year. We propose to change this provision to state that the methodology 
may be developed by HHS and published in rulemaking in advance of the 
benefit year. While HHS would generally make changes to the risk 
adjustment methodology in the annual HHS notice of benefit and payment 
parameters for the applicable benefit year, under this rule, in cases 
where we have identified a change that we can implement prior to the 
benefit year, and where we can provide issuers with sufficient notice 
and detail on the proposed change so that issuers may reasonably 
account for the change, HHS would have the authority to implement the 
change prior to the beginning of the applicable benefit year in other 
rulemaking. For our proposed change to address partial year enrollment, 
we notified issuers of our intent to propose this change in prior 
guidance, and provided significant detail on the policy.\28\ We seek 
comment on this approach.
---------------------------------------------------------------------------

    \27\ This table replaces Table 1 published at 81 FR 12220-12223 
as the final adult model for the 2017 benefit year.
    \28\ See https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf.
---------------------------------------------------------------------------

    We are also proposing to incorporate partial year enrollment 
duration factors in the 2018 risk adjustment adult model. Those factors 
are labeled ``ED_01, . . . ED_11'' in the list of factors for the 2018 
risk adjustment adult model near the bottom of Table 4. We seek comment 
on recalibrating the adult models for the 2017 and 2018 benefit years 
to address partial year enrollment.
    We are not making this change in the child and infant models as 
those models are based on a smaller dataset that does not provide 
adequate representation of partial year enrollment in these 
populations. We will reassess both the proposed partial year enrollment 
adjustment methodology, and whether we can make this adjustment in the 
child and infant models in the future. We also intend to continue to 
explore approaches under which we would use separate models for 
enrollees with different enrollment durations, rather than including 
partial year enrollment factors in the risk adjustment model, and may 
implement such an approach in future years. While we do not believe, 
based on the current data available and the analyses we have been able 
to perform, that using separate models for each enrollment duration is 
currently feasible, we believe that using separate models may better 
capture how the pattern of costs associated with particular diagnoses 
varies across enrollees with different enrollment durations, 
particularly for sudden acute events.
ii. Prescription Drug Hybrid Model
    As discussed in the White Paper, HHS has been considering whether 
to propose the incorporation of prescription drug utilization 
indicators into the HHS risk adjustment model, beginning for the 2018 
benefit year, to create a ``hybrid'' drug-diagnosis risk adjustment 
model. We are aware that there are advantages and disadvantages to 
including prescription drug utilization indicators in the HHS risk 
adjustment model and we seek comment on our proposal.

[[Page 61469]]

    Many commenters to the White Paper stated that drug information can 
effectively indicate health risk in cases where diagnoses may be 
missing. For example, diagnoses may be missing if clinicians fail to 
enter the condition on a patient's chart, or if there is stigma 
associated with certain health conditions that leads providers not to 
record these diagnoses on claims, or if the enrollee simply does not 
visit a physician during the term of his or her enrollment. However, 
even in these cases, prescriptions may be filled, providing information 
on health status.
    Drug utilization patterns can also provide information on the 
severity of the illness. The hierarchical condition categories (HCCs) 
already capture information about illness severity from diagnoses, but 
drugs can potentially measure the severity of illness within a given 
HCC. A patient may receive first, second, or third lines of treatment 
involving different medications that indicate increasing levels of 
severity.
    Additionally, commenters have noted that drug data can be available 
sooner and more easily than diagnoses from medical claims. In addition, 
commenters have noted that because prescription drug data is 
standardized, it is particularly useful for calibrating and measuring 
health risk because the prescription drug data will have less 
variability in coding.
    Incorporating prescription drug utilization into the risk 
adjustment model will help reflect costs incurred by plans for 
medications for their enrollees in plans' risk scores.
    Adding drug data to a diagnosis-based model also introduces 
operational complexities. Clinical indications for drugs can change 
quickly, which requires frequent updates to the model calibration and 
possibly to the therapeutic classification groupings as well. Because 
the model is calibrated before the start of the benefit year, it may be 
difficult to assess all updates or upcoming utilization pattern 
changes. Additional data requirements increase the administrative 
burden associated with calibrating and applying the model. Issuers of 
risk adjustment covered plans would be required to report prescription 
drug utilization as well as diagnoses, and audit and verification of 
the reported data would be necessary.
    We have also indicated our concern that incorporating prescription 
drug utilization in the model may provide an incentive to overprescribe 
medications. Drug models may be particularly susceptible to this sort 
of behavior when there are inexpensive drugs included in therapeutic 
classes that are statistically linked to high total medical 
expenditures; in these situations, a small cost to the insurance plan 
(reimbursement for the drug) can bring a relatively large increase in 
revenue through the risk adjustment program.
    In analyzing if and how to propose to use drug data in the risk 
adjustment model, we sought to strike a reasonable balance between 
increasing predictive accuracy and reducing incentives for 
overprescription. One way we sought to do so was by focusing on drugs 
for which guidelines on when they should be prescribed are clear. 
However, substantial uncertainty or disagreement across providers 
exists over the circumstances in which drugs should be prescribed.
    In addition, incorporating drug utilization makes risk adjustment 
sensitive to variations in drug utilization patterns that exist for 
reasons other than enrollee health status. Health plans with lower 
prescribing rates, for example health plans primarily covering 
individuals in rural areas with low access to pharmacies, would 
incorrectly appear to have healthier populations, and would pay higher 
risk charges or receive lower risk payments. Other things being equal, 
drug utilization is expected to be lower in plans with higher cost 
sharing (such as bronze or silver plans) and with aggressive drug 
utilization management, such as prior authorization, step therapy, 
quantity limits, restrictive formularies, and more stringent 
requirements to qualify for coverage of expensive drugs.
    Furthermore, the lack of clear, one-to-one associations between 
most drug classes and diagnoses makes development of a ``hybrid'' drug-
diagnosis risk adjustment model that incorporates and integrates drug 
and diagnosis risk markers challenging.
    Few drug classes are indicated for only one medical condition. Many 
drug classes are widely prescribed ``off label'' for indications that 
are not U.S. Food and Drug Administration (FDA)-approved. Utilization 
of such drug classes can have very different implications for health 
care expenditures depending on the reasons for which they are 
prescribed. Presence of a drug class may not discriminate between high 
and low cost individuals if it is used for both high and low cost 
conditions. Some drug classes may be used both for diagnoses that have 
been included in the HHS-HCC model, as well as for diagnoses that have 
been intentionally excluded, making it problematic to maintain this 
distinction in a hybrid drug-diagnosis risk adjustment model. Specific 
drugs within a drug class may have varying indications; the utilization 
of such drug classes may not unambiguously indicate the presence of a 
specific diagnosis.
    Acknowledging all of the above considerations, we indicated in the 
June 8, 2016, guidance noted above that we intend to propose to 
incorporate a small number of prescription drug classes as predictors 
in the HHS risk adjustment methodology for the 2018 benefit year to 
impute missing diagnoses and to indicate severity of illness.\29\ We 
propose to incorporate a small number of prescription drugs in the risk 
adjustment model for the 2018 benefit year. We are proposing this 
change to the model with substantial attention to the concerns 
presented above in determining which drug groups to include and 
exclude, and the proposed model type used for each drug-diagnosis pair. 
To ensure this change to the model does not inadvertently increase the 
perverse incentives described above, we will monitor and evaluate the 
impact of incorporating prescription drugs in the model on utilization 
patterns. Using the enrollee-level data that we are proposing to 
collect in Sec.  153.610, in addition to other relevant data sources, 
we would seek to evaluate whether incorporation of drugs in the model 
affects the utilization of drugs included in the model. Based on our 
evaluation, we would add or remove drug diagnosis pairs to or from the 
model for future benefit years through notice and comment rulemaking. 
We seek comment on this proposal.
---------------------------------------------------------------------------

    \29\ Available at: https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf.
---------------------------------------------------------------------------

    To develop hybrid drug-diagnosis risk adjustment models, we need a 
manageable number of clinically and empirically cohesive drug classes. 
We created several Prescription Drug Categories (RXCs) to select and 
group the drugs to be included in a hybrid diagnoses-and-drugs risk 
adjustment model.
    Each prescription drug is assigned a National Drug Code (NDC) 
maintained by the FDA. There are over 190,000 NDCs, which include 
prescription drugs as well as over-the-counter medications. NDC codes 
are reported in prescription drug claims data. Due to the large number 
of individual NDCs, it is necessary to use a therapeutic classification 
system that classifies individual NDCs into aggregated categories of 
related drugs used for similar therapeutic purposes, or having similar 
pharmacological properties.
    In the White Paper, we had initially based the RXCs on the American 
Hospital Formulary Service

[[Page 61470]]

Pharmacologic-Therapeutic Classification(copyright), which 
is published by the Board of the American Society of Health-System 
Pharmacists[supreg]. We chose at that point to use the American 
Hospital Formulary Service classification because it is widely used, 
widely available, comprehensive, and regularly updated. Because the 
American Hospital Formulary Service classification and mappings from 
NDCs are proprietary, however, we determined that using the United 
States Pharmacopeia (USP) classification would be better suited for use 
with HHS risk adjustment to maintain consistency with the essential 
health benefits requirements and for public access and transparency. 
The USP classification also provides chemical ingredient level 
identifications for drug classifications; that is, unlike American 
Hospital Formulary Service, USP includes comparable levels of detail to 
identify and group drugs used for only one diagnosis with other drugs 
used for multiple diagnosis codes. NDC codes are classified into 153 
USP therapeutic classes. Drawing on the principles and criteria 
described below, we selected appropriate USP therapeutic classes and 
combined and edited those classes in order to create ``payment'' RXCs, 
each of which is closely associated with a specific HCC or group of 
HCCs that are potentially suitable for inclusion in a payment risk 
adjustment model. Most USP classes are somewhat heterogeneous. To 
designate a class of drugs to serve as an indicator that a medical 
diagnosis is present, we needed to comprehensively review the drugs in 
each USP class to select only those that are closely associated with 
the diagnosis.
    The development of a hybrid HHS-HCC risk adjustment model requires 
selecting drug-diagnosis pairs (RXC-HCC pairs) to include in the model. 
Similar to our approach in the 2014 Payment Notice when initially 
determining the HCCs to be included in the HHS risk adjustment models, 
we used a set of principles to guide our decision making. Development 
of the RXC-HCC pairs was an iterative process that required recurring 
consultations with a panel of clinician consultants.
    Principle 1--RXC categories should be clinically meaningful. Each 
RXC is composed of a set of NDCs. These codes should all relate to a 
reasonably well-specified pharmacologic, therapeutic or chemical 
characteristic that defines the category. RXCs must be sufficiently 
clinically specific to minimize opportunities for discretionary coding. 
Clinical meaningfulness improves the face validity of the 
classification system to clinicians and the model's interpretability.
    Principle 2--RXCs should predict total medical and drug 
expenditures. NDCs in the same RXC should be reasonably homogeneous 
with respect to their effect on current year costs.
    Principle 3--RXCs that will affect payments should have adequate 
sample sizes to permit accurate and stable estimates of expenditures. 
RXCs used in establishing payments should have adequate sample sizes in 
available datasets. For example, it is difficult to reliably determine 
the expected cost of extremely rare categories.
    Principle 4--In creating an individual's clinical profile, 
hierarchies should be used to characterize the person's illness level 
within each RXC where appropriate, while the effects of unrelated 
prescriptions accumulate. Because each new medical event adds to an 
individual's total disease burden, unrelated prescriptions in different 
RXCs should increase predicted costs of care. However, the most severe 
manifestation of a given disease process principally defines its impact 
on costs. Therefore, related RXCs should be treated hierarchically, 
with those associated with more severe manifestations of a condition 
dominating (and eliminating the effect of) less serious ones.
    Principle 5--Providers should not be penalized for prescribing 
additional NDCs (monotonicity). This principle has two consequences for 
modeling: (1) No RXC should carry a negative payment weight; and (2) an 
RXC that is higher-ranked in a drug hierarchy (causing lower-rank drugs 
in the same hierarchy to be excluded) should have at least as large a 
payment weight as lower-ranked RXCs in the same hierarchy.
    Principle 6--The classification should assign NDCs to only one RXC 
(mutually exclusive classification). Because each NDC can map to more 
than one RXC, the classification should map NDCs to the primary RXC 
based on considerations such as route of administration, intended 
application of the product, ingredient list identifier, label, dosage 
form, and strength of the drug.
    Principle 7--Discretionary and non-credible drug categories should 
be excluded from payment models. RXCs that are particularly subject to 
intentional or unintentional discretionary prescribing variation or 
inappropriate prescribing by health plans or providers, or that are not 
clinically or empirically credible as cost predictors, should not be 
included. Excluding these RXCs reduces the sensitivity of the model to 
prescribing variation, prescribing proliferation, and gaming.
    We used clinical and statistical assessments to appropriately 
balance all seven principles. In designing the RXCs, principles 5 
(monotonicity) and 6 (mutually exclusive classification), were 
generally followed. Clinical meaningfulness (principle 1) is often best 
served by creating a very large number of detailed clinical groupings. 
However, a large number of groupings conflicts with adequate sample 
sizes for each category (principle 3). We approached the balancing of 
our principles by designing a drug classification system using 
empirical evidence on frequencies and predictive power; clinical 
judgment on relatedness, specificity, and severity of RXCs; and 
professional judgment on incentives and likely provider responses to 
the classification system. The RXC risk adjustment model balances these 
competing goals to achieve prescription drug-based classes for use in 
risk adjustment.
    In addition to following the set of principles described above, we 
carefully considered selection of high-cost drugs, to avoid overly 
reducing the incentives for issuers to strive for efficiency in 
prescription drug utilization. We also carefully considered selection 
of drugs in areas exhibiting a rapid rate of technological change, as a 
drug class that is associated with a specific, costly diagnosis in one 
year may no longer be commonly used for that condition the next, in 
which case the cost predictions based on previous years of data would 
be inaccurate.
    Based on these considerations, we propose a small number of drug-
diagnosis pairs for the proposed hybrid model. We selected RXCs to 
impute diagnoses and to indicate the severity of diagnoses otherwise 
indicated through medical coding. We worked with clinician consultants 
to tailor the RXCs used for imputation based on their expertise in 
treatment patterns as well as statistical indicators such as positive 
predictive value. Clinicians also informed our determination of RXCs 
for use as severity-only indicators in the model. For the severity-only 
RXCs, the presence of a prescription in the drug class signals a more 
severe case of the related diagnosis, which is likely to incur greater 
medical expenditures relative to someone with the same diagnosis, but 
not the drug. Severity-only RXCs are not specified in the model to 
impute the associated diagnosis when an HCC is not present. We are 
proposing limiting the number of prescription drug classes included as 
predictors to only those drug classes

[[Page 61471]]

where the risk of unintended effects on provider prescribing behavior 
is low; as described above, we intend to monitor prescription drug 
utilization for unintended effects and may remove drug classes based on 
such evidence in future rulemaking.
    Table 2 shows the list of RXC-HCC pairs that we propose to include 
in the initial hybrid model. Each pair is designated as either an 
imputation/severity or a severity-only relationship. For each pair, 
Table 2 shows the coefficient for the diagnosis (HCC), the drug 
utilization (RXC), and both.
    The drug-diagnosis pairs can include more than one HCC. For 
example, the list includes a diabetes drug-diagnosis relationship that 
includes three HCCs (diabetes with acute complication, diabetes with 
chronic complication, and diabetes without complication) which are 
grouped together in the model estimation. This RXC can be interpreted 
as an indication that the individual should have a diagnosis of one of 
these three diabetes HCCs. In addition, an RXC can be linked in the 
model to more than one HCC, and vice-versa. For example, RXC 8 (Immune 
suppressants and immunomodulators) has an imputation/severity 
relationship with HCC 056 (Rheumatoid arthritis and specified 
autoimmune disorders), and also has a severity-only relationship with 
HCC 048 (Inflammatory bowel disease).
    While ten of the RXC-HCC pairs have three levels of incremental 
predicted costs (diagnosis only, prescription drug only, both diagnosis 
and prescription drug), indicating that they can be used to impute a 
particular condition, the model also includes two RXC-HCC pairs that 
will be used for severity only--that is, they will predict incremental 
costs for enrollees with the diagnosis only, and with both the 
diagnosis and the prescription drug. There are no additional costs 
predicted for an enrollee taking the drug who lacks the associated 
diagnosis. Table 2 lists the RXC-HCC pairs we are proposing to 
incorporate in the adult models for the 2018 benefit year. Table 4 
incorporates the full set of HCCs and RXC-HCCs and their associated 
coefficients that we are proposing to implement in the 2018 adult 
models.

              Table 2--Drug-Diagnosis (RXC-HCC) Pairs Chosen for the Hybrid Risk Adjustment Models
----------------------------------------------------------------------------------------------------------------
       RXC              RXC Label                 HCC                    HCC Label            Proposed RXC use
----------------------------------------------------------------------------------------------------------------
1...............  Hepatitis C            037C, 036, 035, 034..  Chronic Hepatitis C,        imputation/severity.
                   Antivirals.                                   Cirrhosis of Liver, End-
                                                                 Stage Liver Disease, and
                                                                 Liver Transplant Status/
                                                                 Complications.
2...............  HIV/AIDS Antivirals..  001..................  HIV/AIDS..................  imputation/severity.
3...............  Antiarrhythmics......  142..................  Specified Heart             imputation/severity.
                                                                 Arrhythmias.
4...............  End Stage Renal        184, 183, 187, 188...  End Stage Renal Disease,    imputation/severity.
                   Disease (ESRD)                                Kidney Transplant Status,
                   Phosphate Binders.                            Chronic Kidney Disease,
                                                                 Stage 5, Chronic Kidney
                                                                 Disease, Severe (Stage 4).
5...............  Anti-inflammatories    048, 041.............  Inflammatory Bowel          imputation/severity.
                   for inflammatory                              Disease, Intestine
                   bowel disease (IBD).                          Transplant Status/
                                                                 Complications.
6a..............  Anti-Diabetic Agents,  019, 020, 021, 018...  Diabetes with Acute         imputation/severity.
                   Except Insulin and                            Complications, Diabetes
                   Metformin Only.                               with Chronic
                                                                 Complications, Diabetes
                                                                 without Complication,
                                                                 Pancreas Transplant
                                                                 Status/Complications.
6b..............  Insulin..............  019, 020, 021, 018...  Diabetes with Acute         imputation/severity.
                                                                 Complications; Diabetes
                                                                 with Chronic
                                                                 Complications; Diabetes
                                                                 without Complication,
                                                                 Pancreas Transplant
                                                                 Status/Complications.
7...............  Multiple Sclerosis     118..................  Multiple Sclerosis........  imputation/severity.
                   Agents.
8...............  Immune Suppressants    056, 057, 048, 041...  Rheumatoid Arthritis and    imputation/severity.
                   and Immunomodulators.                         Specified Autoimmune
                                                                 Disorders, Systemic Lupus
                                                                 Erythematosus and Other
                                                                 Autoimmune Disorders,
                                                                 Inflammatory Bowel
                                                                 Disease, Intestine
                                                                 Transplant Status/
                                                                 Complications.
9...............  Cystic Fibrosis        159, 158.............  Cystic Fibrosis, Lung       imputation/severity.
                   Agents.                                       Transplant Status/
                                                                 Complications.
10..............  Ammonia Detoxicants..  036, 035, 034........  Cirrhosis of Liver, End-    severity-only.
                                                                 Stage Liver Disease,
                                                                 Liver Transplant Status/
                                                                 Complications.
11..............  Diuretics, Loop and    130, 129, 128........  Congestive Heart Failure,   severity-only.
                   Select Potassium-                             Heart Transplant, Heart
                   Sparing.                                      Assistive Device/
                                                                 Artificial Heart.
----------------------------------------------------------------------------------------------------------------

    We propose to incorporate the RXC-HCC pairs--some of which are used 
to impute a diagnosis and calibrate the severity of the condition, and 
others of which are used only as an indication of severity--into the 
adult risk adjustment model, beginning in the 2018 benefit year. We 
intend to evaluate the effects of this change to determine whether to 
continue, broaden, or reduce this set of factors in the HHS risk 
adjustment models. We seek comment on this approach, including comments 
on the list of RXC-HCC pairs.
iii. High-Cost Risk Pooling
    The HHS risk adjustment model reflects the average cost for 
individuals with a given set of demographic characteristics and 
diagnoses. Our experience with the 2014 benefit year risk adjustment 
demonstrated the model may underpredict costs for extremely high-cost 
enrollees since predicted plan liabilities reflect the average costs 
for individuals with the set of demographic characteristics and 
diagnoses included in the model. As a consequence, even with risk 
adjustment in place, issuers may retain an incentive to engage in risk 
selection in order to avoid these very high-cost enrollees (called 
``high-cost enrollees'' throughout this proposal). Recent research has 
shown that adjusting for high-cost enrollees in a risk adjustment model 
benefits the model fit and predictive ability for the remaining risk 
population.\30\ To mitigate any residual incentive for risk selection

[[Page 61472]]

to avoid high-cost enrollees, and to ensure that the actuarial risk of 
a plan with high-cost enrollees is better reflected in the risk 
adjustment transfers to issuers with high actuarial risk, we propose to 
alter the risk adjustment methodology to better account for high-cost 
enrollees so that transfers resulting from the risk adjustment 
methodology from high actuarial risk plans to low actuarial risk plans 
better reflect the actuarial risk of risk adjustment covered plans in a 
market, across all States. We also seek to offset the need for issuers 
to build large risk premiums into their rates to account for these 
cases by giving issuers greater predictability on expenditures.
---------------------------------------------------------------------------

    \30\ Schillo, S., G. Lux, J. Wassem and F. Buchner (2016) ``High 
Cost Pool or High Cost Groups--How to Handle Highest Cost Cases in a 
Risk Adjustment Mechanism?'' Health Policy (120): 141-147.
---------------------------------------------------------------------------

    To account for the incorporation of high-cost risk in the risk 
adjustment model, we propose to adjust the risk adjustment model for 
high-cost enrollees by excluding a percentage of costs above a certain 
threshold level in the calculation of enrollee-level plan liability 
risk scores so that risk adjustment factors are calculated without the 
high-cost risk. Secondly, to account for the issuers' actuarial risk 
for costs associated with the high-cost enrollees, we would apply an 
adjustment for each issuer of a risk adjustment covered plan to account 
for a percentage of all high-cost enrollees' costs above the threshold. 
We would set the threshold and percentage of costs at a level that 
would continue to incentivize issuers to control costs while improving 
the risk prediction of the risk adjustment model. Issuers with the 
high-cost enrollees would receive an adjustment to account for 
actuarial risk for the percentage of costs above the threshold in their 
respective transfers. Using claims data submitted to the EDGE server by 
issuers of risk adjustment covered plans, HHS will calculate the total 
amount of paid claims costs for high-cost enrollees above the 
threshold. HHS would then calculate an adjustment as a percent of the 
issuer's total premiums in the respective market, which would be 
applied to the total transfer amount in that market, maintaining the 
balance of payments and charges within the risk adjustment program. We 
are proposing a uniform percentage of premium adjustment across all 
States for the individual (including catastrophic and non-catastrophic 
plans and merged market plans) and small group markets. We believe 
pooling across all States for purposes of calculating this adjustment 
would be most effective in reducing the impact of high-cost enrollees 
to better reflect actuarial risk, and seek comment on this proposal. 
Creating a uniform pool of high-cost enrollees, by risk pool or market, 
could result in some States or geographic areas subsidizing issuers 
with high-cost enrollees in other States or geographic areas, as we 
discussed at the conference and commenters to the White Paper noted. We 
believe pooling high-cost enrollees across all States on whose behalf 
we are operating the risk adjustment program could prevent certain 
States with high-cost enrollees from bearing a disproportionate amount 
of unpredictable risk.
    In the White Paper we discussed a threshold of $1 million and a 
coinsurance rate of 80 percent (where the issuer would be liable for 20 
percent of costs above $1 million for an enrollee). Commenters 
expressed concerns about the potential for issuers to ``game'' this 
policy by shifting costs to the risk adjustment program, and not pay 
sufficient attention to cost containment for costs above the threshold. 
While we believe these inordinately high costs reflect random risk 
selection for certain issuers, we are sensitive to these concerns, 
particularly in the first year of this adjustment in the risk 
adjustment model. Therefore, beginning for the 2018 benefit year, we 
are proposing a threshold of $2 million and a coinsurance rate of 60 
percent (where the issuer would be liable for 40 percent of costs above 
$2 million). Beginning with the 2018 benefit year recalibration, we 
would also incorporate these parameters in our recalibration of the 
model by truncating at 40 percent of costs above $2 million in our 
dataset used to simulate plan liability. Doing so will produce more 
accurate predictive coefficients that reflect the impact of the high-
cost enrollee pool. To help mitigate concerns raised, while still 
helping protect issuers from the unpredictable risk of exceptionally 
high costs, we have designed this proposal based on what we discussed 
at the conference and comments received on the White Paper.
    As discussed above, beginning for the 2018 benefit year, we propose 
to adjust issuers' risk adjustment transfers by a percent of premium 
amount that would be determined based on the aggregate costs of the 
high-cost risk pool above $2 million at 60 percent coinsurance in the 
benefit year. This adjustment to the transfer formula would be made for 
all issuers of risk adjustment covered plans in the individual 
(including catastrophic and non-catastrophic plans and merged market 
plans), or small group market, across all States, based on total 
premiums in the respective market. We would create two high-cost risk 
pools across all States: One for the individual market (including 
catastrophic, non-catastrophic, and merged market plans), and one for 
the small group market. To calculate the adjustments, risk adjustment 
covered plans would be assessed an adjustment to fund the applicable 
pools and we would perform additional data quality metrics to determine 
an issuer's eligibility for high-cost risk pool adjustments, even if 
the issuer failed the data quality analysis for a risk adjustment 
transfer and was assessed a default charge under Sec.  153.740(b) on 
that basis. At the proposed threshold and coinsurance, we expect total 
adjustments as a result of this policy nationally to be very small as a 
percent of premiums (less than one tenth of one percent of total 
premiums for either market). We believe the inclusion of this policy, 
in combination with the transfers attributable to the plan liability 
risk scores, will allow us to better assess total actuarial risk for 
each risk adjustment eligible plan, and thereby to ensure that risk 
adjustment is appropriately compensating issuers. We seek comment on 
this proposal. We also seek comment on whether to cap the adjustments 
if they exceed a certain amount.
iv. Other Considerations
    We had previously reported that based on the commercial 
MarketScan[supreg] data, the HHS risk adjustment models slightly 
underpredict risk for low-cost enrollees, and slightly overpredict risk 
for enrollees with high expenditures.\31\ We have received feedback 
that HHS should adjust the risk adjustment models for the 
underprediction of risk for low cost enrollees, and the overprediction 
of risk for enrollees with high expenditures, which affects the plan 
liability risk scores of plans that enroll more healthy individuals or 
plans that enroll more individuals with the most extreme chronic health 
conditions. We are considering the implementation of the following 
policies, beginning with the 2018 benefit year, in order to improve 
model performance for these subpopulations, and seek comment on these 
approaches. We are considering use of a constrained regression 
approach, under which we would estimate the adult risk adjustment model 
using only the age-sex variables. We would then re-estimate the model 
using the full set of HCCs, while constraining the value of the age-sex 
coefficients to be same as those from the first estimation. We believe 
that this two-step estimation approach would result in age-sex 
coefficients of greater magnitude, potentially helping us

[[Page 61473]]

predict the risk of the healthiest subpopulations more accurately. 
Similarly, we are considering approaches in which our first estimation 
of the model would include additional independent variables intended to 
account for potential non-linearities in risk for the highest-risk 
subpopulations, and then removing those additional variables in the 
second estimation. We are considering creating separate models for 
enrollees with and without HCCs to derive two separate sets of age-sex 
coefficients. We believe such an approach could also help improve the 
models' predictive ratios for the healthiest subpopulations, though 
this model would have a separate set of age-sex coefficients for 
individuals with no HCCs and the individuals with HCCs. Finally, we are 
evaluating an approach in which we would directly adjust plan liability 
risk scores outside of the model for these subpopulations. For example, 
we could potentially make an adjustment to the plan liability risk 
scores calculated through the HHS risk adjustment models that would 
adjust for such an underprediction or overprediction in actuarial risk 
by directly increasing low plan liability risk scores and directly 
reducing high plan liability risk scores in order to better match the 
relative risks of these subpopulations. We note that while we believe 
modifications of this type could improve the model's performance along 
this specific dimension, there is a risk that such modifications could 
unintentionally worsen model performance along other dimensions on 
which the model currently performs well. For this reason, we are 
continuing to evaluate the effect of these types of modifications on 
all aspects of the model's performance before choosing to implement 
such an approach, and would not implement these types of modifications 
if we determined that doing so would have material unintended 
consequences for the model's performance along other dimensions. We 
seek comment on methods discussed above as well as other methods to 
improve the predictive ratios of the HHS risk adjustment models.
---------------------------------------------------------------------------

    \31\ Available at: https://www.cms.gov/mmrr/Downloads/MMRR2014_004_03_a03.pdf.
---------------------------------------------------------------------------

    In addition, we have received feedback regarding our transfer 
methodology in community rated States. In the 2014 Payment Notice, we 
stated that billable members exclude children who do not count towards 
family rates. In the second Program Integrity Rule, we clarified the 
modification to the transfer formula to accommodate community rated 
States that utilize family tiering rating factors. In the case of 
family tiering States, billable members are based on the number of 
children that implicitly count towards the premium under a State's 
family rating factors. We have received feedback that there may be 
alternative methodologies for calculating billable member months in 
family tiering States, such as by adjusting for the expected actual 
number of members on the policy, not the number of members that 
implicitly count towards the premium. We seek comment on whether our 
methodology for calculating billable member months in family tiering 
States should be altered, and how.
v. Data Timing for Risk Adjustment Recalibrations
    We have used the three most recent years of MarketScan[supreg] data 
to recalibrate the 2016 and 2017 benefit year risk adjustment models. 
This approach has allowed for using the blended, or averaged, 
coefficients from three years of separately solved models, which 
promotes stability for the risk adjustment coefficients year-to-year, 
particularly for conditions with small sample sizes. This approach in 
previous years has also required that we finalize coefficients based on 
data that does not become available until after the publication of the 
proposed Payment Notice. We received several comments to the 2017 
Payment Notice proposed rule requesting that the Payment Notice 
schedule be moved up to accommodate substantive comments and to permit 
issuers more time between the publication of the Payment Notice and the 
commencement of issuers' certification activities. In order to 
accommodate commenters' request for an earlier Payment Notice schedule, 
we would not be able to incorporate an additional recent year of data. 
We also received many comments on how to best address the data lag for 
HHS risk adjustment and better reflect new treatments that may be 
associated with high-cost conditions. We had discussed in the White 
Paper the use of only 2014 MarketScan[supreg] data for the 2018 benefit 
year recalibration; using blended, three year data coefficients would 
mitigate any introductions of new costs for particular conditions by 
two years of older data. However, commenters to the White Paper 
supported continuing to use a 3-year blend for 2018 benefit year 
recalibration. We are proposing to continue to use the 3-year blend for 
2018 benefit year recalibration.
    We noted at the conference that we were considering releasing more 
recent, updated final coefficients closer to the respective risk 
adjustment benefit year using more recent data available in guidance 
after the risk adjustment methodology for the corresponding benefit 
year has been finalized in the applicable Payment Notice. Commenters 
supported releasing coefficients closer to the benefit year that 
reflect the most recent data. We are proposing to amend our regulations 
at Sec.  153.320(b)(1)(i) to allow for HHS to provide draft 
coefficients in an annual Payment Notice, as well as the intended 
datasets to be used to calculate final coefficients and the date by 
which the final coefficients will be released in guidance. We are 
considering using 2015, 2016, and 2017 MarketScan[supreg] data for 2018 
risk adjustment, publishing the final, blended coefficients in the 
early spring of 2019, prior to final 2018 benefit year risk adjustment 
calculations. We have previously finalized the risk adjustment 
methodology, including the final coefficients prior to rate setting and 
benefits being provided to members. We seek comment on this proposal, 
specifically the timing of the release of final coefficients and 
whether such a practice would affect issuer expectations with respect 
to the methodology to be applied.
    We also seek comment on the timing of the publication of the final 
coefficients, providing a few options to reduce the data lag as much as 
possible. As the first option, we could release final coefficients for 
the 2018 benefit year risk adjustment model in the spring of 2017 that 
would reflect the incorporation of 2015 MarketScan[supreg] data, after 
it becomes available, blended with 2013 and 2014 MarketScan[supreg]. On 
the other hand, we could release final coefficients for the 2018 
benefit year risk adjustment model in the spring of 2019, prior to the 
April 30, 2019, data submission deadline for the 2018 benefit year that 
would reflect 2015, 2016, and 2017 blended MarketScan[supreg] data. We 
could also provide interim coefficients in the spring of 2018 using 
2014, 2015 and 2016 blended MarketScan[supreg] data, in addition to the 
interim coefficients that would be published in the 2018 Payment Notice 
final rule using 2013 and 2014 data. As noted above, we would continue 
to finalize the risk adjustment methodology for the corresponding year 
through notice and comment in the applicable annual Payment Notice.
    We seek comment on this proposal.
d. List of Factors To Be Employed in the Model (Sec.  153.320)
    For the 2018 benefit year, in addition to the RXCs we are proposing 
to include in the adult risk adjustment model, we are also proposing to 
separate the

[[Page 61474]]

Chronic Hepatitis HCC into two new HCCs for Hepatitis C and Hepatitis A 
and B, in the adult, child, and infant models. This would increase the 
total HCCs in the HHS risk adjustment methodology from 127 to 128. The 
proposed factors resulting from the blended factors from the 2013 and 
2014 separately solved models (with the incorporation of partial year 
enrollment and prescription drugs reflected in the adult models only) 
are shown in the Tables 4 through 9. The adult, child, and infant 
models have been truncated to account for the high-cost enrollee pool 
payment parameters ($2 million threshold, 60 percent coinsurance). 
Table 4 contains factors for each adult model, including the 
interactions.\32\
---------------------------------------------------------------------------

    \32\ We note that the interaction factors are additive, and not 
hierarchical in nature--that is, an enrollee could have several, 
additive interactions.
---------------------------------------------------------------------------

    Table 5 contains the HHS HCCs in the severity illness indicator 
variable. Table 6 contains the factors for each child model. Table 6 
contains the factors for each infant model.

                    Table 3--Final Adult Risk Adjustment Model Factors for 2017 Benefit Year
----------------------------------------------------------------------------------------------------------------
             Factor                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 21-24, Male.................           0.199           0.148           0.092           0.056           0.055
Age 25-29, Male.................           0.189           0.137           0.080           0.043           0.043
Age 30-34, Male.................           0.245           0.180           0.107           0.059           0.059
Age 35-39, Male.................           0.312           0.234           0.147           0.089           0.088
Age 40-44, Male.................           0.391           0.301           0.199           0.130           0.129
Age 45-49, Male.................           0.471           0.369           0.253           0.174           0.173
Age 50-54, Male.................           0.611           0.492           0.355           0.260           0.258
Age 55-59, Male.................           0.701           0.567           0.414           0.306           0.304
Age 60-64, Male.................           0.810           0.654           0.478           0.349           0.347
Age 21-24, Female...............           0.339           0.262           0.171           0.111           0.110
Age 25-29, Female...............           0.399           0.308           0.203           0.132           0.130
Age 30-34, Female...............           0.539           0.428           0.305           0.224           0.222
Age 35-39, Female...............           0.633           0.513           0.380           0.294           0.292
Age 40-44, Female...............           0.713           0.579           0.433           0.336           0.335
Age 45-49, Female...............           0.724           0.585           0.432           0.327           0.325
Age 50-54, Female...............           0.821           0.671           0.501           0.382           0.379
Age 55-59, Female...............           0.829           0.672           0.495           0.367           0.364
Age 60-64, Female...............           0.876           0.706           0.513           0.372           0.370
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS........................           8.943           8.450           8.099           8.142           8.143
Septicemia, Sepsis, Systemic              10.685          10.510          10.404          10.460          10.461
 Inflammatory Response Syndrome/
 Shock..........................
Central Nervous System                     6.636           6.535           6.470           6.491           6.492
 Infections, Except Viral
 Meningitis.....................
Viral or Unspecified Meningitis.           4.664           4.428           4.269           4.227           4.227
Opportunistic Infections........           8.507           8.406           8.340           8.322           8.321
Metastatic Cancer...............          24.307          23.874          23.573          23.632          23.633
Lung, Brain, and Other Severe             12.629          12.295          12.061          12.065          12.066
 Cancers, Including Pediatric
 Acute Lymphoid Leukemia........
Non-Hodgkin`s Lymphomas and                5.852           5.617           5.440           5.393           5.392
 Other Cancers and Tumors.......
Colorectal, Breast (Age < 50),             5.159           4.924           4.743           4.695           4.694
 Kidney, and Other Cancers......
Breast (Age 50+) and Prostate              2.965           2.792           2.655           2.602           2.601
 Cancer, Benign/Uncertain Brain
 Tumors, and Other Cancers and
 Tumors.........................
Thyroid Cancer, Melanoma,                  1.459           1.304           1.167           1.076           1.074
 Neurofibromatosis, and Other
 Cancers and Tumors.............
Pancreas Transplant Status/                5.458           5.236           5.093           5.115           5.115
 Complications..................
Diabetes with Acute                        1.192           1.053           0.929           0.825           0.824
 Complications..................
Diabetes with Chronic                      1.192           1.053           0.929           0.825           0.824
 Complications..................
Diabetes without Complication...           1.192           1.053           0.929           0.825           0.824
Protein-Calorie Malnutrition....          13.677          13.685          13.695          13.756          13.757
Mucopolysaccharidosis...........           2.285           2.165           2.066           2.013           2.013
Lipidoses and Glycogenosis......           2.285           2.165           2.066           2.013           2.013
Amyloidosis, Porphyria, and                2.285           2.165           2.066           2.013           2.013
 Other Metabolic Disorders......
Adrenal, Pituitary, and Other              2.285           2.165           2.066           2.013           2.013
 Significant Endocrine Disorders
Liver Transplant Status/                  16.044          15.870          15.760          15.773          15.773
 Complications..................
End-Stage Liver Disease.........           7.110           6.870           6.712           6.730           6.731
Cirrhosis of Liver..............           3.856           3.694           3.572           3.538           3.537
Chronic Hepatitis...............           3.856           3.694           3.572           3.538           3.537
Acute Liver Failure/Disease,               4.429           4.268           4.158           4.147           4.147
 Including Neonatal Hepatitis...
Intestine Transplant Status/              32.610          32.560          32.521          32.564          32.563
 Complications..................
Peritonitis/Gastrointestinal              11.825          11.566          11.387          11.416          11.417
 Perforation/Necrotizing
 Enterocolitis..................
Intestinal Obstruction..........           6.542           6.277           6.105           6.124           6.124

[[Page 61475]]

 
Chronic Pancreatitis............           5.458           5.236           5.093           5.115           5.115
Acute Pancreatitis/Other                   2.710           2.522           2.385           2.337           2.336
 Pancreatic Disorders and
 Intestinal Malabsorption.......
Inflammatory Bowel Disease......           3.667           3.401           3.197           3.105           3.103
Necrotizing Fasciitis...........           6.581           6.382           6.243           6.258           6.258
Bone/Joint/Muscle Infections/              6.581           6.382           6.243           6.258           6.258
 Necrosis.......................
Rheumatoid Arthritis and                   4.854           4.592           4.399           4.389           4.389
 Specified Autoimmune Disorders.
Systemic Lupus Erythematosus and           1.212           1.077           0.957           0.872           0.871
 Other Autoimmune Disorders.....
Osteogenesis Imperfecta and                3.126           2.927           2.766           2.706           2.705
 Other Osteodystrophies.........
Congenital/Developmental                   3.126           2.927           2.766           2.706           2.705
 Skeletal and Connective Tissue
 Disorders......................
Cleft Lip/Cleft Palate..........           1.310           1.149           1.020           0.952           0.951
Hemophilia......................          46.447          46.159          45.940          45.946          45.947
Myelodysplastic Syndromes and             12.671          12.534          12.439          12.449          12.449
 Myelofibrosis..................
Aplastic Anemia.................          12.671          12.534          12.439          12.449          12.449
Acquired Hemolytic Anemia,                 9.742           9.580           9.457           9.448           9.448
 Including Hemolytic Disease of
 Newborn........................
Sickle Cell Anemia (Hb-SS)......           9.742           9.580           9.457           9.448           9.448
Thalassemia Major...............           9.742           9.580           9.457           9.448           9.448
Combined and Other Severe                  5.438           5.290           5.186           5.188           5.188
 Immunodeficiencies.............
Disorders of the Immune                    5.438           5.290           5.186           5.188           5.188
 Mechanism......................
Coagulation Defects and Other              2.810           2.712           2.631           2.603           2.603
 Specified Hematological
 Disorders......................
Drug Psychosis..................           3.832           3.576           3.381           3.288           3.286
Drug Dependence.................           3.832           3.576           3.381           3.288           3.286
Schizophrenia...................           3.196           2.940           2.749           2.685           2.684
Major Depressive and Bipolar               1.720           1.552           1.408           1.312           1.311
 Disorders......................
Reactive and Unspecified                   1.720           1.552           1.408           1.312           1.311
 Psychosis, Delusional Disorders
Personality Disorders...........           1.190           1.054           0.920           0.823           0.822
Anorexia/Bulimia Nervosa........           2.704           2.537           2.400           2.342           2.341
Prader-Willi, Patau, Edwards,              2.648           2.517           2.414           2.364           2.364
 and Autosomal Deletion
 Syndromes......................
Down Syndrome, Fragile X, Other            1.073           0.965           0.861           0.788           0.787
 Chromosomal Anomalies, and
 Congenital Malformation
 Syndromes......................
Autistic Disorder...............           1.190           1.054           0.920           0.823           0.822
Pervasive Developmental                    1.190           1.054           0.920           0.823           0.822
 Disorders, Except Autistic
 Disorder.......................
Traumatic Complete Lesion                 12.012          11.856          11.742          11.739          11.740
 Cervical Spinal Cord...........
Quadriplegia....................          12.012          11.856          11.742          11.739          11.740
Traumatic Complete Lesion Dorsal           9.161           9.003           8.889           8.877           8.877
 Spinal Cord....................
Paraplegia......................           9.161           9.003           8.889           8.877           8.877
Spinal Cord Disorders/Injuries..           5.641           5.430           5.278           5.249           5.249
Amyotrophic Lateral Sclerosis              3.027           2.790           2.623           2.583           2.583
 and Other Anterior Horn Cell
 Disease........................
Quadriplegic Cerebral Palsy.....           1.229           1.016           0.855           0.791           0.790
Cerebral Palsy, Except                     0.135           0.073           0.039           0.016           0.015
 Quadriplegic...................
Spina Bifida and Other Brain/              0.077           0.022           0.000           0.000           0.000
 Spinal/Nervous System
 Congenital Anomalies...........
Myasthenia Gravis/Myoneural                5.252           5.104           4.998           4.975           4.975
 Disorders and Guillain-Barre
 Syndrome/Inflammatory and Toxic
 Neuropathy.....................
Muscular Dystrophy..............           2.150           1.984           1.862           1.787           1.786
Multiple Sclerosis..............          13.598          13.194          12.910          12.956          12.957
Parkinson`s, Huntington`s, and             2.150           1.984           1.862           1.787           1.786
 Spinocerebellar Disease, and
 Other Neurodegenerative
 Disorders......................
Seizure Disorders and                      1.503           1.344           1.213           1.143           1.142
 Convulsions....................
Hydrocephalus...................           6.394           6.272           6.171           6.144           6.144
Non-Traumatic Coma, and Brain              9.200           9.064           8.958           8.953           8.952
 Compression/Anoxic Damage......
Respirator Dependence/                    34.709          34.699          34.698          34.764          34.765
 Tracheostomy Status............
Respiratory Arrest..............          10.541          10.391          10.296          10.360          10.361
Cardio-Respiratory Failure and            10.541          10.391          10.296          10.360          10.361
 Shock, Including Respiratory
 Distress Syndromes.............
Heart Assistive Device/                   35.115          34.870          34.711          34.771          34.772
 Artificial Heart...............
Heart Transplant................          35.115          34.870          34.711          34.771          34.772
Congestive Heart Failure........           3.281           3.173           3.096           3.090           3.090
Acute Myocardial Infarction.....          10.133           9.797           9.582           9.693           9.695
Unstable Angina and Other Acute            5.231           4.955           4.782           4.796           4.797
 Ischemic Heart Disease.........
Heart Infection/Inflammation,              6.303           6.168           6.068           6.046           6.046
 Except Rheumatic...............
Specified Heart Arrhythmias.....           2.834           2.685           2.569           2.515           2.515
Intracranial Hemorrhage.........           9.426           9.147           8.956           8.965           8.965
Ischemic or Unspecified Stroke..           3.167           2.982           2.870           2.875           2.876

[[Page 61476]]

 
Cerebral Aneurysm and                      3.947           3.748           3.605           3.563           3.563
 Arteriovenous Malformation.....
Hemiplegia/Hemiparesis..........           5.466           5.372           5.315           5.358           5.359
Monoplegia, Other Paralytic                3.457           3.324           3.230           3.211           3.211
 Syndromes......................
Atherosclerosis of the                    10.936          10.837          10.782          10.850          10.852
 Extremities with Ulceration or
 Gangrene.......................
Vascular Disease with                      7.731           7.546           7.419           7.419           7.420
 Complications..................
Pulmonary Embolism and Deep Vein           3.845           3.678           3.558           3.531           3.531
 Thrombosis.....................
Lung Transplant Status/                   36.420          36.228          36.104          36.181          36.182
 Complications..................
Cystic Fibrosis.................          18.022          17.696          17.452          17.474          17.474
Chronic Obstructive Pulmonary              0.951           0.833           0.723           0.648           0.646
 Disease, Including
 Bronchiectasis.................
Asthma..........................           0.951           0.833           0.723           0.648           0.646
Fibrosis of Lung and Other Lung            1.894           1.774           1.685           1.644           1.643
 Disorders......................
Aspiration and Specified                   7.595           7.521           7.472           7.486           7.486
 Bacterial Pneumonias and Other
 Severe Lung Infections.........
Kidney Transplant Status........          10.187           9.922           9.747           9.738           9.738
End Stage Renal Disease.........          38.453          38.219          38.071          38.191          38.193
Chronic Kidney Disease, Stage 5.           2.087           1.988           1.924           1.919           1.919
Chronic Kidney Disease, Severe             2.087           1.988           1.924           1.919           1.919
 (Stage 4)......................
Ectopic and Molar Pregnancy,               1.357           1.170           0.991           0.806           0.803
 Except with Renal Failure,
 Shock, or Embolism.............
Miscarriage with Complications..           1.357           1.170           0.991           0.806           0.803
Miscarriage with No or Minor               1.357           1.170           0.991           0.806           0.803
 Complications..................
Completed Pregnancy With Major             3.651           3.168           2.877           2.726           2.727
 Complications..................
Completed Pregnancy With                   3.651           3.168           2.877           2.726           2.727
 Complications..................
Completed Pregnancy with No or             3.651           3.168           2.877           2.726           2.727
 Minor Complications............
Chronic Ulcer of Skin, Except              2.360           2.236           2.153           2.137           2.137
 Pressure.......................
Hip Fractures and Pathological             9.462           9.246           9.102           9.137           9.138
 Vertebral or Humerus Fractures.
Pathological Fractures, Except             2.011           1.880           1.766           1.695           1.694
 of Vertebrae, Hip, or Humerus..
Stem Cell, Including Bone                 31.030          31.024          31.019          31.037          31.037
 Marrow, Transplant Status/
 Complications..................
Artificial Openings for Feeding           10.041           9.948           9.888           9.926           9.927
 or Elimination.................
Amputation Status, Lower Limb/             5.262           5.111           5.014           5.043           5.044
 Amputation Complications.......
----------------------------------------------------------------------------------------------------------------
                                               Interaction Factors
----------------------------------------------------------------------------------------------------------------
Severe illness x Opportunistic            10.392          10.618          10.787          10.882          10.884
 Infections.....................
Severe illness x Metastatic               10.392          10.618          10.787          10.882          10.884
 Cancer.........................
Severe illness x Lung, Brain,             10.392          10.618          10.787          10.882          10.884
 and Other Severe Cancers,
 Including Pediatric Acute
 Lymphoid Leukemia..............
Severe illness x Non-Hodgkin`s            10.392          10.618          10.787          10.882          10.884
 Lymphomas and Other Cancers and
 Tumors.........................
Severe illness x Myasthenia               10.392          10.618          10.787          10.882          10.884
 Gravis/Myoneural Disorders and
 Guillain-Barre Syndrome/
 Inflammatory and Toxic
 Neuropathy.....................
Severe illness x Heart Infection/         10.392          10.618          10.787          10.882          10.884
 Inflammation, Except Rheumatic.
Severe illness x Intracranial             10.392          10.618          10.787          10.882          10.884
 Hemorrhage.....................
Severe illness x HCC group G06            10.392          10.618          10.787          10.882          10.884
 (G06 is HCC Group 6 which
 includes the following HCCs in
 the blood disease category: 67,
 68)............................
Severe illness x HCC group G08            10.392          10.618          10.787          10.882          10.884
 (G08 is HCC Group 8 which
 includes the following HCCs in
 the blood disease category: 73,
 74)............................
Severe illness x End-Stage Liver           1.899           2.034           2.136           2.220           2.221
 Disease........................
Severe illness x Acute Liver               1.899           2.034           2.136           2.220           2.221
 Failure/Disease, Including
 Neonatal Hepatitis.............
Severe illness x Atherosclerosis           1.899           2.034           2.136           2.220           2.221
 of the Extremities with
 Ulceration or Gangrene.........
Severe illness x Vascular                  1.899           2.034           2.136           2.220           2.221
 Disease with Complications.....
Severe illness x Aspiration and            1.899           2.034           2.136           2.220           2.221
 Specified Bacterial Pneumonias
 and Other Severe Lung
 Infections.....................
Severe illness x Artificial                1.899           2.034           2.136           2.220           2.221
 Openings for Feeding or
 Elimination....................
Severe illness x HCC group G03             1.899           2.034           2.136           2.220           2.221
 (G03 is HCC Group 3 which
 includes the following HCCs in
 the musculoskeletal disease
 category: 54, 55)..............
----------------------------------------------------------------------------------------------------------------

[[Page 61477]]

 
                                           Enrollment Duration Factors
----------------------------------------------------------------------------------------------------------------
One month of enrollment.........           0.515           0.441           0.396           0.386           0.386
Two months of enrollment........           0.454           0.381           0.329           0.318           0.318
Three months of enrollment......           0.387           0.321           0.270           0.258           0.258
Four months of enrollment.......           0.316           0.264           0.221           0.211           0.211
Five months of enrollment.......           0.273           0.228           0.188           0.176           0.176
Six months of enrollment........           0.248           0.208           0.170           0.156           0.156
Seven months of enrollment......           0.217           0.186           0.155           0.145           0.144
Eight months of enrollment......           0.166           0.142           0.118           0.110           0.109
Nine months of enrollment.......           0.114           0.103           0.092           0.089           0.089
Ten months of enrollment........           0.114           0.103           0.092           0.089           0.089
Eleven months of enrollment.....           0.100           0.092           0.084           0.082           0.082
----------------------------------------------------------------------------------------------------------------


                    TABLE 4--Draft Adult Risk Adjustment Model Factors for 2018 Benefit Year
----------------------------------------------------------------------------------------------------------------
          HCC or RXC No.                  Factor         Platinum     Gold      Silver     Bronze   Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
                                   Age 21-24, Male....      0.176      0.140      0.095      0.052         0.049
                                   Age 25-29, Male....      0.160      0.125      0.080      0.036         0.033
                                   Age 30-34, Male....      0.206      0.160      0.105      0.048         0.044
                                   Age 35-39, Male....      0.270      0.215      0.148      0.079         0.074
                                   Age 40-44, Male....      0.337      0.273      0.196      0.114         0.108
                                   Age 45-49, Male....      0.408      0.335      0.249      0.155         0.149
                                   Age 50-54, Male....      0.533      0.447      0.346      0.234         0.227
                                   Age 55-59, Male....      0.608      0.510      0.397      0.272         0.264
                                   Age 60-64, Male....      0.702      0.588      0.460      0.312         0.304
                                   Age 21-24, Female..      0.303      0.249      0.179      0.106         0.101
                                   Age 25-29, Female..      0.351      0.286      0.207      0.122         0.116
                                   Age 30-34, Female..      0.485      0.405      0.312      0.214         0.209
                                   Age 35-39, Female..      0.572      0.483      0.383      0.280         0.275
                                   Age 40-44, Female..      0.644      0.545      0.434      0.320         0.315
                                   Age 45-49, Female..      0.652      0.549      0.434      0.310         0.304
                                   Age 50-54, Female..      0.738      0.627      0.501      0.361         0.353
                                   Age 55-59, Female..      0.742      0.626      0.496      0.347         0.339
                                   Age 60-64, Female..      0.780      0.654      0.513      0.351         0.341
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HCC001...........................  HIV/AIDS...........      6.183      5.760      5.473      5.469         5.539
HCC002...........................  Septicemia, Sepsis,      9.552      9.383      9.283      9.330         9.368
                                    Systemic
                                    Inflammatory
                                    Response Syndrome/
                                    Shock.
HCC003...........................  Central Nervous          6.422      6.330      6.272      6.293         6.313
                                    System Infections,
                                    Except Viral
                                    Meningitis.
HCC004...........................  Viral or                 4.503      4.287      4.163      4.106         4.139
                                    Unspecified
                                    Meningitis.
HCC006...........................  Opportunistic            7.320      7.228      7.177      7.153         7.165
                                    Infections.
HCC008...........................  Metastatic Cancer..     22.731     22.324     22.054     22.096        22.169
HCC009...........................  Lung, Brain, and        11.734     11.425     11.226     11.215        11.265
                                    Other Severe
                                    Cancers, Including
                                    Pediatric Acute
                                    Lymphoid Leukemia.
HCC010...........................  Non-Hodgkin's            5.463      5.251      5.110      5.051         5.077
                                    Lymphomas and
                                    Other Cancers and
                                    Tumors.
HCC011...........................  Colorectal, Breast       4.767      4.556      4.412      4.350         4.375
                                    (Age <50), Kidney,
                                    and Other Cancers.
HCC012...........................  Breast (Age 50+)         2.781      2.627      2.522      2.457         2.472
                                    and Prostate
                                    Cancer, Benign/
                                    Uncertain Brain
                                    Tumors, and Other
                                    Cancers and Tumors.
HCC013...........................  Thyroid Cancer,          1.329      1.199      1.101      0.996         1.002
                                    Melanoma,
                                    Neurofibromatosis,
                                    and Other Cancers
                                    and Tumors.
HCC018...........................  Pancreas Transplant      4.775      4.576      4.459      4.475         4.514
                                    Status/
                                    Complications.
HCC019...........................  Diabetes with Acute      0.647      0.575      0.511      0.432         0.430
                                    Complications.
HCC020...........................  Diabetes with            0.647      0.575      0.511      0.432         0.430
                                    Chronic
                                    Complications.
HCC021...........................  Diabetes without         0.647      0.575      0.511      0.432         0.430
                                    Complication.
HCC023...........................  Protein-Calorie         12.908     12.906     12.897     12.961        12.969
                                    Malnutrition.
HCC026...........................  Mucopolysaccharidos      2.037      1.934      1.861      1.798         1.806
                                    is.
HCC027...........................  Lipidoses and            2.037      1.934      1.861      1.798         1.806
                                    Glycogenosis.

[[Page 61478]]

 
HCC029...........................  Amyloidosis,             2.037      1.934      1.861      1.798         1.806
                                    Porphyria, and
                                    Other Metabolic
                                    Disorders.
HCC030...........................  Adrenal, Pituitary,      2.037      1.934      1.861      1.798         1.806
                                    and Other
                                    Significant
                                    Endocrine
                                    Disorders.
HCC034...........................  Liver Transplant        11.899     11.778     11.711     11.700        11.720
                                    Status/
                                    Complications.
HCC035...........................  End-Stage Liver          3.843      3.664      3.556      3.533         3.561
                                    Disease.
HCC036...........................  Cirrhosis of Liver.      1.336      1.218      1.144      1.089         1.101
HCC037C..........................  Chronic Viral            0.913      0.801      0.726      0.667         0.677
                                    Hepatitis C.
HCC037B..........................  Chronic Hepatitis,       0.913      0.801      0.726      0.667         0.677
                                    Other/Unspecified.
HCC038...........................  Acute Liver Failure/     3.843      3.664      3.556      3.533         3.561
                                    Disease, Including
                                    Neonatal Hepatitis.
HCC041...........................  Intestine               30.139     30.077     30.019     30.075        30.090
                                    Transplant Status/
                                    Complications.
HCC042...........................  Peritonitis/            10.733     10.494     10.340     10.353        10.395
                                    Gastrointestinal
                                    Perforation/
                                    Necrotizing
                                    Enterocolitis.
HCC045...........................  Intestinal               6.002      5.756      5.611      5.611         5.654
                                    Obstruction.
HCC046...........................  Chronic                  4.775      4.576      4.459      4.475         4.514
                                    Pancreatitis.
HCC047...........................  Acute Pancreatitis/      2.419      2.255      2.152      2.092         2.112
                                    Other Pancreatic
                                    Disorders and
                                    Intestinal
                                    Malabsorption.
HCC048...........................  Inflammatory Bowel       2.046      1.872      1.751      1.655         1.669
                                    Disease.
HCC054...........................  Necrotizing              6.007      5.828      5.710      5.716         5.748
                                    Fasciitis.
HCC055...........................  Bone/Joint/Muscle        6.007      5.828      5.710      5.716         5.748
                                    Infections/
                                    Necrosis.
HCC056...........................  Rheumatoid               2.278      2.137      2.035      1.968         1.982
                                    Arthritis and
                                    Specified
                                    Autoimmune
                                    Disorders.
HCC057...........................  Systemic Lupus           1.030      0.918      0.836      0.737         0.740
                                    Erythematosus and
                                    Other Autoimmune
                                    Disorders.
HCC061...........................  Osteogenesis             2.905      2.727      2.600      2.526         2.543
                                    Imperfecta and
                                    Other
                                    Osteodystrophies.
HCC062...........................  Congenital/              2.905      2.727      2.600      2.526         2.543
                                    Developmental
                                    Skeletal and
                                    Connective Tissue
                                    Disorders.
HCC063...........................  Cleft Lip/Cleft          1.143      1.002      0.908      0.827         0.839
                                    Palate.
HCC066...........................  Hemophilia.........     42.231     41.976     41.792     41.785        41.825
HCC067...........................  Myelodysplastic         12.207     12.080     11.999     12.004        12.026
                                    Syndromes and
                                    Myelofibrosis.
HCC068...........................  Aplastic Anemia....     12.207     12.080     11.999     12.004        12.026
HCC069...........................  Acquired Hemolytic       8.782      8.635      8.534      8.511         8.532
                                    Anemia, Including
                                    Hemolytic Disease
                                    of Newborn.
HCC070...........................  Sickle Cell Anemia       8.782      8.635      8.534      8.511         8.532
                                    (Hb-SS).
HCC071...........................  Thalassemia Major..      8.782      8.635      8.534      8.511         8.532
HCC073...........................  Combined and Other       4.911      4.779      4.696      4.688         4.709
                                    Severe
                                    Immunodeficiencies.
HCC074...........................  Disorders of the         4.911      4.779      4.696      4.688         4.709
                                    Immune Mechanism.
HCC075...........................  Coagulation Defects      2.568      2.480      2.417      2.380         2.388
                                    and Other
                                    Specified
                                    Hematological
                                    Disorders.
HCC081...........................  Drug Psychosis.....      3.749      3.517      3.368      3.255         3.277
HCC082...........................  Drug Dependence....      3.749      3.517      3.368      3.255         3.277
HCC087...........................  Schizophrenia......      3.103      2.871      2.722      2.639         2.668
HCC088...........................  Major Depressive         1.630      1.484      1.381      1.273         1.282
                                    and Bipolar
                                    Disorders.
HCC089...........................  Reactive and             1.630      1.484      1.381      1.273         1.282
                                    Unspecified
                                    Psychosis,
                                    Delusional
                                    Disorders.
HCC090...........................  Personality              1.142      1.028      0.930      0.819         0.820
                                    Disorders.
HCC094...........................  Anorexia/Bulimia         2.692      2.539      2.431      2.367         2.382
                                    Nervosa.
HCC096...........................  Prader-Willi,            2.409      2.290      2.211      2.148         2.159
                                    Patau, Edwards,
                                    and Autosomal
                                    Deletion Syndromes.
HCC097...........................  Down Syndrome,           0.849      0.756      0.680      0.594         0.595
                                    Fragile X, Other
                                    Chromosomal
                                    Anomalies, and
                                    Congenital
                                    Malformation
                                    Syndromes.
HCC102...........................  Autistic Disorder..      1.142      1.028      0.930      0.819         0.820
HCC103...........................  Pervasive                1.142      1.028      0.930      0.819         0.820
                                    Developmental
                                    Disorders, Except
                                    Autistic Disorder.
HCC106...........................  Traumatic Complete      11.189     11.036     10.934     10.921        10.945
                                    Lesion Cervical
                                    Spinal Cord.
HCC107...........................  Quadriplegia.......     11.189     11.036     10.934     10.921        10.945
HCC108...........................  Traumatic Complete       8.762      8.617      8.520      8.501         8.523
                                    Lesion Dorsal
                                    Spinal Cord.
HCC109...........................  Paraplegia.........      8.762      8.617      8.520      8.501         8.523
HCC110...........................  Spinal Cord              5.523      5.325      5.201      5.163         5.191
                                    Disorders/Injuries.
HCC111...........................  Amyotrophic Lateral      2.567      2.353      2.220      2.162         2.191
                                    Sclerosis and
                                    Other Anterior
                                    Horn Cell Disease.
HCC112...........................  Quadriplegic             1.020      0.881      0.784      0.706         0.716
                                    Cerebral Palsy.
HCC113...........................  Cerebral Palsy,          0.168      0.111      0.070      0.030         0.033
                                    Except
                                    Quadriplegic.
HCC114...........................  Spina Bifida and         0.046      0.000      0.000      0.000         0.000
                                    Other Brain/Spinal/
                                    Nervous System
                                    Congenital
                                    Anomalies.

[[Page 61479]]

 
HCC115...........................  Myasthenia Gravis/       5.158      5.020      4.933      4.905         4.924
                                    Myoneural
                                    Disorders and
                                    Guillain-Barre
                                    Syndrome/
                                    Inflammatory and
                                    Toxic Neuropathy.
HCC117...........................  Muscular Dystrophy.      2.075      1.927      1.838      1.751         1.763
HCC118...........................  Multiple Sclerosis.      3.652      3.459      3.335      3.267         3.289
HCC119...........................  Parkinson's,             2.075      1.927      1.838      1.751         1.763
                                    Huntington's, and
                                    Spinocerebellar
                                    Disease, and Other
                                    Neurodegenerative
                                    Disorders.
HCC120...........................  Seizure Disorders        1.447      1.308      1.211      1.127         1.137
                                    and Convulsions.
HCC121...........................  Hydrocephalus......      5.884      5.771      5.685      5.652         5.667
HCC122...........................  Non-Traumatic Coma,      8.606      8.480      8.389      8.378         8.396
                                    and Brain
                                    Compression/Anoxic
                                    Damage.
HCC125...........................  Respirator              32.063     32.042     32.021     32.093        32.106
                                    Dependence/
                                    Tracheostomy
                                    Status.
HCC126...........................  Respiratory Arrest.      9.458      9.316      9.223      9.280         9.312
HCC127...........................  Cardio-Respiratory       9.458      9.316      9.223      9.280         9.312
                                    Failure and Shock,
                                    Including
                                    Respiratory
                                    Distress Syndromes.
HCC128...........................  Heart Assistive         31.966     31.751     31.611     31.636        31.677
                                    Device/Artificial
                                    Heart.
HCC129...........................  Heart Transplant...     31.966     31.751     31.611     31.636        31.677
HCC130...........................  Congestive Heart         2.074      1.978      1.912      1.873         1.883
                                    Failure.
HCC131...........................  Acute Myocardial         9.396      9.079      8.878      8.975         9.044
                                    Infarction.
HCC132...........................  Unstable Angina and      4.759      4.510      4.368      4.366         4.412
                                    Other Acute
                                    Ischemic Heart
                                    Disease.
HCC135...........................  Heart Infection/         5.703      5.585      5.507      5.477         5.492
                                    Inflammation,
                                    Except Rheumatic.
HCC142...........................  Specified Heart          2.065      1.948      1.869      1.802         1.811
                                    Arrhythmias.
HCC145...........................  Intracranial             8.616      8.359      8.198      8.189         8.231
                                    Hemorrhage.
HCC146...........................  Ischemic or              2.891      2.725      2.634      2.629         2.660
                                    Unspecified Stroke.
HCC149...........................  Cerebral Aneurysm        3.677      3.501      3.391      3.335         3.357
                                    and Arteriovenous
                                    Malformation.
HCC150...........................  Hemiplegia/              4.955      4.864      4.808      4.848         4.869
                                    Hemiparesis.
HCC151...........................  Monoplegia, Other        3.104      2.983      2.909      2.881         2.899
                                    Paralytic
                                    Syndromes.
HCC153...........................  Atherosclerosis of       9.488      9.411      9.360      9.434         9.459
                                    the Extremities
                                    with Ulceration or
                                    Gangrene.
HCC154...........................  Vascular Disease         7.268      7.097      6.989      6.978         7.005
                                    with Complications.
HCC156...........................  Pulmonary Embolism       3.480      3.331      3.236      3.195         3.215
                                    and Deep Vein
                                    Thrombosis.
HCC158...........................  Lung Transplant         31.358     31.201     31.097     31.176        31.215
                                    Status/
                                    Complications.
HCC159...........................  Cystic Fibrosis....      7.004      6.736      6.550      6.529         6.569
HCC160...........................  Chronic Obstructive      0.897      0.797      0.718      0.631         0.634
                                    Pulmonary Disease,
                                    Including
                                    Bronchiectasis.
HCC161...........................  Asthma.............      0.897      0.797      0.718      0.631         0.634
HCC162...........................  Fibrosis of Lung         1.730      1.624      1.557      1.508         1.518
                                    and Other Lung
                                    Disorders.
HCC163...........................  Aspiration and           6.798      6.731      6.689      6.697         6.711
                                    Specified
                                    Bacterial
                                    Pneumonias and
                                    Other Severe Lung
                                    Infections.
HCC183...........................  Kidney Transplant        7.065      6.838      6.705      6.674         6.710
                                    Status.
HCC184...........................  End Stage Renal         23.772     23.578     23.450     23.516        23.559
                                    Disease.
HCC187...........................  Chronic Kidney           0.395      0.326      0.286      0.280         0.292
                                    Disease, Stage 5.
HCC188...........................  Chronic Kidney           0.395      0.326      0.286      0.280         0.292
                                    Disease, Severe
                                    (Stage 4).
HCC203...........................  Ectopic and Molar        1.283      1.127      1.008      0.814         0.806
                                    Pregnancy, Except
                                    with Renal
                                    Failure, Shock, or
                                    Embolism.
HCC204...........................  Miscarriage with         1.283      1.127      1.008      0.814         0.806
                                    Complications.
HCC205...........................  Miscarriage with No      1.283      1.127      1.008      0.814         0.806
                                    or Minor
                                    Complications.
HCC207...........................  Completed Pregnancy      3.466      3.027      2.823      2.625         2.694
                                    With Major
                                    Complications.
HCC208...........................  Completed Pregnancy      3.466      3.027      2.823      2.625         2.694
                                    With Complications.
HCC209...........................  Completed Pregnancy      3.466      3.027      2.823      2.625         2.694
                                    with No or Minor
                                    Complications.
HCC217...........................  Chronic Ulcer of         2.003      1.903      1.843      1.825         1.840
                                    Skin, Except
                                    Pressure.
HCC226...........................  Hip Fractures and        9.015      8.812      8.682      8.709         8.747
                                    Pathological
                                    Vertebral or
                                    Humerus Fractures.
HCC227...........................  Pathological             2.028      1.913      1.830      1.750         1.758
                                    Fractures, Except
                                    of Vertebrae, Hip,
                                    or Humerus.
HCC251...........................  Stem Cell,              28.116     28.117     28.113     28.139        28.143
                                    Including Bone
                                    Marrow, Transplant
                                    Status/
                                    Complications.

[[Page 61480]]

 
HCC253...........................  Artificial Openings      9.095      9.005      8.946      8.979         8.999
                                    for Feeding or
                                    Elimination.
HCC254...........................  Amputation Status,       4.508      4.378      4.298      4.323         4.351
                                    Lower Limb/
                                    Amputation
                                    Complications.
----------------------------------------------------------------------------------------------------------------
                                               Interaction Factors
----------------------------------------------------------------------------------------------------------------
SEVERE x HCC006..................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    Opportunistic
                                    Infections.
SEVERE x HCC008..................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    Metastatic Cancer.
SEVERE x HCC009..................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    Lung, Brain, and
                                    Other Severe
                                    Cancers, Including
                                    Pediatric Acute
                                    Lymphoid Leukemia.
SEVERE x HCC010..................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    Non-Hodgkin`s
                                    Lymphomas and
                                    Other Cancers and
                                    Tumors.
SEVERE x HCC115..................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    Myasthenia Gravis/
                                    Myoneural
                                    Disorders and
                                    Guillain-Barre
                                    Syndrome/
                                    Inflammatory and
                                    Toxic Neuropathy.
SEVERE x HCC135..................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    Heart Infection/
                                    Inflammation,
                                    Except Rheumatic.
SEVERE x HCC145..................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    Intracranial
                                    Hemorrhage.
SEVERE x G06.....................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    HCC group G06 (G06
                                    is HCC Group 6
                                    which includes the
                                    following HCCs in
                                    the blood disease
                                    category: 67, 68).
SEVERE x G08.....................  Severe illness x         9.355      9.550      9.669      9.785         9.768
                                    HCC group G08 (G08
                                    is HCC Group 8
                                    which includes the
                                    following HCCs in
                                    the blood disease
                                    category: 73, 74).
SEVERE x HCC035..................  Severe illness x         1.895      2.007      2.070      2.170         2.164
                                    End-Stage Liver
                                    Disease.
SEVERE x HCC038..................  Severe illness x         1.895      2.007      2.070      2.170         2.164
                                    Acute Liver
                                    Failure/Disease,
                                    Including Neonatal
                                    Hepatitis.
SEVERE x HCC153..................  Severe illness x         1.895      2.007      2.070      2.170         2.164
                                    Atherosclerosis of
                                    the Extremities
                                    with Ulceration or
                                    Gangrene.
SEVERE x HCC154..................  Severe illness x         1.895      2.007      2.070      2.170         2.164
                                    Vascular Disease
                                    with Complications.
SEVERE x HCC163..................  Severe illness x         1.895      2.007      2.070      2.170         2.164
                                    Aspiration and
                                    Specified
                                    Bacterial
                                    Pneumonias and
                                    Other Severe Lung
                                    Infections.
SEVERE x HCC253..................  Severe illness x         1.895      2.007      2.070      2.170         2.164
                                    Artificial
                                    Openings for
                                    Feeding or
                                    Elimination.
SEVERE x G03.....................  Severe illness x         1.895      2.007      2.070      2.170         2.164
                                    HCC group G03 (G03
                                    is HCC Group 3
                                    which includes the
                                    following HCCs in
                                    the
                                    musculoskeletal
                                    disease category:
                                    54, 55).
----------------------------------------------------------------------------------------------------------------
                                           Enrollment Duration Factors
----------------------------------------------------------------------------------------------------------------
                                   One month of             0.526      0.470      0.427      0.411         0.414
                                    enrollment.
                                   Two months of            0.434      0.381      0.335      0.316         0.319
                                    enrollment.
                                   Three months of          0.386      0.337      0.291      0.270         0.272
                                    enrollment.
                                   Four months of           0.303      0.264      0.226      0.209         0.211
                                    enrollment.
                                   Five months of           0.263      0.229      0.194      0.175         0.176
                                    enrollment.
                                   Six months of            0.241      0.212      0.180      0.163         0.163
                                    enrollment.
                                   Seven months of          0.214      0.190      0.163      0.148         0.148
                                    enrollment.
                                   Eight months of          0.166      0.148      0.128      0.115         0.116
                                    enrollment.
                                   Nine months of           0.111      0.100      0.089      0.085         0.085
                                    enrollment.
                                   Ten months of            0.106      0.098      0.089      0.085         0.085
                                    enrollment.
                                   Eleven months of         0.088      0.083      0.079      0.077         0.077
                                    enrollment.
----------------------------------------------------------------------------------------------------------------
                                    Prescription Drug Utilization Indicators
----------------------------------------------------------------------------------------------------------------
RXC 01...........................  Anti-Hepatitis C        23.898     23.451     23.158     23.236        23.320
                                    (HCV) Agents.
RXC 02...........................  Anti-HIV Agents....      6.331      5.889      5.594      5.432         5.482
RXC 03...........................  Antiarrhythmics....      2.320      2.226      2.149      2.079         2.083
RXC 04...........................  Phosphate Binders..     13.417     13.308     13.238     13.249        13.271
RXC 05...........................  Inflammatory Bowel       1.990      1.822      1.708      1.541         1.543
                                    Disease Agents.
RXC 06b..........................  Insulin............      1.379      1.258      1.134      0.975         0.966

[[Page 61481]]

 
RXC 06a..........................  Anti-Diabetic            0.575      0.502      0.428      0.326         0.319
                                    Agents, Except
                                    Insulin and
                                    Metformin Only.
RXC 07...........................  Multiple Sclerosis      16.971     16.286     15.836     15.832        15.945
                                    Agents.
RXC 08...........................  Immune Suppressants     10.134      9.586      9.234      9.242         9.339
                                    and
                                    Immunomodulators.
RXC 09...........................  Cystic Fibrosis         17.443     17.133     16.931     17.071        17.144
                                    Agents.
RXC 01 x HCC37C, 036, 035, 034...  Additional effect        3.212      3.350      3.439      3.522         3.512
                                    for enrollees with
                                    RXC Anti-Hepatitis
                                    C (HCV) Agents and
                                    HCC (Liver
                                    Transplant Status/
                                    Complications or
                                    End-Stage Liver
                                    Disease or
                                    Cirrhosis of Liver
                                    or Chronic Viral
                                    Hepatitis).
RXC 02 x HCC001..................  Additional effect       -2.238     -1.888     -1.645     -1.437        -1.465
                                    for enrollees with
                                    RXC Anti-HIV
                                    Agents and HCC HIV/
                                    AIDS.
RXC 03 x HCC142..................  Additional effect       -0.102     -0.076     -0.035      0.037         0.046
                                    for enrollees with
                                    RXC
                                    Antiarrhythmics
                                    and HCC Specified
                                    Heart Arrhythmias.
RXC 04 x HCC184, 183, 187, 188...  Additional effect        7.775      7.850      7.890      7.978         7.973
                                    for enrollees with
                                    RXC Phosphate
                                    Binders and HCC
                                    (End Stage Renal
                                    Disease or Kidney
                                    Transplant Status
                                    or Chronic Kidney
                                    Disease, Stage 5
                                    or Chronic Kidney
                                    Disease, Severe
                                    (Stage 4)).
RXC 05 x HCC048, 041.............  Additional effect       -1.296     -1.208     -1.126     -1.028        -1.026
                                    for enrollees with
                                    RXC Inflammatory
                                    Bowel Disease
                                    Agents and (HCC
                                    Inflammatory Bowel
                                    Disease or
                                    Intestine
                                    Transplant Status/
                                    Complications).
RXC 06b x HCC018, 019, 020, 021..  Additional effect        0.265      0.233      0.289      0.371         0.397
                                    for enrollees with
                                    RXC Insulin and
                                    (HCC Pancreas
                                    Transplant Status/
                                    Complications or
                                    Diabetes with
                                    Acute
                                    Complications or
                                    Diabetes with
                                    Chronic
                                    Complications or
                                    Diabetes without
                                    Complication).
RXC 06a x HCC018, 019, 020, 021..  Additional effect       -0.203     -0.184     -0.141     -0.118        -0.116
                                    for enrollees with
                                    RXC Anti-Diabetic
                                    Agents, Except
                                    Insulin and
                                    Metformin Only and
                                    (HCC Pancreas
                                    Transplant Status/
                                    Complications or
                                    Diabetes with
                                    Acute
                                    Complications or
                                    Diabetes with
                                    Chronic
                                    Complications or
                                    Diabetes without
                                    Complication).
RXC 07 x HCC118..................  Additional effect       -1.213     -0.849     -0.619     -0.449        -0.484
                                    for enrollees with
                                    RXC Multiple
                                    Sclerosis Agents
                                    and HCC Multiple
                                    Sclerosis.
RXC 08 x HCC056 or 057, and 048    Additional effect        0.022      0.024      0.038      0.012         0.009
 or 041.                            for enrollees with
                                    RXC Immune
                                    Suppressants and
                                    Immunomodulators
                                    and (HCC
                                    Inflammatory Bowel
                                    Disease or
                                    Intestine
                                    Transplant Status/
                                    Complications) and
                                    (HCC Rheumatoid
                                    Arthritis and
                                    Specified
                                    Autoimmune
                                    Disorders or
                                    Systemic Lupus
                                    Erythematosus and
                                    Other Autoimmune
                                    Disorders).
RXC 08 x HCC056..................  Additional effect       -1.934     -1.747     -1.615     -1.481        -1.495
                                    for enrollees with
                                    RXC Immune
                                    Suppressants and
                                    Immunomodulators
                                    and HCC Rheumatoid
                                    Arthritis and
                                    Specified
                                    Autoimmune
                                    Disorders.
RXC 08 x HCC057..................  Additional effect       -0.891     -0.759     -0.656     -0.522        -0.526
                                    for enrollees with
                                    RXC Immune
                                    Suppressants and
                                    Immunomodulators
                                    and HCC Systemic
                                    Lupus
                                    Erythematosus and
                                    Other Autoimmune
                                    Disorders.
RXC 08 x HCC048, 041.............  Additional effect        0.948      1.194      1.330      1.513         1.493
                                    for enrollees with
                                    RXC Immune
                                    Suppressants and
                                    Immunomodulators
                                    and (HCC
                                    Inflammatory Bowel
                                    Disease or
                                    Intestine
                                    Transplant Status/
                                    Complications).

[[Page 61482]]

 
RXC 09 x HCC159, 158.............  Additional effect       18.100     18.294     18.402     18.379        18.340
                                    for enrollees with
                                    RXC Cystic
                                    Fibrosis Agents
                                    and (HCC Cystic
                                    Fibrosis or Lung
                                    Transplant Status/
                                    Complications).
RXC 10 x HCC036, 035, 034........  Additional effect        7.113      7.080      7.054      7.145         7.164
                                    for enrollees with
                                    RXC Ammonia
                                    Detoxicants and
                                    (HCC Liver
                                    Transplant Status/
                                    Complications or
                                    End-Stage Liver
                                    Disease or
                                    Cirrhosis of
                                    Liver).
RXC 11 x HCC130, 129, 128........  Additional effect        2.263      2.270      2.284      2.369         2.382
                                    for enrollees with
                                    RXC Diuretics,
                                    Loop and Select
                                    Potassium-sparing
                                    and (HCC Heart
                                    Assistive Device/
                                    Artificial Heart
                                    or Heart
                                    Transplant or
                                    Congestive Heart
                                    Failure).
----------------------------------------------------------------------------------------------------------------


      Table 5--HHS HCCs in the Severity Illness Indicator Variable
------------------------------------------------------------------------
                               Description
-------------------------------------------------------------------------
Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock.
Peritonitis/Gastrointestinal Perforation/Necrotizing Enter colitis.
Seizure Disorders and Convulsions.
Non-Traumatic Coma, Brain Compression/Anoxic Damage.
Respirator Dependence/Tracheostomy Status.
Respiratory Arrest.
Cardio-Respiratory Failure and Shock, Including Respiratory Distress
 Syndromes.
Pulmonary Embolism and Deep Vein Thrombosis.
------------------------------------------------------------------------


                    Table 6--Draft Child Risk Adjustment Model Factors for 2018 Benefit Year
----------------------------------------------------------------------------------------------------------------
             Factor                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 2-4, Male...................           0.207           0.151           0.085           0.029           0.025
Age 5-9, Male...................           0.142           0.102           0.053           0.011           0.008
Age 10-14, Male.................           0.204           0.160           0.103           0.057           0.053
Age 15-20, Male.................           0.271           0.220           0.158           0.102           0.098
Age 2-4, Female.................           0.163           0.114           0.058           0.015           0.012
Age 5-9, Female.................           0.116           0.081           0.039           0.008           0.006
Age 10-14, Female...............           0.192           0.150           0.099           0.059           0.056
Age 15-20, Female...............           0.309           0.250           0.177           0.109           0.104
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS........................           4.686           4.277           4.006           3.895           3.948
Septicemia, Sepsis, Systemic              15.212          15.056          14.964          14.980          15.011
 Inflammatory Response Syndrome/
 Shock..........................
Central Nervous System                     9.957           9.790           9.682           9.681           9.708
 Infections, Except Viral
 Meningitis.....................
Viral or Unspecified Meningitis.           2.484           2.302           2.192           2.092           2.112
Opportunistic Infections........          20.790          20.728          20.685          20.673          20.682
Metastatic Cancer...............          32.805          32.584          32.417          32.401          32.434
Lung, Brain, and Other Severe             11.049          10.801          10.617          10.544          10.573
 Cancers, Including Pediatric
 Acute Lymphoid Leukemia........
Non-Hodgkin's Lymphomas and                8.747           8.507           8.333           8.231           8.255
 Other Cancers and Tumors.......
Colorectal, Breast (Age <50),              3.175           2.986           2.846           2.724           2.737
 Kidney, and Other Cancers......
Breast (Age 50+) and Prostate              2.813           2.640           2.513           2.398           2.408
 Cancer, Benign/Uncertain Brain
 Tumors, and Other Cancers and
 Tumors.........................
Thyroid Cancer, Melanoma,                  1.561           1.423           1.311           1.190           1.194
 Neurofibromatosis, and Other
 Cancers and Tumors.............
Pancreas Transplant Status/               26.035          25.914          25.841          25.846          25.867
 Complications..................
Diabetes with Acute                        2.340           2.054           1.887           1.622           1.632
 Complications..................
Diabetes with Chronic                      2.340           2.054           1.887           1.622           1.632
 Complications..................
Diabetes without Complication...           2.340           2.054           1.887           1.622           1.632
Protein-Calorie Malnutrition....          12.106          12.025          11.965          11.995          12.012
Mucopolysaccharidosis...........           8.087           7.841           7.660           7.612           7.644
Lipidoses and Glycogenosis......           8.087           7.841           7.660           7.612           7.644
Congenital Metabolic Disorders,            8.087           7.841           7.660           7.612           7.644
 Not Elsewhere Classified.......

[[Page 61483]]

 
Amyloidosis, Porphyria, and                8.087           7.841           7.660           7.612           7.644
 Other Metabolic Disorders......
Adrenal, Pituitary, and Other              8.087           7.841           7.660           7.612           7.644
 Significant Endocrine Disorders
Liver Transplant Status/                  26.035          25.914          25.841          25.846          25.867
 Complications..................
End-Stage Liver Disease.........          11.991          11.852          11.762          11.751          11.773
Cirrhosis of Liver..............           9.308           9.167           9.070           9.044           9.062
Chronic Viral Hepatitis C.......           4.024           3.889           3.787           3.730           3.743
Chronic Hepatitis, Other/                  2.271           2.151           2.049           1.965           1.971
 Unspecified....................
Acute Liver Failure/Disease,              11.991          11.852          11.762          11.751          11.773
 Including Neonatal Hepatitis...
Intestine Transplant Status/              26.035          25.914          25.841          25.846          25.867
 Complications..................
Peritonitis/Gastrointestinal              13.534          13.230          13.022          13.021          13.071
 Perforation/Necrotizing
 Enterocolitis..................
Intestinal Obstruction..........           4.748           4.541           4.395           4.297           4.317
Chronic Pancreatitis............           9.837           9.629           9.502           9.493           9.527
Acute Pancreatitis/Other                   2.186           2.075           1.987           1.889           1.892
 Pancreatic Disorders and
 Intestinal Malabsorption.......
Inflammatory Bowel Disease......           6.044           5.699           5.465           5.348           5.386
Necrotizing Fasciitis...........           3.999           3.795           3.647           3.572           3.596
Bone/Joint/Muscle Infections/              3.999           3.795           3.647           3.572           3.596
 Necrosis.......................
Rheumatoid Arthritis and                   3.788           3.572           3.404           3.301           3.321
 Specified Autoimmune Disorders.
Systemic Lupus Erythematosus and           1.335           1.216           1.112           0.990           0.989
 Other Autoimmune Disorders.....
Osteogenesis Imperfecta and                1.489           1.379           1.285           1.201           1.206
 Other Osteodystrophies.........
Congenital/Developmental                   1.489           1.379           1.285           1.201           1.206
 Skeletal and Connective Tissue
 Disorders......................
Cleft Lip/Cleft Palate..........           1.502           1.322           1.192           1.064           1.075
Hemophilia......................          55.750          55.302          54.985          54.945          55.012
Myelodysplastic Syndromes and             15.915          15.761          15.654          15.632          15.652
 Myelofibrosis..................
Aplastic Anemia.................          15.915          15.761          15.654          15.632          15.652
Acquired Hemolytic Anemia,                 7.294           7.048           6.875           6.784           6.812
 Including Hemolytic Disease of
 Newborn........................
Sickle Cell Anemia (Hb-SS)......           7.294           7.048           6.875           6.784           6.812
Thalassemia Major...............           7.294           7.048           6.875           6.784           6.812
Combined and Other Severe                  6.252           6.092           5.982           5.915           5.931
 Immunodeficiencies.............
Disorders of the Immune                    6.252           6.092           5.982           5.915           5.931
 Mechanism......................
Coagulation Defects and Other              4.546           4.429           4.333           4.257           4.264
 Specified Hematological
 Disorders......................
Drug Psychosis..................           5.380           5.147           4.999           4.923           4.952
Drug Dependence.................           5.380           5.147           4.999           4.923           4.952
Schizophrenia...................           5.083           4.726           4.492           4.375           4.420
Major Depressive and Bipolar               1.873           1.677           1.527           1.350           1.356
 Disorders......................
Reactive and Unspecified                   1.873           1.677           1.527           1.350           1.356
 Psychosis, Delusional Disorders
Personality Disorders...........           0.729           0.624           0.520           0.377           0.372
Anorexia/Bulimia Nervosa........           2.892           2.708           2.576           2.504           2.524
Prader-Willi, Patau, Edwards,              3.492           3.304           3.194           3.154           3.180
 and Autosomal Deletion
 Syndromes......................
Down Syndrome, Fragile X, Other            1.736           1.577           1.469           1.376           1.390
 Chromosomal Anomalies, and
 Congenital Malformation
 Syndromes......................
Autistic Disorder...............           1.671           1.512           1.383           1.224           1.226
Pervasive Developmental                    0.835           0.726           0.612           0.447           0.437
 Disorders, Except Autistic
 Disorder.......................
Traumatic Complete Lesion                 12.558          12.507          12.489          12.562          12.579
 Cervical Spinal Cord...........
Quadriplegia....................          12.558          12.507          12.489          12.562          12.579
Traumatic Complete Lesion Dorsal          12.180          12.010          11.883          11.877          11.912
 Spinal Cord....................
Paraplegia......................          12.180          12.010          11.883          11.877          11.912
Spinal Cord Disorders/Injuries..           4.250           4.044           3.905           3.816           3.836
Amyotrophic Lateral Sclerosis              7.619           7.407           7.257           7.196           7.221
 and Other Anterior Horn Cell
 Disease........................
Quadriplegic Cerebral Palsy.....           2.991           2.764           2.631           2.634           2.675
Cerebral Palsy, Except                     0.778           0.617           0.514           0.422           0.436
 Quadriplegic...................
Spina Bifida and Other Brain/              1.275           1.146           1.054           0.976           0.986
 Spinal/Nervous System
 Congenital Anomalies...........
Myasthenia Gravis/Myoneural                8.788           8.631           8.520           8.481           8.502
 Disorders and Guillain-Barre
 Syndrome/Inflammatory and Toxic
 Neuropathy.....................
Muscular Dystrophy..............           2.941           2.765           2.650           2.563           2.580
Multiple Sclerosis..............           7.769           7.471           7.263           7.206           7.246
Parkinson`s, Huntington`s, and             2.941           2.765           2.650           2.563           2.580
 Spinocerebellar Disease, and
 Other Neurodegenerative
 Disorders......................
Seizure Disorders and                      1.905           1.753           1.628           1.483           1.486
 Convulsions....................
Hydrocephalus...................           4.590           4.479           4.408           4.389           4.406
Non-Traumatic Coma, and Brain              6.647           6.522           6.434           6.385           6.397
 Compression/Anoxic Damage......

[[Page 61484]]

 
Respirator Dependence/                    34.991          34.882          34.817          34.931          34.967
 Tracheostomy Status............
Respiratory Arrest..............          11.820          11.625          11.511          11.500          11.535
Cardio-Respiratory Failure and            11.820          11.625          11.511          11.500          11.535
 Shock, Including Respiratory
 Distress Syndromes.............
Heart Assistive Device/                   26.035          25.914          25.841          25.846          25.867
 Artificial Heart...............
Heart Transplant................          26.035          25.914          25.841          25.846          25.867
Congestive Heart Failure........           6.567           6.472           6.394           6.342           6.348
Acute Myocardial Infarction.....           9.084           8.927           8.826           8.828           8.852
Unstable Angina and Other Acute            5.051           4.971           4.917           4.926           4.938
 Ischemic Heart Disease.........
Heart Infection/Inflammation,             14.351          14.240          14.165          14.137          14.149
 Except Rheumatic...............
Hypoplastic Left Heart Syndrome            5.764           5.584           5.432           5.305           5.313
 and Other Severe Congenital
 Heart Disorders................
Major Congenital Heart/                    1.573           1.475           1.361           1.239           1.235
 Circulatory Disorders..........
Atrial and Ventricular Septal              1.097           1.010           0.908           0.808           0.807
 Defects, Patent Ductus
 Arteriosus, and Other
 Congenital Heart/Circulatory
 Disorders......................
Specified Heart Arrhythmias.....           3.684           3.526           3.401           3.320           3.333
Intracranial Hemorrhage.........          14.176          13.948          13.803          13.784          13.820
Ischemic or Unspecified Stroke..           7.895           7.786           7.721           7.720           7.739
Cerebral Aneurysm and                      3.545           3.356           3.235           3.172           3.192
 Arteriovenous Malformation.....
Hemiplegia/Hemiparesis..........           4.484           4.389           4.333           4.314           4.330
Monoplegia, Other Paralytic                3.148           3.018           2.937           2.899           2.917
 Syndromes......................
Atherosclerosis of the                    14.633          14.377          14.225          14.131          14.168
 Extremities with Ulceration or
 Gangrene.......................
Vascular Disease with                     16.113          15.969          15.873          15.876          15.899
 Complications..................
Pulmonary Embolism and Deep Vein          14.661          14.521          14.435          14.448          14.475
 Thrombosis.....................
Lung Transplant Status/                   26.035          25.914          25.841          25.846          25.867
 Complications..................
Cystic Fibrosis.................          19.127          18.718          18.428          18.452          18.522
Chronic Obstructive Pulmonary              0.396           0.334           0.249           0.153           0.147
 Disease, Including
 Bronchiectasis.................
Asthma..........................           0.396           0.334           0.249           0.153           0.147
Fibrosis of Lung and Other Lung            4.160           4.036           3.936           3.862           3.873
 Disorders......................
Aspiration and Specified                  10.367          10.322          10.287          10.315          10.324
 Bacterial Pneumonias and Other
 Severe Lung Infections.........
Kidney Transplant Status........          15.081          14.777          14.581          14.566          14.616
End Stage Renal Disease.........          38.217          38.061          37.962          38.031          38.065
Chronic Kidney Disease, Stage 5.           3.038           2.903           2.802           2.685           2.688
Chronic Kidney Disease, Severe             3.038           2.903           2.802           2.685           2.688
 (Stage 4)......................
Ectopic and Molar Pregnancy,               1.033           0.878           0.754           0.549           0.541
 Except with Renal Failure,
 Shock, or Embolism.............
Miscarriage with Complications..           1.033           0.878           0.754           0.549           0.541
Miscarriage with No or Minor               1.033           0.878           0.754           0.549           0.541
 Complications..................
Completed Pregnancy With Major             2.991           2.587           2.391           2.161           2.216
 Complications..................
Completed Pregnancy With                   2.991           2.587           2.391           2.161           2.216
 Complications..................
Completed Pregnancy with No or             2.991           2.587           2.391           2.161           2.216
 Minor Complications............
Chronic Ulcer of Skin, Except              2.057           1.969           1.888           1.819           1.823
 Pressure.......................
Hip Fractures and Pathological             5.729           5.486           5.302           5.192           5.214
 Vertebral or Humerus Fractures.
Pathological Fractures, Except             1.351           1.233           1.116           0.982           0.977
 of Vertebrae, Hip, or Humerus..
Stem Cell, Including Bone                 26.035          25.914          25.841          25.846          25.867
 Marrow, Transplant Status/
 Complications..................
Artificial Openings for Feeding           13.409          13.305          13.251          13.357          13.391
 or Elimination.................
Amputation Status, Lower Limb/             7.806           7.556           7.407           7.306           7.336
 Amputation Complications.......
----------------------------------------------------------------------------------------------------------------


                    Table 7--Draft Infant Risk Adjustment Model Factors for 2018 Benefit Year
----------------------------------------------------------------------------------------------------------------
              Group                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
Extremely Immature * Severity            336.506         335.265         334.332         334.271         334.459
 Level 5 (Highest)..............
Extremely Immature * Severity            183.468         182.244         181.331         181.224         181.402
 Level 4........................
Extremely Immature * Severity             70.513          69.447          68.657          68.493          68.642
 Level 3........................
Extremely Immature * Severity             29.465          28.557          27.854          27.519          27.614
 Level 2........................
Extremely Immature * Severity             29.465          28.557          27.854          27.519          27.614
 Level 1 (Lowest)...............
Immature * Severity Level 5              178.009         176.784         175.861         175.795         175.980
 (Highest)......................
Immature * Severity Level 4.....          80.832          79.582          78.649          78.554          78.740
Immature * Severity Level 3.....          45.204          44.114          43.299          43.140          43.289
Immature * Severity Level 2.....          29.465          28.557          27.854          27.519          27.614
Immature * Severity Level 1               26.402          25.374          24.608          24.351          24.477
 (Lowest).......................
Premature/Multiples * Severity           133.590         132.392         131.511         131.378         131.555
 Level 5 (Highest)..............
Premature/Multiples * Severity            30.629          29.458          28.605          28.391          28.552
 Level 4........................

[[Page 61485]]

 
Premature/Multiples * Severity            16.302          15.378          14.694          14.308          14.399
 Level 3........................
Premature/Multiples * Severity             8.445           7.691           7.131           6.599           6.637
 Level 2........................
Premature/Multiples * Severity             5.825           5.277           4.774           4.196           4.187
 Level 1 (Lowest)...............
Term * Severity Level 5                  115.287         114.176         113.343         113.147         113.297
 (Highest)......................
Term * Severity Level 4.........          16.144          15.252          14.603          14.155          14.235
Term * Severity Level 3.........           6.053           5.490           4.998           4.409           4.397
Term * Severity Level 2.........           3.715           3.284           2.849           2.209           2.166
Term * Severity Level 1 (Lowest)           1.570           1.351           0.965           0.436           0.387
Age 1 * Severity Level 5                  49.286          48.692          48.242          48.122          48.198
 (Highest)......................
Age 1 * Severity Level 4........           8.659           8.213           7.871           7.641           7.678
Age 1 * Severity Level 3........           3.182           2.901           2.635           2.374           2.380
Age 1 * Severity Level 2........           1.997           1.779           1.544           1.267           1.257
Age 1 * Severity Level 1                   0.529           0.441           0.299           0.196           0.189
 (Lowest).......................
Age 0 Male......................           0.601           0.558           0.540           0.494           0.490
Age 1 Male......................           0.140           0.123           0.112           0.085           0.084
----------------------------------------------------------------------------------------------------------------


     Table 8--HHS HCCs Included in Infant Model Maturity Categories
------------------------------------------------------------------------
      Maturity category                     HCC/Description
------------------------------------------------------------------------
Extremely Immature...........  Extremely Immature Newborns, Birthweight
                                < 500 Grams.
Extremely Immature...........  Extremely Immature Newborns, Including
                                Birthweight 500-749 Grams.
Extremely Immature...........  Extremely Immature Newborns, Including
                                Birthweight 750-999 Grams.
Immature.....................  Premature Newborns, Including Birthweight
                                1000-1499 Grams.
Immature.....................  Premature Newborns, Including Birthweight
                                1500-1999 Grams.
Premature/Multiples..........  Premature Newborns, Including Birthweight
                                2000-2499 Grams.
Premature/Multiples..........  Other Premature, Low Birthweight,
                                Malnourished, or Multiple Birth
                                Newborns.
Term.........................  Term or Post-Term Singleton Newborn,
                                Normal or High Birthweight.
Age 1........................  All age 1 infants.
------------------------------------------------------------------------


     Table 9--HHS HCCs Included in Infant Model Severity Categories
------------------------------------------------------------------------
      Severity category                           HCC
------------------------------------------------------------------------
Severity Level 5 (Highest)...  Metastatic Cancer.
Severity Level 5.............  Pancreas Transplant Status/Complications.
Severity Level 5.............  Liver Transplant Status/Complications.
Severity Level 5.............  End-Stage Liver Disease.
Severity Level 5.............  Intestine Transplant Status/
                                Complications.
Severity Level 5.............  Peritonitis/Gastrointestinal Perforation/
                                Necrotizing Enterocolitis.
Severity Level 5.............  Respirator Dependence/Tracheostomy
                                Status.
Severity Level 5.............  Heart Assistive Device/Artificial Heart.
Severity Level 5.............  Heart Transplant.
Severity Level 5.............  Congestive Heart Failure.
Severity Level 5.............  Hypoplastic Left Heart Syndrome and Other
                                Severe Congenital Heart Disorders.
Severity Level 5.............  Lung Transplant Status/Complications.
Severity Level 5.............  Kidney Transplant Status.
Severity Level 5.............  End Stage Renal Disease.
Severity Level 5.............  Stem Cell, Including Bone Marrow,
                                Transplant Status/Complications.
Severity Level 4.............  Septicemia, Sepsis, Systemic Inflammatory
                                Response Syndrome/Shock.
Severity Level 4.............  Lung, Brain, and Other Severe Cancers,
                                Including Pediatric Acute Lymphoid
                                Leukemia.
Severity Level 4.............  Mucopolysaccharidosis.
Severity Level 4.............  Major Congenital Anomalies of Diaphragm,
                                Abdominal Wall, and Esophagus, Age < 2.
Severity Level 4.............  Myelodysplastic Syndromes and
                                Myelofibrosis.
Severity Level 4.............  Aplastic Anemia.
Severity Level 4.............  Combined and Other Severe
                                Immunodeficiencies.
Severity Level 4.............  Traumatic Complete Lesion Cervical Spinal
                                Cord.
Severity Level 4.............  Quadriplegia.
Severity Level 4.............  Amyotrophic Lateral Sclerosis and Other
                                Anterior Horn Cell Disease.
Severity Level 4.............  Quadriplegic Cerebral Palsy.
Severity Level 4.............  Myasthenia Gravis/Myoneural Disorders and
                                Guillain-Barre Syndrome/Inflammatory and
                                Toxic Neuropathy.
Severity Level 4.............  Non-Traumatic Coma, Brain Compression/
                                Anoxic Damage.
Severity Level 4.............  Respiratory Arrest.
Severity Level 4.............  Cardio-Respiratory Failure and Shock,
                                Including Respiratory Distress
                                Syndromes.
Severity Level 4.............  Acute Myocardial Infarction.
Severity Level 4.............  Heart Infection/Inflammation, Except
                                Rheumatic.
Severity Level 4.............  Major Congenital Heart/Circulatory
                                Disorders.
Severity Level 4.............  Intracranial Hemorrhage.
Severity Level 4.............  Ischemic or Unspecified Stroke.

[[Page 61486]]

 
Severity Level 4.............  Vascular Disease with Complications.
Severity Level 4.............  Pulmonary Embolism and Deep Vein
                                Thrombosis.
Severity Level 4.............  Aspiration and Specified Bacterial
                                Pneumonias and Other Severe Lung
                                Infections.
Severity Level 4.............  Chronic Kidney Disease, Stage 5.
Severity Level 4.............  Hip Fractures and Pathological Vertebral
                                or Humerus Fractures.
Severity Level 4.............  Artificial Openings for Feeding or
                                Elimination.
Severity Level 3.............  HIV/AIDS.
Severity Level 3.............  Central Nervous System Infections, Except
                                Viral Meningitis.
Severity Level 3.............  Opportunistic Infections.
Severity Level 3.............  Non-Hodgkin`s Lymphomas and Other Cancers
                                and Tumors.
Severity Level 3.............  Colorectal, Breast (Age < 50), Kidney and
                                Other Cancers.
Severity Level 3.............  Breast (Age 50+), Prostate Cancer, Benign/
                                Uncertain Brain Tumors, and Other
                                Cancers and Tumors.
Severity Level 3.............  Lipidoses and Glycogenosis.
Severity Level 3.............  Adrenal, Pituitary, and Other Significant
                                Endocrine Disorders.
Severity Level 3.............  Acute Liver Failure/Disease, Including
                                Neonatal Hepatitis.
Severity Level 3.............  Intestinal Obstruction.
Severity Level 3.............  Necrotizing Fasciitis.
Severity Level 3.............  Bone/Joint/Muscle Infections/Necrosis.
Severity Level 3.............  Osteogenesis Imperfecta and Other
                                Osteodystrophies.
Severity Level 3.............  Cleft Lip/Cleft Palate.
Severity Level 3.............  Hemophilia.
Severity Level 3.............  Disorders of the Immune Mechanism.
Severity Level 3.............  Coagulation Defects and Other Specified
                                Hematological Disorders.
Severity Level 3.............  Prader-Willi, Patau, Edwards, and
                                Autosomal Deletion Syndromes.
Severity Level 3.............  Traumatic Complete Lesion Dorsal Spinal
                                Cord.
Severity Level 3.............  Paraplegia.
Severity Level 3.............  Spinal Cord Disorders/Injuries.
Severity Level 3.............  Cerebral Palsy, Except Quadriplegic.
Severity Level 3.............  Muscular Dystrophy.
Severity Level 3.............  Parkinson`s, Huntington`s, and
                                Spinocerebellar Disease, and Other
                                Neurodegenerative Disorders.
Severity Level 3.............  Hydrocephalus.
Severity Level 3.............  Unstable Angina and Other Acute Ischemic
                                Heart Disease.
Severity Level 3.............  Atrial and Ventricular Septal Defects,
                                Patent Ductus Arteriosus, and Other
                                Congenital Heart/Circulatory Disorders.
Severity Level 3.............  Specified Heart Arrhythmias.
Severity Level 3.............  Cerebral Aneurysm and Arteriovenous
                                Malformation.
Severity Level 3.............  Hemiplegia/Hemiparesis.
Severity Level 3.............  Cystic Fibrosis.
Severity Level 3.............  Fibrosis of Lung and Other Lung
                                Disorders.
Severity Level 3.............  Pathological Fractures, Except of
                                Vertebrae, Hip, or Humerus.
Severity Level 2.............  Viral or Unspecified Meningitis.
Severity Level 2.............  Thyroid, Melanoma, Neurofibromatosis, and
                                Other Cancers and Tumors.
Severity Level 2.............  Diabetes with Acute Complications.
Severity Level 2.............  Diabetes with Chronic Complications.
Severity Level 2.............  Diabetes without Complication.
Severity Level 2.............  Protein-Calorie Malnutrition.
Severity Level 2.............  Congenital Metabolic Disorders, Not
                                Elsewhere Classified.
Severity Level 2.............  Amyloidosis, Porphyria, and Other
                                Metabolic Disorders.
Severity Level 2.............  Cirrhosis of Liver.
Severity Level 2.............  Chronic Pancreatitis.
Severity Level 2.............  Inflammatory Bowel Disease.
Severity Level 2.............  Rheumatoid Arthritis and Specified
                                Autoimmune Disorders.
Severity Level 2.............  Systemic Lupus Erythematosus and Other
                                Autoimmune Disorders.
Severity Level 2.............  Congenital/Developmental Skeletal and
                                Connective Tissue Disorders.
Severity Level 2.............  Acquired Hemolytic Anemia, Including
                                Hemolytic Disease of Newborn.
Severity Level 2.............  Sickle Cell Anemia (Hb-SS).
Severity Level 2.............  Drug Psychosis.
Severity Level 2.............  Drug Dependence.
Severity Level 2.............  Down Syndrome, Fragile X, Other
                                Chromosomal Anomalies, and Congenital
                                Malformation Syndromes.
Severity Level 2.............  Spina Bifida and Other Brain/Spinal/
                                Nervous System Congenital Anomalies.
Severity Level 2.............  Seizure Disorders and Convulsions.
Severity Level 2.............  Monoplegia, Other Paralytic Syndromes.
Severity Level 2.............  Atherosclerosis of the Extremities with
                                Ulceration or Gangrene.
Severity Level 2.............  Chronic Obstructive Pulmonary Disease,
                                Including Bronchiectasis.
Severity Level 2.............  Chronic Ulcer of Skin, Except Pressure.
Severity Level 1 (Lowest)....  Chronic Hepatitis.
Severity Level 1.............  Acute Pancreatitis/Other Pancreatic
                                Disorders and Intestinal Malabsorption.
Severity Level 1.............  Thalassemia Major.
Severity Level 1.............  Autistic Disorder.

[[Page 61487]]

 
Severity Level 1.............  Pervasive Developmental Disorders, Except
                                Autistic Disorder.
Severity Level 1.............  Multiple Sclerosis.
Severity Level 1.............  Asthma.
Severity Level 1.............  Chronic Kidney Disease, Severe (Stage 4).
Severity Level 1.............  Amputation Status, Lower Limb/Amputation
                                Complications.
Severity Level 1.............  No Severity HCCs.
------------------------------------------------------------------------

e. Cost-Sharing Reductions (Sec.  153.320)
    We propose to continue including an adjustment for the receipt of 
cost-sharing reductions in the model to account for increased plan 
liability due to increased utilization of health care services by 
enrollees receiving cost-sharing reductions. The proposed cost-sharing 
reductions adjustment factors for 2018 risk adjustment are unchanged 
from those finalized in the 2017 Payment Notice and are set forth in 
Table 10. These adjustments are effective for 2016, 2017, and 2018 risk 
adjustment, and are multiplied against the sum of the demographic, 
diagnosis, and interaction factors. We anticipate adjusting these 
factors in the annual HHS notice of benefit and payment parameters for 
the 2019 benefit year as additional enrollee-level data from the 
individual market becomes available. We seek comment on this approach.

              Table 10--Cost-Sharing Reductions Adjustment
------------------------------------------------------------------------
                                                              Induced
        Household income                 Plan AV            utilization
                                                              factor
------------------------------------------------------------------------
                     Silver Plan Variant Recipients
------------------------------------------------------------------------
100-150% of FPL................  Plan Variation 94%.....            1.12
150-200% of FPL................  Plan Variation 87%.....            1.12
200-250% of FPL................  Plan Variation 73%.....            1.00
>250% of FPL...................  Standard Plan 70%......            1.00
------------------------------------------------------------------------
                      Zero Cost-Sharing Recipients
------------------------------------------------------------------------
<300% of FPL...................  Platinum (90%).........            1.00
<300% of FPL...................  Gold (80%).............            1.07
<300% of FPL...................  Silver (70%)...........            1.12
<300% of FPL...................  Bronze (60%)...........            1.15
------------------------------------------------------------------------
                     Limited Cost-Sharing Recipients
------------------------------------------------------------------------
>300% of FPL...................  Platinum (90%).........            1.00
>300% of FPL...................  Gold (80%).............            1.07
>300% of FPL...................  Silver (70%)...........            1.12
>300% of FPL...................  Bronze (60%)...........            1.15
------------------------------------------------------------------------

f. Model Performance Statistics (Sec.  153.320)
    To evaluate the model's performance, we examined its R-squared and 
predictive ratios. The R-squared statistic, which calculates the 
percentage of individual variation explained by a model, measures the 
predictive accuracy of the model overall. The predictive ratios measure 
the predictive accuracy of a model for different validation groups or 
subpopulations. The predictive ratio for each of the HHS risk 
adjustment models is the ratio of the weighted mean predicted plan 
liability for the model sample population to the weighted mean actual 
plan liability for the model sample population. The predictive ratio 
represents how well the model does on average at predicting plan 
liability for that subpopulation. A subpopulation that is predicted 
perfectly would have a predictive ratio of 1.0. For each of the HHS 
risk adjustment models, the R-squared statistic and the predictive 
ratio are in the range of published estimates for concurrent risk 
adjustment models.\33\ Because we are proposing to blend the 
coefficients from separately solved models based on MarketScan[supreg] 
2013 and 2014 data in the proposed rule, we are publishing the R-
squared statistic for each model and year separately to verify their 
statistical validity. The R-squared statistic for each model is shown 
in Table 11.
---------------------------------------------------------------------------

    \33\ Winkleman, Ross and Syed Mehmud. ``A Comparative Analysis 
of Claims-Based Tools for Health Risk Assessment.'' Society of 
Actuaries. April 2007.

[[Page 61488]]



      Table 11--R-Squared Statistic for HHS Risk Adjustment Models
------------------------------------------------------------------------
                                                R-Squared statistic
          Risk adjustment model          -------------------------------
                                               2013            2014
------------------------------------------------------------------------
Platinum Adult..........................          0.4070          0.4005
Platinum Child..........................          0.2947          0.2908
Platinum Infant.........................          0.3354          0.3200
Gold Adult..............................          0.4026          0.3956
Gold Child..............................          0.2902          0.2860
Gold Infant.............................          0.3335          0.3180
Silver Adult............................          0.3993          0.3918
Silver Child............................          0.2866          0.2821
Silver Infant...........................          0.3324          0.3168
Bronze Adult............................          0.3971          0.3893
Bronze Child............................          0.2836          0.2789
Bronze Infant...........................          0.3323          0.3165
Catastrophic Adult......................          0.3975          0.3898
Catastrophic Child......................          0.2839          0.2792
Catastrophic Infant.....................          0.3326          0.3168
------------------------------------------------------------------------

g. Overview of the Payment Transfer Formula (Sec.  153.320)
    In order to maintain the balance of payments and charges that net 
to zero within each State market, we propose to account for high-cost 
enrollees through transfer terms (a payment term and a charge term) 
that would be calculated separately from the State transfer formula. 
Thus, the non-outlier pooling portion of plan risk will continue to be 
calculated as the member month-weighted average of individual enrollee 
risk scores. We previously defined the calculation of plan average 
actuarial risk and the calculation of payments and charges in the 
Premium Stabilization Rule. In the 2014 Payment Notice, we combined 
those concepts into a risk adjustment payment transfer formula. Risk 
adjustment transfers (total payments and charges including outlier 
pooling) will be calculated after issuers have completed risk 
adjustment data reporting. The payment transfer formula includes a set 
of cost adjustment terms that require transfers to be calculated at the 
geographic rating area level for each plan (that is, HHS will calculate 
two separate transfer amounts for a plan that operates in two rating 
areas).
    The payment transfer formula is designed to provide a per member 
per month (PMPM) transfer amount. The PMPM transfer amount derived from 
the payment transfer formula would be multiplied by each plan's total 
member months for the benefit year to determine the total payment due 
or charge owed by the issuer for that plan in a rating area.
    The total payment or charge is thus calculated to balance the State 
market risk pool in question. In addition to the total charge collected 
and payment made for the State market risk pool, we propose to add to 
the risk adjustment methodology additional transfers that would reflect 
the payments and charges assessed with respect to the costs of high-
risk enrollees. In particular, we would add one term that would reflect 
60 percent of costs above $2 million, the proposed threshold for our 
payments for these enrollees, and another term that would reflect a 
percentage of PMPM premium adjustment to the transfer formula for the 
high-cost enrollee pool to maintain the balance of payment and charges 
within the risk adjustment program. We seek comment on this approach to 
balance transfers between high and low risk plans.
    We received feedback in the 2017 Payment Notice and the White Paper 
from commenters who believe that the inclusion of administrative costs 
in the Statewide average premium incorrectly increases risk adjustment 
transfers based on costs that are unrelated to the risk of the enrollee 
population. Comments ranged from requesting that administrative 
expenses be removed entirely from the Statewide average premium to 
requesting that HHS consider basing risk adjustment transfers on a 
portion of Statewide average premium--namely, the portion representing 
the sum of claims, claims adjustment expenses, and taxes that are 
calculated on premiums after risk adjustment transfers by using a 
specified percentage of Statewide average premiums. While commenters 
have stated that the inclusion of administrative costs in the Statewide 
average premium harms efficient plans, we note that low cost plans do 
not necessarily indicate efficient plans. Should a plan be low cost 
with low claims costs, it is likely an indication of mispricing, as the 
issuer should be pricing for average risk. However, we recognize that 
commenters are concerned that including fixed administrative costs in 
the Statewide average premium may increase risk adjustment transfers 
for all issuers based on a percentage of costs that are not dependent 
on enrollee risk. We have considered some of the potential effects of 
excluding certain fixed administrative costs from the Statewide average 
premium. This modification to the treatment of administrative costs in 
the Statewide average premium would lower absolute risk adjustment 
transfers for all issuers by an equal percentage. We also note that 
administrative costs are affected by claims costs and that correctly 
measuring the portion of administrative costs unaffected by claims 
costs may be difficult. An incorrect measurement of administrative 
costs could then result in plans with high risk enrollees being 
undercompensated. We are continuing to evaluate the impact of 
administrative expenses on risk adjustment transfers, and seek comment 
on removing a portion of administrative expenses from the Statewide 
average premium for the 2018 benefit year or for future benefit years.
i. The Payment Transfer Formula
    The payment transfer formula is unchanged from what was finalized 
in the 2014 Payment Notice (78 FR 15430 through 15434). We believe it 
useful to republish the formula in its entirety, since, as noted above, 
we are proposing to recalibrate the HHS risk adjustment model. 
Transfers (payments and charges) will be calculated as the difference 
between the plan premium estimate reflecting risk selection and the 
plan premium estimate not reflecting risk selection. As finalized in 
the 2014 Payment Notice, the HHS risk adjustment payment transfer 
formula is:

[[Page 61489]]

[GRAPHIC] [TIFF OMITTED] TP06SE16.000


Where:

PS = State average premium;
PLRSt = plan i's plan liability risk score;
AVi = plan i's metal level AV;
ARFi = allowable rating factor;
IDFi = plan i's induced demand factor;
GCFi = plan i's geographic cost factor;
si = plan i's share of State enrollment.

The denominator is summed across all plans in the risk pool in the 
market in the State.
    The difference between the two premium estimates in the payment 
transfer formula determines whether a plan pays a risk adjustment 
charge or receives a risk adjustment payment. Note that the value of 
the plan average risk score by itself does not determine whether a plan 
would be assessed a charge or receive a payment--even if the risk score 
is greater than 1.0, it is possible that the plan would be assessed a 
charge if the premium compensation that the plan may receive through 
its rating (as measured through the allowable rating factor) exceeds 
the plan's predicted liability associated with risk selection. Risk 
adjustment transfers are calculated at the risk pool level, and 
catastrophic plans are treated as a separate risk pool for purposes of 
risk adjustment.
    This existing formula would be multiplied by the number of member 
months to determine the total payment or charge assessed with respect 
to plan average risk scores for a plan's geographic rating area for the 
market for the State and this payment or charge will be added to the 
transfer terms described above to account for the costs of high-risk 
enrollees.
h. Risk Adjustment Issuer Data Requirements (Sec.  153.610)
    In the 2014 Payment Notice, HHS established an approach for 
obtaining the necessary data for reinsurance and risk adjustment 
calculations through a distributed data collection model that prevented 
the transfer of individuals' protected health information. Under Sec.  
153.700, each issuer must establish an EDGE server through which it 
provides HHS access to enrollment, claims, and encounter data. To 
safeguard enrollees' privacy, each issuer must establish a unique 
masked enrollee identification number for each enrollee, and may not 
include personally identifiable information in such masked enrollee 
identification number. Under the EDGE server approach issuers currently 
provide plan-level data to HHS.
    The lack of enrollee-level data under this approach limits HHS's 
ability to use that enrollee-level data from risk adjustment covered 
plans to improve the risk adjustment model recalibration. As we 
discussed in the White Paper, access to enrollee-level data with masked 
enrollee IDs would permit HHS to recalibrate the risk adjustment model 
using actual data from issuers' individual and small group populations, 
as opposed to the MarketScan[supreg] commercial database that 
approximates individual and small group market populations, while 
continuing to safeguard the privacy and security of protected health 
information. Therefore, beginning for the 2019 benefit year, while 
maintaining the underlying goals of the distributed data approach, 
including information privacy and security, we propose to recalibrate 
the risk adjustment model using masked, enrollee-level EDGE server data 
from the 2016 benefit year. A separate report would be run on issuers' 
EDGE servers to access select data elements in the enrollee, medical 
claim, pharmacy claim and supplemental diagnosis files, with masked 
enrollee ID, plan/issuer ID, rating area, and State. This approach 
would allow for the creation of a masked, enrollee-level dataset and 
would not permit HHS to know the identity of the enrollee, the plan ID, 
the issuer ID, rating area, State or the EDGE server from which the 
data was extracted. HHS would provide additional information regarding 
the data elements it would collect and the related process 
considerations in future guidance.
    HHS would use the enrollee-level dataset to recalibrate the risk 
adjustment model and inform development of the Actuarial Value 
Calculator and Methodology, which HHS releases annually, to describe 
how issuers of non-grandfathered health plans in the individual and 
small group markets are to calculate actuarial value for purposes of 
determining metal levels. We believe this data could prove a valuable 
source for calibrating other HHS programs in the individual and small 
group markets, and that a public use file derived from these data could 
be a valuable tool for governmental entities and independent 
researchers to better understand these markets.
    We believe that the proposal described above, which minimizes the 
burden from the issuer by only requiring issuers to execute a new EDGE 
command for the report to be run on issuers' EDGE servers, permits 
important improvements to the HHS-operated risk adjustment program 
while continuing to safeguard privacy and security. We request comment 
on this proposal.
i. Risk Adjustment User Fee (Sec.  153.610(f))
    As noted above, if a State is not approved to operate or chooses to 
forgo operating its own risk adjustment program, HHS will operate risk 
adjustment on the State's behalf. As described in the 2014 Payment 
Notice, HHS's operation of risk adjustment on behalf of States is 
funded through a risk adjustment user fee. Section 153.610(f)(2) 
provides that an issuer of a risk adjustment covered plan, as defined 
in Sec.  153.20, must remit a user fee to HHS equal to the product of 
its monthly enrollment in the plan and the per enrollee per month risk 
adjustment user fee specified in the annual HHS notice of benefit and 
payment parameters for the applicable benefit year.
    To promote operational efficiency, we propose to amend Sec.  
153.610(f)(2) to revise the calculation of the risk adjustment user fee 
to be equal to the product of an issuer's billable monthly enrollment 
(billable member months) and the per enrollee per month risk adjustment 
user fee specified in the annual HHS notice of benefit and payment 
parameters. Billable member months exclude children who do not count 
toward family rates or family policy premiums.\34\ This revision to 
base the total user fee on billable member months rather than 
enrollment member months ensures consistency with calculating user fees 
based on premium revenue generated by issuers, which aligns with the 
FFE user fee policy. We note that this change would not affect the PMPM 
risk adjustment user fee rate due to the small relative difference 
between billable member months and enrollee member months. Therefore, 
we propose to implement this change beginning for the 2016 benefit year 
risk adjustment user fee collection, which will be collected in 2017, 
maintaining the user fee rate set in the 2016 and 2017 Payment Notices. 
We seek comment on this proposal.
---------------------------------------------------------------------------

    \34\ 78 FR 15432.
---------------------------------------------------------------------------

    OMB Circular No. A-25R establishes Federal policy regarding user 
fees, and

[[Page 61490]]

specifies that a user charge will be assessed against each identifiable 
recipient for special benefits derived from Federal activities beyond 
those received by the general public. The risk adjustment program will 
provide special benefits as defined in section 6(a)(1)(b) of Circular 
No. A-25R to issuers of risk adjustment covered plans because it will 
mitigate the financial instability associated with potential adverse 
risk selection. The risk adjustment program will also contribute to 
consumer confidence in the health insurance industry by helping to 
stabilize premiums across the individual and small group health 
insurance markets.
    In the 2017 Payment Notice, we estimated Federal administrative 
expenses of operating the risk adjustment program to be $1.56 per 
enrollee per year, or $0.13 PMPM, based on our estimated contract costs 
for risk adjustment operations. For the 2018 benefit year, we propose 
to use the same methodology to estimate our administrative expenses to 
operate the program. These contracts cover development of the model and 
methodology, collections, payments, account management, data 
collection, data validation, program integrity and audit functions, 
operational and fraud analytics, stakeholder training, and operational 
support. To calculate the user fee, we divide HHS's projected total 
costs for administering the risk adjustment programs on behalf of 
States by the expected number of billable member months in risk 
adjustment covered plans (other than plans not subject to market 
reforms and student health plans, which are not subject to payments and 
charges under the risk adjustment methodology HHS uses when it operates 
risk adjustment on behalf of a State) in HHS-operated risk adjustment 
programs for the benefit year.
    We estimate that the total cost for HHS to operate the risk 
adjustment program on behalf of States for the 2018 benefit year will 
be approximately $35 million, and that the risk adjustment user fee 
would be $1.32 per billable enrollee per year (assuming we finalize our 
proposal to assess these costs by billable member months discussed 
above), or $0.12 PMPM. The risk adjustment user fee contract costs for 
2018 include costs related to 2018 risk adjustment data validation, and 
are higher than the 2017 contract costs because some contracts were 
modified and rebid. However, because enrollment is estimated to be 
higher in 2018 than 2017, the PMPM amount is lower than that finalized 
for the 2017 benefit year. We seek comment on this proposal.
j. Data Validation Requirements When HHS Operates Risk Adjustment 
(Sec.  153.630)
    HHS will conduct risk adjustment data validation in any State where 
HHS is operating risk adjustment on a State's behalf under Sec.  
153.630. The purpose of risk adjustment data validation is to ensure 
issuers are providing accurate high-quality information to HHS, which 
is crucial for the proper functioning of the risk adjustment program. 
Risk adjustment data validation consists of an initial validation audit 
and a second validation audit. Under Sec.  153.630, each issuer of a 
risk adjustment covered plan must engage an independent initial 
validation audit entity. The issuer provides demographic, enrollment, 
and medical record documentation for a sample of enrollees selected by 
HHS to its initial validation audit entity for data validation.
i. Materiality Threshold for Risk Adjustment Data Validation
    HHS has been evaluating the burden associated with the risk 
adjustment data validation program, particularly considering the fixed 
costs associated with hiring an initial validation audit entity and 
submitting results to HHS, which may be a large portion of some 
issuers' administrative costs. Beginning for the 2017 benefit year risk 
adjustment data validation program, HHS is proposing to implement a 
materiality threshold. This would mean that issuers that fall below a 
certain threshold would not be required to conduct risk adjustment data 
validation each year and would instead be subject to random and 
targeted sampling. We would expect the random sampling to include 
issuers below the threshold being subject to an initial validation 
audit approximately every 3 years, barring any risk-based triggers that 
would warrant annual participation. Potential risk-based metrics we are 
considering using to select issuers at or below this threshold for more 
frequent initial validation audits include the issuer's prior risk 
adjustment data validation results, and material changes in risk 
adjustment data submission, as measured by our quality metrics. We are 
proposing to use a threshold of total premiums of $15 million--a 
threshold at which 1 percent of an issuer's premiums would cover the 
estimated $150,000 cost of the initial validation audit. Issuers at or 
below this threshold would not be subject to annual initial validation 
audit requirements. We estimate that issuers above this threshold 
represent risk adjustment covered plans that cover approximately 98.5 
percent of membership nationally and as such, annual audit of issuers 
at or below the threshold is not material for purposes of risk 
adjustment data validation. We seek comment on this proposal, including 
with respect to the appropriate threshold and the risk-based metrics we 
should use.
    Because risk adjustment data validation error rates are applied to 
the subsequent year's data, we are considering whether to base the 
participation requirement metric on the benefit year or the subsequent 
benefit year. On the one hand, risk adjustment data validation is 
measuring the accuracy of risk scores from the benefit year. On the 
other hand, risk adjustment data validation results directly adjust the 
risk adjustment transfers of issuers participating in risk adjustment 
in the following benefit year. We note that, even if an issuer is 
exempt from initial validation audit requirements using the proposed 
materiality threshold, HHS may require issuers to make records 
available for review or to comply with an audit by the Federal 
government under Sec.  153.620. We seek comment on this approach.
    We propose that issuers not materially affecting risk adjustment 
data validation that are not required to perform an initial validation 
audit would still have their payments adjusted based on an error rate. 
We are considering an error rate for an issuer not subject to an 
initial validation audit in a particular year that could be the average 
negative error rate nationally, or the average negative error rate 
within a State, or its error rate in past audits. We seek comment on 
this approach.
ii. Inclusion of Pharmacy Claims in Risk Adjustment Data Validation
    Beginning with the 2018 benefit year, as discussed above, the 
proposed HHS risk adjustment methodology would take into account 
prescription drug utilization for purposes of determining an enrollee's 
risk score. HHS proposes to use a hybrid model that employs 
prescription drug data to supplement diagnostic data by serving as a 
proxy for a missing diagnosis in cases where diagnostic data are likely 
to be incomplete and as an indicator of the severity of an enrollee's 
illness. We propose to require that, with respect to validation of 
prescription drug utilization of sampled enrollees, an issuer must 
provide an initial validation audit entity all paid pharmacy claims for 
an enrollee, against which the initial validation audit entity will 
validate the associated prescription drug class in the HHS risk 
adjustment methodology and the impact on the enrollee's risk score.

[[Page 61491]]

Therefore, we propose to amend the first sentence of Sec.  
153.630(b)(7)(ii) to include enrollees' paid pharmacy claims.
iii. Risk Adjustment Data Validation Discrepancy and Administrative 
Appeals Process
    Under Sec.  153.630(d), an issuer may appeal the findings of a 
second validation audit or the application of a risk score error rate 
to its risk adjustment payments and charges. In the 2015 Payment 
Notice, we stated that we would ``provide additional guidance on the 
appeals process and schedule in future rulemaking.'' \35\ As we noted 
in the 2015 Payment Notice, HHS will not permit an issuer to appeal the 
results of the initial validation audit, as the initial validation 
audit entity is under contract with the issuer and HHS does not produce 
the initial validation audit results. We are proposing to amend Sec.  
153.630(d) to clarify that an issuer may appeal the findings of a 
second validation audit or the calculation of a risk score error rate. 
We make this clarification to distinguish the calculation of a risk 
score error rate from the application of a risk score error rate as the 
calculation is a separate reason for which an issuer could appeal. We 
further propose to clarify that if an issuer intends to appeal the 
application of a risk score error rate to its risk adjustment payments 
and charges, HHS would deem this a risk adjustment payment or charge 
amount appeal under Sec.  156.1220(a)(1)(ii). In this proposed rule, we 
also propose an interim and final discrepancy reporting process for the 
risk adjustment data validation program and we propose codification of 
the process by which an issuer may file an appeal of the findings of a 
second validation audit or the calculation of a risk score error rate.
---------------------------------------------------------------------------

    \35\ HHS Notice of Benefit and Payment Parameters for 2015, 79 
FR 13768
---------------------------------------------------------------------------

    First, we propose an interim discrepancy reporting process by which 
an issuer must confirm the risk adjustment data validation initial 
audit sample provided by HHS under Sec.  153.630(b)(1) or file a 
discrepancy report. We propose amending Sec.  153.630 by removing the 
introductory language and adding paragraph (d)(1) to provide that in 
the manner set forth by HHS, within 15 calendar days of notification of 
the initial validation audit sample set forth by HHS, an issuer must 
confirm the sample or file a discrepancy report to dispute the HHS risk 
adjustment data validation initial validation audit sample set forth by 
HHS. In light of the timing of this interim discrepancy reporting 
process, we do not propose to permit issuers to appeal the resolution 
of any interim discrepancy disputing the sample. We believe that 
providing an interim administrative appeals process or permitting 
issuers to appeal the HHS risk adjustment data validation initial 
validation audit sample after completion of the entire risk adjustment 
data validation process for a benefit year would delay the HHS risk 
adjustment data validation process. Additionally, we believe that it 
could be efficient to resolve any issues related to the risk adjustment 
data validation initial audit sample provided by HHS under Sec.  
153.630(b)(1) during an interim discrepancy reporting process. We 
propose to require confirmation of the sample, in the form of an 
attestation, in order to ensure that issuers thoroughly review the 
initial validation audit sample determined by HHS.
    Second, we propose a final, formal discrepancy reporting process, 
by which an issuer must confirm the findings of the second validation 
audit or the calculation of a risk score error rate, or notify us if 
the issuer identifies a discrepancy with the findings of a second 
validation audit or the calculation of a risk score error rate. We 
propose adding paragraph (d)(2) to Sec.  153.630 to provide that in the 
manner set forth by HHS, an issuer must attest to or report a 
discrepancy within 15 calendar days of notification of the findings of 
a second validation audit or the calculation of a risk score error rate 
to dispute the findings of a second validation audit or the calculation 
of a risk score error rate. We believe this discrepancy reporting 
process will enable HHS to work with issuers to resolve discrepancies 
prior to the notification or risk adjustment payments or charges due 
under Sec.  153.310(e) and application of the risk score error rate to 
the issuer's risk adjustment payments and charges.
    As we will discuss in further detail in the preamble to Sec.  
156.1220(a), we also propose requiring issuers to report a discrepancy 
if the issue is identifiable prior to filing a request for 
reconsideration as set forth in 45 CFR 156.1220. As such, we propose to 
amend Sec.  156.1220(a)(4)(ii), to provide that notwithstanding Sec.  
156.1220(a)(1), a reconsideration with respect to a processing error by 
HHS, HHS's incorrect application of the relevant methodology, or HHS's 
mathematical error may be requested only if, to the extent the issue 
could have been previously identified by the issuer to HHS under Sec.  
153.630(d)(2) or Sec.  153.710(d)(2), it was so identified and remains 
unresolved.
    Third, we propose to amend Sec.  153.630 to add paragraph (d)(3) to 
clarify the process by which an issuer can appeal the findings of a 
second validation audit or the calculation of a risk score error rate. 
We propose requiring issuers to use the administrative appeals process 
set forth in Sec.  156.1220. We believe issuers will appreciate a 
discrepancy reporting window and leveraging the existing administrative 
appeals processes.
    HHS will provide in future guidance the process for issuers to 
report discrepancies. We believe that providing issuers 15 calendar 
days to review the HHS risk adjustment data validation sample set, will 
provide adequate time for issuers to notify HHS prior to the execution 
of the initial validation audit. Additionally, we believe providing 
issuers 30 calendar days from the results of the second validation 
audit or the calculation of a risk score error rate based on risk 
adjustment data validation, will provide adequate time for issuers to 
notify HHS prior to filing a formal request for reconsideration of such 
discrepancy. As with the discrepancy reporting process set forth in 
Sec.  153.710(d), HHS will work with issuers to resolve any 
discrepancies related to risk adjustment data validation prior to final 
risk adjustment payments and charges for a benefit year. We seek 
comment on these timeframes and these discrepancy reporting and appeal 
proposals.

G. Part 154--Health Insurance Issuer Rate Increases: Disclosure and 
Review Requirements

1. Definitions (Sec.  154.102)
    We propose to revise the definition of ``product'' in Sec.  
154.102. Specifically, we propose to remove language that would 
restrict a product's being considered the same product when it is no 
longer offered by the same issuer, but by a different issuer in the 
same controlled group. This amendment is necessary in light of our 
proposed interpretation of guaranteed renewability provisions, as 
discussed in the preamble to Sec.  147.106. We are not proposing 
changes to the definition of ``plan'' because the definition for that 
term in Sec.  154.102 cross-references the definition in Sec.  144.103. 
Therefore, if finalized as proposed, the amendments to the definition 
of ``plan'' in Sec.  144.103 would also apply for purposes of the rate 
review requirements under 45 CFR part 154. For further discussion of 
the reason for this proposed amendment, please see the preamble to 
Sec.  147.106.

[[Page 61492]]

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

1. Standardized Options (Sec.  155.20)
a. Standardized Options Approach for 2018
    In the 2017 Payment Notice, HHS finalized six standardized options 
(also now referred to as Simple Choice plans), one at each of the 
bronze, silver, silver cost-sharing reduction variation, and gold 
levels of coverage, designed to be similar to the most popular 
(enrollment-weighted) QHPs in the 2015 individual market FFEs. We 
propose to change the standardized options from the 2017 versions in 
order to reflect changes in QHP enrollment-weighted data from 2015 to 
2016, including SBE-FP QHP enrollment-weighted data, and to the extent 
practicable, to comply with various State cost-sharing standards. 
Therefore, for the 2018 plan year, HHS proposes three new sets of 
standardized options, based on an analysis of enrollment-weighted 2016 
individual market FFE and SBE-FP QHPs (see Tables 12, 13 and 14). The 
second and third sets are different from the first set only to the 
extent necessary to comply with State cost-sharing laws. The second set 
of standardized options is designed to work in States that: (1) Require 
that cost sharing for physical therapy, occupational therapy, or speech 
therapy be no greater than the cost sharing for primary care visits; 
(2) limit the amount that can be charged for each drug tier; or (3) 
require that all drug tiers carry a copayment rather than coinsurance. 
The third set of standardized options is designed to work in a State 
with maximum deductible requirements and other cost-sharing standards.
    Like the 2017 standardized options, the proposed 2018 standardized 
options each have a single provider tier, fixed deductible, fixed 
annual limitation on cost sharing, and fixed copayment or coinsurance 
for a key set of essential health benefits that comprise a large 
percentage of the total allowed costs for a typical population of 
enrollees. These fixed cost-sharing values are for in-network care 
only. Unlike the 2017 standardized options, the proposed 2018 options 
at the silver, silver cost-sharing reduction variations, and gold 
levels of coverage have separate medical and drug deductibles, 
reflecting the commonality of this cost-sharing structure in QHPs at 
these levels of coverage. The proposed standardized options at the 
silver 87 percent cost-sharing reduction plan variation, silver 94 
percent cost-sharing reduction plan variation, and gold levels of 
coverage have a drug deductible equal to $0, meaning no deductible 
applies to the drugs.
    The bronze standardized options as proposed rely on finalization of 
the proposal discussed in the preamble to Sec.  156.140 to permit a 
broader de minimis range for bronze plans. If that proposal is not 
adopted, the plans would be revised to comply with the de minimis range 
in our regulations, while still reflecting 2016 enrollment weighted 
data, and State cost-sharing requirements for the second set of 
standardized options.
    For 2018, we also propose a fourth standardized option at the 
bronze level of coverage that qualifies as a high deductible health 
plan (HDHP) under section 223 of the Code, eligible for use with a 
health savings account (HSA). HDHPs are an option valued by many 
consumers--enrollment in HDHPs across 2016 individual market FFE and 
SBE-FP QHPs constituted 9.2 percent of all FFE and SBE-FP QHP 
enrollment in 2016. Pursuant to the terms of the Code, the IRS releases 
the maximum annual limitation on cost sharing and minimum annual 
deductible for HDHPs annually in the spring, subsequent to the annual 
HHS notice of benefit and payment parameters rulemaking process. 
Therefore, we propose that if any changes to the HDHP standardized 
option would be required to reflect differences between the HDHP 
standardized option finalized in the 2018 Payment Notice and the 
subsequently released maximum annual limitation on cost sharing and 
minimum annual deductible for HDHPs, HHS would publish those changes in 
guidance. Accordingly, we propose to amend the definition of 
``standardized option'' at Sec.  155.20 to provide for a plan to be 
considered a standardized option if it is: (1) A QHP offered for sale 
through an individual market Exchange with a standardized cost-sharing 
structure specified by HHS in rulemaking; or (2) an HDHP QHP offered 
for sale through an individual market Exchange with a standardized 
cost-sharing structure specified by HHS in guidance issued solely to 
modify the cost-sharing structure specified by HHS in rulemaking to the 
extent necessary to align with requirements to qualify as an HDHP under 
section 223 of the Code and meet HHS AV requirements.
b. Standardized Options in SBE-FPs
    In the 2017 Payment Notice, we designed a set of standardized 
options based on enrollment-weighted 2015 FFE QHP data, and indicated 
we anticipated differentially displaying these HHS-designed 
standardized options. We noted that SBE-FPs may have their own State-
designed standardized plans that differ from HHS-designed standardized 
options, but that the HealthCare.gov platform would not be able to 
differentially display these State-designed standardized plans.
    For 2018, the HealthCare.gov platform remains unable to provide 
differential display to State-designed standardized plans that differ 
from the HHS-designed standardized options. However, we propose that 
SBE-FPs may choose to allow HHS-designed standardized options to 
receive differential display on HealthCare.gov, just as the plans would 
if offered through an FFE. We propose that an SBE-FP must notify HHS if 
it wants HHS-designed standardized options to receive differential 
display by a date to be specified in guidance that will be set to 
provide sufficient time to operationalize the State's choice on 
HealthCare.gov. We seek comment on this proposal.
c. State Customization
    In the 2017 Final Payment Notice, HHS explained that it would not 
be possible for HealthCare.gov to accommodate customization of 
standardized options by State in 2017. Specifically, to reduce 
operational complexity, HHS did not vary the standardized options by 
State or by region, and instead finalized one set of standardized 
options across all FFEs that issuers would have the option to offer in 
2017.
    As noted above, some States regulate cost sharing on specific 
benefits under State authorities. We seek to accommodate, to the extent 
practicable, State cost-sharing requirements under our proposed 2018 
standardized options. To do so, we have designed three bronze 
standardized options (in addition to the bronze HDHP), and three 
standardized options at each of the silver, silver cost-sharing 
reduction plan variations, and gold levels of coverage, as set forth in 
Tables 13 and 14. We propose to select for each FFE State one of the 
three standardized options at each level of coverage (plus the HDHP 
option at the bronze level, if permissible under State cost-sharing 
standards) that meets any existing State cost-sharing requirements. We 
propose that this selection will be published in the final 2018 Payment 
Notice. We propose to do the same for each SBE-FP State that notifies 
HHS that it chooses to have HHS standardized options receive 
differential display on the HealthCare.gov platform. If issuers in the 
FFE States and those in the SBE-FP States that choose to have 
differential

[[Page 61493]]

display of HHS standardized options offer the standardized options 
selected for the State (that is, the one standardized option at each 
level of coverage selected for the State, in addition to the HDHP 
option if permissible under State standards), those plans would receive 
differential display in the Exchange for the 2018 plan year.
    Additionally, many States have oral chemotherapy access laws, which 
require coverage of oral chemotherapy at parity with intravenous 
chemotherapy or cap patients' monthly cost sharing for chemotherapy 
drugs (both oral and intravenous). We propose to clarify that these 
chemotherapy access requirements do not conflict with the HHS 
standardized plan designs because issuers can design benefit packages 
that comply with both the standardized options requirements and State 
oral chemotherapy access laws.
    We believe that the proposals discussed above will allow issuers in 
States with cost-sharing laws that would conflict with a single set of 
standardized options to offer standardized options. Furthermore, by 
making it possible for issuers to offer standardized options while 
complying with State cost-sharing rules, we believe this limited State 
customization will enhance the shopping experience of consumers in more 
States than was previously possible. We welcome comments from each 
State regarding the standardized option at each level of coverage that 
the State believes would be most suitable for that State, and whether 
modifications should be made to any of the proposed State-customized 
standardized options to further accommodate State cost-sharing rules. 
We also seek comment from States, issuers, and other stakeholders on 
State cost-sharing requirements that would affect the design of 
standardized options, as well as comments generally on this approach 
for standardized options in 2018.

                                                      Table 12--2018 Proposed Standardized Options
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   HSA-eligible                       Silver 73%  CSR  Silver 87%  CSR  Silver 94%  CSR
                                    Bronze          bronze HDHP         Silver        plan  variation  plan  variation  plan  variation        Gold
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actuarial Value (%)..........  62.68%..........  61.97%..........  71.05%..........  73.95%..........  87.61..........  94.69..........  80.65%.
Deductible (Med/Rx)..........  $6,650..........  $6,000..........  $3,500/$500.....  $3,000/$200.....  $700/$0........  $250/$0........  $1,400/$0.
Annual Limitation on Cost      $7,350..........  $6,000..........  $7,350..........  $5,850..........  $2,450.........  $1,250.........  $5,000.
 Sharing.
Emergency Room Services......  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
                                                  deductible.
Urgent Care..................  $75 (*).........  No charge after   $75 (*).........  $75 (*).........  $40 (*)........  $25 (*)........  $60 (*).
                                                  deductible.
Inpatient Hospital Services..  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
                                                  deductible.
Primary Care Visit...........  $35 (*).........  No charge after   $30 (*).........  $30 (*).........  $10 (*)........  $5 (*).........  $20 (*).
                                                  deductible.
Specialist Visit.............  $75 (*).........  No charge after   $65 (*).........  $65 (*).........  $25 (*)........  $10 (*)........  $50 (*).
                                                  deductible.
Mental Health/Substance Use    $35 (*).........  No charge after   $30 (*).........  $30 (*).........  $10 (*)........  $5 (*).........  $20 (*).
 Disorder Outpatient Office                       deductible.
 Visit.
Imaging (CT/PET Scans, MRIs).  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
                                                  deductible.
Speech Therapy...............  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
                                                  deductible.
Occupational Therapy/Physical  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
 Therapy.                                         deductible.
Laboratory Services..........  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
                                                  deductible.
X-rays and Diagnostic Imaging  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
 **.                                              deductible.
Skilled Nursing Facility.....  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
                                                  deductible.
Outpatient Facility Fee (for   40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
 example, Ambulatory Surgery                      deductible.
 Center).
Outpatient Surgery Physician/  40%.............  No charge after   20%.............  20%.............  20%............  5%.............  20%.
 Surgical Services.                               deductible.
Generic Drugs................  $35 (*).........  No charge after   $15 (*).........  $15 (*).........  $5 (*).........  $3 (*).........  $10 (*).
                                                  deductible.
Preferred Brand Drugs........  35%.............  No charge after   $50 (*).........  $50 (*).........  $25 (*)........  $5 (*).........  $40 (*).
                                                  deductible.
Non-Preferred Brand Drugs....  40%.............  No charge after   $100 (*)........  $100 (*)........  $50 (*)........  $10 (*)........  $75 (*).
                                                  deductible.
Specialty Drugs..............  45%.............  No charge after   40%.............  40%.............  30%............  25%............  30%.
                                                  deductible.
--------------------------------------------------------------------------------------------------------------------------------------------------------
(*) = not subject to the deductible
** Note: Excludes x-rays and diagnostic imaging associated with office visits (except for high-deductible health plans (HDHPs).


[[Page 61494]]


  Table 13--2018 Proposed Standardized Options for States Requiring Occupational Therapy, Physical Therapy, or Speech Therapy Cost-Sharing Parity with
                                     Primary Care Visits or States Requiring Copayments or Copayment Limits on Drugs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Silver 73%  CSR     Silver 87%  CSR     Silver 94%  CSR
                                        Bronze              Silver          plan  variation     plan  variation     plan  variation          Gold
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actuarial Value (%).............  62.79%............  71.03%............  73.88%............  87.70.............  94.68.............  80.60%.
Deductible (Med/Rx).............  $6,650............  $3,500/$500 Rx....  $3,000/$200 Rx....  $700/$0...........  $250/$0...........  $1,400/$0.
Annual Limitation on Cost         $7,350............  $7,350............  $5,850............  $2,450............  $1,250............  $5,000.
 Sharing.
Emergency Room Services.........  40%...............  20%...............  20%...............  20%...............  5%................  20%.
Urgent Care.....................  $75 (*)...........  $75 (*)...........  $75 (*)...........  $40 (*)...........  $25 (*)...........  $60 (*).
Inpatient Hospital Services.....  40%...............  20%...............  20%...............  20%...............  5%................  20%.
Primary Care Visit..............  $35 (*)...........  $30 (*)...........  $30 (*)...........  $10 (*)...........  $5 (*)............  $20 (*).
Specialist Visit................  $75 (*)...........  $65 (*)...........  $65 (*)...........  $25 (*)...........  $10 (*)...........  $50 (*).
Mental Health/Substance Use       $35 (*)...........  $30 (*)...........  $30 (*)...........  $10 (*)...........  $5 (*)............  $20 (*).
 Disorder Outpatient Office
 Visit.
Imaging (CT/PET Scans, MRIs)....  40%...............  20%...............  20%...............  20%...............  5%................  20%.
Speech Therapy..................  $35 (*)...........  $30 (*)...........  $30 (*)...........  $10 (*)...........  $5 (*)............  $20 (*).
Occupational Therapy/Physical     $35 (*)...........  $30 (*)...........  $30 (*)...........  $10 (*)...........  $5 (*)............  $20 (*).
 Therapy.
Laboratory Services.............  40%...............  20%...............  20%...............  20%...............  5%................  20%.
X-rays and Diagnostic Imaging **  40%...............  20%...............  20%...............  20%...............  5%................  20%.
Skilled Nursing Facility........  40%...............  20%...............  20%...............  20%...............  5%................  20%.
Outpatient Facility Fee (e.g.,    40%...............  20%...............  20%...............  20%...............  5%................  20%.
 Ambulatory Surgery Center).
Outpatient Surgery Physician/     40%...............  20%...............  20%...............  20%...............  5%................  20%.
 Surgical Services.
Generic Drugs...................  $35 (*)...........  $15 (*)...........  $15 (*)...........  $5 (*)............  $3 (*)............  $10 (*).
Preferred Brand Drugs...........  $40 (copay applies  $50 (*)...........  $50 (*)...........  $25 (*)...........  $5 (*)............  $40 (*).
                                   only after
                                   deductible).
Non-Preferred Brand Drugs.......  $45 (copay applies  $100 (*)..........  $100 (*)..........  $50 (*)...........  $10 (*)...........  $75 (*).
                                   only after
                                   deductible).
Specialty Drugs.................  $50 (copay applies  $150 (copay         $150 (copay         $75 (*)...........  $20 (*)...........  $100(*).
                                   only after          applies only        applies only
                                   deductible).        after deductible).  after deductible).
--------------------------------------------------------------------------------------------------------------------------------------------------------
(*) = not subject to the deductible.
** Note: Excludes x-rays and diagnostic imaging associated with office visits.


                  Table 14--2018 Proposed Standardized Options for States with Deductible Maximums and Other Cost-Sharing Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                            Silver 73%  CSR     Silver 87%  CSR     Silver 94%  CSR
                                        Bronze              Silver          plan  variation     plan  variation     plan  variation          Gold
--------------------------------------------------------------------------------------------------------------------------------------------------------
Actuarial Value (%).............  64.84%............  70.28%............  73.94%............  87.61%............  94.53%............  80.80%.
Deductible......................  $3,000............  $3,000............  $3,000............  $700..............  $250..............  $1,000.
Annual Limitation on Cost         $7,150............  $7,000............  $5,850............  $2,450............  $1,250............  $5,000.
 Sharing.
Emergency Room Services.........  50%...............  40%...............  20%...............  20%...............  5%................  30%.
Urgent Care.....................  $50 (*)...........  $50 (*)...........  $50 (*)...........  $40 (*)...........  $25 (*)...........  $40 (*).
Inpatient Hospital Services.....  $500 (per day;      40%...............  20%...............  20%...............  5%................  30%.
                                   applies only
                                   after deductible).
Primary Care Visit..............  $35 (*first 3       $30 (*)...........  $30 (*)...........  $10 (*)...........  $5 (*)............  $25 (*).
                                   visits; then
                                   subject to
                                   deductible and
                                   $35 copay after
                                   deductible).
Specialist Visit................  $75 (applies only   $60 (*)...........  $60 (*)...........  $25 (*)...........  $10 (*)...........  $40 (*).
                                   after deductible).
Mental Health/Substance Use       $35 (applies only   $30 (*)...........  $30 (*)...........  $10 (*)...........  $5 (*)............  $25 (*).
 Disorder Outpatient Office        after deductible).
 Visit.
Imaging (CT/PET Scans, MRIs)....  $100 (applies only  $100 (*)..........  $100 (*)..........  $75 (*)...........  $40 (*)...........  $100 (*).
                                   after deductible).
Speech Therapy..................  $35 (applies only   $50 (*)...........  $30 (*)...........  $10 (*)...........  $5 (*)............  $25 (*).
                                   after deductible).
Occupational Therapy/Physical     $35 (applies only   $50 (*)...........  $30 (*)...........  $10 (*)...........  $5 (*)............  $25 (*).
 Therapy.                          after deductible).

[[Page 61495]]

 
Laboratory Services.............  50%...............  40%...............  20%...............  20%...............  5%................  30%.
X-rays and Diagnostic Imaging**.  50%...............  40%...............  20%...............  20%...............  5%................  30%.
Skilled Nursing Facility........  $500 (per day;      40%...............  20%...............  20%...............  5%................  30%.
                                   applies only
                                   after deductible).
Outpatient Facility Fee (e.g.,    50%...............  40%...............  20%...............  20%...............  5%................  30%.
 Ambulatory Surgery Center).
Outpatient Surgery Physician/     50%...............  40%...............  20%...............  20%...............  5%................  30%.
 Surgical Services.
Generic Drugs...................  $25 (*)...........  $25 (*)...........  $15 (*)...........  $5 (*)............  $3 (*)............  $10 (*).
Preferred Brand Drugs...........  50%...............  $75 (*)...........  $75 (*)...........  $25 (*)...........  $5 (*)............  $25 (*).
Non-Preferred Brand Drugs.......  50%...............  $75 (*)...........  $75 (*)...........  $50 (*)...........  $10 (*)...........  $50 (*).
Specialty Drugs.................  50%...............  $75 (*)...........  $75 (*)...........  $50 (*)...........  $10 (*)...........  $50 (*).
--------------------------------------------------------------------------------------------------------------------------------------------------------
(*) = not subject to the deductible
** Note: Excludes x-rays and diagnostic imaging associated with office visits.

2. General Functions of an Exchange
a. Functions of an Exchange (Sec.  155.200)
    In the 2017 Payment Notice, we established that a State Exchange 
could elect to enter into a Federal platform agreement through which it 
agrees to rely on HHS for services related to the individual market 
Exchange, the SHOP Exchange, or both. In Sec.  155.200(f)(2), we 
required an SBE-FP to establish and oversee certain requirements for 
its QHPs and QHP issuers that are no less strict than the requirements 
that apply to QHPs and QHP issuers in an FFE. Requiring QHPs and QHP 
issuers in SBE-FPs to meet these same requirements ensures that all 
QHPs on HealthCare.gov meet a consistent minimum standard and that 
consumers obtaining coverage as a result of applying through 
HealthCare.gov are guaranteed plans that meet these minimum standards.
    We propose to amend Sec.  155.200(f) by adding a new paragraph 
(f)(4) that would require State Exchanges that use the Federal platform 
for certain SHOP functions to establish standards and policies 
consistent with certain Federally-facilitated Small Business Health 
Options Program (FF-SHOP) requirements. In contrast to the requirements 
contained in Sec.  155.200(f)(2), which pertain primarily to ensuring a 
consistent experience on HealthCare.gov, compliance with the 
requirements we propose to include in Sec.  155.200(f)(4) would be 
necessary because the FF-SHOP requirements listed in paragraph (f)(4) 
are an integral part of the FF-SHOP platform's functionality and system 
build, making compliance with the requirements necessary from an 
operational perspective for State Exchanges to use the Federal platform 
for these SHOP functions. Additionally, requiring compliance with these 
requirements, rather than customizing the FF-SHOP platform's system 
build, would avoid sizeable costs associated with permitting State-
based Exchanges to use the Federal platform for SHOP functions. 
Therefore, we propose to add a new paragraph (f)(4) to require that 
SBE-FPs that utilize the Federal platform for certain SHOP functions 
establish standards and policies with respect to the following topics 
that are consistent with the following rules applicable in FF-SHOPs:
     Premium calculation, payment, and collection requirements 
as specified at Sec.  155.705(b)(4) (for SBE-FPs using the Federal 
platform for SHOP eligibility, enrollment, or premium aggregation 
functions);
     The timeline for rate changes set forth at Sec.  
155.705(b)(6)(i)(A) (for SBE-FPs using the Federal platform for SHOP 
enrollment or premium aggregation functions);
     Minimum participation rate requirements and calculation 
methodologies set forth at Sec.  155.705(b)(10) (for SBE-FPs using the 
Federal platform for SHOP enrollment functions);
     Employer contribution methodologies set forth at Sec.  
155.705(b)(11)(ii) (for SBE-FPs using the Federal platform for SHOP 
enrollment or premium aggregation functions);
     Annual employee open enrollment period requirements set 
forth at Sec.  155.725(e)(2) (for SBE-FPs using the Federal platform 
for SHOP enrollment functions);
     Initial group enrollment or renewal coverage effective 
date requirements set forth at Sec.  155.725(h)(2) (for SBE-FPs using 
the Federal platform for SHOP enrollment functions); and
     Termination of SHOP coverage or enrollment rules set forth 
at Sec.  155.735 (for SBE-FPs using the Federal platform for SHOP 
eligibility, enrollment, or premium aggregation functions).
    These amendments would become effective with the effective date of 
the final rule.
    We seek comment on this proposal, including on whether it would 
conflict with current State requirements, and on whether other FF-SHOP 
requirements should apply in SBE-FPs utilizing the Federal platform for 
SHOP functions, for the reasons discussed above.
b. Consumer Assistance Tools and Programs of an Exchange (Sec.  
155.205)
    Section 155.205(c)(2)(iii)(A) and (B) require Exchanges, QHP 
issuers, and agents or brokers subject to Sec.  155.220(c)(3)(i) 
(``web-brokers'') to provide taglines in non-English languages 
indicating the availability of language services. These entities must 
include taglines on Web site content and documents that are critical 
for obtaining health insurance coverage or access to health care 
services through a QHP for qualified individuals, applicants, qualified 
employers, qualified employees, or enrollees. The taglines must 
indicate the availability of language services in at least the top 15 
languages spoken by the limited English proficient (LEP) population of 
the relevant State, as determined in HHS guidance. In March 2016, HHS 
issued guidance providing language data and sample taglines in the top 
15 languages spoken by the LEP population in each State.\36\ A similar 
tagline requirement

[[Page 61496]]

appears in the final rule implementing section 1557 of the Affordable 
Care Act (81 FR 31376 (May 18, 2016)), which prohibits discrimination 
on the basis of race, color, national origin, sex, age, or disability 
in certain health programs and activities.\37\ The section 1557 
implementing regulation applies to every health program or activity 
administered by an Exchange, every health program or activity 
administered by HHS, and every health program or activity, any part of 
which receives Federal financial assistance provided or made available 
by HHS.\38\ The section 1557 implementing regulation, as well as other 
applicable Federal civil rights laws, apply independently of the 
regulations governing Exchanges and health insurance issuers.
---------------------------------------------------------------------------

    \36\ Ctr. Consumer Info. & Ins. Oversight, Ctrs. for Medicaid & 
Medicare Serv., Guidance and Population Data for Exchanges, 
Qualified Health Plan Issuers, and Web-Brokers to Ensure Meaningful 
Access by Limited-English Proficient Speakers Under 45 CFR 
155.205(c) and 156.250 (March 30, 2016), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Language-access-guidance.pdf; Appendix A--Top 15 Non-English 
Languages by State, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Appendix-A-Top-15.pdf; 
Appendix B--Sample Translated Taglines, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Appendix-B-Sample-Translated-Taglines.pdf.
    \37\ 42 U.S.C. 18116; 45 CFR part 92. Section 92.8(d)(1) 
requires each covered entity to ``post taglines in at least the top 
15 languages spoken by individuals with limited English proficiency 
of the relevant State or States.'' The principle of aggregation with 
respect to the tagline requirement at Sec.  92.8(d)(1) is discussed 
in the section 1557 final rule at 81 FR 31376, 31400.
    \38\ 45 CFR 92.2(a). In addition to the tagline requirement at 
Sec.  92.8(d)(1), the section 1557 implementing regulation 
identifies other obligations of a covered entity, such as the 
obligation to have marketing practices and benefit designs in a 
health-related insurance plan or policy or other health-related 
coverage that are nondiscriminatory. See id. Sec.  92.207.
---------------------------------------------------------------------------

    In the preamble to the 2016 Payment Notice, we stated that if an 
entity's service area covers multiple States, the top 15 languages 
spoken by LEP individuals may be determined by aggregating the top 15 
languages spoken by all LEP individuals among the total population of 
the relevant States (80 FR 10788). We also restated this policy in the 
March 2016 guidance. We propose to amend Sec.  155.205(c)(2)(iii) to 
provide more specificity about when entities subject to Sec.  
155.205(c)(2)(iii)(A) and (B) would be permitted to aggregate LEP 
populations across States to determine the languages in which taglines 
must be provided, in light of questions that have arisen about this 
issue since publication of the 2016 Payment Notice.
    At Sec.  155.205(c)(2)(iii)(A), we propose that if an Exchange is 
operated by an entity operating multiple Exchanges, or relies on an 
eligibility or enrollment platform that is relied on by multiple 
Exchanges, the Exchange may aggregate the LEP populations across all 
the States served by the entity that operates the Exchange or its 
eligibility or enrollment platform to determine the top 15 languages 
required for taglines under Sec.  155.205(c)(2)(iii)(A). For example, 
under this proposal, all Exchanges that use the eligibility and 
enrollment platform on which the FFEs (including FFEs where States 
perform plan management functions) and SBE-FPs rely would be permitted 
to aggregate languages across the States with Exchanges that rely on 
this platform.
    At Sec.  155.205(c)(2)(iii)(A), we also propose that a QHP issuer 
would be permitted to aggregate the LEP populations across all States 
served by the health insurance issuers within the issuer's controlled 
group, whether or not those health insurance issuers offer plans 
through the Exchange in each of those States, to determine the top 15 
languages in which it must provide taglines. For consistency, we 
propose to define an issuer's controlled group using the definition in 
Sec.  147.106(d)(3)(i) of this proposed rule, which would define a 
controlled group as a group of two or more persons that is treated as a 
single employer under section 52(a), 52(b), 414(m), or 414(o) of the 
Code. Therefore, a QHP issuer that is a subsidiary of a corporate 
entity or holding company that is treated as a single employer under 
section 52(a), 52(b), 414(m), or 414(o) of the Code, and whose 
subsidiary health insurance issuers serve multiple States, would be 
permitted to meet the tagline requirement by including taglines on Web 
sites and critical documents in at least the top 15 languages spoken by 
the aggregated LEP populations of all States served by the corporate 
entity's or holding company's subsidiary health insurance issuers, 
rather than in the top 15 languages spoken by the limited English 
proficient population of each individual QHP issuer's State of 
licensure or State served. On the other hand, a QHP issuer association 
or federation comprised of multiple companies that are not treated as a 
single employer under section 52(a), 52(b), 414(m), or 414(o) of the 
Code, and are thus not considered to be a controlled group, would not 
be permitted to aggregate across the States served by the health 
insurance issuers in its entire association or federation; rather, the 
QHP issuer members of the association or federation would be permitted 
to aggregate only across the States served by the health insurance 
issuers within each issuer's controlled group.
    With respect to summaries of benefits and coverage (SBCs) provided 
under section 2715 of the PHS Act, consistent with the SBC Instruction 
Guide for Individual Health Insurance Coverage \39\ and the SBC 
Instruction Guide for Group Coverage,\40\ QHP issuers would still be 
required to provide an addendum with their SBCs with language taglines 
in the top 15 languages spoken by the LEP populations of the relevant 
State or States for QHPs offered through an Exchange. Any additional 
taglines required under section 2715 of the PHS Act and the 
implementing regulations \41\ must also be included in this addendum. 
However, any taglines that are included in the addendum are not 
required to also be included in the SBC document. The addendum, which 
must only include tagline information required by the applicable 
language access standards, must be provided along with the SBC and is 
not considered a part of the SBC document. Therefore, the addendum will 
not count towards the four double-sided page limit for the SBC under 
PHS Act section 2715(b)(1).
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    \39\ Summary of Benefits and Coverage: Instruction Guide for 
Individual Health Insurance Coverage (April 2017), available at 
https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/Individual-Instructions-508-MM.pdf.
    \40\ Summary of Benefits and Coverage: Instruction Guide for 
Group Coverage (April 2017), available at https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/Group-Instructions-4-4-clean-MM-508.pdf
    \41\ 45 CFR 147.200(a)(5) requires that group health plans and 
health insurance issuers offering group and individual health 
insurance coverage provide taglines in a particular non-English 
language if 10 percent or more of the population residing in the 
county is literate only in that same non-English language.
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    Additionally, our proposed policy related to aggregating LEP 
populations to determine the top 15 languages in which taglines must be 
provided does not apply to the tagline requirements under rules 
implementing sections 2715 and 2719 of the PHS Act. This means, for 
example, that a QHP issuer that is a member of a controlled group whose 
health insurance issuers serve three States, and that therefore 
aggregates the LEP populations across those three States to determine 
the top 15 languages in which it must provide taglines in its SBC 
addendum under Sec.  155.205(c)(2)(iii)(A), must still include in its 
SBC addendum taglines in all of the languages triggered by the 
threshold under Sec.  147.200(a)(5), which requires a tagline when 10 
percent or more of the population residing in a county is

[[Page 61497]]

literate only in a particular non-English language, without aggregating 
the LEP populations across the counties in its service area. The same 
would apply to tagline requirements under section 2719 of the PHS Act 
and its implementing regulations.
    We also propose amendments to Sec.  155.205(c)(2)(iii)(B), to 
specify that web-brokers that are licensed in and serving multiple 
States would be permitted to aggregate the LEP populations in the 
States they serve to determine the top 15 languages in which they must 
provide taglines under Sec.  155.205(c)(2)(iii)(B).
    We believe our proposed approach balances two important policy 
objectives: Ensuring that LEP individuals have notice of language 
assistance services, and minimizing burden on the entities subject to 
the rule, including by minimizing the potential need for costly 
information systems changes. This approach would establish a floor, and 
if it is finalized, QHP issuers, web-brokers, and Exchanges would be 
permitted to provide non-aggregated, State-specific taglines, or 
taglines in more than the required 15 languages. We believe our 
proposed approach would help promote consistency with the tagline 
requirements at 45 CFR 92.8(d)(1) and 81 FR 31400, which permit covered 
entities that serve individuals in more than one State to aggregate the 
number of individuals with limited English proficiency in those States 
to determine the top 15 languages required by Sec.  92.8(d)(1). We seek 
comment on whether the proposed approach strikes the appropriate 
balance.
    We are also proposing amendments to Sec.  155.205(c)(2)(iii)(A) and 
(B) to specify that Exchanges, QHP issuers, and web-brokers may satisfy 
tagline requirements with respect to Web site content if they post a 
Web link prominently on their home page that directs individuals to the 
full text of the taglines indicating how individuals may obtain 
language assistance services, and if they also include taglines on any 
standalone document linked to or embedded in the Web site, such as one 
in portable document format (PDF) or word processing software format, 
that is critical within the meaning of the rule. Thus, for example, if 
a QHP issuer included a link to a PDF of its provider directory or 
formulary drug list on its Web site, it would be required to provide a 
link to taglines on its Web site home page and to provide taglines on 
that PDF document. In HHS's view, providing a prominent link to 
taglines on the home page of a Web site gives sufficient notice to 
consumers that language services are available. We note that entities 
subject to section 1557 of the Affordable Care Act are still required 
to comply with the section 1557 requirements regarding taglines placed 
on their home pages.\42\
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    \42\ In particular, we note the separate requirement for 
entities covered under section 1557 of the Affordable Care Act that 
links to taglines from the home page of a covered entity's Web site 
must be posted as ``in language'' Web links, which are links written 
in each of the 15 non-English languages posted conspicuously on the 
home page that direct the individual to the full text of the tagline 
indicating how the individual may obtain language assistance 
services. For instance, a tagline directing an individual to a Web 
site with the full text of a tagline written in Haitian Creole 
should appear as ``Kreyol'' rather than ``Haitian Creole.'' (45 CFR 
92.8(1)(iii); 81 FR 31396.)
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    In the case of ``critical'' standalone documents linked to or 
embedded in the Web site, there is a good chance that a consumer might 
land on such documents without going through an entity's home page 
first (for example, from a link on another Web site), and it is also 
likely that such documents would not contain a link to the entity's 
home page. In contrast, Web pages within the Web site that are not 
standalone linked or embedded documents are more likely to contain a 
prominent link to the home page. Under this proposal, if an entity 
subject to Sec.  155.205(c)(2)(iii)(A) or (B) includes the required 
taglines in a standalone ``critical'' document linked to or embedded in 
the Web site of another entity subject to Sec.  155.205(c)(2)(iii)(A) 
or (B), then the taglines standard will be deemed to be met by the 
entity that links to or embeds the ``critical'' document in its Web 
site, for purposes of that document. For example, if a web-broker posts 
a ``critical'' document provided to it by an affiliated QHP issuer, and 
the QHP issuer includes the taglines in that document that the issuer 
would be required to include, then the web-broker can rely on those 
taglines for purposes of compliance with Sec.  155.205(c)(2)(iii)(B) 
when it posts that document (as provided by the QHP issuer with the 
required taglines), even if the QHP issuer and web-broker are not 
required to provide taglines in the same 15 languages.
    We solicit comments on all aspects of these proposals. In 
particular, we seek comments on whether we should consider alternative 
standards for identifying the States across which Exchanges, QHP 
issuers, and web-brokers may aggregate languages for purposes of Sec.  
155.205(c)(2)(iii)(A) and (B), and on whether our proposed approach 
strikes an appropriate balance between facilitating access for LEP 
populations and minimizing burden on the entities subject to the rule.
    Additionally, because the final rule implementing section 1557 of 
the Affordable Care Act (81 FR 31376 (May 18, 2016)) imposes on the 
covered entities to which that rule applies a similar set of 
obligations with respect to language access taglines, we are 
considering whether there is a need for the separate language access 
tagline requirements for Exchanges, QHP issuers, and web-brokers under 
Sec.  155.205(c)(2)(iii)(A) and (B). We seek comment on what, if any, 
additional protections for LEP consumers the standards under Sec.  
155.205(c)(2)(iii)(A) and (B) provide that are not included in the 
section 1557 implementing regulation, and on whether the Sec.  
155.205(c)(2)(iii)(A) and (B) requirements are largely duplicative of 
the section 1557 implementing regulation. We note that not every entity 
subject to Sec.  155.205(c)(2)(iii)(A) or (B) is a ``covered entity'' 
subject to section 1557 and its implementing regulation. We are 
committed to ensuring that LEP consumers have sufficient notice of 
language assistance services, while also seeking to minimize the burden 
on the entities subject to both the section 1557 implementing 
regulation and Exchange language access requirements, including by 
minimizing duplicative requirements and the potential need for costly 
information systems changes. For these reasons, and for continuity with 
our existing requirements and the principle that LEP consumers should 
have notice of language access services whether they are being served 
by an Exchange, QHP issuer, or a web-broker,\43\ we are considering 
amending Sec.  155.205(c)(2)(iii) to replace the tagline requirements 
currently set forth at Sec.  155.205(c)(2)(iii)(A) and (B) with a 
provision requiring Exchanges, QHP issuers, and web-brokers to follow 
certain standards under Sec.  92.8 when providing the taglines required 
under Sec.  155.205(c)(2)(iii). Under this alternative proposal, to the 
extent that any entity subject to existing Sec.  155.205(c)(2)(iii)(A) 
and (B) is not a covered entity within the meaning of section 1557 and 
its implementing regulation, the standards under Sec.  92.8 would apply 
as if such entity were a covered entity. We are also considering 
limiting the cross-reference such that Exchanges, QHP issuers, and web-
brokers would have to comply only with the standards related to 
taglines at Sec.  92.8(d)(1) and (f) when providing the taglines 
required under Sec.  155.205(c)(2)(iii), and would not have

[[Page 61498]]

to comply with other notice requirements in Sec.  92.8, such as Sec.  
92.8(a). This approach would be similar to our existing regulations and 
would not require documents to include additional information, such as 
nondiscrimination disclosures and grievance processes, that are not 
contemplated by Sec.  155.205(c)(2)(iii)(A) and (B), unless the entity 
providing taglines is separately subject to Sec.  92.8. Under this 
alternative proposal, we are also considering retaining the requirement 
that taglines must be provided on critical documents within the meaning 
of Sec.  155.205(c)(2)(iii)(A) and (B), rather than applying the 
requirement at Sec.  92.8(f)(1)(i) related to significant publications 
and significant communications. However, we seek comment on this 
approach and on whether describing the types of materials on which 
taglines must be provided by Exchanges, QHP issuers, and web-brokers by 
instead referring to significant publications and significant 
communications at Sec.  92.8(f)(1)(i) would help streamline these 
requirements for entities subject to Sec.  155.205(c)(2)(iii)(A) and 
(B). We are also considering removing Sec.  155.205(c)(2)(iii)(A) and 
(B) entirely. In any case, as noted above, the section 1557 
implementing regulation applies independently of the regulations 
governing Exchanges and health insurance issuers. We request comments 
on all of these considerations, including with respect to what other 
conforming changes to Sec.  155.205(c)(2)(iii) or other regulations 
such as Sec.  156.250 might be advisable in order to implement a policy 
of relying upon the substantive standards under section 1557 and 
associated rulemaking and guidance for the language access protections 
under Sec.  155.205(c)(2)(iii).
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    \43\ See 80 FR 10788.
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c. Ability of States To Permit Agents and Brokers To Assist Qualified 
Individuals, Qualified Employers, or Qualified Employees Enrolling in 
QHPs (Sec.  155.220)
    Consistent with section 1312(e) of the Affordable Care Act, we 
established procedures under Sec.  155.220 to support the States' 
ability to permit agents and brokers to assist individuals, employers 
or employees with enrollment in QHPs offered through an Exchange, 
subject to applicable Federal and State requirements. At Sec.  
155.220(c), we established parameters for enrollment of qualified 
individuals through an Exchange with the assistance of an agent or 
broker. At Sec.  155.220(c)(1), we established that an agent or broker 
who assists with enrollment through the Exchange must ensure completion 
of an eligibility verification and enrollment application through the 
Exchange Web site as described Sec.  155.405. In Sec.  155.220(c)(3), 
we established standards that apply when using the direct enrollment 
pathway and a Web site of an agent or broker is used to complete the 
QHP selection. As described at Sec.  155.220(d), an agent or broker 
that enrolls qualified individuals through an Exchange, or assists 
individuals in applying for Exchange financial assistance, must comply 
with the terms of a general agreement with the Exchange, as well as 
register with the Exchange and receive training in the range of QHP 
options and insurance affordability programs. In addition, all agents 
and brokers must execute the applicable privacy and security agreement 
required by Sec.  155.260(b) to provide assistance with enrollment 
through the Exchange. We also established FFE standards of conduct 
under Sec.  155.220(j) for agents and brokers that assist consumers in 
enrolling in coverage through the FFEs to protect consumers and ensure 
the proper administration of the FFEs. In this rulemaking, we propose 
to build on this foundation with the adoption of new procedures and 
additional consumer protection standards for agents and brokers that 
assist with enrollments through Exchanges. We also solicit additional 
comments to help further inform the development and implementation of 
the enhanced direct enrollment pathway.
i. Differential Display of Standardized Options on the Web Sites of 
Agents and Brokers
    Under current rules, web-brokers and issuers that use the direct 
enrollment pathway to facilitate enrollment through an Exchange that 
offers standardized options are not required to give differential 
display to standardized options. In the 2017 Payment Notice, we noted 
that we would be conducting consumer testing to help us evaluate ways 
in which standardized options, when certified by an FFE, could be 
displayed on our consumer-facing plan comparison features in a manner 
that makes it easier to find and identify them, including 
distinguishing them from non-standardized plans. We noted that we 
anticipate differentially displaying the standardized options to allow 
consumers to compare plans based on differences in price and quality 
rather than cost-sharing structure, as well as providing information to 
explain the standardized options concept to consumers.
    We added a new provision to Sec.  155.205(b)(1) codifying the 
Exchange's authority to differentially display standardized options on 
our consumer-facing plan comparison and shopping tools. We did not 
require QHP issuers or web-brokers to adhere to differential display 
requirements of standardized options when using a non-Exchange Web site 
to facilitate enrollment in a QHP through an Exchange for the 2017 plan 
year, but we noted that we would consider whether to propose such a 
requirement in the future. Elsewhere in this document, we propose for 
the 2018 plan year and beyond, to allow SBE-FPs to choose to allow HHS-
designed standardized options to receive differential display on 
HealthCare.gov, just as the plans would if offered through an FFE.
    For the 2018 plan year and beyond, we propose to require web-
brokers and issuers that use the direct enrollment pathway to 
differentially display standardized options when they facilitate 
enrollment through an FFE or an SBE-FP that has elected to implement 
differential display; however, we would not require the manner of 
differentiation to be identical to the one adopted for displaying 
standardized options on HealthCare.gov. We recognize that web-brokers 
and issuers may have system constraints that prevent them from 
mirroring the HealthCare.gov display approach, and so propose that if a 
web-broker or issuer that uses the direct enrollment pathway wants to 
deviate from the manner adopted by HHS for display on HealthCare.gov, 
such deviations would be permitted, subject to approval by HHS. In 
approving deviations, HHS would consider whether the same level of 
differentiation and clarity is being provided under the deviation 
requested by the web-broker or issuer as is provided on HealthCare.gov. 
Therefore, we propose to amend Sec.  155.220(c)(3)(i) governing web-
brokers by adding new paragraph (c)(3)(i)(H), and to amend Sec.  
156.265(b)(3) governing QHP issuers engaged in direct enrollment by 
adding new paragraph (b)(3)(iv) to require differential display of all 
standardized options in accordance with the requirements under Sec.  
155.205(b)(1) in a manner consistent with that adopted by HHS for 
display on the FFE Web site, unless HHS approves a deviation.
ii. Enhanced Direct Enrollment Process
    In the 2017 Payment Notice (81 FR at 12258), we discussed a 
proposal to implement an enhanced direct enrollment process to 
facilitate enrollment through Exchanges that rely on the Federal 
platform for their eligibility and enrollment functions, namely FFEs or 
SBE-FPs. If we were to

[[Page 61499]]

implement this process, it would be an additional option for a web-
broker or QHP issuer to conduct direct enrollment activities; those 
entities could also continue to conduct direct enrollment through the 
current process, which requires a consumer to be redirected to 
HealthCare.gov in order to apply for coverage and receive an 
eligibility determination. In the 2017 Payment Notice, we discussed 
establishing an enhanced direct enrollment pathway, and stated that HHS 
would continue to analyze the necessary protections that need to be in 
place before moving forward with that new process. We now seek 
additional comments from the public as described below.
    Under the direct enrollment process today, a consumer is redirected 
from the Web site of the direct enrollment partner (issuer or web-
broker) to HealthCare.gov to complete the eligibility application and 
obtain an eligibility determination. Under the enhanced direct 
enrollment process that we are considering, a consumer might remain on 
the Web site of the direct enrollment partner (QHP issuer or web-
broker) to submit information necessary for an eligibility 
determination without being redirected to HealthCare.gov. The enhanced 
direct enrollment partner would pass information collected for the 
eligibility application to the Exchange. The Exchange would then 
generate the eligibility determination and pass the eligibility results 
back to the enhanced direct enrollment partner. The consumer could see 
the results on the direct enrollment partner's Web site. Just as with 
the current direct enrollment process, the Exchanges would continue to 
make the eligibility determination under enhanced direct enrollment, 
and eligibility verification information the Exchanges receive from 
other government agencies would not be disclosed to the enhanced direct 
enrollment partner. We believe that an enhanced direct enrollment 
process would allow the consumer to have a more streamlined experience 
and would permit the Exchange to offer a diverse set of enrollment 
channels to reach consumers.
    Although offering additional enrollment channels may make it easier 
for consumers to access coverage under qualified health plans, we must 
consider any additional risks this enrollment channel may pose to 
consumer privacy and the security of the consumer data that will be 
provided to enhanced direct enrollment partners. We solicit comment on 
these additional risks, as well as comment on any additional privacy 
and security safeguards and other consumer protections that should be 
implemented. We intend to conduct a privacy impact assessment as 
required by OMB Memorandum M-10-23. These comments will inform our 
identification and assessment of privacy and security risks presented 
by the enhanced direct enrollment pathway. This assessment will also 
help us to identify necessary safeguards that need to be in place to 
protect the personal data that consumers would entrust to enhanced 
direct enrollment partners.
iii. Additional Protections for the Current Direct Enrollment Process 
and FFE Standard of conduct for Agents and Brokers
    We also propose in this rule a number of modifications to existing 
requirements and the establishment of new requirements for agents and 
brokers that use the current direct enrollment process to ensure 
adequate consumer protection if a web-broker is facilitating enrollment 
through an FFE or SBE-FP. We propose to make a number of the same 
changes to Sec.  156.1230, which governs QHP issuers using direct 
enrollment, to ensure that consumers have similar protections when 
enrolling through a direct enrollment channel, whether they enroll 
using a web-broker, or a QHP issuer, and seek comment on whether any 
additional requirements should apply, or if any of these requirements 
should be modified, removed, or enhanced when applied to QHP issuers 
using the direct enrollment channel. First, we propose to add Sec.  
155.220(c)(3)(i)(I) to require web-brokers to display information 
provided by HHS pertaining to eligibility for the advance payments of 
the premium tax credit (APTC) and cost-sharing reductions in a 
prominent manner. This will increase the likelihood that consumers 
understand their potential eligibility for APTC and cost-sharing 
reductions and potential liability for excess APTC repayment, and can 
factor those determinations into their QHP selection and the amount of 
APTC they elect to take.
    Second, under Sec.  155.310(d)(2), an Exchange may only provide 
APTC if the Exchange receives certain attestations from the tax filer, 
and must permit an enrollee to accept less than the full amount of APTC 
for which the enrollee is eligible. Therefore, in order for an Exchange 
to provide APTC to a consumer who enrolls through the enhanced direct 
enrollment pathway, the direct enrollment partner must provide 
enrollees with an opportunity to input their desired amount of APTC and 
provide the required APTC-related attestations. HHS is aware that some 
web-brokers are not consistently permitting enrollees to select an 
amount for APTC under the existing direct enrollment pathway, and 
believes that permitting such would streamline the current direct 
enrollment pathway for consumers. Accordingly, we propose to add Sec.  
155.220(c)(3)(i)(J) to require web-brokers to allow consumers to select 
an APTC amount and make related attestations in accordance with the 
requirements of Sec.  155.310(d)(2). We note that this would be 
consistent with 45 CFR 156.1230(a)(1)(v), under which QHP issuer direct 
enrollment partners are currently required to allow consumers to select 
an APTC amount and make related attestations.
    Third, we propose to add Sec.  155.220(c)(3)(i)(K) to require the 
agent or broker of record who assisted the consumer with enrollment 
through the Exchange (that is, the agent or broker whose National 
Producer Number is listed on the Exchange application) to support post-
enrollment activities necessary for the consumer to effectuate his or 
her coverage or resolve issues related to his or her enrollment, 
including discrepancies related to eligibility. For example, we are 
aware of situations when consumers inadvertently failed to make their 
binder payments and lost their coverage without their knowledge. HHS 
would require the agent or broker to support the consumer to help 
ensure that consumers are educated about how to make the binder 
payment. Similarly, we would require the agent or broker to support the 
resolution of open data matching issues. We understand that many agents 
and brokers provide this type of assistance today to their clients 
after initial enrollment, helping with questions or problems that may 
arise regarding billing, claims or appeals. We believe that this 
proposal will help ensure that consumers who access an agent or 
broker's direct enrollment channel would have access to the skilled 
assistance and expertise of licensed agents and brokers beyond the 
initial QHP selection and enrollment process. We intend to provide 
further guidance on the extent of this required post-enrollment 
support, and solicit comment on types and extent of support that agents 
and brokers should be required to provide. We also solicit comments on 
what additional safeguards, if any, should be put in place to protect 
consumers and their data.
    Fourth, we propose to add Sec.  155.220(c)(3)(i)(L) to require web-
brokers to demonstrate operational readiness, including compliance with 
applicable privacy and security

[[Page 61500]]

requirements, prior to accessing either the current or enhanced direct 
enrollment pathway. This is intended to build upon the onboarding and 
testing process that web-brokers undergo under existing procedures for 
the current direct enrollment process. This process would require the 
web-broker to demonstrate that it has implemented required privacy and 
security measures and that it satisfies the technical specifications, 
testing requirements, and onboarding procedures applicable to the 
direct enrollment process that the web broker is using prior to 
accessing the Exchange. Consistent with Sec.  155.220(c)(5), we intend 
to conduct ongoing monitoring and audits to verify that compliance 
throughout the term of the web-broker's registration with the Exchange.
    Fifth, we propose adding Sec.  155.220(c)(3)(i)(M), to allow HHS to 
immediately suspend the agent or broker's ability to transact 
information with the Exchange as part of the direct enrollment pathway 
if HHS discovers circumstances that pose unacceptable risk to Exchange 
operations or its information technology systems. The suspension would 
last until HHS is satisfied that the risk has been removed or 
sufficiently mitigated. For example, a web-broker's access to the 
direct enrollment pathway may be suspended if it is determined that the 
web-broker is using an enrollment process other than the HHS-approved 
processes, presenting a risk of inaccurate eligibility determinations 
or presenting unacceptable security or privacy risks to consumer data. 
We note that this direct enrollment requirement is similar to the one 
at Sec.  155.220(c), which applies to agents or brokers making their 
Web site available to another agent or broker. We seek comment on 
whether these or other similar requirements should be combined. In 
addition, we propose to add language to Sec.  155.220(c)(3)(i)(E) to 
require an agent or broker to cooperate with any audit under this 
section. This would include responding to requests for information in a 
timely fashion, as well as providing access upon request to documents 
or other materials necessary to confirm compliance with applicable 
requirements.
    Sixth, consistent with Sec.  155.220(c)(4), web-brokers are 
permitted to provide access, through a contract or other arrangement, 
to their direct enrollment pathway to another agent or broker to help 
an applicant complete the QHP selection process, and must comply with 
certain obligations when doing so. We understand that a number of web-
brokers provide access to their direct enrollment pathway to other 
agents and brokers who host their own third-party Web sites. To better 
protect consumers accessing these downstream third-party Web sites that 
connect to the web-broker's direct enrollment pathway, we are proposing 
to add language to Sec.  155.220(c)(4)(i)(E) to require web-brokers 
that provide this access to be responsible for ensuring those Web sites 
are compliant with this section.
    HHS is also considering different methods for completing the 
monitoring and audits authorized by Sec.  155.220(c)(5). For example, 
HHS, its designee, or an approved third party could perform the 
onboarding testing or audit. Where approved third parties perform 
onboarding reviews and audits, we anticipate that they would be 
approved by HHS and would need the capability to audit web-brokers' 
ability to securely collect, maintain, and transmit eligibility 
application information in a manner determined by HHS and to otherwise 
review compliance with HHS rules. For third parties to be approved to 
conduct these activities, we expect that the auditor would need to 
submit an application to HHS demonstrating prior experience in 
verifying these sorts of capabilities, and, if approved, enter into an 
agreement with HHS governing the auditor's compliance with HHS audit 
and verification standards, interface with HHS systems, and data use. 
The auditor would be required to collect, store, and share data with 
HHS on these verifications, and protect that data in accordance with 
HHS standards. The auditor would be subject to monitoring and periodic 
certification by HHS, and would be compensated by the agents or brokers 
who engaged the auditor. If HHS elects to allow third parties to 
perform such verifications, we would establish a process for evaluating 
and approving third party vendors in a manner similar to the one 
established in Sec.  155.222. We solicit comment on our proposal to 
allow third parties to perform monitoring and audits authorized by 
Sec.  155.220(c). We also seek comment on whether we should establish a 
process for recognizing third parties to perform such monitoring, what 
protections are needed, and the factors HHS should consider in 
evaluating and approving organizations for this type of role.
    Finally, we propose to amend Sec.  155.220(j)(2)(i) to provide that 
an agent or broker that assists with or facilitates enrollment of 
qualified individuals in a manner that constitutes enrollment through 
an FFE or SBE-FP, or assists individuals in applying for APTC and cost-
sharing reductions for QHPs sold through an FFE or SBE-FP, must refrain 
from having a Web site that HHS determines could mislead consumers into 
believing they are visiting HealthCare.gov. For example, our experience 
shows that Web sites that utilize combinations of colors, text sizes 
and fonts or layout similar to those used on HealthCare.gov have caused 
confusion among consumers. Web sites whose URL address or marketing 
name could suggest the Web site is owned or endorsed by HealthCare.gov 
would also be inappropriate. We believe that it is important to avoid 
consumer confusion around which Web sites are operated by the FFE or 
SBE-FP, and which ones are operated by issuers, or agents or brokers. 
We would be interested in feedback on criteria for determining whether 
a Web site is misleading to consumers.
    We seek comment on all aspects of this proposal and specifically 
seek comment on whether direct enrollment with a QHP issuer should be 
permitted for enrollments through all SBE-FPs, or at the option of SBE-
FPs.
d. General Standards for Exchange Notices (Sec.  155.230)
    Section 155.230 outlines standards for notices required to be sent 
by the Exchange to individuals or employers. We propose amending 
paragraph Sec.  155.230(d)(2) to specify that electronic notices would 
be the default method for sending required SHOP Exchange notices, 
unless otherwise required by Federal or State law. The proposed 
amendment would make mailed paper notices optional, at the election of 
the employer or employee, as applicable, unless other Federal or State 
law would not permit this.\44\ We propose this change because we have 
received feedback from SHOP consumers and issuers that electronic 
notices are the preferred method of communication. In addition, 
electronic notices provide a more cost effective way for SHOPs to 
distribute required notices. However, we are aware that some people 
(and employers) may still prefer mailed paper notices, and therefore 
propose that paper notices distributed through standard mail would 
continue to be available for those that select paper notices as the 
preferred method of communication. Employers and employees 
participating in FF-SHOPs or in SBE-FPs utilizing the Federal platform 
for SHOP functions will continue to be able to select their preferred 
communication method when

[[Page 61501]]

completing the eligibility applications online at HealthCare.gov. We 
note that to the extent that a SHOP is required to provide notices in a 
particular format to meet its obligation to perform effective 
communication with an individual with a disability under the Americans 
with Disabilities Act of 1990 (42 U.S.C. Ch. 126), section 504 of the 
Rehabilitation Act, or section 1557 of the Affordable Care Act, a SHOP 
should comply with those requirements.
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    \44\ See Federally-facilitated Marketplace (FFM) and Federally-
facilitated Small Business Health Options Program (FF-SHOP) 
Enrollment Manual available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/ENR_FFMSHOP_Manual_080916.pdf, 
for a list of the FF-SHOP Exchange notices.
---------------------------------------------------------------------------

    We note that this amendment would not change the requirement that a 
SHOP comply with the requirements for electronic notices in 42 CFR 
435.918(b)(2) through (5) for the employer or employee. We seek comment 
on this proposal.
    We also propose to add a new paragraph Sec.  155.230(d)(3) to give 
individual market Exchanges and SHOPs flexibility to send notices 
through standard mail, instead of electronically, if an individual 
market Exchange or SHOP is unable to send select notices electronically 
due to technical limitations, even if an election has been made to 
receive such notices electronically. Our regulation currently requires 
that, should an individual's, employee's, or employer's notice 
preference be electronic notices, an individual market Exchange must 
send required notices according to this preference, and our proposed 
amendment to paragraph (d)(2) would require that a SHOP provide 
electronic notices unless paper notices are selected as the preferred 
communication method. However, Exchanges or SHOPs may have 
technological limitations that prevent them from sending certain 
notices electronically. In these situations, we would like to provide 
flexibility for an individual market Exchange or SHOP to instead notify 
the individual, employee, or employer through standard mail. We 
encourage individual market Exchanges or SHOPs who might need to 
exercise this option to explain to individuals, employees, or employers 
that some required notices may be sent through standard mail, and 
encourage additional outreach be conducted, as needed, so the 
individual, employee, or employer understands the content of the 
standard mail notice itself. We seek comment on this proposal.
e. Payment of Premiums (Sec.  155.240)
    When an enrollee stops receiving the benefit of advance payments of 
the premium tax credit, for example as a result of a data matching 
inconsistency period expiring, the enrollee will be responsible for a 
greater premium amount. For individuals who have agreed to pay premiums 
via electronic funds transfer (EFT), this could mean the withdrawal of 
a larger than expected amount from the enrollee's bank account, and 
could result in financial hardship. We recognize that issuers have 
different procedures in place to provide notice to enrollees affected 
by a larger-than-expected EFT withdrawal and to avoid potential 
consumer hardship. We are considering future rulemaking that would 
require safeguards for consumers, such as reversal or termination of 
EFTs, with or without simultaneous paper-billing, when EFT amounts are 
of a larger-than-expected amount. We seek comment regarding the scope 
of any potential problem related to larger-than-expected EFT 
withdrawals, issuers' experience with these withdrawals, industry best 
practices, State regulations in this area, and whether Federal 
rulemaking is needed.
3. Exchange Functions in the Individual Market: Eligibility 
Determinations for Exchange Participation and Insurance Affordability 
Programs
a. Eligibility Redetermination During a Benefit Year (Sec.  155.330)
    Paragraph (d)(1)(ii) of Sec.  155.330 requires the Exchange to 
periodically examine available data sources for eligibility 
determinations for certain government health programs, including 
Medicare, Medicaid, and the Children's Health Insurance Program (CHIP), 
for Exchange enrollees on whose behalf APTC or the cost-sharing 
reduction portion of advance payments are being paid. We are proposing 
to amend paragraph (d)(1)(ii) to require the Exchange to periodically 
examine data sources for information on either eligibility 
determinations for or enrollment in the specified government programs.
    The proposed change would provide Exchanges with flexibility to use 
information about enrollment in the specified government health 
programs, rather than information about eligibility determinations. 
Having this flexibility may be particularly valuable if data on 
eligibility determinations (as distinct from enrollment) are not 
available. When deciding whether to examine data sources for 
eligibility determinations or enrollment information, Exchanges should 
consider which data source best meets the criteria of timeliness, 
accuracy, and availability.
    We propose to add a new paragraph Sec.  155.330(e)(2)(iii) related 
to periodic examination of data sources. Currently, paragraph (e)(2)(i) 
describes the procedures for redetermination and notification of 
eligibility when, through a data matching process under Sec.  
155.330(d), an Exchange identifies updated information regarding death 
or any factor of eligibility not regarding income, family size, or 
family composition. Our regulations have not previously addressed how 
an Exchange should use updated information regarding compliance with 
the income tax filing and reconciliation requirement under Sec.  
155.305(f)(4). Due to certain operational and legal impediments 
explained below, we believe that the procedures in paragraph (e)(2)(i) 
may not be appropriate in these cases. Proposed new paragraph 
(e)(2)(iii) would require an Exchange to choose among three 
alternatives for when the Exchange identifies updated information 
regarding compliance with the income tax filing and reconciliation 
requirement under Sec.  155.305(f)(4): (A) Follow the procedures 
specified in paragraph (e)(2)(i) of this section; (B) follow 
alternative procedures specified by the Secretary in guidance; or (C) 
follow an alternative process proposed by the Exchange and approved by 
the Secretary based on a showing that the process meets the approval 
criteria outlined below.
    An Exchange enrollee's continued eligibility for APTC may be 
jeopardized when the person responsible for reconciling the tax credit 
on a tax return fails to do so as required in Sec.  155.305(f)(4). 
However, Exchange operational concerns, the need for close cooperation 
with the IRS, timelines for tax filing (including requesting an 
extension of the tax filing deadline), timelines for updating the IRS 
database that provides information about income tax return filing and 
reconciliation, and restrictions on the disclosure of Federal tax 
information affect an Exchange's processes for making redeterminations 
and communicating with enrollees regarding redeterminations.
    In light of these complexities, specific procedures for handling 
these redeterminations may be warranted that balance Exchange 
operational flexibility, the need for program integrity protections and 
procedural protections for enrollees and tax filers. Accordingly, under 
proposed paragraph (e)(2)(iii), Exchanges must follow the procedures 
specified in Sec.  155.330(e)(2)(i) (provided the Exchange is able to 
maintain adequate safeguards for Federal tax information consistent 
with section 6103 of the Code with respect to the confidentiality, 
disclosure, maintenance, or use of such information), procedures 
described in guidance published by the Secretary, or alternative 
procedures approved by the

[[Page 61502]]

Secretary. The guidance established by the Secretary could, for 
example, provide that an Exchange would follow specified procedures for 
providing notice and, if there is a dispute about the IRS tax filing 
data regarding the tax filer (or his or her spouse, if applicable), 
provide an opportunity for the enrollee to contest.
    An Exchange would also be permitted to choose alternative 
procedures for periodic data matching to verify whether a tax filer has 
complied with the filing and reconciliation requirement, subject to 
approval by the Secretary. Approval would require a showing by the 
Exchange that the alternative procedures would facilitate continued 
enrollment in coverage with financial assistance for which the enrollee 
remains eligible, provide appropriate information about the process to 
the enrollee (including regarding any action by the enrollee necessary 
to obtain the most accurate redetermination of eligibility), and 
provide adequate program integrity protections and safeguards for 
Federal tax information under section 6103 of the Code with respect to 
the confidentiality, disclosure, maintenance, or use of such 
information.
    Additionally, in paragraph (g), we propose to allow alternate 
methods of recalculating APTC during the benefit year. Currently, 
paragraph (g) provides that when an Exchange makes an eligibility 
redetermination in accordance with Sec.  155.330 that results in a 
change in the amount of APTC, the Exchange must recalculate the amount 
of APTC to account for any payments already made on behalf of the tax 
filer for the benefit year. The goal of the recalculation is to provide 
the total advance payments for the benefit year that correspond to the 
tax filer's total projected and allowed premium tax credit for the 
benefit year.
    We propose for coverage years through 2023 to permit the Exchange 
to recalculate APTC in accordance with an eligibility redetermination 
under Sec.  155.330 using an alternate method approved by the 
Secretary. Approval would require a showing by the Exchange that the 
alternative procedure provides adequate program integrity protections, 
minimizes administrative burden on the Exchange, and limits negative 
impacts on consumers, where possible. We make this change based on 
Exchange feedback and believe the proposed change will account for the 
differences in Exchange systems and mitigate complexities. We believe 
this change balances the need for Exchange flexibility in the near term 
with the goal of providing accurate determinations for APTC and 
protecting tax filers from the potential for an excess APTC repayment, 
where possible. We seek comment on this proposal and on the period of 
time for which it should be available.
    We seek comment on these proposals.
4. Exchange Functions in the Individual Market: Enrollment in Qualified 
Health Plans
a. Enrollment of Qualified Individuals into QHPs (Sec.  155.400)
    We propose to amend Sec.  155.400 to add additional flexibility to 
the binder payment rules. Specifically, we propose to add Sec.  
155.400(e)(2) to give Exchanges the discretion to allow issuers 
experiencing billing or enrollment problems due to high volume or 
technical errors to implement a reasonable extension of the binder 
payment deadlines the issuer has set under Sec.  155.400(e)(1). We 
propose that the FFEs and SBE-FPs will, and State Exchanges may, allow 
these reasonable extensions, which in the case of most high volume 
situations or technical errors we would not expect to be more than 45 
calendar days' duration. Based on our experience from multiple open 
enrollment periods, billing or enrollment problems, particularly in 
cases where an issuer experienced technical errors or a processing 
backlog caused by a large volume of enrollments, can affect enrollees' 
ability to submit timely binder payments. We believe providing issuers 
with the option to allow reasonable binder payment deadline extensions, 
which must be implemented in a uniform and nondiscriminatory manner, 
would prevent enrollees from having their coverage cancelled due to 
non-payment when those enrollees did not have adequate time to make 
their binder payments and appropriately balances issuer flexibility and 
consumer protectiveness.
    We also propose to specify that all binder payment rules, including 
the proposed amendment, in Sec.  155.400(e) apply to SBE-FPs in 
addition to FFEs. We believe that all entities on the Federal platform 
should utilize the same binder payment rules in order to simplify 
operational implementation of enrollment processing and confirmation 
using the Federal platform, and consider these rules to fall within the 
regulations pertaining to issuer eligibility and enrollment functions 
that a QHP issuer must comply with in order to participate in an SBE-
FP, under Sec.  156.350. We seek comment on this proposal.
    Additionally, in the preamble to Sec.  156.270 in the 2017 Payment 
Notice, we stated as part of our interpretation of Sec.  156.270(d) 
that a binder payment is not necessary when an enrollee enrolls, either 
actively or passively, in a plan within the same insurance product. We 
understand that this may be different than issuer practice prior to the 
Affordable Care Act and that issuers may have operational challenges in 
distinguishing between enrollment in the same product versus a 
different product. To minimize operational concerns, we seek comment on 
whether we should amend the binder payment requirement in Sec.  
155.400(e) to not require a binder payment when a current enrollee 
enrolls, either actively or passively, in any plan with the same 
issuer, and on the appropriate timeframe for making such a change.
b. Special Enrollment Periods (Sec.  155.420)
    Special enrollment periods, a longstanding feature of employer-
sponsored coverage, exist to ensure that people who lose health 
insurance during the year, or who experience other qualifying events, 
have the opportunity to enroll in coverage. We are committed to making 
sure that special enrollment periods are available to those who are 
eligible for them and equally committed to avoiding any misuse or abuse 
of special enrollment periods.
    In 2016, we added warnings on HealthCare.gov about inappropriate 
use of special enrollment periods, eliminated special enrollment 
periods that are no longer needed as the Exchanges mature, and 
tightened eligibility rules. In addition, we introduced a special 
enrollment confirmation process under which consumers enrolling through 
the most common special enrollment periods are directed to provide 
documentation to confirm their eligibility for the special enrollment 
period.
    We have heard competing concerns about how these actions are 
affecting the Exchange risk pools. Some have stated that additional 
changes are needed to prevent individuals from misusing special 
enrollment periods to sign up for coverage only after they become 
sick.\45\ Others have stated that any differential costs for the 
special enrollment period

[[Page 61503]]

population reflect the very low take-up rates for special enrollment 
periods among eligible individuals. They claim that verification 
processes worsen the problem by creating new barriers to enrollment, 
with healthier, less motivated individuals, the most likely to be 
deterred.
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    \45\ We have heard similar concerns about potential gaming and 
adverse selection that could result from the grace period for 
payment of premiums for qualified individuals receiving advance 
payments of the premium tax credit. While we seek additional 
information on this concern as well, we expect that changes to grace 
period policy would require legislation.
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    We seek comment on these issues, especially data that could help 
distinguish misuse of special enrollment periods from low take-up of 
special enrollment periods among healthier eligible individuals, 
evidence on the impact of eligibility verification approaches, 
including pre-enrollment verification, on health insurance enrollment, 
continuity of coverage, and risk pools (whether in the Exchange or 
other contexts), and input on what special enrollment period-related 
policy or outreach changes, including in the final rule, could help 
strengthen risk pools.
    In this rule, we also seek to ensure transparency, stability, and 
appropriate utilization of special enrollment periods by codifying 
certain special enrollment periods that were made available through 
prior guidance. Therefore, in order to provide clarity and certainty to 
all stakeholders, we propose to codify:
     Paragraph (d)(8)(ii) for the special enrollment period for 
dependents of Indians who are enrolled or are enrolling in a QHP 
through an Exchange at the same time as an Indian;
     Paragraph (d)(10) for the special enrollment period for 
victims of domestic abuse or spousal abandonment and their dependents 
who seek to apply for coverage apart from the perpetrator of the abuse 
or abandonment;
     Paragraph (d)(11) for the special enrollment period for 
consumers and their dependents who apply for coverage and are later 
determined ineligible for Medicaid or CHIP;
     Paragraph (d)(12) for the special enrollment period that 
may be triggered by material plan or benefit display errors on the 
Exchange Web site, including errors related to service areas, covered 
services, and premiums; and
     Paragraph (d)(13) for the special enrollment period that 
may be triggered when a consumer resolves a data matching issue 
following the expiration of an inconsistency period.
    We propose to codify the special enrollment period for dependents 
of Indians who are enrolling at the same time as the Indian, as defined 
by section 4 of the Indian Health Care Improvement Act, in paragraph 
(d)(8)(ii) so that Indians and non-Indian members of the household may 
maintain the same coverage and so that this special enrollment period 
is consistently applied across Exchanges. This special enrollment 
period has enabled mixed status Indian families to enroll in or change 
coverage together through the Exchange. We propose to codify the 
special enrollment period for victims of domestic abuse or spousal 
abandonment in paragraph (d)(10) so that, as specified in July 2015 
guidance,\46\ victims of domestic abuse or spousal abandonment, along 
with their dependents, can enroll in coverage separate from their 
abuser or abandoner. This special enrollment period has provided a 
needed pathway to new coverage for consumers in these situations. We 
propose to codify the special enrollment period for consumers who apply 
for coverage during the Exchange annual open enrollment period or due 
to a qualifying event and are determined ineligible for Medicaid or 
CHIP in paragraph (d)(11), so that consumers who applied for coverage 
when they were eligible to do so can ultimately enroll in coverage 
through the Exchange. This special enrollment period has ensured that 
consumers who were incorrectly assessed potentially eligible for 
Medicaid or CHIP have a pathway to coverage. We propose to codify the 
special enrollment period for material plan or benefit display errors 
in paragraph (d)(12), so that consumers who enrolled in a plan based on 
incorrect plan or benefit information can select a new plan that better 
suits their needs. We propose to codify the special enrollment period 
for data matching issues that are cleared after the deadline for 
resolving has passed in paragraph (d)(13), so that consumers who submit 
required documents to prove that they are qualified individuals may 
enroll in coverage through the Exchange. This special enrollment period 
has enabled consumers who are not able to submit required documents 
prior to the deadline associated with their data matching issue to 
enroll in coverage upon submitting sufficient documents. We seek 
comments on these proposals to codify existing special enrollment 
periods.
---------------------------------------------------------------------------

    \46\ Updated Guidance on Victims of Domestic Abuse and Spousal 
Abandonment (Jul. 27, 2015). Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Updated-Guidance-on-Victims-of-Domestic-Abuse-and-Spousal-Abandonment_7.pdf.
---------------------------------------------------------------------------

    We also propose to make a variety of technical corrections to 
correct punctuation in paragraphs (d)(1)(i) and (iii), and to update 
the cross-references in paragraph (b)(2)(iii) (regarding coverage 
effective dates) to reflect the applicable newly codified special 
enrollment periods. All of these changes reflect existing FFE practice 
in implementing special enrollment periods authorized by the Affordable 
Care Act and existing regulations, and do not create new special 
enrollment periods for consumers.
    We note that certain special enrollment periods in Sec.  155.420 
are incorporated into the individual market guaranteed availability 
regulations at Sec.  147.104(b) and apply to all issuers offering non-
grandfathered individual market coverage, whether through or outside of 
an Exchange. Additionally, certain special enrollment periods in Sec.  
155.420 also apply in the SHOPs and are incorporated into the SHOP 
regulations at Sec. Sec.  155.725(j) and 156.285(b). Except for the 
proposed additions of paragraphs (d)(8)(ii) and (d)(13), which are 
applicable only with respect to coverage offered through an Exchange, 
the proposed changes to special enrollment periods in this notice of 
proposed rulemaking would apply throughout the individual market, and 
we therefore propose conforming amendments to Sec.  147.104(b). We seek 
comment on this approach to aligning the proposed amendments with the 
individual-market-wide and SHOP special enrollment periods.
c. Termination of Exchange Enrollment or Coverage (Sec.  155.430)
    We propose to amend Sec.  155.430(b)(2)(iii) to specify that when 
an issuer seeks to rescind coverage, in accordance with Sec.  147.128, 
in a QHP purchased through an Exchange, the issuer must first 
demonstrate, to the reasonable satisfaction of the Exchange, that the 
rescission is appropriate, if so required by the Exchange. In FFEs and 
SBE-FPs, HHS anticipates generally requiring such a demonstration. 
Section 2712 of the PHS Act and Sec.  147.128 prohibit an issuer from 
rescinding coverage unless the individual (or a person seeking coverage 
on behalf of the individual) performs an act, practice, or omission 
that constitutes fraud, or makes an intentional misrepresentation of 
material fact, as prohibited by the terms of the plan or coverage. We 
do not seek to restrict issuers' ability to rescind coverage when an 
individual or a party seeking coverage on behalf of an individual 
fraudulently enrolls the individual in coverage. However, because the 
Exchanges generally must be involved in all enrollment processes, 
including the process of rescinding coverage for plans purchased 
through the Exchange, it is necessary for the issuer to provide 
information to the Exchange in order to implement the rescission. 
Additionally, it is important for consumer protection and the orderly 
functioning of Exchanges that

[[Page 61504]]

individuals whose eligibility has been verified and enrollments 
processed according to Exchange rules can be sure that their coverage 
will not be rescinded by issuers without a showing that the enrollment 
was fraudulent, or due to an intentional misrepresentation of material 
fact, as prohibited by the terms of the plan or coverage, meeting the 
requirements for rescission under Sec.  147.128. The FFEs or SBE-FPs 
would not hinder an issuer seeking to rescind on grounds demonstrating 
fraud or intentional misrepresentation of material fact, such as the 
enrollment of a non-existent or deceased person. We seek comment on 
this proposal.
5. Appeals of Eligibility Determinations for Exchange Participation and 
Insurance Affordability Programs
a. General Eligibility Appeals Requirements (Sec.  155.505)
    In Sec.  155.505, we propose to add paragraph (h) permitting the 
Exchange appeals entity to utilize paper-based appeals processes for 
the acceptance of appeal requests, the provision of appeals notices, 
and the secure transmission of appeals-related information between 
entities, when the Exchange appeals entity is unable to establish and 
perform otherwise required related electronic functions, as further 
described below. In the first Program Integrity Rule, 78 FR 54069 (Aug. 
30, 2013), we provided flexibility for Exchanges to implement a paper-
based appeals process for the first year of operations (October 1, 2013 
through December 31, 2014). Our goal was to allow Exchanges to operate 
efficient, effective paper-based appeals processes, while providing 
time to modernize their appeals programs. We believed this approach 
balanced the interests of both appellants and Exchanges.
    We extended this flexibility through December 31, 2016 in guidance 
published on October 23, 2014 \47\ and March 22, 2016.\48\ In these 
documents, we acknowledged that Exchanges face many challenges and 
competing priorities regarding system development. Currently, some 
Exchange appeals entities are continuing to work towards full 
compliance with the regulatory requirements related to electronic 
appeals processes.
---------------------------------------------------------------------------

    \47\ Subregulatory Guidance Memorandum (Oct. 23, 2014), 
available at https://www.cms.gov/CCIIO/Resources/Regulations-andGuidance/Downloads/Paper-based-Appeals-Process-Guidance.pdf.
    \48\ Subregulatory Guidance Memorandum (Mar. 22, 2016), 
available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Extension-for-paper-based-appeals-3-22-2016.pdf).
---------------------------------------------------------------------------

    Accordingly, we are proposing to add Sec.  155.505(h) so the 
Exchange appeals entity may establish secure and expedient paper-based 
appeals processes that ensure appropriate procedural protections for 
appellants when it is unable to fulfill the electronic requirements 
related to individual market eligibility appeals, employer appeals, and 
SHOP employer and employee appeals as described in part 155, subparts 
C, D, F, and H. These electronic requirements include: Accepting appeal 
requests submitted by telephone or internet (Sec.  155.520(a)(1)(i) and 
(iv)), sending electronic notices (Sec.  155.230(d)), and establishing 
secure electronic interfaces to transfer eligibility and appeal records 
between appeals entities and Exchanges or Medicaid or CHIP agencies 
(Sec.  155.345(i)(1); Sec.  155.510(b)(1)(ii) and (b)(2); Sec.  
155.520(d)(1)(ii) and (iii) and (d)(3) and (4); Sec.  155.545(b)(3); 
Sec.  155.555(e)(1); and Sec.  155.740(h)(1)). We are also proposing 
corresponding amendments to Sec.  155.555(b) (regarding employer 
appeals) and Sec.  155.740(b)(2) (regarding SHOP appeals) to include 
cross-references to proposed Sec.  155.505(h).
    This proposal addresses the ongoing challenge of implementing 
complex electronic appeals processes, while adequately protecting 
appellants' procedural rights. We expect that appeals entities will 
continue to work towards modernizing and automating their appeals 
processes, and that they will implement electronic appeals processes as 
they are able, to the extent such processes may enhance appellants' 
experience or the overall efficiency of eligibility appeals.
    We seek comment on this proposal.
b. Employer Appeals Process (Sec.  155.555)
    Section 155.555(b) sets forth the requirements for employer appeals 
processes established either by an Exchange or HHS. As described above, 
we propose to amend Sec.  155.555(b) to include cross-references to 
proposed Sec.  155.505(h), which would permit an employer appeals 
process to utilize paper-based appeals processes for the acceptance of 
appeal requests, the provision of appeals notices, and the secure 
transmission of appeals-related information between entities, when the 
Exchange appeals entity is unable to establish and perform otherwise 
required related electronic functions.
6. Required Contribution Percentage (Sec.  155.605(e)(3))
    Under section 5000A of the Code, an individual must have minimum 
essential coverage for each month, qualify for an exemption, or make a 
shared responsibility payment with his or her Federal income tax 
return. Under section 5000A(e)(1) of the Code, an individual is exempt 
if the amount that he or she would be required to pay for minimum 
essential coverage (the required contribution) exceeds a particular 
percentage (the required contribution percentage) of his or her actual 
household income for a taxable year. In addition, under Sec.  
155.605(d)(2), an individual is exempt if his or her required 
contribution exceeds the required contribution percentage of his or her 
projected household income for a year. Finally, under Sec.  
155.605(d)(2)(iv), certain employed individuals are exempt if, on an 
individual basis, the cost of self-only coverage is less than the 
required contribution percentage, but the aggregate cost of individual 
coverage through employers exceeds the required contribution 
percentage, and no family coverage is available through an employer at 
a cost less than the required contribution percentage.
    Section 5000A established the 2014 required contribution percentage 
at 8 percent. For plan years after 2014, section 5000A(e)(1)(D) of the 
Code and 26 CFR 1.5000A-3(e)(2)(ii) provide that the required 
contribution percentage is the percentage determined by the Secretary 
of HHS that reflects the excess of the rate of premium growth between 
the preceding calendar year and 2013, over the rate of income growth 
for that period.
    We established a methodology for determining the excess of the rate 
of premium growth over the rate of income growth for plan years after 
2014 in the 2015 Market Standards Rule (79 FR 30302), and we said 
future adjustments would be published annually in the HHS notice of 
benefit and payment parameters.
    Under the HHS methodology, the rate of premium growth over the rate 
of income growth for a particular calendar year is the quotient of (x) 
1 plus the rate of premium growth between the preceding calendar year 
and 2013, carried out to ten significant digits, divided by (y) 1 plus 
the rate of income growth between the preceding calendar year and 2013, 
carried out to ten significant digits.\49\
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    \49\ We also defined the required contribution percentage at 
Sec.  155.600(a) to mean the product of 8 percent and the rate of 
premium growth over the rate of income growth for the calendar year, 
rounded to the nearest one-hundredth of one percent.
---------------------------------------------------------------------------

    As the measure of premium growth for a calendar year, we 
established in the 2015 Market Standards Rule that we would use the 
premium adjustment percentage. The premium adjustment

[[Page 61505]]

percentage is based on projections of average per enrollee employer-
sponsored insurance premiums from the National Health Expenditure 
Accounts (NHEA), which are calculated by the CMS Office of the 
Actuary.\50\ (Below, in Sec.  156.130, we propose the 2018 premium 
adjustment percentage of 16.17303196 (or an increase of about 16.2 
percent) over the period from 2013 to 2017. This reflects an increase 
of about 2.6 percent over the 2017 premium adjustment percentage 
(1.1617303196/1.1325256291).)
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    \50\ For any given year the premium adjustment percentage is the 
percentage (if any) by which the most recent NHEA projection of per 
enrollee employer-sponsored insurance premiums for the current year 
exceeds the most recent NHEA projection of per enrollee employer-
sponsored insurance premiums for 2013.
---------------------------------------------------------------------------

    As the measure of income growth for a calendar year, we established 
in the 2017 Payment Notice that we would use per capita personal income 
(PI). Under the approach finalized in the 2017 Payment Notice, and 
using the NHEA data, the rate of income growth for 2018 is the 
percentage (if any) by which the most recent projection of per capita 
PI for the preceding calendar year ($51,388 for 2017) exceeds per 
capita PI for 2013 ($44,528), carried out to ten significant digits. 
The ratio of per capita PI for 2017 over the per capita PI for 2013 is 
estimated to be 1.1540603665 (that is, per capita income growth of 
about 15.4 percent). This reflects an increase of about 4.0 percent 
relative to the increase for 2013 to 2016 (1.1540603665/1.1101836394).
    Thus, using the 2018 premium adjustment percentage proposed in this 
rule, the excess of the rate of premium growth over the rate of income 
growth for 2013 to 2017 is 1.1617303196/1.1540603665, or 1.0066460588. 
This results in a proposed required contribution percentage for 2018 of 
8.00*1.0066460588, or 8.05 percent, when rounded to the nearest one-
hundredth of one percent, a decrease of 0.11 percentage points from 
2017 (8.05317 - 8.16100). The excess of the rate of premium growth over 
the rate of income growth also is used for determining the applicable 
percentage in section 36B(b)(3)(A) and the required contribution 
percentage in section 36B(c)(2)(C).
7. Enrollment Periods Under SHOP (Sec.  155.725)
    Section 155.725(g) describes the process for newly qualified 
employees to enroll in coverage through a SHOP and the coverage 
effective date for newly qualified employees. We propose to amend 
paragraphs (g)(1) and (2) and add new paragraph (g)(3).
    Currently, Sec.  155.725(g)(1) requires both that: (1) The 
enrollment period for an employee who becomes a qualified employee 
outside of the initial or annual open enrollment period starts on the 
first day of becoming a newly qualified employee; and (2) a newly 
qualified employee must have at least 30 days from the beginning of his 
or her enrollment period to make a plan selection. The latter 
requirement is intended to guarantee that the employee has sufficient 
time to make an informed decision about his or her health coverage 
needs. We do not propose changes to this latter requirement, but we 
propose to change the day the enrollment period begins.
    Before a newly qualified employee may make a plan selection through 
a SHOP, his or her employer must notify the SHOP about the newly 
qualified employee. Qualified employers in an FF-SHOP or SBE-FP using 
the Federal platform for SHOP eligibility or enrollment functions 
generally report newly qualified employees by adding the employee to 
the employee roster or by calling the FF-SHOP call center. If, however, 
a qualified employer waits to take either action, a newly qualified 
employee might not be able to begin the enrollment process until after 
the date upon which the employee became eligible, and might not have a 
full 30 days to make a coverage decision, as contemplated by the 
current regulations. We are concerned that there might be a similar 
delay in State-based SHOPs.
    To ensure that newly qualified employees have the full 30 days to 
enroll, we propose, at Sec.  155.725(g)(1), that SHOPs would be 
required to provide an employee who becomes a qualified employee 
outside of the initial or annual open enrollment period with a 30-day 
enrollment period that begins on the date the qualified employer 
notifies the SHOP about the newly qualified employee. We also propose 
that qualified employers would be required to notify the SHOP about a 
newly qualified employee on or before the 30th day after the day that 
the employee becomes eligible for coverage, and are also proposing a 
conforming amendment to the requirements for qualified employers at 
Sec.  157.205(f)(1). Together with the other proposed amendments to 
paragraph (g) discussed below, this proposal would ensure that the 
proposed policy of starting the 30-day enrollment period on the date of 
the qualified employer's notice to the SHOP would not delay the 
effective date of coverage beyond the limits on waiting periods imposed 
under Sec.  147.116, and would also ensure that newly qualified 
employees are provided with a full 30 days to make their health 
coverage decisions after their employer has notified the SHOP about 
them.
    We also propose to remove the requirement in current Sec.  
155.725(g)(1) that enrollment periods for newly qualified employees 
must end no sooner than 15 days prior to the date that any applicable 
employee waiting period longer than 45 days would end if the employee 
made a plan selection on the first day of becoming eligible. We are 
proposing to remove this requirement because the proposed amendments at 
paragraphs (g)(2) and (3) discussed below are expected to minimize the 
risk of employers exceeding waiting period limitations, as defined at 
Sec.  147.116, and because we believe that removing this requirement 
will in some circumstances give newly qualified employees a longer 
period of time to make coverage decisions. For example, suppose that a 
new employee who is not a variable hour employee is hired and offered 
coverage by the qualified employer on April 25 and that the qualified 
employer imposes a 60-day waiting period that begins on the date of 
hire (and under Sec.  147.116 and the proposed amendments to paragraph 
(g)(3) discussed below ends June 23). The qualified employer notifies 
the SHOP on May 25 about the newly qualified employee, and the 
enrollment period begins on that date and will end on June 23. The 
newly qualified employee makes a plan selection on May 26. If we 
maintained the requirements that coverage effective dates for newly 
qualified employees must generally be determined in accordance with 
Sec.  155.725(h) (see discussion below of proposed amendments to this 
requirement) and that enrollment periods for newly qualified employees 
must begin on the date that the employee becomes eligible, and end no 
sooner than 15 days prior to the date that any applicable employee 
waiting period longer than 45 days would end if the employee made a 
plan selection on the first day of becoming eligible, the newly 
qualified employee's enrollment period would have ended on June 9 and 
the employee would have a coverage effective date of July 1. However, 
under the proposed amendments we are making to this section, the newly 
qualified employee would be provided a full 30-day enrollment period 
with the same coverage effective date of July 1.
    Current paragraph (g)(2) provides that a newly qualified employee's 
coverage effective date must always be the first day of a month, and 
must generally be determined in accordance with

[[Page 61506]]

paragraph (h), unless the employee is subject to a waiting period 
consistent with Sec.  147.116, in which case the effective date may be 
on the first day of a later month, but in no case may the effective 
date fail to comply with Sec.  147.116. Thus, in an FF-SHOP, under the 
current rule, coverage for a newly qualified employee generally takes 
effect the first day of the following month for a plan selection made 
on or before the 15th day of a month, and takes effect the first day of 
the second following month for a plan selection made after the 15th day 
of a month, unless coverage must take effect on a later date due to the 
application of a waiting period consistent with Sec.  147.116. We 
propose to modify paragraph (g)(2) to specify that the coverage 
effective date for a newly qualified employee would be the first day of 
the month following the plan selection, (rather than being determined 
in accordance with paragraph (h)), unless the employee is subject to a 
waiting period consistent with Sec.  147.116 and proposed paragraph 
(g)(3), in which case the effective date would be on the first day of 
the month following the end of the waiting period, but in no case may 
the effective date fail to comply with Sec.  147.116. The proposed 
amendments to paragraph (g)(2) also specify that: (1) If a newly 
qualified employee's waiting period ends on the first day of a month 
and the employee has already made a plan selection by that date, 
coverage would also be effective on that date; and (2) if a newly 
qualified employee makes a plan selection on the first day of a month 
and any applicable waiting period has ended by that date, coverage 
would be effective on that date. These amendments would minimize the 
risk of an employer exceeding the limitations on waiting period length 
at Sec.  147.116 due to SHOP enrollment timelines and processes.
    Additionally, in order to ensure that SHOP operations consistent 
with these proposed amendments would not cause a qualified employer to 
exceed the limits on waiting periods under Sec.  147.116, we propose to 
amend Sec.  155.725(g)(2) to require that if a qualified employer with 
variable hour employees makes regularly having a specified number of 
hours of service per period (or working full-time) a condition of 
employee eligibility for coverage offered through a SHOP, any 
measurement period that the qualified employer uses to determine 
eligibility under Sec.  147.116(c)(3)(i) must not exceed 10 months with 
respect to coverage offered through the SHOP (rather than the 12-month 
measurement period otherwise allowed under Sec.  147.116(c)(3)(i)). 
This aspect of the proposal is intended to ensure that coverage takes 
effect within the limitations on waiting period length at Sec.  
147.116(c)(3)(i) for variable hour employees, under which coverage must 
take effect no later than 13 months from the employee's start date, 
plus, if the employee's start date is not the first day of a calendar 
month, the time remaining until the first day of the next calendar 
month. Specifically, for qualified employers that condition eligibility 
for coverage on an employee regularly having a specified number of 
hours of service per period (or working full-time), if it cannot be 
determined that a newly-hired employee is reasonably expected to 
regularly work that number of hours per period (or work full-time), the 
qualified employer may take a reasonable period of time, not to exceed 
10 months and beginning on any date between the employee's start date 
and the first day of the first calendar month following the employee's 
start date, to determine whether the employee meets the eligibility 
condition.
    We seek comment on whether any of the proposed timeframes might 
result in a situation in which an employer or issuer falls out of 
compliance with Sec.  147.116.
    Consistent with Sec.  147.116, as long as the employee subject to a 
waiting period may make a plan selection that results in coverage 
becoming effective within the timeframes required under Sec.  147.116, 
coverage that begins later as a result of the employee's delay in 
making a plan selection would not constitute a failure to comply with 
the waiting period limitations under Sec.  147.116. As a result of our 
proposal at paragraph (g)(2) of this section, when a newly qualified 
employee subject to a waiting period makes a plan selection, coverage 
would begin the first day of the first month that follows the 
expiration of the waiting period, as long as that date is consistent 
with the requirements in Sec.  147.116. However, if the first day of 
the first month following the expiration of the waiting period for this 
employee would be outside the limits under Sec.  147.116, the SHOP 
would be required under paragraph (g)(2) to ensure that coverage takes 
effect within the required timeframe. To avoid this scenario and the 
operational complications it would cause for SHOPs, we are also 
proposing to specify in a new paragraph (g)(3) that waiting periods in 
a SHOP may not exceed 60 days in length. If an individual subject to a 
waiting period could have had an effective date within the timeframes 
in Sec.  147.116 by making a plan selection at the beginning of the 
enrollment period, but delays making a plan selection, consistent with 
Sec.  147.116(a), coverage would begin the first day of the first month 
following the end of the waiting period, even if this would not be 
within the timeframes in Sec.  147.116.
    In addition to specifying that waiting periods in SHOPs would not 
exceed 60 days, proposed paragraph (g)(3) would also specify the 
calculation methodology for waiting periods in SHOPs. Under this 
proposed amendment, waiting periods in SHOPs would be calculated 
beginning on the date the employee becomes eligible--regardless of when 
the qualified employer notifies the SHOP about the newly qualified 
employee. For example, a 60-day waiting period would be calculated as 
the date an employee becomes otherwise eligible plus 59 days. Under 
this methodology, the date the employee becomes otherwise eligible 
counts as the first day of the waiting period. We propose this 
amendment to ensure that employers will remain in compliance with Sec.  
147.116 when factoring in certain aspects of the SHOP enrollment 
timeline, such as the 30 days employers would have under these proposed 
amendments to notify the SHOP about a newly qualified employee, the 30 
days newly qualified employees have to make a plan selection, and the 
coverage effective dates that would apply under these proposed 
amendments to Sec.  155.725(g). To minimize operational complexity in 
the Federal platform build for the SHOP, we are also proposing 
amendments to paragraph (g)(3) to specify that a Federally-facilitated 
SHOP or a State-based SHOP that uses the Federal platform for SHOP 
eligibility or enrollment functions would only allow waiting periods of 
0, 15, 30, 45, and 60 days.
    Nothing in this proposal would change the rule that in no case may 
the effective date for a newly qualified employee fail to comply with 
Sec.  147.116. This proposal would not change Sec.  147.116 and the 
proposals described in this section of the preamble apply only for 
purposes of the SHOPs.
    We propose to amend paragraph (j)(2)(i) to reflect the proposed 
codification of existing special enrollment periods discussed in the 
preamble to Sec.  155.420, specifically those proposed to be codified 
at Sec.  155.420(d)(10), (11) and (12).
    We seek comment on all aspects of these proposals.

[[Page 61507]]

8. SHOP Employer and Employee Eligibility Appeals Requirements (Sec.  
155.740)
    We propose to amend Sec.  155.740(b)(2) to include a cross-
reference to proposed Sec.  155.505(h). This amendment would permit 
SHOP employer and employee eligibility appeals processes to use a 
secure and expedient paper-based process if the appeals entity cannot 
fulfill certain electronic requirements.
9. Request for Reconsideration (Sec.  155.1090)
    We propose a new section Sec.  155.1090 to allow an issuer to 
request reconsideration of denial of certification of a plan as a QHP 
for sale through an FFE. We propose that an issuer that has applied to 
an FFE for certification of QHPs and has been denied certification must 
submit to HHS a written request for reconsideration within 7 calendar 
days of the date of written notice of denial of certification in the 
form and manner specified by HHS in order to obtain a reconsideration. 
We further propose that the issuer must include any and all 
documentation in support of its request when it submits its request for 
reconsideration. We propose that requests may be submitted and 
considered only after an issuer has submitted a complete, initial 
application for certification and been denied. In Sec.  155.1090(a)(3), 
we propose that HHS would provide the issuer with a written 
reconsideration decision, and that decision would constitute HHS's 
final determination. We believe this approach would afford issuers an 
opportunity to furnish any additional facts and information that might 
not have been considered as part of an FFE's initial decision to deny 
certification. We believe the short timeline is required to permit us 
to implement a decision to certify a plan following a request for 
reconsideration in time for open enrollment. We intend to provide 
future guidance on the form and manner by which issuers should submit 
requests for reconsideration. We intend for the Office of Personnel 
Management to maintain authority over reconsideration of applications 
from issuers to offer a multi-State plan. We invite comments on this 
reconsideration proposal.

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

1. General Provisions
a. FFE User Fee for the 2018 Benefit Year (Sec.  156.50)
    Section 1311(d)(5)(A) of the Affordable Care Act permits an 
Exchange to charge assessments or user fees on participating health 
insurance issuers as a means of generating funding to support its 
operations. In addition, 31 U.S.C. 9701 permits a Federal agency to 
establish a charge for a service provided by the agency. If a State 
does not elect to operate an Exchange or does not have an approved 
Exchange, section 1321(c)(1) of the Affordable Care Act directs HHS to 
operate an Exchange within the State. Accordingly, at Sec.  156.50(c), 
we specify that a participating issuer offering a plan through an FFE 
must remit a user fee to HHS each month that is equal to the product of 
the monthly user fee rate specified in the annual HHS notice of benefit 
and payment parameters for FFEs for the applicable benefit year and the 
monthly premium charged by the issuer for each policy under the plan 
where enrollment is through an FFE.
    OMB Circular No. A-25R establishes Federal policy regarding user 
fees, and specifies that a user charge will be assessed against each 
identifiable recipient for special benefits derived from Federal 
activities beyond those received by the general public. As in benefit 
years 2014 to 2017, issuers seeking to participate in an FFE in benefit 
year 2018 will receive two special benefits not available to the 
general public: (1) The certification of their plans as QHPs; and (2) 
the ability to sell health insurance coverage through an FFE to 
individuals determined eligible for enrollment in a QHP. These special 
benefits are provided to participating issuers through the following 
Federal activities in connection with the operation of FFEs:
     Provision of consumer assistance tools.
     Consumer outreach and education.
     Management of a Navigator program.
     Regulation of agents and brokers.
     Eligibility determinations.
     Enrollment processes.
     Certification processes for QHPs (including ongoing 
compliance verification, recertification and decertification).
     Administration of a SHOP Exchange.
    OMB Circular No. A-25R further states that user fee charges should 
generally be set at a level so that they are sufficient to recover the 
full cost to the Federal government of providing the service when the 
government is acting in its capacity as sovereign (as is the case when 
HHS operates an FFE). Accordingly, we propose to set the 2018 user fee 
rate for all participating FFE issuers at 3.5 percent. This user fee 
rate assessed on FFE issuers is the same as the 2014 through 2017 user 
fee rate. In addition, we intend to seek an exception from OMB Circular 
No. A-25R, which requires that the user fee charge be sufficient to 
recover the full cost to the Federal government of providing the 
special benefit. We seek this exception to ensure that the FFE can 
support many of the goals of the Affordable Care Act, including 
improving the health of the population, reducing health care costs, and 
providing access to health coverage, in cases where user fee 
collections do not cover the full cost of the special benefit. We seek 
comment on this proposal.
    Additionally, we note that some commenters have suggested that the 
FFE would be able to increase enrollment by allocating more funds to 
outreach and education, or reallocating resources from other funding 
sources when available to pay for those expenses if necessary. We seek 
comment on how much funding to devote to outreach and education, the 
method to determine such funding, and the effectiveness of certain 
outreach investments to inform future FFE funding allocations. We also 
seek comment on whether HHS should expressly designate a specific 
portion or amount of the FFE user fee to be allocated directly to 
outreach and education activities, recognizing the need for HHS to 
continue to adequately fund other critical Exchange operations such as 
the call center, HealthCare.gov, and eligibility and enrollment 
activities.
    State-based Exchanges on the Federal platform enter into a Federal 
platform agreement with HHS to leverage the systems established by the 
FFE to perform certain Exchange functions, and to enhance efficiency 
and coordination between State and Federal programs. Accordingly, in 
Sec.  156.50(c)(2), we specify that an issuer offering a plan through 
an SBE-FP must remit a user fee to HHS, in the timeframe and manner 
established by HHS, equal to the product of the sum of the monthly user 
fee rate specified in the annual HHS notice of benefit and payment 
parameters for State-based Exchanges that use the Federal platform for 
the applicable benefit year, unless the State-based Exchange and HHS 
agree on an alternative mechanism to collect the funds. The functions 
provided to issuers in the SBE-FPs include the Federal Exchange 
information technology and call center infrastructure used in 
connection with eligibility determinations for enrollment in QHPs and 
other applicable State health subsidy programs, as defined at section 
1413(e) of the Affordable Care Act; and enrollment in QHPs under Sec.  
155.400. As

[[Page 61508]]

previously discussed, OMB Circular No. A-25R establishes Federal policy 
regarding user fees, and specifies that a user charge will be assessed 
against each identifiable recipient for special benefits derived from 
Federal activities beyond those received by the general public. The 
user fee rate for SBE-FPs is calculated based on the proportion of FFE 
costs that are associated with the FFE information technology 
infrastructure, the consumer call center, and eligibility and 
enrollment services, and allocating a share of those costs to issuers 
in the relevant SBE-FPs. A significant portion of expenditures for FFE 
services are associated with the information technology, call center 
infrastructure, and eligibility determinations for enrollment in QHPs 
and other applicable State health subsidy programs as defined at 
section 1413(e) of the Affordable Care Act, and personnel who perform 
the functions set forth in Sec.  155.400 to facilitate enrollment in 
QHPs. Based on this methodology, we propose to charge issuers offering 
QHPs through an SBE-FP a user fee rate of 3.0 percent of the monthly 
premium charged by the issuer for each policy under a plan offered 
through an SBE-FP. This fee would recover funding to support FFE 
operations incurred by the Federal government associated with providing 
the services described above. We seek comment on this proposal. In the 
2017 Payment Notice, we set the user fee rate for SBE-FPs at 1.5 
percent of premiums charged, rather than the full rate of 3.0, in order 
to provide a transition year during which States could adjust to the 
assessment of a user fee in SBE-FP States. We seek comment on whether 
the impact of increasing the SBE-FP user fee rate to the full rate 
should be spread over one additional year.
    We note that we intend to review the costs incurred to provide 
these special benefits each year, and revise the user fee rate for 
issuers in the FFEs and SBE-FPs accordingly in the annual HHS notice of 
benefit and payment parameters.
b. Single Risk Pool (Sec.  156.80)
    Under Sec.  156.80, an issuer must establish an index rate for each 
State market in the single risk pool. The index rate must be based on 
the total combined claims costs for providing essential health benefits 
within the single risk pool of that State market. The index rate also 
must be adjusted on a market-wide basis for the State based on the 
total expected market-wide payments and charges under the risk 
adjustment program and Exchange user fees. We propose to amend Sec.  
156.80(d) to remove the reference to the transitional reinsurance 
program, which was for benefit years 2014 through 2016.
    As stated in the Unified Rate Review Instructions, calibration for 
age, geography, and tobacco use is permissible as long as the 
calibration is applied uniformly in the single risk pool. These 
calibration adjustments generally allow for the permissible rating 
factors under section 2701 of the PHS Act and 45 CFR 147.102 to be 
applied correctly to the issuer's plans. For example, we use the term 
``age calibration'' to refer to an adjustment to the index rate, made 
uniformly for all plans in the risk pool, to reflect the fact that 
without calibration, the plan-adjusted index rate reflects the average 
age of the issuer's risk pool and the uniform age rating curve does 
not. Therefore, age calibration is necessary in order to correctly 
apply the age curve and calculate the premium rates. The same rationale 
applies when applying geographic and tobacco rating factors to the 
plan-adjusted index rate.
    To more explicitly reflect how the rating factors under 45 CFR 
147.102 and the index rating methodology under 45 CFR 156.80 work 
together, we propose to restructure paragraph (d)(1) as paragraphs 
(d)(1)(i) through (iv), adding new paragraph (d)(1)(iii) to provide 
that the index rate must be calibrated on a market-wide basis to 
correspond to an age rating factor of 1.0, a geographic rating factor 
of 1.0, and a tobacco rating factor of 1.0, in a manner specified by 
the Secretary in guidance. Because it is essentially an adjustment to 
the index rate, the calibration from the single risk pool index rate to 
the allowable rating factors may not vary by plan; it must be made 
uniformly for all plans in a State and market. We would provide 
detailed technical guidance through Unified Rate Review Instructions to 
ensure accurate and uniform application of the calibration methodology 
proposed here. We seek comment on this proposed codification.
2. Essential Health Benefits Package
a. Premium Adjustment Percentage (Sec.  156.130)
    Section 1302(c)(4) of the Affordable Care Act directs the Secretary 
to determine an annual premium adjustment percentage, which is used to 
set the rate of increase for three parameters detailed in the 
Affordable Care Act: The maximum annual limitation on cost sharing 
(defined at Sec.  156.130(a)), the required contribution percentage 
used to determine eligibility for certain exemptions under section 
5000A of the Code, and the assessable payment amounts under section 
4980H(a) and (b) of the Code. Section 156.130(e) provides that the 
premium adjustment percentage is the percentage (if any) by which the 
average per capita premium for health insurance coverage for the 
preceding calendar year exceeds such average per capita premium for 
health insurance for 2013, and that this percentage will be published 
annually in the HHS notice of benefit and payment parameters.
    Under the methodology established in the 2015 Payment Notice and 
amended in the 2015 Market Standards Rule for estimating average per 
capita premium for purposes of calculating the premium adjustment 
percentage, the premium adjustment percentage is calculated based on 
the projections of average per enrollee employer-sponsored insurance 
premiums from the NHEA, which is calculated by the CMS Office of the 
Actuary. Accordingly, using the employer-sponsored insurance data, the 
premium adjustment percentage for 2018 is the percentage (if any) by 
which the most recent NHEA projection of per enrollee employer-
sponsored insurance premiums for 2017 ($5,962) exceeds the most recent 
NHEA projection of per enrollee employer-sponsored insurance premiums 
for 2013 ($5,132).\51\ Using this formula, the proposed premium 
adjustment percentage for 2018 is 16.17303196 percent. We note that the 
2013 premium used for this calculation has been updated to reflect the 
latest NHEA data. Based on the proposed 2018 premium adjustment 
percentage, we propose the following cost-sharing parameters for 
calendar year 2018.
---------------------------------------------------------------------------

    \51\ See ``NHE Projections 2015-2025--Tables'' available at: 
http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html in Tables 1 and 17. A detailed 
description of the NHE projection methodology is available at 
https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/ProjectionsMethodology.pdf.
---------------------------------------------------------------------------

    Maximum Annual Limitation on Cost Sharing for Calendar Year 2018. 
Under Sec.  156.130(a)(2), for the 2018 calendar year, cost sharing for 
self-only coverage may not exceed the dollar limit for calendar year 
2014 increased by an amount equal to the product of that amount and the 
premium adjustment percentage for 2018, and for other than self-only 
coverage, the limit is twice the dollar limit for self-only coverage. 
Under Sec.  156.130(d), these amounts must be rounded down to the next 
lowest multiple of 50. Using the premium adjustment percentage of 
16.17303196 percent for 2018 that we propose above, and the 2014 
maximum annual

[[Page 61509]]

limitation on cost sharing of $6,350 for self-only coverage, which was 
published by the IRS on May 2, 2013,\52\ we propose that the 2018 
maximum annual limitation on cost sharing would be $7,350 for self-only 
coverage and $14,700 for other than self-only coverage. This represents 
a 2.8 percent increase above the 2017 parameters of $7,150 for self-
only coverage and $14,300 for other than self-only coverage.
---------------------------------------------------------------------------

    \52\ See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

b. Reduced Maximum Annual Limitation on Cost Sharing (Sec.  156.130)
    Sections 1402(a) through (c) of the Affordable Care Act direct 
issuers to reduce cost sharing for essential health benefits for 
eligible individuals enrolled in a silver level QHP. In the 2014 
Payment Notice, we established standards related to the provision of 
cost-sharing reductions. Specifically, in 45 CFR part 156, subpart E, 
we specified that QHP issuers must provide cost-sharing reductions by 
developing plan variations, which are separate cost-sharing structures 
for each eligibility category that change how the cost sharing required 
under the QHP is to be shared between the enrollee and the Federal 
government. At Sec.  156.420(a), we detailed the structure of these 
plan variations and specified that QHP issuers must ensure that each 
silver plan variation has an annual limitation on cost sharing no 
greater than the applicable reduced maximum annual limitation on cost 
sharing specified in the annual HHS notice of benefit and payment 
parameters. Although the amount of the reduction in the maximum annual 
limitation on cost sharing is specified in section 1402(c)(1)(A) of the 
Affordable Care Act, section 1402(c)(1)(B)(ii) of the Affordable Care 
Act states that the Secretary may adjust the cost-sharing limits to 
ensure that the resulting limits do not cause the AVs of the health 
plans to exceed the levels specified in section 1402(c)(1)(B)(i) of the 
Affordable Care Act (that is, 73 percent, 87 percent, or 94 percent, 
depending on the income of the enrollee). Accordingly, we propose to 
continue to use a method we established in the 2014 Payment Notice for 
determining the appropriate reductions in the maximum annual limitation 
on cost sharing for cost-sharing plan variations. As we proposed above, 
the 2018 maximum annual limitation on cost sharing would be $7,350 for 
self-only coverage and $14,700 for other than self-only group coverage. 
We analyzed the effect on AV of the reductions in the maximum annual 
limitation on cost sharing described in the statute to determine 
whether to adjust the reductions so that the AV of a silver plan 
variation will not exceed the AV specified in the statute. Below, we 
describe our analysis for the 2018 benefit year and our proposed 
results.
    Consistent with our analysis in the past four Payment Notices, we 
developed three test silver level QHPs, and analyzed the impact on AV 
of the reductions described in the Affordable Care Act to the estimated 
2018 maximum annual limitation on cost sharing for self-only coverage 
($7,350). The test plan designs are based on data collected for 2017 
plan year QHP certification to ensure that they represent a range of 
plan designs that we expect issuers to offer at the silver level of 
coverage through the Exchanges. For 2018, the test silver level QHPs 
included a PPO with typical cost-sharing structure ($7,350 annual 
limitation on cost sharing, $2,215 deductible, and 20 percent in-
network coinsurance rate), a PPO with a lower annual limitation on cost 
sharing ($4,950 annual limitation on cost sharing, $2,895 deductible, 
and 20 percent in-network coinsurance rate), and an HMO ($7,350 annual 
limitation on cost sharing, $3,375 deductible, 20 percent in-network 
coinsurance rate, and the following services with copayments that are 
not subject to the deductible or coinsurance: $500 inpatient stay per 
day, $350 emergency department visit, $25 primary care office visit, 
and $55 specialist office visit). All three test QHPs meet the AV 
requirements for silver level health plans.
    We then entered these test plans into the proposed 2018 AV 
Calculator developed by HHS and observed how the reductions in the 
maximum annual limitation on cost sharing specified in the Affordable 
Care Act affected the AVs of the plans. We found that the reduction in 
the maximum annual limitation on cost sharing specified in the 
Affordable Care Act for enrollees with a household income between 100 
and 150 percent of the Federal poverty line (FPL) (\2/3\ reduction in 
the maximum annual limitation on cost sharing), and 150 and 200 percent 
of the FPL (\2/3\ reduction), would not cause the AV of any of the 
model QHPs to exceed the statutorily specified AV level (94 and 87 
percent, respectively). In contrast, the reduction in the maximum 
annual limitation on cost sharing specified in the Affordable Care Act 
for enrollees with a household income between 200 and 250 percent of 
FPL (\1/2\ reduction), would cause the AVs of two of the test QHPs to 
exceed the specified AV level of 73 percent. As a result, we propose 
that the maximum annual limitation on cost sharing for enrollees in the 
2018 benefit year with a household income between 200 and 250 percent 
of FPL be reduced by approximately \1/5\, rather than \1/2\, consistent 
with what we have proposed in previous years. This would allow issuers 
the flexibility in designing innovative plans with varying lower 
maximum annual limitation on cost sharing and deductibles for the 73 
percent plans. We further propose that the maximum annual limitation on 
cost sharing for enrollees with a household income between 100 and 200 
percent of the FPL be reduced by approximately \2/3\, as specified in 
the statute, and as shown in Table 15. These proposed reductions in the 
maximum annual limitation on cost sharing should adequately account for 
unique plan designs that may not be captured by our three model QHPs. 
We also note that selecting a reduction for the maximum annual 
limitation on cost sharing that is less than the reduction specified in 
the statute would not reduce the benefit afforded to enrollees in 
aggregate because QHP issuers are required to further reduce their 
annual limitation on cost sharing, or reduce other types of cost 
sharing, if the required reduction does not cause the AV of the QHP to 
meet the specified level. We welcome comment on this analysis and the 
proposed reductions in the maximum annual limitation on cost sharing 
for 2018.
    We note that for 2018, as described in Sec.  156.135(d), States are 
permitted to submit for approval by HHS State-specific datasets for use 
as the standard population to calculate AV. The deadline for submitting 
a dataset for the 2018 plan year is September 1, 2016.\53\
---------------------------------------------------------------------------

    \53\ The annual deadline for submitting State specific data for 
the actuarial value calculator was announced August 15, 2014. See 
https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/final-state-avc-guidance.pdf.

[[Page 61510]]



  Table 15--Reductions in Maximum Annual Limitation on Cost Sharing for
                                  2018
------------------------------------------------------------------------
                                                       Reduced maximum
                                 Reduced maximum      annual limitation
                                annual limitation    on cost sharing for
    Eligibility category       on cost sharing for    other than  self-
                               self-only coverage    only coverage  for
                                    for 2018                2018
------------------------------------------------------------------------
Individuals eligible for                    $2,450                $4,900
 cost-sharing reductions
 under Sec.
 155.305(g)(2)(i) (that is,
 100-150 percent of FPL)....
Individuals eligible for                     2,450                 4,900
 cost-sharing reductions
 under Sec.
 155.305(g)(2)(ii) (that is,
 150-200 percent of FPL)....
Individuals eligible for                     5,850                11,700
 cost-sharing reductions
 under Sec.
 155.305(g)(2)(iii) (that
 is, 200-250 percent of FPL)
------------------------------------------------------------------------

c. Levels of Coverage: Bronze Plans (Sec.  156.140)
    Section 2707(a) of the PHS Act and section 1302 of the Affordable 
Care Act direct issuers of non-grandfathered health insurance in the 
individual and small group markets, including QHPs, to ensure that 
plans meet a level of coverage specified in section 1302(d)(1) of the 
Affordable Care Act. A plan's level of coverage, referred to as the 
plan's actuarial value, is determined on the basis of the essential 
health benefits provided to a standard population. Section 1302(d)(1) 
of the Affordable Care Act requires the level of coverage for a bronze 
plan to have an AV of 60 percent, a silver plan to have an AV of 70 
percent; a gold plan to have an AV of 80 percent; and a platinum plan 
to have an AV of 90 percent. In addition, section 1302(d)(3) states 
that the Secretary is to develop guidelines to provide for a de minimis 
variation in the actuarial valuations used in determining the level of 
coverage of a plan to account for differences in actuarial estimates. 
Currently, Sec.  156.140(c) permits a de minimis variation of +/-2 
percentage points.\54\
---------------------------------------------------------------------------

    \54\ Under Sec.  156.400, the de minimis variation for a silver 
plan variation means a single percentage point.
---------------------------------------------------------------------------

    All plans subject to the annual limitation on cost sharing at 
section 1302(c) of the Affordable Care Act have a minimum level of 
generosity that limits the lowest AV that a plan can achieve. For 
instance, a plan with a deductible of $7,350 that is equal to the 
annual limitation on cost sharing of $7,350 (which is the proposed 2018 
annual limitation on cost sharing) with no services covered until the 
deductible and annual limitation on cost sharing are met, other than 
preventive services required to be covered without cost sharing under 
section 2713 of the PHS Act and 45 CFR 147.130, has an AV of 58.54 
percent based on the draft 2018 AV Calculator. Because of the annual 
limitation on cost sharing, the AV for this type of plan is within the 
de minimis range of a bronze level of coverage. This type of plan does 
not have first dollar coverage (except for certain required preventive 
services), and is not a HDHP under 26 U.S.C. 223(c)(2) eligible for use 
with a health savings account because the annual limit on cost sharing 
under the plan is likely higher than the annual out of pocket expense 
limit for HDHPs for 2018. Furthermore, the bronze plan described above 
is less generous than a catastrophic plan, because a catastrophic plan 
is required by section 1302(e)(1)(B) of the Affordable Care Act and 
Sec.  156.155(a)(4) to provide at least three primary care visits 
before reaching the deductible.
    We note that in future recalibrations of the AV Calculator, if 
claims costs increase faster than the annual limitation on cost 
sharing, issuers' flexibility in designing different bronze plans may 
be reduced. In order to address this difficulty in designing bronze 
plans that are at least as generous as catastrophic plans and meet the 
AV requirements using future AV Calculators, we propose to permit a 
broader de minimis range for bronze plans. The purpose of the current 
de minimis variation of +/- 2 percentage points is to give issuers the 
flexibility to set cost-sharing rates while ensuring consumers can 
easily compare plans of similar generosity. Thus, the de minimis range 
is intended to allow plans to float within a reasonable range and is 
not intended to freeze plan designs, which could prevent innovation in 
the market. However, we do recognize the unique challenges that may be 
posed for bronze plan designs under future AV Calculators, and we 
therefore propose to amend Sec.  156.140(c) to increase the allowable 
de minimis range for bronze plans under certain circumstances.
    Outside of HDHPs, which have separate cost-sharing requirements, 
under future AV Calculators, if actuarial values increase 
significantly, bronze plans may be required to limit the services for 
which the plan pays before the deductible is reached. Enrollment data 
from the FFEs show that consumers have a preference for plans that 
cover and pay for services below the deductible. Because we believe 
that the Affordable Care Act did not intend for bronze plans to be less 
generous than catastrophic plans, which are required to provide at 
least three primary care visits before the deductible, we believe that 
it is important to allow bronze plans to retain at least one service 
before the deductible. Therefore, through our authority under section 
1302(d)(3) of the Affordable Care Act, which directs the Secretary to 
develop guidelines to provide for a de minimis variance in the 
actuarial valuations used in determining the level of coverage of a 
plan to account for differences in actuarial estimates, and section 
1321(a)(1)(A) and (D) of the Affordable Care Act, which allows the 
Secretary to issue regulations setting standards for meeting the 
requirements for the establishment and operation of Exchanges, as well 
as such other requirements as the Secretary determines appropriate, we 
propose to allow bronze plans that cover and pay for at least one major 
service before the deductible, other than preventive services (some of 
which are required by Federal laws and regulations to have zero cost 
sharing) to have an allowable variance in AV of -2 percentage points 
and +5 percentage points. The purpose of this proposal is to ensure 
flexibility in bronze plan designs--particularly, to permit the design 
of bronze plans that will satisfy AV requirements and still remain at 
least as generous as catastrophic plans.
    We therefore propose that the major services covered and paid for 
by the plan before the deductible that trigger the increased de minimis 
range be similar in scope and magnitude to the three primary care 
visits before the deductible required under catastrophic coverage. To 
permit issuers the flexibility to address enrollees' varying health 
needs, we propose that the major

[[Page 61511]]

services an issuer may elect to cover and pay for before the deductible 
in order to access the broader de minimis range be: Primary care 
visits; specialist visits; inpatient hospital services; generic, 
specialty, or preferred branded drugs; or emergency room services. We 
selected these services as they can be used by individuals with a wide 
variety of conditions and they have a significant AV impact. We solicit 
comments on this proposal and the proposed definition of major 
services, as well as comments on whether any of these major services 
should be excluded from the list or other major services should added 
to this list. We also solicit comments on whether major services should 
be defined based on all or some of the service inputs listed in the AV 
Calculator. This policy does not exempt issuers from their obligations 
to comply with mental health and substance use disorder parity 
requirements, including the rule that a deductible cannot be applied to 
mental health or substance use disorder benefits in a classification 
unless it is no more restrictive than the predominant deductible 
applicable to substantially all medical/surgical benefits in the same 
classification.
    We also propose that the major service covered and paid for before 
the deductible must apply a reasonable cost-sharing rate to the service 
to ensure that the service is reasonably covered. We also solicit 
comments on what should be considered a reasonable cost-sharing rate 
for the major service. Lastly, to ensure that a bronze plan can be as 
least as generous as a catastrophic plan, we propose that a bronze plan 
with at least three primary care services under the deductible would 
qualify as having a major service under the deductible.
    In addition to ensuring that bronze plans can remain at least as 
generous as catastrophic coverage, we believe it is important to ensure 
that bronze plans can remain eligible to be HDHPs that may be paired 
with a health savings account. Therefore, we propose that if a bronze 
plan meets the Federal requirements to be an HDHP, the allowable 
variation in AV for those plans is -2 percentage points and +5 
percentage points. These HDHPs would not be required to cover at least 
one major service before the deductible, outside of certain preventive 
services, to meet the requirements for the extended bronze plan de 
minimis range, but instead, these plans would be required to meet the 
requirements to be a HDHP within the meaning of 26 U.S.C. 223(c)(2), 
including the annual out-of-pocket expense limit for HDHPs. We solicit 
comments on this proposal.
    We also seek comment on the proposed size of the de minimis range, 
which is proposed as -2 percentage points and +5 percentage points, and 
whether the +5 percentage points should be higher or lower. Based on 
our initial analysis of 2017 bronze plans submitted for QHP 
certification in the FFEs, most 2017 bronze plans are either HDHPs or 
are plans providing one of the major services defined above before 
deductible. We believe that this policy will not be disruptive to the 
current bronze plan market as it will allow more flexibility in 
designing bronze plans within the increased de minimis range as well as 
allow more options for issuers to leave 2017 cost-sharing structures 
unchanged.
    In connection with the release of the proposed 2018 Payment Notice, 
we are also releasing the draft versions of the 2018 AV Calculator, 
including the 2018 AV Calculator Methodology and User Guide, for 
comment on the Center for Consumer Information and Insurance Oversight 
Web site.\55\ As part of the draft 2018 AV Calculator, we added the 
option to calculate AV for a bronze plan with an extended de minimis 
range to align with this proposed policy. (We note that under this 
option, the AV Calculator will not automatically flag a plan in the 
bronze extended de minimis range that does not comply with the 
requirement to cover one major service before the deductible.) Our 
intention will be to align the final 2018 AV Calculator with any 
provisions that are finalized through this rulemaking.
---------------------------------------------------------------------------

    \55\ The draft 2018 AV Calculator and Methodology will be posted 
under the ``Plan Management'' section of CCIIO's Web site at: 
https://www.cms.gov/cciio/resources/regulations-and-guidance/index.html.
---------------------------------------------------------------------------

d. Application to Stand-Alone Dental Plans Inside the Exchange (Sec.  
156.150)
    In the 2017 Payment Notice, we finalized Sec.  156.150(a), which 
establishes a formula to increase the annual limitation on cost sharing 
for stand-alone dental plans. Specifically, we finalized that for plan 
years beginning after 2017, the annual limitation for an SADP for one 
covered child is $350 increased by the percentage increase of the 
consumer price index (CPI) for dental services for the year two years 
prior to the applicable plan year over the CPI for dental services for 
2016; and, the annual limitation for an SADP for two or more covered 
children is twice that.
    The formula increases the dollar limit for one covered child 
(currently set at $350) by the percentage increase of the CPI for 
dental services for the year two years prior to the applicable plan 
year over the CPI for 2016. For plan year 2018, the percentage increase 
of the CPI for dental services for the two years prior to the 
applicable plan year would be equal to the CPI for 2016, resulting in a 
zero percent increase for plan year 2018. Therefore, for plan year 
2018, the dental annual limitation on cost sharing would be $350 for 
one child and $700 for one or more children. The annual limitation on 
cost sharing for plan year 2019 will be addressed in the annual HHS 
notice of benefit and payment parameters for the 2019 benefit year.
3. Qualified Health Plan Minimum Certification Standards
a. QHP Issuer Participation Standards (Sec.  156.200)
    Section 156.200(c)(1) implements section 1301(a)(1)(C)(ii) of the 
Affordable Care Act to require as part of QHP participation standards 
that each QHP issuer offer at least one QHP in the silver coverage 
level and at least one QHP in the gold coverage level.
    As evidenced by QHP application submissions to the FFEs, QHP 
issuers have generally interpreted this requirement to apply at the 
service area level, as opposed to at the Exchange level, meaning that 
an issuer must offer at least one QHP in the silver coverage level and 
at least one QHP in the gold coverage level throughout each service 
area in which it will offer a QHP through the Exchange (that is, one 
QHP that has an AV of 70 percent and one QHP that has an AV of 80 
percent, plus or minus two percentage points). If the requirement were 
to be interpreted at the Exchange level, a QHP issuer could be in 
technical compliance with the requirement by offering one QHP in the 
silver coverage level and at least one QHP in the gold coverage level 
in a very limited service area, and not offer such coverage through the 
Exchange in a meaningful way. We believe that the Affordable Care Act 
did not intend to allow an issuer to offer a silver and gold QHP 
through the Exchange in merely one service area in a State, while 
offering other products through the Exchange, such as bronze or 
catastrophic QHPs, in other service areas. The proposal seeks to 
eliminate the possibility of such gaming. Provisions of the Affordable 
Care Act sought to ensure an adequate choice of QHPs and coverage to 
consumers. We are proposing this change to ensure that consumers have 
an adequate choice of QHPs at different coverage levels. Further, the 
Affordable Care Act also assumed calculation of the advance payment of 
the premium tax credit based on the availability of a second

[[Page 61512]]

lowest cost silver plan. As such, we propose to modify our regulations 
to more accurately align with QHP issuer practice and our 
interpretation of the intention of the Affordable Care Act.
    Section 1311(c)(1) and 1321(a)(1)(A) and (B) of the Affordable Care 
Act provide the Secretary of HHS with the authority to establish 
certification criteria for QHPs and Exchanges. Therefore, we are 
proposing to require QHP issuers to offer at least one silver and one 
gold coverage level QHP through the Exchange throughout each service 
area in which the issuer offers coverage through the Exchange. The 
offering of both silver and gold level QHPs is important to ensure 
adequate choice to Exchange consumers, as well as to ensure that a 
second lowest cost silver plan is available for calculating advance 
payments of the premium tax credit for consumers. We further clarify 
that an issuer can meet this standard by offering a multi-State plan in 
both silver coverage and gold coverage levels throughout each service 
area in which it offers other QHPs through an Exchange. We seek to 
establish this policy by proposing amendments to existing paragraph 
(c)(1).
    Specifically, we propose to amend paragraph (c)(1) to require a QHP 
issuer to offer through the Exchange at least one QHP in the silver 
coverage level and at least one QHP in the gold coverage level, as 
described in Sec.  156.140, throughout each service area in which it 
offers coverage through the Exchange. This added specificity will 
ensure that issuers applying for certification of their QHPs offer a 
silver and gold plan throughout each service area in which they offer 
coverage through the Exchange.
    In the 2014 Payment Notice, in order to help ensure that qualified 
employers and qualified employees enrolling through an FF-SHOP are 
offered a robust set of QHP choices, we finalized a policy at Sec.  
156.200(g) under which an individual market FFE will certify a QHP only 
if the QHP issuer (or an issuer in the same issuer group) offers 
through the FF-SHOP of the State at least one QHP in the silver 
coverage level and at least one QHP in the gold coverage level, unless 
no issuer in the issuer group has at least a 20 percent share of the 
small group market share in the State, based on earned premiums. This 
policy is intended to leverage issuers' participation in the FFEs to 
promote fuller issuer participation in the FF-SHOPs, particularly in 
the initial years of the FF-SHOPs. We indicated in the preamble of the 
2014 Payment Notice, in response to a commenter who suggested we 
reevaluate the policy in two years, that we would evaluate the 
effectiveness of the tying provision on an ongoing basis.
    We now seek comment, based on feedback from stakeholders, on 
whether the policy at Sec.  156.200(g) is still necessary or 
appropriate in the FF-SHOPs. We did not finalize this policy to apply 
to State-based SHOPs, nor are we aware of any State-based SHOPs that 
have implemented a similar policy. We are also cognizant that the 
policy may be discouraging issuer participation on the individual 
market FFEs. We therefore seek comment on whether we should eliminate 
this policy for the FF-SHOPs, for plan years beginning on or after 
January 1, 2018.
    We recognize that eliminating the SHOP participation provision 
could have the effect of reducing FF-SHOP issuer participation in 
States, and seek comment on the implications for small businesses and 
how to accommodate such an effect. For example, in such a circumstance, 
in consideration of the ongoing investments that would be required to 
maintain the FF-SHOPs, including for premium aggregation services, we 
are considering providing for elimination of enrollment through FF-SHOP 
Web sites and providing for alternative means of enrollment into SHOP 
QHPs, either in States that would be particularly affected by this 
change or in all FF-SHOPs. An FF-SHOP Web site would still be 
maintained, consistent with section 1311(d)(4)(C) of the Affordable 
Care Act, but would not support online enrollment, except perhaps for 
the continuation of services for existing groups in the FF-SHOP through 
the end of any plan year that began before January 1, 2018. In 
addition, we seek comment on how entities such as web-brokers or third 
party administrators could help to facilitate enrollment in available 
SHOP QHPs. We seek comment on what other regulatory provisions would 
need to be modified or eliminated in such a circumstance, and on 
whether provisions relating to the operation of enrollment through a 
SHOP Web site should generally be optional at the election of the 
Exchanges, including State-based SHOPs.
b. Network Adequacy Standards (Sec.  156.230)
    At Sec.  156.230, we established the minimum criteria for network 
adequacy that issuers must meet to have plans certified as QHPs, 
including SADPs, in accordance with the Secretary's authority in 
section 1311(c)(1)(B) of the Affordable Care Act. Included at Sec.  
156.230(a)(2) is the requirement that all issuers maintain a network 
that is sufficient in number and types of providers to assure that all 
services will be accessible without unreasonable delay. Section 
156.230(b) sets forth standards for access to provider directories 
requiring issuers to publish an up-to-date, accurate, and complete 
provider directory for plan years beginning on or after January 1, 
2016.
    In the 2017 Payment Notice, HHS finalized a policy to provide 
information about QHP network breadth on HealthCare.gov in order to 
assist consumers with plan selection. For the 2017 benefit year, we 
intend to pilot a network breadth indicator in certain States on 
HealthCare.gov to denote a QHP's relative network coverage.\56\ HHS 
will make this network breadth classification available to consumers in 
those States at the point of plan comparison. The results of the pilot 
will determine if HHS expands the pilot to more States for 2018. The 
specifics of how the network breadth indicator is calculated are 
described in the Final 2017 Letter to Issuers in the Federally-
facilitated Marketplaces.\57\
---------------------------------------------------------------------------

    \56\ Network Breadth Pilot (August 19, 2016), available at 
https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Network-Classification-Pilot-Guidance-81916.pdf.
    \57\ Final 2017 Letter to Issuers in the Federally facilitated 
Marketplaces (Feb. 29, 2016) available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-2017-Letter-to-Issuers-2-29-16.pdf.
---------------------------------------------------------------------------

    For the 2018 plan year, HHS is considering whether to incorporate 
more specificity into these indicators, and, in particular, how to 
identify for consumers whether a particular plan is offered as part of 
an integrated delivery system. For integrated delivery systems, the 
breadth of the network for a plan as calculated through the network 
breadth methodology may not accurately describe the ability of a 
consumer to access providers relative to consumers enrolled in plans 
that are not part of an integrated delivery system in the same county. 
We propose to incorporate this specificity into the network information 
displayed for plan year 2018 in all States where network breadth is 
displayed in 2018.
    To define which plans utilize an integrated delivery system, we 
propose to use the alternate essential community provider standard in 
45 CFR 156.235(b). Thus, we would identify a plan as part of an 
integrated delivery system if it provides a majority of covered 
professional services through physicians employed by the issuer, or 
through a single contracted medical group. If HHS finalizes this 
policy, we would provide additional details in the 2018 Letter to

[[Page 61513]]

Issuers in the Federally-facilitated Marketplace.
    We seek comment on all aspects of this proposal. In particular, we 
seek comment on whether we should make such a differentiation, and how 
best to indicate that a plan has an integrated delivery system--
including on whether we should provide additional explanatory text to 
the current indicator that the plan receives, or whether we should 
establish a separate indicator. We seek comment on what words to use in 
either case to best convey the value of this classification to 
consumers. We also seek comment on our proposal to identify integrated 
delivery systems by using the alternate essential community provider 
standard, and whether there are plans that would not meet this 
definition but are best categorized in this group; and, if there is a 
continuum of plan arrangements to consider with respect to network 
integration, how best to classify those plans and provide that 
information to consumers.
    Also, as a reminder, the requirement established in the 2017 
Payment Notice at Sec.  156.230(e) that QHP issuers count an essential 
health benefit provided by an out-of-network ancillary provider at an 
in-network facility towards the in-network annual limitation on cost 
sharing for QHPs in certain circumstances begins applying in benefit 
year 2018. That is, if a QHP enrollee received an EHB in an in-network 
setting, such as an in-network hospital, but as part of the provision 
of the EHB the enrollee was charged out-of-network cost sharing for an 
EHB provided by an out-of-network ancillary provider, that cost sharing 
would apply towards the annual limitation on cost sharing.
    Alternatively, the plan could provide a written notice to the 
enrollee by the longer of when the issuer would typically respond to a 
timely submitted prior authorization request, or 48 hours before the 
provision of the benefit. The written notice would state that 
additional costs may be incurred for the EHB provided by an out-of-
network ancillary provider in an in-network setting, including balance 
billing charges, unless such costs are prohibited under State law; and 
that any additional charges may not count toward the in-network annual 
limitation on cost sharing. This alternative would not be available if 
the issuer does not meet the timeframe established in regulation. We 
are proposing that this policy applies to QHPs, both on and off 
Exchanges, regardless of whether the QHP covers out-of-network 
services, and seek comment on other policy changes that could limit 
``surprise bills'' for consumers. As stated in the 2017 Payment Notice, 
we intend to continue to monitor these situations, including issuers' 
timely compliance with this provision, to consider whether further 
rulemaking is needed.
c. Essential Community Providers (Sec.  156.235)
    In the 2017 Payment Notice, we finalized that, for QHP 
certification cycles beginning with the 2018 benefit year, HHS would 
credit issuers for multiple contracted or employed full-time equivalent 
(FTE) practitioners at a single location, up to the number of available 
FTE practitioners reported to HHS by the essential community provider 
(ECP) facility through the ECP petition process and published on the 
HHS ECP list. As HHS conducts additional provider outreach to collect 
provider data necessary to implement a methodology that would credit 
issuers for multiple contracted or employed full-time equivalent 
practitioners at a single location, we propose in Sec.  
156.235(a)(2)(i) to continue the 2017 benefit year calculation 
methodology that a plan applying for QHP certification to be offered 
through a Federally-facilitated Exchange must demonstrate in its QHP 
application that its network includes as participating providers at 
least a minimum percentage, as specified by HHS, of available ECPs in 
each plan's service area, with multiple providers at a single location 
counting as a single ECP toward both the available ECPs in the plan's 
service area and the issuer's satisfaction of the ECP participation 
standard. Similarly, in Sec.  156.235(b)(2)(i), we propose to continue 
the 2017 benefit year calculation methodology that a plan described in 
Sec.  156.235(a)(5) applying for QHP certification to be offered 
through a Federally-facilitated Exchange demonstrate in its QHP 
application that the number of its providers that are located in Health 
Professional Shortage Areas or five-digit zip codes in which 30 percent 
or more of the population falls below 200 percent of the Federal 
Poverty Line satisfies a minimum percentage, specified by HHS, of 
available ECPs in the plan's service area with multiple providers at a 
single location counting as a single ECP. We seek comment on these 
proposals. We are also considering changes to the counting of hospital 
ECPs for the 2019 benefit year and seek comment on the best approach 
for measuring hospital participation.
d. Enrollment Process for Qualified Individuals (Sec.  156.265)
    We propose an amendment to Sec.  156.265 requiring differential 
display of standardized options. A discussion of the proposed provision 
is contained in the preamble discussion regarding Sec.  155.220, which 
concerns standards for agents and brokers using the direct enrollment 
process.
    We solicit comments on this proposal.
e. Issuer Participation for the Full Plan Year (Sec.  156.272)
    We propose adding Sec.  156.272 to provide as a condition of 
certification that QHP issuers in all individual market Exchanges must 
make their QHPs available for enrollment through the Exchange for the 
full plan year for which the plan was certified, unless a basis for 
suppression under Sec.  156.815 applies. We also propose that issuers 
in all SHOP Exchanges must make their QHPs available for enrollment 
through the SHOP Exchange for the full plan year for which the plan was 
certified, unless a basis for suppression under Sec.  156.815 applies. 
This requirement would ensure that consumers enrolling in the 
individual market during limited open enrollment periods have the same 
plan choice as those who enrolled during open enrollment, and that 
qualified employers and qualified employees would have generally 
consistent plan choices throughout the plan year.
    If this proposal is finalized, under our existing civil money 
penalty authority at Sec.  156.805(a)(1), QHP issuers in FFEs and FF-
SHOPs that do not comply with Sec.  156.272(a) and (b) could be subject 
to CMPs. (Issuers would not be subject to CMPs if a basis for 
suppression under Sec.  156.815 applies.) We also propose at Sec.  
156.272(c) that if an issuer fails to comply with those sections, HHS 
could, at its discretion, preclude that issuer from participating in 
the FFEs and FF-SHOPs, for up to the two succeeding years.
    We seek comments on this proposal, including the applicability of 
this section to all Exchanges and the potential use of CMPs for QHP 
issuers in the FFEs and FF-SHOPs.
f. Non-Certification and Decertification of QHPs (Sec.  156.290)
    Currently, under Sec.  156.290(b), when a QHP issuer elects to not 
seek certification for a subsequent, consecutive certification cycle 
with the Exchange, it is required to provide notification to enrollees. 
However, a QHP issuer is not required to provide notification to 
enrollees when it seeks

[[Page 61514]]

but is denied certification for a subsequent, consecutive certification 
cycle by the Exchange. We propose to require that QHP issuers provide 
such notice within 30 days of the date of an Exchange's denial of 
certification for a subsequent, consecutive certification cycle. 
Requiring notice in a timely manner would allow enrollees to be 
prepared to participate in the upcoming open enrollment period. We also 
propose to amend the section title from Non-renewal and decertification 
of QHPs to Non-certification and Decertification of QHPs, and revise 
the paragraph headings for Sec.  156.290(a) and (b) to reflect that 
QHPs are certified on an annual basis rather than renewed. We seek 
comment on these proposals.
g. Other Considerations
    Increasingly, the Exchanges serve as laboratories for innovations 
through which QHPs develop new ways to provide quality, cost-effective 
health care that responds to consumers' preferences and needs. We have 
heard from issuers about innovations around paying for high-quality 
care, working with health care professionals to encourage coordinated 
care, standardizing benefits in ways that promote high-value care, and 
using data analytics to engage with consumers in creative ways that 
improve their health and bolster retention. We also continue to seek to 
foster market-driven programs in the Exchanges that can improve the 
management of costs and care, and that provide consumers with quality, 
person-centered coverage. As we stated in the 2017 Payment Notice, we 
believe that innovative issuer, provider, Exchange, and local programs 
or strategies can successfully promote and manage care, in a manner 
that contributes to better health outcomes and lower rates while 
creating important differentiation opportunities for market 
participants. We seek comment on ways in which we can facilitate such 
innovation, and in particular on whether there are regulations or 
policies in place that we should modify for 2018 in order to better 
meet the goals of affordability, quality, and access to care.
4. Eligibility and Enrollment Standards for Qualified Health Plan 
Issuers on State-Based Exchanges on the Federal Platform (Sec.  
156.350)
    In the 2017 Payment Notice we established, in Sec.  156.350, that 
in order to participate in an SBE-FP, a QHP issuer must comply with HHS 
regulations and guidance pertaining to issuer eligibility and 
enrollment functions as if the issuer were an issuer of a QHP in an 
FFE. These regulations and guidance include those requirements 
specified in paragraphs (a)(1) through (3) of Sec.  156.350, which 
currently include Sec.  156.285(c)(8)(iii). For the same reasons that 
we propose to add new paragraph Sec.  155.200(f)(4), we also propose to 
amend paragraph Sec.  156.350(a)(2) to specify that, in order to 
participate in an SBE-FP using the Federal platform for SHOP enrollment 
functions, a QHP issuer would be required to send enrollment 
reconciliation files on at least a monthly basis according to a 
process, timeline, and file format established by the FF-SHOPs, 
consistent with Sec.  156.285(c)(5). Issuers in States operating an 
SBE-FP for SHOP enrollment functions would be required to follow the 
process applicable in the FF-SHOPs, as described in Sec.  
156.285(c)(5). This amendment would become effective with the effective 
date of the final rule. We seek comment on this proposal.
5. Reconciliation of the Cost-Sharing Reduction Portion of Advance 
Payments Discrepancies and Appeals (Sec.  156.430(h))
    As implemented in the regulations at 45 CFR 156.430, HHS reconciles 
the cost-sharing reduction portion of advance payment amounts by 
comparing what the enrollee in a cost-sharing reduction plan variation 
actually paid in cost sharing to what the enrollee would have paid if 
enrolled in a standard plan. In order to facilitate reconciliation of 
the cost-sharing reduction portion of advance payments to the actual 
amount provided for enrollees in cost-sharing reduction variation 
plans, issuers must report the amount they paid for each eligible 
medical claim, the amount enrollees paid for the claims, and the amount 
of cost sharing that would have been paid for the same services under 
the corresponding standard plan. This information is used to reconcile 
the actual cost-sharing amounts provided for each policy in a plan 
variation to the estimated payments that the issuer had been paid in 
advance. As set forth at Sec.  156.410(d)(3), issuers are not 
reimbursed for any cost-sharing reductions provided to enrollees who 
were erroneously assigned to a plan variation more generous than the 
one for which they are eligible. As set forth at Sec.  155.430(d)(4), 
any cost-sharing reductions, to the extent thereby or otherwise 
erroneously provided (such as cost-sharing reductions for non-EHB or 
non-covered services or cost-sharing reductions provided after a policy 
has been terminated) must be excluded from the reconciliation process.
    In order to ensure the integrity of reconciliation of the cost-
sharing reduction portion of advance payments for the 2014 and 2015 
benefit years, we implemented automatic system checks that validated 
data at the time of data submission, for example matching QHP or 
subscriber IDs to HHS data for a benefit year, and verifying the issuer 
used the applicable methodology and submitted applicable attestations. 
This resulted in the rejection of some cost-sharing reduction amounts 
submitted by issuers. Additionally, some issuers were unable to prepare 
complete data files in time to meet the cost-sharing reduction data 
submission deadline. In order to provide issuers with an opportunity to 
address potential errors that would have directly impacted the 
calculation of their reconciled cost-sharing reduction amounts, HHS 
implemented a process for reporting data discrepancies for the 2014 and 
2015 benefit year.\58\
---------------------------------------------------------------------------

    \58\ On June 23, 2016 CMS released FAQs and technical 
specifications on the discrepancy resolution process for issuers to 
follow to report a discrepancy related to reconciliation of the 
cost-sharing reduction portion of advance payments. The technical 
specifications are available on the Center for Consumer Information 
and Insurance Oversight Web site: https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Cost-Sharing-Reduction-Reconciliation-Discrepancy-Resolution-Inbound-Specification.pdf.
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    We propose adding new paragraph (h)(1) to Sec.  156.430 to require 
that any issuer that reports a discrepancy and seeks to dispute the 
notification of the amount of reconciliation of the cost-sharing 
reduction portion of advance payments, in the manner set forth by HHS, 
must report the discrepancy to HHS within 30 calendar days of 
notification of the amount of reconciliation of the cost-sharing 
reduction portion of advance payments as described in Sec.  156.430(e).
    We further propose to codify in Sec.  156.430(h)(2) that an issuer 
may appeal the amount of reconciliation of the cost-sharing reduction 
portion of advance payments, under the process set forth in Sec.  
156.1220 of this subchapter, only if it has submitted a discrepancy 
report for its cost-sharing reduction reconciled amounts for the 
applicable benefit year. We note that irrespective of whether an issuer 
has filed a discrepancy report under Sec.  156.430, a request for 
reconsideration under Sec.  156.1220 may only be filed to contest a 
processing error by HHS, HHS's incorrect application of the relevant 
methodology, or HHS's mathematical error, as required under Sec.  
156.1220.
    We seek comment on these proposals.

[[Page 61515]]

6. Compliance Reviews of QHP Issuers in Federally-Facilitated Exchanges 
(Sec.  156.715)
    At Sec.  156.715, we previously established that a QHP issuer is 
subject to compliance reviews to ensure ongoing compliance with 
Exchange requirements and standards. In Sec.  156.715(b), we require 
QHP issuers to make available to HHS records that pertain to their 
activities in an FFE. In the first few years of FFE operations, the 
vast majority of QHP issuers were responsive and cooperative with the 
compliance reviews. QHP issuers generally submitted requested documents 
on time and were responsive to requests for additional information. 
However, a few QHP issuers were less responsive to HHS, which resulted 
in unnecessary delays of the compliance reviews. We propose to amend 
this section to specify HHS's authority to impose remedies authorized 
under subpart I of part 156 in situations where the QHP issuer is non-
responsive or uncooperative with the compliance reviews authorized 
under this section.
7. Qualified Health Plan Issuer Responsibilities
a. Administrative Appeals (Sec.  156.1220)
    As discussed in the preamble to Sec.  153.630, we propose adding 
paragraphs (a)(1)(vii) and (viii) to Sec.  156.1220, providing an 
administrative appeals right to issuers to contest only a processing 
error by HHS, HHS's incorrect application of the relevant methodology, 
or HHS's mathematical error with respect to the findings of a second 
validation audit as a result of risk adjustment data validation; or the 
calculation of a risk score error rate as a result of risk adjustment 
data validation, respectively. Also as discussed in the preamble to 
Sec. Sec.  153.630 and 156.430(h), we propose requiring issuers to file 
a report for discrepancies related to risk adjustment data validation 
and discrepancies related the reconciliation of the cost-sharing 
reduction portion of advance payments, if the issue is identifiable, 
prior to filing a request for reconsideration as set forth at Sec.  
156.1220. As such, we propose to amend Sec.  156.1220(a)(4)(ii), to 
provide that, notwithstanding Sec.  156.1220(a)(1), a reconsideration 
with respect to a processing error by HHS, HHS's incorrect application 
of the relevant methodology, or HHS's mathematical error may be 
requested only if, to the extent the issue could have been previously 
identified, the issuer notified HHS of the dispute through the 
applicable process for reporting a discrepancy set forth in Sec.  
153.630(d)(2), Sec.  153.710(d)(2), or Sec.  156.430(h)(1), and the 
dispute has not been resolved.
    Because risk adjustment payments and charges for the 2015 benefit 
year will not be adjusted as a result of the risk adjustment data 
validation process, we do not believe an administrative appeal right is 
necessary for the 2015 benefit year. Therefore, we propose that the 
first year of risk adjustment data validation appeals would begin with 
the 2016 benefit year, which is the first year that risk adjustment 
data validation will affect the amount of risk adjustment payments and 
charges. As such, we propose to limit the proposed new Sec.  
156.1220(a)(1)(vii) and (viii) (specifying that an issuer may file a 
request for reconsideration under this section to contest a processing 
error by HHS, HHS's incorrect application of the relevant methodology, 
or HHS's mathematical error, with respect to the findings of a second 
validation audit or the calculation of a risk score error rate as a 
result of risk adjustment data validation) to administrative appeals 
with respect to risk adjustment data for the 2016 benefit year and 
beyond.
    We propose to amend Sec.  156.1220(a)(2) regarding the materiality 
threshold for filing a request for reconsideration to include a 
reference to the administrative appeals related to the risk adjustment 
data validation process. We also propose to amend Sec.  
156.1220(a)(3)(ii) to add a reference to risk adjustment data 
validation and to provide that issuers have 30 calendar days to request 
reconsideration from the date of the notification of the findings of a 
second validation audit and the calculation of a risk score error rate 
as a result of risk adjustment data validation. We believe 30 calendar 
days is sufficient for issuers to review the findings of a second 
validation audit or the calculation of a risk score error rate as a 
result of risk adjustment data validation and to submit a request for 
reconsideration. We seek comment on these timeframes and the appeal 
proposal.
b. Direct Enrollment With the QHP Issuer in a Manner Considered To Be 
Through the Exchange (Sec.  156.1230)
    In this rule, we proposed a number of modifications and new 
requirements in Sec.  155.220 which would apply to web-brokers using 
the direct enrollment channel. We propose to add a number of these 
standards to Sec. Sec.  156.265 and 156.1230(b) so that they also apply 
to issuers using direct enrollment on a Federally-facilitated Exchange. 
Specifically, in Sec.  156.1230, we propose to: (1) Specify that HHS 
may immediately suspend the QHP issuer's ability to transact 
information with the Exchange if HHS discovers circumstances that pose 
unacceptable risk to Exchange operations or Exchange information 
technology systems until the incident or breach is remedied or 
sufficiently mitigated to HHS's satisfaction; (2) require QHP issuers 
to demonstrate operational readiness and compliance with applicable 
requirements prior to their Web sites being used to complete QHP 
selections; and (3) require QHP issuers to provide consumers with 
correct information regarding FFEs, QHPs offered through the FFEs and 
insurance affordability programs, and refrain from marketing or conduct 
that is misleading, coercive, or discriminatory. A more detailed 
discussion of these proposed provisions is contained in the preamble 
discussion regarding Sec.  155.220.
    We solicit comments on these proposals and specifically seek 
comment on whether direct enrollment with a QHP issuer should be 
permitted for enrollments through all SBE-FPs, or at the option of SBE-
FPs.
c. Other Notices (Sec.  156.1256)
    Section 156.1256 requires health insurance issuers offering 
coverage through an FFE or an SBE-FP to notify enrollees of material 
plan or benefit display errors under certain circumstances. We propose 
to change the paragraph cross-referenced in Sec.  156.1256 from Sec.  
155.420(d)(4) to Sec.  155.420(d)(12) to reflect our proposal to codify 
in Sec.  155.420(d)(12) the special enrollment period for material plan 
or benefit display errors. Since the noticing requirement in Sec.  
156.1256 is limited to material plan or benefit display errors and 
resulting special enrollment periods, proposed Sec.  155.420(d)(12) is 
a more appropriate reference for this section. We also propose to make 
some minor non-substantive changes to the regulation text. We seek 
comments on this proposal.

J. Part 157--Employer Interactions With Exchanges and Shop 
Participation

    For a discussion of the provisions of this proposed rule related to 
part 157, please see the preamble to Sec.  155.725.

K. Part 158--Issuer Use of Premium Revenue: Reporting and Rebate 
Requirements

1. Newer Experience (Sec.  158.121)
a. Deferred Reporting of Newer Business
    Section 2718(c) of the PHS Act provides that, subject to the 
certification of the Secretary, the NAIC is to establish standardized 
medical loss ratio methodologies that take into consideration (among 
other things) the

[[Page 61516]]

special circumstances of newer plans. Consistent with the NAIC's 
recommendation to HHS,\59\ the MLR December 1, 2010 interim final rule 
(75 FR 74863) allows issuers to defer reporting of experience of 
policies newly issued and with fewer than 12 months of experience until 
the following reporting year, if such policies contribute to 50 percent 
or more of the issuer's total earned premium for the MLR reporting 
year. As explained in the interim final rule, the rationale for 
deferring experience of newly issued policies is that claims experience 
can be substantially lower than the premium revenue from those policies 
during the year in which the coverage is issued (although this may 
occur to a lesser extent in the current environment than prior to 
introduction of the Affordable Care Act market reforms), and could 
create a barrier to the entry of new issuers into a market.
---------------------------------------------------------------------------

    \59\ National Association of Insurance Commissioners--Model 
Regulation Service, Regulation for Uniform Definitions and 
Standardized Methodologies for Calculation of the Medical Loss Ratio 
for Plan Years 2011, 2012 and 2013 per Section 2718(b) of the Public 
Health Service Act (Oct 27, 2010), available athttp://www.naic.org/documents/committees_ex_mlr_reg_asadopted.pdf.
---------------------------------------------------------------------------

    However, the NAIC's recommendation was developed in 2010, prior to 
implementation of many Affordable Care Act market reforms. As a result, 
the current MLR regulation allows issuers to defer reporting the 
experience of new policies that were in effect for fewer than 12 
months, but not for those in effect for the full 12 months. This 
limitation does not account for the fact that beginning in 2014, 
issuers of non-grandfathered health insurance coverage in the 
individual and small group markets generally must offer coverage for a 
consecutive 12-month period (which may be on a calendar year basis or 
otherwise). Consequently, issuers entering these markets in substantial 
part in 2014 or later whose policies contribute to 50 percent or more 
of the issuer's total earned premium for the MLR reporting year are 
unable to defer reporting of this new business for MLR purposes because 
such coverage has a full 12 months of experience. Therefore, to align 
MLR reporting with the requirement that non-grandfathered coverage 
generally must provide coverage for a consecutive 12-month period, we 
propose to modify Sec.  158.121 to allow issuers to defer, for MLR 
purposes, reporting of data for newer experience if 50 percent or more 
of the issuer's total earned premium for the MLR reporting year is 
attributable to newly issued policies with 12 full months of 
experience, rather than policies with less than 12 months of 
experience. We seek comments on this proposal.
2. Rebating Premium if the Applicable Medical Loss Ratio Standard Is 
Not Met (Sec. Sec.  158.232, 158.240)
a. Limit on Rebate Liability
    Section 2718(b)(1)(B)(ii) of the PHS Act requires, beginning on 
January 1, 2014, the MLR to be calculated as an average of 3 
consecutive years of experience. When an established issuer's MLR falls 
below the applicable MLR standard in a given year, the 3-year averaging 
spreads the actual payment of the rebate over the period of 3 years. 
This allows issuers to offset low and high MLRs within any 3-year 
period, enabling issuers to potentially pay a lower overall rebate. 
However, issuers that newly enter the market in 2014 or later are only 
able to calculate their first two MLRs based on 1 or 2 years of 
experience. Consequently, the experience of the first 1 or 2 years can 
have a disproportionate and overlapping impact on such issuers' average 
MLRs in their first 3 years in the market, and the 3-year averaging 
required by section 2718(b)(1)(B)(ii) can lead to distorted MLR 
calculations and could be a barrier to the entry of new issuers into a 
market. As a result of the 3-year averaging rule, a new issuer that has 
an MLR that is initially low but increases within the first 3 years in 
the market may end up paying a higher total rebate over those initial 3 
years than an established issuer with stable enrollment with the same 
experience in each of those 3 years. In addition, the 3-year averaging 
rule can have a similar impact on an established issuer that rapidly 
and significantly expands its presence in the market.
    We note that only a narrow subset of issuers are affected in this 
way by 3-year averaging: Specifically, new issuers and established 
issuers that experience rapid growth (either by entering a new market 
or rapidly and significantly expanding their presence in an existing 
market) and whose MLR falls below the standard in one year and 
increases within the following 2 years.
    Consistent with the requirement under section 2718(c) of the PHS 
Act to design standardized MLR methodologies that take into 
consideration (among other things) the special circumstances of smaller 
and newer plans, we propose to amend Sec. Sec.  158.240 and 158.232 to 
mitigate the impact of 3-year averaging on these issuers and thereby 
reduce barriers to entry and promote competition in health insurance 
markets. Specifically, we propose to modify Sec.  158.240 by adding a 
new paragraph (d) and redesignating the existing paragraphs (d) and (e) 
as paragraphs (e) and (f), respectively, to provide flexibility to 
limit in appropriate cases an issuer's total rebate liability payable 
with respect to a given calendar year. We also propose conforming 
amendments to paragraph (c) to recognize the proposed new flexibility 
under new paragraph (d). Under this proposal, if an issuer elects this 
flexibility, the maximum single-year rebate liability attributable to a 
given calendar year would be limited to no more than the amount 
determined based on the issuer's MLR calculated using only that year's 
experience. In these circumstances, we propose to adjust the maximum 
rebate liability attributable to a given calendar year in each of the 
two subsequent reporting years to reflect restatement of claims 
incurred in that calendar year as of March 31 following each of those 2 
subsequent reporting years. The restatement of incurred claims would 
ensure that the rebate liability with respect to the calendar year in 
question is corrected either upward or downward, as appropriate, in the 
two subsequent years in order to implement the 3-year averaging 
requirement. Similarly, we propose that an issuer that elects this 
option would have to adjust the maximum rebate liability attributable 
to a given calendar year in the 2 subsequent reporting years to reflect 
the credibility adjustment applicable in each of those 2 subsequent 
reporting years. That is, the rebate liability attributable to year 1 
would be recalculated in year 2 using a credibility adjustment based on 
the sum of life-years for years 1 and 2. This approach is consistent 
with the manner in which the credibility adjustment was applied with 
respect to all issuers when the MLR requirements were first 
implemented. We seek comments on this proposal.
    We also propose that for an issuer that elects this option, for 
each reporting year, after the issuer recalculates the maximum rebate 
liability with respect to each calendar year in the aggregation using 
restated incurred claims and updated credibility adjustment (as 
applicable), the outstanding rebate liability with respect to each year 
in the aggregation would be determined by reducing the maximum rebate 
liability with respect to that year by any rebate payments made toward 
it in the two prior years (as applicable). Any rebate payable for a 
given reporting year would be applied toward the outstanding

[[Page 61517]]

rebate liability of the earliest year in the relevant aggregation 
first. If the rebate calculated for the reporting year based on a 
multi-year average MLR (2- or 3-year average, as applicable) exceeds 
the combined outstanding rebate liability for all calendar years 
included in the aggregation, then under our proposal, the actual rebate 
payable by the issuer for that reporting year would be limited to the 
amount of the combined outstanding rebate liability. Conversely, if the 
total rebate calculated for the reporting year based on a multi-year 
average MLR is lower than the combined outstanding rebate liability for 
all years included in the aggregation, then we propose that the actual 
rebate payable by the issuer for that reporting year be limited to the 
amount calculated for the reporting year based on a multi-year average 
MLR. Therefore, our proposal would generally prevent the total rebate 
amount paid by an issuer with respect to any given calendar year over 
the course of 3 consecutive years from exceeding the rebate amount 
resulting from the ratio of the issuer's incurred claims and quality 
improvement activity expenses to the issuer's after-tax earned premium 
for that calendar year, with applicable adjustments, falling below the 
applicable MLR standard. At the same time, our proposal is designed to 
benefit only new issuers and established issuers that experience rapid 
growth whose MLR falls below the standard in one year and increases 
within the following 2 years. This is because the combined outstanding 
rebate liability for all years included in the aggregation will 
generally equal or exceed the rebate calculated for the reporting year 
based on a 3-year average MLR for established issuers that do not 
experience rapid growth. Therefore, our proposed limit on the rebate 
liability would not benefit such issuers.
    For a simplified illustration of our proposal, suppose that a new, 
fully-credible individual market issuer reports year 1 incurred claims 
and quality improvement activity expenses (QIA) of $500,000 and premium 
adjusted for applicable taxes and fees of $1,000,000 (and no other 
relevant revenue or expenses relevant to the MLR calculation); year 2 
incurred claims and QIA of $700,000 and after-tax premium of 
$1,000,000; and incurred claims and QIA of $800,000 and after-tax 
premium of $1,000,000 thereafter. Under our proposal, the rebate 
liability for year 1 would be calculated as (80% - $500,000/$1,000,000) 
* $1,000,000 = $300,000; and the issuer would consequently pay a 
$300,000 rebate for year 1. Suppose that after year 2, the issuer 
determines that its year 1 incurred claims and QIA were in fact 
$550,000 rather than $500,000. The issuer's 2-year average MLR would 
equal ($550,000 + $700,000)/($1,000,000 + $1,000,000) = 62.5% and the 
corresponding rebate would equal (80% - 62.5%) * $1,000,000 = 175,000. 
Under our proposal, the issuer's preliminary MLR with respect to year 1 
as adjusted by the newer incurred claims and QIA data would be 
calculated as $550,000/$1,000,000 = 55% and the corresponding rebate 
liability as (80% - 55%) * $1,000,000 = $250,000. The preliminary MLR 
with respect to year 2 would be calculated as $700,000/$1,000,000 = 70% 
and the corresponding rebate liability as (80% - 70%) * $1,000,000 = 
$100,000. The $300,000 rebate initially paid for year 1 would be 
applied first against the year 1 rebate liability of $250,000, with the 
remaining $50,000 applied against the year 2 rebate liability of 
$100,000, resulting in a combined outstanding rebate liability of 
$250,000 + $100,000 - $300,000 = $50,000. Because the combined 
outstanding rebate liability is lower than the rebate based on the 2-
year average MLR, the rebate payable for year 2 is limited to the lower 
amount, or $50,000; whereas under the current MLR regulations, the 
issuer would be required to pay $175,000 in rebates for year 2. In year 
3, the rebate based on the 3-year average MLR would be $116,667, while 
the combined outstanding rebate liability would be zero, resulting in 
no rebate payable for year 3.
    In recognition of the fact that, as discussed above, only a limited 
subset of issuers may be disadvantaged by the three-year averaging rule 
and would be able to benefit from this proposal, we propose to make the 
use of the rebate liability limit optional for issuers. To further 
facilitate application of this proposal in the least burdensome manner, 
as well as to address an existing ambiguity regarding applicability of 
the credibility adjustment, we additionally propose to clarify Sec.  
158.232 by defining the term ``preliminary MLR'' to refer to an MLR 
calculated without applying any credibility adjustment, and by 
explicitly specifying instances where Sec.  158.232 is intended to 
refer to experience of a single year, rather than 3 years. These 
proposed amendments to Sec.  158.232(d), (e), and (f) will enable 
issuers that wish to take advantage of the rebate liability limit to 
rely on the single-year, preliminary MLRs that issuers already 
calculate as part of determining their credibility adjustment, and 
minimize the additional reporting associated with calculating the 
outstanding rebate liability if an issuer elects to exercise the 
flexibility proposed in Sec.  158.240(d). We seek comments on all 
aspects of this proposal.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget for review and approval. This 
proposed rule contains information collection requirements (ICRs) that 
are subject to review by OMB. A description of these provisions is 
given in the following paragraphs with an estimate of the annual 
burden, summarized in Table 16. To fairly evaluate whether an 
information collection should be approved by OMB, section 3506(c)(2)(A) 
of the Paperwork Reduction Act of 1995 requires that we solicit comment 
on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of these issues for the 
following sections of this proposed rule that contain ICRs. We 
generally used data from the Bureau of Labor Statistics to derive 
average labor costs (including a 100 percent increase for fringe 
benefits and overhead) for estimating the burden associated with the 
ICRs.\60\
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    \60\ See May 2015 Bureau of Labor Statistics, Occupational 
Employment Statistics, National Occupational Employment and Wage 
Estimates at http://www.bls.gov/oes/current/oes_stru.htm.
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A. ICRs Regarding Upload of Risk Adjustment Data (Sec.  153.610)

    Under the HHS-operated risk adjustment program, HHS uses a 
distributed data collection approach for enrollee-level enrollment, 
claims and encounter data that reside on an issuer's dedicated data 
environment. Under Sec.  153.710(a), an issuer of a risk adjustment 
covered plan in a State where HHS is operating the risk adjustment or 
reinsurance program on behalf of the State, as applicable, must provide 
HHS, through the dedicated data environment, access to enrollee-

[[Page 61518]]

level plan enrollment data, enrollee claims data, and enrollee 
encounter data, as specified by HHS. Under Sec.  153.610(a), HHS is 
proposing that an issuer must submit or make accessible all required 
risk adjustment data for its risk adjustment covered plans in 
accordance with the risk adjustment data collection approach 
established by the State, or by HHS on behalf of the State, including 
any data that is ``protected health information'' as that term is 
defined at 45 CFR 160.103 for purposes of recalibrating the HHS risk 
adjustment model, in the form and manner specified by HHS. This 
proposal entails HHS sending a command to all issuers' EDGE servers 
that issuers must execute, which would provide HHS a dataset that does 
not identify the EDGE server, plan, issuer, geographic rating area, 
State, or enrollee, for purposes of obtaining enrollee-level data upon 
which we can recalibrate the HHS risk adjustment models. Because this 
EDGE report requires no new data elements and only requires an issuer 
to execute the command, we do not believe this provision imposes 
additional burden on issuers of risk adjustment covered plans described 
under the information collection currently approved under OMB Control 
Number 0938-1155.

B. ICRs Regarding Data Validation Requirements When HHS Operates Risk 
Adjustment (Sec.  153.630)

    Under Sec.  153.630(b), an issuer that offers at least one risk 
adjustment covered plan in a State where HHS is operating risk 
adjustment on behalf of the State for the applicable benefit year must 
have an initial validation audit performed on its risk adjustment data. 
The cost associated with this requirement is the issuer's time and 
effort to provide HHS with source claims, records, and enrollment 
information to validate enrollee demographic information for initial 
and second validation audits and the issuer's cost to employ an 
independent auditor to perform the initial validation audit on a 
statistically valid sample of enrollees. We estimate that each issuer 
sample will consist of approximately 200 enrollees, and we anticipate 
that this audit will affect approximately 825 issuers. Beginning with 
2018 risk adjustment data validation, HHS proposes to require the 
review of paid pharmacy claims for all sample enrollees in the initial 
validation audit. Based on 2015 EDGE reinsurance data, we believe 
approximately half of all enrollees have pharmacy claims, and of those 
that do, we would expect approximately six pharmacy claims per 
enrollee. Therefore, we expect that it would require 30 minutes for an 
auditor (at a labor cost of $72 per hour) and cost approximately $36 
per enrollee to validate paid pharmacy claims. We assume that an 
initial validation audit would be performed on 165,000 enrollees, with 
half of them, or 82,500 enrollees, having pharmacy claims. Based on the 
information above, we estimate that the total additional burden per 
issuer for initial validation auditors to review and validate paid 
pharmacy claims would be 50 hours and cost approximately $3,600. 
Therefore, for 825 issuers, the total annual burden of conducting 
initial validation audits would be 41,250 hours with an equivalent cost 
of approximately $2.97 million. We will revise the information 
collection currently approved under OMB Control Number 0938-1155 with 
an October 31, 2017 expiration date to account for this additional 
burden.

C. ICR Regarding the Interim and Final Discrepancy Reporting Processes 
for Risk Adjustment Data Validation When HHS Operates Risk Adjustment 
(Sec.  153.630(d))

    Under Sec.  153.630(d)(1), we propose that in the manner set forth 
by HHS, an issuer must confirm the sample or file a discrepancy report 
within 15 calendar days to dispute the HHS risk adjustment data 
validation sample set forth by HHS in the HHS-RADV Final Reports. In 
Sec.  153.630(d)(2), we propose that in the manner set forth by HHS, an 
issuer may file a discrepancy report within 30 calendar days to dispute 
the findings of a second validation audit or the calculation of a risk 
score error rate.
    We estimate that 825 issuers of risk adjustment covered plans would 
be subject to this requirement, and that issuers would review the HHS-
risk adjustment data validation final reports, specifically the initial 
validation audit sample set for the interim discrepancy reporting 
process. For the final discrepancy reporting process, set forth in 
proposed Sec.  153.630(d)(2), issuers would review the results of the 
second validation audit and the calculation of a risk score error rate. 
On average, we estimate that it would take a business operations 
specialist (at an hourly labor cost of $78) approximately 2 hours to 
respond to an interim report and 6 hours to respond to the interim and 
final discrepancy reporting process. The total burden for each issuer 
would be 8 hours with an equivalent cost of $624. Therefore, we 
estimate an aggregate annual burden of 6,600 hours with an equivalent 
cost of $514,800 for 825 issuers as a result of these requirements. We 
will revise the information collection currently approved under OMB 
Control Number 0938-1155 with an October 31, 2017 expiration date to 
account for this additional burden.

D. ICR Regarding Standardized Options in SBE-FPs (Sec.  155.20)

    In proposed Sec.  155.20, we propose that an SBE-FP must notify HHS 
if it wants HHS-designed standardized options to receive differential 
display, by a date to be specified in guidance. We anticipate that 
fewer than 10 SBE-FPs would submit this information to HHS annually. 
Under 5 CFR 1320.3(c)(4), this ICR is not subject to the PRA as it 
would affect fewer than 10 entities in a 12-month period.

E. ICR Regarding Differential Display of Standardized Options on the 
Web Sites of Agents and Brokers (Sec.  155.220) and QHP Issuers (Sec.  
156.265)

    We propose to require web-brokers and QHP issuers that utilize the 
direct enrollment pathway to differentially display standardized 
options in the 2018 plan year and beyond, consistent with the approach 
adopted by HHS for display on the Exchange Web site, unless HHS 
approved a deviation. This policy would require direct enrollment 
entities to prominently display standardized options in a manner that 
makes them clear to consumers. We estimate that a total of 160 web-
brokers and QHP issuers participate in the FFEs and SBE-FPs and would 
be required to comply with the standard. We estimate it would take a 
mid-level software developer (at a rate of $96.82 per hour) 
approximately 2 hours annually to develop a differential display for 
standardized options. We estimate an annual cost burden of 
approximately $193.64 per direct enrollment entity. The total annual 
burden will be 320 hours with an equivalent cost of approximately 
$30,982.40.
    We anticipate that fewer than 10 web-brokers and issuers would 
submit a request to deviate from the manner adopted by HHS for display 
on HealthCare.gov. Under 5 CFR 1320.3(c)(4), this ICR is not subject to 
the PRA as it would affect fewer than 10 entities in a 12-month period.

F. ICR Regarding Ability of States To Permit Agents and Brokers To 
Assist Qualified Individuals, Qualified Employers, or Qualified 
Employees Enrolling in QHPs (Sec.  155.220)

    We propose a number of requirements for web-brokers related to the 
direct enrollment process such as prominently displaying information 
regarding consumers' eligibility for APTC, allowing consumers to make 
attestations regarding APTC, and providing for the

[[Page 61519]]

maintenance of electronic records for purposes of audit. At Sec. Sec.  
156.265 and 156.1230, we propose a number of parallel provisions for 
issuers using the direct enrollment channel. We would provide 
additional detail regarding the specific requirements under these rules 
in guidance in the future. At that time, we would estimate the burden 
associated with these requirements, solicit public comment, and request 
OMB approval in accordance with the PRA, as may be necessary.

G. ICR Regarding Eligibility Redeterminations (Sec.  155.330)

    We propose to permit an Exchange to choose among three alternatives 
when the Exchange identifies updated information regarding compliance 
with the income tax filing and reconciliation requirement under Sec.  
155.305. An Exchange may either follow the process described in 
paragraph (e)(2)(i), a process specified by the Secretary in guidance, 
or an alternative process proposed by the Exchange and approved by the 
Secretary. HHS anticipates that it would require Exchanges requesting 
approval for an alternative process to submit a brief description of 
the alternative process, and a justification for how the process 
satisfies the approval criteria outlined in Sec.  
155.330(e)(2)(iii)(C). Given the availability of two alternative 
processes, we anticipate that fewer than 10 Exchanges would submit a 
proposal. Therefore, under 5 CFR 1320.3(c)(4), this ICR is not subject 
to the PRA as it would affect fewer than 10 entities in a 12-month 
period.
    We also propose to permit the Exchange to recalculate APTC using 
the procedure described in Sec.  155.330(g)(1) or an alternate 
procedure approved by HHS on a transitional basis. HHS anticipates that 
it would require participating Exchanges to submit a brief description 
of the alternate procedure and the extent to which the alternate 
procedure would protect tax filers from an excess APTC repayment. Here 
too, we anticipate that fewer than 10 Exchanges would submit a 
proposal. Under 5 CFR 1320.3(c)(4), this ICR is not subject to the PRA 
as it would affect fewer than 10 entities in a 12-month period.

H. ICR Regarding Termination of Exchange Enrollment or Coverage (Sec.  
155.430(b)(2)(iii))

    We are proposing to amend Sec.  155.430(b)(2)(iii) to clarify that 
when an issuer seeks termination of a QHP purchased on an Exchange via 
a rescission under Sec.  147.128, it must first demonstrate, to the 
reasonable satisfaction of the Exchange, that the basis for the 
rescission is appropriate, if the Exchange requires such a 
demonstration. This would require the issuer to provide information 
related to the termination to the Exchange. We do not anticipate that 
all Exchanges will subject issuers to this requirement. We anticipate 
that fewer than 10 issuers would be subject to this requirement 
annually. Under 5 CFR 1320.3(c)(4), this ICR is not subject to the PRA 
as it would affect fewer than 10 entities in a 12-month period.

I. ICR Regarding QHP Request for Reconsideration (Sec.  155.1090)

    We propose to add Sec.  155.1090 to create a process for an issuer 
that has applied to an FFE for certification of QHPs and has been 
denied certification to request reconsideration. We anticipate that 
fewer than 10 issuers per year would request reconsideration. Under 5 
CFR 1320.3(c)(4), this ICR is not subject to the PRA as it would affect 
fewer than 10 entities in a 12-month period.

J. ICR Regarding Notification by Issuers Denied Certification (Sec.  
156.290)

    In proposed Sec.  156.290 we propose that QHP issuers would be 
required to provide a notification to enrollees within 30 days of the 
date of HHS's denial of certification for a subsequent, consecutive 
certification cycle. We anticipate that fewer than 10 issuers would be 
subject to this requirement annually. Under 5 CFR 1320.3(c)(4), this 
ICR is not subject to the PRA as it would affect fewer than 10 entities 
in a 12-month period.

K. ICR Regarding the Discrepancy Reporting Processes for the 
Reconciliation of the Cost-sharing Reduction Portion of Advance 
Payments (Sec.  156.430(h))

    Under Sec.  156.430(h)(1), we proposed that, if an issuer files a 
discrepancy report to dispute the notification of the amount of 
reconciliation of the cost-sharing reduction portion of advance 
payments, it must file the discrepancy report within 30 calendar days 
of notification of the amount of reconciliation of the cost-sharing 
reduction portion of advance payments as described in Sec.  156.430(e), 
in the manner set forth by HHS.
    We estimate that of approximately 360 QHP issuers that submit cost-
sharing reduction reconciliation data, less than \1/3\ would file a 
discrepancy report to dispute the notification of the amount of 
reconciliation of the cost-sharing reduction portion of advance 
payments. Issuers would review the notification of the amount of 
reconciliation of the cost-sharing reduction portion of advance 
payments for this discrepancy reporting process. On average, we 
estimate that it would take a business operations specialist (at an 
hourly labor cost of $78) approximately 6 hours to review the 
requirements of the discrepancy reporting process, to determine whether 
the issuer should submit a discrepancy report, to categorize the 
discrepancy, and to write a description of the discrepancy for 
submission to HHS. Additionally, we estimate that it would take a 
computer programmer (at an hourly labor cost of approximately $78) 
approximately 12 hours to develop the pipe-delimited file for reporting 
the discrepancy, based on the technical specifications published by 
HHS, and to submit the discrepancy file to HHS through the electronic 
file transfer system. Therefore, we estimate that the total burden for 
each issuer would be approximately 18 hours with an equivalent cost of 
$1,404. Therefore, assuming that no more than 120 issuers would submit 
a discrepancy, we estimate a total aggregate annual burden of 
approximately 2,160 hours with an equivalent cost of $168,480 for 
issuers as a result of these requirements. We will revise the 
information collection currently approved under OMB Control Number 
0938-1266 with a December 31, 2017 expiration date to account for this 
additional burden.

L. ICRs Regarding Administrative Appeals (Sec.  156.1220)

    In 45 CFR 156.1220, we established an administrative appeals 
process to address any issues or errors for advance payment of the 
premium tax credit, advance payment and reconciliation of cost-sharing 
reductions, FFE user fees, and the premium stabilization programs, as 
well as any assessment of a default risk adjustment charge under Sec.  
153.740(b). We propose revising Sec.  156.1220 to also address 
administrative appeals relating to the risk adjustment data validation 
process.
    Under Sec.  153.630(d), an issuer may appeal the findings of a 
second validation audit or the calculation of a risk score error rate. 
We propose to amend Sec.  153.630(d) by clarifying the process by which 
an issuer can appeal the findings of a second validation audit or the 
calculation of a risk score error rate. We propose requiring issuers to 
use the administrative appeals process set forth in Sec.  156.1220.
    Under Sec.  156.1220(a), we propose to clarify that an issuer may 
file a request for reconsideration under this section to contest a 
processing error by HHS,

[[Page 61520]]

HHS's incorrect application of the relevant methodology, or HHS's 
mathematical error with respect to the findings of a second validation 
audit or the calculation of a risk score error rate.
    While the hours involved in a request for reconsideration might 
vary, for purposes of this burden estimate we estimate that it would 
take a business operations specialist 1 hour (at an hourly labor cost 
of $78) to make the comparison and submit a request for reconsideration 
to HHS. We estimate that 9 issuers, representing approximately 1 
percent of issuers of risk adjustment covered plans, subject to risk 
adjustment data validation, would submit a request for reconsideration, 
resulting in a total aggregate annual burden of 9 hours with an 
equivalent cost of approximately $702.

M. ICR Regarding Medical Loss Ratio (Sec.  158.240)

    We are proposing to amend Sec.  158.240 to allow issuers the option 
of limiting the total rebate payable over the course of a 3-year period 
with respect to a given calendar year. We anticipate that implementing 
this proposal would require minor changes to the MLR annual reporting 
form and we may revise the information collection currently approved 
under OMB Control Number 0938-1164 to reflect the proposed policy. 
However, only a small number of issuers would elect the option of 
additional reporting and we do not expect that the proposed policy 
would increase the burden.

                                             TABLE 16--Annual Reporting, Recordkeeping and Disclosure Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Hourly
                                                                                          Burden per     Total      labor cost  Total labor
               Regulation Section                     OMB       Number of    Responses     response      annual         of        cost of    Total  cost
                                                  Control No.  respondents                 (hours)       burden     reporting    reporting       ($)
                                                                                                        (hours)        ($)          ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   153.630 Risk Adjustment Data Validation..    0938-1155          825       82,500          0.5       41,250           72    2,970,000    2,970,000
Sec.   153.630(d) Discrepancy Reporting             0938-1155          825         1650            4        6,600           78      514,800      514,800
 Processes for Risk Adjustment Data Validation..
Sec.  Sec.   155.220, 156.265 Differential                NEW          160          160            2          320        96.82       30,982       30,982
 Display of Standardized Options................
Sec.   156.430(h) Discrepancy Reporting for cost-   0938-1266          120            1           18        2,160           78      168,480      168,480
 sharing reduction reconciliation...............
Sec.   156.1220 Administrative Appeals..........          NEW            9            9            1            9           68          702          702
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................  ...........        1,114       84,320         25.5       50,339       392.82    3,684,964    3,684,964
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: There are no capital/maintenance costs associated with the information collection requirements contained in this rule; therefore, we have removed
  the associated column from Table 16.

V. Response to Comments

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

VI. Regulatory Impact Analysis

A. Statement of Need

    This rule proposes standards related to the risk adjustment program 
for the 2017 and 2018 benefit years, as well as certain modifications 
to the program that will protect against the potential effects of 
adverse selection. The Premium Stabilization Rule and previous Payment 
Notices provided detail on the implementation of this program, 
including the specific parameters for the 2014, 2015, 2016, and 2017 
benefit years applicable to this program. This rule proposes additional 
standards related to enrollment and eligibility, consumer assistance 
tools and programs of an Exchange, web-brokers, cost-sharing 
parameters, qualified health plans, network adequacy, stand-alone 
dental plans, guaranteed renewability, the rate review program, the 
medical loss ratio program, the Small Business Health Options Program, 
and FFE user fees. These proposed standards represent incremental 
amendments that are intended to continue to strengthen the Exchanges, 
improve the stability of the market, and enhance the choices available 
to consumers, while supporting consumers' ability to make informed 
choices when purchasing health insurance.

B. Overall Impact

    We have examined the impacts of this rule 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 202 of the Unfunded Mandates Reform Act 
of 1995 (March 22, 1995, Pub. L. 104-4), 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). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. A regulatory impact analysis (RIA) must be prepared for 
rules with economically significant effects ($100 million or more in 
any 1 year).

[[Page 61521]]

    OMB has determined that this proposed rule is ``economically 
significant'' within the meaning of section 3(f)(1) of Executive Order 
12866, because it is likely to have an annual effect of $100 million in 
any 1 year. Accordingly, we have prepared an RIA that presents the 
costs and benefits of this proposed rule.
    Although it is difficult to discuss the wide-ranging effects of 
these provisions in isolation, the overarching goal of the premium 
stabilization, market standards, and Exchange-related provisions and 
policies in the Affordable Care Act is to make affordable health 
insurance available to individuals who do not have access to affordable 
employer-sponsored coverage. The provisions within this proposed rule 
are integral to the goal of expanding coverage. For example, the risk 
adjustment program helps prevent risk selection and decrease the risk 
of financial loss that health insurance issuers might otherwise expect 
in 2018 and Exchange financial assistance helps low- and moderate-
income consumers and American Indians/Alaska Natives purchase health 
insurance. The combined impacts of these provisions affect the private 
sector, issuers, and consumers, through increased access to health care 
services, decreased uncompensated care, lower premiums, and increased 
plan transparency. Through the reduction in financial uncertainty for 
issuers and increased affordability for consumers, these provisions are 
expected to increase access to affordable health coverage.
    HHS anticipates that the provisions of this proposed rule will help 
further HHS's goal of ensuring that all consumers have access to 
quality, affordable health care and are able to make informed choices, 
that Exchanges operate smoothly, that the risk adjustment program works 
as intended, and that SHOPs are provided flexibility. Affected entities 
such as QHP issuers would incur costs to comply with the proposed 
provisions. In accordance with Executive Order 12866, HHS believes that 
the benefits of this regulatory action justify the costs.

C. Impact Estimates of the Payment Notice Provisions and Accounting 
Table

    In accordance with OMB Circular A-4, Table 17 depicts an accounting 
statement summarizing HHS's assessment of the benefits, costs, and 
transfers associated with this regulatory action.
    This proposed rule implements standards for programs that will have 
a number of effects, including providing consumers with affordable 
health insurance coverage, reducing the impact of adverse selection, 
and stabilizing premiums in the individual and small group health 
insurance markets and in an Exchange. We are unable to quantify certain 
benefits of this proposed rule--such as improved health outcomes and 
longevity due to continuous quality improvement, and increased 
insurance enrollment--and certain costs--such as the cost of providing 
additional medical services to newly-enrolled individuals. The effects 
in Table 17 reflect qualitative impacts and estimated direct monetary 
costs and transfers resulting from the provisions of this proposed 
rule. The annualized monetized costs described in Table 17 reflect 
direct administrative costs to health insurance issuers and web-brokers 
as a result of the proposed provisions, and include administrative 
costs related to requirements that are estimated in the Collection of 
Information section of this proposed rule. The annual monetized 
transfers described in Table 17 include costs associated with the risk 
adjustment user fee paid to HHS by issuers, and a decrease in MLR 
rebates to consumers. For 2018, we are proposing to collect a total of 
$35 million in risk adjustment user fees or $1.32 per enrollee per year 
from risk adjustment issuers, an increase from $24 million in benefit 
year 2017 when we established a $1.56 per-enrollee-per-year risk 
adjustment user fee amount. As in 2017, the risk adjustment user fee 
contract costs for 2018 include costs for risk adjustment data 
validation; however, we expect increased enrollment in 2018 HHS risk 
adjustment covered plans, which decreases the per enrollee amount.
    The annual monetized transfers described in Table 17 include a 
decrease in MLR rebates to consumers.

                                           TABLE 17--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Benefits:
Qualitative:
     Increased enrollment in the individual market leading to improved access to health care for the
     previously uninsured, especially individuals with medical conditions, which will result in improved health
     and protection from the risk of catastrophic medical expenditures..........................................
     Improved transparency and shopping experience for consumers due to new, updated standardized
     options and their differential display; and protections relating to direct enrollment......................
     Provide adequate time to newly qualified employees to make informed decisions regarding their
     coverage in the SHOP.......................................................................................
     Ensure plan choice, allowing individuals to find coverage that fit their needs.....................
----------------------------------------------------------------------------------------------------------------
Costs:                                               Estimate          Year          Discount         Period
                                                       (million)          dollar            rate         covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................           $3.68            2016               7       2017-2021
                                                            3.68            2016               3       2017-2021
----------------------------------------------------------------------------------------------------------------
Costs reflect administrative costs incurred by issuers and web-brokers to comply with provisions in this final
 rule.
----------------------------------------------------------------------------------------------------------------
Transfers:                                           Estimate          Year          Discount         Period
                                                       (million)          dollar            rate         covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................           $22.2            2016               7       2017-2021
                                                            22.6            2016               3       2017-2021
----------------------------------------------------------------------------------------------------------------
 Transfers include risk adjustment user fees for 2018-2021 (assuming that they remain the same during
 this time period), which are transfers from health insurance issuers to the Federal government; and a reduction
 in total rebate payments by issuers which is a transfer from enrollees to shareholders or nonprofit
 stakeholders in individual, small and large group markets, resulting from adjustment in MLR methodology.
Qualitative:
     More accurate risk adjustment charges and payments due to change in risk adjustment methodology....
----------------------------------------------------------------------------------------------------------------


[[Page 61522]]

    This RIA expands upon the impact analyses of previous rules and 
utilizes the Congressional Budget Office's (CBO) analysis of the 
Affordable Care Act's impact on Federal spending, revenue collection, 
and insurance enrollment. The temporary risk corridors program and the 
transitional reinsurance program end after the benefit year 2016. 
Therefore, the costs associated with those programs are not included in 
Tables 17 or 18 for fiscal years 2019-2021. Table 18 summarizes the 
effects of the risk adjustment program on the Federal budget from 
fiscal years 2017 through 2021, with the additional, societal effects 
of this proposed rule discussed in this RIA. We do not expect the 
provisions of this proposed rule to significantly alter CBO's estimates 
of the budget impact of the premium stabilization programs that are 
described in Table 18. We note that transfers associated with the risk 
adjustment and reinsurance programs were previously estimated in the 
Premium Stabilization Rule; therefore, to avoid double-counting, we do 
not include them in the accounting statement for this proposed rule 
(Table 18).

Table 18--Estimated Federal Government Outlays and Receipts for the Risk Adjustment, Reinsurance, and Risk Corridors Programs From Fiscal Year 2017-2021
                                                                [In billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                          Year                                 2017            2018            2019            2020            2021          2017-2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
Risk Adjustment, Reinsurance, and Risk Corridors Program              10               8               8               9               9              44
 Payments...............................................
Risk Adjustment, Reinsurance, and Risk Corridors Program              11               7               8               9               9              44
 Collections *..........................................
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note 1: Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments over time.
Note 2: The CBO score reflects an additional $2 million in collections in FY 2015 that are outlaid in the FY 2016-FY 2020 timeframe. CBO does not expect
  a shortfall in these programs.
Source: Congressional Budget Office. Federal Subsidies for Health Insurance Coverage for People Under Age 65: Tables From CBO's March 2016 Baseline
  https://www.cbo.gov/sites/default/files/51298-2016-03-HealthInsurance.pdf.

1. Fair Health Insurance Premiums
    The proposed regulations would amend Sec.  147.102(d) to create 
multiple child age bands rather than a single age band for all 
individuals aged 0 through 20. Establishing single-year age bands 
starting at age 15 is likely to result in small annual increases in 
premiums for children age 15 to 20, which would help mitigate large 
premium increases attributable to age due to the transition from child 
to adult age rating.
2. Guaranteed Renewability
    This proposed rule would specify the circumstances in which the 
discontinuation of all coverage currently offered by an issuer in a 
market in a State would not be considered a market withdrawal subject 
to the 5-year ban on market re-entry. We believe this proposal is 
generally consistent with State regulation of health insurance and 
therefore would not have a material impact on issuers or enrollees. 
These changes would benefit consumers since imposing the 5-year ban on 
market re-entry in these situations could result in disruption for 
consumers and reduced competition in some markets.
3. Risk Adjustment
    The risk adjustment program is a program created by the Affordable 
Care Act in which States, or HHS on behalf of States, collects charges 
from health insurance issuers that attract lower-risk populations in 
order to use those funds to provide payments to health insurance 
issuers that attract higher-risk populations, such as those with 
chronic conditions, thereby reducing incentives for issuers to avoid 
higher-risk enrollees. We established standards for the administration 
of the risk adjustment program, in subparts D and G of part 45 of the 
CFR. The proposed modifications to the risk adjustment model aims to 
improve the methodology and would result in more accurate risk 
adjustment charges and payments and mitigate any residual incentive for 
risk selection.
    A State approved or conditionally approved by the Secretary to 
operate an Exchange may establish a risk adjustment program, or have 
HHS do so on its behalf. As described in the 2014, 2015, 2016 and 2017 
Payment Notices, if HHS operates risk adjustment on behalf of a State, 
it will fund its risk adjustment program operations by assessing a risk 
adjustment user fee on issuers of risk adjustment covered plans. For 
the 2018 benefit year, we estimate that the total cost for HHS to 
operate the risk adjustment program on behalf of States for 2018 will 
be approximately $35 million, and that the risk adjustment user fee 
would be approximately $1.32 per enrollee per year. The risk adjustment 
user fee contract costs for 2018 include costs related to 2018 risk 
adjustment data validation, and are higher than the 2017 contract costs 
as the result of some contracts that were rebid.
4. SHOP
    The SHOPs facilitate the enrollment of eligible employees of 
eligible small employers into small group market health insurance 
plans. A qualitative analysis of the costs and benefits of establishing 
a SHOP was included in the RIA published in conjunction with the 
Exchange Establishment Rule.\61\
---------------------------------------------------------------------------

    \61\ Available at http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf.
---------------------------------------------------------------------------

    In Sec.  155.230(d)(2), we propose requiring SHOPs to make 
electronic notices the default method of sending SHOP notices to 
employers and employees, unless otherwise required by State or Federal 
law. Electronic notices would provide a more cost effective way for 
SHOPs to distribute required notices and should decrease the SHOP's 
costs for notifications.
    In Sec.  155.725(g), we propose changes to the enrollment process 
for newly qualified employees. We believe the proposed amendments would 
provide newly qualified employees with adequate time to make informed 
decisions regarding their coverage and are likely to have a negligible 
impact on plan premiums and would ensure that employers do not exceed 
the waiting period limits under Sec.  147.116.
5. Direct Enrollment--Standardized Options Differential Display and 
Privacy/Security and Oversight
    We did not require QHP issuers or web-brokers to adhere to 
differential display requirements of standardized options when using a 
non-Exchange Web site to facilitate enrollment in a QHP through an 
Exchange for the 2017 plan year, but we noted that we would consider 
whether to propose such a standard in the future. We now propose to 
amend Sec.  155.220(c)(3)(i) by adding

[[Page 61523]]

new paragraph (c)(3)(i)(H) to require web-brokers to differentially 
display standardized options consistent with the approach adopted by 
HHS, unless a deviation is approved by HHS and to amend Sec.  
156.265(b)(3) by adding new paragraph (b)(3)(iv) to likewise require 
QHP issuers that conduct direct enrollment to differentially display 
standardized options in such manner approved by HHS. Requiring web-
brokers and QHP issuers using the direct enrollment pathway to make 
changes to their respective QHP display systems may result a slight 
increase in administrative costs but would help further our goal of 
ensuring that all consumers have access to quality and affordable 
health care and are able to make informed choices.
    In Sec. Sec.  155.220, 156.265, and 156.1230, we propose 
requirements for web-brokers and issuers related to the direct 
enrollment process that would provide consumer protections and ensure 
that consumers have necessary information to select coverage that would 
best fit their needs. Web-brokers and issuers would incur 
administrative costs to comply with these requirements.
6. Eligibility and Enrollment Provisions
    In Sec.  155.400, we propose to provide Exchanges with the 
discretion to allow issuers experiencing billing or enrollment problems 
due to high volume or technical errors to implement a reasonable 
extension of the binder payment deadlines in Sec.  155.400(e)(1). This 
proposal aims to retain consumers on the Exchange and to mitigate the 
problems associated with issuers receiving high-volumes of enrollments 
in a short timeframe. There would be no added cost to issuers who 
choose to implement the optional binder payment extensions, while 
ensuring that they would not lose enrollees who have not paid their 
binder payments simply because they did not receive their bills due to 
a processing backlog or a technical error. Consumers would benefit by 
having a reasonable amount of time to pay their binder payments, which 
should prevent coverage cancellations due to enrollment irregularities 
which are not the fault of the consumer.
    In Sec.  155.420, we propose to codify several special enrollment 
periods that are already provided through the Exchange. By codifying 
these, we seek to ensure that these existing special enrollment periods 
are applied consistently across Exchanges, and to provide both issuers 
and consumers with greater certainty in how these special enrollment 
periods are applied. We believe that this certainty would contribute to 
greater stability in the market, and in the use of these special 
enrollment periods, specifically.
    We propose to amend Sec.  155.430(b)(2)(iii) to require that when 
an issuer seeks termination of a QHP on an Exchange via a rescission 
for fraud or misrepresentation of material fact under Sec.  147.128, it 
must first demonstrate, to the reasonable satisfaction of the Exchange, 
that the basis for the rescission is appropriate, if the Exchange 
requires such a demonstration. This would not restrict issuers' ability 
to rescind coverage when an individual or a party working on behalf of 
an individual fraudulently enrolls in coverage, while protecting 
consumers whose verification and enrollment conform to FFE and SBE-FP 
rules and guidance.
7. Standardized Options
    We are proposing new standardized options for 2018, which are 
updated versions of the ones finalized in the 2017 Payment Notice. As 
in 2017, offering standardized options will be voluntary for QHP 
issuers in 2018. In keeping with the methodology used to design 
standardized options in 2017, we designed the proposed 2018 
standardized plans based on the median cost-sharing features of the 
most popular 2016 QHPs, based on enrollment to ensure minimal market 
disruption and impact on premiums. For 2018, we are proposing 
additional standardized options at each metal level and plan variation 
with the goal of having at least one option at each metal level that 
would comply with every State's respective cost-sharing laws as 
applicable. Each applicable State would have one standardized option at 
each metal level and plan variation that issuers would then be able to 
choose to offer. In the 2017 Payment Notice, we attempted to estimate 
the potential impact that the introduction of standardized options 
would have on premiums established by QHPs. As we previously estimated, 
we do not anticipate that standardized options would impact 2018 plan 
premiums significantly. Rather, the proposed options would allow each 
applicable State to have a set of standardized options that most 
closely reflects QHPs in the State while meeting any State cost-sharing 
mandates. This policy should continue to improve simplicity and 
transparency for consumers during the shopping experience. To the 
extent it facilitates consumer shopping, it could put modest downward 
pressure on premiums.
8. User Fees
    To support the operation of FFEs, we require in Sec.  156.50(c) 
that a participating issuer offering a plan through an FFE must remit a 
user fee to HHS each month equal to the product of the monthly user fee 
rate specified in the annual HHS notice of benefit and payment 
parameters for the applicable benefit year and the monthly premium 
charged by the issuer for each policy under the plan where enrollment 
is through an FFE. In this proposed rule, for the 2018 benefit year, we 
propose a monthly FFE user fee rate equal to 3.5 percent and, for a 
State-based Exchange that relies on the Federal platform, 3.0 percent 
of the monthly premium. We had estimated the user fee transfers in the 
2017 Payment Notice and there are no additional incremental charges. To 
avoid double-counting, we do not include the user fee costs in the 
accounting statement for this rule (Table 17). For the user fee charges 
assessed on issuers in the FFE and State-based Exchanges using the 
Federal platform, we intend to seek an exception to OMB Circular No. A-
25R, which requires that the user fee charge be sufficient to recover 
the full cost to the Federal government of providing the special 
benefit. We seek this exception to ensure that the FFE can support many 
of the goals of the Affordable Care Act, including improving the health 
of the population, reducing health care costs, and providing access to 
health coverage as advanced by Sec.  156.50(d).
9. Levels of Coverage
    At Sec.  156.140, we propose to change the de minimis range of 
bronze plans under certain circumstances. We believe that this policy 
would not be disruptive to the current bronze plan market as it would 
allow more bronze plans the flexibility in creating plan designs within 
the increased de minimis range, as well as allow more options for 
issuers to leave 2017 cost-sharing structures unchanged. We also 
believe this policy would allow issuers to continue to offer a range of 
bronze plans as the AV Calculator is updated in future years, which is 
good for consumers. Plans are not required to utilize this proposed 
option, and we do not anticipate any significant impact on average 
bronze plan premiums from this proposed policy.
10. Provisions Related to Cost Sharing
    The Affordable Care Act provides for the reduction or elimination 
of cost sharing for certain eligible individuals enrolled in QHPs 
offered through the Exchanges. This assistance will help

[[Page 61524]]

many low- and moderate-income individuals and families obtain health 
insurance--for many people, cost sharing is a barrier to obtaining 
needed health care.\62\
---------------------------------------------------------------------------

    \62\ Brook, Robert H., John E. Ware, William H. Rogers, Emmett 
B. Keeler, Allyson Ross Davies, Cathy D. Sherbourne, George A. 
Goldberg, Kathleen N. Lohr, Patricia Camp and Joseph P. Newhouse. 
The Effect of Coinsurance on the Health of Adults: Results from the 
RAND Health Insurance Experiment. Santa Monica, CA: RAND 
Corporation, 1984. Available at: http://www.rand.org/pubs/reports/R3055.
---------------------------------------------------------------------------

    We set forth in this proposed rule the reductions in the maximum 
annual limitation on cost sharing for silver plan variations. 
Consistent with our analysis in previous Payment Notices, we developed 
three model silver level QHPs and analyzed the impact on their AVs of 
the reductions described in the Affordable Care Act to the estimated 
2018 maximum annual limitation on cost sharing for self only coverage 
$7,350. We do not believe these changes would result in a significant 
economic impact. Therefore, we do not believe the provisions related to 
cost-sharing reductions in this proposed rule would have an impact on 
the program established by and described in the 2015, 2016, and 2017 
Payment Notices.
    We also proposed the premium adjustment percentage for the 2018 
benefit year. Section 156.130(e) provides that the premium adjustment 
percentage is the percentage (if any) by which the average per capita 
premium for health insurance coverage for the preceding calendar year 
exceeds such average per capita premium for health insurance for 2013. 
The annual premium adjustment percentage sets the rate of increase for 
three parameters detailed in the Affordable Care Act: The annual 
limitation on cost sharing (defined at Sec.  156.130(a)), the required 
contribution percentage used to determine eligibility for certain 
exemptions under section 5000A of the Code, and the assessable payments 
under sections 4980H(a) and 4980H(b). We believe that the proposed 2018 
premium adjustment percentage of 16.17303196 percent is well within the 
parameters used in the modeling of the Affordable Care Act, and we do 
not expect that these proposed provisions would alter CBO's March 2015 
baseline estimates of the budget impact.
11. Qualified Health Plan Minimum Standards
    In Sec.  156.200(c), we propose to specify that, to satisfy the 
requirements in these sections, QHPs must be offered through the 
applicable Exchange at both the silver and gold coverage levels 
throughout each service area in which the issuer applying for 
certification offers coverage through the Exchange. Since most issuers 
are already following these requirements, it is unlikely that there 
would be any impact on premiums, while ensuring continued plan choice 
for consumers.
    In the 2017 Payment Notice, we finalized a network breadth policy 
through which we would categorize networks based on their relative 
size, in addition to other policies. We seek comment regarding how this 
should apply to ``integrated plans,'' such as staff model HMOs. We 
expect the policy would continue to improve transparency for consumers 
and the shopping experience.
    Proposed Sec.  156.272 would establish as a condition of 
certification that QHP issuers must make their QHPs available for 
enrollment through the Exchanges for the duration of the timeframe for 
which the plan was certified, unless a basis for suppression under 
Sec.  156.815 applies. QHP issuers in FFEs and FF-SHOPs that do not 
comply with this requirement could be subject to CMPs or a two-year 
ban. This would raise costs or burdens on issuers, who could be forced 
to remain on the Exchange or face a 2-year ban or CMPs in certain 
situations. However, we do not believe that violations of the proposed 
requirement of full year participation under Sec.  156.272 are 
happening on a wide scale, which minimizes any potential impact.
12. Medical Loss Ratio
    In this proposed rule, we propose to amend Sec.  158.121 to align 
with the requirement that, beginning in 2014, issuers must offer non-
grandfathered coverage for a consecutive 12-month period and enable 
more issuers to defer reporting of the experience of new business in 
the MLR calculation. In general, deferring reporting of new business 
effectively enables new and rapidly growing issuers to use a 4-year, 
rather than a 3-year average MLR. This in turn increases the likelihood 
that low MLRs in the initial years will be offset by higher MLRs in 
later years and that only a portion of the rebates generated by the 
experience of initial years will ultimately be paid. Deferring 
reporting of new business also eliminates the rebate payment following 
the first year and instead spreads it over the following 3 years (that 
is, includes the rebate attributable to year 1 with rebates payable for 
years 2 through 4). Based on data from the 2013 and 2014 MLR reporting 
years, we estimate that allowing issuers to defer experience of newly 
sold policies with full 12 months of experience when 50 percent or more 
of an issuer's earned premium comes from such policies could reduce 
total rebate payments from issuers to consumers over a 4-year period by 
up to a total of $11.6 million.
    We additionally propose to amend Sec.  158.240 to allow issuers the 
option of limiting the total rebate payable over the course of a 3-year 
period with respect to a given calendar year, as well as to clarify 
references to single-year and preliminary MLRs in Sec.  158.232. We 
estimate no impact from the proposed clarifications to Sec.  158.232 
because these clarifications are intended to simplify reporting for 
purposes of calculating the rebate limit proposed in Sec.  158.240 and 
do not change the manner in which issuers currently calculate the 
credibility adjustment. Because the proposed amendments to Sec.  
158.240 generally would only impact new and rapidly growing established 
issuers whose MLRs initially fall below the standard and increase in 
subsequent years, the magnitude of the impact of the proposed limit on 
the rebate liability would depend on how issuers' enrollment and MLRs 
change in 2015 and later. Because the majority of new issuers have 
expanded or intend to expand into new markets in 2014 or later, the 
2014 and earlier MLR reports, which are the only data source available 
at this time, are an insufficient source of data on the types of 
issuers that would be impacted by this proposal. In addition, 
significant reporting differences exist between 2011-13 and 2014 and 
later MLR data, and some rebates that were paid for 2014 are likely to 
be outliers and may therefore exaggerate estimates. Consequently, while 
we expect the proposal to decrease the amount of rebates paid by new 
and rapidly growing issuers to consumers, we are not able to estimate 
the magnitude of the decrease with a high degree of certainty.

D. Regulatory Alternatives Considered

    In developing the policies contained in this proposed rule, we 
considered numerous alternatives to the presented proposals. Below we 
discuss the key regulatory alternatives that we considered.
    For the proposals in parts 146, 147 and 148, we considered not 
changing our interpretation of what constitutes a market withdrawal 
when an issuer transfers all of its products to a related issuer or 
replaces all of its products with new products with changes that exceed 
the scope of a uniform modification of coverage. However, this approach 
could result in fewer product offerings, as issuers would be obligated

[[Page 61525]]

to leave the market due to the 5-year prohibition on issuing coverage 
after discontinuing all coverage in a market. This approach could also 
unnecessarily restrict issuer corporate structuring transactions, 
reduce market competition and consumer choice, and conflict with 
States' approaches.
    For the proposals in part 147, we considered not changing the 
uniform child age band. This approach would have maintained the use of 
a single age band for rating purposes for all individuals age 0 through 
20. We determined that creating multiple child age bands more 
accurately reflects the health risk of children and minimizes the 
increase in premium attributable to age when an individual attains age 
21.
    For the proposals in part 153, we considered various approaches to 
addressing partial year enrollment in the risk adjustment model, 
including separate models by enrollment duration, and interaction 
factors of enrollment duration combined with high- and medium-cost 
conditions. However, based on commenter feedback to the March 31, 2016 
White Paper and our analysis of MarketScan[supreg] data, HHS determined 
that the enrollment duration additive factors are preferred and will 
best address partial year enrollees in the short term.
    We considered four different hybrid models for the inclusion of 
prescription drugs in the HHS risk adjustment methodology: An 
imputation only model, a prescription drug-dominant model, a flexible 
model, and a severity only model. Commenters to the White Paper 
suggested that we use the imputation only model or the flexible model, 
with constraints to prevent an issuer from being compensated less for 
recording prescription drug utilization for an enrollee. We have 
imposed constraints on the flexible model so that the coefficients for 
the drug terms are greater than zero, preventing such a situation. We 
are adding two severity-only drug-diagnosis pairs on top of ten 
imputation/severity drug-diagnosis pairs.
    We considered a threshold of $1 million and a coinsurance rate of 
80 percent for the proposed high-cost enrollee pool in the risk 
adjustment proposal, which was supported by commenters to the White 
Paper. However, many more commenters suggested that the high-cost 
enrollee pool could be subject to gaming among issuers and would not 
incentivize cost containment efforts. Therefore, we are proposing a 
higher threshold of $2 million and a 60 percent coinsurance rate for 
the high-cost enrollee pool in the risk adjustment model. We also 
considered a PMPM adjustment to the transfer formula for this high-cost 
enrollee pool, but we are proposing a percent of per member per month 
premium adjustment to the transfer formula, to better align with the 
transfer formula's adjustment at the billable member month premiums.
    We considered using only 2014 MarketScan[supreg] data for 2018 
recalibration. However, commenters to the White Paper preferred to 
continue using the three-year blended approach. Commenters also 
supported issuing final coefficients in guidance, which we have 
proposed to do and are seeking comment on the timing of those final 
coefficients.
    We considered alternative methodologies to recalibrating the 2019 
risk adjustment model using EDGE summary level data instead of enrollee 
level data, as was proposed by one commenter to the White Paper. 
However, using EDGE summary level data would not enhance the existing 
risk adjustment models, as the model specifications would need to be 
known to create the models, and thus would prevent exploratory research 
and other types of analyses required for research, development and 
refinement of the risk adjustment models for their continuous 
improvement. Further, if summary level data were used, quality checks 
could not be performed on the input data, and additional improvements 
to address partial year enrollment could not be explored.
    For the proposals regarding standardized options, we considered 
taking no action in designing additional plans per metal level to 
account for State cost-sharing laws. However, without this proposed 
change, issuers in States with conflicting cost-sharing laws would not 
be able to offer standardized options. We believe that it is important 
for issuers in each State in which an FFE or SBE-FP operates to have 
the choice to offer standardized options. We also considered designing 
a set of standardized plans for each State. However, HHS currently 
lacks the resources to propose this option.
    For the proposal at Sec.  155.205(c)(2)(iii), we considered 
requiring QHP issuers and web-brokers subject to the rule to look only 
to the LEP populations in the State where the entity is registered or 
licensed, such as through an issuer's Health Insurance Oversight System 
(HIOS) ID, when identifying the languages in which taglines must be 
provided under the rule. However, we believe that using such a 
definition would not recognize that many insurance companies use a 
common technology platform for their issuers across multiple States, 
and would pose difficult operational challenges for many such entities 
without significantly improving access.
    For the proposal at Sec. Sec.  155.220 and 156.265, we considered 
not requiring differential display of standardized options by web-
brokers or QHP issuers. However, this would have made it less likely 
that consumers using a non-Exchange Web site would be aware of the 
standardized options available. We believe that the requirement for 
differential display of standardized options will help consumers using 
non-Exchange Web sites more easily compare and choose amongst the 
available plans. We note that we would not require the manner of 
differentiation to be identical to the one adopted for displaying 
standardized options on HealthCare.gov, and issuers are not required to 
offer, and consumers are not required to purchase, standardized 
options.
    For proposals at Sec.  155.400, we considered alternatives to our 
proposal to allow issuers the option to extend binder payment deadlines 
when issuers experience volume-related backlogs or technical errors 
that make it difficult for enrollees to pay their binder payments on 
time. For example, we considered relying on ad hoc solutions, such as 
extensions or remedies resembling reinstatements, when problems arise. 
We believed, however, that codifying the proposed optional extensions 
will give issuers and consumers alike more certainty and provide for 
better remedies when consumers experience difficulties during the 
enrollment process.
    For the proposals at Sec.  155.420, we considered not codifying the 
existing special enrollment periods for consumers who are or were a 
victim of domestic abuse or spousal abandonment and need to enroll in 
coverage apart from his or her abuser or abandoner, have been 
determined ineligible for Medicaid or CHIP, have been impacted by a 
material plan or benefit display error, or have resolved a citizenship 
or immigration inconsistency post-expiration, all currently provided 
through guidance. We also considered not standardizing the availability 
of the special enrollment period for Indians to non-Indian dependents 
enrolling at the same time as the Indian. However, we believe that 
codifying these special enrollment periods provides needed permanence 
and clarity for these special enrollment periods. This is important to 
ensure that they continue to be available, are equitably applied across 
Exchanges, and that consumers, assisters, issuers, and other 
stakeholders

[[Page 61526]]

have a common understanding of the parameters and coverage effective 
dates associated with each of these special enrollment periods. In this 
rule, we seek to ensure transparency, stability, and appropriate 
utilization of special enrollment periods by codifying certain special 
enrollment periods that we have made available in prior guidance. After 
weighing our options, we determined that codifying these currently 
available special enrollment periods is in the best interest of 
consumers and other Exchange stakeholders.
    We considered alternatives to amending Sec.  155.430 in order to 
protect consumers from having their coverage rescinded for reasons the 
FFE does not consider reasonable, such as rescissions based on 
allegations of fraud, despite the disputed information having been 
verified by the FFE during the enrollment process. One alternative was 
to issue guidance that would explain to issuers that rescissions based 
on claims of fraud arising from information provided to and verified by 
the FFE would not be permissible. Another alternative considered was to 
work with issuers to prevent rescissions considered unreasonable by the 
FFE, but to decline to pursue rulemaking. After considering all 
options, we chose to amend Sec.  155.430(b)(2)(iii) in order to provide 
more consumer protection.
    For the proposals related to SHOPs, we considered maintaining 
several provisions for the SHOPs. Specifically, we considered 
maintaining the current requirements at Sec.  155.725(g)(1) and (2), 
which provide that an employee who becomes a qualified employee outside 
of the initial or annual open enrollment period must have an enrollment 
period beginning on the first day of becoming a qualified employee, and 
require the effective date of coverage to generally be determined in 
accordance with Sec.  155.725(h). Similarly, we considered maintaining 
the current requirements at Sec.  155.230(d)(2), which require paper 
notices to be the default option for SHOPs, so that employers and 
employees must opt into electronic notices. Finally, we considered 
maintaining existing requirements in State-based Exchanges using the 
Federal platform for SHOP eligibility, enrollment, or premium 
aggregation functions. However, we decided to propose the policies in 
this proposed rule in order to ensure that employers do not exceed the 
waiting period limits under Sec.  147.116, to provide SHOPs with more 
cost-effective alternatives to sending notices, to ensure efficient 
SHOP operations, and to minimize the potential customization costs that 
could be associated with permitting State-based Exchanges to use the 
Federal platform for SHOP functions.
    We considered alternative proposals for increasing the de minimis 
range for bronze plans. We considered simply increasing the de minimis 
range for bronze plans to extend above 62 percentage points without 
requiring that plans include certain plan design features in order to 
qualify for the extended de minimis range. This option could give 
issuers, and as a result consumers, more flexibility and choice with 
regards to bronze plan designs. However, we believe that the proposed 
policy better ensures that bronze plans are not less generous than 
catastrophic plans.
    For the proposals at Sec.  156.200(c)(1), we propose to specify 
that, to satisfy the requirements in that section, QHPs must be offered 
through an Exchange at both the silver and gold coverage levels 
throughout each service area in which the issuer offers coverage 
through the Exchange. We could have opted not to specify this in 
regulation; however, issuers could have misinterpreted the policy and 
not offered a silver and gold plan in the applicable service areas. 
This could result in fewer silver and gold plans available for 
consumers to select, and thus less choice for consumers. It also could 
complicate the calculation of the APTC for an individual market 
consumer. By revising our regulation, we ensure that consumers have an 
adequate choice of QHPs at different coverage levels to select from and 
that we are able to calculate APTC for all eligible individual market 
consumers.
    For the proposals at Sec.  156.272 to require issuer participation 
for the entirety of the period for which the plan was certified, we 
considered taking no action. However, we are concerned that inaction 
could result in limited access for qualified individuals and qualified 
employees outside of open enrollment periods.
    For the proposed changes to Sec.  156.290, we considered not making 
any changes. However, that could have led to enrollees in plans that 
are not certified for a subsequent, consecutive certification cycle not 
knowing as soon as possible that they may have to choose another plan 
during the annual open enrollment period.
    For the proposals in part 158, we considered an alternative 
proposal for addressing the impact of MLR and rebate calculation on new 
and rapidly growing issuers. Specifically, we considered allowing new 
and rapidly growing issuers to include in the MLR calculation rebates 
they paid within the first 2 years of entering or expanding in a State 
market, which would be similar to how the 3-year average calculation 
was phased in for all issuers when the MLR requirements were first 
implemented. However, in contrast to the initial years of 
implementation of the MLR requirements, when all issuers had to 
calculate their first two MLRs using only 1 or 2 years of data, 
presently, as described in more detail in the preamble to this proposed 
rule, only a small subset of issuers are affected by the 3-year 
averaging in a manner that merits an adjustment. We note that inclusion 
of rebates paid for prior years in the MLR calculation for the current 
year is generally not appropriate for established and certain new 
issuers, as it would distort the 3-year average and effectively lower 
the MLR standards required by section 2718 of the PHS Act. Therefore, 
the prior year rebate approach would need to be limited to only the new 
and growing issuers that are adversely affected by the 3-year 
averaging. In practice, it would be extremely challenging to define 
enrollment or premium levels, growth rates, and patterns in year-over-
year changes in MLRs that would appropriately distinguish new and 
growing issuers that are disadvantaged by the 3-year averaging from 
issuers that merely experience ordinary enrollment fluctuations or 
otherwise would gain an unfair advantage by being able to include prior 
year rebates in their MLR calculation. Because the proposed approach of 
limiting the total rebate liability payable with respect to a given 
calendar year is designed to only benefit new and rapidly growing 
issuers who are negatively impacted by the 3-year averaging, we believe 
that the proposed approach is a more effective and objective way to 
reduce barriers to entry and promote competition in health insurance 
markets while at the same time preserving the protections promised to 
consumers by the law.

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601, et seq.) requires 
agencies to prepare an initial regulatory flexibility analysis to 
describe the impact of the proposed rule on small entities, unless the 
head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as: (1) A proprietary firm 
meeting the size standards of the Small Business Administration (SBA); 
(2) a not-for-profit organization that is not dominant in its field; or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are

[[Page 61527]]

not included in the definition of ``small entity.'' HHS uses a change 
in revenues of more than 3 to 5 percent as its measure of significant 
economic impact on a substantial number of small entities.
    In this proposed rule, we propose standards for the risk adjustment 
program, which are intended to stabilize premiums as insurance market 
reforms are implemented and Exchanges facilitate increased enrollment. 
Because we believe that insurance firms offering comprehensive health 
insurance policies generally exceed the size thresholds for ``small 
entities'' established by the SBA, we do not believe that an initial 
regulatory flexibility analysis is required for such firms.
    For purposes of the RFA, we expect the following types of entities 
to be affected by this proposed rule:
     Health insurance issuers.
     Group health plans.
    We believe that health insurance issuers and group health plans 
would be classified under the North American Industry Classification 
System code 524114 (Direct Health and Medical Insurance Carriers). 
According to SBA size standards, entities with average annual receipts 
of $38.5 million or less would be considered small entities for these 
North American Industry Classification System codes. Issuers could 
possibly be classified in 621491 (HMO Medical Centers) and, if this is 
the case, the SBA size standard would be $32.5 million or less.
    Based on data from MLR annual report submissions for the 2014 MLR 
reporting year, approximately 118 out of 525 issuers of health 
insurance coverage nationwide had total premium revenue of $38.5 
million or less. This estimate may overstate the actual number of small 
health insurance companies that may be affected, since almost 80 
percent of these small companies belong to larger holding groups, and 
many if not all of these small companies are likely to have non-health 
lines of business that would result in their revenues exceeding $38.5 
million. Only nine of these 118 potentially small entities, all of them 
part of larger holding groups, are estimated to experience a decrease 
in the rebate amount under the proposed amendments to the MLR 
provisions of this proposed rule in part 158. Therefore, we do not 
expect the proposed provisions of this rule regarding MLR to affect a 
substantial number of small entities.
    In this proposed rule, we proposed standards for employers that 
choose to participate in a SHOP Exchange. The SHOPs generally are 
limited by statute to employers with at least one but not more than 50 
employees, unless a State opts to provide that employers with 1 to 100 
employees are ``small employers.'' For this reason, we expect that many 
employers who would be affected by the proposals would meet the SBA 
standard for small entities. We do not believe that the proposals 
impose requirements on employers offering health insurance through a 
SHOP that are more restrictive than the current requirements on small 
businesses offering employer sponsored insurance. We believe the 
processes that we have established for SHOP eligibility and enrollment 
constitute the minimum amount of requirements necessary to implement 
the SHOP program and accomplish our policy goals, and that no 
appropriate regulatory alternatives could be developed to further 
lessen the compliance burden.

F. Unfunded Mandates

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a proposed rule that includes any 
Federal mandate that may result in expenditures in any 1 year by State, 
local, or Tribal governments, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2016, that threshold is approximately $146 million. 
Although we have not been able to quantify all costs, the combined 
administrative cost and user fee impact on State, local, or Tribal 
governments and the private sector may be above the threshold. Earlier 
portions of this RIA constitute our UMRA analysis.

G. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule that imposes 
substantial direct costs on State and local governments, preempts State 
law, or otherwise has Federalism implications. Because States have 
flexibility in designing their Exchanges and Exchange-related programs, 
State decisions will ultimately influence both administrative expenses 
and overall premiums. States are not required to establish an Exchange 
or risk adjustment program. For States that elected to operate an 
Exchange or, risk adjustment program, much of the initial cost of 
creating these programs were funded by Exchange Planning and 
Establishment Grants. After establishment, Exchanges must be 
financially self-sustaining, with revenue sources at the discretion of 
the State. Current State Exchanges charge user fees to issuers.
    In HHS's view, while this proposed rule would not impose 
substantial direct requirement costs on State and local governments, 
this regulation has Federalism implications due to direct effects on 
the distribution of power and responsibilities among the State and 
Federal governments relating to determining standards relating to 
health insurance that is offered in the individual and small group 
markets. However, HHS anticipates that the Federalism implications (if 
any) are substantially mitigated because under the statute and our 
proposals, States have choices regarding the structure, governance, and 
operations of their Exchanges and risk adjustment program. For example, 
our proposals relating to binder payment rules and termination of 
coverage are intended to provide State Exchanges with significant 
flexibility. Additionally, the Affordable Care Act does not require 
States to establish these programs; if a State elects not to establish 
any of these programs or is not approved to do so, HHS must establish 
and operate the programs in that State. Additionally, States have the 
option to establish and operate their own SHOP without also 
establishing and operating their own individual market Exchange. Our 
proposals requiring SBE-FPs to establish requirements that are 
consistent with certain Federal requirements when using the Federal 
platform for certain SHOP functions would not apply should the State 
decide not to use the Federal platform for these SHOP functions.
    In compliance with the requirement of Executive Order 13132 that 
agencies examine closely any policies that may have Federalism 
implications or limit the policy making discretion of the States, HHS 
has engaged in efforts to consult with and work cooperatively with 
affected States, including participating in conference calls with and 
attending conferences of the National Association of Insurance 
Commissioners, and consulting with State insurance officials on an 
individual basis.
    While developing this proposed rule, HHS has attempted to balance 
the States' interests in regulating health insurance issuers, and 
Congress' intent to provide access to Affordable Insurance Exchanges 
for consumers in every State. By doing so, it is HHS's view that we 
have complied with the requirements of Executive Order 13132.
    States will continue to license, monitor, and regulate agents and 
brokers, both inside and outside of Exchanges. All State laws related 
to

[[Page 61528]]

agents and brokers, including State laws related to appointments, 
contractual relationships with issuers, licensing, marketing, conduct, 
and fraud will continue to apply.

H. Congressional Review Act

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

List of Subjects

45 CFR Parts 144, 146, and 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 148

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

45 CFR Part 153

    Administrative practice and procedure, Health care, Health 
insurance, Health records, Organization and functions (Government 
agencies), Reporting and recordkeeping requirements.

45 CFR Part 154

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

45 CFR Part 155

    Administrative practice and procedure, Advertising, Brokers, 
Conflict of interest, Consumer protection, Grant administration, Grant 
programs--health, Health care, Health insurance, Health maintenance 
organizations (HMO), Health records, Hospitals, Indians, Individuals 
with disabilities, Intergovernmental relations, Loan programs--health, 
Medicaid, Organization and functions (Government agencies), Public 
assistance programs, Reporting and recordkeeping requirements, 
Technical assistance, Women and youth.

45 CFR Part 156

    Administrative practice and procedure, Advertising, American 
Indian/Alaska Natives, Conflict of interest, Consumer protection, Cost-
sharing reductions, Grant programs--health, Grants administration, 
Health care, Health insurance, Health maintenance organization (HMO), 
Health records, Hospitals, Individuals with disabilities, Loan 
programs--health, Medicaid, Organization and functions (Government 
agencies), Public assistance programs, Reporting and recordkeeping 
requirements, State and local governments, Sunshine Act, Technical 
assistance, Women, Youth.

45 CFR Part 157

    Employee benefit plans, Health insurance, Health maintenance 
organizations (HMO), Health records, Hospitals, Indians, Individuals 
with disabilities, Medicaid, Organization and functions (Government 
agencies), Public assistance programs, Reporting and recordkeeping 
requirements, Technical assistance, Women and youth.

45 CFR Part 158

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

    For the reasons set forth in the preamble, the Department of Health 
and Human Services proposes to amend 45 CFR parts 144, 146, 147, 148, 
153, 154, 155, 156, 157 and 158 as set forth below.

PART 144--REQUIREMENTS RELATING TO HEALTH INSURANCE COVERAGE

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

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

0
2. Section 144.103 is amended by revising the introductory text of the 
definition of ``plan'' and by revising the definition of ``product'' to 
read as follows:


Sec.  144.103  Definitions.

* * * * *
    Plan means, with respect to a product, the pairing of the health 
insurance coverage benefits under the product with a particular cost-
sharing structure, provider network, and service area. The product 
comprises all plans offered with those characteristics and the 
combination of the service areas for all plans offered within a product 
constitutes the total service area of the product. With respect to a 
plan that has been modified at the time of coverage renewal consistent 
with Sec.  147.106 of this subchapter--
* * * * *
    Product means a discrete package of health insurance coverage 
benefits that are offered using a particular product network type (such 
as health maintenance organization, preferred provider organization, 
exclusive provider organization, point of service, or indemnity) within 
a service area. In the case of a product that has been modified, 
transferred, or replaced, the new product will be considered to be the 
same as the modified, transferred, or replaced product when the changes 
to the modified, transferred, or replaced product meet the standards of 
Sec.  146.152(f), Sec.  147.106(e), or Sec.  148.122(g) of this 
subchapter (relating to uniform modification of coverage), as 
applicable.
* * * * *

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

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

    Authority:  Secs. 2702 through 2705, 2711 through 2723, 2791, 
and 2792 of the PHS Act (42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 
through 300gg-23, 300gg-91, and 300gg-92).

0
4. Section 146.152 is amended by adding paragraph (d)(3) and revising 
paragraph (f)(3)(i) to read as follows:


Sec.  146.152  Guaranteed renewability of coverage for employers in the 
group market.

* * * * *
    (d) * * *
    (3) For purposes of this paragraph (d), subject to applicable State 
law, an issuer is not considered to have discontinued offering all 
health insurance coverage in a market if--
    (i) The issuer or a member of the issuer's controlled group 
continues to offer and make available in the applicable market in the 
State at least one product of the issuer that is considered to be the 
same product as a product the issuer had been offering (as defined in 
Sec.  144.103 of this subchapter). For purposes of this section, the 
term controlled group means a group of two or more persons that is 
treated as a single employer under section 52(a), 52(b), 414(m), or 
414(o) of the Internal Revenue Code of 1986, as amended; or
    (ii) The issuer continues to offer and make available at least one 
product in the applicable market in the State, even if such product is 
not considered to be the same product as a product the issuer had been 
offering (as defined in Sec.  144.103 of this subchapter), provided the 
issuer subjects that product to the rate review requirements under part 
154 of this title (to the extent otherwise

[[Page 61529]]

applicable to coverage of the same type and in the same market) as if 
that part applied to that product, and reasonably identifies a 
discontinued product that corresponds to the new product for purposes 
of such rate review.
* * * * *
    (f) * * *
    (3) * * *
    (i) The product is offered by the same health insurance issuer 
(within the meaning of section 2791(b)(2) of the PHS Act), or a member 
of the issuer's controlled group (as defined in paragraph (d) of this 
section);
* * * * *

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

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

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

0
6. Section 147.102 is amended by revising paragraphs (d)(1) and (e) to 
read as follows:


Sec.  147.102  Fair health insurance premiums.

* * * * *
    (d) * * *
    (1) Child age bands. (i) A single age band for individuals age 0 
through 14.
    (ii) One-year age bands for individuals age 15 through 20.
* * * * *
    (e) Uniform age rating curves. Each State may establish a uniform 
age rating curve in the individual or small group market, or both 
markets, for rating purposes under paragraph (a)(1)(iii) of this 
section. If a State does not establish a uniform age rating curve or 
provide information on such age curve in accordance with Sec.  147.103, 
a default uniform age rating curve specified in guidance by the 
Secretary to reflect market patterns in the individual and small group 
markets will apply in that State that takes into account the rating 
variation permitted for age under State law.
* * * * *
0
7. Section 147. 104 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  147.104  Guaranteed availability of coverage.

* * * * *
    (b) * * *
    (2) Limited open enrollment periods. A health insurance issuer in 
the individual market must provide a limited open enrollment period for 
the events described in Sec.  155.420(d) of this subchapter, excluding 
Sec. Sec.  155.420(d)(3) of this subchapter (concerning citizenship 
status), 155.420(d)(8) of this subchapter (concerning Indians), 
155.420(d)(9) of this subchapter (concerning exceptional 
circumstances), and 155.420(d)(13) of this subchapter (concerning 
eligibility for insurance affordability programs or enrollment in the 
Exchange).
* * * * *
0
8. Section 147.106 is amended by adding paragraph (d)(3) and revising 
paragraphs (e)(3)(i) to read as follows:


Sec.  147.106  Guaranteed renewability of coverage.

* * * * *
    (d) * * *
    (3) For purposes of this paragraph (d), subject to applicable State 
law, an issuer is not considered to have discontinued offering all 
health insurance coverage in a market if--
    (i) The issuer or a member of the issuer's controlled group 
continues to offer and make available in the applicable market in the 
State at least one product of the issuer that is considered to be the 
same product as a product the issuer had been offering (as defined in 
Sec.  144.103 of this subchapter). For purposes of this section, the 
term controlled group means a group of two or more persons that is 
treated as a single employer under section 52(a), 52(b), 414(m), or 
414(o) of the Internal Revenue Code of 1986, as amended; or
    (ii) The issuer continues to offer and make available at least one 
product in the applicable market in the State, even if such product is 
not considered to be the same product as a product the issuer had been 
offering (as defined in Sec.  144.103 of this subchapter), provided the 
issuer subjects that product to the rate review requirements under part 
154 of this title (to the extent otherwise applicable to coverage of 
the same type and in the same market) as if that part applied to that 
product, and reasonably identifies a discontinued product that 
corresponds to the new product for purposes of such rate review.
    (e) * * *
    (3) * * *
    (i) The product is offered by the same health insurance issuer 
(within the meaning of section 2791(b)(2) of the PHS Act) or member of 
the issuer's controlled group (as defined in paragraph (d) of this 
section);
* * * * *

PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET

0
9. The authority citation for part 148 continues to read as follows:

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

0
10. Section 148.122 is amended by adding paragraph (e)(4) and revising 
paragraph (g)(3)(i) to read as follows:


Sec.  148.122  Guaranteed renewability of individual health insurance 
coverage.

* * * * *
    (e) * * *
    (4) For purposes of this paragraph (e), subject to applicable State 
law, an issuer is not considered to have discontinued offering all 
health insurance coverage in a market if--
    (i) The issuer or a member of the issuer's controlled group 
continues to offer and make available in the applicable market in the 
State at least one product of the issuer that is considered to be the 
same product as a product the issuer had been offering (as defined in 
Sec.  144.103 of this subchapter). For purposes of this section, the 
term controlled group means a group of two or more persons that is 
treated as a single employer under section 52(a), 52(b), 414(m), or 
414(o) of the Internal Revenue Code of 1986, as amended; or
    (ii) The issuer continues to offer and make available at least one 
product in the applicable market in the State, even if such product is 
not considered to be the same product as a product the issuer had been 
offering (as defined in Sec.  144.103 of this subchapter), provided the 
issuer subjects that product to the rate review requirements under part 
154 of this title (to the extent otherwise applicable to coverage of 
the same type and in the same market) as if that part applied to that 
product, and reasonably identifies a discontinued product that 
corresponds to the new product for purposes of such rate review.
* * * * *
    (g) * * *
    (3) * * *
    (i) The product is offered by the same health insurance issuer 
(within the meaning of section 2791(b)(2) of the PHS Act) or member of 
the issuer's controlled group (as defined in paragraph (e) of this 
section);
* * * * *

[[Page 61530]]

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

0
11. The authority citation for part 153 continues to read as follows:

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


Sec.  153.20  [Amended]

0
12. Section 153.20 is amended by removing the definition of ``Large 
employer''.
0
13. Section 153.320 is amended by revising paragraphs (a)(1) and 
(b)(1)(i) to read as follows:


Sec.  153.320  Federally certified risk adjustment methodology.

    (a) * * *
    (1) The risk adjustment methodology is developed by HHS and 
published in advance of the benefit year in rulemaking; or
* * * * *
    (b) * * *
    (1) * * *
    (i) Draft factors to be employed in the model, including but not 
limited to demographic factors, diagnostic factors, and utilization 
factors, if any, the dataset(s) to be used to calculate final 
coefficients, and the date by which final coefficients will be released 
in guidance;
* * * * *
0
14. Section 153.610 is amended by revising paragraph (f)(2) to read as 
follows:


Sec.  153.610  Risk adjustment issuer requirements.

* * * * *
    (f) * * *
    (2) Remit to HHS an amount equal to the product of its monthly 
billable enrollment in the risk adjustment covered plan multiplied by 
the per-enrollee-per-month risk adjustment user fee specified in the 
annual HHS notice of benefit and payment parameters for the applicable 
benefit year.
0
15. Section 153.630 is amended by--
0
a. Redesignating paragraphs (b)(7)(iii) and (iv) as paragraphs 
(b)(7)(iv) and (v), respectively;
0
b. Adding a new paragraph (b)(7)(iii); and
0
c. Revising paragraph (d).
    The addition and revision read as follows:


Sec.  153.630  Data validation requirements when HHS operates risk 
adjustment.

* * * * *
    (b) * * *
    (7) * * *
    (iii) Beginning in the 2018 benefit year, validating enrollee 
health status through review of all relevant paid pharmacy claims;
* * * * *
    (d) Risk adjustment data validation disputes and appeals. (1) 
Within 15 calendar days of notification of the initial validation audit 
sample determined by HHS, in the manner set forth by HHS, an issuer 
must confirm the sample or file a discrepancy report to dispute the 
initial validation audit sample determined by HHS.
    (2) Within 30 calendar days of notification of the findings of a 
second validation audit or the calculation of a risk score error rate, 
in the manner set forth by HHS, an issuer must confirm the audit or 
error rate, or file a discrepancy report to dispute the findings of a 
second validation audit or the calculation of a risk score error rate 
as result of risk adjustment data validation.
    (3) An issuer may appeal the findings of a second validation audit 
or the calculation of a risk score error rate as result of risk 
adjustment data validation, under the process set forth in Sec.  
156.1220 of this subchapter.
* * * * *

PART 154--HEALTH INSURANCE ISSUER RATE INCREASES: DISCLOSURE AND 
REVIEW REQUIREMENTS

0
16. The authority citation for part 154 continues to read as follows:

    Authority:  Section 2794 of the Public Health Service Act (42 
U.S.C. 300gg-94).

0
17. Section 154.102 is amended by revising the definition of 
``product'' to read as follows:


Sec.  154.102  Definitions.

* * * * *
    Product means a package of health insurance coverage benefits with 
a discrete set of rating and pricing methodologies offered in a State. 
The term product includes any product that is discontinued and newly 
filed within a 12-month period when the changes to the product meet the 
standards of Sec.  147.106(e)(2) or (3) of this subchapter (relating to 
uniform modification of coverage).
* * * * *

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

0
18. The authority citation for part 155 continues to read as follows:

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

0
19. Section 155.20 is amended by revising the definition of 
``standardized option'' to read as follows:


Sec.  155.20  Definitions.

* * * * *
    Standardized option means a QHP offered for sale through an 
individual market Exchange that either--
    (1) Has a standardized cost-sharing structure specified by HHS in 
rulemaking; or
    (2) Is a high deductible health plan with a standardized cost-
sharing structure specified by HHS in rulemaking or in HHS guidance 
issued solely to modify the cost-sharing structure specified by HHS in 
rulemaking to the extent necessary to align with high deductible health 
plan requirements under section 223 of the Internal Revenue Code of 
1986, as amended, and HHS actuarial value requirements.
* * * * *
0
20. Section 155.200 is amended by adding paragraph (f)(4) to read as 
follows:


Sec.  155.200  Functions of an Exchange.

* * * * *
    (f) * * *
    (4) A State Exchange on the Federal platform that utilizes the 
Federal platform for certain SHOP functions, as set forth in paragraphs 
(f)(4)(i) through (vii), must--
    (i) If utilizing the Federal platform for SHOP eligibility, 
enrollment, or premium aggregation functions, establish standard 
processes for premium calculation, premium payment, and premium 
collection that are consistent with the requirements applicable in a 
Federally-facilitated SHOP under Sec.  155.705(b)(4);
    (ii) If utilizing the Federal platform for SHOP enrollment or 
premium aggregation functions, require its QHP issuers to make any 
changes to rates in accordance with the timeline applicable in a 
Federally-facilitated SHOP under Sec.  155.705(b)(6)(i)(A);
    (iii) If utilizing the Federal platform for SHOP enrollment 
functions, establish minimum participation rate requirements and 
calculation methodologies that are consistent with those applicable in 
a Federally-facilitated SHOP under Sec.  155.705(b)(10);
    (iv) If utilizing the Federal platform for SHOP enrollment or 
premium aggregation functions, establish employer contribution 
methodologies that are consistent with the

[[Page 61531]]

methodologies applicable in a Federally-facilitated SHOP under Sec.  
155.705(b)(11)(ii);
    (v) If utilizing the Federal platform for SHOP enrollment 
functions, establish annual employee open enrollment period 
requirements that are consistent with Sec.  155.725(e)(2);
    (vi) If utilizing the Federal platform for SHOP enrollment 
functions, establish effective dates of coverage for an initial group 
enrollment or a group renewal that are consistent with the effective 
dates of coverage applicable in a Federally-facilitated SHOP under 
Sec.  155.725(h)(2); and
    (vii) If utilizing the Federal platform for SHOP eligibility, 
enrollment, or premium aggregation functions, establish policies for 
the termination of SHOP coverage or enrollment that are consistent with 
the requirements applicable in a Federally-facilitated SHOP under Sec.  
155.735.
0
21. Section 155.205 is amended by revising paragraphs (c)(2)(iii)(A) 
and (B) to read as follows:


Sec.  155.205  Consumer assistance tools and programs of an Exchange.

* * * * *
    (c) * * *
    (2) * * *
    (iii) * * *
    (A) For Exchanges and QHP issuers, beginning no later than the 
first day of the individual market open enrollment period for the 2017 
benefit year, this standard also includes taglines on Web site content 
and any document that is critical for obtaining health insurance 
coverage or access to health care services through a QHP for qualified 
individuals, applicants, qualified employers, qualified employees, or 
enrollees. A document is deemed to be critical for obtaining health 
insurance coverage or access to health care services through a QHP if 
it is required to be provided by law or regulation to a qualified 
individual, applicant, qualified employer, qualified employee, or 
enrollee. Such taglines must indicate the availability of language 
services in at least the top 15 languages spoken by the limited English 
proficient population of the relevant State or States, as determined in 
guidance published by the Secretary. If an Exchange is operated by an 
entity operating multiple Exchanges, or relies on an eligibility or 
enrollment platform that is relied on by multiple Exchanges, the 
Exchange may aggregate the limited English proficient populations 
across all the States served by the entity that operates the Exchange 
or its eligibility or enrollment platform to determine the top 15 
languages required for taglines. A QHP issuer may aggregate the limited 
English proficient populations across all States served by the health 
insurance issuers within the issuer's controlled group (as defined 
under Sec.  147.106(d)(3)(i) of this subchapter), whether or not those 
health insurance issuers offer plans through the Exchange in each of 
those States, to determine the top 15 languages required for taglines. 
Exchanges and QHP issuers may satisfy tagline requirements with respect 
to Web site content if they post a Web link prominently on their home 
page that directs individuals to the full text of the taglines 
indicating how individuals may obtain language assistance services, and 
if they also include taglines on any critical standalone document 
linked to or embedded in the Web site.
    (B) For an agent or broker subject to Sec.  155.220(c)(3)(i), 
beginning on the first day of the individual market open enrollment 
period for the 2017 benefit year, or when such entity has been 
registered with the Exchange for at least 1 year, whichever is later, 
this standard also includes taglines on Web site content and any 
document that is critical for obtaining health insurance coverage or 
access to health care services through a QHP for qualified individuals, 
applicants, qualified employers, qualified employees, or enrollees. A 
document is deemed to be critical for obtaining health insurance 
coverage or access to health care services through a QHP if it is 
required to be provided by law or regulation to a qualified individual, 
applicant, qualified employer, qualified employee, or enrollee. Such 
taglines must indicate the availability of language services in at 
least the top 15 languages spoken by the limited English proficient 
population of the relevant State or States, as determined in guidance 
published by the Secretary. An agent or broker subject to Sec.  
155.220(c)(3)(i) that is licensed in and serving multiple States may 
aggregate the limited English populations in the States it serves to 
determine the top 15 languages required for taglines. An agent or 
broker subject to Sec.  155.220(c)(3)(i) may satisfy tagline 
requirements with respect to Web site content if it posts a Web link 
prominently on its home page that directs individuals to the full text 
of the taglines indicating how individuals may obtain language 
assistance services, and if it also includes taglines on any critical 
standalone document linked to or embedded in the Web site.
* * * * *
0
22. Section 155.220 is amended by:
0
a. Revising paragraph (c)(3)(i)(E);
0
b. Removing the word ``and'' at the end of paragraph (c)(3)(i)(F);
0
c. Removing the period at the end of paragraph (c)(3)(i)(G) and adding 
``; and'' in its place;
0
d. Adding paragraphs (c)(3)(i)(H) through (M);
0
e. Revising paragraphs (c)(4)(i)(E); and
0
f. Revising paragraph (j)(2)(i).
    The additions and revisions read as follows:


Sec.  155.220  Ability of States to permit agents and brokers to assist 
qualified individuals, qualified employers, or qualified employees 
enrolling in QHPs.

* * * * *
    (c) * * *
    (3)(i) * * *
    (E) Maintain audit trails and records in an electronic format for a 
minimum of ten years and cooperate with any audit under this section;
* * * * *
    (H) Differentially display all standardized options in accordance 
with the requirements under Sec.  155.205(b)(1) in a manner consistent 
with that adopted by HHS for display on the Federally-facilitated 
Exchange Web site, unless HHS approves a deviation;
    (I) Prominently display information provided by HHS pertaining to a 
consumer's eligibility for advance payments of the premium tax credit 
or cost-sharing reductions;
    (J) Allow the consumer to select an amount for advance payments of 
the premium tax credit, if applicable, and make related attestations in 
accordance with Sec.  155.310(d)(2);
    (K) Support post-enrollment activities necessary for the consumer 
to effectuate his or her coverage or resolve issues related to his or 
her enrollment, including discrepancies related to eligibility;
    (L) Demonstrate operational readiness and compliance with 
applicable requirements prior to the agent or broker's Internet Web 
site being used to complete the QHP selection; and
    (M) HHS may immediately suspend the agent or broker's ability to 
transact information with the Exchange if HHS discovers circumstances 
that pose unacceptable risk to Exchange operations or Exchange 
information technology systems until the incident or breach is remedied 
or sufficiently mitigated to HHS's satisfaction.
* * * * *
    (4)(i) * * *
    (E) Report to HHS and applicable State departments of insurance any 
potential material breach of the standards in paragraphs (c) and (d) of 
this section, or the agreement entered into under Sec.  155.260(b), by 
the agent or

[[Page 61532]]

broker accessing the Internet Web site, should it become aware of any 
such potential breach. An agent or broker that provides access to its 
Web site or ability to transact information with HHS to another agent 
or broker Web site is responsible for ensuring that the other agent's 
or broker's Web site is in compliance with this section; and
* * * * *
    (j) * * *
    (2)(i) Provide consumers with correct information, without omission 
of material fact, regarding the Federally-facilitated Exchanges, QHPs 
offered through the Federally-facilitated Exchanges, and insurance 
affordability programs, and refrain from marketing or conduct that is 
misleading (including by having a direct enrollment Web site that HHS 
determines could mislead a consumer into believing they are visiting 
HealthCare.gov), coercive, or discriminates based on race, color, 
national origin, disability, age, sex, gender identity, or sexual 
orientation;
* * * * *
0
23. Section 155.230 is amended by revising paragraph (d)(2) and adding 
paragraph (d)(3) to read as follows:


Sec.  155.230  General standards for Exchange notices.

* * * * *
    (d) * * *
    (2) Unless otherwise required by Federal or State law, the SHOP 
must provide required notices electronically or, if an employer or 
employee elects, through standard mail. If notices are provided 
electronically, the SHOP must comply with the requirements for 
electronic notices in 42 CFR 435.918(b)(2) through (5) for the employer 
or employee.
    (3) In the event that an individual market Exchange or SHOP is 
unable to send select required notices electronically due to technical 
limitations, it may instead send these notices through standard mail, 
even if an election has been made to receive such notices 
electronically.
0
24. Section 155.330 is amended by revising paragraphs (d)(1)(ii), 
(e)(2)(i) introductory text, and (g)(1) and adding paragraph 
(e)(2)(iii) to read as follows:


Sec.  155.330  Eligibility redetermination during a benefit year.

* * * * *
    (d) * * *
    (1) * * *
    (ii) For an enrollee on whose behalf advance payments of the 
premium tax credit or cost-sharing reductions are being provided, 
eligibility determinations for or enrollment in Medicare, Medicaid, 
CHIP, or the Basic Health Program, if a Basic Health Program is 
operating in the service area of the Exchange.
* * * * *
    (e) * * *
    (2) * * *
    (i) Except as provided in paragraph (e)(2)(iii) of this section, if 
the Exchange identifies updated information regarding death, in 
accordance with paragraph (d)(1)(i) of this section, or regarding any 
factor of eligibility not regarding income, family size, or family 
composition, or tax filing status, the Exchange must--
* * * * *
    (iii) If the Exchange identifies updated information that the tax 
filer for the enrollee's household or the tax filer's spouse did not 
comply with the requirements described in Sec.  155.305(f)(4), the 
Exchange when redetermining and providing notification of eligibility 
for advance payments of the premium tax credit must:
    (A) Follow the procedures specified in paragraph (e)(2)(i) of this 
section;
    (B) Follow the procedures in guidance published by the Secretary; 
or
    (C) Follow alternative procedures approved by the Secretary based 
on a showing by the Exchange that the alternative procedures would 
facilitate continued enrollment in coverage with financial assistance 
for which the enrollee remains eligible, provide appropriate 
information about the process to the enrollee (including regarding any 
action by the enrollee necessary to obtain the most accurate 
redetermination of eligibility), and provide adequate program integrity 
protections and safeguards for Federal tax information under section 
6103 of the Internal Revenue Code with respect to the confidentiality, 
disclosure, maintenance, or use of such information.
* * * * *
    (g) * * *
    (1) When an eligibility redetermination in accordance with this 
section results in a change in the amount of advance payments of the 
premium tax credit for the benefit year, the Exchange must:
    (i) Recalculate the amount of advance payments of the premium tax 
credit in such a manner as to account for any advance payments already 
made on behalf of the tax filer for the benefit year for which 
information is available to the Exchange, such that the recalculated 
advance payment amount is projected to result in total advance payments 
for the benefit year that correspond to the tax filer's total projected 
premium tax credit for the benefit year, calculated in accordance with 
26 CFR 1.36B-3 (or, if less than zero, be set at zero); or
    (ii) For benefit years through 2023, recalculate advance payments 
of the premium tax credit using an alternate method that has been 
approved by the Secretary.
* * * * *
0
25. Section 155.400 is amended by adding paragraph (e)(2) to read as 
follows:


Sec.  155.400  Enrollment of qualified individuals into QHPs.

* * * * *
    (e) * * *
    (2) Premium payment deadline extension. Exchanges may, and the 
Federally-facilitated Exchange will, allow issuers experiencing billing 
or enrollment problems due to high volume or technical errors to 
implement a reasonable extension of the binder payment deadlines in 
paragraph (e)(1) of this section.
* * * * *
0
26. Section 155.420 is amended by:
0
a. Revising paragraphs (b)(2)(iii), (d)(1)(i) and (iii), and (d)(8);
0
b. Removing the period at the end of paragraph (d)(10) and adding a 
semicolon in its place; and
0
c. Adding paragraphs (d)(10), (11), (12), and (13).
    The revisions and additions read as follows:


Sec.  155.420  Special enrollment periods.

* * * * *
    (b) * * *
    (2) * * *
    (iii) In the case of a qualified individual or enrollee eligible 
for a special enrollment period as described in paragraph (d)(4), (5), 
(9), (11), (12), or (13) of this section, the Exchange must ensure that 
coverage is effective on an appropriate date based on the circumstances 
of the special enrollment period.
* * * * *
    (d) * * *
    (1) * * *
    (i) Loses minimum essential coverage. The date of the loss of 
coverage is the last day the consumer would have coverage under his or 
her previous plan or coverage;
* * * * *
    (iii) Loses pregnancy-related coverage described under section 
1902(a)(10)(A)(i)(IV) and (a)(10)(A)(ii)(IX) of the Act (42 U.S.C. 
1396a(a)(10)(A)(i)(IV), (a)(10)(A)(ii)(IX)). The date of the loss of 
coverage is the last day the consumer would have pregnancy-related 
coverage; or
* * * * *

[[Page 61533]]

    (8) The qualified individual--
    (i) Who gains or maintains status as an Indian, as defined by 
section 4 of the Indian Health Care Improvement Act, may enroll in a 
QHP or change from one QHP to another one time per month; or
    (ii) Who is or becomes a dependent of an Indian, as defined by 
section 4 of the Indian Health Care Improvement Act and is enrolled or 
is enrolling in a QHP through an Exchange on the same application as 
the Indian, may change from one QHP to another one time per month, at 
the same time as the Indian;
* * * * *
    (10) A qualified individual or enrollee--
    (i) Is a victim of domestic abuse or spousal abandonment, as 
defined by 26 CFR 1.36B-2T, as amended, including a dependent or 
unmarried victim within a household, is enrolled in minimum essential 
coverage and seeks to enroll in coverage separate from the perpetrator 
of the abuse or abandonment; or
    (ii) Is a dependent of a victim of domestic abuse or spousal 
abandonment, on the same application as the victim, may enroll in 
coverage at the same time as the victim;
    (11) A qualified individual or dependent--
    (i) Applies for coverage on the Exchange during the annual open 
enrollment period or due to a qualifying life event, is assessed by the 
Exchange as potentially eligible for Medicaid or the Children's Health 
Insurance Program (CHIP), and is determined ineligible for Medicaid or 
CHIP by the State Medicaid or CHIP agency either after open enrollment 
has ended or more than 60 days after the qualifying event; or
    (ii) Applies for coverage at the State Medicaid or CHIP agency 
during the annual open enrollment period, and is determined ineligible 
for Medicaid or CHIP after open enrollment has ended;
    (12) The qualified individual or enrollee, or his or her dependent, 
adequately demonstrates to the Exchange that a material error related 
to plan benefits, service area, or premium influenced the qualified 
individual's or enrollee's decision to purchase a QHP; or
    (13) At the option of the Exchange, the qualified individual 
provides satisfactory documentary evidence to verify his or her 
eligibility for an insurance affordability program or enrollment in a 
qualified health plan through the Exchange following termination of 
Exchange enrollment due to a failure to verify such status within the 
time period specified in Sec.  155.315 or is under 100 percent of the 
Federal poverty level and did not enroll in coverage while waiting for 
HHS to verify his or her citizenship, status as a national, or lawful 
presence.
* * * * *
0
27. Section 155.430 is amended by revising paragraph (b)(2)(iii) to 
read as follows:


Sec.  155.430  Termination of Exchange enrollment or coverage.

* * * * *
    (b) * * *
    (2) * * *
    (iii) The enrollee's coverage is rescinded in accordance with Sec.  
147.128 of this subchapter, after a QHP issuer demonstrates, to the 
reasonable satisfaction of the Exchange, if required by the Exchange, 
that the rescission is appropriate;
* * * * *
0
28. Section 155.505 is amended by adding paragraph (h) to read as 
follows:


Sec.  155.505  General eligibility appeals requirements.

* * * * *
    (h) Electronic requirements. If the Exchange appeals entity cannot 
fulfill the electronic requirements of subparts C, D, F, and H of this 
part related to acceptance of telephone- or Internet-based appeal 
requests, the provision of appeals notices electronically, or the 
secure electronic transfer of eligibility and appeal records between 
appeals entities and Exchanges or Medicaid or CHIP agencies, the 
Exchange appeals entity may fulfill those requirements that it cannot 
fulfill electronically using a secure and expedient paper-based 
process.
0
29. Section 155.555 is amended by revising paragraph (b) to read as 
follows:


Sec.  155.555  Employer appeals process.

* * * * *
    (b) Exchange employer appeals process. An Exchange may establish an 
employer appeals process in accordance with the requirements of this 
section and Sec. Sec.  155.505(f) through (h) and 155.510(a)(1) and (2) 
and (c). Where an Exchange has not established an employer appeals 
process, HHS will provide an employer appeals process that meets the 
requirements of this section and Sec. Sec.  155.505(f) through (h) and 
155.510(a)(1) and (2) and (c).
* * * * *
0
30. Section 155.725 is amended by revising paragraphs (g)(1) and (2) 
and (j)(2)(i) and adding paragraph (g)(3) to read as follows:


Sec.  155.725  Enrollment periods under SHOP.

* * * * *
    (g) * * *
    (1) The SHOP must provide an employee who becomes a qualified 
employee outside of the initial or annual open enrollment period with a 
30-day enrollment period beginning on the date the qualified employer 
notifies the SHOP about the newly qualified employee. Qualified 
employers must notify the SHOP about a newly qualified employee on or 
before the thirtieth day after the day that the employee becomes 
eligible for coverage.
    (2) The effective date of coverage for a QHP selection received by 
the SHOP from a newly qualified employee is the first day of the month 
following plan selection, unless the employee is subject to a waiting 
period consistent with Sec.  147.116 of this subchapter and paragraph 
(g)(3) of this section, in which case the effective date will be on the 
first day of the month following the end of the waiting period, but in 
no case may the effective date fail to comply with Sec.  147.116 of 
this subchapter. If a newly qualified employee's waiting period ends on 
the first day of a month and the employee has already made a plan 
selection by that date, coverage must take effect on that date. If a 
newly qualified employee makes a plan selection on the first day of a 
month and any applicable waiting period has ended by that date, 
coverage must be effective on that date. If a qualified employer with 
variable hour employees makes regularly having a specified number of 
hours of service per period, or working full-time, a condition of 
employee eligibility for coverage offered through a SHOP, any 
measurement period that the qualified employer elects to use under 
Sec.  147.116(c)(3)(i) to determine whether an employee meets the 
applicable eligibility conditions with respect to coverage offered 
through the SHOP must not exceed 10 months, beginning on any date 
between the employee's start date and the first day of the first 
calendar month following the employee's start date.
    (3) Waiting periods in a SHOP are calculated beginning on the date 
the employee becomes eligible for coverage, regardless of when a 
qualified employer notifies the SHOP about the newly qualified 
employee, and must not exceed 60 days in length. Waiting periods in a 
Federally-facilitated SHOP or a State-based SHOP that uses the Federal 
platform for SHOP eligibility or enrollment functions must be 0, 15, 
30, 45 or 60 days in length.
* * * * *
    (j) * * *
    (2) * * *
    (i) Experiences an event described in Sec.  155.420(d)(1) (other 
than paragraph

[[Page 61534]]

(d)(1)(ii)), or experiences an event described in Sec.  155.420(d)(2), 
(4), (5), (7), (8), (9), (10), (11), or (12);
* * * * *
0
31. Section 155.740 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  155.740  SHOP employer and employee eligibility appeals 
requirements.

* * * * *
    (b) * * *
    (2) The appeals entity must conduct appeals in accordance with the 
requirements established in this section and Sec. Sec.  155.505(e) 
through (h) and 155.510(a)(1) and (2) and (c).
* * * * *
0
32. Section 155.1090 is added to subpart K to read as follows:


Sec.  155.1090  Request for reconsideration.

    (a) Request for reconsideration of denial of certification specific 
to a Federally-facilitated Exchange--(1) Request for reconsideration. 
The Federally-facilitated Exchanges will permit an issuer that has 
submitted a complete application to a Federally-facilitated Exchange 
for certification of a health plan as a QHP and is denied certification 
to request reconsideration of such action.
    (2) Form and manner of request. An issuer submitting a request for 
reconsideration under paragraph (a)(1) of this section must submit a 
written request for reconsideration to HHS, in the form and manner 
specified by HHS, within 7 calendar days of the date of the written 
notice of denial of certification. The issuer must include any and all 
documentation the issuer wishes to provide in support of its request 
with its request for reconsideration.
    (3) HHS reconsideration decision. HHS will provide the issuer with 
a written notice of the reconsideration decision. The decision will 
constitute HHS's final determination.
    (b) [Reserved]

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

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

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

0
34. Section 156.80 is amended by revising paragraph (d)(1) to read as 
follows:


Sec.  156.80  Single risk pool.

* * * * *
    (d) * * *
    (1) In general. A health insurance issuer must establish an index 
rate that is effective January 1 of each calendar year for a State 
market described in paragraphs (a) through (c) of this section.
    (i) The index rate must be based on the total combined claims costs 
for providing essential health benefits within the single risk pool of 
that State market.
    (ii) The index rate must be adjusted on a market-wide basis for the 
State based on the total expected market-wide payments and charges 
under the risk adjustment program and Exchange user fees (expected to 
be remitted under Sec.  156.50(b) or (c) and (d) as applicable plus the 
dollar amount under Sec.  156.50(d)(3)(i) and (ii) expected to be 
credited against user fees payable for that State market).
    (iii) The index rate must be calibrated on a market-wide basis to 
correspond to an age rating factor of 1.0, a geographic rating factor 
of 1.0, and a tobacco use rating factor of 1.0, in a manner specified 
by the Secretary in guidance.
    (iv) The premium rate for all of the health insurance issuer's 
plans in the relevant State market must use the applicable market-wide 
adjusted index rate, subject only to the plan-level adjustments 
permitted in paragraph (d)(2) of this section.
* * * * *
0
35. Section 156.140 is amended by revising paragraph (c) to read as 
follows:


Sec.  156.140  Levels of coverage.

* * * * *
    (c) De minimis variation. The allowable variation in the AV of a 
health plan that does not result in a material difference in the true 
dollar value of the health plan is 2 percentage points, 
except if a health plan under paragraph (b)(1) of this section (a 
bronze health plan) either covers and pays for at least one major 
service, other than preventive services, before the deductible or meets 
the requirements to be a high deductible high plan within the meaning 
of 26 U.S.C. 223(c)(2), in which case the allowable variation in AV for 
such plan is -2 percentage points and +5 percentage points.
0
36. Section 156.200 is amended by revising paragraph (c)(1) to read as 
follows:


Sec.  156.200  QHP issuer participation standards.

* * * * *
    (c) * * *
    (1) At least one QHP in the silver coverage level and at least one 
QHP in the gold coverage level as described in Sec.  156.140 throughout 
each service area in which it offers coverage through the Exchange; 
and,
* * * * *
0
37. Section 156.235 is amended by revising paragraphs (a)(2)(i) and 
(b)(2)(i) to read as follows:


Sec.  156.235  Essential community providers.

    (a) * * *
    (2) * * *
    (i) The network includes as participating practitioners at least a 
minimum percentage, as specified by HHS, of available essential 
community providers in each plan's service area. Multiple providers at 
a single location will count as a single essential community provider 
toward both the available essential community providers in the plan's 
service area and the issuer's satisfaction of the essential community 
provider participation standard; and
* * * * *
    (b) * * *
    (2) * * *
    (i) The number of its providers that are located in Health 
Professional Shortage Areas or five-digit zip codes in which 30 percent 
or more of the population falls below 200 percent of the Federal 
Poverty Line satisfies a minimum percentage, specified by HHS, of 
available essential community providers in the plan's service area. 
Multiple providers at a single location will count as a single 
essential community provider toward both the available essential 
community providers in the plan's service area and the issuer's 
satisfaction of the essential community provider participation 
standard; and
* * * * *
0
38. Section 156.265 is amended by:
0
a. Removing the word ``and'' at the end of paragraph (b)(3)(ii);
0
b. Removing the period at the end of paragraph (b)(3)(iii) and adding 
``; and'' in its place; and
0
c. Adding paragraph (b)(3)(iv).
    The addition reads as follows:


Sec.  156.265  Enrollment process for qualified individuals.

* * * * *
    (b) * * *
    (3) * * *
    (iv) Differentially display all standardized options in accordance 
with the requirements under Sec.  155.205(b)(1) of this subchapter in a 
manner consistent with that adopted by HHS for display on the 
Federally-

[[Page 61535]]

facilitated Exchange Web site, unless HHS approves a deviation.
* * * * *
0
39. Section 156.272 is added to read as follows:


Sec.  156.272  Issuer participation for full plan year.

    (a) An issuer offering a QHP through an individual market Exchange 
must make the QHP available for enrollment through the Exchange for the 
full plan year for which the plan was certified, including to eligible 
enrollees during limited open enrollment periods, unless a basis for 
suppression applies under Sec.  156.815.
    (b) Unless a basis for suppression under section 156.815 applies, 
an issuer offering a QHP through a SHOP must make the QHP available for 
enrollment through the SHOP for the full plan year for which the QHP 
was certified.
    (c) An issuer offering a QHP through a Federally-facilitated 
Exchange or a Federally-facilitated SHOP that does not comply with 
paragraph (a) or (b) of this section may, at the discretion of HHS, be 
precluded from offering QHPs in a Federally-facilitated Exchange or 
Federally-facilitated SHOP for up to the two succeeding plan years.
0
40. Section 156.290 is amended by revising the section heading and 
paragraphs (a) introductory text and (b) to read as follows:


Sec.  156.290  Non-certification and decertification of QHPs.

    (a) Non-certification for a subsequent, consecutive certification 
cycle. If a QHP issuer elects not to seek certification for a 
subsequent, consecutive certification cycle with the Exchange, the QHP 
issuer, at a minimum, must--
* * * * *
    (b) Notice of QHP non-certification for a subsequent, consecutive 
certification cycle. (1) If a QHP issuer elects not to seek 
certification for a subsequent, consecutive certification cycle with 
the Exchange for its QHP, the QHP issuer must provide written notice to 
each enrollee.
    (2) If a QHP issuer is denied certification for a subsequent, 
consecutive certification cycle by the Exchange, it must provide 
written notice to each enrollee within 30 days of the Exchange's denial 
of certification.
* * * * *
0
41. Section 156.350 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  156.350  Eligibility and enrollment standards for Qualified 
Health Plan issuers on State-based Exchanges on the Federal platform.

    (a) * * *
    (2) Section 156.285(c)(5) and (c)(8)(iii) regarding the enrollment 
process for SHOP; and
* * * * *
0
42. Section 156.430 is amended by adding paragraph (h) to read as 
follows:


Sec.  156.430  Payment for cost-sharing reductions.

* * * * *
    (h) Reconciliation of the cost-sharing reduction portion of advance 
payments discrepancies and appeals. (1) If an issuer reports a 
discrepancy and seeks to dispute the notification of the amount of 
reconciliation of the cost-sharing reduction portion of advance 
payments, it must report the discrepancy to HHS within 30 calendar days 
of notification of the amount of reconciliation of the cost-sharing 
reduction portion of advance payments as described in paragraph (e) of 
this section, in the manner set forth by HHS.
    (2) An issuer may appeal the amount of reconciliation of the cost-
sharing reduction portion of advance payments, under the process set 
forth in Sec.  156.1220.
0
43. Section 156.715 is amended by adding paragraph (f) to read as 
follows:


Sec.  156.715  Compliance reviews of QHP issuer in Federally-
facilitated Exchanges.

* * * * *
    (f) Failure to comply. A QHP issuer that fails to comply with a 
compliance review under this section may be subject to enforcement 
remedies under subpart I of this part.
0
44. Section 156.1220 is amended by--
0
a. Removing the word ``or'' at the end of paragraph (a)(1)(v);
0
b. Removing the period at the end of paragraph (a)(1)(vi) and adding 
``; or'' in its place;
0
c. Adding paragraph (a)(1)(vii) and (viii); and
0
d. Revising paragraphs (a)(2), (a)(3)(ii), and (a)(4)(ii).
    The revisions and additions read as follows:


Sec.  156.1220  Administrative appeals.

    (a) * * *
    (1) * * *
    (vii) The findings of a second validation audit as a result of risk 
adjustment data validation with respect to risk adjustment data for the 
2016 benefit year and beyond; or
    (viii) The calculation of a risk score error rate as a result of 
risk adjustment data validation with respect to risk adjustment data 
for the 2016 benefit year and beyond.
    (2) Materiality threshold. Notwithstanding paragraph (a)(1) of this 
section, an issuer may file a request for reconsideration under this 
section only if the amount in dispute under paragraph (a)(1)(i) through 
(viii) of this section, as applicable, is equal to or exceeds 1 percent 
of the applicable payment or charge listed in that paragraph (a)(1)(i) 
through (viii) payable to or due from the issuer for the benefit year, 
or $10,000, whichever is less.
    (3) * * *
    (ii) For a risk adjustment payment or charge, including an 
assessment of risk adjustment user fees, the findings of a second 
validation audit, or the calculation of a risk score error rate as a 
result of risk adjustment data validation, within 30 calendar days of 
the date of the notification under Sec.  153.310(e) of this subchapter;
* * * * *
    (4) * * *
    (ii) Notwithstanding paragraph (a)(1) of this section, a 
reconsideration with respect to a processing error by HHS, HHS's 
incorrect application of the relevant methodology, or HHS's 
mathematical error may be requested only if, to the extent the issue 
could have been previously identified, the issuer notified HHS of the 
dispute through the applicable process for reporting a discrepancy set 
forth in Sec. Sec.  153.630(d)(2), 153.710(d)(2), and 156.430(h)(1) of 
this subchapter, it was so identified and remains unresolved.
* * * * *
0
45. Section 156.1230 is amended by adding paragraphs (b)(1), (2), and 
(3) to read as follows:


Sec.  156.1230  Direct enrollment with the QHP issuer in a manner 
considered to be through the Exchange.

* * * * *
    (b) * * *
    (1) HHS may immediately suspend the QHP issuer's ability to 
transact information with the Exchange if HHS discovers circumstances 
that pose unacceptable risk to Exchange operations or Exchange 
information technology systems until the incident or breach is remedied 
or sufficiently mitigated to HHS's satisfaction.
    (2) The QHP issuer must demonstrate operational readiness and 
compliance with applicable requirements prior to the QHP issuer's 
Internet Web site being used to complete a QHP selection.
    (3) The QHP issuer must provide consumers with correct information, 
without omission of material fact, regarding the Federally-facilitated 
Exchanges, QHPs offered through the Federally-facilitated Exchanges, 
and insurance affordability programs, and refrain from marketing or 
conduct that is misleading (including by having a direct enrollment Web 
site that HHS

[[Page 61536]]

determines could mislead a consumer into believing they are visiting 
HealthCare.gov), coercive, or discriminates based on race, color, 
national origin, disability, age, sex, gender identity, or sexual 
orientation.
0
46. Section 156.1256 is revised to read as follows:


Sec.  156.1256  Other notices.

    As directed by a Federally-facilitated Exchange, a health insurance 
issuer that is offering QHP coverage through a Federally-facilitated 
Exchange or a State-based Exchange on the Federal platform must notify 
its enrollees of material plan or benefit display errors and the 
enrollees' eligibility for a special enrollment period, included in 
Sec.  155.420(d)(12) of this subchapter, within 30 calendar days after 
being notified by a Federally-facilitated Exchange that the error has 
been fixed, if directed to do so by a Federally-facilitated Exchange.

PART 157--EMPLOYER INTERACTIONS WITH EXCHANGES AND SHOP 
PARTICIPATION

0
47. The authority citation for part 157 continues to read as follows:

    Authority:  Title I of the Affordable Care Act, Sections 1311, 
1312, 1321, 1411, 1412, Pub. L. 111-148, 124 Stat. 199.

0
48. Section 157.205 is amended by revising paragraph (f)(1) to read as 
follows:


Sec.  157.205  Qualified employer participation in a SHOP.

* * * * *
    (f) * * *
    (1) Newly eligible dependents and, on or before the thirtieth day 
after the day that the employee becomes eligible for coverage, newly 
qualified employees; and
* * * * *

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

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

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

0
50. Section 158.121 is revised to read as follows:


Sec.  158.121  Newer experience.

    If, for any aggregation as defined in Sec.  158.120, 50 percent or 
more of the total earned premium for an MLR reporting year is 
attributable to policies newly issued in that MLR reporting year, then 
the experience of these policies may be excluded from the report 
required under Sec.  158.110 for that same MLR reporting year. If an 
issuer chooses to defer reporting of newer business as provided in this 
section, then the excluded experience must be added to the experience 
reported in the following MLR reporting year.
0
51. Section 158.232 is amended by revising paragraphs (d)(1) and (2) 
and (e)(1) and (2) and adding paragraph (f) to read as follows:


Sec.  158.232  Calculating the credibility adjustment.

* * * * *
    (d) * * *
    (1) Each year in the aggregation included experience of at least 
1,000 life-years; and
    (2) The issuer's preliminary MLR, as defined under paragraph (f) of 
this section, for each year in the aggregation was below the applicable 
MLR standard, as established under Sec. Sec.  158.210 and 158.211.
    (e) * * *
    (1) Each year in the aggregation included experience of at least 
1,000 life-years; and
    (2) The issuer's preliminary MLR, as defined under paragraph (f) of 
this section, for each year in the aggregation was below the applicable 
MLR standard, as established under Sec. Sec.  158.210 and 158.211.
    (f) Preliminary MLR. Preliminary MLR means the ratio of the 
numerator, as defined in Sec.  158.221(b) and calculated as of March 
31st of the year following the year for which the MLR report required 
in Sec.  158.110 is being submitted, to the denominator, as defined in 
Sec.  158.221(c), calculated using only a single year of experience, 
and without applying any credibility adjustment.
0
52. Section 158.240 is amended by--
0
a. Revising paragraph (c)(1);
0
b. Redesignating paragraphs (d) and (e) as paragraphs (e) and (f), 
respectively; and
0
c. Adding a new paragraph (d).
    The revision and addition read as follows:


Sec.  158.240  Rebating premium if the applicable medical loss ratio 
standard is not met.

* * * * *
    (c) * * *
    (1) For each MLR reporting year, an issuer must rebate to the 
enrollee, subject to paragraph (d) of this section, the total amount of 
premium revenue, as defined in Sec.  158.130, received by the issuer 
from the enrollee, after subtracting Federal and State taxes and 
licensing and regulatory fees as provided in Sec. Sec.  158.161(a) and 
158.162(a)(1) and (b)(1), and after accounting for payments or receipts 
for risk adjustment, risk corridors, and reinsurance as provided in 
Sec.  158.130(b)(5), multiplied by the difference between the MLR 
required by Sec.  158.210 or Sec.  158.211, and the issuer's MLR as 
calculated under Sec.  158.221.
* * * * *
    (d) Limitation on total rebate payable for each year in the 
aggregation. For any State and market, an issuer may elect to limit the 
amount of rebate payable for the MLR reporting year to the issuer's 
total outstanding rebate liability with respect to all years included 
in the aggregation. If an issuer elects this option, the outstanding 
rebate liability with respect to a specific year in the aggregation 
must be calculated by multiplying the denominator with respect to that 
year, as defined in Sec.  158.221(c), by the difference between the MLR 
required by Sec.  158.210 or Sec.  158.211 for the MLR reporting year, 
and the sum of the issuer's preliminary MLR for that year, as defined 
under Sec.  158.232(f), and the credibility adjustment applicable to 
the current MLR reporting year. The outstanding rebate liability with 
respect to a specific year must be reduced by any rebate payments 
applied against it in prior MLR reporting years. A rebate paid for an 
MLR reporting year must be applied first to reduce the outstanding 
rebate liability with respect to the earliest year in the aggregation.
* * * * *

    Dated: August 11, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: August 24, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-20896 Filed 8-29-16; 4:15 pm]
 BILLING CODE 4120-01-P