[Federal Register Volume 81, Number 246 (Thursday, December 22, 2016)]
[Rules and Regulations]
[Pages 94058-94183]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-30433]



[[Page 94057]]

Vol. 81

Thursday,

No. 246

December 22, 2016

Part III





Department of Health and Human Services





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





Patient Protection and Affordable Care Act; HHS Notice of Benefit and 
Payment Parameters for 2018; Amendments to Special Enrollment Periods 
and the Consumer Operated and Oriented Plan Program; Final Rule

  Federal Register / Vol. 81 , No. 246 / Thursday, December 22, 2016 / 
Rules and Regulations  

[[Page 94058]]


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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-F; CMS-9933-F]
RIN 0938-AS95, RIN 0938-AS87


Patient Protection and Affordable Care Act; HHS Notice of Benefit 
and Payment Parameters for 2018; Amendments to Special Enrollment 
Periods and the Consumer Operated and Oriented Plan Program

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

ACTION: Final rule.

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SUMMARY: This final 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 Programs; stand-alone dental plans; 
fair health insurance premiums; guaranteed availability and guaranteed 
renewability; the medical loss ratio program; eligibility and 
enrollment; appeals; consumer-operated and oriented plans; special 
enrollment periods; and other related topics.

DATES: These regulations are effective January 17, 2017.

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.
    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.
    Rachel Arguello, (301) 492-4263, for matters related to Exchange 
special enrollment periods.
    Jack Lavelle, (202) 631-2971, 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.
    Jacob Schnur, (410) 786-7703, 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.
    Kevin Kendrick, (301) 492-4134, for matters related to consumer-
operated and oriented plans.
    Christina Whitefield, (301) 492-4172, for matters related to the 
medical loss ratio program.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
II. HHS Notice of Benefit and Payment Parameters for 2018
    A. Background
    1. Legislative and Regulatory Overview
    2. Stakeholder Consultation and Input
    3. Structure of Final Rule
    B. Provisions of the Final HHS Notice of Benefit and Payment 
Parameters for 2018
    1. Part 144--Requirements Relating to Health Insurance Coverage
    2. Part 146--Requirements for the Group Health Insurance Market
    3. Part 147--Health Insurance Reform Requirements for the Group 
and Individual Health Insurance Markets
    4. Part 148--Requirements for the Individual Health Insurance 
Market
    5. Part 152--Pre-Existing Condition Insurance Plan Program
    6. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment Under the Affordable Care Act
    7. Part 154--Health Insurance Issuer Rate Increases: Disclosure 
and Review Requirements
    8. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
    9. Part 156--Health Insurance Issuer Standards Under the 
Affordable Care Act, Including Standards Related to Exchanges
    10. Part 157--Employer Interactions With Exchanges and SHOP 
Participation
    11. Part 158--Issuer Use of Premium Revenue: Reporting and 
Rebate Requirements
III. Amendments to Special Enrollment Periods and the Consumer 
Operated and Oriented Plan Program
    A. Background
    1. Legislative and Regulatory Overview
    2. Stakeholder Consultation and Input
    3. Structure of Final Rule
    B. Provisions of the Amendments to Special Enrollment Periods 
and the Consumer Operated and Oriented Plan Program
    1. Special Enrollment Periods
    2. CO-OP Program
    3. Risk Adjustment
IV. Waiver of Delay in Effective Date
V. 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. ICRs Regarding Standards for HHS-Approved Vendors To Perform 
Audits of Agents and Brokers Participating in Direct Enrollment
    H. ICR Regarding Eligibility Standards
    I. ICR Regarding Eligibility Redeterminations
    J. ICR Regarding Termination of Exchange Enrollment or Coverage
    K. ICR Regarding QHP Issuer Request for Reconsideration
    L. ICR Regarding Notification by Issuers Denied Certification
    M. ICR Regarding the Discrepancy Reporting Processes for the 
Reconciliation of the Cost-Sharing Reduction Portion of Advance 
Payments
    N. ICRs Regarding Administrative Appeals
    O. ICR Regarding Medical Loss Ratio
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

The Act Social Security Act
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

[[Page 94059]]

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
Code Internal Revenue Code of 1986 (26 U.S.C. 1, et seq.)
CO-OPs Consumer Operated and Oriented Plans
CPI Consumer price index
ECP Essential community provider
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
OCR Office for Civil Rights
OMB Office of Management and Budget
PCIP Pre-Existing Condition Insurance Plan
PHI Protected health information
PHS Act Public Health Service Act
PI Personal income
PII Personally identifiable information
PMPM Per member per month
PPO Preferred provider organization
QHP Qualified health plan
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
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 final 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. In this final rule, to further promote stable premiums in the 
individual and small group markets, we finalize 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, beginning for the 2017 benefit year, we finalize 
an update to better estimate the actuarial risk associated with 
enrollees who are not enrolled for a full 12 months, and beginning for 
the 2018 benefit year, we finalize updates to use prescription drug 
data to update the predictive ability of our risk adjustment models, to 
establish transfers that will better account for the risk of high-cost 
enrollees, and to reduce the Statewide average premium in the transfer 
formula by a portion of administrative costs. We also finalize several 
amendments to the risk adjustment data validation process, including 
amendments relating to the review of prescription drug data and the 
establishment of a discrepancy identification and administrative 
appeals process.
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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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    We finalize several provisions related to cost-sharing parameters. 
First, we finalize 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 finalize the maximum annual limitations on 
cost sharing for the 2018 benefit year for cost-sharing reduction plan 
variations. This final rule also finalizes standards for stand-alone 
dental plans (SADPs) related to the annual limitation on cost sharing.
    We are also finalizing a number of amendments that we believe will 
help promote consumer choice in health plans. These include a 
requirement that at least one QHP at the silver coverage level and at 
least one QHP at the gold coverage level must be offered throughout the 
service area in which a QHP issuer offers coverage through the 
Exchange; and amendments that would permit a broader de minimis range 
for the actuarial value of bronze plans to permit greater flexibility 
in benefit design and to accommodate updates to the 2018 Actuarial 
Value (AV) Calculator.
    We also require QHP issuers on an Exchange to make their QHPs 
available through the Exchange for a full plan year (unless a basis for 
suppression applies) as a QHP certification requirement, which 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 remove a 
requirement tying participation in the individual market Federally-
facilitated Exchanges (FFEs) to participation in the Federally-
facilitated Small Business Health Options Programs.
    We are finalizing a provision 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 provide the option to limit the total rebate 
liability payable with respect to a given calendar year to mitigate the 
impact of the 3-year averaging requirement on new and growing issuers. 
We finalize several changes to the guaranteed renewability regulations 
that would address instances where issuers may inadvertently trigger a 
market withdrawal and 5-year prohibition on market re-entry. We also 
finalize a change to the age rating rules for children.
    In this final rule, we finalize several provisions regarding when 
and how consumers may choose and enroll in plans. This rule includes 
provisions relating to: Codifying several special enrollment periods 
that are already available to consumers in order to ensure the rules 
are clear and to limit potential abuse; the enrollment processes in the 
Small Business Health Options Programs (SHOPs); and binder payment 
deadlines. We also finalize several amendments related to insurance 
affordability programs, including regarding eligibility determinations, 
and periodic data matching.

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    We are finalizing 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 breadth. We believe both 
policies will make it easier for consumers to select health plans 
through HealthCare.gov. For standardized options, we are finalizing the 
selection of three bronze standardized options (in addition to one high 
deductible health plan (HDHP), within the meaning of section 223(c)(2) 
of the Internal Revenue Code of 1986 (26 U.S.C. 1, et seq.) (the Code), 
at the bronze level of coverage), and three standardized options at 
each of the silver, silver cost-sharing reduction variations, and gold 
metal levels. We have identified one standardized option at each metal 
level and one at each cost-sharing reduction plan variation level for 
use in each State. By increasing the scope of potential standardized 
designs, we will better accommodate State cost-sharing laws. We are 
finalizing a provision 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 \2\ 
using a direct enrollment pathway to facilitate enrollment through a 
FFE or SBE-FP. Additionally, we are finalizing a number of standards 
and consumer protections that would apply to a Web-broker or issuer 
using the direct enrollment pathway. We are augmenting our network 
adequacy network breadth display policy to account for QHPs that are 
part of an integrated delivery system. We are also finalizing standards 
relating to the essential community provider (ECP) requirements and 
amending the standards regarding providing taglines in non-English 
languages indicating the availability of language services.
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    \2\ CMS uses the term ``Web-broker'' to describe an individual 
agent or broker, group of agents and brokers, or company registered 
with the FFEs that provides a non-Exchange Web site to assist 
consumers in the selection and enrollment in qualified health plans 
(QHPs) offered through the Exchanges as described in 45 CFR 
155.220(c)(3).
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    We also finalize several amendments that would strengthen 
Exchanges' oversight capabilities. These include provisions requiring 
issuers seeking 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 finalize an avenue through which issuers can appeal a 
non-certification or decertification.
    Finally, in this final rule, we make minor adjustments to our rules 
governing the single risk pool, SHOP, user fees, notices, 
decertification, and appeals.
    This final rule also finalizes the ``Patient Protection and 
Affordable Care Act; Amendments to Special Enrollment Periods and the 
Consumer Operated and Oriented Plan Program'' interim final rule with 
comment published in the May 11, 2016 Federal Register (81 FR 29146). 
In this final rule, we finalize a number of amendments to special 
enrollment periods for individuals who gain access to new QHPs as a 
result of a permanent move so that this special enrollment period is 
generally available only to those individuals who had minimum essential 
coverage prior to their permanent move. We are also finalizing 
amendments to the CO-OP governance requirements to provide greater 
flexibility and facilitate private market transactions that can provide 
access to needed capital.

II. HHS Notice of Benefit and Payment Parameters for 2018

A. Background

1. 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 final 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.\3\
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    \3\ 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.\4\ 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 and outside of an Exchange beginning with plan 
years starting in 2014.
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    \4\ 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

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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 AV. 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.\5\
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    \5\ If a State elects this option, the rating rules in section 
2701 of the PHS Act and its implementing regulations at 45 CFR 
147.102 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 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 (FFE) under section 
1321(c)(1) of the Affordable Care Act, HHS has the authority under 
sections 1321(c)(1) and 1311(d)(5)(A) 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. 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 civil money penalties 
(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, collect 
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 EHB for qualified 
low- and

[[Page 94062]]

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.
a. 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) (2014 Payment Notice).
    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) (2015 
Payment Notice).
    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) 
(2016 Payment Notice).
    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) (2017 
Payment Notice).
b. 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).
c. 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 (78 FR 
15409) and in a proposed rule published in the March 11, 2013 Federal 
Register (78 FR 15553) and finalized in the June 4, 2013 Federal 
Register (78 FR 33233). 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.
d. Essential Health Benefits and Actuarial Value
    On December 16, 2011, HHS released a bulletin \6\ (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.\7\ 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 
Accreditation Final Rule, which was published in the February 25, 2013 
Federal Register (78 FR 12833) (EHB Rule).
---------------------------------------------------------------------------

    \6\ Essential Health Benefits Bulletin. Dec. 16, 2011. Available 
at https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf.
    \7\ Actuarial Value and Cost-Sharing Reductions Bulletin. Feb. 
24, 2012. Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/Av-csr-bulletin.pdf.
---------------------------------------------------------------------------

e. 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).
f. 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).
g. 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

[[Page 94063]]

May 16, 2012 (77 FR 28790). The Medical Loss Ratio (MLR) program 
requirements were amended in final rules published in the March 11, 
2014 Federal Register (79 FR 13743), the May 27, 2014 Federal Register 
(79 FR 30339), the February 27, 2015 Federal Register (80 FR 10749), 
and the March 8, 2016 Federal Register (81 FR 12203).
h. 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).
2. 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, 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''),\8\ 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.
---------------------------------------------------------------------------

    \8\ March 31, 2016, HHS-Operated Risk Adjustment Methodology 
Meeting: Discussion Paper. March 24, 2016. 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 final rule.
3. Structure of Final Rule
    The regulations outlined in this final rule will be codified in 45 
CFR parts 144, 146, 147, 148, 153, 154, 155, 156, 157 and 158.
    The regulations in parts 144 and 154 make conforming revisions to 
the regulatory definitions of ``plan'' and ``product'' with respect to 
the transfer of coverage to a related issuer within the same controlled 
group.
    The regulations in parts 146, 147 and 148 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 regulations in part 147 create multiple child age bands for rating 
purposes, and amend the provision regarding limited open enrollment 
periods (also known as special enrollment periods) in the individual 
market to provide greater clarity and to reflect the amendments 
regarding special enrollment periods in the Exchanges.
    Discussion in part 152 responds to comments 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 regulations in part 153 include the risk adjustment user fee 
for 2018 and outline a number of 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 provide for the use of External data gathering 
environment (EDGE) server data to recalibrate the risk adjustment 
models.
    The regulations in part 155 include several amendments regarding 
standardized options, including the 2018 cost-sharing structures for 
standardized options. Other requirements in part 155 are related to the 
eligibility and verification processes for insurance affordability 
programs. We amend rules related to enrollment of qualified individuals 
into QHPs and make various amendments related to the SHOPs. We amend 
the regulations requiring Exchanges, QHP issuers, and Web-brokers to 
provide taglines in non-English languages. We also amend existing 
requirements, as well as establish new ones, for agents and brokers 
that use the current direct enrollment process to strengthen the 
consumer protections when a Web-broker is facilitating enrollment 
through an FFE or SBE-FP. We finalize the required contribution 
percentage for 2018. We finalize a new policy regarding appealing 
denials of QHP certification. We also amend the standards applicable in 
State Exchanges using the Federal platform for SHOP functions in parts 
155 and 156. We also amend the regulations applicable to qualified 
employers in the SHOPs in part 157.
    The regulations in part 156 include amendments 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 finalize the user fee rate applicable in the FFEs and SBE-FPs. We 
also finalize changes regarding AV, levels of coverage, and ECP 
requirements, and provide for calibration of the single risk pool index 
rate. Additionally, we amend the regulation requiring issuers to adhere 
to the SHOP participation provision.
    The amendments to the regulations in part 158 revise the provisions 
related to deferral of reporting of experience for newer business, as 
well as add provisions related to limiting the total rebate liability 
payable with respect to a given calendar year.

B. Provisions of the Final Regulations and Analyses and Responses to 
Public Comments

    In the September 6, 2016 Federal Register (81 FR 61456), we 
published the Patient Protection and Affordable Care Act; HHS Notice of 
Benefit and Payment Parameters for 2018 proposed rule (proposed 2018 
Payment Notice). We received 662 comments, including 456 substantially 
similar letters regarding our cost-sharing proposal related to speech 
therapy services for the proposed 2018 standardized options. Comments 
were received from the National Association of Insurance Commissioners, 
State departments of insurance, State Exchanges, health insurance 
issuers, providers, consumer groups, labor entities, industry groups, 
patient safety groups, national interest groups, and other 
stakeholders. The comments ranged from general support of or opposition 
to the proposed provisions to specific questions or comments regarding 
proposed changes. We received a number of comments and suggestions that 
were outside the scope of the proposed rule that will not be addressed 
in this final rule.
    In this final rule, we provide a summary of each proposed 
provision, a summary of those public comments received that directly 
related to the proposals, our responses to them, and a description of 
the provisions we are finalizing.

[[Page 94064]]

    Comment: We received comments stating that the comment period was 
unreasonably short, making it difficult for stakeholders to provide in-
depth analysis and input. Commenters suggested that HHS provide a 
comment period of 60 days from the date of publication in the Federal 
Register for this and future HHS Notices of Benefit and Payment 
Parameters.
    Response: We published the proposed 2018 Payment Notice earlier 
this year in order to better assist issuers in planning for the 
upcoming benefit year. In previous years, we received issuer feedback 
requesting that the rule be released and finalized earlier in order to 
facilitate their actuarial work estimating rates and developing benefit 
packages. We continue to try to expand the comment period while also 
providing industry stakeholders with more time to implement the final 
rule.
    Comment: We received a number of comments requesting that HHS 
propose further rules around essential health benefits (EHB) and 
network adequacy. Commenters encouraged HHS to strengthen Federal 
oversight of the EHB plans' compliance with nondiscrimination 
requirements. Some commenters emphasized the importance of ensuring 
coverage is affordable to consumers.
    Response: We recognize the importance of patient protections and 
non-discrimination in benefit design. As stated in Sec.  156.125(a), an 
issuer does not provide EHB if its benefit design, or the 
implementation of its benefit design, discriminates based on an 
individual's age, expected length of life, present or predicted 
disability, degree of medical dependency, quality of life, or other 
health conditions. Furthermore, as stated in Sec.  156.125(b), an 
issuer providing EHB must also comply with Sec.  156.200(e), which 
prohibits discrimination on the basis of race, color, national origin, 
disability, age, sex, gender identity, and sexual orientation. As in 
previous years, HHS will continue to outline its review of health plans 
applying to be qualified health plans (QHPs) or stand-alone dental plan 
(SADPs) in the FFEs for compliance with nondiscrimination standards in 
the Letter to Issuers in the Federally-facilitated Marketplaces. 
Because nondiscrimination provisions applicable to plans required to 
offer EHB also are related to many requirements under the joint 
interpretive jurisdiction of HHS and the Departments of Labor and the 
Treasury, HHS will consult with relevant Federal agencies, such as the 
Departments of Labor and the Treasury, as necessary in developing new 
guidance related to discriminatory benefit designs. As noted 
previously, we remind issuers that certain other Federal civil rights 
laws also impose nondiscrimination requirements. We will consider the 
comments we have received with respect to network adequacy as we 
monitor the work of States and the National Association of Insurance 
Commissioners (NAIC) in this area. Finally, we appreciate the comments 
regarding affordability of coverage, and agree that affordability is 
critical to the success of the Exchanges.
1. Part 144--Requirements Relating to Health Insurance Coverage
a. Definitions (Sec.  144.103)
    In the proposed rule, consistent with our proposal regarding the 
transfer of products within a group of related issuers, we proposed to 
revise the definitions of ``plan'' and ``product'' in 45 CFR 144.103 by 
removing language 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 proposed 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. Sec.  146.152(f), 147.106(e), or 
148.122(g), as applicable. For clarity, we also proposed to include in 
the definition of ``product'' examples of product network types 
including health maintenance organization (HMO), preferred provider 
organization (PPO), exclusive provider organization, point of service, 
and indemnity.
    We are finalizing these provisions as proposed, with minor non-
substantive modifications to the definition of ``product'' for clarity.
    Comment: One commenter requested that HHS clarify whether claims 
reporting for risk adjustment or medical loss ratio (MLR) would change 
based on these different definitions.
    Response: This change will not alter the claims reporting process 
for risk adjustment or MLR. We note that when business subject to MLR 
is transferred between related issuers within the same controlled 
group, the acquiring issuer must include the ceding issuer's prior year 
experience in calculating the 3-year average MLR. We also note that if 
an issuer of a QHP, a plan otherwise subject to risk corridors, a risk 
adjustment covered plan, or a reinsurance-eligible plan experiences a 
change of ownership, as recognized by the State in which the plan is 
offered, the issuer must notify HHS in accordance with 45 CFR 
147.106(g).
    Comment: Some commenters requested that HHS expand the definitions, 
so that any transaction that results in a product with the same 
provider network and same benefit structure as the prior product would 
be considered to be the same product regardless of whether the 
acquiring issuer is part of the same controlled group as the ceding 
issuer.
    Response: We are not expanding the proposed definitions at this 
time. As discussed in the preamble to Sec.  147.106, below, in the case 
of a transaction that results in a product being offered by a different 
issuer, the resulting new product will be considered the same as the 
prior product only if the acquiring issuer is part of the same 
controlled group as the ceding issuer and any changes to the product 
are within the scope of a uniform modification of coverage.
    Comment: We have been requested by stakeholders to clarify whether 
a visit limit is considered a ``benefit'' in the definition of product 
or a ``cost-sharing structure'' in the definition of plan under Sec.  
144.103.
    Response: At Sec.  155.20, we defined ``cost sharing'' based on the 
definition in section 1302(c) of the Affordable Care Act, which applies 
to title I of the Affordable Care Act, to mean any expenditure required 
by or on behalf of an enrollee with respect to essential health 
benefits; such term includes deductibles, coinsurance, copayments, or 
similar charges, but excludes premiums, balance billing amounts for 
non-network providers, and spending for non-covered services. For 
purposes of consistency, we interpret ``cost-sharing structure'' in the 
definition of ``plan'' under Sec.  144.103 as being based on the same 
concept of ``cost sharing.'' This definition does not include limits on 
benefits based on the frequency of treatment, number of visits, days of 
coverage, or other similar limits on the amount, scope or duration of 
treatment. We interpret such types of limitations, which specify the 
scope of benefits covered rather than the portion of the payment made 
to the health care provider owed by the consumer, to be features of a 
product's ``discrete package of health insurance coverage benefits.'' 
Accordingly, each plan within a product must have the same visit or 
other frequency limits (if any) on the same covered benefits.

[[Page 94065]]

2. Part 146--Requirements for the Group Health Insurance Market
a. Guaranteed Renewability of Coverage for Employers in the Group 
Market (Sec.  146.152)
    For a discussion of the provisions of this final rule related to 
part 146, please see the preamble to Sec.  147.106.
3. Part 147--Health Insurance Reform Requirements for the Group and 
Individual Health Insurance Markets
a. Fair Health Insurance Premiums (Sec.  147.102)
    In the proposed rule, we proposed to replace the age band for 
individuals age 0 through 20 with multiple child age bands to better 
reflect the actuarial risk of children and to provide a more gradual 
transition from child to adult age rating. We specifically proposed 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. We proposed age 
rating factors for the default Federal standard child curve to 
correspond to the proposed child age bands. We sought comments on this 
proposal and whether the age factors should be implemented at one time 
or phased in over a 3-year period.
    We are finalizing this proposal with a modification to specify that 
the new child age bands will apply for plan years or policy years 
beginning on or after January 1, 2018; until that time the single age 
band for children will continue to apply.
    Comment: Some commenters requested that HHS establish multiple age 
bands between ages 0 and 14.
    Response: We proposed one age band for ages 0 through 14 because, 
in general, claims costs are highest for children age 0 through 4 and 
then lower for children age 4 through 14. Having one age band for 
individuals age 0 through 14 spreads the cost of newborns, avoiding 
significant premium increases for families with young children.
    Comment: Some commenters recommended that there be a child rating 
factor added to recognize when a plan includes embedded pediatric 
dental coverage.
    Response: Under the single risk pool provision at Sec.  156.80, 
claims costs for providing EHB--including the pediatric dental EHB--are 
incorporated into the marketwide index rate and spread across all of an 
issuer's plans in the single risk pool, regardless of whether any 
particular plan includes the pediatric dental EHB. Because these costs 
are reflected in the plan-adjusted index rate for each plan, it would 
not be appropriate to further vary premium rates at the consumer level 
based on whether a plan includes the pediatric dental EHB.
    Comment: Although some commenters recommended phasing in the child 
age rating factors, the majority of commenters expressed a preference 
for a one-time implementation of the change to minimize market 
disruption.
    Response: We are finalizing the proposed changes to the default 
Federal standard child age curve as proposed. In guidance being 
released with this final rule, we provide a complete, updated version 
of the default Federal standard age curve, and provide guidance for 
States on reporting State-specific rating requirements to HHS in 
accordance with Sec. Sec.  147.103 and 156.80(c). We note that States 
may, but are not required to, modify existing State-specific age curves 
as a result of this final rule; State-specific age curves that utilize 
the same factor for ages 0 through 20 are not inconsistent with the 
multiple child age bands established by this final rule. We are also 
adding regulation text to reflect that the changes to the age curve and 
rating factors will occur all at once, and will be effective for the 
2018 plan year.\9\
---------------------------------------------------------------------------

    \9\ CMS Insurance Standards Bulletin: Guidance Regarding Age 
Curves and State Reporting. Dec. 16, 2016. Available at https://
www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/
index.html#Health Insurance Market Reforms.
---------------------------------------------------------------------------

b. Guaranteed Availability of Coverage (Sec.  147.104)
(1) Limited Open Enrollment Periods
    For a discussion of the provisions of this final 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 in 
sections II.B and III.B of this final rule.
(2) Network Sharing Arrangements Between Affiliated Issuers
    Under section 2702 of the PHS Act, as added by the Affordable Care 
Act, a health insurance issuer that offers health insurance coverage in 
the group market generally must accept every employer in the State that 
applies for such coverage, but may limit its offer of coverage to 
employers in the small group and large group market that have eligible 
individuals who live, work, or reside in the service area of the 
issuer's network plan. In the proposed rule (81 FR at 61462 through 
61463), we explained that Federal law does not require that the 
employer itself have a place of business within the issuer's service 
area to be entitled to guaranteed availability for its employees.\10\
---------------------------------------------------------------------------

    \10\ Nothing in section 2702 of the PHS Act requires an issuer 
to offer coverage to an employer where the situs of the contract is 
outside the State in which the issuer is licensed to engage in the 
business of insurance, or requires an issuer to offer coverage to an 
employer if doing so would exceed the scope of that issuer's license 
from the applicable State authority.
---------------------------------------------------------------------------

    Some affiliated issuers have contractual arrangements that do not 
allow them to offer coverage to an employer whose business headquarters 
is outside their service area, but will allow the employer's employees 
who live, work, or reside in the service area of an affiliate issuer to 
access in-network coverage under the employer's plan through network 
sharing arrangements between the affiliated issuers. 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 using the provider 
networks of both issuer A and B, but that employer could not purchase 
coverage from issuer B. These issuers believe that issuer B satisfies 
the guaranteed availability requirements because the employer can 
purchase 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 provider network. We sought comment on whether or how these 
arrangements could be structured, consistent with State licensure 
requirements, to satisfy guaranteed availability requirements.
    Comment: Several commenters expressed support for the use of 
network sharing arrangements, though they did not explain how the 
restrictions on the sale of coverage were consistent with the 
requirements of section 2702 of the PHS Act. Other commenters were 
concerned about allowing issuers to deny coverage under these 
arrangements, suggesting it would create an uneven playing field for 
non-affiliated issuers, reduce employers' and employees' coverage 
options, and violate the guaranteed availability requirements.
    Response: We agree with commenters who suggested that there is no 
exception to the guaranteed availability requirements for issuers who 
are members of a group of affiliated issuers. Under the statute, 
``each'' issuer must guarantee availability of all of its products that 
are approved for sale in the market in the State, and the statute does 
not allow an issuer to satisfy its

[[Page 94066]]

obligations by ensuring that a plan is available from one or more 
separately licensed issuers. While issuers, therefore, may not deny an 
application for coverage of an employer with eligible employees who 
live, work, or reside within the issuer's service area absent an 
applicable exception, we note that nothing in section 2702 of the PHS 
Act prohibits an issuer from entering into a network sharing 
arrangement or from referring employers that apply for coverage to an 
affiliate issuer, and we agree with commenters that network sharing 
arrangements can be an attractive coverage arrangement for many 
employers.
    We recognize that issuers with these types of arrangements may need 
time to modify their contractual agreements, and that this process may 
not be completed when issuers will be completing their plan designs in 
early 2017 for plan years beginning in 2018. Accordingly, HHS will not 
take enforcement action for plan years beginning before January 1, 
2019, with respect to an issuer with a contractual arrangement in 
effect as of the publication date of this final rule that prevents it 
from offering coverage to an employer that is located outside the 
issuer's service area as required under section 2702 of the PHS Act, if 
the following conditions are met: (1) An affiliate issuer makes 
coverage available to the employer on a guaranteed availability basis, 
and (2) the employer's employees can access in-network coverage under 
the same plan through the affiliated issuers' provider networks. 
States, as primary enforcers of the guaranteed availability 
requirements, may exercise similar enforcement discretion, and will not 
be considered by HHS to be failing to substantially enforce the 
guaranteed availability provision for this reason.
c. Guaranteed Renewability of Coverage (Sec.  147.106)
(1) Market Withdrawal Exception to Guaranteed Renewability Requirements
    Section 147.106(d)(2) provides that a health insurance issuer that 
elects to discontinue all health insurance coverage in the individual, 
small group, or large group market in a State is prohibited from re-
entering the applicable market for at least 5 years. The following 
amendments will become effective with the effective date of this final 
rule.
i. Transfer of Products to a Related Issuer
    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 proposed to add new Sec.  147.106(d)(3) to provide that an 
issuer has not discontinued offering all health insurance coverage in a 
market if the issuer or 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 amended in Sec.  144.103 of this final rule), meaning that 
any change to the product is within the scope of a uniform modification 
of coverage under Sec.  147.106(e). We also proposed 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\ We are finalizing the amendments to Sec.  147.106(d)(3), 
(d)(3)(i), and (e)(3)(i) and finalizing conforming amendments at 
Sec. Sec.  146.152(d)(3), (d)(3)(i), and (f)(3)(i) and 148.122(e)(4), 
(e)(4)(i) and (g)(3)(i), with non-substantive clarifying modifications 
to the text of the regulation, including the addition of Sec. Sec.  
146.152(d)(4), 147.106(d)(4), and Sec.  148.122(e)(5).
---------------------------------------------------------------------------

    \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 purposes of guaranteed renewability, we proposed to use a 
definition based on the Code 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 proposed that ``controlled group'' means a group of 
two or more persons that is treated as a single employer under sections 
52(a), 52(b), 414(m), or 414(o) of the Code. We proposed 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 provider's fee, 
respectively, and are familiar to health insurance issuers. We also 
noted that the definition of issuer group under Sec.  156.20 is 
familiar to issuers and sought comment on whether to use a similar 
definition or another definition for purposes of these regulations. We 
are finalizing the definition of ``controlled group'' as proposed, 
including by explicitly providing additional flexibility for States as 
described below for purposes of guaranteed renewability (as discussed 
in the proposed rule).
    As we discussed in the proposed rule, issuers transferring products 
to another issuer in their controlled group that otherwise remain 
within the scope of a uniform modification are not required to send 
discontinuation notices under paragraph (c)(1) or (d)(1), as 
applicable. However, the issuer of the coverage (whether the current 
issuer or the acquiring issuer) must provide a renewal notice under 
Sec. Sec.  146.152(h), 147.106(f) or 148.122(i), as applicable, at the 
time the renewal notice is otherwise required to be provided.
    We also proposed that States that interpret or apply market 
withdrawal provisions differently under State law would not be 
prohibited from considering products transferred to a different issuer 
within a controlled group to be a new product and the scenario a market 
withdrawal. We are finalizing this proposal with a modification to 
specify that a controlled group may be defined more narrowly under 
State law--that is, a controlled group may be defined to not include 
all of the entities that would be included under the definition 
established in this final rule.
    Because the products would be considered under these regulations 
the same products for purposes of continuity of coverage for the 
enrollees, we also proposed that the products be considered the same 
products for purposes of the Federal rate review requirements, to the 
extent applicable, and therefore we proposed conforming amendments as 
described in the preamble to Sec.  154.102. For further discussion of 
the amendment to Sec.  154.102, see that section of the preamble in 
this rule.
    Comment: One commenter noted that each State has its own definition 
of related business entities, and therefore recommended that HHS defer 
to the States as to which entities are included instead of using 
``controlled group'' as defined by the Code.
    Response: States may continue to interpret and apply market 
withdrawal provisions differently under State law, provided the State 
law interpretation does not prevent the application of the market 
withdrawal provision under the

[[Page 94067]]

Federal standard. In other words, States may use a definition of 
``controlled group'' that is narrower than the Code definition, but may 
not use a broader definition, because a broader definition would at 
least in some instances prevent the application of the Federal 
provision. We codify this State flexibility in the text of the 
regulation. HHS will use the definition of ``controlled group'' 
finalized in this rule for States where HHS is responsible for 
enforcement of the guaranteed renewability provisions of the PHS Act.
    Comment: One commenter recommended that HHS maintain the current 
requirements that enrollees be notified within a given timeframe that 
an issuer is undergoing a corporate change, which may result in changes 
to the enrollee's benefits and other issuer policies.
    Response: All notice requirements continue to apply. Issuers should 
refer to section XI of the Bulletin regarding Updated Federal Standard 
Renewal and Product Discontinuation Notices that HHS released on 
September 2, 2016.\12\ We note that a renewal notice, rather than a 
discontinuation notice, is appropriate in the case of a product 
transfer within an issuer controlled group where any changes to the 
transferred product are within the scope of a uniform modification.
---------------------------------------------------------------------------

    \12\ Updated Federal Standard Renewal and Product 
Discontinuation Notices. Sept 2, 2016. Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-Updated-Federal-Standard-Renewal-and-Product-Discontinuation-Notices-090216.pdf.
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    Comment: Several commenters encouraged HHS to provide additional 
technical guidance and clarification as part of the Uniform Rate Review 
(URR) Instructions on how product transfers to a different issuer 
within a controlled group would be handled for purposes of rate review.
    Response: We intend to provide technical guidance as part of the 
2018 URR Instructions.
ii. Replacement of Entire Product Portfolio
    We proposed 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, even 
if the changes made to the new products exceed the scope of a uniform 
modification of coverage.\13\ State regulators and other interested 
parties 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.\14\
---------------------------------------------------------------------------

    \13\ 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.
    \14\ 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 Sec.  155.335(j) will be considered to be a 
renewal of the enrollee's coverage.
---------------------------------------------------------------------------

    To prevent issuers from avoiding Federal rate review requirements 
by altering all of their existing products, we proposed to permit an 
issuer to replace its entire portfolio of products without triggering 
the 5-year ban under the market withdrawal provision, provided the 
issuer: (1) Reasonably identifies which newly offered product (or 
products) replace which discontinued product (or products); and (2) 
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 will 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 that purpose).
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    \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.
---------------------------------------------------------------------------

    To reflect these exceptions to market withdrawal requirements, we 
proposed to add 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 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 are finalizing the 
proposal as proposed by adding Sec.  147.106(d)(3) with minor non-
substantive modifications to the structure and text of the regulation, 
and also making conforming amendments to Sec. Sec.  146.152(d)(3) and 
148.122(e)(4).
    Comment: Some commenters suggested that the Federal rate review 
process should be required when an issuer replaces only a few products 
(as opposed to when they replace all products). Most commenters 
supported subjecting new products to rate review when those products 
are replacing discontinued products, noting that rate review is an 
important consumer protection.
    Response: When an issuer replaces all products in a market, we are 
requiring the issuer to subject the new products to the Federal rate 
review process as a condition for not triggering a market withdrawal 
and the 5-year ban on market re-entry. States may impose rate review 
requirements in more instances.
(2) Guaranteed Renewability in the Individual Market and Medicare 
Eligibility
    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 \16\ with 
knowledge that the policy duplicates health benefits to which the 
individual is otherwise entitled under Medicare or Medicaid (the anti-
duplication provision). Sections 2703 and 2742 of the PHS Act generally 
require guaranteed renewability of coverage for employers and 
individuals in the group and individual health insurance markets. Under 
existing regulations at Sec. Sec.  147.106(h)(2) and 148.122(b)(2) 
implementing the guaranteed renewability requirement, Medicare 
eligibility or entitlement is not a basis for nonrenewal or termination 
of an individual's health insurance coverage in the individual market.
---------------------------------------------------------------------------

    \16\ 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.
---------------------------------------------------------------------------

    We sought comments on whether the guaranteed renewability statute 
and the anti-duplication provision 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

[[Page 94068]]

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 finalizing an interpretation of the anti-duplication 
provision that prohibits issuers that have knowledge that an enrollee 
in individual market coverage is entitled to Medicare Part A or 
enrolled in Medicare Part B from renewing the individual market 
coverage if it would duplicate benefits to which the enrollee is 
entitled, unless the renewal is effectuated under the same policy or 
contract of insurance. This policy will become effective with the 
effective date of this final rule.
    Comment: A number of commenters agreed that Medicare eligible 
individuals should not be allowed to enroll in or renew coverage under 
individual market policies; that requiring re-enrollment of Medicare 
beneficiaries into individual health insurance coverage violated the 
anti-duplication provisions of the statute and placed the health 
insurance issuers in an untenable situation of having to choose between 
complying with the guaranteed renewability provision or the anti-
duplication provision. Several commenters expressed concerns that 
individuals enrolled in Medicare and those who are eligible for but not 
yet covered by Medicare present a significant burden to the single risk 
pool. Other commenters, however, indicated that Medicare beneficiaries 
should not be denied the option to remain in individual health 
insurance coverage, since there are situations in which individual 
health insurance coverage may be the better option for an individual 
than Medicare Parts A or B. Another commenter stated that if 
``renewal'' and ``sale or issuance'' meant the same thing for purposes 
of interpreting the anti-duplication provision, the law which provides 
for ``guaranteed issuance of coverage in the individual and group 
market'' would either have no meaning or would be redundant to, and 
contradict the provisions that address renewability.
    Response: We agree that the anti-duplication provision should be 
interpreted to prohibit the re-enrollment in individual health 
insurance coverage of an individual who is entitled to Medicare Part A 
or enrolled in Part B when the requisite knowledge standard about 
duplication is met, provided the re-enrollment is into a policy or 
contract of insurance other than the same policy or contract that the 
enrollee currently holds. The phrase ``to sell or issue'' in section 
1882(d)(3) of the Act is broad, and interpreting it to include re-
enrollments other than renewals under the same contract of insurance is 
supported by the anti-duplication provision's purpose and statutory 
context. A renewal under the Act need not be the same as a renewal for 
purposes of an issuer's satisfying its guaranteed renewability 
obligations under the PHS Act. The latter meaning has been broadened 
since we last addressed this issue in rulemaking, and we now have 
additional years of experience with respect to that meaning. Adopting 
this interpretation does not equate the phrase ``to sell or issue'' 
with ``renewal.'' As explained, we do not understand the phrase to 
apply to renewals under the same contract of insurance. We note further 
that the meaning of the phrase ``to sell or issue'' in the context of 
section 1882(d)(3) of the Act is distinct from the meaning of the 
particular terms of sections 2702 and 2703 of the PHS Act. The 
guaranteed availability provision of section 2702 of the PHS Act states 
that issuers must ``accept'' individuals who apply for coverage that is 
offered in a market in a State, and the guaranteed renewability 
provision (section 2703(a) of the PHS Act) states that issuers must 
generally ``renew or continue in force'' coverage at the option of the 
individual.
    Under our interpretation, issuers of individual market coverage 
must not re-enroll enrollees who become entitled to Medicare Part A or 
enrolled in Medicare Part B in coverage, if the issuer has knowledge 
that the coverage would duplicate benefits to which the enrollee is 
entitled, unless the coverage can be renewed under the same policy or 
contract of insurance. Whether any changes in the terms of coverage 
would require the issuance of a new policy or insurance contract would 
be determined under applicable State law.
    For the reasons stated above, we are amending Sec. Sec.  
147.106(h)(2) and 148.122(b)(2) to finalize an interpretation of the 
anti-duplication provision that prohibits issuers from re-enrolling in 
individual market coverage an enrollee who is entitled to Medicare Part 
A or enrolled in Medicare Part B if the issuer has knowledge that the 
coverage would duplicate benefits under title XVIII or title XIX of the 
Act to which the enrollee is entitled, unless the renewal is 
effectuated under the same policy or contract of insurance.
    Comment: Some commenters recommended that we create a more robust 
screening process in the Federally-facilitated Exchanges (FFEs) for 
individuals nearing their Medicare eligibility. One commenter 
recommended that we should require SBEs also to screen for Medicare 
eligibility and enrollment.
    Response: The FFEs have begun conducting periodic data matching, as 
described in Sec.  155.330(d), to identify Exchange enrollees on whose 
behalf advance payments of the premium tax credit (APTC) is being paid 
who may be enrolled in Medicare that is considered minimum essential 
coverage. We are working toward a more robust process for screening for 
Medicare eligibility and enrollment for individuals who are applying 
for individual health insurance coverage in the FFEs and State-based 
Exchanges on the Federal platform (SBE-FPs), and encourage SBEs to do 
the same.
4. Part 148--Requirements for the Individual Health Insurance Market
a. Guaranteed Renewability of Individual Health Insurance Coverage 
(Sec.  148.122)
    For a discussion of the provisions related to part 148, please see 
the preamble to Sec.  147.106.
5. Part 152--Pre-Existing Condition Insurance Plan Program
a. 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 QHPs 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.
    Starting in 2010, shortly after the Affordable Care Act was 
enacted, HHS established and began operating the PCIP Program required 
under section 1101, 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. 
For a variety of reasons, however, individuals from the

[[Page 94069]]

high-risk pool established under section 1101 may find it difficult to 
obtain and maintain coverage in QHPs without a lapse in coverage.
    In the proposed rule, we sought information regarding whether and 
how the remaining funds provided under section 1101 might be used to 
ensure the successful transition of former Pre-Existing Condition 
Insurance Plan (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 sought 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 sought information 
about other appropriate measures to assess the size and impact of 
former PCIP enrollment on existing issuers.
    Comments: Commenters agreed with HHS's continued focus on ensuring 
coverage for high-risk individuals in the Exchanges. One commenter 
noted that although they support focusing on this patient population, 
they would not support efforts to revert to PCIP coverage. Several 
commenters provided suggestions on ensuring a patient's transition is a 
smooth, transparent process and that enrollees do not experience lapses 
in coverage, especially with respect to medications and benefits 
formerly provided by PCIP. One commenter recommended using the 
remaining funds to help ensure continuity of care by subsidizing 
deductibles or out-of-pocket costs under QHPs or supporting case 
managers working with former PCIP enrollees. Another suggestion was to 
use remaining PCIP funds to offset issuer costs for high-cost 
enrollees. We received suggestions on how to best identify former PCIP 
enrollees, such as working with AIDS Drug Assistance Programs and prior 
PCIP administrators (both at the State and Federal level). Commenters 
noted that current QHP issuers are unlikely to be able to identify 
individuals as prior PCIP enrollees.
    Response: We thank commenters for their input. We continue to 
examine this issue, and will not take action on it in this final rule.
6. Part 153--Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment Under the Affordable Care Act
a. Sequestration
    In accordance with the Office of Management and Budget (OMB) Report 
to Congress on the Joint Committee Reductions for Fiscal Year 2017,\17\ 
both the transitional reinsurance program and permanent risk adjustment 
program are subject to the fiscal year 2017 sequestration. The Federal 
government's 2017 fiscal year began on October 1, 2016. The reinsurance 
program is 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 6.9 percent sequestration requirement for the 
risk adjustment program for fiscal year 2017 noted in the OMB Report to 
Congress, risk adjustment payments made using fiscal year 2017 
resources in all States where HHS operates risk adjustment, will be 
sequestered at a rate of 7.1 percent.
---------------------------------------------------------------------------

    \17\ 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 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 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.
    Comment: One commenter noted that any reduction in funds that 
support risk adjustment or reinsurance functions will reduce the 
ability for these programs to fulfill their purpose.
    Response: The sequestering of reinsurance and risk adjustment 
payments will not affect the overall funding of the reinsurance or risk 
adjustment programs. 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.
b. Definition of Large Employer for the Risk Adjustment and Risk 
Corridors Programs (Sec.  153.20)
    We proposed 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 Sec.  155.20.\18\ In addition to the proposed 
rule, HHS provided notice of our intent to make this change in an FAQ 
\19\ that 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.
---------------------------------------------------------------------------

    \18\ Section 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 that employed an average of at least 51 employees on 
business days during the preceding calendar year and that 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.
    \19\ FAQs #15450 and #15449. 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 who 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.\20\ 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 Small 
Business Health Options Program (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 
final rule supersedes or conflicts with the option under section 
1312(f)(2)(B)(i) of the Affordable Care Act, which will allow large 
employers to participate in a SHOP, at the option of a State.
---------------------------------------------------------------------------

    \20\ See 79 FR 8544.
---------------------------------------------------------------------------

    In the FAQ, HHS also clarified that for the risk corridors program, 
the issuer

[[Page 94070]]

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 are finalizing the deletion 
of the definition of ``large employer'' set forth in Sec.  153.20 as 
proposed.
    Comment: Some commenters supported this proposal, noting that it 
would allow employers participating in the SHOP to have their 
experience included in risk adjustment and risk corridors if the 
company was considered a ``small employer'' but grew beyond the 
definition of small employer while maintaining SHOP coverage. Another 
commenter supported the proposal stating that HHS should treat an 
employer as small or large for risk adjustment purposes based on the 
rules for determining the employer's status for pricing purposes.
    Response: We agree with the commenters and are finalizing the 
deletion of the definition of ``large employer'' set forth in Sec.  
153.20 as proposed.
    Comment: One commenter requested that HHS propose through notice 
and comment rulemaking the adoption of a consistent counting 
methodology to align the methods used to count employees for purposes 
of determining group sizes across all applicable Affordable Care Act 
provisions, and requested that State and Federal regulators use the 
same counting methodology.
    Response: We appreciate the suggestion for consistency and 
uniformity; however, the comment is outside the scope of this 
rulemaking. HHS believes that the deletion of the definition of ``large 
employer'' set forth in Sec.  153.20 helps to achieve greater 
consistency across Federal programs.
c. Provisions and Parameters for the 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 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.\21\ 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 issues resulting from partial year enrollment, future 
recalibrations using risk adjustment data, and options for the risk 
adjustment transfer formula. We received numerous thoughtful and 
substantive comments to the White Paper and at the conference, which 
directly informed the policies in this Payment Notice. In addition, we 
received numerous thoughtful and substantive comments to the risk 
adjustment provisions of the proposed rule, which we discuss in detail 
below.
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    \21\ March 31, 2016, HHS-Operated Risk Adjustment Methodology 
Meeting: Discussion Paper. March 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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(1) 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.\22\ 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 risk 
adjustment transfer equation would occur across all plans in the 
applicable risk pool in the individual and small group markets.
---------------------------------------------------------------------------

    \22\ 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. Therefore, 
we proposed 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, at State election, States that use a combined 
individual and small group experience to establish a market-adjusted 
index rate, beginning with risk adjustment for the 2017 benefit year. 
We are finalizing this provision as proposed.
    Comment: One commenter supported this proposal but requested that 
HHS make this policy effective beginning with the 2018 benefit year. 
Another commenter supported the proposal but only if the applicable 
State agreed. This commenter also requested that HHS consider a 
different solution that would allow merged market States to have 
quarterly increases in their small group market.
    Response: In light of State input and interest in this proposal, 
HHS, beginning with the 2017 benefit year risk adjustment, will expand 
the 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),

[[Page 94071]]

as well as, at State election, States that use a combined individual 
and small group experience to establish a market-adjusted index rate. 
As stated in the proposed rule, HHS intends to work closely 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.
(2) 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 enrollee'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.
(3) 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 finalizing 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 will 
also recalibrate our risk adjustment models using 2015 
MarketScan[supreg] data blended with 2013 and 2014 MarketScan[supreg] 
data following the publication of the final Payment Notice for the 2018 
benefit year. Additionally, we note that the HHS risk adjustment 
methodology will remain in effect for future benefit years until 
updated through rulemaking, or, in the case of updates of coefficients 
for the risk adjustment model, through guidance.
    Comment: We received several comments in support of HHS engaging 
the public and seeking feedback through the White Paper and conference 
based on the experience from the first year of the risk adjustment 
program operation, and requesting HHS to continue to seek feedback on 
updating the risk adjustment model. We received a request for HHS to 
perform a comprehensive study of risk adjustment across Exchanges, 
Medicare Advantage, Medicaid, Accountable Care Organizations, and 
Medicare Shared Savings Program participants to better understand the 
limitations and success of each program and then apply lessons learned 
to improve risk adjustment for each program.
    Response: We appreciate public feedback on HHS's analysis of the 
risk adjustment program and ways to improve and update the program. The 
HHS-operated risk adjustment methodology serves different program goals 
and operates under different conditions, compared to the risk 
adjustment programs used by other CMS programs. As we noted in our 
White Paper and conference in March 2016, we remain committed to 
evaluating the program and engaging stakeholders in the program's 
policy development. We will continue to evaluate how our experience 
with other CMS risk adjustment programs may inform the HHS-operated 
risk adjustment program.
    Comment: One commenter noted that HHS should consider including in 
the risk adjustment risk score calculation data from lower-intensity 
care settings, such as skilled nursing facilities, home health, and End 
Stage Renal Disease (ESRD) facilities. The commenter also noted that 
HHS should also reconsider its International Classification of Diseases 
(ICD)-10 mapping, specifically for HCC 88 Major Depressive and Bipolar 
Disorder.
    Response: We do not use data from lower intensity care settings due 
to the potential for significant coding variation. We sought comment on 
the ICD-10 crosswalk prior to implementation, and will continue to 
review all ICD-10 updates and mappings annually, as code updates are 
released.
    Comment: One commenter noted that HHS should create a prospective 
risk adjustment model for the individual and small group markets 
instead of the current concurrent model. At the same time, this 
commenter recommended that HHS not allow issuers to report prior 
enrollee data for risk adjustment, to establish a level playing field 
for new entrants. The commenter suggested use of a ``credibility-
based'' adjustment to risk adjustment to compensate for the information 
imbalance between new and existing issuers.
    Response: We believe that a concurrent risk adjustment model 
continues to be more appropriate for the individual and small group 
markets. Concurrent models tend to emphasize the prediction of costs 
associated with current year acute health events. A considerable amount 
of the costs of chronic conditions are associated with acute 
exacerbations, which a concurrent model will better capture. Concurrent 
models can also capture the very high costs of conditions such as organ 
transplants, metastatic cancer, and low-birthweight babies that reduce 
or eliminate the disincentive for plans to contract with providers that 
treat these conditions. Prospective models tend to emphasize the impact 
of ongoing chronic conditions on costs (as opposed to random current 
year costs that can be pooled as ``insurance risk''). No previous year 
information on health status existed for the first year of the 
Affordable Care Act-established individual and small group markets in 
2014. Additionally, unlike with Medicare, enrollees move in and out of 
enrollment in the individual and small group markets and move across 
issuers. A prospective model was, therefore, infeasible for the first 
year of the Affordable Care Act risk adjustment program, and we believe 
could be inaccurate today. Shifting to a prospective model would also 
require us to increase the lag between modeling and announcement of the 
risk adjustment model, on the one hand, and rate-setting, on the other. 
Additionally, in response to the comment regarding not allowing issuers 
to report prior year enrollee data, we clarify that HHS does not track 
enrollees across benefit years, and that issuers are only required to 
report claims data for enrollees for the applicable benefit year.
i. Partial Year Enrollment
    After the 2014 benefit year of risk adjustment, we received 
feedback indicating that some issuers

[[Page 94072]]

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 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 relative 
to other plans might be lower than it might have been otherwise.\23\
---------------------------------------------------------------------------

    \23\ March 31, 2016, HHS-Operated Risk Adjustment Methodology 
Meeting: Discussion Paper, at page 36. March 24, 2016. 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 binary indicator variables 
(indicating enrollment duration of: 1 month, 2 months, and so on up to 
11 months \24\) 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.\25\
---------------------------------------------------------------------------

    \24\ Twelve months is the reference group and therefore is not 
included.
    \25\ March 31, 2016, HHS-Operated Risk Adjustment Methodology 
Meeting Questions & Answers. June 8, 2016. 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 recalibrating the 2017 risk adjustment adult model to 
reflect the incorporation of partial year enrollment duration factors. 
Those factors are labeled ``one month of enrollment . . . eleven months 
of enrollment'' in the list of factors for the final 2017 risk 
adjustment adult model at the bottom of Table 2.\26\ We are finalizing 
the incorporation of partial year enrollment duration factors in the 
risk adjustment model methodology for the reasons discussed above, 
starting with the 2017 benefit year. We are finalizing our proposal to 
amend our regulations at Sec.  153.320(a)(1) to allow for HHS to make 
this update for the 2017 benefit year risk adjustment. 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 
applicable annual payment notice. We are amending this provision to 
state that the methodology will 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 applicable 
annual payment notice, under this rule, in cases where we have 
identified a change that we can implement in other rulemaking 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 will have the authority to implement the 
change prior to the beginning of the applicable benefit year. We 
notified issuers of our intent to propose the change regarding partial 
year enrollment in prior guidance, and provided significant detail on 
the incorporation of an adjustment factor to account for partial year 
enrollment beginning with the 2017 benefit year.\27\ We are finalizing 
this incorporation to the 2017 adult risk adjustment models as 
proposed.
---------------------------------------------------------------------------

    \26\ This table replaces Table 1 published at 81 FR 12220 
through 12223 as the final adult model for the 2017 benefit year.
    \27\ March 31, 2016, HHS-Operated Risk Adjustment Methodology 
Meeting Questions & Answers. June 8, 2016. Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf.
---------------------------------------------------------------------------

    Comment: Commenters generally supported the partial year adjustment 
and recommended implementing the policy for the 2017 benefit year risk 
adjustment, noting that this adjustment will alleviate some uncertainty 
around health risk of partial year enrollees. A few commenters 
recommended that changes to the methodology be limited to the 
applicable annual payment notice, and did not support the adjustment to 
the 2017 benefit year methodology, noting that they would have liked 
the coefficients for the 2017 benefit year risk adjustment model prior 
to rate setting. Other commenters supported addressing partial year 
enrollment in the 2017 benefit year risk adjustment methodology because 
issuers had adequate time to incorporate this change with substantial 
issuer engagement and warning during rate setting. Commenters stated 
that without the level of issuer warning and

[[Page 94073]]

engagement that HHS provided for the 2017 benefit year methodology 
adjustment, making any changes to the methodology after rate setting 
and close to the beginning of the benefit year could create 
uncertainty, and the commenters would not support other changes in 
those types of instances. Some commenters were concerned about this 
precedent and recommended that this adjustment to the risk adjustment 
methodology after the applicable annual payment notice be an exception 
to the policy to publish changes in the applicable annual payment 
notice, and not a regular occurrence. Other commenters requested that 
HHS continue to make any changes to the risk adjustment methodology 
through a regulatory or subregulatory process with at least a 30-day 
comment period, and HHS publish clear guidelines as to future changes 
that could be made after the benefit year's Payment Notice. One 
commenter suggested that HHS implement the partial year enrollee 
adjustment changes beginning for the 2016 benefit year, stating that 
issuers would have sufficient time for this change to be implemented; 
another supported implementing partial year adjustment factors 
retroactively, for as early as the 2014 benefit year risk adjustment 
model.
    Response: We are finalizing our proposal to adjust for partial year 
enrollment beginning with the 2017 benefit year. We recognize that 
issuers incorporate the applicable benefit year's risk adjustment 
methodology in their rate setting. Following the Risk Adjustment 
Conference, we announced our intent to propose to update the risk 
adjustment methodology for the 2017 benefit year with the partial year 
adjustment factors in our June 8, 2016, press release. We intend to 
continue updating the risk adjustment methodology for future years 
through notice and comment rulemaking, with adequate notice to the 
issuers prior to rate setting. We did not propose to, and are not 
changing, the risk adjustment methodology for the 2014, 2015, and 2016 
benefit years. As these benefit years have already begun, we could not 
implement such a change prior to the applicable benefit year or provide 
advance notice to permit issuers to incorporate the applicable benefit 
year's risk adjustment methodology in their rate setting. However, for 
the 2017 benefit year, we provided advance notice to issuers prior to 
rate setting, and believe an adjustment for partial year enrollees will 
better compensate issuers with higher than average partial year 
enrollees.
    Comment: Most commenters supported our proposal to amend our 
regulations at Sec.  153.320(a)(1) to allow for instances such as for 
the partial year adjustment for the 2017 benefit year, when HHS can 
provide sufficient notice. A few commenters suggested that HHS state in 
the regulation that it may make such changes outside the applicable 
payment notice with sufficient notice and prior to rate setting. Most 
commenters supported any adjustments as long as they are in advance of 
rate setting. A few commenters did not support the amendment to the 
regulation, and requested that HHS make all changes to the methodology 
in the applicable payment notice.
    Response: Our amendment to our regulation at Sec.  153.320(a)(1) 
would continue to require that HHS make any changes to the risk 
adjustment methodology in advance of the benefit year in rulemaking. We 
are finalizing our proposal to amend our regulation at Sec.  
153.320(a)(1) to allow for changes to the methodology in advance of the 
benefit year where we can provide adequate notice to issuers prior to 
rate setting.
    We also proposed to incorporate partial year enrollment duration 
factors in the 2018 risk adjustment adult model in the same manner that 
we proposed for the 2017 benefit year. Those factors are labeled ``one 
month of enrollment . . . eleven months of enrollment'' in the list of 
factors for the 2018 risk adjustment adult model near the bottom of 
Table 3. We are finalizing partial year enrollment duration factors for 
the 2018 adult risk adjustment models.
    We did not propose to include the partial year enrollment 
adjustment factor 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 partial year enrollment adjustment, and whether we 
can make this adjustment in the child and infant models in the future. 
We will also 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 duration, particularly for sudden acute events.
    Comment: Commenters supported incorporating partial year adjustment 
duration factors for the 2018 benefit year. One commenter supported the 
adjustment but noted that MarketScan[supreg] data is inadequate for 
this adjustment and suggested that HHS use enrollee-level External data 
gathering environment (EDGE) data for further analyses on partial year 
adjustment. Another commenter noted that the proposed partial year 
adjustment factors would still undercompensate for special enrollment 
period enrollees but are adequate for partial year enrollees who began 
enrollment during the open enrollment period.
    Other commenters recommended that HHS use partial year duration 
factors combined with HCCs. One commenter expressed concern that the 
proposed adjustment treats partial year enrollees with acute and 
chronic conditions equally, and that this would excessively favor 
issuers with partial year enrollees.
    One commenter disagreed with this adjustment for the 2018 benefit 
year as well, and suggested changing special enrollment period 
regulations instead; a few other commenters suggested HHS to do so in 
conjunction with this adjustment. Another commenter was concerned that 
the duration factors may reward plans that prompt consumers to switch 
plans and may create solvency issues for issuers with longer-term 
steady enrollments. Additionally, a commenter noted that HHS should 
analyze EDGE data to assess the variance in partial year enrollment for 
issuers, and if this variance is consistent across issuers, on average, 
risk adjustment would not need to be adjusted for partial year 
enrollment. Another commenter noted that HHS should track enrollees 
across issuers so that full risk adjustment factors can be applied for 
individuals that switch plans mid-year.
    The commenters also recommended adding the partial year adjustment 
to child and infant models.
    Response: We are finalizing the incorporation of partial year 
adjustment factors to the 2018 risk adjustment adult models as 
proposed. We will continue to evaluate this approach. In particular, we 
anticipate using EDGE data to evaluate whether model accuracy could be 
improved by estimating separate duration factors for special enrollment 
period enrollees versus partial year enrollees who began enrollment 
during the open enrollment period, an issue

[[Page 94074]]

that cannot be addressed using MarketScan[supreg] data. We clarify that 
risk scores are calculated including enrollees' enrollments across all 
of an issuer's risk adjustment covered plans, and so we do not believe 
the adjustment would encourage issuers to shift consumers to other 
plans. Because we are unable to track enrollees across issuers, the 
partial year adjustment factor would adjust for disproportional partial 
year enrollment by issuer. At this time, we are not adding the partial 
year adjustment factors for the child and infant models due to 
limitations on using the MarketScan[supreg] data, as a few commenters 
pointed out. However, we intend to further study the issue.
    Comment: Commenters noted HHS should further analyze the partial 
year enrollees' risk differences. Most commenters supported using a 
hybrid model in the future that identifies HCCs most likely affected by 
partial year adjustment, separately for individual and small group 
market plans, and make partial year adjustments accordingly. One 
commenter supported separate models by duration cohorts (1-4 months, 5-
8 months, 9-12 months), which would provide a sufficient level of 
accuracy when coupled with the administrative complexity of 
incorporating this into the model. A few commenters noted that HHS 
should not change the model type until a detailed analysis of results 
from the partial year adjustment incorporation is conducted, and that 
issuers should be provided adequate time to understand the effect of 
this and other adjustments proposed prior to making additional changes.
    Response: We will continue to assess different techniques for 
estimating the risk of partial year enrollees in the future. We are 
moving forward with the adjustment as proposed, and may propose 
different approaches once better data becomes available.
ii. Prescription Drug Hybrid Model
    As discussed in the White Paper, HHS has been considering whether 
to incorporate 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 sought 
comments on our proposal.
    Many comments 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 our proposal to use drug data in the risk adjustment 
model, we sought to strike a reasonable balance between increasing 
predictive accuracy and reducing incentives for over-prescription. 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, such as 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 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 
enrollees 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 intended to propose to 
incorporate a

[[Page 94075]]

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.\28\ We proposed to 
incorporate a small number of prescription drugs in the risk adjustment 
model for the 2018 benefit year. We proposed 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 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 rulemaking.
---------------------------------------------------------------------------

    \28\ March 31, 2016, HHS-Operated Risk Adjustment Methodology 
Meeting Questions & Answers. June 8, 2016. 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 
reasonable 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 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 EHB requirements 
and for public access and transparency. The USP classification also 
provides chemical ingredient level identifications for drug 
classifications; that is, unlike the 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 the HHS 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 clinicians.
    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--When 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

[[Page 94076]]

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 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 proposed a small number of drug-
diagnosis pairs for the 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 and staff 
clinicians 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 limiting the number of prescription drug classes 
included as predictors to only those drug classes 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. We are finalizing the hybrid drug-diagnosis model 
as proposed.
    Comment: Many commenters supported the inclusion of prescription 
drugs into the HHS risk adjustment methodology as proposed, with 
numerous commenters stating that this change will help stabilize the 
individual and small group markets, protecting the financial solvency 
of health insurance issuers and helping to ensure a vibrant insurance 
marketplace that provides ample insurance options for consumers, while 
reducing the incentives for plans to discriminate against individuals 
with high-cost conditions or designing formularies that may discourage 
the use of prescription drugs that ultimately prevent costly 
complications. Commenters that supported the inclusion of prescription 
drug data noted that prescription drug data is often more readily 
available than medical claims data.
    Response: We agree with commenters that the incorporation of 
prescription drug data will help stabilize the individual and small 
group markets, because the prescription drug data is standardized, and 
may help reduce the incentives for issuers to avoid making available 
treatments for high-cost conditions in their formularies.
    Comment: Several commenters encouraged HHS to include prescription 
drug utilization in the HHS risk adjustment methodology beginning for 
the 2017 benefit year, instead of beginning for the 2018 benefit year 
as proposed, while two commenters requested that the changes proposed 
by HHS be implemented in 2016, and applied retroactively to 2014 and 
2015.
    Response: To promote market stabilization and transparency, we 
intend to implement the proposed drug classes in Table 1 into the adult 
risk adjustment models beginning with the 2018 benefit year. We believe 
that giving issuers the opportunity to build into their rates and 
benefit designs significant, structural changes to the model, such as 
predicting enrollees' expenditures based on prescription drug 
utilization, promotes premium stability because issuers will believe 
there is less need to raise rates to account for unanticipated changes 
to the risk adjustment methodology. As such, we will not recalibrate 
the 2016 or 2017 models to account for this major change, as rates for 
those benefit years have already been set by issuers who lacked 
sufficient notice and detail to have reasonably accounted for this 
change.
    Comment: One commenter supported the use of prescription drug data 
to improve the risk adjustment model's accuracy, but noted that the use 
of such data should not increase the administrative burdens on 
physicians. Another commenter believed that the use of prescription 
drug information in the model would add administrative burden and 
complexity, as issuers will have to make substantial changes to the 
reporting and analytics that support the completeness and accuracy of 
this reporting. Commenters also stated that HHS would have a more 
complex model to update each year and to communicate to plans. 
Commenters requested that if any changes to issuers' EDGE data 
submissions are needed due to the inclusion of pharmacy data in the 
risk adjustment model, HHS inform issuers of any changes as early as 
possible, and well in advance of the 2018 plan year. Another commenter 
requested that HHS provide the necessary operational and technical 
guidance on specifications for submissions of drug claims and that HHS 
consider how the drug data can be properly safeguarded, publicly 
disclosing well in advance, and soliciting public comment on any plans 
to use drug claims for any purposes besides risk adjustment.
    Response: HHS has required issuers to provide access to pharmacy 
claims via EDGE servers since the 2014 benefit year. We are not 
requiring the submission of additional pharmacy claims data elements; 
thus, there is no additional burden on issuers or physicians. The 
privacy and security safeguards described at Sec.  153.340 continue to 
apply to all data collected through the EDGE server, including pharmacy 
data, which is collected under Sec.  153.710. We note that, because 
pharmacy data is one component of the EDGE data collection, the 
pharmacy data will be masked and used in the same manner the EDGE data 
is used--that is, for risk adjustment model recalibration, analysis, 
and informing the AV Calculator methodology. Like all EDGE data 
elements collected, de-identified pharmacy data could also be included 
in any public use file with the same privacy protections as described 
in the section on risk adjustment issuer data requirements.
    Comment: We received a recommendation that the risk adjustment 
models incorporate factors that may indirectly affect risk, such as 
utilization variation due to access to pharmacies or plans' cost-
sharing structures.
    Response: Access to prescription drugs, whether due to proximity to 
pharmacies or a plan's cost-sharing structure, is an area we are 
continuing to evaluate. As we noted in the White Paper, we understand 
that in some cases higher rates of prescription drug usage may reflect 
regional pricing and prescribing patterns in addition to

[[Page 94077]]

health status. We welcome additional recommendations regarding how we 
might capture utilization differences not reflective of health status 
in the model.
    Comment: We received many comments in support of HHS evaluating the 
initial drug classes to determine if the inclusion of the drug classes 
improves the risk adjustment methodology's ability to account for more 
severe patient cases and to evaluate the potential for gaming. 
Commenters requested that HHS release the evaluation results publicly 
before proceeding with any additional actions to expand or modify the 
drug classes for inclusion in the risk adjustment model. As part of 
that evaluation, commenters recommended that HHS monitor the 
utilization and unit cost of drugs included in the model, and track and 
study prescription rates for the underlying NDCs in the RXCs chosen for 
inclusion in risk adjustment, including through studies and the use of 
EDGE data. Some commenters requested that HHS publish data on the 
percentage of enrollees with imputation RXCs that also received an HCC 
and vice versa. Another commenter recommended that HHS begin developing 
the criteria and metrics it will use to evaluate the hybrid model's 
performance to reassure stakeholders that the rigor in the 
consideration of options to include drug data will continue past the 
first year of implementation, suggesting analytics such as prescribing 
prevalence of included drugs before and after implementation, the 
predictive power of the RXC, drug trends for associated drugs, or 
evaluating the impact had HHS required a minimum days' supply. Two 
commenters requested that HHS implement levers in the event that RXCs 
are overcompensating plans. One commenter recommended that HHS 
carefully track NDCs associated with a RXC so that it includes all NDCs 
used during the benefit year, including those that expired or were 
changed. Some commenters expressed concern that incorporating 
prescription drug utilization more widely could make risk adjustment 
more susceptible to gaming, perverse incentives, and distorted 
prescribing patterns, such as policies that encourage providers to 
prescribe more costly drugs within a therapeutic class or to use 
prescription drug treatments rather than less-costly alternatives like 
behavioral modification. One commenter stated qualified support but 
cautioned that the success of the incorporation of prescription drugs 
in other countries' risk adjustment programs does not necessarily 
provide support for prescription drug use in risk adjustment more 
generally. Several commenters stated providers would not over-prescribe 
based on risk adjustment coefficients because there is no direct 
relationship between the compensation a provider receives from an 
issuer and the cost of the medication it prescribes.
    Response: We agree with commenters who suggested HHS evaluate the 
initial drug classes to determine if the inclusion of the drug classes 
improves the risk adjustment methodology's ability to account for more 
severe patient cases and to evaluate the potential for gaming. We also 
appreciate the suggestions for the criteria we should use in monitoring 
prescribing behavior. As we noted in the White Paper, the potential for 
gaming or perverse incentives is a primary concern in creating models 
that use prescription drug data. Perverse incentives arise in any risk 
adjustment model in which utilization indicators (such as 
prescriptions) trigger additional payments. Treatment decisions may be 
influenced or distorted by financial considerations, and basing risk 
adjustment on drug utilization will tend to bias health plans towards 
drug rather than non-drug treatments, potentially reducing plans' 
incentives to tightly manage drug utilization. We agree with commenters 
that HHS must perform analysis to determine which drug classes (or 
individual drugs) are most susceptible to gaming, with a specific 
emphasis on the drug classes included in the HHS risk adjustment model 
for the 2018 benefit year. While we designed the drug classes included 
in the 2018 benefit year adult models to promote predictive accuracy 
and reduce susceptibility to gaming, it is not clear that drug 
utilization is less discretionary than other types of health 
utilization predictive of expenditures, such as hospitalizations for 
chronic conditions. We intend to make public our analysis of 
prescription drug utilization after 2018 EDGE data is available, 
comparing 2018 with previous years of EDGE data.
    Comment: One commenter stated that HHS will not be able to 
determine through auditing pharmacy data whether the diagnosis that was 
imputed was in fact made, since clinical providers go to great lengths 
to ensure the accuracy of their documentation, but prescriptions 
generally do not include any clinical or diagnostic information, and as 
such, HHS should not employ a risk adjustment model that is based on 
data that cannot be adequately audited.
    Response: HHS does not perform risk adjustment data validation 
audits with the intent of determining whether a clinician correctly 
diagnosed a patient. Rather, HHS ensures that enrollees' diagnoses on 
paid claims reflect the appropriately assigned HCCs and were diagnosed 
by a licensed clinician. Likewise, in validating pharmacy claims, we 
intend to validate factors such as whether the prescription was filled 
and paid by the issuer, and whether the appropriate RXC interaction was 
assigned. We understand commenters' concerns regarding prescription 
drug data and intend to closely monitor prescribing behavior in the 
2018 benefit year.
    Comment: One commenter expressed concern that the time lag in the 
data will not reflect the actual benefit year costs of high-cost 
treatments such as those for HIV or Hepatitis C.
    Response: The data time lag for risk adjustment has been a 
persistent issue in reflecting accurate drug costs for the applicable 
benefit year, even prior to the incorporation of RXCs in the risk 
adjustment models. We have proposed potential solutions to mitigate 
this time lag, but commenters tend to prefer predictability in 
coefficients over more recent and more reflective data of the 
applicable benefit year. We note that, in an effort to reflect changing 
drug costs as accurately as possible on older data, we do trend drug 
costs from the MarketScan[supreg] data to the applicable benefit year 
by specialty drugs and traditional (branded and generic) drugs 
separately.
    Comment: A few commenters strongly disagreed with HHS's rationale 
for using U.S. Pharmacopeia (USP) (in part to maintain consistency with 
the Essential Health Benefits standards). These commenters stated that 
using USP does not achieve HHS's stated purpose of assuring appropriate 
formulary breadth. A few commenters also expressed concern that the 
drug classes are limited to USP classifications developed for the 
Medicare Part D model, as not all classes of drugs are covered by 
Medicare, making the USP classifications an incomplete list of classes 
for the purposes of the private marketplace. One commenter stated plans 
are not incentivized to cover drugs that are not included in the USP 
categories. One commenter noted that the USP drug classes are updated 
infrequently. One commenter supported the use of the USP classification 
system, and recommended that HHS apply lessons learned from the use of 
prescription drug data in other risk adjustment programs. Several 
commenters requested that HHS provide the link to the USP drug 
classifications (and an extension of the comment period to evaluate 
once provided).

[[Page 94078]]

    Response: We developed the current RXCs as analogues of certain 
therapeutic classes from the American Hospital Formulary Service 
system, which is not limited to Part D drugs. We were able to 
successfully crosswalk all of those original American Hospital 
Formulary Service classes for inclusion in the HHS risk adjustment 
model to the USP. In developing the drug classes included in the risk 
adjustment model, the RXCs are not comprehensive; they include select 
drug classes (and in some cases, specific drugs) that are closely 
associated with particular diagnoses. We use the USP classes as a 
guideline in defining the RXCs. For each RXC, we thoroughly 
investigated whether there should be additional drugs added to the 
class, or any drugs removed from the class. We defined each RXC as a 
collection of NDCs listed in the RxNorm database, which is a 
comprehensive database of drugs independent of Part D or other 
formularies.\29\ We do not believe that drugs excluded from Part D 
represent a significant concern for coverage under the HHS risk 
adjustment models, as none of the excluded categories were under 
consideration for inclusion in the HHS risk adjustment models. We 
understand that USP is planning to introduce a new drug classification 
system designed to more broadly apply to all populations--not only to 
Part D beneficiaries--which we expect to be effective in early 2017 and 
revised annually.\30\ We believe that using the USP drug classification 
as a starting point in developing the RXCs for inclusion in the risk 
adjustment model is the most transparent approach, as using the 
American Hospital Formulary Service as a proprietary categorization 
would have required additional contractual arrangements to provide the 
NDC mappings to those classes, which are not freely available to the 
public. We also note that HHS is already using the USP for other 
regulatory purposes.
---------------------------------------------------------------------------

    \29\ RxNorm Database. https://www.nlm.nih.gov/research/umls/rxnorm/.
    \30\ USP Drug Classification. http://www.usp.org/usp-healthcare-professionals/drug-classification.
---------------------------------------------------------------------------

    Table 1 shows the list of RXC-HCC pairs that we are including in 
the initial hybrid model. Each pair is designated as either an 
imputation/severity or a severity-only relationship. For each pair, 
Table 1 shows the coefficient for the diagnosis (HCC), the drug 
utilization (RXC), and the interaction of the two.
    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 enrollee 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 1 lists the RXC-HCC pairs we are finalizing to 
incorporate in the adult models for the 2018 benefit year. Table 3 
incorporates the full set of HCCs and RXC-HCCs and their associated 
coefficients that we are finalizing to implement in the 2018 adult 
models.

              Table 1--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.
----------------------------------------------------------------------------------------------------------------


[[Page 94079]]

    We are finalizing incorporating 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.
    Comment: Several commenters supported the use of the hybrid model, 
stating that it will improve the accuracy of risk adjustment. 
Commenters stated that the hybrid model is a practical approach to risk 
adjustment and strikes a fair balance between the benefits of utilizing 
prescription drug data against the potential risks. One commenter 
believed that the imputation of conditions will help predict the risk 
of partial-year enrollees, including partial-year enrollees in the 
small group market due to non-calendar plan years, while the severity 
component will improve the model's predictive power and increase the 
model's ability to compensate adequately for high-cost conditions. We 
received a few comments suggesting that it may make the most sense for 
HHS to begin with an imputation-only approach in order to limit the 
potential for confusion on behalf of plans and providers and to avoid 
the complexity of the hybrid model that undercuts a key purpose of 
incorporating pharmacy data into risk adjustment, which is to help fill 
gaps in diagnoses. While one commenter supported the hybrid model, the 
commenter suggested HHS create a third relationship category for 
imputation-only, stating that it is not necessarily the case that 
prescription drug utilization that is indicative of a specific 
diagnosis is also reflective of the severity of the disease state. One 
comment expressed concern that this model may create a strong perverse 
incentive to overprescribe medications that are included in the risk 
adjustment model and should therefore be avoided. One commenter 
suggested that HHS ensure that the model take into account enrollees 
with multiple chronic diseases and put into place safeguards to prevent 
issuers from using the addition of drug interaction coefficients to 
penalize patients and providers. A few commenters suggested that HHS 
include drugs prescribed for multiple conditions, as excluding drugs 
with multiple indicators may bias the risk adjustment model in favor of 
high-cost medicines with very specific uses over well-established 
medicines that are effective across multiple conditions. Other 
commenters noted that the inclusion of drug utilization can reduce the 
model's predictive accuracy since some drugs can be prescribed for 
multiple conditions and drugs can have ``off-label'' uses. One 
commenter recommended that HHS modify its proposal so that a single 
prescription drug category (RXC) is paired to a single HCC, and focus 
on incorporating RXCs tied to drugs for which there is only one 
approved and widespread use. One commenter opposed the use of the 
presence of a prescription drug to impute diagnoses that are not 
otherwise contained in the medical record as the result of a clinical 
contact, as a clinical condition that requires ongoing medication also 
requires clinical visits to ensure complete, quality care of the 
patient and appropriate management of the condition. Several commenters 
requested that HHS describe the iterative process of building an 
enrollee's risk score when prescription drugs are included.
    Response: We agree with commenters that the hybrid model presents a 
fair balance between allowing for the imputation of missing diagnoses, 
while ensuring that risk adjustment compensates issuers for high-cost 
treatments provided for serious conditions. To clarify, in the drug 
model we are implementing, three different predicted levels of 
incremental expenditures may be modeled: One for enrollees with the 
diagnosis only, one for enrollees with the prescription drug claim 
only, and a third level for people with both indicators. As we 
discussed in the White Paper, drugs associated with multiple conditions 
must be evaluated carefully. For example, disease-modifying 
antirheumatic drugs (RXC 8, DMARDs) are most commonly used for 
rheumatoid arthritis (HCC 56), and less commonly for inflammatory bowel 
disease (HCC 48). Most people taking DMARDs have a rheumatoid arthritis 
diagnosis, which might suggest the drug class can be used to impute 
missing rheumatoid arthritis diagnoses. However, some enrollees take 
DMARDs for inflammatory bowel disease and do not have rheumatoid 
arthritis, so it would be incorrect to always impute rheumatoid 
arthritis for users of DMARDs. In this model, we impute rheumatoid 
arthritis for people taking DMARDs only if no diagnosis of inflammatory 
bowel disease is present. However, for other drug classes indicated for 
multiple diagnoses where use of the drug is more evenly split among 
multiple diagnoses, adopting a similar approach is more challenging. We 
also ensured that an enrollee's risk score would never be reduced for 
recording the prescription and diagnosis by imposing constraints on the 
coefficient estimates. We agree with commenters that an example of the 
iterative process of building an enrollee's risk score under the hybrid 
model would be very helpful and have included an example below.
    Comment: Several commenters supported the drug classes HHS proposed 
to incorporate into the HHS risk adjustment methodology and believe 
they are well-suited to indicate the severity of the associated 
illnesses. A few commenters commended HHS's decision to include 
prescription drugs cautiously and incrementally, with some supporting a 
collaborative approach to including or changing the drug 
classifications in the risk adjustment model. One commenter 
specifically supported the inclusion of insulin, while others 
recommended the exclusion of insulin or similarly low-cost drugs as 
severity indicators. One commenter supported the inclusion of cystic 
fibrosis drugs, noting that they are subject to practice guidelines and 
standards, including standards for prescription drug use, and are 
prescribed according to the genetic profile of the patient, which 
protects against overutilization. We received several comments in 
support of the proposed drug-diagnosis pair specifically related to 
ESRD phosphate binders, stating that it will help ensure more accurate 
identification of and payment to issuers for those ESRD patients. Some 
commenters recommended that the risk adjustment methodology account for 
HIV pre-exposure prophylaxis (PrEP) and post-exposure prophylaxis (PEP) 
by using restrictions on the HIV RXC that were proposed in the White 
Paper; they indicated that this could be done for HIV by dividing the 
HIV RXC, imputing HIV if the prescription consists of typical ``HIV 
cocktails'' with four or more weeks of drug treatment, and for PrEP by 
using the other half of the HIV RXC, such as Truvada-only 
prescriptions. This would still impute a risk score, but one that is 
lower than HIV to reflect the lower cost of PrEP. Some additional 
commenters recommended that for PEP, HHS should not impute HIV if there 
were four or fewer weeks of prescriptions filled (with no diagnostic 
code for HIV). Several commenters supported full prescription drug 
incorporation in the risk adjustment model, but acknowledged the 
challenges of making large adjustments to the dataset without

[[Page 94080]]

inadvertently harming the integrity and predictive accuracy of the 
model. Commenters recommended the addition of other drug classes to the 
risk adjustment model, such as antidepressants, arthritic agents, and 
psoriatic disease treatments, while another recommended we evaluate 
whether or not to add these additional classes. Commenters requested 
HHS consider the inclusion of oncology drugs and diagnoses and cancer 
treatments for 2018, noting that treatment guidelines would protect 
against overutilization of these drugs. Another commenter supported the 
inclusion of cancer treatments and encouraged HHS to continue its work 
to improve the accuracy of risk adjustments by ensuring that the model 
includes both physician-administered and self-administered drugs. One 
commenter supported the use of RXCs, but suggested limiting the 
inclusion to only three RXCs (Hep C, HIV, Cystic Fibrosis), and at most 
5 RXCs (Insulin, Multiple Sclerosis agents), and refraining from using 
drugs that aren't indicative of conditions, such as anti-inflammatory 
drugs, diuretics, and loop- and select-potassium sparring.
    Response: The drug classes we proposed for inclusion in the risk 
adjustment model were carefully chosen, in many cases because of the 
strict treatment guidelines surrounding some drug classes that 
commenters noted, which protect against overutilization. We approached 
the tradeoffs involved in 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. We believe the RXC risk adjustment model 
balances these competing goals to achieve a feasible, prescription 
drug-based risk adjustment payment system. Regarding the HIV RXC, we 
carefully considered the face validity of including treatments for a 
condition that would impute a condition that an enrollee did not 
actually have (in the case of HIV prophylaxis treatments) and 
determined that imputing a diagnosis for a preventive treatment would 
not be consistent with our modeling efforts. We will evaluate this set 
of drug classes to assess the modifications made to the model's 
predictive ability and the potential for gaming.
    Comment: We received a request that we implement the 181 daily 
dosage minimum beginning in 2018, with exceptions for single-treatment 
drugs such as Sovaldi, as the most effective barrier to the gaming; if 
not in 2018, then the commenter recommended we begin with EDGE data for 
2019.
    Response: We are interested in evaluating the use of minimum days' 
supply requirements for some drugs in the risk adjustment model. At 
this time, we can analyze days' supply in MarketScan[supreg] data, but 
we do not have the data elements necessary to evaluate days' supply on 
EDGE data.
    Comment: One commenter recommended that HHS provide issuers with a 
detailed draft model of how a hybrid drug-diagnosis model would work as 
soon as possible, giving issuers an opportunity to review, beta test, 
and provide comments, through the release of the risk adjustment 
software. One commenter requested additional information on the 
clinician consultants who provided technical expertise on the 
development of the RXCs. Another commenter requested additional 
information on how the coefficients were developed and how the 
principles were applied for the newly added drug classes.
    Response: We expect to provide updated EDGE server software, as we 
have done for previous benefit years of the risk adjustment program, 
that will allow issuers to approximate enrollees' risk scores under the 
2018 risk adjustment models. Our clinical consultants are clinicians 
with extensive experience in and knowledge of risk adjustment and 
health care payment policy related to pharmaceuticals and medicine.
    Comment: Commenters requested that HHS provide further information 
about the specific drugs, identified by NDCs, that it has mapped into 
each RXC category, and share its analysis regarding the conditions for 
which these drugs may be used, and how it expects to maintain these 
categories and their linkage to particular conditions as additional 
indications are added to a drug, or off-label use for other conditions 
expands. Some commenters recommended that HHS release information 
related to the drug and RXC mapping through the annual rulemaking 
process for public comment. One commenter recommended updating the 
underlying drugs in the selected drug classes annually, including 
updating to include any new or non-USP drug classes as appropriate. One 
commenter recommended including arthritis in the risk adjustment 
methodology since nearly half of enrollees with arthritis have a 
comorbidity.
    Response: We intend to publicly release a mapping of the specific 
drugs to the drug classes included in the 2018 adult risk adjustment 
models. We expect to update the mapping as prescription drug guidance 
and updates become available, similar to our public release of mapping 
of ICD-10 codes acceptable for risk adjustment and the corresponding 
HCCs, and our updates of acceptable service codes for risk adjustment.
iii. High-Cost Risk Pooling
    The HHS risk adjustment model reflects the average cost for 
enrollees with a given set of demographic characteristics and 
diagnoses. Our experience with the 2014 benefit year risk adjustment 
demonstrated that the model may underpredict costs for extremely high-
cost enrollees, since predicted plan liabilities reflect the average 
costs for enrollees with the set of demographic characteristics and 
diagnoses included in the model. As a consequence, even with our risk 
adjustment methodology 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 discussion). 
Recent research has shown that adjusting for high-cost enrollees in a 
risk adjustment model will aid the model's fit and predictive ability 
for the remaining risk population.\31\ To mitigate any residual 
incentive for risk selection 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 proposed to alter the risk adjustment methodology.
---------------------------------------------------------------------------

    \31\ 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.
---------------------------------------------------------------------------

    We accordingly proposed to incorporate into our methodology a high-
cost risk pool calculation. Under this proposal, beginning for the 2018 
benefit year, we would first exclude a percentage of costs above a 
certain threshold level in the calculation of enrollee-level plan 
liability risk scores, so that risk adjustment factors would be 
calculated for risk associated with HCCs and RXCs excluding those 
extreme costs, because the average risk associated with HCCs and RXCs 
is better accounted for without inclusion of the high-cost enrollees. 
Second, to account for the issuers' costs associated with the high-cost 
enrollees, we proposed to apply an adjustment to the risk adjustment 
calculation for each issuer of a risk adjustment covered plan to 
account for a percentage of all high-cost enrollees' costs above the 
threshold. We proposed to set the threshold and

[[Page 94081]]

percentage of costs at a level that would continue to incentivize 
issuers to control costs while aiding the risk prediction of the risk 
adjustment model. In the proposed rule, we proposed a threshold of $2 
million for each enrollee, with an adjustment equal to 60 percent of 
costs above the threshold. Issuers with high-cost enrollee expenses 
above this threshold would receive an adjustment, reflected in their 
respective transfers, to account for the percentage of costs above the 
threshold. Using claims data submitted to the EDGE server by issuers of 
risk adjustment covered plans, HHS would 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 proposed 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 for all issuers in the program.
    To implement this adjustment, we proposed two high-cost risk pools 
that would be calculated across all States under the program: One for 
the individual market (including catastrophic, non-catastrophic, and 
merged market plans), and one for the small group market. The 
adjustment to the transfer formula described above would be made for 
all issuers of risk adjustment covered plans in the individual 
(including catastrophic and non-catastrophic plans and merged market 
plans) and small group markets in the program, across all States, based 
on total premiums in the respective market. HHS would calculate an 
adjustment against each such risk adjustment covered plan's risk 
adjustment charge or payment to implement the applicable pools. We 
proposed that if an issuer were to fail the data quality analysis for a 
risk adjustment transfer and was assessed a default charge under Sec.  
153.740(b) on that basis, we would perform additional data quality 
metrics to determine an issuer's eligibility for high-cost risk pool 
adjustments.
    We believe the inclusion of this policy, in combination with the 
rest of our methodology, will allow us to better assess total actuarial 
risk for each risk adjustment eligible plan, and thereby to ensure that 
the program is appropriately compensating issuers. We are finalizing a 
threshold of $1 million and coinsurance rate of 60 percent, and expect 
total adjustments as a result of this policy nationally to be very 
small as a percent of premiums (less than one half of one percent of 
total premiums for either market). We believe this modified methodology 
will improve the measurement of actuarial risk within States, and we 
will implement it, consistent with the statute, to help ensure that 
transfers within each State from low actuarial risk plans to high 
actuarial risk plans better reflect the actuarial risk of risk 
adjustment covered plans in a market. We intend to monitor the results 
of the program as it is implemented to ensure that the program as a 
whole and balance of payments operate as intended. We anticipate that 
applying this adjustment will mitigate the need for issuers to build 
risk premiums into their rates to account for these cases, by giving 
issuers greater predictability on expenditures.
    Comment: Some commenters supported the proposal as a way to 
incentivize plans to cover individuals in rural areas and with high-
cost diseases. Some commenters did not support this proposal, stating 
they believe it offers little benefit beyond what issuers receive from 
commercial reinsurance.
    Response: We believe that excluding a portion of very high-cost 
risk enrollees' costs from the risk adjustment model calibration would 
improve the model's predictive ability. As we noted in the proposed 
rule, we expect total adjustments as a result of this policy nationally 
to be very small as a percent of premiums. We also believe this policy 
will further mitigate issuers' incentive to seek to avoid these high-
cost enrollees and to build risk premiums into their rates.
    Comment: 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. Commenters also noted that 
issuers may not have adequate data to price for this program, and could 
allow providers of high-cost conditions, such as burn centers, to 
charge extremely high prices. Commenters stated that while increasing 
the threshold could mitigate some gaming risk, where the provider and 
the issuer are the same entity, this adjustment would reward less 
efficient issuers, and would pose additional administrative burden that 
outweighs the benefits, including audits.
    Response: These high-cost enrollee pool adjustments will be subject 
to HHS's audit authority under Sec.  153.620. We believe that issuers 
will find it easier to price for the cost of the policy given the low 
percentage of premium to be charged across all States than it would be 
to price for the very high costs of these enrollees, if an issuer were 
to enroll them. We will seek to implement our audits of this policy in 
a manner that minimizes administrative burden, to the extent 
practicable. We also believe that the reduced final percentage of costs 
covered above the threshold of 60 percent, compared to the 80 percent 
coinsurance rate that was discussed in the White Paper, should continue 
to incentivize issuers to contain costs, while a lower threshold of $1 
million could ensure that more issuers benefit from this provision, by 
covering more high-cost enrollees.
    Comment: Comments ranged widely on the threshold level and the 
coinsurance rate. Some commenters supported the proposed threshold and 
coinsurance rate in mitigating gaming risk. One commenter noted that a 
lower threshold and higher coinsurance would be more effective in 
reducing risk premiums for these high-cost cases, and recommended a 
lower threshold of $500,000. Other commenters supported a lower 
threshold to make the results meaningful. A few commenters specifically 
preferred parameters closer to the example threshold and coinsurance 
rate discussed in the White Paper of $1 million and 90 percent.
    Response: We are sensitive to these commenters' concerns, 
particularly in the first year of this policy in the risk adjustment 
methodology. We believe the inordinately high costs for certain high 
risk enrollees reflect random risk selection for certain issuers. We 
had proposed a $2 million threshold, with 60 percent of an enrollee's 
costs above the threshold covered by the pool. To help mitigate 
concerns raised, while still helping protect issuers from the 
unpredictable risk of exceptionally high costs, we are finalizing a 
lower threshold of $1 million, but maintain a coinsurance rate of 60 
percent of costs above the threshold covered by the pool. The 60 
percent coinsurance rate will ensure that issuers continue to contain 
costs, while the $1 million threshold will ensure that more high-cost 
enrollees are covered by the pool, benefiting more issuers and a 
greater portion of these costs. We also note that beginning with the 
2018 benefit year recalibration, we will incorporate these parameters 
in our recalibration of the model by truncating 40 percent of costs 
above $1 million in our dataset used to simulate plan liability. Doing 
so will produce more predictive coefficients that reflect the impact of 
the high-cost enrollee pool.

[[Page 94082]]

    Comment: A few commenters supported the proposal but without a 
national risk pool. Some commenters were also concerned about the cost 
variations across States and resulting cross-State subsidization, while 
other commenters supported the national pool as it spreads the risk and 
is a very small percent of premiums. Some commenters recommended that 
the costs across States be standardized, or that HHS re-price the costs 
based on Medicare Fee Schedule for price variations across States and 
adjust for differences in plan design and networks. One commenter 
suggested that the proposed multi-State concept would destabilize some 
insurance markets and contradicts the Affordable Care Act's intention 
to have the risk adjustment, reinsurance, and risk corridors programs 
be State-based.
    Response: Consistent with the statute, the HHS risk adjustment 
methodology compares the actuarial risk of plans within a market within 
a State. As we discuss above, our continuing analysis of our models 
leads us to believe that the risk adjustment methodology as currently 
constructed may not account for outlier high-cost enrollees precisely, 
and may result in slightly overcompensated HCCs for most enrollees, and 
undercompensated HCCs for enrollees with high costs. Within certain 
HCCs, some enrollees appear to have particularly high costs. Including 
outlier costs in the estimation of these HCCs appears to 
undercompensate for such high-cost risk. To address this issue, the 
adjustment we proposed will help ensure that these very high-cost 
enrollee outliers are incorporated into CMS's modeling in a way that 
more precisely captures the actuarial risk of the plan. As we noted 
earlier in this final rule, beginning with the 2018 benefit year 
recalibration, we will incorporate these parameters in our 
recalibration of the model by truncating 40 percent of costs above $1 
million in our dataset used to simulate plan liability. Implementing 
this proposal will produce more predictive coefficients that reflect 
the impact of the high-cost enrollee pool. The resulting improvement in 
the models' coefficients from incorporating the high-cost enrollee pool 
into the risk adjustment modeling ensures that risk scores for all 
enrollees will better reflect actuarial risk.
    The high-cost risk pool calculation will function as an adjustment 
to benefit the modeling accuracy of actuarial risk within a market 
within a State in order to help calculate risk adjustment transfer 
amounts between low actuarial risk plans, on the one hand, and high 
actuarial risk plans, on the other hand, consistent with the statute. 
The Secretary has broad discretion under the statute to implement the 
risk adjustment program, and we note that other risk adjustment 
programs, such as the risk adjustment model used in the 
Netherlands,\32\ have incorporated similar approaches.
---------------------------------------------------------------------------

    \32\ Van Kleef, R. C. and R. van Vliet (2012), ``Improving Risk 
Equalization Using Multiple-Year High Cost as a Health Indicator,'' 
Medical Care 50(2): 140-144.
    \32\ 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.
---------------------------------------------------------------------------

    We are not making any adjustments to address cross-State pricing 
variations at this time.
    Comment: One commenter did not support this proposal, noting that 
HHS has interpreted actuarial risk under section 1343 of the Affordable 
Care Act as whether a plan has very high-cost enrollees. The commenter 
stated that HHS should not include factors actuaries may have 
considered in setting premium rates as these likely do not increase an 
enrollee's actuarial risk compared to average actuarial risk.
    Response: The risk adjustment program intends to minimize the risk 
of greater than average adverse selection of enrollees into certain 
plans by leveling the playing field for issuers with transfers from 
issuers with healthier enrollees to issuers with sicker enrollees. The 
model is based on enrollees' observable health characteristics to 
provide an estimate of an enrollee's actuarial risk and determine 
whether a plan enrolled healthier or sicker enrollees compared to the 
average within a market within a State. We believe that accounting in 
this manner for the very highest and most unpredictable costs will 
strengthen the risk adjustment model's predictive ability for the 
actuarial risk of enrollees based on their age, sex and diagnostic 
information. The inclusion of this adjustment, 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 covered 
plan, and thereby ensure that risk adjustment is appropriately 
compensating issuers. Addressing very high costs in this manner will 
strengthen the prediction of relative costs associated with enrollees. 
The model will more efficiently be calibrated based on relative weights 
for demographic factors, HCCs and RXCs.
    Comment: Many commenters supported including the national uniform 
adjustment calculated as a percent of premium and not capping costs at 
a certain amount. Commenters also recommended that HHS evaluate the 
impact of the adjustment to the model. One commenter suggested a fixed 
charge on issuers to be assessed with a cap on payments and the fixed 
charge published in rulemaking to provide issuers certainty. Some 
commenters wanted clarification on whether the adjustment would be 
funded through a charge, and inquired how risk adjustment would remain 
budget neutral, and supported the risk pool through a broad based fund 
instead of the risk adjustment user fee.
    Response: We are finalizing these aspects of the adjustment to the 
risk adjustment transfers as proposed. The adjustment will be assessed 
as a percent of the applicable issuer's total premiums in the 
respective market, which will be applied to the total transfer amount 
in that market and will maintain the balance of payments and charges 
within the risk adjustment program. Based on MarketScan[supreg] data 
analysis, we believe the $1 million threshold and 60 percent 
coinsurance rate we are finalizing for the high-cost risk pool will be 
less than 0.5 percent of premiums. Given the small impact of this 
adjustment, we do not believe this will create significant additional 
uncertainty for issuers overall.
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.\33\ 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 sought comment on approaches to address this issue. We 
will not implement any of these approaches for 2018, but will consider 
changes in future years.
---------------------------------------------------------------------------

    \33\ The HHS-HCC Risk Adjustment Model for Individual and Small 
Group Markets under the Affordable Care Act. 2014. Available at 
https://www.cms.gov/mmrr/Downloads/MMRR2014_004_03_a03.pdf.
---------------------------------------------------------------------------

    More specifically, we have considered the 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

[[Page 94083]]

coefficients to be the 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 predict the 
risk of the healthiest subpopulations more accurately. Similarly, we 
considered 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 considered 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 enrollees with no HCCs and 
enrollees with HCCs. Finally, we evaluated an approach in which we 
would directly adjust plan liability risk scores outside of the model 
for these subpopulations. For example, we could 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 noted 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. We evaluated the effect of 
these types of modifications on all aspects of the model's performance 
before choosing to implement such an approach, and stated that we 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.
    Comment: Commenters generally supported addressing the 
underprediction of healthy and low-cost enrollees given that 
approximately 80 percent of enrollees in the MarketScan[supreg] sample 
do not have HCCs. Commenters stated that this revision to the modeling 
would mitigate risk selection to avoid low-cost enrollees, and that 
this could result in slightly lower premiums for all enrollees. 
Commenters noted that the existing risk adjustment methodology results 
in insufficient revenue from healthy enrollees to fund costs after risk 
adjustment charges, coupled with overcompensation of issuers that have 
enrollees with moderate health conditions, and requested that HHS 
address this imbalance to promote sustainable individual and small 
group markets, through increasing enrollment among healthy enrollees. 
Other commenters noted that HHS should ensure adequate risk adjustment 
compensation for high-cost enrollees, stating that the lowest priced 
issuers attract low-risk enrollees, and that attracting enrollment by 
high risk enrollees is far more complicated and involves taking on a 
substantial amount of risk, which is not fully accounted for through 
risk adjustment. A few commenters noted that the estimation bias among 
children is greater than with the adult model, and recommended that HHS 
also adjust the child model.
    Some commenters did not support any adjustments. One commenter 
noted that such changes are unnecessary because carriers rate based on 
the full market and so slight overprediction of high-cost enrollees and 
slight underprediction of low-cost enrollees in the model calibration 
allows for accurate cost alignment once the impact of new technologies 
is considered, and that HHS's changes over the years to add preventive 
services, an adjustment for partial year enrollment, and prescription 
drug data should be adequate. Another commenter did not believe they 
had enough detail to provide sufficient comment on the proposed policy.
    Commenters generally supported a two-step constrained approach to 
separately predict age-sex coefficients for enrollees without HCCs 
stating this approach is more likely to provide year-to-year stability, 
and better explains cost differences related to demographic factors. 
One commenter cautioned that there may be some interplay in effects 
between enrollees without HCCs and partial year adjustment factors. 
Another commenter supported a two-step approach noting that this would 
allow for separate estimations for partial year enrollees. Most 
commenters did not support an adjustment outside the model. One 
commenter suggested HHS consider other alternative models, such as the 
DxCG or Milliman MARA models, stating that these models have a higher 
predictive power and may help improve the accuracy of the risk 
adjustment models' predictive ratios. A few commenters also suggested 
that bronze plans are also specifically disadvantaged by the existing 
risk adjustment model, and that HHS should adjust the model for this 
issue.
    A few commenters requested additional detail, with one commenter 
requesting the most recent model's predictive ratios and another 
requesting comparative results for all options considered. Some 
commenters supported further study on this issue and suggested that HHS 
seek to implement this policy for the 2019 risk adjustment model. A few 
commenters stated that this adjustment should be implemented prior to 
the 2018 benefit year, including retroactively for the 2014 and 2015 
benefit years. One commenter requested that HHS provide the data 
driving the policy changes, and cautioned against making changes to the 
risk adjustment model based on requests from certain groups that had 
unfavorable results in the risk adjustment program, and that HHS should 
always aim to improve the model's accuracy.
    Response: We believe that some of the modeling approaches we 
considered could improve the model's predictive ability for certain 
subgroups of enrollees. However, we are still evaluating the tradeoffs 
that would need to be made in model predictive power among subgroups of 
enrollees. We continue to focus on encouraging plans to attract high-
risk enrollees through the risk adjustment model, but agree with 
commenters that we should further evaluate solutions prior to making 
any adjustments to the model. We will continue to explore these 
modeling approaches and look forward to comparing our results with the 
EDGE enrollee-level data collection, which we are also finalizing in 
this rule.
    In addition, we noted in the proposed rule the feedback we have 
received regarding our transfer methodology in community-rated States. 
In the 2014 Payment Notice, we stated that billable members exclude 
children who do not count toward 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 toward 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 toward the premium. We sought comment 
on whether our methodology for calculating billable

[[Page 94084]]

member months in family tiering States should be altered, and how. 
Based on comments received, we are not making any changes to the 
transfer methodology with respect to billable member months at this 
time.
    Comment: Most commenters did not support a change to the transfer 
methodology with respect to community-rated States because changes in 
risk scores and allowable rating factors would be offset by changes in 
the State average premium and billable member counts. Commenters noted 
our statement in the White Paper that this design allows for 
incorporating the additional risk for non-billed members leading to 
higher Statewide average premium, which gets cancelled out because 
transfers are also multiplied by billable member months. A few other 
commenters supported such an adjustment, noting that using billable 
member months inflates risk and transfers.
    Response: We believe that our current methodology in community-
rated States is consistent with using enrollment that contributed 
toward premiums for risk adjustment calculations. If we were to use a 
method that calculated average risk including non-billed members, it 
would lower risk scores, but would understate transfers, because those 
transfers would not account for the risk of the non-billed members. We 
are not making any changes to the transfer methodology with respect to 
billable member months at this time.
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 3 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 proposed 
2017 Payment Notice 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, 3-year data coefficients would mitigate 
any introductions of new costs for particular conditions by 2 years of 
older data. However, commenters to the White Paper supported continuing 
to use a 3-year blend for 2018 benefit year recalibration. We proposed 
to continue to use the 3-year blend for 2018 benefit year 
recalibration.
    We noted at our risk adjustment conference on March 31, 2016, that 
we were considering releasing updated final coefficients using more 
recent data after the risk adjustment methodology for the corresponding 
benefit year has been finalized in the applicable annual payment 
notice, given the potentially earlier timing of the 2018 Notice of 
Benefit and Payment Parameters. We proposed 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. In the proposed rule, we 
stated that we were 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 
an applicable benefit year's risk adjustment methodology, including the 
final coefficients, prior to rate setting and benefits being provided 
to members for the applicable benefit year. We sought comment on this 
proposal.
    We also sought comment on the timing of the publication of the 
final coefficients, providing a few options to reduce the data lag as 
much as possible. In the first option, we stated in the proposed rule 
that 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] data. 
Alternatively, we stated 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, 
which would reflect 2015, 2016, and 2017 blended MarketScan[supreg] 
data. We stated 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. In light of the comments 
received, we will use 2013, 2014, and 2015 MarketScan[supreg] data to 
calculate the risk adjustment coefficients for the 2018 benefit year, 
which we will release in guidance in the spring of 2017, in time for 
rate setting for the 2018 benefit year. We note again that a risk 
adjustment methodology remains in effect for future benefit years until 
changed in rulemaking (or, in the case of coefficients for a particular 
risk adjustment model, until changed in guidance).
    We note that, in order to provide greater, earlier estimates to 
issuers regarding their risk adjustment transfers, we intend to 
continue providing interim estimated risk scores and risk adjustment 
transfers in the spring of the year after the applicable benefit year, 
as we did this past spring for the 2015 benefit year. We continue to 
explore other ways to provide earlier risk adjustment data to issuers.
    Comment: Some commenters supported the use of the most recent 
MarketScan[supreg] data. One commenter stated that providing the most 
recent claims data to calculate coefficients would ensure the risk 
adjustment model takes into account changes in health care delivery and 
would prevent gaming by issuers that use risk adjustment factors to 
selectively target enrollees with certain conditions. Commenters stated 
that publishing final coefficients in 2019 would encourage issuers to 
attract a diverse mix of risk. One commenter noted that once actuaries 
adjust their rating practices and modeling, the results from the most 
recent data will improve the overall accuracy of the program and 
stability of the market. Another commenter supported inclusion of the 
most recent MarketScan[supreg] data, but only if there is still 
sufficient opportunity to comment on the development of the risk 
adjustment factors, and requested HHS find more current sources of 
utilization data. Another commenter supported the proposal contingent 
on whether the preliminary results released in the spring of 2019, are 
determined using the same published methodology, so that insurers have 
accurate risk adjustment data for pricing purposes.

[[Page 94085]]

    However, many commenters strongly disagreed with any approach that 
prevents issuers from having final factors at the time of rate setting. 
The commenters noted that fewer unknowns during rate development far 
outweigh accuracy of new data, and that waiting even until spring of 
2018 to finalize the model weights for plan year 2018 will force plans 
to determine rates with an additional uncertainty, and therefore is 
likely to result in higher rates. Changes to the risk adjustment 
coefficients released too late would preclude issuers from accurately 
reflecting risk adjustment in their pricing. Two commenters noted that 
a change in 2018 does not make sense if HHS is considering revising the 
data source for calibration for 2019.
    One commenter requested that HHS run previous risk adjustment 
transfer results with the newly calibrated coefficients relative to the 
ones that were used to better enable issuers to understand the changes 
in the coefficients year over year and their effect on transfers.
    Another commenter requested that HHS publish clear guidelines for 
when it will propose changes to the risk adjustment program outside of 
the formal rulemaking for that year. The ability to make changes 
outside of rulemaking would enable HHS to keep the risk adjustment 
program flexible and current, but also could lead to more uncertainty 
in the risk adjustment program and has the potential to lead to changes 
implemented before they have time to be properly vetted and assessed by 
affected parties.
    One commenter requested that HHS publish final coefficients no 
later than February of the year before the benefit year (for example, 
publish final coefficients by February 2017 for the 2018 benefit year). 
One commenter also suggested that HHS give greater weight in the 
blended dataset to the most recent year's data.
    One commenter stated that the 3-year blended coefficients do not 
reflect the current cost of prescription drugs. Another commenter 
stated that while the most recent data would improve the model's 
accuracy, the extent of such improvement is not clear. The commenter 
also noted that a one-year change on top of already significant changes 
to the risk adjustment model could create even more uncertainty.
    Response: We recognize that many commenters prefer predictability 
over using the most recent data so that they will be able to use the 
precise risk adjustment model coefficients in rate setting for the 
applicable benefit year. We are sensitive to the tradeoff of 
predictability and the reflection of most recent claims costs, which 
reflect the most recent patterns and costs of treatments. However, 
since risk adjustment estimates must be included in rate setting, we 
understand commenters' desire for stability in the final coefficients 
over recency (and, unpredictability). Therefore, HHS will release final 
risk adjustment coefficients in the spring of 2017 for the 2018 benefit 
year using blended 2013, 2014, and 2015 MarketScan[supreg] data. (4) 
List of factors to be employed in the model (Sec.  153.320)
    For the 2018 benefit year, in addition to the RXCs we proposed to 
include in the adult risk adjustment model, we also proposed to 
separate the 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. Based on the comments received, we are finalizing this 
modification as proposed.
    Comment: Most commenters supported this proposal. One commenter 
requested additional information on the data used to make the decision 
to separate the Hepatitis HCC, and how HHS intends to do this in the 
future.
    Response: Beginning with the 2018 benefit year, we will separate 
the Chronic Hepatitis HCC into two new HCCs for Hepatitis C and 
Hepatitis A and B, in the adult, child, and infant models. We based 
this decision to separate the Hepatitis HCC on the varying risk for the 
Chronic Hepatitis types. HHS will continue to assess HCCs in light of 
new technologies and the risk implications for issuers.
    The draft 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 3, 5, and 6. The adult, child, and infant 
models have been truncated to account for the high-cost enrollee pool 
payment parameters ($1 million threshold, 60 percent coinsurance). 
Table 3 contains factors for each adult model, including the 
interactions.\34\ Some interactions of RXCs and HCCs have negative 
coefficients; however, this does not mean that an enrollee's risk score 
decreases due to the presence of an RXC, an HCC, or both. For example, 
consider RXC_03 Antiarrythmics and HCC_142 Specified Heart Arrythmias, 
for a silver plan enrollee. If RXC_03 is first coded, the blended risk 
score increases by 2.167 (coefficient for RXC_03), and if HCC_142 is 
then coded, the blended risk score increases again by 1.866 + (-0.062) 
= 1.804 (coefficient for HCC_142 + coefficient for interaction of Rx_03 
and HCC_142), for a combined increase of 2.167 + 1.804 = 3.971. 
Similarly, if HCC_142 is first coded, the blended risk score increases 
by 1.866 (coefficient for HCC_142), and if RXC_03 is then coded, the 
blended risk score increases again by 2.167 + (-0.062) = 2.105 
(coefficient for RXC_03 + coefficient for interaction of RXC_03 and 
HCC_142), for a combined increase of 1.866 + 2.105 = 3.971.
---------------------------------------------------------------------------

    \34\ We note that the interaction factors are additive, and not 
hierarchical in nature--that is, an enrollee could have several, 
additive interactions.
---------------------------------------------------------------------------

    Table 4 contains the HHS HCCs in the severity illness indicator 
variable. Table 5 contains the factors for each child model. Table 6 
contains the factors for each infant model.

                    Table 2--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

[[Page 94086]]

 
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
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.............

[[Page 94087]]

 
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
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.............

[[Page 94088]]

 
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)..............
----------------------------------------------------------------------------------------------------------------
                                           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 3--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....      0.177      0.139      0.094      0.052         0.045
                                   Age 25-29, Male....      0.161      0.123      0.079      0.035         0.028

[[Page 94089]]

 
                                   Age 30-34, Male....      0.208      0.160      0.104      0.049         0.040
                                   Age 35-39, Male....      0.272      0.214      0.147      0.080         0.068
                                   Age 40-44, Male....      0.340      0.273      0.195      0.116         0.102
                                   Age 45-49, Male....      0.413      0.337      0.249      0.158         0.142
                                   Age 50-54, Male....      0.539      0.449      0.347      0.238         0.218
                                   Age 55-59, Male....      0.616      0.514      0.400      0.277         0.256
                                   Age 60-64, Male....      0.714      0.595      0.465      0.321         0.295
                                   Age 21-24, Female..      0.305      0.248      0.177      0.107         0.094
                                   Age 25-29, Female..      0.354      0.287      0.206      0.124         0.110
                                   Age 30-34, Female..      0.488      0.405      0.310      0.216         0.200
                                   Age 35-39, Female..      0.577      0.484      0.383      0.283         0.266
                                   Age 40-44, Female..      0.649      0.546      0.435      0.323         0.303
                                   Age 45-49, Female..      0.657      0.551      0.434      0.313         0.292
                                   Age 50-54, Female..      0.745      0.630      0.502      0.366         0.341
                                   Age 55-59, Female..      0.750      0.630      0.497      0.352         0.326
                                   Age 60-64, Female..      0.791      0.659      0.517      0.358         0.329
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HCC001...........................  HIV/AIDS...........      6.235      5.807      5.521      5.516         5.522
HCC002...........................  Septicemia, Sepsis,      9.383      9.212      9.114      9.160         9.174
                                    Systemic
                                    Inflammatory
                                    Response Syndrome/
                                    Shock.
HCC003...........................  Central Nervous          6.370      6.277      6.220      6.241         6.247
                                    System Infections,
                                    Except Viral
                                    Meningitis.
HCC004...........................  Viral or                 4.473      4.254      4.130      4.074         4.071
                                    Unspecified
                                    Meningitis.
HCC006...........................  Opportunistic            6.789      6.696      6.645      6.621         6.616
                                    Infections.
HCC008...........................  Metastatic Cancer..     22.838     22.426     22.159     22.199        22.211
HCC009...........................  Lung, Brain, and        11.917     11.605     11.406     11.395        11.396
                                    Other Severe
                                    Cancers, Including
                                    Pediatric Acute
                                    Lymphoid Leukemia.
HCC010...........................  Non-Hodgkin`s            5.534      5.319      5.179      5.120         5.110
                                    Lymphomas and
                                    Other Cancers and
                                    Tumors.
HCC011...........................  Colorectal, Breast       4.815      4.600      4.456      4.394         4.383
                                    (Age <50), Kidney,
                                    and Other Cancers.
HCC012...........................  Breast (Age 50+)         2.802      2.646      2.540      2.476         2.465
                                    and Prostate
                                    Cancer, Benign/
                                    Uncertain Brain
                                    Tumors, and Other
                                    Cancers and Tumors.
HCC013...........................  Thyroid Cancer,          1.341      1.207      1.109      1.006         0.986
                                    Melanoma,
                                    Neurofibromatosis,
                                    and Other Cancers
                                    and Tumors.
HCC018...........................  Pancreas Transplant      4.794      4.593      4.477      4.492         4.501
                                    Status/
                                    Complications.
HCC019...........................  Diabetes with Acute      0.653      0.580      0.514      0.436         0.421
                                    Complications.
HCC020...........................  Diabetes with            0.653      0.580      0.514      0.436         0.421
                                    Chronic
                                    Complications.
HCC021...........................  Diabetes without         0.653      0.580      0.514      0.436         0.421
                                    Complication.
HCC023...........................  Protein-Calorie         12.580     12.578     12.571     12.634        12.646
                                    Malnutrition.
HCC026...........................  Mucopolysaccharidos      2.029      1.924      1.850      1.788         1.777
                                    is.
HCC027...........................  Lipidoses and            2.029      1.924      1.850      1.788         1.777
                                    Glycogenosis.
HCC029...........................  Amyloidosis,             2.029      1.924      1.850      1.788         1.777
                                    Porphyria, and
                                    Other Metabolic
                                    Disorders.
HCC030...........................  Adrenal, Pituitary,      2.029      1.924      1.850      1.788         1.777
                                    and Other
                                    Significant
                                    Endocrine
                                    Disorders.
HCC034...........................  Liver Transplant        11.397     11.276     11.208     11.197        11.197
                                    Status/
                                    Complications.
HCC035...........................  End-Stage Liver          3.867      3.685      3.578      3.554         3.553
                                    Disease.
HCC036...........................  Cirrhosis of Liver.      1.349      1.227      1.151      1.099         1.090
HCC037C..........................  Chronic Viral            0.927      0.815      0.739      0.681         0.670
                                    Hepatitis C.
HCC037B..........................  Chronic Hepatitis,       0.927      0.815      0.739      0.681         0.670
                                    Other/Unspecified.
HCC038...........................  Acute Liver Failure/     3.867      3.685      3.578      3.554         3.553
                                    Disease, Including
                                    Neonatal Hepatitis.
HCC041...........................  Intestine               25.865     25.802     25.746     25.800        25.809
                                    Transplant Status/
                                    Complications.
HCC042...........................  Peritonitis/            10.587     10.344     10.191     10.203        10.210
                                    Gastrointestinal
                                    Perforation/
                                    Necrotizing
                                    Enterocolitis.
HCC045...........................  Intestinal               6.035      5.786      5.642      5.641         5.645
                                    Obstruction.
HCC046...........................  Chronic                  4.794      4.593      4.477      4.492         4.501
                                    Pancreatitis.
HCC047...........................  Acute Pancreatitis/      2.435      2.269      2.165      2.106         2.096
                                    Other Pancreatic
                                    Disorders and
                                    Intestinal
                                    Malabsorption.
HCC048...........................  Inflammatory Bowel       2.071      1.894      1.772      1.677         1.660
                                    Disease.
HCC054...........................  Necrotizing              6.018      5.837      5.720      5.726         5.729
                                    Fasciitis.
HCC055...........................  Bone/Joint/Muscle        6.018      5.837      5.720      5.726         5.729
                                    Infections/
                                    Necrosis.
HCC056...........................  Rheumatoid               2.291      2.147      2.045      1.980         1.968
                                    Arthritis and
                                    Specified
                                    Autoimmune
                                    Disorders.

[[Page 94090]]

 
HCC057...........................  Systemic Lupus           1.038      0.924      0.840      0.743         0.725
                                    Erythematosus and
                                    Other Autoimmune
                                    Disorders.
HCC061...........................  Osteogenesis             2.907      2.726      2.599      2.526         2.513
                                    Imperfecta and
                                    Other
                                    Osteodystrophies.
HCC062...........................  Congenital/              2.907      2.726      2.599      2.526         2.513
                                    Developmental
                                    Skeletal and
                                    Connective Tissue
                                    Disorders.
HCC063...........................  Cleft Lip/Cleft          1.167      1.024      0.929      0.850         0.837
                                    Palate.
HCC066...........................  Hemophilia.........     39.609     39.350     39.166     39.159        39.162
HCC067...........................  Myelodysplastic         11.869     11.741     11.660     11.665        11.668
                                    Syndromes and
                                    Myelofibrosis.
HCC068...........................  Aplastic Anemia....     11.869     11.741     11.660     11.665        11.668
HCC069...........................  Acquired Hemolytic       8.427      8.278      8.177      8.155         8.153
                                    Anemia, Including
                                    Hemolytic Disease
                                    of Newborn.
HCC070...........................  Sickle Cell Anemia       8.427      8.278      8.177      8.155         8.153
                                    (Hb-SS).
HCC071...........................  Thalassemia Major..      8.427      8.278      8.177      8.155         8.153
HCC073...........................  Combined and Other       4.892      4.758      4.675      4.667         4.667
                                    Severe
                                    Immunodeficiencies.
HCC074...........................  Disorders of the         4.892      4.758      4.675      4.667         4.667
                                    Immune Mechanism.
HCC075...........................  Coagulation Defects      2.529      2.440      2.376      2.340         2.333
                                    and Other
                                    Specified
                                    Hematological
                                    Disorders.
HCC081...........................  Drug Psychosis.....      3.781      3.546      3.395      3.284         3.264
HCC082...........................  Drug Dependence....      3.781      3.546      3.395      3.284         3.264
HCC087...........................  Schizophrenia......      3.128      2.892      2.742      2.660         2.650
HCC088...........................  Major Depressive         1.641      1.493      1.388      1.283         1.263
                                    and Bipolar
                                    Disorders.
HCC089...........................  Reactive and             1.641      1.493      1.388      1.283         1.263
                                    Unspecified
                                    Psychosis,
                                    Delusional
                                    Disorders.
HCC090...........................  Personality              1.148      1.031      0.932      0.823         0.803
                                    Disorders.
HCC094...........................  Anorexia/Bulimia         2.744      2.588      2.481      2.417         2.405
                                    Nervosa.
HCC096...........................  Prader-Willi,            2.458      2.338      2.257      2.195         2.184
                                    Patau, Edwards,
                                    and Autosomal
                                    Deletion Syndromes.
HCC097...........................  Down Syndrome,           0.830      0.734      0.657      0.573         0.557
                                    Fragile X, Other
                                    Chromosomal
                                    Anomalies, and
                                    Congenital
                                    Malformation
                                    Syndromes.
HCC102...........................  Autistic Disorder..      1.148      1.031      0.932      0.823         0.803
HCC103...........................  Pervasive                1.148      1.031      0.932      0.823         0.803
                                    Developmental
                                    Disorders, Except
                                    Autistic Disorder.
HCC106...........................  Traumatic Complete      11.049     10.893     10.791     10.778        10.778
                                    Lesion Cervical
                                    Spinal Cord.
HCC107...........................  Quadriplegia.......     11.049     10.893     10.791     10.778        10.778
HCC108...........................  Traumatic Complete       8.671      8.523      8.427      8.408         8.406
                                    Lesion Dorsal
                                    Spinal Cord.
HCC109...........................  Paraplegia.........      8.671      8.523      8.427      8.408         8.406
HCC110...........................  Spinal Cord              5.532      5.332      5.208      5.169         5.164
                                    Disorders/Injuries.
HCC111...........................  Amyotrophic Lateral      2.668      2.450      2.316      2.260         2.251
                                    Sclerosis and
                                    Other Anterior
                                    Horn Cell Disease.
HCC112...........................  Quadriplegic             1.080      0.938      0.840      0.764         0.749
                                    Cerebral Palsy.
HCC113...........................  Cerebral Palsy,          0.192      0.134      0.092      0.053         0.046
                                    Except
                                    Quadriplegic.
HCC114...........................  Spina Bifida and         0.060      0.001      0.000      0.000         0.000
                                    Other Brain/Spinal/
                                    Nervous System
                                    Congenital
                                    Anomalies.
HCC115...........................  Myasthenia Gravis/       5.157      5.017      4.930      4.902         4.898
                                    Myoneural
                                    Disorders and
                                    Guillain-Barre
                                    Syndrome/
                                    Inflammatory and
                                    Toxic Neuropathy.
HCC117...........................  Muscular Dystrophy.      2.107      1.957      1.867      1.781         1.764
HCC118...........................  Multiple Sclerosis.      3.689      3.494      3.369      3.302         3.290
HCC119...........................  Parkinson`s,             2.107      1.957      1.867      1.781         1.764
                                    Huntington`s, and
                                    Spinocerebellar
                                    Disease, and Other
                                    Neurodegenerative
                                    Disorders.
HCC120...........................  Seizure Disorders        1.452      1.310      1.212      1.130         1.115
                                    and Convulsions.
HCC121...........................  Hydrocephalus......      5.899      5.789      5.703      5.670         5.664
HCC122...........................  Non-Traumatic Coma,      8.620      8.493      8.401      8.391         8.389
                                    and Brain
                                    Compression/Anoxic
                                    Damage.
HCC125...........................  Respirator              30.475     30.454     30.436     30.506        30.519
                                    Dependence/
                                    Tracheostomy
                                    Status.
HCC126...........................  Respiratory Arrest.      9.375      9.232      9.141      9.195         9.209
HCC127...........................  Cardio-Respiratory       9.375      9.232      9.141      9.195         9.209
                                    Failure and Shock,
                                    Including
                                    Respiratory
                                    Distress Syndromes.
HCC128...........................  Heart Assistive         29.127     28.909     28.771     28.795        28.804
                                    Device/Artificial
                                    Heart.
HCC129...........................  Heart Transplant...     29.127     28.909     28.771     28.795        28.804
HCC130...........................  Congestive Heart         2.083      1.986      1.920      1.881         1.874
                                    Failure.
HCC131...........................  Acute Myocardial         9.478      9.159      8.960      9.055         9.080
                                    Infarction.

[[Page 94091]]

 
HCC132...........................  Unstable Angina and      4.795      4.543      4.402      4.400         4.405
                                    Other Acute
                                    Ischemic Heart
                                    Disease.
HCC135...........................  Heart Infection/         5.529      5.410      5.332      5.302         5.296
                                    Inflammation,
                                    Except Rheumatic.
HCC142...........................  Specified Heart          2.066      1.947      1.866      1.801         1.789
                                    Arrhythmias.
HCC145...........................  Intracranial             8.635      8.374      8.215      8.204         8.206
                                    Hemorrhage.
HCC146...........................  Ischemic or              2.923      2.754      2.664      2.659         2.663
                                    Unspecified Stroke.
HCC149...........................  Cerebral Aneurysm        3.711      3.533      3.423      3.368         3.358
                                    and Arteriovenous
                                    Malformation.
HCC150...........................  Hemiplegia/              5.032      4.940      4.885      4.924         4.933
                                    Hemiparesis.
HCC151...........................  Monoplegia, Other        3.175      3.053      2.978      2.951         2.948
                                    Paralytic
                                    Syndromes.
HCC153...........................  Atherosclerosis of       9.389      9.311      9.262      9.334         9.351
                                    the Extremities
                                    with Ulceration or
                                    Gangrene.
HCC154...........................  Vascular Disease         7.107      6.934      6.827      6.815         6.816
                                    with Complications.
HCC156...........................  Pulmonary Embolism       3.490      3.338      3.244      3.203         3.197
                                    and Deep Vein
                                    Thrombosis.
HCC158...........................  Lung Transplant         28.437     28.278     28.176     28.253        28.273
                                    Status/
                                    Complications.
HCC159...........................  Cystic Fibrosis....      7.180      6.909      6.724      6.702         6.702
HCC160...........................  Chronic Obstructive      0.912      0.811      0.731      0.645         0.629
                                    Pulmonary Disease,
                                    Including
                                    Bronchiectasis.
HCC161...........................  Asthma.............      0.912      0.811      0.731      0.645         0.629
HCC162...........................  Fibrosis of Lung         1.756      1.648      1.580      1.532         1.522
                                    and Other Lung
                                    Disorders.
HCC163...........................  Aspiration and           6.476      6.409      6.367      6.375         6.378
                                    Specified
                                    Bacterial
                                    Pneumonias and
                                    Other Severe Lung
                                    Infections.
HCC183...........................  Kidney Transplant        6.985      6.756      6.622      6.592         6.590
                                    Status.
HCC184...........................  End Stage Renal         23.091     22.895     22.769     22.834        22.850
                                    Disease.
HCC187...........................  Chronic Kidney           0.407      0.338      0.298      0.292         0.293
                                    Disease, Stage 5.
HCC188...........................  Chronic Kidney           0.407      0.338      0.298      0.292         0.293
                                    Disease, Severe
                                    (Stage 4).
HCC203...........................  Ectopic and Molar        1.293      1.135      1.012      0.822         0.778
                                    Pregnancy, Except
                                    with Renal
                                    Failure, Shock, or
                                    Embolism.
HCC204...........................  Miscarriage with         1.293      1.135      1.012      0.822         0.778
                                    Complications.
HCC205...........................  Miscarriage with No      1.293      1.135      1.012      0.822         0.778
                                    or Minor
                                    Complications.
HCC207...........................  Completed Pregnancy      3.490      3.045      2.837      2.643         2.632
                                    With Major
                                    Complications.
HCC208...........................  Completed Pregnancy      3.490      3.045      2.837      2.643         2.632
                                    With Complications.
HCC209...........................  Completed Pregnancy      3.490      3.045      2.837      2.643         2.632
                                    with No or Minor
                                    Complications.
HCC217...........................  Chronic Ulcer of         2.013      1.911      1.851      1.833         1.832
                                    Skin, Except
                                    Pressure.
HCC226...........................  Hip Fractures and        9.065      8.860      8.731      8.757         8.765
                                    Pathological
                                    Vertebral or
                                    Humerus Fractures.
HCC227...........................  Pathological             2.062      1.945      1.860      1.782         1.768
                                    Fractures, Except
                                    of Vertebrae, Hip,
                                    or Humerus.
HCC251...........................  Stem Cell,              26.861     26.861     26.858     26.884        26.889
                                    Including Bone
                                    Marrow, Transplant
                                    Status/
                                    Complications.
HCC253...........................  Artificial Openings      9.024      8.933      8.876      8.907         8.915
                                    for Feeding or
                                    Elimination.
HCC254...........................  Amputation Status,       4.537      4.406      4.327      4.351         4.360
                                    Lower Limb/
                                    Amputation
                                    Complications.
----------------------------------------------------------------------------------------------------------------
                                               Interaction Factors
----------------------------------------------------------------------------------------------------------------
SEVERE x HCC006..................  Severe illness x         9.192      9.391      9.511      9.626         9.645
                                    Opportunistic
                                    Infections.
SEVERE x HCC008..................  Severe illness x         9.192      9.391      9.511      9.626         9.645
                                    Metastatic Cancer.
SEVERE x HCC009..................  Severe illness x         9.192      9.391      9.511      9.626         9.645
                                    Lung, Brain, and
                                    Other Severe
                                    Cancers, Including
                                    Pediatric Acute
                                    Lymphoid Leukemia.
SEVERE x HCC010..................  Severe illness x         9.192      9.391      9.511      9.626         9.645
                                    Non-Hodgkin`s
                                    Lymphomas and
                                    Other Cancers and
                                    Tumors.
SEVERE x HCC115..................  Severe illness x         9.192      9.391      9.511      9.626         9.645
                                    Myasthenia Gravis/
                                    Myoneural
                                    Disorders and
                                    Guillain-Barre
                                    Syndrome/
                                    Inflammatory and
                                    Toxic Neuropathy.
SEVERE x HCC135..................  Severe illness x         9.192      9.391      9.511      9.626         9.645
                                    Heart Infection/
                                    Inflammation,
                                    Except Rheumatic.
SEVERE x HCC145..................  Severe illness x         9.192      9.391      9.511      9.626         9.645
                                    Intracranial
                                    Hemorrhage.

[[Page 94092]]

 
SEVERE x G06.....................  Severe illness x         9.192      9.391      9.511      9.626         9.645
                                    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         9.192      9.391      9.511      9.626         9.645
                                    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         2.104      2.217      2.283      2.381         2.397
                                    End-Stage Liver
                                    Disease.
SEVERE x HCC038..................  Severe illness x         2.104      2.217      2.283      2.381         2.397
                                    Acute Liver
                                    Failure/Disease,
                                    Including Neonatal
                                    Hepatitis.
SEVERE x HCC153..................  Severe illness x         2.104      2.217      2.283      2.381         2.397
                                    Atherosclerosis of
                                    the Extremities
                                    with Ulceration or
                                    Gangrene.
SEVERE x HCC154..................  Severe illness x         2.104      2.217      2.283      2.381         2.397
                                    Vascular Disease
                                    with Complications.
SEVERE x HCC163..................  Severe illness x         2.104      2.217      2.283      2.381         2.397
                                    Aspiration and
                                    Specified
                                    Bacterial
                                    Pneumonias and
                                    Other Severe Lung
                                    Infections.
SEVERE x HCC253..................  Severe illness x         2.104      2.217      2.283      2.381         2.397
                                    Artificial
                                    Openings for
                                    Feeding or
                                    Elimination.
SEVERE x G03.....................  Severe illness x         2.104      2.217      2.283      2.381         2.397
                                    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             0.525      0.467      0.425      0.410         0.409
                                    enrollment.
                                   Two months of            0.436      0.380      0.334      0.318         0.317
                                    enrollment.
                                   Three months of          0.389      0.337      0.292      0.272         0.270
                                    enrollment.
                                   Four months of           0.304      0.265      0.227      0.210         0.209
                                    enrollment.
                                   Five months of           0.266      0.231      0.196      0.178         0.176
                                    enrollment.
                                   Six months of            0.242      0.211      0.180      0.163         0.162
                                    enrollment.
                                   Seven months of          0.215      0.190      0.162      0.147         0.145
                                    enrollment.
                                   Eight months of          0.166      0.147      0.127      0.116         0.114
                                    enrollment.
                                   Nine months of           0.112      0.101      0.089      0.085         0.084
                                    enrollment.
                                   Ten months of            0.106      0.097      0.089      0.085         0.084
                                    enrollment.
                                   Eleven months of         0.089      0.084      0.079      0.077         0.077
                                    enrollment.
RXC 01...........................  Anti-Hepatitis C        24.047     23.595     23.306     23.380        23.398
                                    (HCV) Agents.
RXC 02...........................  Anti-HIV Agents....      6.347      5.898      5.602      5.441         5.416
RXC 03...........................  Antiarrhythmics....      2.340      2.244      2.167      2.098         2.083
RXC 04...........................  Phosphate Binders..     12.989     12.879     12.808     12.820        12.826
RXC 05...........................  Inflammatory Bowel       1.960      1.790      1.673      1.509         1.476
                                    Disease Agents.
RXC 06b..........................  Insulin............      1.381      1.257      1.130      0.975         0.943
RXC 06a..........................  Anti-Diabetic            0.578      0.503      0.428      0.327         0.306
                                    Agents, Except
                                    Insulin and
                                    Metformin Only.
RXC 07...........................  Multiple Sclerosis      17.082     16.387     15.941     15.936        15.940
                                    Agents.
RXC 08...........................  Immune Suppressants     10.202      9.647      9.297      9.303         9.317
                                    and
                                    Immunomodulators.
RXC 09...........................  Cystic Fibrosis         18.095     17.782     17.584     17.721        17.752
                                    Agents.
RXC 01 x HCC37C, 036, 035, 034...  Additional effect        3.237      3.376      3.468      3.549         3.565
                                    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       -2.233     -1.878     -1.632     -1.427        -1.393
                                    for enrollees with
                                    RXC Anti-HIV
                                    Agents and HCC HIV/
                                    AIDS.
RXC 03 x HCC142..................  Additional effect       -0.131     -0.104     -0.062      0.010         0.024
                                    for enrollees with
                                    RXC
                                    Antiarrhythmics
                                    and HCC Specified
                                    Heart Arrhythmias.
RXC 04 x HCC184, 183, 187, 188...  Additional effect        8.069      8.146      8.187      8.273         8.285
                                    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)).

[[Page 94093]]

 
RXC 05 x HCC048, 041.............  Additional effect       -1.265     -1.176     -1.092     -0.997        -0.978
                                    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        0.283      0.254      0.310      0.390         0.406
                                    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       -0.205     -0.184     -0.141     -0.119        -0.117
                                    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       -1.231     -0.862     -0.629     -0.462        -0.430
                                    for enrollees with
                                    RXC Multiple
                                    Sclerosis Agents
                                    and HCC Multiple
                                    Sclerosis.
RXC 08 x HCC056 or 057, and 048    Additional effect       -0.001     -0.006      0.008     -0.018        -0.020
 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       -1.947     -1.756     -1.623     -1.491        -1.470
                                    for enrollees with
                                    RXC Immune
                                    Suppressants and
                                    Immunomodulators
                                    and HCC Rheumatoid
                                    Arthritis and
                                    Specified
                                    Autoimmune
                                    Disorders.
RXC 08 x HCC057..................  Additional effect       -0.902     -0.774     -0.668     -0.536        -0.513
                                    for enrollees with
                                    RXC Immune
                                    Suppressants and
                                    Immunomodulators
                                    and HCC Systemic
                                    Lupus
                                    Erythematosus and
                                    Other Autoimmune
                                    Disorders.
RXC 08 x HCC048, 041.............  Additional effect        0.969      1.219      1.359      1.538         1.567
                                    for enrollees with
                                    RXC Immune
                                    Suppressants and
                                    Immunomodulators
                                    and (HCC
                                    Inflammatory Bowel
                                    Disease or
                                    Intestine
                                    Transplant Status/
                                    Complications).
RXC 09 x HCC159, 158.............  Additional effect       17.041     17.236     17.344     17.321        17.312
                                    for enrollees with
                                    RXC Cystic
                                    Fibrosis Agents
                                    and (HCC Cystic
                                    Fibrosis or Lung
                                    Transplant Status/
                                    Complications).
RXC 10 x HCC036, 035, 034........  Additional effect        6.937      6.904      6.880      6.969         6.988
                                    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        2.288      2.296      2.312      2.395         2.412
                                    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 4--HHS HCCs in the Severity Illness Indicator Variable
------------------------------------------------------------------------
                               Description
-------------------------------------------------------------------------
Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock
Peritonitis/Gastrointestinal Perforation/Necrotizing Enterocolitis
Seizure Disorders and Convulsions
Non-Traumatic Coma, Brain Compression/Anoxic Damage
Respirator Dependence/Tracheostomy Status
Respiratory Arrest

[[Page 94094]]

 
Cardio-Respiratory Failure and Shock, Including Respiratory Distress
 Syndromes
Pulmonary Embolism and Deep Vein Thrombosis
------------------------------------------------------------------------


                    Table 5--Draft Child Risk Adjustment Model Factors for 2018 Benefit Year
----------------------------------------------------------------------------------------------------------------
                    Factor                        Platinum       Gold        Silver       Bronze    Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 2-4, Male.................................        0.212        0.153        0.087        0.033         0.023
Age 5-9, Male.................................        0.147        0.104        0.054        0.014         0.008
Age 10-14, Male...............................        0.208        0.162        0.104        0.060         0.053
Age 15-20, Male...............................        0.277        0.223        0.161        0.106         0.097
Age 2-4, Female...............................        0.167        0.116        0.060        0.019         0.012
Age 5-9, Female...............................        0.120        0.082        0.041        0.010         0.006
Age 10-14, Female.............................        0.196        0.152        0.100        0.062         0.056
Age 15-20, Female.............................        0.316        0.254        0.182        0.114         0.103
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS......................................        4.800        4.385        4.113        4.004         3.988
Septicemia, Sepsis, Systemic Inflammatory            13.903       13.745       13.654       13.669        13.677
 Response Syndrome/Shock......................
Central Nervous System Infections, Except             9.476        9.308        9.201        9.199         9.200
 Viral Meningitis.............................
Viral or Unspecified Meningitis...............        2.562        2.377        2.265        2.168         2.155
Opportunistic Infections......................       17.772       17.708       17.666       17.654        17.652
Metastatic Cancer.............................       30.910       30.686       30.519       30.503        30.502
Lung, Brain, and Other Severe Cancers,               10.927       10.674       10.490       10.418        10.407
 Including Pediatric Acute Lymphoid Leukemia..
Non-Hodgkin`s Lymphomas and Other Cancers and         8.816        8.573        8.397        8.296         8.280
 Tumors.......................................
Colorectal, Breast (Age < 50), Kidney, and            3.249        3.057        2.915        2.796         2.774
 Other Cancers................................
Breast (Age 50+) and Prostate Cancer, Benign/         2.874        2.699        2.570        2.457         2.436
 Uncertain Brain Tumors, and Other Cancers and
 Tumors.......................................
Thyroid Cancer, Melanoma, Neurofibromatosis,          1.540        1.398        1.284        1.166         1.143
 and Other Cancers and Tumors.................
Pancreas Transplant Status/Complications......       22.703       22.580       22.508       22.512        22.514
Diabetes with Acute Complications.............        2.327        2.036        1.864        1.604         1.554
Diabetes with Chronic Complications...........        2.327        2.036        1.864        1.604         1.554
Diabetes without Complication.................        2.327        2.036        1.864        1.604         1.554
Protein-Calorie Malnutrition..................       11.735       11.655       11.595       11.624        11.630
Mucopolysaccharidosis.........................        8.061        7.812        7.632        7.583         7.576
Lipidoses and Glycogenosis....................        8.061        7.812        7.632        7.583         7.576
Congenital Metabolic Disorders, Not Elsewhere         8.061        7.812        7.632        7.583         7.576
 Classified...................................
Amyloidosis, Porphyria, and Other Metabolic           8.061        7.812        7.632        7.583         7.576
 Disorders....................................
Adrenal, Pituitary, and Other Significant             8.061        7.812        7.632        7.583         7.576
 Endocrine Disorders..........................
Liver Transplant Status/Complications.........       22.703       22.580       22.508       22.512        22.514
End-Stage Liver Disease.......................       10.859       10.717       10.633       10.630        10.631
Cirrhosis of Liver............................        8.352        8.213        8.110        8.066         8.058
Chronic Viral Hepatitis C.....................        4.120        3.983        3.879        3.824         3.814
Chronic Hepatitis, Other/Unspecified..........        2.054        1.932        1.829        1.747         1.731
Acute Liver Failure/Disease, Including               10.859       10.717       10.624       10.611        10.611
 Neonatal Hepatitis...........................
Intestine Transplant Status/Complications.....       22.703       22.580       22.508       22.512        22.514
Peritonitis/Gastrointestinal Perforation/            13.110       12.802       12.595       12.593        12.597
 Necrotizing Enterocolitis....................
Intestinal Obstruction........................        4.707        4.497        4.350        4.253         4.236
Chronic Pancreatitis..........................        9.112        8.902        8.776        8.765         8.766
Acute Pancreatitis/Other Pancreatic Disorders         2.136        2.022        1.933        1.837         1.819
 and Intestinal Malabsorption.................
Inflammatory Bowel Disease....................        6.142        5.791        5.556        5.440         5.420
Necrotizing Fasciitis.........................        4.093        3.884        3.736        3.663         3.652
Bone/Joint/Muscle Infections/Necrosis.........        4.093        3.884        3.736        3.663         3.652
Rheumatoid Arthritis and Specified Autoimmune         3.806        3.585        3.416        3.315         3.299
 Disorders....................................
Systemic Lupus Erythematosus and Other                1.381        1.259        1.152        1.034         1.010
 Autoimmune Disorders.........................
Osteogenesis Imperfecta and Other                     1.517        1.404        1.309        1.227         1.212
 Osteodystrophies.............................
Congenital/Developmental Skeletal and                 1.517        1.404        1.309        1.227         1.212
 Connective Tissue Disorders..................
Cleft Lip/Cleft Palate........................        1.540        1.357        1.225        1.100         1.078
Hemophilia....................................       53.113       52.658       52.343       52.302        52.298
Myelodysplastic Syndromes and Myelofibrosis...       15.139       14.983       14.876       14.854        14.850
Aplastic Anemia...............................       15.139       14.983       14.876       14.854        14.850
Acquired Hemolytic Anemia, Including Hemolytic        7.221        6.970        6.796        6.707         6.693
 Disease of Newborn...........................
Sickle Cell Anemia (Hb-SS)....................        7.221        6.970        6.796        6.707         6.693
Thalassemia Major.............................        7.221        6.970        6.796        6.707         6.693

[[Page 94095]]

 
Combined and Other Severe Immunodeficiencies..        6.066        5.904        5.793        5.728         5.716
Disorders of the Immune Mechanism.............        6.066        5.904        5.793        5.728         5.716
Coagulation Defects and Other Specified               4.317        4.196        4.100        4.026         4.012
 Hematological Disorders......................
Drug Psychosis................................        5.265        5.029        4.880        4.805         4.795
Drug Dependence...............................        5.265        5.029        4.880        4.805         4.795
Schizophrenia.................................        5.132        4.770        4.535        4.420         4.404
Major Depressive and Bipolar Disorders........        1.889        1.689        1.536        1.363         1.331
Reactive and Unspecified Psychosis, Delusional        1.889        1.689        1.536        1.363         1.331
 Disorders....................................
Personality Disorders.........................        0.731        0.623        0.517        0.377         0.352
Anorexia/Bulimia Nervosa......................        2.978        2.791        2.658        2.587         2.575
Prader-Willi, Patau, Edwards, and Autosomal           3.589        3.400        3.289        3.249         3.242
 Deletion Syndromes...........................
Down Syndrome, Fragile X, Other Chromosomal           1.786        1.624        1.515        1.424         1.409
 Anomalies, and Congenital Malformation
 Syndromes....................................
Autistic Disorder.............................        1.680        1.518        1.385        1.230         1.201
Pervasive Developmental Disorders, Except             0.833        0.721        0.604        0.442         0.411
 Autistic Disorder............................
Traumatic Complete Lesion Cervical Spinal Cord       11.881       11.786       11.732       11.789        11.801
Quadriplegia..................................       11.881       11.786       11.732       11.789        11.801
Traumatic Complete Lesion Dorsal Spinal Cord..       11.881       11.786       11.725       11.746        11.752
Paraplegia....................................       11.881       11.786       11.725       11.746        11.752
Spinal Cord Disorders/Injuries................        4.351        4.142        4.003        3.914         3.898
Amyotrophic Lateral Sclerosis and Other               8.196        7.981        7.831        7.770         7.760
 Anterior Horn Cell Disease...................
Quadriplegic Cerebral Palsy...................        3.417        3.193        3.065        3.070         3.076
Cerebral Palsy, Except Quadriplegic...........        0.942        0.779        0.674        0.584         0.568
Spina Bifida and Other Brain/Spinal/Nervous           1.375        1.244        1.151        1.074         1.060
 System Congenital Anomalies..................
Myasthenia Gravis/Myoneural Disorders and             8.375        8.216        8.105        8.066         8.062
 Guillain-Barre Syndrome/Inflammatory and
 Toxic Neuropathy.............................
Muscular Dystrophy............................        2.984        2.806        2.690        2.603         2.589
Multiple Sclerosis............................        7.910        7.607        7.400        7.343         7.335
Parkinson`s, Huntington`s, and Spinocerebellar        2.984        2.806        2.690        2.603         2.589
 Disease, and Other Neurodegenerative
 Disorders....................................
Seizure Disorders and Convulsions.............        1.926        1.770        1.643        1.501         1.475
Hydrocephalus.................................        4.467        4.354        4.282        4.263         4.262
Non-Traumatic Coma, and Brain Compression/            6.453        6.327        6.239        6.191         6.181
 Anoxic Damage................................
Respirator Dependence/Tracheostomy Status.....       32.315       32.208       32.148       32.261        32.283
Respiratory Arrest............................       11.360       11.164       11.050       11.040        11.042
Cardio-Respiratory Failure and Shock,                11.360       11.164       11.050       11.040        11.042
 Including Respiratory Distress Syndromes.....
Heart Assistive Device/Artificial Heart.......       22.703       22.580       22.508       22.512        22.514
Heart Transplant..............................       22.703       22.580       22.508       22.512        22.514
Congestive Heart Failure......................        6.223        6.125        6.047        5.996         5.986
Acute Myocardial Infarction...................        6.605        6.446        6.346        6.347         6.344
Unstable Angina and Other Acute Ischemic Heart        4.221        4.140        4.087        4.096         4.095
 Disease......................................
Heart Infection/Inflammation, Except Rheumatic       12.729       12.616       12.541       12.513        12.506
Hypoplastic Left Heart Syndrome and Other             5.537        5.354        5.200        5.075         5.051
 Severe Congenital Heart Disorders............
Major Congenital Heart/Circulatory Disorders..        1.605        1.503        1.388        1.269         1.248
Atrial and Ventricular Septal Defects, Patent         1.097        1.007        0.903        0.806         0.791
 Ductus Arteriosus, and Other Congenital Heart/
 Circulatory Disorders........................
Specified Heart Arrhythmias...................        3.612        3.450        3.325        3.244         3.231
Intracranial Hemorrhage.......................       13.701       13.470       13.325       13.306        13.306
Ischemic or Unspecified Stroke................        7.162        7.052        6.988        6.988         6.988
Cerebral Aneurysm and Arteriovenous                   3.683        3.492        3.370        3.309         3.296
 Malformation.................................
Hemiplegia/Hemiparesis........................        4.315        4.218        4.161        4.142         4.142
Monoplegia, Other Paralytic Syndromes.........        2.928        2.794        2.713        2.674         2.670
Atherosclerosis of the Extremities with              12.281       12.023       11.868       11.776        11.769
 Ulceration or Gangrene.......................
Vascular Disease with Complications...........       14.433       14.288       14.193       14.195        14.196
Pulmonary Embolism and Deep Vein Thrombosis...       13.113       12.971       12.885       12.897        12.903
Lung Transplant Status/Complications..........       22.703       22.580       22.508       22.512        22.514
Cystic Fibrosis...............................       19.566       19.152       18.864       18.886        18.897
Chronic Obstructive Pulmonary Disease,                0.406        0.341        0.255        0.161         0.145
 Including Bronchiectasis.....................
Asthma........................................        0.406        0.341        0.255        0.161         0.145
Fibrosis of Lung and Other Lung Disorders.....        3.944        3.817        3.717        3.645         3.634
Aspiration and Specified Bacterial Pneumonias         9.576        9.531        9.499        9.525         9.530
 and Other Severe Lung Infections.............
Kidney Transplant Status......................       14.807       14.499       14.304       14.289        14.290
End Stage Renal Disease.......................       35.188       35.032       34.934       35.002        35.014
Chronic Kidney Disease, Stage 5...............        2.921        2.783        2.680        2.565         2.542
Chronic Kidney Disease, Severe (Stage 4)......        2.921        2.783        2.680        2.565         2.542
Ectopic and Molar Pregnancy, Except with Renal        1.061        0.903        0.776        0.575         0.533
 Failure, Shock, or Embolism..................
Miscarriage with Complications................        1.061        0.903        0.776        0.575         0.533

[[Page 94096]]

 
Miscarriage with No or Minor Complications....        1.061        0.903        0.776        0.575         0.533
Completed Pregnancy With Major Complications..        3.029        2.620        2.419        2.194         2.171
Completed Pregnancy With Complications........        3.029        2.620        2.419        2.194         2.171
Completed Pregnancy with No or Minor                  3.029        2.620        2.419        2.194         2.171
 Complications................................
Chronic Ulcer of Skin, Except Pressure........        1.955        1.866        1.784        1.717         1.705
Hip Fractures and Pathological Vertebral or           5.656        5.408        5.224        5.116         5.096
 Humerus Fractures............................
Pathological Fractures, Except of Vertebrae,          1.397        1.276        1.157        1.026         1.000
 Hip, or Humerus..............................
Stem Cell, Including Bone Marrow, Transplant         22.703       22.580       22.508       22.512        22.514
 Status/Complications.........................
Artificial Openings for Feeding or Elimination       12.969       12.866       12.816       12.920        12.941
Amputation Status, Lower Limb/Amputation              7.644        7.390        7.240        7.140         7.125
 Complications................................
----------------------------------------------------------------------------------------------------------------


     Table 6--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 7--HHS HCCs Included in Infant Model Severity Categories
------------------------------------------------------------------------
           Severity Category                           HCC
------------------------------------------------------------------------
Severity Level 5.......................  Metastatic Cancer
(Highest)..............................
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

[[Page 94097]]

 
Severity Level 4.......................  Intracranial Hemorrhage
Severity Level 4.......................  Ischemic or Unspecified Stroke
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

[[Page 94098]]

 
Severity Level 2.......................  Chronic Ulcer of Skin, Except
                                          Pressure
Severity Level 1.......................  Chronic Hepatitis
(Lowest)...............................
Severity Level 1.......................  Acute Pancreatitis/Other
                                          Pancreatic Disorders and
                                          Intestinal Malabsorption
Severity Level 1.......................  Thalassemia Major
Severity Level 1.......................  Autistic Disorder
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
------------------------------------------------------------------------

(5) Cost-Sharing Reductions (Sec.  153.320)
    We proposed 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 8. These adjustments are effective for risk adjustment for 2016 
and later years, and are multiplied against the sum of the demographic, 
diagnosis, and interaction factors. We anticipate reexamining 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 are finalizing the cost-sharing 
reduction adjustment factors as proposed.
    Comment: Commenters supported updating the cost-sharing reduction 
factors using enrollee-level data for the 2019 benefit year.
    Response: We agree with commenters that the data from the 
individual market will allow HHS to most accurately update the cost-
sharing reductions adjustment factors for future benefit years and 
intend to do so as soon as practicable.

               Table 8--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
------------------------------------------------------------------------

    (6) 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.\35\ Because we proposed to blend the coefficients 
from separately solved models based on MarketScan[supreg] 2013 and 2014 
data in the proposed rule, we are

[[Page 94099]]

publishing the R-squared statistic for each model and year separately 
to verify their statistical validity. We received no comments on the R-
squared statistics for the models. The R-squared statistic for each 
model, reflecting the 2018 modeling refinements discussed above, is 
shown in Table 9.
---------------------------------------------------------------------------

    \35\ Winkleman, Ross and Syed Mehmud. ``A Comparative Analysis 
of Claims-Based Tools for Health Risk Assessment.'' Society of 
Actuaries. April 2007.

------------------------------------------------------------------------
                                                R-Squared statistic
          Risk adjustment model          -------------------------------
                                               2013            2014
------------------------------------------------------------------------
Platinum Adult..........................          0.4185          0.4140
Platinum Child..........................          0.3117          0.3072
Platinum Infant.........................          0.3509          0.3343
Gold Adult..............................          0.4144          0.4093
Gold Child..............................          0.3074          0.3023
Gold Infant.............................          0.3490          0.3322
Silver Adult............................          0.4112          0.4057
Silver Child............................          0.3037          0.2984
Silver Infant...........................          0.3480          0.3310
Bronze Adult............................          0.4089          0.4031
Bronze Child............................          0.3004          0.2948
Bronze Infant...........................          0.3477          0.3307
Catastrophic Adult......................          0.4084          0.4025
Catastrophic Child......................          0.2997          0.2940
Catastrophic Infant.....................          0.3477          0.3306
------------------------------------------------------------------------

(7) Overview of the Payment Transfer Formula (Sec.  153.320)
    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 proposed 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. We proposed 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. 
In particular, we proposed to 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 sought comment on this approach 
to balance transfers between high and low risk plans. We are finalizing 
this adjustment to the risk adjustment transfers as proposed, except we 
are lowering the threshold to $1 million, and establishing a 
coinsurance rate of 60 percent for 2018 and future benefit years.
i. Administrative Cost Adjustment in Statewide Average Premium
    We received comments to 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 noted in the 2017 Payment 
Notice and White Paper that low cost plans do not necessarily indicate 
efficient plans. Should a plan be low cost with low claims costs, it 
could be an indication of mispricing, as the issuer should be pricing 
for average risk. However, we also stated that 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 considered some of the potential effects of 
excluding certain fixed administrative costs from the Statewide average 
premium. We noted that 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 noted 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. In the proposed rule, we 
considered the impact of administrative expenses on risk adjustment 
transfers and sought comment on removing a portion of administrative 
expenses from the Statewide average premium for the 2018 benefit year 
or for future benefit years. Based on comments received, HHS will 
reduce the Statewide average premium in the risk adjustment transfer 
formula

[[Page 94100]]

by 14 percent to account for the proportion of administrative costs 
that do not vary with claims beginning for the 2018 benefit year.
    Comment: Numerous commenters supported removing a portion of 
administrative expenses from the Statewide average premium for the 2018 
benefit year or for future benefit years. One commenter sought 
clarification regarding how the exclusion of these expenses would be 
operationalized across all issuers uniformly since each issuer has its 
own expense assumptions. Other commenters suggested approaches by which 
HHS could remove fixed administrative expenses from the Statewide 
average premium in the payment transfer formula, including reducing the 
portion of administrative expenses from the Statewide average premium 
by 20 percent, the amount of non-claims costs, profit and taxes, the 
administrative expense amount reported through the Unified Rate Review 
Templates (URRTs), or other categorization of fixed administrative 
costs that would result in only including claims, claims-related 
expenses and taxes in the Statewide average premiums. Other commenters 
generally supported reducing Statewide average premium by a flat 
percentage. As a way to reflect the elimination of administrative costs 
in the transfer formula, one commenter suggested that HHS multiply the 
transfer amount by the amount allowed as administrative costs in each 
State's MLR laws. One commenter requested that HHS consult the American 
Academy of Actuaries and move to an approach that relies on market 
average costs or claims experience and add-on a claims-related 
adjustment to account for administrative costs that can vary with the 
level of claims experience.
    One commenter supported this proposal beginning with the 2016 
benefit year and requested HHS to retroactively implement this policy 
for the 2014 and 2015 benefit year.
    One commenter did not support such an adjustment to the Statewide 
average premium, noting that there is no easy way to make this 
adjustment without favoring some issuers and promoting gaming. Another 
commenter asked HHS to delay this proposal for further study, and 
accept public comment on the impact of the inclusion of certain 
administrative costs and profit in the Statewide average premium. One 
commenter suggested that an iterative or phased-in approach could 
mitigate concerns about the accuracy of administrative cost allocation.
    Response: HHS will reduce the Statewide average premium in the risk 
adjustment transfer formula by a fixed rate of 14 percent beginning for 
the 2018 benefit year, which we believe reasonably reflects the 
proportion of administrative costs that do not vary with claims. To 
derive this parameter, we analyzed administrative and other non-claims 
expenses (for example quality improvement expenses) in the MLR Annual 
Reporting Form, and estimated, by category, the extent to which the 
expenses varied with claims. We compared those expenses to the total 
costs that issuers finance through premiums, including claims, 
administrative expenses, and taxes, netting out claims costs financed 
through cost-sharing reduction payments. We compared these expenses to 
total costs, rather than directly to premiums, to ensure that the 
estimated administrative cost percentage was not distorted by under- or 
over-pricing during the years for which MLR data are available. Using 
this methodology, we determined that the mean administrative cost 
percentage is 14 percent. We believe that this percentage represents 
the mean administrative cost percentage in the individual and small 
group markets, and represents a reasonable percentage of administrative 
costs on which risk adjustment transfers should not be calculated. 
Below, we amend the calculation of the Statewide average premium to 
reflect average premiums in a risk pool, less 14 percent. We have 
amended the definition of the State average premium below to reflect 
this change. We are finalizing this adjustment beginning for the 2018 
benefit year. However, we are not making this change for 2017 because 
issuers would not have had an opportunity to incorporate it into their 
rates for 2017.
    Comment: A few commenters requested that HHS use a plan's own 
actual average premium instead of the Statewide average premium in the 
transfer formula.
    Response: We have considered the use of a plan's own premium 
instead of the Statewide average premium. However, our analysis 
determined that this approach is likely to lead to substantial 
volatility in transfer results and even higher transfer charges for 
low-risk low-premium plans. Under such an approach, high-risk, high-
premium plans would require even greater transfer payments; thus, low-
risk, low-premium plans would be required to pay in an even higher 
percentage of their plan-specific premiums in risk adjustment transfer 
charges. In other words, the use of a plan's own premium does not 
reduce risk adjustment charges for low-cost and low-risk issuers, given 
the budget neutrality of the risk adjustment program.
    The revised formula for the calculation of Statewide average 
premium beginning for the 2018 benefit year risk adjustment is:
[GRAPHIC] [TIFF OMITTED] TR22DE16.000

Where:

si = plan i's share of Statewide enrollment in the market 
in the risk pool;
Pi = Average premium per member month of plan i.

ii. The Payment Transfer Formula
    The payment transfer formula is unchanged from what was finalized 
in the 2014 Payment Notice (78 FR 15430 through 15434), except with an 
adjustment to remove a portion of administrative costs from the 
Statewide average premium, as discussed above. 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 94101]]

[GRAPHIC] [TIFF OMITTED] TR22DE16.001

Where:

PS = Statewide average premium;
PLRSi = 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 Statewide 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.
    Comment: A few commenters noted that the budget neutrality of the 
risk adjustment program leads to inadequate compensation for enrollees' 
risk and recommended a non-budget neutral risk adjustment program as 
with Medicare Advantage. Commenters also recommended capping risk 
adjustment charges if they exceed a certain percent of total premiums, 
applying issuer-specific caps with lower caps for smaller issuers, and 
also excluding carriers with experience and significant market share 
from risk adjustment as these carriers may have a sufficient scale to 
mitigate adverse selection. One commenter requested additional risk 
score information at the community- and State-level to allow them to 
make better decisions.
    Response: In the absence of additional funding for the HHS-operated 
risk adjustment program, we continue to calculate risk adjustment 
transfers in a budget neutral manner and note that Medicare Part D risk 
adjustment transfers are also calculated in a budget neutral manner. We 
will not cap transfers as a percent of premiums or by issuer size, as 
this would also reduce the necessary risk adjustment payments for 
issuers with higher risk enrollees and thereby undermine the 
effectiveness of the risk adjustment program. We continue to evaluate 
additional information we may provide States and issuers that would not 
result in sharing issuers' proprietary information. Last year, we 
provided interim risk adjustment reports for credible States, as well 
as final State averages by risk pool, including risk scores, in an 
appendix to the June 30 Summary Report.\36\
---------------------------------------------------------------------------

    \36\ Appendix to the June 30 Summary Report. Available at 
https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/Appendix-A-to-June-30-2016-RA-and-RI-Report-5CR-063016.xlsx.
---------------------------------------------------------------------------

(8) 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' personally identifiable information (PII). 
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 PII in such masked enrollee identification number. Under the 
EDGE server approach issuers currently provide plan-level data to HHS.
    The lack of more granular data under this approach limits HHS's 
ability to use 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 (PHI). Therefore, 
beginning as soon as the 2019 benefit year, while maintaining the 
underlying goals of the distributed data approach, including 
information privacy and security, we proposed 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 elements 
for each of enrollee ID, plan/issuer ID, rating area, and State. This 
approach would allow for the creation of a masked, enrollee-level 
dataset, avoiding, for example, the collection of information such as 
the enrollee ID, 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 dataset to recalibrate the risk adjustment model 
and inform development of the AV 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 AV for 
purposes of determining metal levels. We also believed the data could 
be a valuable source for calibrating other HHS programs in the 
individual and small group markets and creating a public use file to 
help governmental entities and independent researchers better 
understand these markets. After fully considering the comments 
received, we are finalizing our proposal to extract and use the EDGE 
server data in this manner to help update the risk adjustment 
methodology and the AV Calculator, which we aim to do for the 2019 
benefit year. We will also consider using these data in the future for 
calibrating other HHS programs in the individual and small group 
markets and creating a public use file.
    We believe that our approach described above, which minimizes the 
burden for issuers by only requiring them to execute a new EDGE command 
for the report to be run on their EDGE servers, permits important 
improvements to the HHS-operated risk adjustment program while 
continuing to safeguard privacy and security. We are finalizing the 
enrollee-level data collection as proposed.

[[Page 94102]]

    Comment: A few commenters strongly disagreed with the proposal to 
not collect information about the specific issuer or EDGE server, 
stating that more identifiable information could be useful not only in 
updating the risk adjustment model but also in helping ensure that 
issuers are fully complying with critical Exchange requirements and 
individual and small group market reforms, examining changes in the 
relative health of enrollees in a plan over time, and evaluating the 
presence of favorable selection among issuers.
    Response: We appreciate that identifiable data could be useful in 
analyzing program data to support more targeted improvements, and to 
conduct substantive program oversight. However, we believe that our 
proposed approach will allow us to recalibrate the HHS risk adjustment 
models. Further we note that in future years, we could also derive 
general socioeconomic status or demographic information at the plan- or 
issuer-level to make adjustments to the demographic variables or the 
induced demand factor in the risk adjustment models without 
jeopardizing the issuers' proprietary information or individuals' 
privacy.
    Comment: Most commenters supported using enrollee-level EDGE data 
to recalibrate the HHS risk adjustment models, as proposed. One 
commenter emphasized that the calibration of risk factors based on 
actual data from the individual market will more accurately compensate 
issuers for special enrollment period enrollees. One commenter 
supported the use of EDGE enrollee-level data for risk adjustment 
recalibration, as EDGE data reflects the actual risk adjustment program 
population and is significantly more meaningful than MarketScan[supreg] 
data for purposes of risk adjustment; however, the commenter requested 
that since 2016 benefit year data would not adequately reflect the most 
current risk adjustment population for benefit year 2019 risk 
adjustment, HHS should use 2018 EDGE data for 2019 recalibration. 
Commenters encouraged HHS to incorporate EDGE data as soon as possible, 
or beginning for 2017 or 2018 benefit year risk adjustment 
recalibration. Some commenters requested that HHS delay this EDGE data 
collection for the next 3 years to first assess the other changes to 
the HHS risk adjustment models. Other commenters suggested that HHS 
take steps to ensure that the EDGE data is accurate and complete for 
all issuers, including through stakeholder collaboration, to understand 
if a slower schedule or delayed implementation is needed until the 2020 
benefit year.
    Response: We clarify that EDGE data for a particular benefit year 
is not available until after the data submission deadline in the year 
following the benefit year. The 2016 benefit year EDGE data, which will 
be submitted in the spring of 2017, will be the next benefit year for 
which we will be able to collect this data to recalibrate the risk 
adjustment model for the 2019 benefit year, based on our policy 
finalized above to provide for final risk adjustment model coefficients 
before rate-setting for the applicable benefit year. The 2016 benefit 
year EDGE data will be the most complete and recent EDGE data 
available.
    Comment: One commenter expressed concern that it would not be 
possible to implement risk adjustment data validation using masked, 
enrollee-level data.
    Response: Risk adjustment data validation is a separate process and 
we would not conduct data validation or audits using the enrollee-level 
EDGE data. Enrollees chosen for the risk adjustment data validation 
sample are identified for audit purposes through a separate process.
    Comment: A few commenters expressed concern that this EDGE data 
collection could lead to disclosure of issuer-proprietary information. 
We received several suggestions to limit the collection to only data 
elements absolutely necessary to calibrate the risk adjustment model. 
Commenters noted that HHS's data collection authority for the 
individual and small group markets is different than in Medicare. We 
received several comments stating that HHS should be careful to ensure 
that the EDGE enrollee-level data is masked and secure and does not 
divulge enrollees' personal health information or issuers' proprietary 
data. Commenters encouraged HHS to provide more specifics as to how it 
will ensure that data is complete and masked. Some commenters requested 
that HHS release an assessment documenting the need for any proposed 
data elements prior to collection and consideration of the steps taken 
to ensure that these elements cannot be used in conjunction with other 
datasets to identify specific issuers or populations. Commenters noted 
that neither premiums nor the National Provider Identifier (NPI), as 
suggested in the White Paper, should be part of this EDGE data 
collection, as those data elements could allow outside parties to link 
the enrollee-level data with a particular issuer or enrollee.
    Response: We clarify that while we proposed a more extensive list 
of data elements we might collect through the EDGE enrollee-level data 
report in the White Paper, we have revised our approach to exclude 
certain data elements that may be more sensitive. The collection of 
more granular EDGE data will directly contribute to the improvement of 
the risk adjustment models and calculations and is authorized as part 
of HHS's authority under section 1343 of the Affordable Care Act to 
develop criteria and methods to operate the risk adjustment program.
    Comment: Some commenters supported using EDGE data for 
recalibration, but suggested that HHS consider an alternative approach, 
such as using EDGE data aggregated up to HCCs to recalibrate the risk 
adjustment model based on the EDGE data.
    Response: We evaluated the possibility of using EDGE data 
aggregated up to HCCs to recalibrate the risk adjustment models based 
on the EDGE data. However, we believe that such an approach is not 
practical. Each year, HHS engages in ongoing analysis for the risk 
adjustment models, examining and considering a variety of approaches to 
balance concerns and respond to public comments. An approach like the 
one suggested by commenters would make such iterative analysis 
impossible because it would require issuers to rerun EDGE commands on 
short notice, dozens of times, at HHS's request, and therefore would 
prevent HHS from developing and executing a risk adjustment model that 
is as accurate and stable as possible.
    Comment: One commenter suggested that the risk adjustment 
recalibration could take into account the metal level for each enrollee 
rather than use each enrollee to recalibrate all metal levels. Another 
commenter requested that the calibrations be done State by State, using 
State-specific data so that risk adjustment is as accurate as possible. 
Some commenters noted the challenges inherent in recalibrating based on 
EDGE data, such as the calibration occurring during the risk adjustment 
data validation audit process, data completeness if issuers prioritize 
claims for data submission, and using a single year of data (rather 
than 3), and questioned whether a blending approach should be 
considered if there are small sample sizes. Some commenters suggested 
that HHS perform an analysis comparing the EDGE data (either 2015 or 
2016 or both years) to the most recent 3-year MarketScan[supreg] data 
early in the process so health issuers can better anticipate and plan 
for the upcoming changes, and disclose the volume of data that would be 
used in the comparison of EDGE data versus MarketScan[supreg] data, 
demonstrating

[[Page 94103]]

that the new data is reliable prior to implementation.
    Response: We welcome commenters' feedback on appropriate methods 
for the risk adjustment recalibration. We will take sample sizes into 
consideration when making these decisions, and will recalibrate at the 
national level, since we do not intend to collect State information as 
one of the data elements in the data collection. We will take into 
account data completeness when determining the recalibration sample, 
and will consider whether additional, supplemental MarketScan[supreg] 
data is necessary.
    Comment: Many commenters supported using the EDGE enrollee-level 
data to refine the AV Calculator. Another commenter stated that there 
is not practical utility to the data collection, as the EDGE data will 
be years old. One commenter strongly supported a prohibition on the use 
of data gathered from the EDGE servers for purposes other than the 
recalibration of the risk adjustment models and development of the AV 
Calculator. A few commenters supported only using this data to 
recalibrate the risk adjustment model and not for other purposes, and 
would require that any other uses be established through rulemaking 
after a period of time.
    Many commenters also strongly supported the availability of a 
public use file derived from these data, which would be an invaluable 
tool for government entities, including State-based Exchanges and State 
insurance regulators, as well as independent researchers, to better 
understand and analyze the individual and small group markets, 
including the Exchange risk pool. Two commenters encouraged HHS to 
provide more specifics as to what additional uses of this dataset may 
be permitted, if any, by HHS or other stakeholders that are granted 
access. Some commenters opposed the availability of a public use file 
so that competitors cannot leverage proprietary information, with one 
opposing at least until HHS and issuers have had an opportunity to 
assess whether the shift to enrollee-level data is meeting the stated 
objectives. Several commenters expressed concern about a proposal to 
create a masked dataset, and expressed strong concern that HHS would 
create a national database of claims data for all members in the 
individual and small group markets based on enrollee-level EDGE data, 
masked or otherwise.
    Response: While we believe the EDGE data will be most useful for 
the risk adjustment recalibration, we believe it could provide valuable 
information to validate the AV Calculator methodology. We also believe 
that in the future this data may prove useful in calibrating other HHS 
programs in the individual and small group markets, and that, after 
careful analysis, a public use file derived from these data could also 
prove useful to governmental entities and outside researchers. We are 
therefore finalizing our approach as described above. A public use file 
would be de-identified in accordance with Health Insurance Portability 
and Accountability Act of 1996 (HIPAA) requirements, would not include 
proprietary data, and would adhere to HHS rules and policies regarding 
PHI and PII.
    Comment: Several commenters supported the lack of additional burden 
associated with the proposed data collection approach. Two commenters 
requested as much notice as possible of any resulting changes to EDGE 
data submission requirements. One commenter suggested HHS take whatever 
steps it can to limit the administrative burden imposed on issuers and 
their vendors. One commenter encouraged HHS to engage with stakeholders 
to collaborate on the most effective approaches to aggregating and 
using EDGE server data. One commenter recommended that HHS consider how 
to gather and incorporate data on prescription drug utilization 
collected by Electronic Health Records, which may be more reliable and 
complete than claims data alone. One commenter requested additional 
information on how HHS intends to collect the necessary data for 
inclusion of drug data in the risk adjustment model for 2018 onwards. 
Other commenters expressed concern that collecting enrollee-level EDGE 
data will require issuers to remake the EDGE server, retrain EDGE 
submitters, establish additional data warehousing capabilities for the 
enrollee-level data, and perform analyses on the risk adjustment model 
requirements. Another commenter requested that HHS produce a detailed 
cost estimate of the changes necessary to build this capacity and 
contrast this against projected refinements to the model. One commenter 
stated that HHS's proposal would expand the data requested through the 
EDGE servers, impose new record-keeping burdens on issuers, and collect 
proprietary data.
    Response: As we noted in the Information Collection Requirements 
section, the report that HHS will send for issuers to run on their EDGE 
servers will collect data that already exists on issuers' EDGE servers, 
including pharmacy claim data, and will not result in additional burden 
to issuers of risk adjustment covered plans. This data collection will 
not require issuers to remake the EDGE server, retrain EDGE submitters, 
or establish additional data warehousing capabilities for the enrollee-
level data, as this data already exists on their EDGE servers. Further, 
there is no additional cost for the data collection, as the report will 
be built by HHS. When the command is sent to issuers' EDGE servers, 
they will simply need to execute the command, consistent with the 
current data collection process. Issuers will not be identified, so no 
proprietary information will be collected.
    Comment: One commenter requested that HHS publish the EDGE data 
collection for public comment under the requirements of the Paperwork 
Reduction Act, so that issuers have a meaningful opportunity to comment 
on the practical utility and burden of the data collection.
    Response: We will update our data collection for public comment 
under the requirements of the Paperwork Reduction Act following the 
finalization of this rule.
    Comment: One commenter recommended that HHS use EDGE server data to 
help meet the Affordable Care Act's section 2715A transparency 
requirements.
    Response: The type of data required of plans under the transparency 
requirements differs from the data issuers make available on EDGE 
servers for reinsurance and risk adjustment calculations. We have 
previously described how we intend to collect information for the 
transparency requirements for Exchange plans. See Transparency in 
Coverage Reporting by Qualified Health Plan Issuers (CMS-10572).\37\
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    \37\ Transparency in Coverage Reporting by Qualified Health Plan 
Issuers. April 29, 2016. Available at https://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing-Items/CMS-10572.html?DLPage=1&DLEntries=10&DLFilter=CMS%20-.
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(9) 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

[[Page 94104]]

monthly enrollment in the plan and the per enrollee per month risk 
adjustment user fee specified in the applicable annual payment notice.
    To promote operational efficiency, we proposed 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 payment notice. Billable member months 
exclude children who do not count toward family rates or family policy 
premiums.\38\ This revision to base the total risk adjustment user fee 
on billable member months rather than enrollment member months ensures 
consistency with calculating risk adjustment user fees based on premium 
revenue generated by issuers, which aligns with the FFE user fee 
policy. This change will 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 are finalizing our 
proposal to implement this change beginning for the 2016 benefit year 
risk adjustment user fee collection, which will be collected in the 
summer of 2017, maintaining the user fee rate set in the 2016 and 2017 
Payment Notices, respectively.
---------------------------------------------------------------------------

    \38\ See 78 FR 15432.
---------------------------------------------------------------------------

    Comment: Commenters supported changing the risk adjustment user fee 
charge to be based on billable member months.
    Response: We are finalizing this policy as proposed beginning for 
the 2016 benefit year risk adjustment user fee collection.
    Additionally, in the proposed rule, we noted that 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 risk adjustment program will 
provide special benefits as defined in section 6(a)(1)(b) of OMB 
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 proposed 
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 divided 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.
    In the proposed rule, we estimated 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 $0.12 PMPM.\39\ However, in light of 
updated cost estimates for risk adjustment-related contracts and 
expected year-to-year cost-based inflation, we now expect the total 
cost for HHS to operate the risk adjustment program in 2018 on behalf 
of States to be approximately $40 million, and are finalizing the risk 
adjustment user fee rate at $1.68 per billable enrollee per year or 
$0.14 PMPM.
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    \39\ We note that in the proposed rule we had incorrectly stated 
the annual billable enrollee risk adjustment user fee rate as $1.32, 
when it should have been $1.44 per billable enrollee per year, 
however the $0.12 PMPM was accurately stated in the proposed rule.
---------------------------------------------------------------------------

    Comment: Commenters supported the proposed risk adjustment user fee 
rate. A few commenters pointed out an error in calculating the 
annualized risk adjustment user fee rate in the proposed rule.
    Response: The correct proposal was $0.12 PMPM or $1.44 per billable 
enrollee per year, but with updated estimates, we are finalizing a 
slightly higher user fee rate. The total risk adjustment program costs 
for the 2018 benefit year will be $40 million, based on updated 
contracts through contract rebids that occurred since the publication 
of the proposed rule and expected year-to-year cost-based inflation. 
Based on this update, we are finalizing a user fee rate of $1.68 per 
billable enrollee per year or $0.14 PMPM for 2018 and future benefit 
years (until updated through rulemaking).
(10) 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 proposed to implement a 
materiality threshold, meaning that issuers that fall below a certain 
threshold would not be required to conduct risk adjustment data 
validation each year. We proposed to use a threshold of total premiums 
of $15 million. 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.
    Because risk adjustment data validation error rates are applied to 
the subsequent year's data, we also sought comment on 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

[[Page 94105]]

the risk adjustment transfers of issuers participating in risk 
adjustment in the following benefit year.
    As for issuers that fall below the materiality threshold, we 
proposed that these issuers would be subject to random and targeted 
sampling. We proposed that the random sampling would 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. We proposed that potential risk-based 
metrics we would consider when selecting issuers at or below this 
threshold for more frequent initial validation audits would 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 noted 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.
    Finally, we proposed that issuers not materially affecting risk 
adjustment data validation that are not required to perform an initial 
validation audit would still have their risk adjustment transfers 
adjusted based on an error rate. We proposed using 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 sought comment on these proposals. In light of the comments 
received, beginning with the 2017 benefit year of risk adjustment data 
validation, we are finalizing the proposed materiality threshold of 
total premiums of $15 million based on the premiums in the benefit year 
being validated. Additionally, we are finalizing our proposal that 
issuers below the materiality threshold for risk adjustment data 
validation will be subject to a default error rate equal to the lower 
of the average negative error rate nationally, or the average negative 
error rate within a State. We will also exercise enforcement discretion 
for risk adjustment data validation for the 2016 benefit year for 
issuers below this materiality threshold in the same fashion.
    Comment: Numerous commenters supported the materiality threshold 
for risk adjustment data validation beginning in the 2017 benefit year 
of total premiums of $15 million. A few commenters opposed a 
materiality threshold, stating that not auditing all issuers every year 
does not promote a level playing field. One commenter requested that 
HHS establish a materiality threshold beginning with the 2018 benefit 
year. Other commenters agreed with HHS's materiality threshold as long 
as exempted issuers would be subject to random and targeted sampling 
that would include issuers below the threshold being subject to an 
initial validation audit approximately every 3 years. Another commenter 
requested that HHS monitor the variance between these low enrollment 
plans and their markets to ensure data integrity.
    Response: HHS is finalizing the materiality threshold of total 
premiums of $15 million beginning with the 2017 benefit year, as 
proposed, because we agree with the numerous commenters that this 
threshold would reduce the burden of the risk adjustment data 
validation process for issuers that do not materially impact risk 
adjustment transfers. As set forth in the proposed rule and finalized 
here, although an issuer may not be required to conduct risk adjustment 
data validation each year, the issuers would be subject to random and 
targeted sampling that would include issuers below the threshold being 
subject to an initial validation audit approximately every 3 years.
    Comment: Some commenters supported a materiality threshold but 
requested that HHS establish a threshold higher than total premiums of 
$15 million. Other commenters requested that HHS establish a threshold 
of 12,000 billable member months. One commenter encouraged HHS to 
ensure that the materiality threshold is set so that no more than 2 
percent of membership nationally is exempt.
    Response: We believe that setting a threshold representing risk 
adjustment covered plans that cover approximately 1.5 percent of 
membership nationally promotes the goals of the risk adjustment data 
validation process while also considering the burden of such a process 
on smaller plans. HHS will monitor this threshold and may propose 
adjustments to the threshold for future benefit years to ensure that 
issuers above this threshold represent risk adjustment covered plans 
that cover approximately 98.5 percent of membership nationally.
    Comment: One commenter sought clarification that the premiums 
included in the materiality threshold are only those for plans subject 
to risk adjustment.
    Response: We agree with the commenter that the premiums included in 
the materiality threshold are only those for risk adjustment covered 
plans.
    Comment: Several commenters requested that HHS base the materiality 
threshold on the benefit year being validated and not the subsequent 
benefit year.
    Response: We agree with the commenters, and are finalizing a policy 
that HHS will base the materiality threshold on the benefit year being 
validated rather than the subsequent benefit year.
    Comment: Numerous commenters supported the application of an error 
rate to issuers not required to conduct risk adjustment data 
validation. Other commenters suggested that those issuers should be 
exempt from having their transfers adjusted based on an error rate. The 
commenters supporting the error rate requested that HHS use the State 
average error rate for issuers that do not meet the materiality 
threshold. One commenter requested additional information about the 
error rate.
    Response: We are finalizing a default error rate equal to the lower 
of the average negative error rate nationally, or the average negative 
error rate within a State. We believe this protects issuers not 
required to conduct risk adjustment data validation from large error 
rates of large issuers in a State, while not permitting them to unduly 
benefit from this exemption. We clarify that this default error rate 
would also apply to ``new entrant'' issuers in a benefit year beginning 
with the 2016 benefit year whose transfers would be adjusted based on 
prior year risk adjustment data validation results, which the new 
entrant issuer was not subject to. For example, the issuer who newly 
enters the market in the 2017 benefit year would have its June 30, 2018 
transfers for the 2018 benefit year adjusted by the same 2017 risk 
adjustment data validation default error rate applied to issuers not 
required to conduct 2017 risk adjustment data validation for the 2017 
risk adjustment data validation error rate application and payment 
adjustments on 2018 transfers.
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 proposed 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

[[Page 94106]]

diagnostic data are likely to be incomplete and as an indicator of the 
severity of an enrollee's illness. We proposed 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. Therefore, we proposed to amend the first 
sentence of Sec.  153.630(b)(7)(ii) to include enrollees' paid pharmacy 
claims. In light of the comments received, we are finalizing this 
provision as proposed.
    Comment: Several commenters supported this proposal. One commenter, 
while in support of the proposal, noted that requiring issuers to 
provide prescription drug data to initial validation audit entities 
will not serve to prevent gaming of prescription drugs in the risk 
models. Additionally, commenters requested more information, including 
knowing in advance the type of evidence that will be required and the 
format of the data used for the validation audit.
    Response: We are finalizing this policy as proposed. As we noted in 
our discussion of including prescription drugs in the risk adjustment 
models, we intend to evaluate prescription drug utilization patterns 
prior to, during, and after the 2018 benefit year. We will provide 
guidance on the type of evidence that will be required and the format 
of the data used for this validation audit in future guidance.
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 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.'' \40\ 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 amending 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 since the calculation is a 
separate reason on which an issuer could appeal. We further clarify 
that if an issuer intends to appeal the application of a risk score 
error rate to its risk adjustment transfer amounts, HHS will deem this 
a risk adjustment payment or charge amount appeal under Sec.  
156.1220(a)(1)(ii). In this final rule, we also finalize an interim and 
final discrepancy reporting process for the risk adjustment data 
validation program and we codify 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.
---------------------------------------------------------------------------

    \40\ 2015 Payment Notice, See 79 FR 13768.
---------------------------------------------------------------------------

    First, we finalize 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 are 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 are not permitting issuers to appeal the resolution of any 
interim discrepancy disputing the initial validation audit sample. We 
are also requiring 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 finalize a final 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 are 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 30 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.
    As we will discuss in further detail in the preamble to Sec.  
156.1220(a), we are also requiring issuers to report a discrepancy if 
the issue is identifiable prior to filing a request for reconsideration 
as set forth in Sec.  156.1220. As such, we are amending 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 are amending 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 are requiring issuers to use the administrative appeals process set 
forth in Sec.  156.1220.
    In light of the comments received, we are finalizing the provisions 
as proposed.
    Comment: Many comments supported the risk adjustment data 
validation discrepancy reporting and appeals processes. However, some 
of these commenters requested that HHS provide issuers 30 calendar days 
to file interim discrepancy reports.
    Response: We are finalizing the provisions and timeframes as 
proposed. We are finalizing a 15 calendar day timeframe to report 
interim discrepancies related to the initial validation audit sample in 
order to provide initial validation audit entities maximum time to 
perform the initial validation audit.
    Comment: One commenter requested that HHS clarify who within an 
issuer would provide the attestation during the interim and final 
attestation or discrepancy reporting process.
    Response: HHS will provide guidance on who can provide the 
attestation during the interim and final attestation or discrepancy 
reporting processes. We note that, as with all attestations, it must be 
an individual who can legally and financially obligate the company.
7. Part 154--Health Insurance Issuer Rate Increases: Disclosure and 
Review Requirements
a. Definitions (Sec.  154.102)
    We proposed to revise the definition of ``product'' in Sec.  
154.102 to allow a product to be considered the same product when it is 
no longer offered by the same issuer, but by a different issuer in the 
same controlled group, consistent with our proposed interpretation of 
guaranteed renewability provisions, as discussed in the preamble to 
Sec.  147.106. We are finalizing the revised definition

[[Page 94107]]

as proposed. For further discussion please see the preamble for 
Sec. Sec.  144.103 and 147.106.
8. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
a. Standardized Options (Sec.  155.20)
    In the 2017 Payment Notice, HHS finalized six standardized options 
(also referred to as Simple Choice plans), one each at the bronze, 
silver, silver cost-sharing reduction variations, and gold levels of 
coverage, designed to be similar to the most popular QHPs in the 2015 
individual market FFEs. In the proposed 2018 Payment Notice, we 
proposed to change the standardized options from the 2017 versions in 
order to reflect changes in QHP enrollment-weighted data from 2015 to 
2016 and include SBE-FP QHP enrollment-weighted data; and to comply 
with various State cost-sharing standards. For the 2018 plan year, HHS 
proposed three sets of standardized options (see Tables 12, 13, and 14 
in the proposed 2018 Payment Notice). The second and third sets of 
proposed standardized options (Tables 13 and 14) differed from the 
first set only to the extent necessary to comply with State cost-
sharing laws. The second set was 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 cost-sharing amount that can be charged for a 30-
day supply of prescription drugs by tier; or (3) require that all drug 
tiers carry a copayment rather than coinsurance. The third set was 
designed to work in a State with maximum deductible requirements and 
other cost-sharing standards.
    Like the 2017 standardized options, we proposed that the 2018 
standardized options would each have a single provider tier, fixed 
deductible, fixed annual limitation on cost sharing, four drug tiers, 
and fixed copayment or coinsurance for a key set of EHB that comprise a 
large percentage of the total allowed costs for a typical population of 
enrollees. We proposed these fixed cost-sharing values for in-network 
care only (we did not propose to standardize cost sharing for out-of-
network care).
    Unlike the 2017 standardized options, we proposed that the first 
and second set of 2018 standardized options at the silver, silver cost-
sharing reduction variations, and gold levels of coverage, would have a 
separate medical and drug deductible, reflecting the commonality of 
this cost-sharing structure among 2016 enrollment-weighted QHPs at 
these levels of coverage. We proposed to set the drug deductible equal 
to $0 for the 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, meaning no 
deductible would apply to the drugs.
    We noted that the bronze standardized options as proposed would 
rely on finalization of the proposal at Sec.  156.140, which would 
permit a broader de minimis range for bronze plans.
    We also proposed a fourth standardized option at the bronze level 
of coverage that would qualify as a high deductible health plan (HDHP) 
under section 223 of the Code, eligible for use with a health savings 
account (HSA). We noted that under 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 proposed 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, HHS proposed to amend the definition of 
``standardized option'' at Sec.  155.20 to provide that a plan would be 
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.
    In the proposed rule, we noted that 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 proposed that SBE-FPs may choose to 
allow HHS-designed standardized options, if offered by issuers in their 
State, to receive differential display on HealthCare.gov. We proposed 
that an SBE-FP must notify HHS if it elects to have HHS-designed 
standardized options receive differential display by a date to be 
specified in guidance, which would be set to provide sufficient time to 
operationalize the State's decision on HealthCare.gov.
    In the proposed rule, we sought to accommodate State cost-sharing 
requirements by designing three sets of standardized options (in 
addition to a bronze HDHP) and proposed to select for each FFE State 
one of the three standardized options at each level of coverage that 
would meet any existing State cost-sharing requirements (plus the HDHP 
option at the bronze level, if permissible under State cost-sharing 
standards). We proposed 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. We proposed that 
these selections would be published in the Final 2018 Payment Notice.
    We also noted that many States have oral chemotherapy access laws, 
which require coverage of oral chemotherapy to be provided at cost-
sharing parity with intravenous chemotherapy, or which cap patients' 
monthly cost sharing for chemotherapy drugs (both oral and 
intravenous). We proposed to clarify that these chemotherapy access 
requirements do not conflict with the HHS standardized plan designs 
because issuers may design benefit packages that comply with both the 
standardized options' requirements and State oral chemotherapy access 
laws.
    We are finalizing the proposed policies on standardized options and 
the plan designs in the first, second, and third sets of standardized 
options as proposed, except for a few modifications, as discussed 
below.
    We are modifying the definition of ``standardized option'' at Sec.  
155.20 to provide not only that HDHP QHPs can be modified to the extent 
necessary to align with the applicable requirements under section 223 
of the Code, but that any QHP can be modified to update the cost-
sharing structure specified by HHS in rulemaking to the extent 
necessary to align with the applicable annual limitation on cost 
sharing and HHS actuarial value requirements. This will permit us to 
make minor changes to the standardized options to meet legal 
requirements through guidance implementing this rule, instead of solely 
through rulemaking.
    We are selecting all of the plan designs in the proposed second set 
of standardized options (Table 11) to apply in the Exchanges in the 
States of: Arkansas, Delaware Iowa, Kentucky (if the SBE-FP opts in), 
Louisiana, Missouri, Montana, and New Hampshire. We are selecting all 
of the plan designs in the proposed third set

[[Page 94108]]

of standardized options (Table 12) to apply in the Exchange in the 
State of New Jersey, but with some modifications to bring them into 
full compliance with New Jersey's unique State cost-sharing 
requirements, as discussed below. The States listed above have specific 
cost-sharing requirements, which the second and third sets of 
standardized options were designed to accommodate. We are selecting all 
of the plan designs in the first set of proposed standardized options 
(Table 10) (except for the HDHP option, which issuers in all States may 
choose to offer as long as it complies with State requirements 
governing high deductible health plans) to apply in all other FFEs, and 
all other SBE-FPs that opt in to differential display of these options.
    New Jersey has a $2,500 maximum deductible limitation for plans at 
all levels of coverage except for bronze, and a $3,000 maximum 
deductible for plans at the bronze level of coverage. New Jersey also 
prohibits the use of a separate specialty drug tier. We are thus 
removing the specialty drug tier from the third set of standardized 
options. We made other conforming adjustments to ensure that the AVs 
fall within the de minimis range; and that each of the drug tiers has a 
different cost-sharing (copayment) value. These changes from the 
proposed rule remain consistent with the principles and features of 
standardized options described in the proposed rule. The standardized 
options finalized in this rule, in Tables 10, 11, and 12 below, apply 
beginning with the 2018 plan year.
    Comment: The majority of commenters were supportive of the proposed 
policy to continue standardized options into the 2018 plan year. Some 
commenters requested that standardized options be made a requirement 
for all QHP issuers, as they are in the SBEs that have implemented 
standardized plans. These commenters requested that each QHP issuer 
participating in the 2018 Exchanges be required to offer at least one 
standardized plan at each level of coverage. A few commenters requested 
that standardized options be removed altogether, stating that the plans 
may negatively impact innovation in plan design or limit competition 
and choice in the Exchanges. A few commenters stated that standardized 
options are not necessary in many markets due to the participation of 
only one to two issuers. These commenters requested that if 
standardized options remain, HHS clarify that they will remain optional 
for issuers. Some commenters requested that in place of standardized 
options, HHS instead move to tighten meaningful difference standards.
    Response: We continue to believe that standardized options, which 
issuers may elect to offer, can simplify the consumer shopping 
experience in many markets and encourage the availability of plan 
designs with beneficial features (such as pre-deductible services) that 
may not otherwise exist in certain markets. We are finalizing the 
proposal for issuers to be able to offer standardized options if they 
choose. We recognize that the cost-sharing structures in the 
standardized options may not be appropriate for all issuers or all 
markets, and we are not requiring issuers to offer standardized 
options, nor limiting their ability to offer other QHPs, subject to 
other applicable law. As a result, we do not believe that standardized 
options will hamper innovation or limit choice.
    Comment: Most of the commenters that commented on the proposed 
standardized options expressed concern about the proposed high out-of-
pocket cost for specialty drugs in the first set of standardized 
options due to the application of coinsurance instead of copayments. 
Many of these commenters noted that the use of coinsurance makes it 
more difficult for consumers to calculate their monthly or yearly cost 
for drugs because plan formularies often lack cost information for 
specialty drugs. Many commenters noted that consumers with specialty 
drug needs often face financial difficulty because they must pay their 
plan's annual limitation on cost sharing within the first few months of 
the plan year, solely based on their specialty drug spending. Some 
commenters requested that HHS consider a capped copayment structure for 
drugs, or a process whereby a consumer would be able to spread his or 
her drug cost-sharing obligations evenly over the course of twelve 
months. Several commenters requested that we adopt the drug cost-
sharing structure in the second or third set of standardized options in 
place of the drug cost-sharing structure in the first set of 
standardized options. Some issuers and SBEs commented that they are 
moving towards the use of copayments in place of coinsurance in 
response to consumer feedback. Many commenters requested clarification 
regarding the meaning of a separate drug deductible set at $0, which 
was the drug deductible proposed for the 87 and 94 percent silver CSR 
plan variations and the gold plan in the first set of standardized 
options. One commenter requested additional clarity regarding the use 
of the asterisk in the standardized options tables, which is used to 
mean ``not subject to the deductible,'' and whether it includes both 
the medical and the drug deductible.
    Response: We agree that in some cases coinsurance for specialty 
drugs may lead to high up-front out-of-pocket spending for consumers 
with specialty drug needs. However, because we have designed the 
standardized options to have cost-sharing features similar to those in 
the most popular (enrollment-weighted) QHPs in the 2016 individual 
market FFEs and SBE-FPs, we are retaining the proposed coinsurance 
structure and rates for specialty drugs in the first set of 
standardized options. The proposed separate medical/drug deductible 
structure in the proposed first and second set of standardized options 
was intended to provide cost-sharing protection for patients that 
require access to specialty drugs by subjecting the drugs to a separate 
and smaller deductible, rather than subjecting the drugs to a combined 
medical/drug deductible, which is often in the thousands of dollars. 
The standardized options with the separate drug deductible set at $0 
(the 87 and 94 percent AV silver plan variations and gold plans in the 
first and second sets of the proposed standardized options) were 
designed this way for three reasons. First, under cost-sharing 
reduction rules, the cost-sharing reduction plan variations should 
carry the same cost-sharing structure as the standard silver plan to 
avoid a situation where a less generous plan variation has lower cost 
sharing than a more generous plan variation. Thus, because the proposed 
standard silver plan in the second and third sets has a separate 
medical/drug deductible, the cost-sharing reduction variations must 
also have a separate medical/drug deductible, even if the drug 
deductible is $0. Second, for a plan with a separate medical/drug 
deductible, a $0 drug deductible would not accumulate the copayments 
the consumer pays for drugs towards the medical deductible of the plan. 
This was the intended plan structure in the proposed rule and is 
different than a plan with a combined medical/drug deductible where the 
drug copayments do go towards the medical deductible of the plan 
because the medical/drug deductible is combined. Third, we proposed 
this structure in response to confusion regarding the way that 
coinsurance is applied within the deductible range of a plan under the 
2018 AV calculator methodology.\41\ We

[[Page 94109]]

are retaining the proposed separate medical/drug deductible structure 
in the first and second sets of standardized options as well as the 
proposed separate drug deductible of $0 for certain plans. We are 
relying on the asterisk (*), which is used to indicate that the cost 
sharing is not subject to deductible, to convey to consumers when no 
deductible applies to the drug tiers. We further clarify that the 
asterisk (*) used in the standardized options tables means that the 
benefit cost sharing is not subject to any deductible--not a drug 
deductible, nor a medical deductible, nor a combined medical/drug 
deductible.
---------------------------------------------------------------------------

    \41\ 2018 AV calculator methodology. Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/index.html#Plan 
Management.
---------------------------------------------------------------------------

    Comment: Many commenters expressed support regarding the cost-
sharing structure for physical, occupational, and speech therapy in the 
proposed second set of standardized options, which sets cost sharing 
for these services at parity with cost sharing for primary care 
services (applying copayments not subject to the deductible, instead of 
coinsurance subject to the deductible). These commenters were also 
supportive of the cost-sharing structure proposed for these services in 
the third set of standardized options, which also uses copayments 
instead of coinsurance, and, with the exception of the bronze plan, 
does not subject the services to the deductible. Many commenters 
expressed concern with the cost-sharing structure proposed for these 
services in the first set of standardized options (coinsurance subject 
to deductible) noting that it would create substantial issues for 
consumers that require physical, occupational, or speech therapy, which 
are often required several times per week for habilitation or 
rehabilitation. Several commenters requested that we clarify that these 
benefit categories apply for both rehabilitative and habilitative care. 
Some commenters requested that we clarify that occupational therapy and 
physical therapy are separate and distinct services.
    Response: We clarify that occupational therapy, physical therapy, 
and speech therapy categories include services for both habilitation 
and rehabilitation. Because these services are services that are 
expected and used for both rehabilitative and habilitative care, we 
changed the naming of these inputs in both the proposed 2018 AV 
Calculator and the proposed standardized options for 2018 in order to 
remove exclusive reference to rehabilitation. We also clarify that 
occupational and physical therapy are listed together in the AV 
Calculator and proposed standardized options tables, but that such 
listing does not indicate that these services are one and the same type 
of services, but rather that they carry the same cost-sharing rate. We 
agree that consumers who need to utilize these services multiple times 
during the month or year may not want to select a plan with these 
services subject to both a deductible and coinsurance. However, because 
we have designed the standardized options to have cost-sharing features 
similar to those in the most popular (enrollment-weighted) QHPs in the 
2016 individual market FFEs and SBE-FPs, we are retaining the proposed 
cost-sharing structure for these types of services in the first set of 
standardized options.
    Comment: Some commenters suggested that the second set of 
standardized options should be used for all States, not just those that 
have cost-sharing standards. They suggested that a single national set 
of standardized options would prevent confusion for consumers that move 
from one State to a different State with different HHS standardized 
options and would be less burdensome for issuers that participate in 
multiple States to develop a single set of standardized options, rather 
than two or three sets. They also commented that by designing 
standardized options for some States to include co-insurance for some 
benefits while using copayments for those benefits in other States, HHS 
would be establishing a two-tiered Exchange system, which would be more 
difficult to measure.
    Response: We understand that the second set of standardized options 
would comply with cost-sharing standards in all States, except for 
one--New Jersey--which, as noted, has very specific requirements 
addressed in the proposed third set of standardized options. However, 
based on the analysis of median cost-sharing features of enrollment-
weighted QHPs in each State, we believe that the set of standardized 
options selected for each State will reflect the principles of 
standardized options described in the 2017 Payment Notice without 
increasing premium rates for consumers. We note that the bronze HDHP 
standardized option will remain an option for issuers in all States, if 
permitted in the State.
    Comment: Some commenters requested clarity on how issuers can 
comply with both State requirements related to oral chemotherapy and 
the standardized options' cost-sharing requirements.
    Response: We clarify that where an issuer in a State that requires 
cost sharing for chemotherapy drugs different from the cost sharing 
specified in the standardized options' drugs tiers offers a plan that 
complies with the standardized options plan designs, except for any 
deviations to comply with the State's chemotherapy drug requirements, 
the plan will still be considered to be in compliance with the 
standardized options requirements. Issuers are expected to clearly 
indicate the State-required alternative cost sharing for chemotherapy 
drugs in plan formularies. This approach gives issuers the ability to 
price the drug tiers at the cost sharing in the standardized designs, 
but alter cost sharing for the chemotherapy drugs that have specific 
cost-sharing requirements based on State law.
    Comment: Some commenters requested clarity regarding whether in the 
2018 proposed standardized options issuers would have the option to 
create an additional lower-cost drug tier, as was explicitly permitted 
in the 2017 standardized options. Several commenters requested that the 
additional lower-cost tier be specifically designated for drugs that 
are available at no cost sharing, or fall under the preventive services 
category. Some commenters requested that we clarify that standardized 
options must cover preventive services at no cost sharing. Some 
commenters requested that we clarify that the copayment amounts for the 
drug tiers are for 30-day retail fills. Some commenters requested that 
we clarify that preferred and non-preferred pharmacies are permitted 
with differential cost sharing and that differential cost sharing is 
permitted for mail-service and retail pharmacies, such that the 
standardized cost sharing would represent cost sharing at non-preferred 
retail pharmacies, with lower cost sharing available at preferred 
retail or mail-service pharmacies.
    Response: We offer the following clarifications. We clarify that 
each copayment amount listed for the drug tiers in all standardized 
options is for at least a 30-day prescription fill at retail 
pharmacies. We clarify that issuers (or their pharmacy benefit 
managers) may offer a lower cost-sharing rate for mail order 
prescription fills, as is the most common practice in the current 
market. We clarify that, similar to the standardized options for 2017, 
issuers may create a single, additional, lower cost generics tier for 
standardized options. We also clarify that all standardized options 
must provide coverage for certain preventive services, including drugs 
as applicable, and may not impose any cost-sharing requirements (such 
as a copayment, coinsurance, or a deductible) with respect to those 
items and services (see regulations at Sec.  147.130 for rules

[[Page 94110]]

regarding coverage of preventive health services).
    Comment: One commenter requested additional clarity regarding the 
number of physician tiers issuers are permitted to use in standardized 
options.
    Response: We clarify that standardized options are limited to a 
single in-network tier. We do not standardize cost sharing for out-of-
network coverage--therefore the cost-sharing structure for care 
obtained out-of-network can be set by the issuer of the standardized 
plan, subject to applicable Federal and States rules and regulations 
governing out-of-network coverage.
    Comment: Some commenters expressed concern about the methodology of 
basing standardized cost-sharing design on enrollment-weighted QHP 
data, and requested that we incorporate other factors into plan 
designs.
    Response: We examined 2016 enrollment-weighted FFE and SBE-FP QHP 
data to ensure that the cost-sharing values selected for standardized 
options were between the 25th and 75th percentile of cost-sharing 
values for each standardized cost-sharing feature based on enrollment, 
and generally sought to mirror the requirements at the 50th percentile. 
However, our standardized designs also take into account a number of 
other principles, such as deductible-exempt services, and copayments in 
place of coinsurance where feasible, as detailed in the proposed 2017 
Payment Notice.
    Comment: Some consumers supported differential display of 
standardized options, requesting HHS adopt preferential display with 
standardized options sorting to the top of the list on HealthCare.gov, 
with premiums as a secondary sorting mechanism. Other commenters 
disagreed with any differential display, requesting that premiums be 
the default sorting mechanism.
    Response: The differential display of standardized options for 2017 
has been implemented in a way that will make plan shopping easier, 
while educating consumers about the cost-sharing features of 
standardized options. Consumers are able to filter to view only 
standardized options; however, standardized options will not 
automatically sort to the top on HealthCare.gov in 2017. Display of 
standardized options for 2018 will be based on additional consumer 
testing and consumer experiences with standardized options and 
comparison shopping for coverage in the 2017 Plan Year.
    Comment: Some commenters supported the proposal for a standardized 
bronze HDHP. Some commenters requested that we also design a 
standardized silver and gold HDHP. Other commenters raised concerns 
about HDHPs in general and, in particular, noted that many consumers 
with HDHPs never actually establish HSAs, which could make it difficult 
for them to afford out of pocket expenses when care is needed. These 
commenters requested that HHS raise awareness of HSAs and facilitate 
enrollees' ability to take advantage of that benefit.
    Response: We are finalizing the proposed standardized bronze HDHP. 
We will consider comments regarding the need for consumer education 
with respect to HSAs and HDHPs. We are not developing standardized HDHP 
options at other levels of coverage at this time, but could do so in 
the future if we see significant demand for those products.
    Comment: Some commenters requested additional clarity regarding the 
three proposed sets of standardized options. Some requested whether in 
some States, there would be more than one set of standardized options 
that issuers would have the choice to offer. Others raised questions 
regarding whether there could be a State that has both cost-sharing 
laws as covered under the second proposed set of standardized options 
as well as deductible maximums as covered under the third proposed set 
of standardized options.
    Response: We clarify, that in each applicable State, there will be 
one set of standardized options, including one bronze-level, one 
silver-level, one 73 percent AV silver plan variation, one 87 percent 
AV silver plan variation, one 94 percent AV silver plan variation, one 
gold standardized option, and one bronze HDHP option that issuers in 
the State would have the option to offer. No States have been 
identified to have cost-sharing requirements that would require a plan 
to comply with limitations reflected in both the second proposed set of 
standardized options as well as the third proposed set of standardized 
options. The only State with applicable requirements for which the 
third set of standardized options, modified as described above, would 
be required is the State of New Jersey.

                                                   Table 10--2018 Final Standardized Options--Set One
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                           Silver 73%  Silver 87%  Silver 94%
                                                   Bronze        HSA-eligible bronze HDHP         Silver    CSR plan    CSR plan    CSR plan      Gold
                                                                                                            variation   variation   variation
--------------------------------------------------------------------------------------------------------------------------------------------------------
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/     $3,000/     $700/$0     $250/$0  $1,400/$0
                                                                                                     $500        $200
Annual Limitation on Cost Sharing..............     $7,350  $6,000............................     $7,350      $5,850      $2,450      $1,250     $5,000
Emergency Room Services........................        40%  No charge after deductible........        20%         20%         20%          5%        20%
Urgent Care....................................    $75 (*)  No charge after deductible........    $75 (*)     $75 (*)     $40 (*)     $25 (*)    $60 (*)
Inpatient Hospital Services....................        40%  No charge after deductible........        20%         20%         20%          5%        20%
Primary Care Visit.............................    $35 (*)  No charge after deductible........    $30 (*)     $30 (*)     $10 (*)      $5 (*)    $20 (*)
Specialist Visit...............................    $75 (*)  No charge after deductible........    $65 (*)     $65 (*)     $25 (*)     $10 (*)    $50 (*)
Mental Health/Substance Use Disorder Outpatient    $35 (*)  No charge after deductible........    $30 (*)     $30 (*)     $10 (*)      $5 (*)    $20 (*)
 Office Visit.
Imaging (CT/PET Scans, MRIs)...................        40%  No charge after deductible........        20%         20%         20%          5%        20%
Speech Therapy.................................        40%  No charge after deductible........        20%         20%         20%          5%        20%
Occupational Therapy/Physical Therapy..........        40%  No charge after deductible........        20%         20%         20%          5%        20%
Laboratory Services............................        40%  No charge after deductible........        20%         20%         20%          5%        20%
X-rays and Diagnostic Imaging **...............        40%  No charge after deductible........        20%         20%         20%          5%        20%
Skilled Nursing Facility.......................        40%  No charge after deductible........        20%         20%         20%          5%        20%
Outpatient Facility Fee (for example,                  40%  No charge after deductible........        20%         20%         20%          5%        20%
 Ambulatory Surgery Center).

[[Page 94111]]

 
Outpatient Surgery Physician/Surgical Services.        40%  No charge after deductible........        20%         20%         20%          5%        20%
Generic Drugs..................................    $35 (*)  No charge after deductible........    $15 (*)     $15 (*)      $5 (*)      $3 (*)    $10 (*)
Preferred Brand Drugs..........................        35%  No charge after deductible........    $50 (*)     $50 (*)     $25 (*)      $5 (*)    $40 (*)
Non-Preferred Brand Drugs......................        40%  No charge after deductible........   $100 (*)    $100 (*)     $50 (*)     $10 (*)    $75 (*)
Specialty Drugs................................        45%  No charge after deductible........        40%         40%         30%         25%        30%
--------------------------------------------------------------------------------------------------------------------------------------------------------
(*) = not subject to the deductible.
** Note: Excludes x-rays and diagnostic imaging associated with office visits (except for high-deductible health plans (HDHPs).


   Table 11--2018 Final Standardized Options--Set Two--Applicable in Arkansas, Delaware, Iowa, Kentucky (if the SBE-FP Opts In), Louisiana, Missouri,
                                                               Montana, and New Hampshire
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Silver 87%  Silver 94%
                                                 Bronze                    Silver              Silver 73% CSR plan     CSR plan    CSR plan      Gold
                                                                                                    variation          variation   variation
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 Sharing.....  $7,350..................  $7,350..................  $5,850..................      $2,450      $1,250      $5,000
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 Disorder    $35 (*).................  $30 (*).................  $30 (*).................     $10 (*)      $5 (*)     $20 (*)
 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 Therapy.  $35 (*).................  $30 (*).................  $30 (*).................     $10 (*)      $5 (*)     $20 (*)
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/Surgical   40%.....................  20%.....................  20%.....................         20%          5%         20%
 Services.
Generic Drugs.........................  $35 (*).................  $15 (*).................  $15 (*).................      $5 (*)      $3 (*)     $10 (*)
Preferred Brand Drugs.................  $40 (copay applies only   $50 (*).................  $50 (*).................     $25 (*)      $5 (*)     $40 (*)
                                         after deductible).
Non-Preferred Brand Drugs.............  $45 (copay applies only   $100 (*)................  $100 (*)................     $50 (*)     $10 (*)     $75 (*)
                                         after deductible).
Specialty Drugs.......................  $50 (copay applies only   $150 (copay applies only  $150 (copay applies only     $75 (*)     $20 (*)    $100 (*)
                                         after deductible).        after drug deductible).   after drug deductible).
--------------------------------------------------------------------------------------------------------------------------------------------------------
(*) Not subject to deductible.
(**) Excludes x-rays and diagnostic imaging associated with office visits.


                              Table 12--2018 Final Standardized Options New Jersey
----------------------------------------------------------------------------------------------------------------
                                                               Silver 73%   Silver 87%   Silver 94%
                                    Bronze          Silver      CSR plan     CSR plan     CSR plan       Gold
                                                               variation    variation    variation
----------------------------------------------------------------------------------------------------------------
Actuarial Value (%)..........  64.84%..........       71.53%       73.63%       87.61%       94.53%       80.80%
Deductible...................  $3,000..........       $2,500       $2,500         $700         $250       $1,000
Annual Limitation on Cost      $7,150..........       $7,150       $5,850       $2,450       $1,250       $5,000
 Sharing.
Emergency Room Services......  50%.............          40%          30%          20%           5%          30%
Urgent Care..................  $50 (*).........      $50 (*)      $50 (*)      $40 (*)      $25 (*)      $40 (*)
Inpatient Hospital Services..  $500 (per day;            40%          30%          20%           5%          30%
                                applies only
                                after
                                deductible).

[[Page 94112]]

 
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          $60 (*)      $60 (*)      $25 (*)      $10 (*)      $40 (*)
                                only after
                                deductible).
Mental Health/Substance Use    $35 (applies          $30 (*)      $30 (*)      $10 (*)       $5 (*)      $25 (*)
 Disorder Outpatient Office     only after
 Visit.                         deductible).
Imaging (CT/PET Scans, MRIs).  $100 (applies        $100 (*)     $100 (*)      $75 (*)      $40 (*)     $100 (*)
                                only after
                                deductible).
Speech Therapy...............  $35 (applies          $50 (*)      $30 (*)      $10 (*)       $5 (*)      $25 (*)
                                only after
                                deductible).
Occupational Therapy/Physical  $35 (applies          $50 (*)      $30 (*)      $10 (*)       $5 (*)      $25 (*)
 Therapy.                       only after
                                deductible).
Laboratory Services..........  50%.............          40%          30%          20%           5%          30%
X-rays and Diagnostic Imaging  50%.............          40%          30%          20%           5%          30%
 **.
Skilled Nursing Facility.....  $500 (per day;            40%          30%          20%           5%          30%
                                applies only
                                after
                                deductible).
Outpatient Facility Fee        50%.............          40%          30%          20%           5%          30%
 (e.g., Ambulatory Surgery
 Center).
Outpatient Surgery Physician/  50%.............          40%          30%          20%           5%          30%
 Surgical Services.
Generic Drugs................  $25 (*).........      $25 (*)      $25 (*)       $5 (*)       $3 (*)      $10 (*)
Preferred Brand Drugs (***)..  50%.............      $50 (*)      $50 (*)      $25 (*)       $5 (*)      $25 (*)
Non-Preferred Brand Drugs....  50%.............      $75 (*)      $75 (*)      $50 (*)      $10 (*)      $50 (*)
----------------------------------------------------------------------------------------------------------------
(*) = Not subject to deductible.
(**) Excludes x-rays and diagnostic imaging associated with office visits.
(***) For compliance with applicable New Jersey State requirements, the standardized options in Table 12 are
  limited to three drug tiers. These plans do not have a separate specialty drug tier. However, for purposes of
  calculating AV using the 2018 AV Calculator, which is based on a four-drug tier system, the cost-sharing value
  for non-preferred brand drugs was assigned to the specialty drug tier.

b. General Functions of an Exchange
(1) 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 proposed 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, the proposed additional 
requirements for SBE-FPs that are listed in paragraph (f)(4) are 
necessary because the FF-SHOP requirements also referenced there are 
integral to the FF-SHOP platform's functionality and system build. HHS 
believes that these requirements are necessary from an operational 
perspective in order 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 proposed 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 and group 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).
    We sought 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

[[Page 94113]]

Federal platform for SHOP functions. We are finalizing the provisions 
as proposed. These amendments will become effective with the effective 
date of the final rule.
    Comment: We received two comments in support of our proposal to 
require SBE-FPs using the Federal platform for SHOP functions to 
establish standards consistent with those applicable in the FF-SHOPs. 
One commenter stated that the proposal will provide consistency for QHP 
issuers offering coverage both in Federally-facilitated and in State-
based SHOP Exchanges. We did not receive any comments on whether other 
FF-SHOP requirements should apply in SBE-FPs utilizing the Federal 
platform for SHOP functions.
    Response: We are finalizing the provision as proposed. The 
provision does not apply to State-based SHOPs that do not use the 
Federal platform for SHOP functions.
(2) 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.\42\ A similar 
tagline requirement appears in the final rule implementing section 1557 
of the Affordable Care Act (81 FR 31375 (May 18, 2016)), which 
prohibits discrimination on the basis of race, color, national origin, 
sex, age, or disability in certain health programs and activities.\43\ 
The regulations implementing section 1557 apply 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.\44\ The regulations implementing section 1557, as 
well as other applicable Federal civil rights laws, generally apply 
independently of the regulations governing Exchanges and health 
insurance issuers.
---------------------------------------------------------------------------

    \42\ 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.
    \43\ 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 31375, 31400.
    \44\ 45 CFR 92.2(a). In addition to the tagline requirement at 
Sec.  92.8(d)(1), the regulations implementing section 1557 of the 
Affordable Care Act identify 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 2016 Payment Notice and in the March 2016 guidance, 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 proposed 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 proposed 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).
    At Sec.  155.205(c)(2)(iii)(A), we also proposed 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 
proposed to define an issuer's controlled group using the definition 
that was proposed at Sec.  147.106(d)(3)(i) of this rule, that is, a 
group of two or more persons that is treated as a single employer under 
sections 52(a), 52(b), 414(m), or 414(o) of the Code.
    We explained that 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 
\45\ and the SBC Instruction Guide for Group Coverage,\46\ 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,\47\ and, as the Office for Civil Rights 
(OCR) has explained, any taglines required under section 1557 of the 
Affordable Care Act, must also be included in this addendum.\48\ 
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 and the nondiscrimination notice required 
under the regulations implementing section 1557, if applicable, must be 
provided along with the SBC and is not

[[Page 94114]]

considered a part of the SBC document. Therefore, the addendum will not 
count towards the four double-sided page limit for the SBC under 
section 2715(b)(1) of the PHS Act. Additionally, we explained that our 
proposed policy related to aggregating LEP populations to determine the 
top 15 languages in which taglines must be provided would not apply to 
the tagline requirements under rules implementing sections 2715 and 
2719 of the PHS Act.
---------------------------------------------------------------------------

    \45\ 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.
    \46\ 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.
    \47\ 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.
    \48\ OCR has explained that the written summary of benefits and 
coverage required by Sec.  147.200(a) is a publication that is 
``significant'' under Sec.  92.8 of the rule implementing section 
1557 of the Affordable Care Act. Accordingly, a covered entity 
required to provide a SBC must include the nondiscrimination notice 
and taglines required by Sec.  92.8(b)(1), (d)(1) in its addendum in 
addition to complying with other applicable language access 
standards. See Section 1557: Frequently Asked Questions, available 
at http://www.hhs.gov/civil-rights/for-individuals/section-1557/1557faqs/index.html.
---------------------------------------------------------------------------

    We explained that we believe our proposed approach to when entities 
can aggregate under Sec.  155.205(c)(2)(iii)(A) 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. We also indicated that we believe that this 
approach would help promote consistency with the tagline requirements 
at Sec.  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 LEP in those States to determine the top 15 languages 
required by Sec.  92.8(d)(1).
    We proposed 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 explained that we intended our 
approach to aggregation under Sec.  155.205(c)(2)(iii)(B) to balance 
the policy objectives of ensuring that LEP individuals have notice of 
language assistance services and of minimizing burden on the entities 
subject to the rule.
    We proposed 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 
stand-alone 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. We explained that in 
the case of ``critical'' stand-alone 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 stand-alone linked 
or embedded documents are more likely to contain a prominent link to 
the home page. Under our proposal, if an entity subject to Sec.  
155.205(c)(2)(iii)(A) or (B) includes the required taglines in a stand-
alone ``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 would 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.
    Additionally, we noted that we were 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), because the final rule implementing 
section 1557 of the Affordable Care Act (81 FR 31375 (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 sought 
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 45 CFR part 92, and on whether the Sec.  
155.205(c)(2)(iii)(A) and (B) requirements are largely duplicative of 
the regulations implementing section 1557. We noted that not every 
entity subject to Sec.  155.205(c)(2)(iii)(A) or (B) is a ``covered 
entity'' subject to section 1557 of the Affordable Care Act and its 
implementing regulation, and we indicated that we were considering 
replacing 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), 
and requested comments on these approaches.
    We are finalizing these provisions generally as proposed, but with 
several modifications. We are providing that Exchanges, and QHP issuers 
that are also subject to Sec.  92.8, will be deemed to be in compliance 
with Sec.  155.205(c)(2)(iii)(A) if they are in compliance with Sec.  
92.8, and are modifying regulation text to more clearly reflect the 
aggregation policy applicable to Exchanges under Sec.  
155.205(c)(2)(iii)(A). We have also removed references to an 
applicability date of these provisions (the first day of the individual 
market open enrollment period for the 2017 benefit year, or November 1, 
2016) because it has already passed. Finally, because the definition of 
controlled group at Sec.  147.106(d) that is being finalized in this 
rule has changed from the proposed definition in ways that would be 
difficult to implement for purposes of Sec.  155.205(c)(2)(iii)(A), we 
are replacing the cross-reference to Sec.  147.103(d)(3)(i) in Sec.  
155.205(c)(2)(iii)(A) with the definition that was originally proposed 
at Sec.  147.103(d)(3)(i).
    Comment: In response to our request for comment on whether the 
Sec.  155.205(c)(2)(iii)(A) and (B) requirements are largely 
duplicative of the tagline requirements in the regulations implementing 
section 1557 of the Affordable Care Act, and whether we should replace 
them with cross-references to Sec.  92.8 or delete them entirely, many 
commenters stated that the Sec.  92.8 requirements largely encompass 
the Sec.  155.205(c)(2)(iii)(A) and (B) requirements. Commenters stated 
that, as a result, complying with these two sets of regulations will 
add significant administrative complexity and costs for issuers without 
any attendant advantage for consumers. Some commenters recommended that 
we eliminate Sec.  155.205(c)(2)(iii)(A) and (B) entirely, and some 
recommended replacing them with cross-references to Sec.  92.8, deeming 
entities to be in compliance with Sec.  155.205(c)(2)(iii)(A) and (B) 
if they are in compliance with Sec.  92.8. They stated that these 
efforts to streamline the two standards would reduce inconsistencies 
and overlapping requirements, reducing administrative burden and costs, 
while ensuring appropriate protections for consumers. A few commenters 
suggested that entities not already subject to Sec.  92.8 should comply 
only with the tagline provisions of that section, while another 
recommended limiting the scope of Sec.  155.205(c)(2)(iii)(A) and (B) 
to entities that are not considered ``covered entities'' under section 
1557 of the Affordable Care Act, rather than including exceptions for 
non-covered entities in Sec.  92.8. One commenter requested that the 
treatment afforded to small-sized significant publications and 
significant communications under Sec.  92.8 be applied to the 
requirements under Sec.  155.205(c). Other commenters recommended that 
we retain the requirements in Sec.  155.205(c)(2)(iii)(A) and (B), 
explaining that greater specificity and greater requirements are 
justified in this rule given the fact that the goals of the two rules 
are different, and the entities covered under this rule do not always 
overlap with those

[[Page 94115]]

covered by section 1557 of the Affordable Care Act. They stated that 
many of the entities covered under Sec.  155.205(c)(2)(iii)(A) and (B) 
are large, with financial and programmatic capabilities to provide 
taglines.
    Response: Section 1557 of the Affordable Care Act and its 
implementing regulations establish a range of important protections for 
individuals with LEP in Federally-funded health programs and activities 
across the country. As commenters noted, the tagline requirements in 
the section 1557 regulations are in several ways broader than those 
applicable to Exchanges and QHP issuers under Sec.  
155.205(c)(2)(iii)(A). Given the comprehensiveness of the regulations 
implementing section 1557 of the Affordable Care Act, and in 
consideration of the difficulties and costs that arise for Exchanges, 
QHP issuers subject to both sets of requirements, and regulators when 
two separate but overlapping rules are in force, we are finalizing 
Sec.  155.205(c)(2)(iii)(A) with a modification specifying that 
Exchanges, and QHP issuers that are also subject to Sec.  92.8, will be 
deemed to be in compliance with Sec.  155.205(c)(2)(iii)(A) if they are 
in compliance with Sec.  92.8. Different, yet overlapping requirements 
are difficult for entities to implement and create confusion for the 
public, and our approach permits Exchanges, and those QHP issuers that 
are also subject to Sec.  92.8, to follow a single set of tagline 
requirements. We will continue to work closely with OCR to ensure that 
the deeming process under Sec.  155.205(c)(2)(iii)(A) works smoothly 
and that Sec.  92.8 is consistently applied and enforced, and will 
facilitate State-based Exchanges doing so as well. The rest of Sec.  
155.205(c)(2)(iii)(A), as amended, would apply to any QHP issuer that 
is not also a covered entity under Sec.  92.8. Such an issuer would be 
required to comply with Sec.  155.205(c)(2)(iii)(A), as amended in this 
rule.
    We have not extended an option to comply with Sec.  
155.205(c)(2)(iii)(A) or (B) by complying with Sec.  92.8 to QHP 
issuers that are not subject to Sec.  92.8 or to Web-brokers, because 
those entities are generally not required to comply with Sec.  92.8 
(most Web-brokers are not covered entities under section 1557 of the 
Affordable Care Act) and thus OCR would generally not have jurisdiction 
to enforce Sec.  92.8 with regard to those entities. We are therefore 
finalizing Sec.  155.205(c)(2)(iii)(B) as proposed, without deeming 
Web-brokers to be in compliance with that provision if they comply with 
Sec.  92.8.
    Comment: Many commenters supported our proposal to further 
articulate our interpretation of the aggregation policy under Sec.  
155.205(c)(2)(iii)(A) mentioned in the preamble to the 2016 Payment 
Notice \49\ by permitting QHP issuers to aggregate the top 15 languages 
spoken by the LEP populations in the States served by the health 
insurance issuers in the issuer's controlled group. Several commenters 
supported the proposed aggregation policy for Web-brokers. The 
commenters supporting the proposals indicated that the proposals would 
allow entities to more efficiently provide important information to LEP 
populations and that the proposals strike the appropriate balance 
between facilitating language access for LEP populations and minimizing 
the burden on the entities subject to the rule. Other commenters 
cautioned that this policy would reduce language access for groups that 
have a large presence in certain States but whose languages would not 
fall within the top 15 languages spoken by LEP populations if LEP 
populations were aggregated across multiple States. Many commenters 
suggested that HHS allow aggregation only if an entity documents that 
it would be a hardship not to aggregate due to increased costs, or that 
HHS prohibit aggregation in circumstances where the applicable 
aggregation rule would result in a significantly different list of 
taglines compared to the State-specific approach. Many of these 
commenters posited that State-specific taglines should not require 
significant resources since HHS provides sample taglines, and that 
issuers likely have to tailor materials to meet State-specific 
standards in any case. Several commenters suggested that since Web 
pages do not have the space limitations that paper does, links from a 
home page to a page with taglines could easily include all 
disaggregated taglines. A number of commenters requested that if 
aggregation is permitted for QHP issuers, it should only be allowed 
across States in which an issuer's controlled group offers Exchange 
plans. One commenter requested that HHS give QHP issuers the option to 
use either the newly proposed aggregation principles or to maintain a 
State-specific methodology. One commenter proposed that issuer 
associations be allowed to aggregate across States.
---------------------------------------------------------------------------

    \49\ See 80 FR 10788.
---------------------------------------------------------------------------

    Response: As we stated in the preamble to the proposed rule, we 
believe the amendments we proposed to Sec.  155.205(c)(2)(iii)(A) help 
promote consistency with the tagline requirements at Sec.  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 LEP 
in those States to determine the top 15 languages required by Sec.  
92.8(d)(1). We are finalizing the proposals generally as proposed, 
except for the modifications noted above, including a modification 
under which Exchanges, and QHP issuers that are also subject to Sec.  
92.8, will be deemed in compliance with Sec.  155.205(c)(2)(iii)(A) if 
they are in compliance with Sec.  92.8.
    Although we have already provided sample taglines, we appreciate 
issuers' concerns that adding 15 different taglines in each State 
served by the health insurance issuers in the issuer's controlled group 
entails information systems changes and paper and printing costs. We 
believe our approach allows QHP issuers that are part of controlled 
groups to more efficiently provide important information to LEP 
consumers. For example, many insurance companies that would fit our 
definition of a controlled group use a common technology platform 
across multiple States that is shared by their component health 
insurance issuers. Requiring each QHP issuer in the controlled group to 
use State-specific taglines without taking account of these kinds of 
technological structures would pose difficult operational challenges 
for many QHP issuers. Our approach helps ensure compliance for such 
issuers without imposing undue administrative burden. Because issuer 
associations do not generally share technology platforms, we decline to 
extend the policy to issuer associations.
    We recognize that under the aggregation approaches we proposed, 
some languages that are spoken by a significant number of individuals 
in one or two States might not be included in the top 15 languages in 
which taglines must be provided by an Exchange, QHP issuer, or Web-
broker across multiple States, particularly if the number of States 
across which the Exchange, QHP issuer, or Web-broker is aggregating is 
high. We are not, however, modifying the proposals as recommended by 
the commenters. We believe our finalized aggregation approaches strike 
an appropriate balance between helping ensure that LEP consumers have 
notice of language assistance services and minimizing the burden on the 
entities subject to the rule. We will continue to monitor this approach 
to determine whether speakers of certain languages are significantly or 
disproportionately impacted. We also remind QHP issuers, Web-brokers, 
and Exchanges that notwithstanding the aggregation policies

[[Page 94116]]

finalized in this rule, they would be permitted to provide non-
aggregated, State-specific taglines, or taglines in more than the 
required 15 languages, as could be required to meet State-specific 
standards. We encourage this as a best practice. We also agree that QHP 
issuers, Web-brokers, and Exchanges may have more space on Web pages 
than on paper documents, and encourage them where practicable to 
include disaggregated, State-specific taglines, or taglines that reach 
as many LEP populations as possible in the States where they are 
operating.
    We note that for the purposes of Sec.  155.205(c)(2)(iii)(A), we 
intend to apply the regulatory definition of controlled group that was 
originally proposed at Sec.  147.106(d)(3)(i), and will not apply any 
State-law definitions of that term, in contrast to the manner in which 
HHS is finalizing that definition in the context of guaranteed 
renewability, as discussed in the preamble to Sec.  147.106, above. We 
have therefore replaced the proposed cross-reference to Sec.  
147.106(d)(3)(i) in Sec.  155.205(c)(2)(iii)(A) with the definition of 
controlled group that was originally proposed at Sec.  
147.106(d)(3)(i). We are adopting this approach to ensure that Sec.  
155.205(c)(2)(iii)(A) applies consistently to QHP issuers across 
multiple States. In contrast to the way that the guaranteed 
renewability provisions are applied and enforced at the State level, 
the aggregation policy under Sec.  155.205(c)(2)(iii)(A) is 
specifically intended to apply to issuers across States and potentially 
among States in which different definitions of ``controlled group'' 
under the guaranteed renewability provision finalized in this rule at 
Sec.  147.106(d)(4) would apply. Therefore, to ensure that issuers can 
implement this aggregation policy consistently within each controlled 
group, we believe it is important that the definition of controlled 
group that is applicable under Sec.  155.205(c)(2)(iii)(A) be uniform 
across all States.
    Comment: With regard to our proposal to allow an Exchange to 
aggregate the LEP populations across all the States served by the 
entity that operates the Exchange or its eligibility or enrollment 
platform, several commenters were concerned that our reference in the 
proposed rule text to an entity that operates an Exchange's eligibility 
or enrollment platform could be read to include a contractor that might 
contract with a number of States to develop eligibility or enrollment 
information technology for State-based Exchanges. Several others were 
concerned that the most common non-English languages spoken across the 
39 States with FFEs or SBE-FPs that use the Federal eligibility and 
enrollment platform, are likely to vary, and that by aggregating them 
we risk excluding populations.
    Response: We believe our approach strikes an appropriate balance 
between helping ensure that LEP consumers have notice of language 
assistance services and minimizing the operational challenges on the 
entities subject to the rule. The aggregation approach we proposed for 
Exchanges was intended to permit an Exchange that is operated by an 
entity that operates multiple Exchanges, or an Exchange that relies on 
an entity to conduct its eligibility or enrollment functions that 
conducts such functions for multiple Exchanges, to aggregate the LEP 
populations across all the States served by the entity that operates 
the Exchange or the entity that conducts its eligibility or enrollment 
functions to determine the top 15 languages required for taglines. We 
have modified the language in the final rule to make it clearer that 
the rule allows aggregation only by an Exchange that is operated by an 
entity operating multiple Exchanges, or by an Exchange that relies on 
an entity to conduct its eligibility or enrollment functions that 
provides those services to more than one Exchange. An entity 
contracting with more than one State or Exchange to develop an 
Exchange's eligibility or enrollment information technology platform is 
not an entity operating multiple Exchanges or conducting their 
eligibility or enrollment functions for the purposes of this rule. For 
example, two State-based Exchanges whose information technology 
platforms were developed by the same contractor are not permitted to 
aggregate the LEP populations across their States. On the other hand, 
HHS provides eligibility and enrollment functionality for FFEs and 
State-based Exchanges in 39 States that rely on the Federal 
HealthCare.gov platform to conduct eligibility and enrollment 
functions. Under this rule, the Exchanges using the Federal platform 
can aggregate the LEP populations across those 39 States to determine 
the languages in which taglines must be provided. We remind SBE-FPs 
that the language access requirements under Sec.  155.205(c) and Sec.  
92.8 apply to all of the SBE-FP's documents, communications, and other 
materials that are subject to those rules, not just documents, 
communications, and other materials that the SBE-FP relies upon 
HealthCare.gov to generate and send. Accordingly, SBE-FPs also must 
comply with Sec.  155.205(c)(2)(iii)(A) when sending any communications 
subject to Sec.  155.205(c)(2)(iii)(A) through means other than through 
the HealthCare.gov platform, and with respect to the SBE-FP's 
informational Internet Web site operated under Sec.  155.205(b)(7). 
Additionally, because Exchanges are covered entities under section 1557 
of the Affordable Care Act, the notice and tagline requirements at 
Sec.  92.8 also apply to any significant publications and 
communications sent by the SBE-FP through means other than the 
HealthCare.gov platform, and to the SBE-FP's informational Internet Web 
site. Again, under the final rule we are deeming all Exchanges to 
comply with Sec.  155.205(c)(2)(iii)(A) as long as they comply with 
Sec.  92.8.
    Comment: Several commenters supported our proposal 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, and if they also include taglines on any stand-alone document 
linked to or embedded in the Web site, such as one in PDF or word 
processing software format, that is ``critical'' within the meaning of 
the rule. Several commenters requested that HHS limit the critical 
documents that must have taglines when posted online to stand-alone 
formularies, SBCs, and provider directory documents, since these are 
the critical documents that are most often linked to by third-party Web 
sites. One commenter suggested that these tagline requirements should 
also apply to health education and other consumer engagement 
communications. A few commenters suggested that HHS require that the 
link from an entity's home page be in-language, since a link that is in 
English provides little aid to LEP populations looking for language 
access assistance. One commenter requested that HHS ensure that the 
link from the home page is displayed prominently, in large font, and 
``above the fold'' so that LEP consumers can easily and quickly 
understand their right to access information in other languages.
    Response: As some commenters mentioned, HHS has provided in-
language links on the HealthCare.gov home page. These are links written 
in 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. Additionally, 
covered entities can comply with the tagline requirements under the 
rules implementing section 1557 of the Affordable Care Act, at Sec.  
92.8, by

[[Page 94117]]

posting in-language Web links. Although Sec.  155.205(c)(2)(iii)(A) and 
(B) do not require that links from a home page be in-language links, we 
agree that it is important that these links be displayed prominently 
and be in-language so that non-English speakers are able to recognize 
the languages listed. We decline to alter our definition of 
``critical'' documents at this time because we continue to believe it 
is important for LEP consumers to have notice of translation services 
on any document that is required by law or regulation to be provided to 
a qualified individual, applicant, qualified employer, qualified 
employee, or enrollee.
    Comment: Two commenters requested that we delay enforcement of 
Sec.  155.205(c)(2)(iii)(A) and (B), and a few commenters proposed 
alternative models for our language access provisions, such as the 
HIPAA Privacy Rule standards and the Medicare Marketing Guidelines.
    Response: Because we finalized Sec.  155.205(c)(2)(iii)(A) and (B) 
in the 2016 Payment Notice on February 27, 2015, more than a year and a 
half before Exchanges, QHP issuers, and Web-brokers are required to 
comply with these tagline requirements, we believe Exchanges, QHP 
issuers, and Web-brokers have had ample time to prepare to implement 
these provisions. Therefore, it is CMS's view that compliance with 
Sec.  155.205(c)(2)(iii)(A) and (B) should not pose a significant 
challenge for most entities subject to those provisions, particularly 
in light of the amendments made in this rule. In particular, we expect 
that deeming Exchanges, and QHP issuers that are also subject to Sec.  
92.8, to be in compliance with Sec.  155.205(c)(2)(iii)(A) if they are 
in compliance with Sec.  92.8 will help alleviate concerns about 
multiple and inconsistent tagline requirements. We also remind entities 
that they must also comply with any other applicable Federal or State 
law regarding language access and taglines, including the regulations 
implemented under section 1557 of the Affordable Care Act, the HIPAA 
Privacy Rule standards, and the Medicare Marketing guidelines, if 
applicable. Additionally, because the applicability date for Sec.  
155.205(c)(2)(iii)(A) and (B) has passed (with the exception of Web-
brokers that have not yet been registered with the Exchange for at 
least 1 year), we have modified the rules to eliminate reference to 
that date. The amendments made in this rule will take effect when the 
rule takes effect.
    Comment: One commenter suggested that we should require all 
entities operating as part of Affordable Care Act Exchanges to have 
comprehensive language access plans, and to have processes to ensure 
the accuracy and quality of written translations of all documents and 
communications.
    Response: We note that for entities covered under Affordable Care 
Act section 1557, developing and implementing an effective written 
language access plan that is appropriate to the entity's particular 
circumstances is a factor that the Director of OCR will take into 
account in evaluating whether a covered entity has met its obligation 
with respect to meaningful access for individuals with LEP under Sec.  
92.201. As a best practice, we recommend that Exchanges, QHP issuers, 
and Web-brokers have comprehensive language access plans and quality 
controls for written translations.
    Comment: One commenter supported our statement that the required 
taglines do not count towards the Summary of Benefit and Coverage page 
limit. Several commenters requested that HHS amend the tagline 
requirements under Sec.  147.136(e) (internal claims and appeals and 
external review) and Sec.  147.200(a)(5) (Summary of Benefits and 
Coverage) to deem issuers in compliance with those rules if they comply 
with the requirements under Sec.  92.8. One commenter requested that we 
extend the 10 percent of county threshold to all critical documents.
    Response: Because it is important that consumers have sufficient 
notice of translation services for SBCs and internal claims and appeals 
documents, we decline to alter the language thresholds for the tagline 
requirements that apply to those documents under Sec.  147.136(e) and 
Sec.  147.200(a)(5). Because the language thresholds for SBCs and 
internal claims and appeals documents have been in place for years, and 
most issuers are already in compliance with them, we do not believe it 
is necessary to amend these thresholds. As we indicated in the proposed 
rule preamble, our policy allowing QHP issuers to aggregate the LEP 
populations in the States served by the health insurance issuers within 
the issuer's controlled group to determine the languages in which 
taglines must be provided under Sec.  155.205(c)(2)(iii)(A) does not 
apply to the tagline rules for SBCs under Sec.  147.200(a)(5) or to the 
tagline rules for internal claims and appeals under Sec.  147.136(e). 
For issuers subject to section 1557 of the Affordable Care Act, if the 
tagline requirement at Sec.  92.8(d)(1) would require that taglines be 
provided in languages additional to those required under Sec.  
147.136(e) and Sec.  147.200(a)(5), the additional languages may be 
determined by following the aggregation policies that apply under Sec.  
92.8(d)(1). Additionally, if an issuer subject to both Sec.  
155.205(c)(2)(iii)(A) and Sec.  92.8 chooses to comply with Sec.  
155.205(c)(2)(iii)(A) by complying with Sec.  92.8, that does not mean 
that the issuer can comply with Sec.  147.200(a)(5) or Sec.  147.136(e) 
by complying with Sec.  92.8. For documents other than the SBC and 
internal claims and appeals documents, we continue to believe that the 
standard set forth in this final rule is the appropriate standard.
    Comment: Two commenters requested that HHS clarify that Sec.  
155.205(c)(2)(iii)(A) and (B) do not preclude a State-based Exchange 
from setting its own standards for identifying the top 15 languages, 
rather than relying on HHS's guidance.
    Response: Section 155.205(c)(2)(iii)(A) and (B) specifically 
provide that the top 15 languages in which taglines are required must 
be determined in guidance published by the Secretary. However, we agree 
that Exchanges, QHP issuers, and Web-brokers may have current and 
reliable data about the LEP populations in their States that differ 
from the data used to develop HHS's guidance. To promote the use of 
accurate and localized demographic data and methodologies, and to help 
streamline our approach with OCR's approach under the section 1557 
rule, we now explain, as a supplement to the March 2016 guidance 
referenced above, and thus, as part of the guidance published by the 
Secretary that is referenced in the rule, that in implementing Sec.  
155.205(c)(2)(iii)(A) and (B), Exchanges, QHP issuers, and Web-brokers 
may refer to sources other than HHS's list of the top fifteen languages 
in each State, if they have a reasonable basis for relying on such 
sources when considering characteristics such as the currency, 
reliability, and stability of the data. These entities may use such 
sources even if the list of languages produced from those sources is 
different from HHS's list or has variations in the relative rank of the 
languages. If such alternative sources are used, relevant documentation 
should be maintained in accordance with applicable record retention 
requirements to demonstrate compliance with Sec.  155.205(c)(2)(iii)(A) 
and (B).
(3) Ability of States To Permit Agents and Brokers To Assist Qualified 
Individuals, Qualified Employers, or Qualified Employees Enrolling in 
QHPs (Sec.  155.220)
    In the proposed rule, we proposed building on our existing 
oversight efforts by adopting additional consumer

[[Page 94118]]

protection standards for agents and brokers who assist with enrollments 
through Exchanges. We proposed to require differential display of 
standardized QHP options and enlisting agents and brokers in post-
enrollment support activities. We also solicited comments to inform the 
development and implementation of the enhanced direct enrollment 
pathways, including comments on consumer protection standards, privacy 
and security standards, and oversight processes for the enhanced direct 
enrollment pathway.
i. Differential Display of Standardized Options on the Web Sites of 
Agents and Brokers
    In the proposed 2018 Payment Notice, we recommended requiring Web-
brokers and issuers that use the direct enrollment pathways to 
differentially display standardized options. However, we noted that 
system constraints may prevent Web-brokers and issuers from mirroring 
the HealthCare.gov display, and therefore proposed that a Web-broker or 
issuer that uses the direct enrollment pathway may deviate from the 
display on HealthCare.gov with approval from HHS. We proposed that 
requests from Web-brokers and issuers seeking approval for an alternate 
differentiation format would be reviewed based on whether the same 
level of differentiation and clarity is being provided under the 
requested deviation as is provided on HealthCare.gov. Therefore, we 
proposed adding Sec.  155.220(c)(3)(i)(H), for Web-brokers, and adding 
Sec.  156.265(b)(3)(iv), for QHP issuers engaged in direct enrollment, 
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, or 
with an HHS-approved deviation. We are finalizing our proposal. We 
believe differential display of standardized options will not require 
significant modification of Web-broker and issuer platforms, but that 
such display will provide an important service for consumers seeking to 
enroll in a standardized option. To provide additional flexibility for 
Web-brokers and issuers with respect to this display, we intend to 
provide ``safe harbor'' guidelines with respect to deviations that will 
be deemed to be approved because deviations within those guidelines 
will be deemed to have the same level of differentiation and clarity as 
provided on HealthCare.gov.
    Comment: Several commenters opposed this requirement because they 
believe Web-brokers without contractual relationships with issuers 
offering standardized options would not be able to implement the 
requirement. Other commenters stated that direct enrollment issuers 
should not be required to display plans, including standardized 
options, of other issuers. Some commenters were also concerned that the 
lack of flexibility to display these standardized options will negate 
the value Web-brokers provide to consumers.
    Some commenters supported the proposal because it promotes 
consistent messaging across all platforms for enrollment including 
HealthCare.gov, Web-brokers, and direct enrollment issuers. One 
commenter recommended that HHS require standardized options to be 
displayed above all QHP listings. Several commenters also supported the 
HHS standard to review deviations from the differential display of 
standardized plans. These commenters stated that HHS should rigorously 
review such requests and grant permission for deviations sparingly to 
encourage consistency across platforms. Some commenters cautioned that 
requiring direct enrollment partners to seek approval for deviations 
would be burdensome.
    Response: We clarify that under Sec.  155.220(c)(3)(i)(B) and (D) a 
Web-broker must provide consumers the ability to view QHPs offered 
through the Exchange and must display all QHP data provided by the 
Exchange. Beginning with the 2018 plan year, this includes the 
differential display of the standardized options available in a State. 
We intend to provide access to information on standardized options to 
Web-brokers through the Health Insurance Marketplace Public Use Files 
and QHP Landscape file. We remind Web-brokers that if they do not have 
access to the additional required comparative information for a QHP 
offered through an Exchange (including premium or benefit information 
on standardized options), in accordance with 45 CFR 
155.220(c)(3)(i)(A), the standardized Plan Detail Disclaimer must be 
prominently displayed for the specific QHP. A direct enrollment issuer, 
however, need only differentially display those standardized options 
that it offers.
ii. Enhanced Direct Enrollment Process
    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. We requested comments on a 
proposal that would allow consumers to remain on the direct enrollment 
Web site to complete the eligibility application without being 
redirected to HealthCare.gov. The enhanced direct enrollment partner 
would then pass the information collected in the eligibility 
application to the Exchange. The Exchange would then generate the 
eligibility determination and send the eligibility results back to the 
enhanced direct enrollment partner. This would allow the consumer to 
see the eligibility results on the direct enrollment partner's Web 
site. The Exchanges would continue to make the eligibility 
determinations, and the eligibility verification information received 
by the Exchanges from other government agencies would not be disclosed 
to the enhanced direct enrollment partner. In preparation for plan year 
2017, we have made a number of improvements to the ``double redirect'' 
process in order to improve the consumer experience with the existing 
direct enrollment pathway. Under an enhanced direct enrollment process, 
the Exchange must ensure an accurate eligibility determination and must 
protect the privacy and security of all consumers that interact with it 
via the direct enrollment partner. We will not implement this process 
until we can ensure technical readiness and sufficient oversight of the 
eligibility application processes. In this and previous rules, we have 
begun to establish the regulatory framework for an enhanced direct 
enrollment program in which we would provide an ability for consumers 
to apply for coverage on a non-Exchange Web site while we explore the 
technical, operational, privacy, and security requirements to implement 
such a program. We continue to explore the program implementation 
details of such a program, and are maintaining the current ``double 
redirect'' direct enrollment approach at this time.
    Comment: The enhanced direct enrollment process received support 
from many commenters, who believe that enabling applicants to remain on 
the direct enrollment partner's non-Exchange Web site would improve the 
consumer experience. Many commenters stated that enhanced direct 
enrollment would reduce consumer frustration and confusion, leading to 
increased enrollments.
    One commenter supported enhanced direct enrollment but expressed 
concern that direct enrollment partners might elect to not participate 
in the FFEs for plan year 2018 if the enhanced direct enrollment 
process were not available. Another commenter recommended that HHS 
delay the enhanced direct

[[Page 94119]]

enrollment process until it has developed sufficient oversight methods 
to protect consumer privacy and security and the integrity of the 
eligibility and enrollment processes.
    One commenter recommended that HHS allow direct enrollment partners 
to use this process for plan year 2017. Several commenters wanted HHS 
to clarify that HHS will continue to be responsible for the eligibility 
determination. Several commenters requested that HHS establish minimum 
standards for security. Some commenters specifically recommended that 
HHS require a Minimum Acceptable Risk Standard for Exchanges (MARS-E) 
compliance manual from direct enrollment partners prior to allowing 
them to participate in the enhanced direct enrollment process. Other 
commenters expressed concerns about HHS imposing burdensome privacy and 
security requirements, such as National Institute of Standards and 
Technology (NIST) standards or MARS-E 2.0. Another commenter was 
concerned about HHS's ability to monitor direct enrollment partners' 
privacy and security plans. One commenter was concerned also about the 
potential that direct enrollment partners will collect PII and store it 
on their systems. One commenter was concerned about direct enrollment 
partners' ability to connect to the Data Services Hub directly.
    Many commenters were concerned that enhanced direct enrollment 
would damage the consumer experience and consumer's connections with 
the FFEs. Several commenters expressed concern that consumers may be 
unaware or lack access to notices from the FFEs and SBEs, specifically 
concerning data inconsistencies, verifications, or Forms 1095-A. Some 
commenters recommended that HHS require direct enrollment partners to 
provide each consumer with their FFE Application ID number and 
information on how to access HealthCare.gov. Multiple commenters 
suggested that HHS require that direct enrollment partners adequately 
inform consumers about the nature of the enhanced direct enrollment 
process and their relationship with the FFEs. Several commenters 
expressed concerns about the appearance, content, and structure of the 
eligibility application on the direct enrollment partners' Web sites as 
part of enhanced direct enrollment. Another commenter expressed 
concerns that consumers will have limited access to consumer 
assistance, including the FFE and SBE call centers and their direct 
consumer assistance capabilities.
    Response: We thank commenters for their input, which we will take 
into account as we work towards readying the enhanced direct enrollment 
process.
    We intend to conduct any required privacy and security impact 
assessments and will address regulatory changes to implement the 
enhanced direct enrollment process in future rulemaking, as may be 
necessary.
iii. Additional Protections for the Current Direct Enrollment Process 
and FFE Standard of Conduct for Agents and Brokers
    In order to ensure adequate consumer protections, we proposed a 
number of modifications to existing requirements and the establishment 
of new requirements for agents and brokers that use the current direct 
enrollment process. We also proposed the same changes to Sec.  156.1230 
(where appropriate), 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. For further discussion of the amendments to the 
QHP issuer direct enrollment partner requirements please see the 
preamble section on Sec.  156.1230.
    First, we proposed to add new paragraph Sec.  155.220(c)(3)(i)(I) 
to require Web-brokers to display information provided by HHS 
pertaining to eligibility for the APTC and cost-sharing reductions in a 
prominent manner. This will help assure that consumers understand their 
potential eligibility for APTC, cost-sharing reductions and potential 
liability for excess APTC repayment.
    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 a 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. We are aware that some Web-brokers 
are not consistently permitting enrollees to select an amount for APTC 
under the existing direct enrollment pathway. Accordingly, we proposed 
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).
    Comment: Commenters were in favor of these proposals, stating that 
they would protect consumers and increase successful enrollments.
    Response: We are finalizing these policies as proposed in Sec.  
155.220(c)(3)(i)(I) and 155.220(c)(3)(i)(J). We note that these new 
requirements are not related to the eligibility application (and thus 
relevant regardless of whether an enhanced direct enrollment process is 
implemented), will increase transparency, and are consistent with Sec.  
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 proposed Sec.  155.220(c)(3)(i)(K) to require that 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 (NPN) is listed on the Exchange application) 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. We solicited comments 
on types and extent of support that agents and brokers should be 
required to provide. We also solicited comments on what additional 
safeguards, if any, should be put in place to protect consumers and 
their data.
    Comment: Several commenters opposed the proposal, cautioning that 
agents and brokers may not all have the necessary capabilities, 
expertise, data, or technology required to assist with all post-
enrollment activities or consumer scenarios. A number of commenters 
sought clarification on the scope of the post-enrollment activities. 
Several commenters also cautioned that certain populations might 
require unique assistance that only specialized agents and brokers may 
be able to provide. One commenter suggested HHS allow agents and 
brokers to refer consumers to Navigators and certified application 
counselors as an alternative. One commenter expressed concern that the 
proposal would raise significant financial burden on small agencies and 
requested whether the requirement would still apply if the issuer 
ceases to compensate the agent or broker. One commenter expressed 
concern that this proposal would further distance consumers from 
HealthCare.gov. One commenter requested that HHS clarify that an issuer 
would not incur any liability based on any activities that an agent or 
broker might be obligated to perform, unless the activities involve a

[[Page 94120]]

captive agent conducting activities on behalf of the issuer. Several 
commenters cited reports over the past three open enrollment periods 
that some agents or brokers have been enrolling consumers in Exchange 
plans without providing them with the information necessary to access 
or update their HealthCare.gov account information.
    Response: In light of the comments and the significant burden that 
could be placed on agents and brokers, we are not finalizing this 
policy at this time. However, we encourage agents and brokers to assist 
consumers with post-enrollment activities as we believe it is in the 
shared interest of helping consumers maintain continuous enrollment. We 
believe that this would build on the existing support provided by 
agents and brokers today, and would help ensure that consumers who work 
with agents and brokers are able to effectuate or maintain their QHP 
coverage, and to update their eligibility as necessary. Specifically, 
we encourage agents and brokers to generally offer similar support as 
Navigators under Sec.  155.210(e)(9)(i), (iii), and (iv). As such, the 
agent or broker of record on an enrollment transaction should help the 
enrollee understand open and special enrollment periods, help enrollees 
understand the process of filing Exchange eligibility appeals, help 
consumers resolve data matching inconsistencies, help consumers 
generally understand the premium tax credit reconciliation process, and 
help consumers understand basic concepts and rights of health coverage 
(coverage to care). We understand the concerns commenters have raised 
related to consumer access to information regarding their enrollments. 
Accordingly, in future rulemaking, HHS will consider the best means to 
ensure that consumers receive enrollment support from agents and 
brokers.
    Fourth, we proposed to add Sec.  155.220(c)(3)(i)(L) to require 
Web-brokers to demonstrate operational readiness, including compliance 
with applicable privacy and security requirements, prior to accessing 
either the current or enhanced direct enrollment pathway, including 
using the Web-broker's Web site to complete the QHP selection. We 
intend for this process 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 that 
prior to accessing the Exchange, a Web-broker must demonstrate that 
required privacy and security measures and the technical 
specifications, testing requirements, and onboarding procedures 
applicable to the direct enrollment process are functional. Consistent 
with Sec.  155.220(c)(5), we stated our intent to conduct ongoing 
monitoring and audits to verify compliance throughout the term of the 
Web-broker's registration with the Exchange.
    Comment: All commenters were in favor of this proposal.
    Response: We are finalizing this provision as proposed in Sec.  
155.220(c)(3)(i)(K). We note that this requirement generally formalizes 
the current onboarding process. Under an enhanced direct enrollment 
process, we anticipate additional readiness components would be added 
in line with the additional features provided to enhanced direct 
enrollment partners.
    Fifth, we proposed adding Sec.  155.220(c)(3)(i)(M), to allow HHS 
to immediately suspend the agent's or broker's ability to transact 
information with the Exchange as part of the direct enrollment pathway 
if we discover circumstances that pose unacceptable risk to Exchange 
operations or its information technology systems. Under the proposal, 
the suspension would last until HHS is satisfied that the risk has been 
removed or sufficiently mitigated. In addition, we proposed 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.
    Comment: Most commenters agreed with our proposal regarding HHS's 
ability to immediately suspend an agent or broker's ability to transact 
information with the Exchange through the direct enrollment pathway. 
However, many commenters suggested that HHS specify criteria or 
guidance outlining how the agency would identify risks. One commenter 
who disagreed with the proposal recommended that HHS establish an 
appeals mechanism for a determination. All commenters agreed with our 
proposal to require an agent or broker to cooperate with an audit under 
this section. One commenter requested that HHS clearly define what it 
means to respond to requests in a ``timely fashion'' and clearly 
outline how Federal compliance activities will be coordinated with the 
State regulators.
    Response: Based on the comments we received, we are finalizing 
these provisions as proposed in Sec.  155.220(c)(3)(i)(L). As an 
example of criteria HHS would invoke under the suspension provision, a 
Web-broker's access to the direct enrollment pathway may be suspended, 
for example, if HHS determines--based on transaction volumes, audits, 
or other reports--that the Web-broker is using an enrollment process 
other than the HHS-approved processes, presenting a risk of inaccurate 
eligibility determinations, is presenting an operational risk to the 
FFE, or presenting unacceptable security or privacy risks to Exchange 
operations or Exchange information technology systems. The ability to 
immediately suspend a Web-broker's connection to HHS's systems is 
critical to mitigate further damages and potential harm to the 
Exchanges and consumers. The temporary suspension would provide HHS 
with the ability to conduct an investigation and work with the Web-
broker to mitigate or otherwise resolve any risk(s). While there is no 
formal appeals mechanism, the Web-broker will have an opportunity 
during the HHS investigation to remedy or mitigate the risk, as well as 
provide information to respond to the risk(s) identified. We also 
clarify that we interpret ``timely fashion'' to mean reasonably 
responding within the time specified in the request (including any 
agreed-upon extensions).
    Sixth, we noted in the proposed rule that, consistent with Sec.  
155.220(c)(4), Web-brokers are permitted to provide access, through a 
contract or other arrangement, to their non-Exchange Web site to 
another agent or broker seeking to help an applicant complete the QHP 
selection process through the direct enrollment pathway. We understand 
that a number of Web-brokers provide access to their non-Exchange Web 
site to other agents and brokers registered with the FFEs who, in turn, 
host their own third-party Web sites to facilitate enrollment in the 
Exchange. To better protect consumers accessing these downstream third-
party Web sites connected to the Web-broker's non-Exchange Web site, we 
proposed 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.
    Comment: One commenter supported our proposal. Several others were 
concerned about its breadth, stating that Web-brokers do not have 
direct control over the entirety of a third-party agent or agency's Web 
properties.
    Response: We are finalizing this proposal, with some modifications 
described below. We understand that there are various models under 
which a Web-broker may provide a third-party agent or broker with 
access to the direct enrollment pathway. For example, some

[[Page 94121]]

Web-brokers may allow an agent or broker to access the direct 
enrollment pathway exclusively through the Web-broker's non-Exchange 
Web site. Other web-brokers may provide a technological platform for 
the third-party agent's or broker's Web site to facilitate the exchange 
eligibility and enrollment processes, for example, through an embedded 
frame-based platform on the third-party agent's or broker's Web site. 
We clarify that this provision is primarily concerned with Web-broker 
and third-party agent and broker arrangements that utilize the latter 
approach, and with respect to the compliance of those third-party agent 
or broker Web sites with the applicable Web site standards detailed at 
Sec.  155.220(c)(3). We believe that in such circumstances, the Web-
broker should obtain adequate assurances from the downstream third 
party agent or broker that they will comply with the applicable Web 
site standards at Sec.  155.220(c)(3) prior to permitting access to its 
non-Exchange Web site or ability to transact information with HHS to 
help an applicant complete the QHP selection process through the 
existing or enhanced direct enrollment pathways. Furthermore, HHS 
considers these arrangements to be an assignment of the Web-broker's 
rights and obligations under the Web-broker agreement with CMS. As such 
the Web-broker is required under the terms of the agreement to notify 
CMS and obtain prior, express written consent for such arrangements. 
Moreover, the third party agent or broker is responsible for compliance 
with the relevant provisions of the Web-broker's agreement with CMS; 
and the Web-broker is responsible for ensuring the third party agent's 
or broker's compliance with those provisions. Therefore, we are 
finalizing a requirement that Web-brokers ensure compliance with the 
applicable standards in Sec.  155.220(c)(3) with respect to any Web 
pages of the third-party agent's or broker's Web site through which the 
third-party agent or broker assists consumers, applicants, qualified 
individuals, and enrollees in applying for APTC and cost-sharing 
reductions for QHPs or in completing the QHP selection or the Exchange 
eligibility application for QHPs offered in the Exchanges. We may 
require these downstream entities to enter into an agreement with HHS 
as a condition of CMS approval of such arrangements in order to ensure 
compliance with requirements that ensure the security of HHS systems. 
This process is one that HHS has used with any entity that requests 
such access.
    Seventh, we noted in the proposed rule that we were considering 
different methods for completing the monitoring and audits authorized 
by Sec.  155.220(c)(5). We discussed a model under which 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 stated that we anticipated 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 stated that we expected 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. We stated that 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, would be subject to monitoring 
and periodic certification by HHS, and would be compensated by the 
agents or brokers who engaged the auditor. We stated that if we were 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 solicited comment 
on our proposal to allow third parties to perform monitoring and audits 
authorized by Sec.  155.220(c). We also solicited 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.
    Comment: All commenters were in favor of our proposal to allow 
third parties to perform monitoring and audits authorized by Sec.  
155.220(c). However, commenters requested that HHS ensure the auditors 
demonstrate compliance with standards to be defined by HHS. One 
commenter requested that HHS not impose any new requirements on Web-
brokers to use third-party auditors until HHS makes enhanced direct 
enrollment available. Another commenter that noted support for asking 
agents and brokers to compensate an auditor if the agent or broker 
engages the auditor asked that in situations where HHS engages an 
auditor, HHS should compensate the auditor. One commenter expressed 
concern that third-party auditors may not be able to provide adequate 
and consistent oversight and that the cost of overseeing third-party 
auditors may not outweigh the cost of HHS conducting all oversight. One 
commenter requested that HHS evaluate whether third-party auditors have 
experience evaluating Web sites and systems from the perspective of 
diverse consumers.
    Response: We are finalizing this proposal. Please refer to the 
discussion pertaining to Sec.  155.221 in the preamble for more 
information on the specifics of this approach.
    We proposed 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 is likely to mislead 
consumers into believing they are visiting HealthCare.gov. For example, 
our experience shows that Web sites that utilize combinations of 
colors, text sizes, or fonts, 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 an FFE or SBE-FP, and which ones are operated by issuers or 
agents or brokers. We solicited feedback on criteria for determining 
whether a Web site could reasonably cause confusion with a Federal 
program or Web site.
    Comment: Most comments received on this topic were supportive of 
this proposal. However, many commenters also requested that HHS 
establish specific criteria for determining if a Web site is 
misleading. Several commenters requested that HHS adopt a ``totality of 
the circumstances approach.'' One commenter expressed concern that HHS 
would use a single criterion to trigger a determination (for example, a 
color or font). In addition, some commenters requested that HHS 
acknowledge that some entities have used words such as ``Exchange'' and 
``Marketplace'' in their name or URL for years prior to the creation of 
the FFE, and that by maintaining their longstanding corporate 
identities, these Web sites may not inherently cause consumer

[[Page 94122]]

confusion. One commenter requested that HHS grandfather Web sites with 
such domain names.
    Response: We are finalizing this provision as proposed. We do not 
intend for this requirement to target minor similarities to 
HealthCare.gov, but rather significant similarities that could mislead 
a consumer into believing they were enrolling directly through 
HealthCare.gov. As outlined in preamble to the 2017 Payment Notice,\50\ 
we interpret Sec.  155.220(j)(2)(i), which requires agents, brokers, 
and Web-brokers to refrain from marketing or conduct that is 
misleading, to require that agents, brokers, and Web-brokers avoid the 
use of the terms ``Marketplace'', ``Exchange,'' or other potentially 
misleading words in the name of a business or Web site if doing so 
could reasonably cause confusion with a Federal program or Web site. We 
intend to use a ``totality of the circumstances'' test for 
investigation and enforcement under this provision.
---------------------------------------------------------------------------

    \50\ See 81 FR 12263 (March 8, 2016).
---------------------------------------------------------------------------

(4) Standards for HHS-Approved Vendors To Perform Audits of Agents and 
Brokers Participating in Direct Enrollment (Sec.  155.221)
    In the proposed rule, we noted that we were considering different 
methods for completing the monitoring and audits authorized by Sec.  
155.220(c)(5). We also solicited comment on our proposal to allow third 
parties to perform monitoring and audits authorized by Sec.  155.220(c) 
and the proposed establishment of a process to evaluate and approve 
such vendors in a manner similar to the one established in Sec.  
155.222.
    After reviewing comments on our proposal, we are adding a new Sec.  
155.221 to establish an application and approval process for evaluating 
and approving third party audit vendors of Web-broker compliance with 
direct enrollment requirements. The process established under Sec.  
155.221 is designed to mirror the one for evaluating and approving 
third party vendors of FFE training for agents and brokers under Sec.  
155.222. Specifically, we are adding Sec.  155.221(a)(1) to require 
that such a third party vendor must be approved by HHS, in a form and 
manner to be determined by HHS, to have its auditing services 
recognized for Web-brokers assisting with or facilitating enrollment in 
the individual market or SHOP coverage through the Exchanges consistent 
with Sec.  155.220. In paragraph (a)(2), we establish an annual 
approval process. Similar to FFE training vendors, these auditor 
vendors will be approved for one-year terms, and organizations seeking 
to continue their recognition as HHS-approved vendors the following 
year will need to be reapproved through a process to be determined by 
HHS.
    For a third party vendor to be approved by HHS to conduct these 
activities, we are adding Sec.  155.221(b) to establish standards that 
a vendor must meet to be approved by HHS. In paragraph (b)(1), a vendor 
must submit a complete and accurate application by the deadline 
established by HHS that demonstrates prior experience and expertise in 
conducting auditing or similar services for a large customer base. We 
note that vendors eligible for recognition will need to demonstrate 
expertise in the areas implicated by the design of the current direct 
enrollment process and, later, by the design of the enhanced direct 
enrollment process that is still under development. HHS standards for 
vendors eligible for recognition will develop as the design of the 
enhanced direct enrollment process is finalized. Accordingly, we will 
issue further guidance or rulemaking on these standards if necessary.
    We are adding Sec.  155.221(b)(2) to require the vendor, in 
performing the services, to adhere to certain standards with respect to 
content, format, privacy and security, including by ensuring that Web-
brokers are in compliance with the applicable privacy and security 
standards. We are adding Sec.  155.221(b)(3) to require the vendor to 
collect, store, and share data with HHS from Web-broker users of the 
vendor's services in a manner specified by HHS, and protect that data 
in accordance with HHS standards. In paragraph (b)(4), we require 
approved vendors to permit any Web-broker registered with the FFEs to 
access the vendor's auditing services. We are also adding Sec.  
155.221(c) to provide that HHS may monitor and audit approved vendors 
and their records related to the audits described in this section to 
ensure ongoing compliance with the standards in this section. If HHS 
determines that the vendor is not in compliance, the vendor may be 
removed from the approved list described in paragraph (d) of this 
section and may be required to cease performing the functions described 
under this section.
    In paragraph (d), once the approval process has been completed for 
a given year, HHS will publish a list of approved entities on an HHS 
Web site. Finally, in paragraph (e), we provide that a vendor may 
appeal HHS's decision (to either not approve an application or to 
revoke approval of a vendor) by notifying HHS in writing within 15 days 
of receipt of the notification of not being approved, or having its 
approval revoked, and submitting additional documentation demonstrating 
how the vendor meets the standards in paragraph (b) and (if applicable) 
the terms of their agreement with HHS. HHS will review the submitted 
documentation and make a final determination within 30 days from 
receipt of the submission of the additional documentation.
(5) 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 proposed amending 
paragraph Sec.  155.230(d)(2) to make electronic notices the default 
method for sending notices required to be sent by SHOP Exchanges,\51\ 
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 prohibits making paper notices optional. This change was proposed 
in response to feedback from SHOP consumers and issuers indicating a 
preference for electronic notices. In addition, electronic notices 
provide a more cost effective way for SHOPs to distribute required 
notices. However, HHS is aware that some employees and employers may 
still prefer mailed paper notices and therefore proposed 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 
completing the eligibility applications online at HealthCare.gov. HHS 
also notes that SHOPs might be required to provide notices in a 
particular format in order to comply with the obligation to perform 
effective communication with an individual with a disability under the 
Americans with Disabilities Act of 1990, section 504 of the 
Rehabilitation Act, or section 1557 of the Affordable Care Act. HHS 
also noted that this amendment would not change the requirement that a 
SHOP comply with

[[Page 94123]]

the requirements for electronic notices in 42 CFR 435.918(b)(2) through 
(5) for the employer or employee. We sought comment on this proposal.
---------------------------------------------------------------------------

    \51\ 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.
---------------------------------------------------------------------------

    HHS also proposed to add a new paragraph Sec.  155.230(d)(3) to 
give individual market Exchanges and SHOPs flexibility to send notices 
through standard mail, even if an election was made to receive 
electronic notices, if an individual market Exchange or SHOP is unable 
to send electronic notices due to technical limitations. Our regulation 
currently requires that individual market Exchanges send required 
notices according to an individual's or employer's selected preference. 
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, or unless otherwise required by State 
or Federal law. However, HHS recognizes that some Exchanges or SHOPs 
may have technological limitations that prevent them from sending 
certain notices electronically. In these situations, HHS proposed to 
provide flexibility for an individual market Exchange or SHOP to notify 
the individual, employee, or employer through standard mail. HHS 
encouraged individual market Exchanges or SHOPs that might need to 
exercise this option to explain to individuals, employees, or employers 
that some required notices may be sent through standard mail. HHS 
further encourages these individual market Exchanges and SHOPs to 
conduct additional outreach with individuals, employees, and employers, 
as needed, in order to ensure their understanding that they may receive 
certain notices via standard mail.
    We are finalizing these amendments as proposed.
    Comment: Some commenters supported the proposal to make electronic 
notices the default method of communication in the SHOPs. One commenter 
did not support the proposal due to concerns about consumers who lack 
adequate internet access. One commenter also recommended that copies of 
electronic notices to employers also be provided to any certified 
health insurance agent or broker assisting an employer with its SHOP 
coverage. One commenter supported the proposal to add flexibility to 
send notices by postal mail when technical limitations prevent an 
Exchange from sending notices electronically. Two commenters did not 
support our proposal at Sec.  155.230(d)(3) because of its potential to 
conflict with Exchange obligations to provide effective communication 
in compliance with the Americans with Disabilities Act of 1990, section 
504 of the Rehabilitation Act, or section 1557 of the Affordable Care 
Act. We received one comment that consumers should be alerted to expect 
paper communications from the Exchange if the Exchange needed to use 
the flexibility provided by Sec.  155.230(d)(3). The commenter 
expressed concern that if a consumer opts to receive information 
electronically, the consumer will not be expecting communication in any 
other manner.
    Response: We are finalizing the amendments as proposed. Because 
employers and employees will continue to be able to elect to receive 
paper notices, consumers without internet access will not be adversely 
impacted by the amendments at Sec.  155.230(d)(2). We note that in FF-
SHOPs and SBE-FPs using the Federal platform for SHOP functions, if 
Federal or State law requires that a SHOP send a notice through a 
method that is not electronic, HHS will ensure that the notice is sent 
through the required means. Due to operational limitations, the FF-
SHOPs and SBE-FPs utilizing the Federal platform for SHOP functions are 
not currently able to provide copies of electronic notices to any FFE-
registered health insurance agent or broker assisting an employer with 
its FF-SHOP coverage. State-based SHOPs may elect to provide copies of 
electronic notices to licensed health insurance agents or brokers 
assisting employers and enrollees with SHOP coverage. Exchanges will 
still be required to meet effective communication requirements under 
the Americans with Disabilities Act of 1990, section 504 of the 
Rehabilitation Act, or section 1557 of the Affordable Care Act. 
Further, we encourage individual market Exchanges or SHOPs that need to 
send paper notices due to technical limitations to perform additional 
outreach, as needed, so the individual, employee, or employer is 
alerted to the paper notices. The Federal platform has a variety of 
means of communication when electronic means are not available, 
including communication through the call center, which will help 
Exchanges using the Federal platform to comply with notice requirements 
for persons with disabilities.
(6) Payment of Premiums (Sec.  155.240)
    We sought comment regarding the scope of any potential problem 
related to unexpected electronic funds transfer (EFT) withdrawal 
amounts, especially when an enrollee stops receiving the benefit of 
APTC. For individuals who have agreed to pay premiums via EFT, such a 
change in subsidy amount could mean the withdrawal of a larger-than-
expected amount from the enrollee's bank account, resulting in 
financial hardship. We also sought comment on stakeholders' experiences 
with these transactions. Finally, we sought comment on industry best 
practices, State regulations in this area, and whether Federal 
rulemaking, such as reversal or termination of EFTs with or without 
simultaneous paper-billing, is needed.
    Comment: Several commenters approved of rulemaking to protect 
consumers who have larger-than-expected EFT amounts withdrawn from 
their accounts, stating that severe financial consequences can result 
from such an unexpectedly large withdrawal, but several commenters 
opposed such rulemaking. Some commenters stated that Federal rules 
would be harmful to industry innovation or duplicative of existing 
regulatory schemes that already protect consumers from the danger of 
unexpectedly large EFT withdrawals. Other commenters feared that 
additional Federal regulation might cause issuers to take actions that 
might conflict with existing State laws. Some commenters expressed 
concerns that further regulation would limit their flexibility to 
assist their customers, pose operational problems for their billing 
systems, and would rely on vague standards to define what amount of 
change in EFT amounts would trigger a remedy for consumers. A few 
commenters stated that better communication between the FFEs, SBEs, and 
SBE-FPs and their consumers would be a superior solution to the 
problem. One of these commenters stated, however, that standard 
noticing requirements would force issuers to utilize different notices 
for consumers in different product or business groups, causing 
unnecessary administrative complexities and costs.
    Response: We appreciate the comments related to this issue, and 
recognize that any solution must take into account the operational 
needs of industry partners, the wellbeing of consumers, and existing 
State and Federal regulations. We also realize 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 will continue, in conjunction with our 
governmental and industry partners, to examine all methods of 
preventing consumer harm from unexpectedly large EFT withdrawals.

[[Page 94124]]

c. Exchange Functions in the Individual Market: Eligibility 
Determinations for Exchange Participation and Insurance Affordability 
Programs
(1) Eligibility Standards (Sec.  155.305)
    Comment: In response to the proposed rule at Sec.  155.330(e)(2), a 
number of commenters raised issues relating to ongoing challenges for 
consumers and Exchanges in implementing the requirement at Sec.  
155.305(f)(4) that Exchanges not determine a consumer eligible for APTC 
if APTC payments were made on behalf of the tax filer for the 
consumer's household (or either spouse, if the tax filer is a married 
couple) for a previous year and the tax filer or his or her spouse did 
not comply with the requirement to file an income tax return and 
reconcile APTC received for a previous year. The commenters stressed 
the importance of Exchanges implementing the requirement in a manner 
that clearly notifies tax filers regarding possible risk to their 
eligibility for APTC. One commenter stated it was important to explain 
to the consumer how to correct the problem and regain APTC eligibility, 
and to provide timetables for action, and to provide this information 
within the bounds of IRS privacy rules, which limit the disclosure of 
Federal tax information. In addition, some commenters discussed 
Exchanges' challenges in accurately assessing whether a tax filer has 
met this requirement at the time of the eligibility determination due 
to the time needed to process a Federal income tax return and make 
information about the return available to the Exchange. One commenter 
stated it was important to provide Exchanges with flexibility to allow 
consumers to attest to having filed a tax return in order to overcome 
delays in processing and data availability. Another commenter supported 
any options that would provide more flexibility to Exchanges to 
determine how to continue enrollment with APTC when IRS is not able to 
confirm that the tax filer has complied with the filing and 
reconciliation requirement, such as by submitting a copy of a filed tax 
return.
    Response: We agree that targeted and detailed messaging to tax 
filers that highlights the specific requirement to file an income tax 
return and reconcile APTC paid on their behalf--and the potential 
adverse impact on APTC eligibility for future coverage years--is 
essential. In addition, we recognize the need for Exchange flexibility 
in enforcing the requirement under Sec.  155.305(f)(4). Accordingly, we 
have restructured Sec.  155.305(f)(4), moving previous paragraph (f)(4) 
to new paragraph (f)(4)(i), and adding paragraph (ii). In new paragraph 
Sec.  155.305(f)(4)(ii), we are providing that eligibility for APTC may 
not be denied under this paragraph unless a direct notification is 
first sent to the tax filer, consistent with the standards set forth in 
Sec.  155.230, that his or her eligibility will be discontinued as a 
result of the tax filer's failure to comply with the requirement 
specified under Sec.  155.305(f)(4)(i).
    We also agree that providing a consumer the opportunity to either 
attest that the tax filer in the consumer's tax household has filed an 
income tax return and reconciled APTC paid on the tax filer's behalf 
for a previous benefit year, or to submit documentary proof of filing, 
can protect compliant tax filers from erroneously losing APTC because 
of data processing and reporting delays. Section 155.305(f)(4) should 
not be construed to require an Exchange to follow the procedures in 
Sec.  155.315(f) for the purposes of verifying whether a tax filer 
meets the requirements of Sec.  155.305(f)(4).
(2) Eligibility Redetermination During a Benefit Year (Sec.  155.330)
    We proposed to amend Sec.  155.330(d)(1)(ii) to require the 
Exchange to periodically examine data sources for information on either 
eligibility determinations for or enrollment in 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. Currently, paragraph (d)(1)(ii) requires the Exchange to 
periodically examine available data sources only for eligibility 
determinations for the specified government programs. We proposed that 
Exchanges should consider which data source best meets the criteria of 
timeliness, accuracy, and availability when deciding whether to examine 
data sources for eligibility determinations or enrollment information, 
noting that the proposed flexibility may be particularly valuable if 
data on eligibility determinations (as distinct from enrollment) are 
not available.
    We also proposed to add a new paragraph Sec.  155.330(e)(2)(iii) 
regarding redetermination and notifications of eligibility for APTC 
related to compliance with the income tax filing and reconciliation 
requirement under Sec.  155.305(f)(4). Due to certain operational and 
legal impediments described in the proposed rule, we noted that 
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. Therefore, we proposed to require an Exchange to choose 
among three options when the Exchange identifies updated information 
regarding compliance with the income tax filing and reconciliation 
requirement: (A) Follow the periodic data matching procedures specified 
in paragraph (e)(2)(i); (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 specified approval criteria.
    Finally, in paragraph (g), we proposed to allow alternate methods 
of recalculating APTC during the benefit year, based on Exchange 
feedback and the need to account for differences in Exchange systems 
and mitigate complexities. We proposed that for coverage years through 
2023, the Exchange may recalculate APTC in accordance with an 
eligibility redetermination under Sec.  155.330 using an alternate 
method approved by the Secretary, instead of as currently provided 
under Sec.  155.330(g). 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 are finalizing the changes to Sec.  155.330 paragraphs 
(d)(1)(ii) and (e)(2)(i) and adding new paragraph (e)(2)(iii) as 
proposed. For paragraph (g), we are removing the time limit associated 
with the proposal and are otherwise finalizing the provision as 
proposed.
    Comment: Commenters supported our proposal to require the Exchange 
to periodically examine data sources for information on either 
eligibility determinations for or enrollment in certain government 
health programs. Commenters noted that the proposed change could help 
ensure consumers are enrolled in the correct health program and 
minimize enrollment in duplicate coverage. Other commenters noted that 
the proposed rule, if finalized, could help State-based Exchanges avoid 
costly system updates. One commenter suggested that the Exchange 
periodically examine data sources for information on both eligibility 
for and enrollment in the specified government programs.

[[Page 94125]]

    Response: We agree that this policy may help consumers enroll in 
the correct type of health coverage, minimize duplicate enrollment, and 
provide flexibility for State-based Exchanges. We believe that the 
Exchange should have the flexibility to periodically examine data 
sources for information on eligibility for or enrollment in the 
specified government programs, or both, provided that data sources meet 
the criteria of timeliness, accuracy, and availability.
    Comment: One commenter recommended that the Exchange begin 
periodically examining data sources for information on either 
eligibility determinations for or enrollment in Medicare for Exchange 
enrollees on whose behalf APTC or the cost-sharing reduction portion of 
advance payments are being paid.
    Response: The FFEs have begun conducting periodic data matching, as 
described in Sec.  155.330(d), to identify Exchange enrollees on whose 
behalf APTC or the cost-sharing reduction portion of advance payments 
are being paid who may be enrolled in Medicare that is considered 
minimum essential coverage. A sample notice sent for such Exchange 
enrollees is available at https://marketplace.cms.gov/applications-and-forms/medicare-pdm-notice.pdf.
    Comment: One commenter recommended that the Exchange periodically 
examine data sources to verify offers of employer-sponsored coverage, 
and sought guidance on the subject.
    Response: This comment is beyond the scope of the proposed rule, 
which did not address periodic data matching for verification of 
enrollment in an eligible employer-sponsored plan and eligibility for 
qualifying coverage in an eligible employer-sponsored plan. Exchange 
regulations at Sec.  155.320(d) describe the process of verification 
related to enrollment in an eligible employer-sponsored plan and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan. Exchange regulations do not require periodic examination of such 
data sources.
    Section 155.320(d)(2) requires the Exchange to obtain data about 
enrollment in and eligibility for an eligible employer-sponsored plan 
from any electronic data sources that are available to the Exchange and 
that have been approved by HHS based on evidence showing that such data 
sources are sufficiently current, accurate, and minimize administrative 
burden; from any data sources covering employer-sponsored coverage 
based on Federal employment using verification data obtained by HHS; 
and from any data sources about SHOP coverage using any available data 
from the SHOP that corresponds to the State in which the Exchange is 
operating. Section 155.320(d)(4) provides that for any benefit year for 
which the Exchange does not reasonably expect to obtain sufficient 
verification data as described in paragraph (d)(2) of that section, the 
Exchange must conduct a process referred to as ``sampling'' described 
in paragraph (d)(4)(i), or for benefit years 2016 and 2017, an 
alternate process approved by HHS as described in (d)(4)(ii).
    For 2016, the FFE conducted an alternate process that included many 
components of sampling. It involved contacting certain employers to 
inquire whether specified employees who were determined eligible for 
Exchange financial assistance and enrolled in a QHP through the 
Exchange were enrolled in an eligible employer-sponsored plan or were 
eligible for qualifying coverage in an eligible employer-sponsored plan 
for the 2016 plan year. The goal was to help the FFE ascertain if 
sampling is an effective method of examining whether employees 
correctly attest to their enrollment in and eligibility for qualifying 
coverage in an eligible employer-sponsored plan and the effectiveness 
of the FFE's verification efforts.
    We expect Exchanges to develop such alternate processes to gain 
insight into whether employees provide accurate information on their 
application for coverage through the Exchange regarding enrollment in 
and eligibility for qualifying coverage in an eligible employer-
sponsored plan and the effectiveness of an Exchange's verification of 
such information. Our hope is that these alternate processes provide 
insight and information allowing the Exchange to move closer to an 
effective method of verification related to enrollment in and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan.
    Comment: Of the commenters that commented on our proposal at Sec.  
155.330(e)(2)(iii), all were supportive of the proposal, which proposed 
flexibility for Exchanges when periodically obtaining data from IRS 
regarding tax filers' compliance with the requirement to file income 
tax returns and reconcile APTC paid on their behalf for previous 
benefit years. Overall, commenters expressed support for the proposal's 
flexibility in accounting for differences in Exchange systems and 
mitigating Exchange burden and complexity, while providing adequate 
program integrity protections and limiting negative impacts on 
consumers.
    Response: We agree that the proposed rule at Sec.  
155.330(e)(2)(iii) would help address the challenges Exchanges and 
consumers have experienced with periodic APTC eligibility 
redetermination related to tax filing and APTC reconciliation status. 
Therefore, in response to comments, we are finalizing new paragraph 
Sec.  155.330(e)(2)(iii) as proposed, which provides flexibility to 
Exchanges when periodically obtaining data from IRS regarding tax 
filers' compliance with the requirement to file tax returns and 
reconcile APTC paid on their behalf for previous benefit years. We 
believe that these options will effectively allow Exchanges to select 
the best way for them to comply with these APTC eligibility 
redetermination requirements related to tax filing status in a manner 
that reduces administrative complexity and burden and minimizes 
confusion and other negative effects on consumers, while providing 
adequate program integrity protections.
    Comment: We received comments both in support of and against the 
proposed amendment to paragraph (g) to allow alternate methods of 
recalculating APTC during the benefit year through 2023. Commenters in 
support noted the potential to accommodate for different Exchange 
systems and mitigate complexities. Commenters against the proposal 
expressed concern that an alternate method of recalculating APTC during 
the benefit year may harm consumers if it does not take into account 
APTC already paid on the tax filer's behalf and results in a tax 
liability for the tax filer. One commenter suggested that the option to 
implement an alternative procedure should end before 2023. A few 
commenters requested that we provide more information on the approval 
criteria and methodologies by which an alternative procedure would be 
evaluated.
    Response: We take seriously commenters' concerns about the 
potential harm to consumers if an alternate method of recalculating 
APTC during the benefit year does not take into account APTC already 
paid on the tax filer's behalf. We proposed that, in order for an 
alternate method of recalculating APTC during the benefit year to be 
approved by the Secretary, the Exchange must show, among other 
criteria, that the alternative method limits negative impacts on 
consumers where possible. This criterion is intended to protect tax 
filers from increased tax liability as a result of recalculating APTC 
during the benefit year as well as any other unintended

[[Page 94126]]

consequences, and will be weighed along with the other two criteria--
providing adequate program integrity protections and minimizing 
administrative burden on the Exchange. We also note that certain tax 
filers whose APTC for the taxable year exceeds their premium tax credit 
may be subject to statutory repayment caps that limit their excess APTC 
repayment liability.
    We are finalizing this rule so that the alternative method 
described in paragraph (g)(1)(ii) is available for all benefit years. 
We received one comment recommending that the alternate method sunset 
before 2023. We did not receive any other comments for or against the 
proposed sunset date. Upon further consideration of this issue, we 
believe that establishing a sunset date based on currently available 
information would be premature as we do not yet know how long Exchanges 
may need to mitigate system complexities. We will continue to evaluate 
the future need for an alternative method of recalculating APTC during 
the benefit year as Exchange systems develop.
    Finally, we will consider providing additional guidance about the 
approval criteria and methodologies that the Secretary will use to 
evaluate alternative procedures for recalculating APTC during the 
benefit year.
d. Exchange Functions in the Individual Market: Enrollment in Qualified 
Health Plans
(1) Enrollment of Qualified Individuals Into QHPs (Sec.  155.400)
    We proposed to amend Sec.  155.400 to add additional flexibility to 
the binder payment rules. Specifically, we proposed 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 
proposed 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 are finalizing this provision as proposed.
    We also proposed 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 with which a QHP must comply in order to 
participate in an SBE-FP, under Sec.  156.350. We are also finalizing 
this provision as proposed and are adding regulation text at Sec.  
156.350(a)(4) to reflect this amendment.
    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 without a gap in coverage, in a plan within the 
same insurance product. We understand that this may be different than 
some issuers' practices 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 sought 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--not only a plan within the same 
product--and on the appropriate timeframe for making such a change. 
After considering the comments we received related to this proposed 
policy, we are not finalizing the proposed policy; we will continue to 
examine this issue.
    Comment: Most commenters supported our proposed rule 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). These commenters observed that the 
proposed rule balances flexibility for issuers and consumer protection 
and could help to avoid enrollment cancellations and other problems, 
which often result in time-consuming fixes such as retroactive coverage 
reinstatements. Some commenters supported the proposed rule but sought 
an expanded version, which would allow issuers the flexibility to 
extend consumer's binder payment deadlines under a greater variety of 
situations. One commenter opposed the proposed rule as an interference 
with issuers' ability to make business decisions related to billing. 
The commenter also expressed concern that the proposed rule might 
complicate the logic used in issuers' billing systems, and recommended 
that HHS rely on issuer initiatives and State rules to provide consumer 
protection. One commenter expressed concern that the proposed rule 
would cause undue complications for issuers operating in different 
States.
    Response: We agree that the extension, when implemented uniformly 
at the option of an issuer experiencing processing backlogs or 
technical errors during enrollment, will help to protect consumers from 
unnecessary coverage cancellations while giving issuers flexibility in 
billing and consumer outreach. We believe that the limits imposed by 
the proposed rule provide the necessary balance between flexibility for 
issuers and consumer protection. We do not agree that the proposal will 
interfere with issuers' billing prerogatives or cause complications for 
issuers operating in different States, since it makes adoption of the 
binder payment deadline extensions optional, and allows for flexibility 
in implementation.
    Comment: All of the comments received that related to applying all 
binder payment rules to SBE-FPs in addition to FFEs expressed support 
for the proposal.
    Response: We are finalizing the proposal to extend the binder 
payment rules to the SBE-FPs as written.
    Comment: Some commenters supported the proposal to treat as a 
renewal, meaning no effectuation (binder payment) would be necessary, a 
consumer's re-enrollment in any plan with the same issuer. The 
commenters believed that such a policy would be more easily understood 
by consumers, prevent avoidable gaps in coverage, and adhere to many 
issuers' long-standing approach to premium billing. However, several 
commenters were critical of the proposal, with some expressing concern 
that relaxation of binder payment rules could lead to financial risks 
on the part of issuers. Other commenters stated that paying the binder 
payment for coverage

[[Page 94127]]

constitutes an affirmative statement that the consumer wants coverage 
with the issuer. Still other commenters requested that the enrollment 
rules be amended to require full payment of all premium owed to an 
issuer by a consumer before that consumer can re-enroll in coverage 
with the same issuer.
    Response: We appreciate the comments related to this proposed 
policy. Due to the uncertain effects of this policy on consumer 
enrollment and payment of premiums, we are declining to finalize the 
policy at this time.
(2) 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 potential 
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 for special enrollment periods. 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 their 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. 
Others have stated that any differential costs for the special 
enrollment period 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.
    In the proposed 2018 Payment Notice, we sought comment on these 
issues, especially on 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 
could help strengthen risk pools.
    We also sought comment on similar concerns about potential gaming 
and adverse selection that could result from the grace period for 
payment of premiums for qualified individuals receiving APTC, noting 
the limited regulatory options available to change grace period policy. 
We examined attrition rates in our enrollment data. We have found that 
the attrition rate for any particular cohort is no different at the end 
of the year than at points earlier in the year, suggesting that any 
such gaming, if it is occurring, does not appear to be occurring at 
sufficient scale to produce statistically measurable effects.
    We stated that we 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 proposed 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 or has an annual 
household income under 100 percent of the Federal poverty level and did 
not enroll in coverage while waiting for HHS to verify that he or she 
meets the citizenship, national, or immigration status described in 
section 1401(c)(1)(A)(ii) of the Affordable Care Act.
    We proposed 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 proposed 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,\52\ 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 
proposed 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 have a pathway to coverage when they have been assessed as 
potentially eligible for Medicaid or CHIP, but are ultimately 
determined ineligible. We proposed to codify the special enrollment 
period for material plan or benefit display errors in paragraph 
(d)(12), so that consumers who enrolled in a QHP offered through the 
Exchange based on incorrect plan or benefit information can select a 
new QHP that better suits their needs. We proposed to codify the 
special enrollment period for data matching issues that are cleared 
after the deadline for resolution has passed or, for those with an 
annual household income under 100 percent of the Federal poverty level, 
meet the citizenship, national, or immigration status described in 
section 1401(c)(1)(A)(ii) that is verified through the data matching 
process in paragraph (d)(13), so that consumers who submit required 
documents to prove that they are

[[Page 94128]]

qualified individuals or that they qualify for APTC, 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 or those who 
were not able to receive an eligibility determination for APTC until 
verifying that they meet the citizenship, national, or immigration 
status described in section 1401(c)(1)(A)(ii) to enroll in coverage 
upon submitting sufficient documents. We sought comments on these 
proposals to codify existing special enrollment periods.
---------------------------------------------------------------------------

    \52\ Department of Health & Human Services. ``Updated Guidance 
on Victims of Domestic Abuse and Spousal Abandonment.'' July 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 proposed 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 noted 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 would apply 
throughout the individual market, and we therefore proposed conforming 
amendments to Sec.  147.104(b). We sought comment on this approach to 
aligning the proposed amendments with the individual-market-wide and 
SHOP special enrollment periods.
    We are finalizing these policies as proposed, with the addition of 
paragraph (b)(5) in response to comments to give the consumer the 
option for a later coverage effective date when an Exchange's 
verification of eligibility for a special enrollment period would cause 
a consumer to pay two or more months in retroactive premiums. We also 
modify Sec.  147.104(b)(2) to make clear that the special enrollment 
period for material plan or benefit display errors in paragraph (d)(12) 
only creates an opportunity to enroll in coverage through the Exchange. 
Additionally, we finalize a modification to clarify that the income we 
are referring to in paragraph (d)(13) is annual household income.
    Comment: The majority of commenters supported our proposal to 
codify the existing special enrollment periods for (1) dependents of 
Indians on the same application as the Indian at Sec.  
155.420(d)(8)(ii); (2) victims of domestic abuse or spousal abandonment 
at Sec.  155.420(d)(10); (3) Medicaid or CHIP denials at Sec.  
155.420(d)(11); (4) material plan or benefit display errors at Sec.  
155.420(d)(12); and (5) data matching issues that are cleared post-
expiration of an inconsistency period or individuals who are verified 
through the data matching process to meet the citizenship, national, or 
immigration criteria described in section 1401(c)(1)(A)(ii) of the 
Affordable Care Act at Sec.  155.420(d)(13). Commenters appreciated the 
transparency of adding these special enrollment periods to regulation, 
so that consumers, regardless of the State in which they live, have 
access to the same special enrollment periods, and that all individuals 
involved in enrollment assistance have a better understanding of the 
special enrollment periods that are available. In addition, one 
commenter requested that all available special enrollment periods be 
codified and another commenter wanted to confirm that HHS retains its 
authority to codify additional special enrollment periods in the 
future, if needed.
    However, some commenters opposed our proposal to codify additional 
special enrollment periods. These commenters expressed concern that 
some of the proposed special enrollment periods are no longer needed or 
that individuals who might qualify for one of these special enrollment 
periods may also qualify for another special enrollment period that 
already exists in regulation. Commenters expressed concern that 
codifying these special enrollment periods would extend them to both 
State-based Exchanges and the off-Exchange market and recommended that 
HHS develop additional methods for handling operational issues outside 
of creating new special enrollment periods. A few commenters 
recommended that HHS continue to focus on eliminating and further 
streamlining special enrollment periods so that special enrollment 
periods on the Exchange more closely align with those in other coverage 
programs, such as Medicare or those found in HIPAA and related 
regulations. Finally, one commenter expressed concern that HHS is 
amending its rule at Sec.  155.420 prior to releasing results from the 
Special Enrollment Confirmation Process.
    Response: We agree with commenters about the benefit of codifying 
these five special enrollment periods and that doing so provides 
clarity for stakeholders and consumers across Exchanges. We also agree 
that consumers who experience these qualifying events should have 
access to the same special enrollment periods, regardless of the State 
that they live in. We clarify that by codifying these five special 
enrollment periods, we are putting into regulation all special 
enrollment periods that have been consistently needed and utilized by 
the FFEs. In an effort to increase transparency, we believe it is 
essential to ensure awareness that all special enrollment periods 
continually being utilized by the Exchanges are explicitly stated in 
regulation.
    In addition, we believe that codifying these special enrollment 
periods provides increased stability to the Exchange market. However, 
as the health insurance market continues to evolve and consumer needs 
change, we will continue to monitor the utilization of these and other 
special enrollment periods in order to identify opportunities to 
further streamline available special enrollment periods in the future. 
For now, we believe that all of the special enrollment periods 
currently in regulation, and those being finalized in this rulemaking, 
are needed.
    Comment: Commenters expressed strong support for codifying the 
special enrollment period for dependents of Indians in paragraph 
(d)(8)(ii), so that mixed status Indian families may have access to the 
same special enrollment periods regardless of the State in which they 
live. One commenter requested that we expand the definition of Indians 
to include State-recognized tribes. Another commenter requested an 
explanation of whether a dependent of an Indian must be enrolled in the 
same QHP as the Indian and whether this special enrollment period 
impacts the special benefits available to Indians.
    Response: We agree with commenters that codifying this special 
enrollment period for dependents of Indians ensures that all mixed 
status Indian families have the same ability to enroll in or change 
QHPs and we believe that this provides an important protection for all 
mixed status Indian families across the country. Section 1311(c)(6)(D) 
of the Affordable Care Act defines Indians by cross-referencing section 
4 of the Indian Health Care Improvement Act, which limits the 
definition of Indians to members of Federally

[[Page 94129]]

recognized tribes or Alaska Native Claims Settlement Act Shareholders. 
Thus, legislative action would be necessary to change that definition 
to include State-recognized tribes.
    We clarify that codifying this special enrollment period does not 
amend any of the rules for special benefits available to Indians, 
including their ability to qualify for additional cost-sharing 
reductions, as described at section 1402(d). In order to qualify for 
this special enrollment period, a dependent of an Indian must be on the 
same application as the Indian and enrolling in or changing QHPs at the 
same time as the Indian. However, it is not a requirement of this 
special enrollment period that the dependent of the Indian and the 
Indian enroll in the same QHP. This is because we recognize that adding 
a requirement that the Indian and his or her dependent enroll in the 
same QHP may result in the Indian forfeiting any special Indian cost-
sharing reductions he or she is entitled to.
    Comment: Commenters supported codifying the special enrollment 
period for victims of domestic abuse and spousal abandonment at Sec.  
155.420(d)(10); however, one commenter requested clarification on when 
a consumer could qualify for this special enrollment period.
    Response: Qualified individuals who are victims of domestic abuse 
or spousal abandonment may qualify for this special enrollment period 
when they need to enroll in coverage apart from their abuser or 
abandoner. For victims of domestic abuse or spousal abandonment who are 
married to their abuser or abandoner and wish to receive an eligibility 
determination for financial assistance, this should also coincide with 
a change in tax filing status. Additional information about this 
special enrollment period is available in our Updated Guidance on 
Victims of Domestic Abuse and Spousal Abandonment published on July 27, 
2015.\53\
---------------------------------------------------------------------------

    \53\ Updated Guidance on Victims of Domestic Abuse and Spousal 
Abandonment. Jun. 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.
---------------------------------------------------------------------------

    Comment: We received strong support for codifying the special 
enrollment period for material plan or benefit display errors at Sec.  
155.420(d)(12) because it provides needed protections to consumers who 
may have been misled when deciding which QHP to enroll in. Some 
commenters requested that we expand this special enrollment period to 
include errors to provider directories and drug formularies, as well as 
to errors on the Web sites of Web-brokers. A few commenters requested 
that we further define material plan or benefit display errors and 
expressed concern about this special enrollment period applying off-
Exchange.
    Response: We agree with commenters that codifying the special 
enrollment period for material plan or benefit display errors through 
the Exchange provides consumers an opportunity to select a new QHP that 
better meets their health coverage needs, if there was a material plan 
or benefit display error that impacted their earlier health coverage 
decision. We also believe that codifying this special enrollment period 
clarifies that the notice requirement at Sec.  156.1256 only pertains 
to this type of error. However, we clarify that this special enrollment 
period is limited to plan or benefit display errors, such as those 
related to plan benefits, service area, or premium, presented to the 
consumer by the Exchange at the point at which he or she enrolls in a 
QHP. By this we mean that the consumer must have already completed his 
or her Exchange application, the Exchange must have determined that the 
consumer is eligible for Exchange coverage and any applicable APTC or 
cost-sharing reductions, and the consumer must have viewed this error 
while making a final selection to enroll in the QHP. In order to 
qualify for this special enrollment period, consumers must demonstrate 
to the Exchange that this error impacted his or her decision to 
purchase a QHP.
    We clarify that QHP plan or benefit information is considered to be 
material for purposes of this special enrollment period if that 
information was actually displayed by the Exchange after the consumer 
received a final eligibility determination and was otherwise reasonably 
close in time to the point at which he or she enrolled in the QHP. 
Because plan information displayed on HealthCare.gov or other Exchange 
Web sites, or any plan or benefit information otherwise available from 
Exchanges or issuers may be revised at various times if errors are 
detected, we believe it would be inappropriate to allow a special 
enrollment period where a consumer enrolls in a plan an appreciable 
amount of time after the error has been corrected.
    While we understand that errors to provider networks and drug 
formularies are a serious concern, especially to those with specialized 
health care needs, we also note that in these cases, other consumer 
protections might apply. For instance, if a drug is no longer on the 
plan's formulary, the plan is still required to have processes in place 
that allow the enrollee, the enrollee's designee, or the enrollee's 
prescribing physician (or other prescriber, as appropriate) to request 
and gain access to clinically appropriate drugs not otherwise covered 
by a health plan (a request for exception) in accordance with Sec.  
156.122(c). For this reason, these cases do not qualify a consumer for 
this special enrollment period. We are continuing to work with issuers 
and States to improve the accuracy and timeliness of provider and drug 
information made available to consumers.
    In addition, we clarify that this special enrollment period only 
applies to material plan or benefit display errors through the 
Exchange, and does not include plan or benefit display errors outside 
of the Exchange. This special enrollment period is intended for 
consumers who made the decision to purchase health coverage through the 
Exchange and their decision about which QHP to enroll into was impacted 
by this material plan or benefit display error. Through existing data 
correction processes, the Exchange will typically be made aware of 
these errors and any corrections that were made. For other plan errors 
that may exist outside of the Exchange, we note that a special 
enrollment period in paragraph (d)(5) already exists and applies 
marketwide for situations where a plan has substantially violated a 
material provision of its contract in relation to the enrollee.
    Comment: Commenters requested clarification about the special 
enrollment period for data matching issues that are cleared post 
expiration of an inconsistency period at Sec.  155.420(d)(13), 
including whether there is a limit on the time since the initial 
application for a consumer to qualify for this special enrollment 
period, or whether this special enrollment period can be restricted to 
only allow consumers to enroll in the QHP in which they were previously 
enrolled.
    Response: In order to qualify for the special enrollment period for 
a data matching issue that has been cleared post expiration of an 
inconsistency period, documentation must be submitted that proves that 
the consumer was a qualified individual at the time that the data 
matching issue was triggered during the same coverage year. The 
qualified individual may then enroll in the same or a different QHP 
back to the date that he or she was previously expired from coverage, 
at his or her option, in order to eliminate a gap in coverage.

[[Page 94130]]

    Additionally, those who have an annual household income under 100 
percent of the Federal poverty level and did not enroll in coverage 
while waiting for HHS to verify through the data matching process that 
they meet the citizenship, national, or immigration status described in 
section 1401(c)(1)(A)(ii) of the Affordable Care Act may also qualify 
for the special enrollment period in paragraph (d)(13) after verifying 
that they meet this criteria. These individuals may receive a coverage 
effective date and any applicable Exchange financial assistance 
retroactive to the coverage effective date associated with the 
application that triggered this data matching issue. For these 
consumers who have an annual household income under 100 percent of the 
Federal poverty level and did not enroll while waiting for HHS to 
verify their eligibility through the data matching process, they will 
receive the option for a retroactive coverage effective based on the 
date that they completed their application using the coverage effective 
date rules outlined in paragraph (b)(1) of this section.
    Comment: Several commenters requested that new special enrollment 
periods be added, including a special enrollment period for pregnancy 
or a special enrollment period for qualified individuals who are 
automatically re-enrolled into a QHP that does not meet their health 
coverage needs.
    Response: We thank commenters for making their suggestions about 
special enrollment periods. However, these issues are outside of the 
scope of this specific rulemaking.
    Comment: Many commenters provided input and suggestions about the 
impact an eligibility verification would have on the Exchange market, 
and about changes they believe could help strengthen risk pools and 
reduce possible misuse of special enrollment periods. Commenters also 
shared thoughts about methods and criteria for monitoring and 
evaluating QHP enrollments through special enrollment periods.
    Some commenters expressed concerns about limiting access to special 
enrollment periods prior to receiving adequate information about misuse 
and abuse, while other commenters supported expansive verification 
efforts where HHS verifies all QHP enrollments through special 
enrollment periods. In cases where HHS does verify special enrollment 
period enrollments, commenters requested that we conduct robust 
training for all individuals and entities involved in assisting 
consumers with enrolling in QHPs, automate the verification process to 
the extent possible, and monitor and collect data across a variety of 
enrollee characteristics and behaviors in order to better understand 
the populations and identify possible trends. One commenter also 
requested that States operating SBEs maintain flexibility to verify 
eligibility for enrollments in the manner that makes the most sense for 
their State.
    Many commenters asked about the FFE's pre-enrollment verification 
pilot and its parameters.
    Commenters also suggested that improved data collection could also 
be used to curb possible misuse of special enrollment periods, in 
addition to expanding the Exchanges' use of electronic data sources, 
and improving education efforts to make sure all stakeholders 
understand the eligibility criteria for all special enrollment periods.
    To improve the risk pool, commenters submitted a variety of ideas, 
including enhanced and more targeted outreach efforts, improving 
coordination with other entities in order to gain and retain QHP 
enrollments, increasing enrollment assistance for consumers who have 
qualified for special enrollment periods, and amending grace period 
rules to further incentivize qualified individuals to maintain 
continuous coverage.
    Response: We appreciate the ideas and recommendations shared by 
commenters about anticipated impacts of an eligibility verification for 
special enrollment periods and how HHS may reduce possible misuse and 
abuse of special enrollment periods, while continuing to strengthen 
risk pools. We also appreciate the suggestions about the methods we 
should use to monitor special enrollment period enrollments and 
criteria we should evaluate in order to better understand consumer 
behavior and increase appropriate utilization of special enrollment 
periods.
    We recognize the importance of providing clarity about how an 
Exchange may verify a consumer's eligibility for a special enrollment 
period, as well as about how the FFE plans to verify special enrollment 
period eligibility through its pre-enrollment pilot. Therefore, we have 
recently issued guidance describing how we will conduct our Pre-
Enrollment Verification Pilot.
    Comment: In addition to comments about the impact an eligibility 
verification would have on the Exchange market, some commenters 
expressed specific concerns about the potential consumer impacts of 
verification efforts, especially if an Exchange were to verify 
eligibility through a manual process prior to enrollment. Commenters 
stated that making it more difficult for consumers to enroll in 
coverage would discourage consumers, particularly young and minority 
consumers, from completing their enrollments. Commenters were also 
concerned that delaying access to coverage for a period of time while a 
consumer's eligibility is being verified could harm the consumer's 
health if the consumer is thereby unable to access needed medical care 
or prescriptions during that time. One commenter warned that delaying 
enrollment could lead to unintended pregnancy, if consumers have a gap 
in access to contraceptive coverage. Further, stakeholders have 
expressed concern about the financial hardship or disincentives to 
enrollment that could result if a consumer's enrollment is delayed 
until after verification, but they are then are ultimately required to 
pay months of retroactive premium because coverage effective dates are 
generally set based on the date a consumer selects a plan.
    Response: We appreciate commenters' concerns and are committed to 
making a verification for eligibility to enroll in QHP coverage through 
a special enrollment period as consumer-friendly as possible. We are 
particularly cognizant of the potential effects of delays in the 
effective date of coverage, including gaps in coverage that result from 
a prolonged verification process, and the potential financial hardships 
or disincentives to enrollment that could result if a consumer's 
enrollment is delayed until after verification, but they are ultimately 
required to pay months of retroactive premium. In response to these 
concerns, we are adding paragraph (b)(5) to provide an Exchange with 
the flexibility to provide a consumer with a later coverage effective 
date, at the consumer's option, if his or her ability to enroll in 
coverage is delayed so that he or she would owe two or more months of 
premiums retroactively if his or her coverage effective date were set 
based on their plan selection date under existing coverage effective 
date rules. Doing so will avoid penalizing the consumer for delays in 
the process, while avoiding selection effects on the risk pool.
    In addition, to help ensure program integrity and consumer 
protections, we note that Sec.  155.220(j)(2)(i) requires agents and 
brokers to provide consumers with correct information without omission 
of material fact, and Sec.  155.220(j)(2)(ii) requires them to provide 
the FFEs with correct information under section 1411(b) of the 
Affordable Care Act; Sec.  155.210(e)(2) requires Navigators (and 
certain non-

[[Page 94131]]

Navigator assistance personnel by cross-reference at Sec.  
155.215(a)(2)(i)) to provide information and services in a fair, 
accurate, and impartial manner; Sec.  155.225(d)(4) requires certified 
application counselors to act in the best interest of the applicants 
assisted, and Sec.  155.225(c)(1) requires them to provide fair, 
impartial, and accurate information. These duties help protect 
consumers and also help to safeguard against potential gaming, 
misinformation, and confusion when consumers are applying for and 
enrolling in coverage through an Exchange. Encouraging, convincing, or 
knowingly assisting a consumer to abuse the special enrollment process 
by facilitating enrollment based on false attestations, false 
documents, or other false information, would be a violation of these 
standards. Persons or entities determined to have violated these 
requirements may be subject to applicable penalties designed to ensure 
the integrity of persons and entities that assist consumers with 
enrollment through an Exchange. For example, consumer assistance 
entities in FFEs (as defined at Sec.  155.206(b)) that violate the 
standards described above are subject to civil money penalties 
described in Sec.  155.206; and any person who provides false or 
fraudulent information to an Exchange is subject to civil money 
penalties described in Sec.  155.285. Agents and brokers in FFEs are 
subject to suspension or termination of their agreements with HHS under 
Sec.  155.220(g). Organizations that are designated by an Exchange to 
certify their staff and volunteers as certified application counselors 
risk withdrawal of their designations, and individual certified 
application counselors risk termination of their certifications, under 
Sec.  155.225(e). Navigators are subject to remedies available pursuant 
to the terms and conditions of Navigator grant awards, and non-
Navigator in person-assistance entities and their personnel who provide 
enrollment assistance pursuant to contracts or agreements with 
Exchanges may be subject to any remedies available under the entity's 
contract or agreement with the Exchange.
(3) Termination of Exchange Enrollment or Coverage (Sec.  155.430)
    We proposed 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 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 are finalizing this provision as proposed.
    Comment: The majority of commenters were in favor of the proposed 
amendment and supported additional Exchange oversight of the rescission 
process. These commenters saw the proposed rule as providing an 
important consumer protection that does not unduly burden issuers. 
However, one commenter stated that the proposal would add another step 
to a rescission investigation, causing a delay in the process. Other 
commenters stated that issuers are in the best position to determine 
which coverage should be rescinded and that enrollees with rescinded 
coverage have a sufficient remedy in their right to an appeal. A few 
commenters expressed conditional support for the proposal, but 
expressed hope that the requirements for permissible rescissions would 
be well defined and that the Exchange oversight process could be 
structured to cause minimal delay.
    Response: We believe that because the decision to rescind coverage 
has such serious consequences for enrollees, it is important for 
consumer protection and the orderly functioning of Exchanges that 
Exchange oversight be provided to ensure that individuals who have been 
determined eligible under Exchange eligibility rules do not have their 
coverage rescinded unless that enrollment is shown to be 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. We do not believe that additional 
oversight will harm consumers or issuers by adding a step to the 
rescission process, or that appeals conducted after a wrongful 
rescission are as protective of consumers as prevention of wrongful 
rescissions. We intend to provide further guidance on the process for 
issuers to demonstrate the appropriateness of rescissions to the FFEs 
and SBE-FPs.
e. Appeals of Eligibility Determinations for Exchange Participation and 
Insurance Affordability Programs
(1) General Eligibility Appeals Requirements (Sec.  155.505)
    In Sec.  155.505, we proposed to add paragraph (h) permitting the 
Exchange appeals entity to utilize a secure and expedient 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. We proposed this flexibility to accommodate some Exchange 
appeals entities that are continuing to work towards full compliance 
with regulatory requirements related to electronic appeals processes. 
These required electronic functions 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 proposed this 
flexibility for individual market eligibility appeals, employer 
appeals, and SHOP employer and employee appeals as described in part 
155, subparts C, D, F, and H.

[[Page 94132]]

    We are finalizing these provisions as proposed.
    Comment: We received comments in support of and against our 
proposal to permit the Exchange appeals entity to utilize a secure and 
expedient paper-based appeals processes for certain functions (the 
acceptance for appeals 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 such functions electronically. Most commenters noted the 
importance of a timely, streamlined appeals process, whether electronic 
or paper-based. Those against the proposal expressed concern that a 
paper-based process would contribute to delays in appeals processing. A 
few commenters recommended that we provide a deadline by which the 
Exchange appeals entity must fully comply with electronic appeals 
requirements. Some commenters recommended that the Exchange appeals 
entity accept appeals requests by email, perhaps using a fillable PDF, 
even if it is not able to comply with the electronic appeals 
requirements described in part 155, subparts C, D, F, and H. Commenters 
also recommended that a future electronic system have the ability to 
track appeals so that consumers and assisters can get status updates on 
appeals that are in progress.
    Response: We agree with commenters about the importance of a 
streamlined and expedient appeals process. We also believe that appeals 
entities should continue to work towards modernizing and updating their 
appeals processes, to the extent they are able in view of competing 
system development priorities, in an effort to further achieve those 
goals. Nevertheless, we decline to finalize this rule with a deadline 
by which the Exchange appeals entity must fully comply with electronic 
appeals requirements because different appeals entities may have 
different operational constraints. We note that paper-based processes 
under this rule must be expedient, secure, and provide appropriate 
procedural protections for appellants. We also note that the format of 
appeals documents provided by an Exchange appeals entity must continue 
to meet the requirements of effective communications under the 
Americans with Disabilities Act of 1990, section 504 of the 
Rehabilitation Act, and section 1557 of the Affordable Care Act.
    We will explore the possibility of accepting appeal requests via 
email, provided that any email system complies with the privacy and 
security requirements in Sec.  155.260, especially those pertaining to 
safeguards of PII described in paragraphs (a)(3)(vii) and (a)(4). We 
will take other operational suggestions under advisement when designing 
an electronic system for the HHS appeals entity in the future.
(2) 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. We proposed to 
amend Sec.  155.555(b) to include cross-references to proposed Sec.  
155.505(h), described above, 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. We are finalizing these 
provisions as proposed.
    Comment: The comments we received for the proposed amendment to 
Sec.  155.555(b) were substantially similar to those we received for 
the proposed amendment to Sec.  155.505(h) described above.
    Response: For the reasons described in the discussion of Sec.  
155.505(h), we are finalizing Sec.  155.555(b) as proposed.
    Comment: We also received a comment more generally about the 
employer appeals process and employer notices required under Sec.  
155.310(h). The commenter expressed concern that the employer appeals 
process ``does not resolve anything'' because the IRS independently 
determines whether an employer is liable for a payment assessed under 
section 4980H of the Code and whether an individual is entitled to 
receive the premium tax credit under section 36B of the Code. The 
commenter also expressed concerns with the accuracy of the notices, 
including a concern that employers receive notices about former 
employees because the Exchange does not verify the employment 
information an employee provides on his or her application for coverage 
through the Exchange. The commenter noted that the notices to employers 
lack information that would enable an employer to submit an informed 
appeal request and supporting documents, such as the months for which 
an employee was determined eligible for Exchange financial assistance 
and was enrolled in a QHP through the Exchange. The commenter 
recommended that the Exchanges suspend the employer notice and appeals 
process altogether.
    Response: This comment is outside the scope of the proposed rule. 
However, we note that the employer notices and appeals processes are 
required under sections 1411(e)(4)(B)(iii) and (f)(2), respectively, of 
the Affordable Care Act. In the proposed 2017 Payment Notice, we stated 
that an employer notice described in Sec.  155.310(h) serves two 
purposes: it notifies an employer that it may be liable for the payment 
assessed under section 4980H of the Code,\54\ and it may lead to a 
reduction in an employee's tax liability because a successful employer 
appeal could lead to a discontinuation of financial assistance for 
which the employee is not eligible. Through our experience with 
employer notices that we sent for 2016, we have learned that the second 
purpose of the employer notice and appeals process--reducing an 
employee's potential tax liability--can be better achieved by verifying 
eligibility before enrollment in a QHP through the Exchange. We believe 
the Exchange can limit confusion among employers and maximize 
efficiency by focusing employer notices on the goal of notifying 
employers that they may be liable for a payment assessed under section 
4980H of the Code, as required by section 1411(e)(4)(B)(iii) of the 
Affordable Care Act.
---------------------------------------------------------------------------

    \54\ Only certain employers (called applicable large employers) 
are subject to the employer shared responsibility provisions under 
section 4980H of the Code. In general, applicable large employers 
must either offer minimum essential coverage that is ``affordable'' 
and that provides ``minimum value'' to their full-time employees 
(and their dependents), or make an employer shared responsibility 
payment to the IRS if at least one full-time employee receives the 
premium tax credit under section 36B of the Code. For more 
information on which employers are subject to the employer shared 
responsibility provisions and under what circumstances an applicable 
large employer will be subject to a payment (and how the payments 
are calculated), see Shared Responsibility for Employers Regarding 
Health Coverage; Final Rule, 79 FR 8544 (Feb. 12, 2014).). Liability 
for the employer shared responsibility payment is determined 
independently by the IRS. More information on the IRS process can be 
found at www.irs.gov.
---------------------------------------------------------------------------

    We recognize that concepts relating to section 4980H of the Code 
are complex and that the IRS ultimately determines whether the 
conditions outlined in those provisions have been met. However, we also 
believe that Exchanges may be able to appropriately streamline the 
employer notice and appeals processes and reduce confusion among 
employers, and we will consider such modifications in the future.
    To ensure that employees continue to be protected from a potential 
tax liability, the FFEs continue to look for ways to improve their 
process of verifying enrollment in and eligibility for qualifying 
coverage in an eligible

[[Page 94133]]

employer sponsored plan through the use of electronic data sources and 
other means. We also strongly encourage employers and employer groups 
to be active participants in this verification effort. For example, at 
minimal cost, employers can complete a Marketplace Employer Coverage 
Tool available at http://www.HealthCare.gov/downloads/employer-coverage-tool.pdf and provide it to their employees. If an employee 
applies for coverage through the Exchange, the employee will have 
information about his or her enrollment in and eligibility for 
qualifying coverage in an eligible employer sponsored plan so that the 
Exchange can make a correct determination about the employee's 
eligibility for Exchange financial assistance.
    Finally, we understand that some employers, especially large 
employers, may benefit from additional information on the employer 
notice to identify the employee listed on the notice in order to make 
an accurate appeal. However, we must also be cautious to protect the 
personally identifiable information of the employee, as discussed in 
more detail in the Patient Protection and Affordable Care Act; 
Establishment of Exchanges and Qualified Health Plans; Exchange 
Standards for Employers final rule and interim final rule, 77 FR 18309, 
18356-18357 (Mar. 27, 2012). The FFEs will consider providing 
additional information, such as the date the employee was determined 
eligible to begin receiving financial assistance through the Exchange, 
on employer notices in the future.
f. 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 of the Code 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 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 stated 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.\55\
---------------------------------------------------------------------------

    \55\ 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 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.\56\ 
(Below, in Sec.  156.130, we finalize 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).)
---------------------------------------------------------------------------

    \56\ 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 finalized 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 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 from 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) of the Code and the 
required contribution percentage in section 36B(c)(2)(C) of the Code. 
We received no comments on this proposal, as such, we are finalizing as 
proposed. We may update the premium adjustment percentage and the 
required contribution percentage (for years beyond 2018) in guidance, 
calculating those parameters using the methodologies established 
through rulemaking. We are updating the regulatory text to permit this 
update.
g. 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 proposed 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

[[Page 94134]]

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 did not propose changes to this latter 
requirement, but we proposed 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. We noted that we were 
concerned there might be a similar delay in State-based SHOPs.
    To ensure that newly qualified employees have the full 30 days to 
enroll, we proposed, 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 beginning on the date that the qualified employer 
notifies the SHOP about the newly qualified employee. We also proposed 
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. We also proposed 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 was intended to ensure 
that a 30-day enrollment period starting 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. This proposal would also ensure that newly qualified employees 
are provided with a full 30 days to make their health coverage 
decisions.
    We also proposed 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 
proposed to remove this requirement because we expected the proposed 
amendments at paragraphs (g)(2) and (3) discussed below would minimize 
the risk of employers exceeding waiting period limitations, as defined 
at Sec.  147.116, and because we believe that removing this requirement 
would in some circumstances give newly qualified employees a longer 
period of time to make coverage decisions.
    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 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 proposed 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). Under the 
proposal, if an employee is subject to a waiting period, 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 
specified 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 
were intended to 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 proposed 
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 was 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 sought 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

[[Page 94135]]

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 proposed 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, we also proposed at paragraph (g)(3) to specify the 
calculation methodology for waiting periods in SHOPs. Under the 
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 proposed this 
amendment to ensure that employers would 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 the 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 the proposed amendments 
to Sec.  155.725(g). To minimize operational complexity in the Federal 
platform for the SHOP, we also proposed 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.
    Our proposed amendments would not change the rule that in no case 
may the effective date for a newly qualified employee fail to comply 
with Sec.  147.116 and our proposals would only apply for purposes of 
SHOPs, and would not change Sec.  147.116.
    We also proposed 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 are finalizing these policies with modifications that will 
generally maintain the status quo with respect to enrollment periods 
and coverage effective dates for newly qualified employees in State-
based Exchanges that are not using the Federal platform for SHOP 
functions. These modifications generally preserve the current version 
of Sec.  155.725(g) in State-based Exchanges that are not using the 
Federal platform for SHOP functions, and make most of the proposed 
amendments to Sec.  155.725(g) applicable only in FF-SHOPs and in SBE-
FPs using the Federal platform for SHOP functions. The only proposed 
amendment that we are finalizing to apply in all SHOPs (both State-
based and Federally-facilitated) is the amendment we proposed at (g)(3) 
specifying when waiting periods in SHOPs begin. Additionally, we are 
modifying the proposed amendments to specify that, in an FF-SHOP or in 
an SBE-FP using the Federal platform for SHOP functions, 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 the first day of the following month (rather than, as 
was proposed, on the date of the plan selection). We are also making 
some modifications to the text of the proposed regulation to indicate 
that employees are considered to have received a qualified employer's 
offer of coverage, and thus, to have become qualified employees, as 
soon as they become otherwise eligible for coverage under the terms of 
the group health plan, before any applicable waiting period has 
elapsed.
    Comment: One commenter agreed with all of the proposed changes. 
This commenter stated that without the proposed changes, incompatible 
deadlines would make it difficult for employers to meet enrollment 
timeframes and waiting period rules. We also received several comments 
stating that the proposed requirements are too prescriptive. These 
commenters believe that State-based SHOPs should have flexibility to 
establish their own policies for employees enrolling in coverage for 
the first time outside of the group's initial or annual enrollment 
period. The commenters further believed that the proposed requirements 
should be optional for State-based SHOPs.
    Response: We recognize that under HHS's SHOP regulations, State-
based SHOPs have generally enjoyed significant flexibility to establish 
their own enrollment operations and timeframes. In order to ensure that 
State-based Exchanges that are not using the Federal platform for SHOP 
functions continue to have flexibility to establish enrollment 
timeframes for newly qualified employees based on State rules, 
definitions, and operational functions, we have decided to make most of 
the proposed amendments to Sec.  155.725(g) applicable only in FF-SHOPs 
and SBE-FPs using the Federal platform for SHOP functions in this final 
rule, and generally to preserve the current version of Sec.  155.725(g) 
for State-based SHOPs that are not using the Federal platform. The only 
proposed amendment that will apply in all SHOPs, including State-based 
SHOPs that are not using the Federal platform, is the amendment 
proposed at Sec.  155.725(g)(3) (finalized at Sec.  155.725(g)(1)(iii) 
and (g)(2)(iii)) regarding when waiting periods in a SHOP begin. We 
would continue to expect that, as is the case under the current rule, 
all SHOPs would establish enrollment timeframes and coverage effective 
dates for newly qualified employees that enable qualified employers 
administering group health plans to remain compliant with Sec.  
147.116.
    Comment: We received some comments in support of the proposal to 
begin the enrollment period for a newly qualified employee on the day 
that the qualified employer notifies the SHOP about the newly qualified 
employee. We also received some comments that did not support this 
proposal. One commenter believed that the proposal is not necessary 
because there are sufficient requirements under ERISA that govern 
employer-imposed waiting periods. This commenter also believed that 
qualified employees are not offered coverage, and therefore are not 
``qualified employees,'' until after they have already successfully 
completed any applicable waiting period, and that our proposal 
requiring employers to notify the SHOP about a newly qualified employee 
on or before the 30th day after the employee becomes eligible thus 
permits a qualified employer to notify the SHOP up to 30 days after any 
applicable waiting period has ended. Further, this commenter believed 
that

[[Page 94136]]

requiring employers to notify the SHOP about a newly qualified employee 
is administratively unnecessary because the employee may decline 
coverage and there is nothing for the SHOP to do if the employee 
declines coverage. Another commenter expressed concern that an employer 
could wait weeks or months before notifying the SHOP regarding a new 
employee. One commenter also believed that because there is little to 
no indication that the current enrollment period is not sufficient for 
making an informed decision, the current rules should be maintained.
    Response: We do not agree with the commenter's premise that an 
individual does not become a qualified employee until after any 
applicable waiting period has elapsed. Under Sec.  155.20, a qualified 
employee is defined as any employee or former employee of a qualified 
employer who has been offered health insurance coverage by such 
qualified employer through the SHOP. For SHOP purposes, once an 
employee is offered coverage through the SHOP by a qualified employer, 
the employee is considered to be a qualified employee even if, 
consistent with Sec.  147.116(b), a waiting period must pass before 
coverage for the individual can become effective. Thus, for SHOP 
purposes, a qualified employee is considered to be ``otherwise 
eligible'' within the meaning of Sec.  147.116(c). Moreover, under 
Sec.  155.710(b)(2), a qualified employer must offer coverage in a QHP 
through the SHOP to all full-time employees. If an employer is not 
considered to have offered coverage (for SHOP purposes) to all current 
full-time employees until all applicable waiting periods had elapsed, 
this could delay the employer's eligibility determination and thus 
delay the initial group enrollment. We are modifying the rule text in 
this final rule to make our position clearer.
    HHS also does not believe that it is administratively unnecessary 
for a qualified employer to notify a SHOP about a newly qualified 
employee, even if that employee ultimately declines the offer of 
coverage. This notification is necessary in order for the SHOP to 
provide newly qualified employees with an enrollment period, 
particularly in circumstances where employee choice is offered and 
where employees choose a plan online. Moreover, qualified employers in 
all SHOPs are already required to notify the SHOP of newly qualified 
employees under existing rules at Sec.  157.205(f)(1), and that general 
requirement will not be modified in this final rule, although Sec.  
157.205(f)(1) will be modified in this final rule to establish a 
deadline for this notification in FF-SHOPs and in SBE-FPs using the 
Federal platform for SHOP functions.
    Qualified employers administering group health plans are ultimately 
responsible for ensuring that they remain compliant with Sec.  147.116. 
However, our proposals were intended to make it easier for such 
employers to comply with Sec.  147.116, while also providing for more 
uniform enrollment timeframes and rules that permit SHOPs, particularly 
FF-SHOPs and SBE-FPs using the Federal platform for SHOP functions, to 
operate more efficiently.
    In order to prevent circumstances where employers potentially wait 
weeks or months before notifying a SHOP regarding a newly qualified 
employee, HHS is finalizing our proposal to require qualified employers 
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, 
but (as discussed above) with modifications to limit this requirement 
to FF-SHOPs and to SBE-FPs using the Federal platform for SHOP 
functions, and to make it clear that this notification should occur 
when the employee becomes a newly qualified employee, that is, when the 
employee becomes otherwise eligible for coverage. HHS is also making a 
conforming change to the proposed requirements for qualified employers 
at Sec.  157.205(f)(1). We are also amending Sec.  157.205(e)(1) in 
this final rule to align that provision with our amendments to Sec.  
155.725(g).
    Comment: HHS received one comment supporting the proposal to remove 
the requirement that enrollment periods for newly qualified employees 
end no sooner than 15 days prior to the date that any applicable 
waiting period that is longer than 45 days would end.
    Response: We are finalizing this amendment as proposed for FF-SHOPs 
and for SBE-FPs using the Federal platform for SHOP functions, because 
removal of this requirement in these SHOPs, where our other proposed 
amendments will apply, may in some circumstances provide newly 
qualified employees with a longer period of time to make coverage 
decisions, as discussed in the preamble to the proposed rule.
    Comment: We received one comment supporting the proposal to specify 
that the coverage effective date for a newly qualified employee 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. We also 
received some comments that did not support the proposal to remove the 
cross-reference to the requirements at paragraph Sec.  155.725(h) for 
newly qualified employees. One commenter believed that QHP issuers 
would not have sufficient time to process new enrollments and create 
and distribute welcome packages under the proposal at (g)(2). Other 
commenters stated they believe the new requirements are too 
prescriptive for State-based SHOPs and that State-based SHOPs should 
maintain flexibility to establish effective dates for employees 
enrolling in coverage for the first time.
    Response: We are making most of the amendments proposed at Sec.  
155.725(g) applicable only in FF-SHOPs and in SBE-FPs using the Federal 
platform for SHOP functions (as discussed above), and are also 
modifying the provision regarding the coverage effective date for newly 
qualified employees that make a plan selection on the first day of a 
month, after any applicable waiting period has ended. For FF-SHOPs and 
SBE-FPs utilizing the Federal platform for SHOP functions, we believe 
that for operational reasons, removing the cross-reference to the 15th 
day of the month coverage effective date rule described in paragraph 
Sec.  155.725(h)(2) will help to ensure that qualified employers 
administering group health plans are in compliance with the limitations 
on waiting period length at Sec.  147.116. In order to further minimize 
the risk that qualified employers administering group health plans 
would exceed waiting period length limitations at Sec.  147.116, we are 
finalizing our proposal that if plan selection is made prior to the 
first day of the month and any applicable waiting period ends on the 
first day of the month, coverage will be effective on that day, but are 
limiting the applicability of this provision to FF-SHOPs and to SBE-FPs 
using the Federal platform for SHOP functions.
    We are modifying the proposed requirement to effectuate coverage on 
the first day of the month when a plan selection happens on the first 
day of the month and any applicable waiting period has already ended. 
First, due to operational limitations of the Federal platform, and in 
consideration of the concerns expressed in some of the comments 
received, we are modifying the provision so that coverage will take 
effect in these circumstances on the first day of the following month. 
Second, like most of the proposed amendments, this provision will apply 
only in FF-SHOPs and in SBE-FPs using the Federal platform for SHOP 
functions.

[[Page 94137]]

    The coverage effective date timelines that will be established in 
this final rule for FF-SHOPs and SBE-FPs using the Federal platform for 
SHOP functions are similar to timelines required for certain special 
enrollment periods, and we believe issuers are equipped to effectuate 
coverage consistent with the rule, even if it means that some newly 
qualified employees might not receive their welcome packages until 
after the coverage effective date.
    Comment: We received one comment expressing concern about the 
proposals on variable-hour measurement periods for SHOP employers. The 
commenter believed that this new requirement would create a barrier to 
entry and compliance issues for large employers considering purchasing 
coverage through a SHOP.
    Response: We are finalizing the proposed amendment relating to 
variable-hour measurement periods, but are making it applicable only in 
FF-SHOPs and in SBE-FPs using the Federal platform for SHOP functions, 
in order to help qualified employers--including large employers--
administering group health plans in those SHOPs remain in compliance 
with waiting period rules for variable hour employees as described at 
Sec.  147.116(c)(3)(i). This requirement helps to ensure that coverage 
takes effect for variable hour employees 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.
    Comment: Some commenters did not support our proposals requiring 
that waiting periods in the SHOP not exceed 60 days and the proposal to 
specify the calculation methodology for waiting periods in SHOPs. One 
commenter stated that because SHOPs do not monitor employer waiting 
periods, the proposal to only allow up to 60 days for a waiting period 
would unnecessarily require the SHOP to begin monitoring employer 
benefit plans. Further, commenters stated that certain States have laws 
that allow employers to impose up to a 90-day waiting period and more 
restrictive requirements would discourage employer participation and 
invite compliance errors. Another commenter supported our proposal on 
waiting periods.
    Response: We are finalizing the proposal that waiting periods in 
SHOPs not exceed 60 days with a modification to make it apply only in 
FF-SHOPs and in SBE-FPs using the Federal platform for SHOP functions, 
for the reasons discussed above. We would continue to expect that, as 
is the case under the current rule, State-based SHOPs that are not 
using the Federal platform for SHOP functions would establish 
enrollment timelines and coverage effective dates for newly qualified 
employees that enable qualified employers administering group health 
plans to remain compliant with Sec.  147.116.
    Due to the operational functionality of the Federal platform, 
permitting qualified employers in FF-SHOPs and in SBE-FPs utilizing the 
Federal platform for SHOP functions to opt for a 90-day waiting period 
creates heightened risk that the waiting period limitations at Sec.  
147.116 would be exceeded under the standard systems logic, and thus 
creates operational complexity for these SHOPs, which under our rule 
are obligated to ensure a coverage effective date that does not exceed 
the limitations under Sec.  147.116.
    Because the proposal requiring that waiting periods in SHOPs be 
calculated beginning on the date that the employee becomes eligible for 
coverage is generally consistent with Sec.  147.116, we are finalizing 
that proposal to apply in all SHOPs, including State-based SHOPs that 
are not using the Federal platform. We are modifying that proposal to 
reflect that the waiting period should begin on the day that the 
employee becomes a qualified employee who is otherwise eligible for 
coverage, for the reasons discussed above.
    Comment: We did not receive any comments on our proposed amendment 
to Sec.  155.725(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).
    Response: We are finalizing this amendment as proposed.
h. SHOP Employer and Employee Eligibility Appeals Requirements (Sec.  
155.740)
    We proposed 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 entities to use a secure 
and expedient paper-based process if the appeals entity cannot fulfill 
certain electronic requirements. We are finalizing this amendment as 
proposed.
    Comment: We received one comment supporting our proposal to cross-
reference proposed Sec.  155.505(h) to permit SHOP employer and 
employee eligibility appeals entities to use a secure and expedient 
paper-based process if the appeals entity cannot fulfill certain 
electronic requirements.
    Response: We are finalizing our proposal without modification.
i. Request for Reconsideration (Sec.  155.1090)
    In the proposed rule, HHS proposed a new 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 proposed 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 seven 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 proposed that the issuer must 
include any and all documentation in support of its request when it 
submits a request for reconsideration. We proposed 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 proposed that HHS would provide the issuer with a 
written reconsideration decision, and that decision would constitute 
HHS's final determination. In the preamble of the proposed rule, we 
noted 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 also 
indicated our intent is for the Office of Personnel Management to 
maintain authority over reconsideration of applications from issuers to 
offer a multi-State plan. We are finalizing these provisions as 
proposed.
    Comment: All commenters supported the proposal to allow an issuer 
to request reconsideration of denial of certification. One commenter 
expressed concern about the short timeline to submit the request for 
reconsideration, but indicated additional guidance on the process 
should allow issuers to navigate the process successfully. One 
commenter requested HHS provide more information about the timeline for 
this process.
    Response: We believe the short timeline for submission of the 
reconsideration requests is required to allow HHS the opportunity to 
implement a decision to certify a plan prior to open enrollment. We 
intend to provide future guidance on the form and manner through which 
issuers should submit requests for reconsideration.

[[Page 94138]]

9. Part 156--Health Insurance Issuer Standards Under the Affordable 
Care Act, Including Standards Related to Exchanges
a. General Provisions
(1) 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, certification and decertification).
     Administration of a SHOP Exchange.
    Activities performed by the Federal government that do not provide 
issuers participating in an FFE with a special benefit are not covered 
by this user fee.
    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 proposed 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 FFE 
user fee rate. For the user fee charges assessed on issuers in the FFE, 
we have previously received a waiver 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. 
Similarly, for this year we have sought and expect to receive 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, to ensure that the FFEs 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 are finalizing the FFE 
user fee rate as proposed. We will maintain this user fee rate for 
future benefit years until changed in rulemaking.
    Additionally, we have received feedback suggesting that the FFEs 
would be able to increase enrollment by allocating more funds to 
outreach and education, a benefit to both consumers and issuers. We 
sought comment on how much funding to devote to outreach and education, 
and 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.
    Comment: Commenters supported the proposed FFE user fee rate. 
Commenters also noted that the FFE user fee rate should decrease over 
time. One commenter opposed HHS's request for a waiver from OMB 
Circular A-25R.
    Response: For the initial years of FFE operation, we set the user 
fee rate lower than the full costs of the FFEs and did not collect user 
fee revenue to cover the full costs of FFE operations. We have not 
collected user fees to cover the full cost of the Federal functions for 
the first years of FFE operations. However, we do anticipate gaining 
economies of scale from functions with fixed costs, and if so, may 
consider reducing the FFE user fee based on increased enrollment and 
premiums in the future. We will continue to assess the user fee each 
year and set the user fee rate to equal the amount necessary to cover 
the full cost of the special benefits provided. The exception from the 
OMB circular A-25R allows HHS to ensure that the FFEs 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.
    Comment: One commenter requested that the FFE user fee rate be 
charged as a fixed dollar amount instead of a percent of premium.
    Response: As we have stated in prior payment notices, we will 
continue to assess the FFE user fee as a percent of the monthly premium 
charged by issuers participating in an FFE, in particular as it relates 
to the adequacy of funding for ongoing marketing and outreach. In 
accordance with OMB Circular No. A-25R, issuers are charged the user 
fee in exchange for receiving special benefits beyond those that are 
offered to the general public. Setting the user fee as a percent of 
premium ensures that the user fee generally aligns with the business 
generated by the issuer as a result of participation in an FFE.
    Comment: We received several comments supporting HHS increasing the 
amount of funds allocated to outreach and education, with some 
commenters suggesting HHS allocate certain amount of funds to outreach 
and education efforts for certain subgroups, such as American Indian/
Native Alaskan groups and residents in rural areas. A few commenters 
suggested designating up to 30 percent of user fee revenue for outreach 
and education for adequate enrollment of young and healthy consumers. 
One commenter noted that a FFE user fee rate up to 4 percent of premium 
would be acceptable, particularly since this rate would be spread 
across plans on- and off-Exchange. Another commenter stated that HHS 
should evaluate the consumer experience end-to-end to determine which 
aspects need improvement.
    Response: We believe that continuing to use an established portion 
of FFE user fees for outreach and education

[[Page 94139]]

will help expand access to health coverage while benefiting issuers, 
including by providing issuers and regulators greater confidence that 
the FFEs' issuers' risk pools will continue to improve. In 2016 and 
prior years, we designated approximately two to three percent of FFE 
user fees for consumer education and outreach. We are finalizing a 
policy to designate approximately three percent (at least) of FFE user 
fees for those purposes in the future. As enrollment in the FFEs grows, 
we will continue to adjust our investment in outreach and education 
efforts to help increase enrollment and also improve the FFEs' issuers' 
risk pools by enrolling additional young and healthy individuals.
(2) SBE-FP User Fee for the 2018 Benefit Year (Sec.  156.50)
    SBE-FPs enter into a Federal platform agreement with HHS to 
leverage the systems established by the FFEs 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 previously 
discussed, OMB Circular No. A-25R establishes Federal policy regarding 
user fees, and specifies that a user fee 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 the SBE-
FP user fee rate charged for issuers offering QHPs in the 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, we 
proposed 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 for the 2018 benefit 
year. This fee would support FFE operations costs incurred by the 
Federal government associated with providing the services described 
above.
    We sought comment on this proposed SBE-FP user fee rate. 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 also sought 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 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.
    Comment: Some commenters requested that HHS keep the reduced SBE-FP 
user fee rate of 1.5 percent for the 2018 benefit year and beyond, and 
that a user fee rate of 3.0 percent allows only 0.5 percent of total 
premium as revenue for SBE-FPs to carry out their functions. One 
commenter stated a preference for a lower user fee rate for the 2018 
benefit year, supporting an SBE-FP user fee rate of up to 2.0 percent 
of premiums. Another commenter stated that a SBE-FP user fee rate of 
3.0 percent of premiums for issuers offering plans through a SBE-FP 
does not reflect the scalability of the Exchanges that HHS has noted.
    Response: The SBE-FP user fee rate is based on the percent of FFE 
costs that are attributed to Federal functions associated with the 
information technology, call center infrastructure, and eligibility 
determinations for enrollment in QHPs and other applicable State health 
subsidy programs. We believe issuers offering QHPs through the Federal 
platform ought to be charged proportionally for the special benefits 
provided. We have calculated the costs to yield a user fee rate of 3.0 
percent for issuers benefiting from functions provided by the Federal 
platform. However, we understand the need to provide another year to 
adjust to the increased user fee rate in the SBE-FP States, and so, are 
finalizing an SBE-FP user fee rate of 2.0 percent for the 2018 benefit 
year. We will maintain this SBE-FP user fee rate for future benefit 
years unless changed in future rulemaking. We will continue to assess 
the SBE-FP user fee rate each year, and expect, in future rulemaking, 
to propose that SBE-FP issuers would be charged the full user fee rate 
covering the full share of costs incurred by the Federal platform for 
the special benefits provided to issuers in SBE-FPs.
    Comment: Another commenter suggested HHS require SBE-FPs to 
allocate a certain portion of a State's assessments on outreach and 
education.
    Response: We are not requiring SBE-FPs to allocate a certain share 
of the State's assessments at this time, and note that we also do not 
require the SBE-FPs to set the State assessment at any specific rate.
(3) Single Risk Pool (Sec.  156.80)
    We proposed to amend Sec.  156.80(d) to remove the reference to the 
transitional reinsurance program, which was established for benefit 
years 2014 through 2016. To more explicitly reflect how the rating 
factors under Sec.  147.102 and the single risk pool index rating 
methodology under Sec.  156.80 work together, we also proposed to 
restructure paragraph (d)(1) as paragraphs (d)(1)(i) through (iv), 
adding new proposed 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. We are finalizing both amendments to Sec.  156.80(d) with 
minor modifications as described below. Technical guidance will be 
provided through Unified Rate Review Instructions to ensure accurate 
and uniform application of the calibration methodology.
    Comment: Some commenters thought calibration should be applied at 
the plan level as opposed to the market level, while another commenter 
recommended including ``calibrated base rates'' in the Unified Rate 
Review Template.
    Response: The purpose of calibration is to allow the premium rating 
factors under Sec.  147.102 to be directly and accurately applied to 
the plan-adjusted index rate to generate the appropriate premium 
charged to an individual or small employer based on age, geography, and 
tobacco use. For

[[Page 94140]]

example, calibration with respect to the age curve identifies the value 
on the applicable age curve associated with the weighted average age on 
the standard age curve. After applying age calibration, the plan-
adjusted index rate and the standard age curve can then be used to 
generate the schedule of premium rates for all ages for each plan.
    We proposed that calibration must be applied at the market level 
because calibration is a common adjustment for all of an issuer's plans 
in the single risk pool of the State market, even though it only occurs 
after the plan-adjusted index rate has been determined. However, in 
response to commenters' concerns, we recognize that it may reduce 
confusion to codify the calibration provision as a separate step in the 
index rate setting methodology. Therefore, we are relocating the 
calibration provision to new paragraph (d)(3) and redesignating 
existing paragraph (d)(3) as paragraph (d)(4). We are also adding 
regulation text to reflect the purpose described in the proposed rule--
ensuring that any rating variation under Sec.  147.102 may be 
accurately applied with respect to a particular plan or coverage. We 
are also specifying in the regulation text that, notwithstanding the 
codification of the provision as a new step after the application of 
plan-level adjustments, calibration must be applied uniformly to all 
plans within the single risk pool of the State market and cannot vary 
by plan.
b. Essential Health Benefits Package
(1) 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).\57\ Using this formula, we proposed and are 
finalizing the premium adjustment percentage for 2018 at 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 final 2018 
premium adjustment percentage, we are also finalizing the following 
cost-sharing parameters for calendar year 2018.
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    \57\ ``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.
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    As described above, we may update the annual premium adjustment 
percentage in guidance in the future, pursuant to the methodology that 
has been established through rulemaking. Consistent with Sec.  
156.130(e), we also will publish any annual revision to the premium 
adjustment percentage in the annual HHS notice of benefits and payment 
parameters.
    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 established above, and the 2014 
maximum annual limitation on cost sharing of $6,350 for self-only 
coverage, which was published by the IRS on May 2, 2013,\58\ we are 
finalizing the 2018 maximum annual limitation on cost sharing at $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. We may update the maximum annual limitation on cost sharing 
(for benefit years beyond 2018) in guidance in the future, pursuant to 
the methodology that has been established through rulemaking.
---------------------------------------------------------------------------

    \58\ See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

    Comment: We received several comments in support of the increase in 
the maximum annual limitation on cost sharing. One commenter requested 
that HHS coordinate with the IRS in setting the maximum out-of-pocket 
limits for HDHPs so that the maximums are the same.
    Response: HHS understands that the annual limitation under Sec.  
156.130(a)(2) in a given benefit year may be different than the annual 
limitation on out-of-pocket expenses for HDHPs, as defined in section 
223(c)(2) of the Code. However, HHS and IRS are bound by different 
statutory parameters when calculating annual out-of-pocket limitations. 
HHS uses the premium adjustment percentage described above, and, in 
accordance with section 223(g) of the Code, IRS uses the Consumer Price 
Index (CPI), a measure of inflation, to set the out-of-pocket limit for 
HDHPs.
(2) Reduced Maximum Annual Limitation on Cost Sharing (Sec.  156.130)
    Section 1402 (a) through (c) of the Affordable Care Act direct 
issuers to reduce cost sharing for EHB 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

[[Page 94141]]

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 proposed 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. Using the proposed 2018 maximum annual limitation on cost 
sharing of $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 results.
    Consistent with our analysis in the past 2014 through 2017 Payment 
Notices, we developed three silver level QHPs for purposes of testing, 
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 plans 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 
plans meet the AV requirements for silver level QHPs.
    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 level (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 proposed 
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 
flexibility to design innovative plans with varying lower maximum 
annual limitations on cost sharing and deductibles for the 73 percent 
plans. We further proposed 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 13. 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 noted 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 are finalizing the reductions in the 
maximum annual limitation on cost sharing for 2018 as proposed. Again, 
for benefit years beyond 2018, we may reduce the maximum annual 
limitations on cost sharing for these silver plan variations in 
guidance by the fractions established through rulemaking (for example, 
\1/5\ for enrollees with incomes between 200-250 percent of the FPL, 
and \2/3s\ for enrollees with incomes between 100-200 percent of the 
FPL).
    We also note that for 2018, as described in Sec.  156.135(d), 
States were permitted to submit for approval by HHS State-specific 
datasets for use as the standard population to calculate AV. No State 
submitted a dataset by the September 1, 2016 deadline.\59\
---------------------------------------------------------------------------

    \59\ 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.

  Table 13--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 cost-               $2,450               $4,900
 sharing reductions under Sec.
   155.305(g)(2)(i) (that is,
 100-150 percent of FPL)......
Individuals eligible for cost-                2,450                4,900
 sharing reductions under Sec.
   155.305(g)(2)(ii) (that is,
 150-200 percent of FPL)......
Individuals eligible for cost-                5,850               11,700
 sharing reductions under Sec.
   155.305(g)(2)(iii) (that
 is, 200-250 percent of FPL)..
------------------------------------------------------------------------


[[Page 94142]]

(3) Levels of Coverage: Bronze Plans (Sec.  156.140)
    Section 2707(a) of the PHS Act and section 1302 of the Affordable 
Care Act directs issuers of non-grandfathered individual and small 
group health insurance plans, including QHPs, to ensure that these 
plans adhere to the levels of coverage specified in section 1302(d)(1) 
of the Affordable Care Act. A plan's coverage level, or AV, is 
determined based on its coverage of the EHB for a standard population. 
Section 1302(d)(1) of the Affordable Care Act requires 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. Section 1302(d)(3) further directs the Secretary to 
establish guidelines for the allowable de minimis variation in AVs in 
the level of coverage of a plan.
    Currently, Sec.  156.140(c) permits a de minimis variation of +/- 2 
percentage points.\60\ In the proposed rule, we proposed to amend the 
de minimis range for bronze plans that cover and pay for at least one 
major service, other than preventive services (for which certain 
services already are required by Federal law to have zero cost 
sharing), before the deductible to allow a variance in AV of -2 
percentage points and +5 percentage points. We further proposed a list 
of major services which may be covered and paid for before deductible 
in order to make a bronze plan eligible for the broader de minimis 
range. The major services proposed were primary care visits, specialist 
visits, inpatient hospital services, generic drugs, specialty drugs, 
preferred branded drugs, or emergency room services. Additionally, we 
proposed that the major service covered before the deductible must 
apply a reasonable cost-sharing rate to the service to ensure that the 
service is affordably covered. Finally, we proposed that a bronze plan 
that covers at least three primary care services before the deductible 
would qualify as having a major service covered before the deductible.
---------------------------------------------------------------------------

    \60\ Under Sec.  156.400, the de minimis variation for a silver 
plan variation means a single percentage point.
---------------------------------------------------------------------------

    We proposed this amendment because, without a de minimis 
adjustment, future calibrations of the AV Calculator may limit issuers' 
flexibility in designing bronze plans. Further, we believe that bronze 
plans were not intended to be less generous than catastrophic plans, 
which are required to provide at least three primary care visits before 
the deductible. We also proposed that bronze plans that are HDHPs be 
permitted to have the same adjusted de minimis AV range in order to 
maintain those plans' eligibility to become HDHPs that could be paired 
with a health savings account while still adhering to the bronze level 
of AV.
    We are finalizing Sec.  156.140(c) as proposed, with a technical 
correction to the regulation text to change ``high deductible high 
plan'' to ``high deductible health plan.'' We are also finalizing the 
2018 AV Calculator, which provides the option for issuers to calculate 
AV for a bronze plan with the broader de minimis range.\61\
---------------------------------------------------------------------------

    \61\ It is the responsibility of the bronze plan issuer to 
ensure that its bronze plan meets the requirements under this policy 
at 45 CFR 156.140(c) if the issuer uses the expanded bronze plan de 
minimis range in the AV Calculator. For more information on the 
operation of this feature in the 2018 AV Calculator, please refer to 
the 2018 AV Calculator User Guide and Methodology that are posted at 
https://www.cms.gov/cciio/resources/regulations-and-guidance/#Plan 
Management.
---------------------------------------------------------------------------

    Comment: Many commenters supported our proposal to expand the de 
minimis range to -2 and +5 percentage points for certain types of 
bronze plans. These commenters supported the increased flexibility in 
plan design for issuers. Further, these commenters believed that the 
proposed changes would generate benefits to consumers by promoting 
creative plan designs and plans with more generous benefits than 
catastrophic plans. Other commenters supported the proposed requirement 
that this policy be limited to plans with at least one major service 
covered before the deductible in applicable plans and to HDHPs. 
Finally, some commenters supported allowing plans which cover at least 
three primary care visits before the deductible to qualify for the 
broader de minimis range. A few commenters did not support this policy 
because some of these commenters believed that an expanded de minimis 
range created the potential of higher premiums for bronze plans. Some 
of these commenters believed that these higher premiums may hurt 
enrollees in zero cost-sharing plans since these enrollees would see no 
benefit from changes in the cost-sharing structure of these plans. Some 
commenters also expressed concerns that increasing the de minimis range 
of bronze plans would make them indistinguishable from silver plans and 
inhibit plan design innovation.
    Response: We are finalizing the policy as proposed. We believe that 
this policy provides a balanced approach by ensuring that a variety of 
bronze plans can be offered, including HDHPs, while ensuring that 
bronze plans can remain at least as generous as catastrophic plans. We 
are also finalizing our proposal that a bronze plan with at least three 
primary care services before the deductible would qualify for the 
expanded de minimis range. Issuers are not required to utilize the 
expanded bronze de minimis range, and we do not anticipate that this 
policy will have a significant impact on average bronze plan premiums. 
We also note that the purpose of the AV Calculator is to calculate AV 
to determine the level of coverage (metal level) of a plan, and it was 
not developed for pricing purposes.
    Comment: Most commenters supported the list of major services. Some 
commenters requested the addition of services, such as habilitative 
services, rehabilitative services, laboratory services, and urgent care 
services. A commenter also requested that SBEs have flexibility in 
determining eligible major services. Other comments included a request 
for assurances that the policy would only require at least one category 
of services before the deductible and a request that HHS require at 
least one formulary tier to be provided before the deductible. Some 
commenters also requested further guidance on our list of major 
services.
    Response: To qualify for the increased de minimis range, the plan 
must cover at least one major service before the deductible, with 
reasonable cost sharing, or meet the requirements to be a HDHP. We 
consider a major service to include the category of benefits within 
that service type before the deductible. For example, if a Bronze plan 
is covering specialist visits before the deductible as the major 
service to trigger the expanded de minimis range, we would expect that 
the before deductible cost sharing would apply to the range of 
specialist visits that the issuer covers. We are finalizing the list of 
major services as proposed. Therefore, the finalized definition of 
major services will include primary care visits, specialist visits, 
inpatient hospital services, generic drugs, preferred brand drugs, 
specialty drugs, and emergency room services. These major services are 
applicable to a wide variety of enrollees and could have a significant 
AV impact. In response to commenters' requests for a wider list of 
major services, we considered adding services, such as urgent care and 
laboratory outpatient and professional services to the list of major 
services. However, these services were omitted due to feasibility 
concerns. Based on the claims data used in the 2018 AV Calculator, 
overall utilization of urgent care services is

[[Page 94143]]

relatively low.\62\ Moreover, given that laboratory services are often 
accessed in conjunction, or as the result of, access to other services, 
such as office visits, which may not be covered before the deductible, 
it is unlikely that the majority of enrollees would access laboratory 
services before the deductible without having to access other services 
first. However, we note that nothing in this policy precludes plans 
(other than HDHPs) from covering additional services before the 
deductible, subject to applicable AV requirements. Also, nothing is in 
this policy precludes States from applying other cost-sharing 
requirements in addition to this policy.
---------------------------------------------------------------------------

    \62\ Additional information on the consideration of urgent care 
services in the 2018 AV Calculator is discussed in the AV Calculator 
Methodology under the Section entitled ``Consideration of Additional 
Updates Not Made in the 2018 AV Calculator'' that is available at: 
https://www.cms.gov/cciio/resources/regulations-and-guidance/#Plan 
Management.
---------------------------------------------------------------------------

    We remind issuers that this policy does not exempt issuers from 
mental health and substance use disorder parity requirements.\63\ This 
includes the rule that a separate deductible cannot be applied to 
mental health or substance use disorder benefits and that any 
deductible applied to such benefits be no more restrictive than the 
predominant level of the deductible applicable to substantially all 
medical/surgical benefits in a particular category of benefits as 
described in 45 CFR 146.136. Section 1302(d)(2)(A) of the Affordable 
Care Act requires that AV be determined based a standard population 
(and without regard to the population the plan may actually provide 
benefits to), which is not the population required for mental health 
and substance use disorder parity testing. Therefore, the AV Calculator 
is not intended to demonstrate parity.
---------------------------------------------------------------------------

    \63\ See 45 CFR 156.115(a)(3).
---------------------------------------------------------------------------

    Comment: Some commenters made recommendations for reasonable cost-
sharing rates for services being covered before the deductible. These 
suggestions included the use of current cost-sharing review tools, 
tying reasonable cost sharing to the bronze standardized option rates, 
using no more than 50 percent enrollee coinsurance; and requiring 
copays on the cost sharing for the major service. Other commenters had 
recommendations for display and aggregation of these plans on 
HealthCare.gov and for education to consumers on these types of plans.
    Response: We recognize that States are the primary enforcers of AV 
policy. Further, we recognize that services vary in costs by region and 
that issuers need flexibility in plan design. However, at a minimum, 
for the purposes of this bronze plan policy, we believe that any cost-
sharing rate that requires the enrollee to pay for more than 50 percent 
of the coinsurance (or the equivalent copay rate) could be considered 
an unreasonable cost-sharing rate for the major service.
(4) Application to Stand-Alone Dental Plans Inside the Exchange (Sec.  
156.150)
    In the 2017 Payment Notice, HHS finalized Sec.  156.150(a), which 
establishes a formula to increase the annual limitation on cost sharing 
for stand-alone dental plans. Specifically, HHS finalized that for plan 
years beginning after 2017, the annual limitation for an SADP for one 
covered child would be $350 increased by the percentage increase of the 
CPI for dental services for the year 2 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 2 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 year 2 years prior to the 
applicable plan year would be equal to the CPI for 2016, resulting in a 
zero percent increase. Therefore, for plan year 2018, the dental annual 
limitation on cost sharing is $350 for one child and $700 for two or 
more children. For plan years after 2018, we may adjust the annual 
limitation on cost sharing for stand-alone dental plans in guidance 
based on the formula established by regulations at Sec.  156.150.
    We have also received questions on the percentage of premium 
properly allocable to EHB for plans offered or intended to be offered 
in the individual market through Exchanges. Under Sec.  156.470, 
issuers of medical and stand-alone dental plan QHPs must provide to 
Exchanges an allocation of their QHP premiums to EHBs and other 
services or benefits. Because non-pediatric dental benefits (sometimes 
referred to as dental benefits for ``adults,'' meaning individuals age 
19 and older) are not EHB under Sec.  156.115(d), no portion of the 
premium allocable to dental benefits for adults should be included in 
the allocation to EHB. Any portion of the premium allocable to dental 
benefits for adults should instead be included in the allocation to 
other services or benefits.
    Comment: We received a number of comments seeking clarification of 
our description in the proposed rule that stated that, for plan year 
2018, the dental annual limitation on cost sharing would be ``$350 for 
one child and $700 for one or more children.'' Commenters sought 
clarification of whether the $700 limitation applies to one or more 
children or two or more children.
    Response: The application of the $700 limit to one or more children 
was in error and we establish the annual limitation on cost sharing for 
SADPs certified by Exchanges for plan year 2018 as $350 for one child 
and $700 for two or more children.
    Comment: We received a number of comments seeking clarification of 
how the annual limitations on cost sharing for SADPs certified by 
Exchanges apply to families with more than one child. Commenters sought 
clarification of whether a SADP may require additional cost sharing for 
one child in a family when that child has reached $350 in cost sharing 
but the family's children collectively have not reached $700 in cost 
sharing.
    Response: In the 2016 Payment Notice, we addressed comments on the 
application of annual limits on cost sharing under Sec.  156.130 
(applicable to all plans covering EHB). We clarified in the rule's 
preamble that ``The annual limitation on cost sharing for self-only 
coverage applies to all individuals regardless of whether the 
individual is covered by a self-only plan or is covered by a plan that 
is other than self-only.'' (80 FR 10825). Similarly, we clarify that 
under Sec.  156.150 (applicable to stand-alone dental plans covering 
the pediatric dental EHB that are certified by an Exchange), the annual 
limitation on cost sharing for stand-alone dental plans that are 
certified by an Exchange for one child applies to all children 
regardless of whether the child is covered by a self-only plan or is 
covered by a plan that is other than self-only. Therefore, a stand-
alone dental plan covering the pediatric dental EHB must limit cost 
sharing to $350 for each individual child. A stand-alone dental plan 
covering the pediatric dental EHB must also limit cost sharing to a 
total of $700 when the plan covers two or more children.
c. Qualified Health Plan Minimum Certification Standards
(1) 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. Section 
1311(c)(1) and 1321(a)(1)(A) and

[[Page 94144]]

(B) of the Affordable Care Act provide the Secretary of HHS with the 
authority to establish certification criteria for QHPs and Exchanges. 
Therefore, HHS proposed 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. We further clarified that an issuer can meet this standard by 
offering a Multi-State Plan option in both silver coverage and gold 
coverage levels throughout each service area in which it offers other 
QHPs through an Exchange.
    Specifically, we proposed 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 would 
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.
    We are finalizing these provisions as proposed.
    Comment: We received several comments in support of this proposal 
as consistent with the intention of section 1301(a)(1)(C)(ii) of the 
Affordable Care Act. Other commenters suggested that HHS work with the 
Office of Personnel Management to assure that a similar rule applies to 
Multi-State Plans.
    Response: 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 offers 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 up to 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 at least 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 its full service area in a meaningful way. HHS believes 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. This modification 
will ensure that consumers have an adequate choice of QHPs at different 
coverage levels. Further, the Affordable Care Act assumed calculation 
of both APTC and the premium tax credit based on the availability of a 
second lowest cost silver plan. As such, we are finalizing the rule as 
proposed to modify our regulations to more accurately align with QHP 
issuer practice and our interpretation of the intention of section 
1301(a)(1)(C)(ii) of the Affordable Care Act. HHS continues to work 
with OPM to align MSP requirements with QHP certification standards 
where applicable.
    Comment: Another commenter requested that determinations of silver/
gold standards be delegated to the States. An additional commenter 
requested that the rule be expanded to include bronze level plans.
    Response: We maintain that the intent of section 1301(a)(1)(C)(ii) 
of the Affordable Care Act was to require all QHP issuers in all States 
to meet the standard to offer silver and gold level plans in each 
service area they serve in the Exchange. We believe that requiring QHP 
issuers to offer QHPs at both the silver and gold levels of coverage 
will provide enough consumer choice without the need to require bronze 
level coverage under a similar standard. Therefore, we are finalizing 
with no additional modifications. Because this standard applies to 
QHPs, and because the Secretary was directed to establish criteria for 
certification of QHPs, it is appropriate for HHS to establish this 
requirement, and not to delegate the determination of the standard to 
the States.
    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 a greater than 20 percent share of 
the small group market in the State, based on earned premiums. We 
indicated in the preamble of the 2014 Payment Notice, in response to a 
commenter who suggested we reevaluate the policy in 2 years, that we 
would evaluate the effectiveness of the tying provision on an ongoing 
basis.
    HHS sought comment, based on feedback from stakeholders, on whether 
the policy at Sec.  156.200(g) is still necessary or appropriate in the 
FF-SHOPs. This provision does not apply in State-based Exchanges or 
State-based SHOPs, and we are not 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. Therefore, we requested comment on whether we should 
eliminate this policy for the FF-SHOPs, for plan years beginning on or 
after January 1, 2018.
    HHS recognizes that eliminating the SHOP participation provision 
could have the effect of reducing FF-SHOP issuer participation in 
States, and sought 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 
considered 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. In addition, we sought comment on how entities such as 
Web-brokers or third party administrators could help to facilitate 
enrollment in available SHOP QHPs. We sought 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.
    For the reasons expressed below, HHS is modifying the SHOP 
participation provision at Sec.  156.200(g) so that it is applicable 
only for plan years beginning before January 1, 2018; thus, the current 
participation requirement will not apply as an FFE certification 
standard for QHPs for plan years beginning on or after January 1, 2018. 
We will monitor the impact that this modification may have on employers 
seeking coverage through an FF-SHOP and on State small group markets in 
general, to assess whether additional adjustments need to be made 
moving forward. At this time, HHS is not making or finalizing any 
proposals to provide for new alternatives for enrollment through the 
FF-SHOPs. HHS may propose new alternatives for enrollment through the 
FF-SHOPs through future rulemaking.
    Comment: Many commenters supported removing the SHOP participation 
provision. One commenter supported removing this provision

[[Page 94145]]

because small employers have indicated a preference for enrolling in 
off-Exchange coverage. Commenters also stated that they believed that 
issuers should be allowed to participate in FF-SHOPs on a voluntary 
basis and that the FF-SHOPs should rely on an open and competitive 
model that attracts issuers and employers without requiring certain 
issuers to participate. Additionally, while FF-SHOP enrollment for 
certain issuers subject to the SHOP participation provision is low, the 
issuers are still required to pay user fees in addition to financing 
administrative and operational implementation costs to comply with HHS 
criteria. Another commenter supported the removal of the SHOP 
participation provision as a means to promote issuer participation in 
the individual market FFEs and provide more choices for consumers in 
individual market FFEs. Other commenters stated that the SHOP 
participation provision is misaligned with HHS's desire to treat all 
issuers consistently and uniformly and with the Exchanges' purpose as a 
market-driven program in which participation is voluntary.
    In contrast, other commenters were against our proposal to remove 
the SHOP participation provision and stated that they believe that this 
provision strengthens the FF-SHOPs. They stated that removing the 
provision would have severe impacts on FF-SHOP issuer participation and 
QHP availability in various States, and would hinder access to the 
Small Business Health Care tax credit under section 45R of the Code. 
Another commenter stated that eliminating the tying provision could 
hamper employers' ability to provide employee choice. A commenter 
stated that the current requirement is not an undue burden.
    Response: After careful reevaluation of the SHOP participation 
provision at current Sec.  156.200(g), we are amending the SHOP 
participation provision so that it applies as an FFE certification 
standard only for plan years beginning before January 1, 2018. We have 
considered the feedback provided by various stakeholders that issuer 
participation in a SHOP should be voluntary. While the provision was 
initially promulgated to promote issuer participation in the FF-SHOPs, 
we believe that issuers should be able to make decisions about whether 
to participate in an FF-SHOP that are independent of their decision to 
participate in an individual market FFE. We acknowledge that 
eliminating this requirement may affect issuer participation in the FF-
SHOPs, and thus may affect the availability of employee choice and 
access to the Small Business Health Care tax credit under section 45R 
of the Code; however, we believe that removing this requirement will 
encourage more issuers to participate more fully in the individual 
market FFEs, and we believe that increased participation will help to 
ensure that more participants in the individual market have access to 
financial assistance through Exchange plans. Therefore, we are amending 
Sec.  156.200(g) to make the provision no longer applicable for plan 
years beginning on or after January 1, 2018, in order to promote issuer 
participation in the individual market FFEs and provide more choices 
for consumers in individual market FFEs for plan years beginning on or 
after January 1, 2018. As stated above, we will monitor the impact that 
this modification may have on employers seeking coverage through the 
FF-SHOPs and on State small group markets in general, to assess whether 
additional adjustments need to be made moving forward.
    Comment: Some commenters were opposed to doing away with online 
enrollment in the FF-SHOPs. One commenter believed that replacing the 
online enrollment system with an alternative would undermine the FF-
SHOP program and reduce key benefits of choice, transparency and 
competition, purchasing power for employers, and simplicity. The 
commenter further believed the online FF-SHOP enrollment process 
enables employers to compare all plans impartially and was concerned 
that enrollment through a broker or issuer would not provide such 
impartiality. Another commenter recommended that the FF-SHOP enrollment 
process be streamlined through the development of broker resources. An 
additional commenter was concerned about removing premium aggregation 
services. The commenters believed that without a platform to facilitate 
multi-issuer employee choice, FF-SHOPs will suffer from even lower 
enrollment because they will have very little to distinguish themselves 
from the small group market outside the SHOPs. Another commenter was 
concerned about the transfer of Exchange functions to other entities, 
such as Web-brokers, and allowing these entities increased 
responsibilities that had been delegated to Exchanges under the 
Affordable Care Act and in regulation. This commenter also requested 
increased freedom for Exchanges to develop State-based approaches to 
SHOP sustainability and growth. We also received a comment opposing the 
elimination of the FF-SHOP enrollment Web site unless enhanced direct 
enrollment is in place through the Web sites of Web-brokers and 
issuers.
    We also received a comment that recommended that HHS formally seek 
stakeholder input to ensure that alternative enrollment approach 
proposals are workable to meet the needs of small employers. The 
commenters believed that any such approach should account for how small 
employers seek determinations of their SHOP eligibility and access the 
Small Business Health Care tax credit under section 45R of the Code.
    We also received several comments and proposed alternative 
solutions for FF-SHOP enrollment. These ideas included not only working 
with Web-based entities, but also with traditional agents, brokers, and 
general agents, working with third-party administrators and brokers 
(including Web-brokers), using an application programming interface or 
a reporting process to provide HHS with FF-SHOP application information 
to make eligibility determinations, relying on technology sites to 
support enrollment activities, pivoting to the private sector for FF-
SHOP operations, and maintaining employee choice. We also received 
comments that HHS should capitalize on lessons learned from Web-broker 
participation in the Individual Market Exchanges and that Web-brokers 
should only be required to display plans for which they have 
established relationships with issuers. Additionally, we received 
comments stating that some Web-based entities have been providing 
online enrollment capabilities, plan management, call center support, 
notification capabilities, automated premium payment functions, 
effectuation, and reconciliation capabilities to State-based SHOPs and 
are positioned to assist the FF-SHOPs. One commenter suggested not 
providing any additional regulation or oversight on how plans should be 
displayed or any additional requirements in addition to what is already 
codified in regulation. The commenter recommended that HHS remain 
involved in FF-SHOP functions required by statute and retain control 
over key data, consumer protections, and program integrity. The 
commenter also recommended that HHS allow vendors to support all 
remaining functions.
    Response: We thank commenters for their input, and will consider 
the suggestions provided. As mentioned above, at this time, HHS is not 
making or finalizing any proposals to provide for new alternatives for 
enrollment through the FF-SHOPs.

[[Page 94146]]

(2) Network Adequacy Standards (Sec.  156.230)
    In the 2017 Payment Notice, HHS finalized a policy to provide 
information about QHP network breadth on HealthCare.gov that will 
assist consumers with plan selection. For the 2017 plan year, HHS is 
piloting the network breadth indicator in four States on HealthCare.gov 
as an indicator of a QHP's relative network coverage.\64\ The results 
of this pilot will determine if HHS expands the pilot to additional 
States for the 2018 plan year and beyond. In the final 2017 Letter to 
Issuers in the Federally-facilitated Marketplaces, we described how the 
network breadth indicator is calculated. In the proposed rule, HHS 
proposed to incorporate more specificity into these indicators for the 
2018 plan year, and more specifically to assist consumers in 
identifying whether a particular plan is offered as part of an 
integrated delivery system. We noted that for integrated delivery 
systems, the breadth of the network for a plan as calculated through 
the network breadth methodology in the final 2017 Letter to Issuers in 
the Federally-facilitated Marketplaces may not accurately reflect the 
relative ability of a consumer to access providers compared to 
consumers enrolled in plans in the same county that are not part of an 
integrated delivery system. For plan year 2018, HHS proposed 
incorporating this specificity into the network information displayed 
in all States where network breadth is displayed. To define which plans 
use an integrated delivery system, HHS proposed to use the alternate 
essential community provider (ECP) standard in Sec.  156.235(b) and 
solicited comments on whether some plans, which should be categorized 
as within an integrated delivery system, would not meet this 
definition. We are finalizing this policy, with certain modifications 
described below.
---------------------------------------------------------------------------

    \64\ Updated CMS Bulletin on Network Breadth Information for 
Qualified Health Plans on HealthCare.gov. Sept. 30, 2016. Available 
at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/NA-Pilot-Final-Guidance-Clean-093016.pdf.
---------------------------------------------------------------------------

    Comment: Many commenters supported identifying QHPs that are part 
of an integrated delivery system. Additionally, many commenters 
requested that the identification be done in a way that consumers will 
understand. Some commenters did not support the idea of specifying 
which plans are offered as part of an integrated delivery system, 
because the commenters believe that it may be confusing to consumers. 
One commenter supported the use of the alternate ECP definition to 
define integrated delivery systems. However, many commenters believe 
that the definition lacked sufficient focus on coordination or 
accountability. Some commenters recommended expanding the indicators 
beyond integrated delivery systems to display when a QHP's network is 
significantly similar to the issuer's Medicaid network.
    Response: We agree that providing information to consumers about 
plans that are part of an integrated delivery system will be beneficial 
to consumers. We intend to make classifications as clear as possible 
with the intent of avoiding consumer confusion. We also understand 
commenters' concerns about using the alternate ECP standard for 
integrated delivery systems. We are finalizing the use of the alternate 
ECP standard in Sec.  156.235(b), but will also allow issuers that do 
not meet the alternate ECP standard to be classified as using an 
integrated delivery system if they are able to provide a justification 
for this classification. The criteria for this justification will be 
included in the 2018 Letter to Issuers in the Federally-facilitated 
Marketplaces.
    In the proposed rule, we reminded issuers that Sec.  156.230(e) 
takes effect in plan year 2018. This provision, finalized in the 2017 
Payment Notice, requires QHP issuers to count the cost sharing paid by 
the enrollee for an essential health benefit provided by an out-of-
network ancillary provider at an in-network setting towards the 
enrollee's in-network annual limitation on cost sharing for QHPs in 
certain circumstances. 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 QHP issuer could provide a written notice 
to the enrollee by the longer of when the issuer would typically 
respond to a prior authorization request timely submitted or by 48 
hours before the provision of the benefit. The written notice would 
notify the enrollee 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. HHS 
proposed that this policy apply to QHPs, both on and off Exchanges, 
regardless of whether the QHP covers out-of-network services, and 
sought comment on other policy changes that could limit ``surprise 
bills'' for consumers. We are finalizing our policy as proposed.
    Comment: Some commenters supported the proposal to apply Sec.  
156.230(e) to QHPs that do not cover out-of-network services. Other 
commenters opposed the expansion of the policy's application because of 
concerns that these QHPs were specifically designed not to cover out-
of-network services. Commenters had further concerns that costs and 
premiums will be increased from the expansion of this policy to other 
types of plans. Additionally, a commenter requested clarification 
regarding the cost sharing for these plans. Some commenters also 
supported applying the policy both on and off the Exchanges while other 
commenters opposed its application off the Exchanges. Other commenters 
expressed opposition to Sec.  156.230(e) as the commenters believe the 
policy does not encourage providers to contract with issuers and allows 
providers to charge unlimited rates. Certain commenters also suggested 
alternative options, such as requiring the issuer to demonstrate its 
attempts to contract with the ancillary provider or specifying that the 
issuer not be held liable for failure of timely notice if the issuer is 
not made aware of potential out-of-network charges. Other commenters 
requested more specificity on the scope of the application of the 
policy, such as defining the list of ancillary services that this 
policy would apply to or limiting the regulation to facilities instead 
of settings.
    Commenters were also concerned that the 48-hour timeframe was 
infeasible, given that every service does not require prior 
authorization and therefore, the issuer may not have the opportunity to 
send the notice. Several commenters wanted a requirement for issuers to 
count the cost sharing towards the annual limitation on cost sharing 
even when notice is given (or otherwise hold the enrollee harmless). 
Some commenters also wanted more specificity in the notices so that 
they can better assist the enrollees and wanted to ensure that the 
policy did not replace requiring an adequate network. Certain 
commenters wanted emergency services to apply and other commenters did 
not want emergency services to apply. One commenter requested for a 
safe harbor from Sec.  156.230 for plans that experience a substantial 
increase in enrollment.
    Response: We are finalizing our proposal to apply Sec.  156.230(e) 
to QHPs

[[Page 94147]]

regardless of whether the QHP covers out-of-network services and we are 
reaffirming that this policy applies to all QHPs, although this policy 
is not intended to, and does not, preempt any State law on this topic. 
Applying this policy to all QHPs provides a level playing field for all 
QHPs, and ensures that all QHP enrollees will be given this protection. 
As discussed in the 2017 Payment Notice, while this policy is not a 
full solution to the adverse financial consequences of inadvertently 
receiving treatment from an out-of-network provider, we believe this 
policy will increase transparency and ensure that consumers receive 
notice of the possible consequences of using an out-of-network 
ancillary provider. We also believe that this policy, when proper, 
timely notice is not provided by the issuer, will provide some 
mitigation of these consequences. We intend to continue to monitor 
these situations, including issuers' timely compliance with this 
provision, to consider whether further rulemaking is needed. As for the 
cost sharing for plans that do not cover out of network services, if 
timely notice is not provided, issuers must count the in-network charge 
for the EHB service provided by an out-of-network ancillary provider at 
an in-network setting towards the in-network annual limitation on cost 
sharing for the QHP, with any other charge assessed by the out-of-
network ancillary provider treated as balance billing.
    Comment: Commenters submitted a variety of comments on other policy 
changes that could limit consumer ``surprise billing.'' Suggestions 
from commenters included increased transparency on plans' out-of-
network coverage, a more targeted focus on enrollee education, 
requiring similar provisions to the NAIC model act requirements \65\ 
(including facility notices and a provider and issuer remediation 
process), limiting the amount out-of-network providers can charge for 
services, banning balance billing, focusing efforts at a State level to 
address the unique conditions of the different markets, requiring 
providers to disclose all charges before the service, and having HHS 
exercise its Medicare conditions of participation authority to ensure 
hospitals have available physicians in each specialty who contract with 
the same health plans as the hospital. Some commenters also recommended 
considering certain State laws or incorporating hospital networks and 
providers into the solution. Many commenters submitted comments about 
other network adequacy issues beyond the scope of the proposed rule.
---------------------------------------------------------------------------

    \65\ Health Benefit Plan Network Access and Adequacy Model Act. 
Available at http://www.naic.org/store/free/MDL-74.pdf.
---------------------------------------------------------------------------

    Response: We will take these comments into consideration as we 
continue to address the complex issue of surprise billing of consumers 
for out-of-network providers at in-network settings.
(3) 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. However, in the proposed rule, we proposed to continue 
the 2017 benefit year ECP calculation methodology for the 2018 QHP 
certification cycle--that is, a methodology that would count multiple 
providers at a single location 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. We similarly proposed to continue 
the 2017 benefit year calculation methodology for certain plans seeking 
to demonstrate 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 level satisfies a minimum percentage of available ECPs 
in the plan's service area. We stated that HHS is conducting 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 sought comment on 
these proposals. We also sought comment on the best approach for 
measuring hospital ECP participation in a health plan's provider 
network for the 2019 benefit year.
    We are finalizing these provisions as proposed.
    Comment: Many commenters, including providers, provider 
associations, consumer advocacy groups, and health insurance issuers 
strongly supported our proposal to continue counting multiple providers 
at a single location as a single ECP toward the 30 percent ECP 
standard. Some of these commenters opposed reliance on FTE 
practitioners in future years, stating that issuers do not keep track 
of FTEs, the number of FTEs at each location is too fluid to serve as a 
reliable measure of an issuer's satisfaction of the ECP standard, and 
that practitioner credentialing variances at each facility further 
complicates the validity of using FTEs as a proxy for access to care 
for Exchange enrollees. Some commenters stated that reliance on FTEs 
alone might not ensure geographic distribution of ECPs and an adequate 
range of health care services provided by ECPs. These commenters 
recommended that HHS conduct an impact analysis on consumer access 
prior to implementing an FTE practitioner methodology.
    In contrast, several consumer advocacy groups, an alliance of 
health insurance plans, and one State opposed our proposal to continue 
counting multiple providers at a single location as a single ECP toward 
the 30 percent ECP standard. These commenters urged HHS to calculate an 
issuer's satisfaction of the 30 percent ECP standard based on counting 
multiple contracted FTE practitioners at a single location as multiple 
ECPs, stating that the wide variability in the number of available 
practitioners at each ECP facility supports this methodology for more 
accurately measuring consumer access to ECPs. These commenters 
recommended that HHS not rely solely on issuer satisfaction of the 30 
percent ECP threshold to ensure adequate access to care for low-income 
medically underserved individuals. They recommended that HHS continue 
to recognize the importance of the geographic distribution and range of 
health care services provided by ECPs.
    Two commenters opposed HHS's proposal to continue the 2017 benefit 
year ECP calculation methodology, as well as an FTE practitioner 
counting methodology for calculating an issuer's satisfaction of the 30 
percent ECP standard. Instead, these commenters recommended that HHS 
work with issuers to identify an appropriate counting methodology.
    Response: We are finalizing our proposal to continue the 2017 
benefit year ECP calculation methodology for general ECP standard 
issuers described in Sec.  156.235(a)(2)(i) and alternate ECP standard 
issuers described in Sec.  156.235(b)(2)(i). Continuing the 2017 
benefit year ECP calculation methodology will allow HHS to continue 
collecting provider data necessary to consider alternative calculation 
methodologies. We remain committed to partnering with stakeholders to 
identify an appropriate counting methodology.
    Comment: In response to our solicitation for best approaches for

[[Page 94148]]

measuring hospital ECP participation in a health plan's provider 
network for the 2019 benefit year, two commenters recommended the 
counting of hospital beds as an accurate and appropriate measure of a 
health plan's provider network capacity to provide hospital ECP access 
to consumers. These commenters cautioned, however, that bed counts 
alone do not fully assess a hospital's capacity to provide certain 
services, especially children's special need services. These commenters 
suggested that HHS consider a combination of bed counts with analysis 
of a hospital's core set of service lines to ensure that the hospital 
has the expertise to provide the care needed by vulnerable populations. 
One commenter recommended that HHS continue to use bed count data 
collected from the Children's Hospital Association Annual Benchmark 
Report (ABR) and the American Hospital Association Annual Survey, when 
available, and allow hospitals to verify those counts through the 
online ECP petition.
    In contrast, one commenter expressed concern that hospital bed 
counts may not be a reliable measure, stating that health plans do not 
track bed counts and they do not factor into provider contracting or 
health plan operations. Another commenter recommended that HHS continue 
to count hospital ECPs as one entity, rather than counting 
practitioners who provide services within the hospital but may not all 
participate in a health plan's network.
    Finally, one commenter recommended that HHS remove children's 
hospitals and freestanding cancer centers from the definition of an 
ECP, noting that they are both already accounted for in network 
adequacy requirements. The commenter expressed concern that their 
inclusion has had the unintended consequence of vesting in these 
providers undue influence in their negotiations with QHPs, rather than 
enhancing the safety net. The commenter stated that, in contrast, 
critical access hospitals, rural referral centers, disproportionate 
share hospitals (DSH) and DSH-eligible hospitals, and sole community 
hospitals might be overlooked in the formation of a network if not for 
the ECP requirement, as there is no other mechanism to ensure their 
inclusion in a payer's network. Several commenters urged that HHS 
require QHP issuers to contract with any willing provider, rather than 
only 30 percent of the available ECPs in a plan's service area. Some of 
these commenters suggested that HHS require that QHP issuers offer good 
faith contracts to all willing providers in specific ECP categories 
(that is, FQHCs, Ryan White providers, hemophilia treatment centers, 
and children's hospitals) in the plan's service area. We also received 
several additional comments on topics specific to disaggregation of 
certain ECP categories, clarifications to the definition of an ECP, and 
additional regulatory recommendations pertaining to family planning 
providers.
    Response: We appreciate suggestions on the best approach for 
measuring hospital ECP participation in a health plan's provider 
network for the 2019 benefit year. As we continue to collect provider 
data necessary to consider alternative approaches for measuring 
hospital ECP participation in a health plan's provider network, we 
remain committed to partnering with stakeholders to identify and 
analyze such alternative approaches.
(4) Enrollment Process for Qualified Individuals (Sec.  156.265)
    We proposed an amendment to Sec.  156.265 requiring differential 
display of standardized options. A discussion of the provision is 
contained in the preamble discussion regarding Sec.  155.220, which 
concerns standards for agents and brokers using the direct enrollment 
process.
(5) Issuer Participation for the Full Plan Year (Sec.  156.272)
    We proposed adding Sec.  156.272 to provide, as a condition of 
certification, that QHP issuers in all individual market Exchanges 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 proposed 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.
    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) or (b) could be subject to civil money penalties 
(CMPs). (Issuers would not be subject to CMPs if a basis for 
suppression under Sec.  156.815 applies.) We also proposed at Sec.  
156.272(c) that if an issuer fails to comply with Sec.  156.272(a) or 
Sec.  156.272(b), HHS could, at its discretion, preclude that issuer 
from participating in the FFEs and FF-SHOPs, for up to the two 
succeeding plan years. We sought comments on this proposal, including 
on the applicability of this section to all Exchanges and the potential 
use of CMPs for QHP issuers in the FFEs and FF-SHOPs. We are finalizing 
the provision as proposed.
    Comment: We received several comments in support of the proposal. A 
few commenters opposed applying the proposal to the individual market 
Exchanges, SHOPs, or both. These commenters suggested that the States 
should maintain authority over the participation requirements of QHPs 
and that there should be exceptions when issuers face financial 
capacity constraints.
    Response: We are finalizing the provision as proposed. While States 
maintain primary regulatory authority over issuers' market 
participation, this requirement ensures that consumers enrolling in the 
individual market Exchanges during limited open enrollment periods have 
the same plan choice as those enrolling during open enrollment, and 
that qualified employers and qualified employees have generally 
consistent plan choices throughout the plan year. Consistent with Sec.  
155.1000(d), in a SHOP that certifies QHPs on a calendar-year basis, we 
interpret Sec.  156.272(b) to require issuers to make a SHOP QHP 
available for enrollment through the SHOP for the duration of any 
employer's plan year that began in the calendar year for which the QHP 
was certified, even if the plan year ends after the calendar year for 
which the QHP was certified.
    We note that the regulation contains an exception to the obligation 
to make a QHP available through the Exchange or SHOP (as applicable) 
for the full plan year for which it was certified if a basis for 
suppression applies under Sec.  156.815. One of these bases relates to 
financial capacity limits under Sec.  147.104(d)(1). To operationalize 
such a suppression, an FFE would accept a reasonable request on these 
grounds from the applicable State regulatory authority. A plan subject 
to such a suppression would be prohibited from offering coverage in the 
applicable market for a period of 180 days from when it denied coverage 
under the financial capacity limit, under Sec.  147.104(d)(2).
(6) Non-Certification and Decertification of QHPs (Sec.  156.290)
    Currently, under Sec.  156.290(b), when a QHP issuer elects not to 
seek certification from the Exchange for a subsequent, consecutive 
certification cycle, that QHP issuer is required to provide 
notification to enrollees. However, a QHP issuer is not required to 
provide notification to enrollees when it is denied certification for a 
subsequent, consecutive certification cycle by the Exchange. HHS 
proposed to require that issuers denied QHP

[[Page 94149]]

certification provide notice to enrollees within 30 days of the date of 
an Exchange's denial of certification for a subsequent, consecutive 
certification cycle. HHS also proposed 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 sought comment on each of these 
proposals. We are finalizing the proposal with a modification that 
accounts for the discontinuation notices required under Sec.  147.106.
    Comment: Several commenters supported our proposal. Other 
commenters suggested HHS not impose a new notice requirement. Instead 
these commenters suggested that HHS rely on notices issuers are already 
obligated to send to inform enrollees of renewals and product 
discontinuances under Sec.  147.106. Some commenters responded that a 
new notice may be duplicative or confusing for consumers.
    Response: We are finalizing the requirement with a modification to 
specify that the form and manner of the notices required under this 
provision will be the same as the form and manner for the 
discontinuation notices required under Sec.  147.106. Under the final 
Sec.  156.290(b), both issuers that do not seek certification for a 
subsequent, consecutive certification cycle and those that seek and are 
denied such certification are required to notify enrollees. They are 
required to do so in the manner specified by the Secretary under Sec.  
147.106. On September 2, 2016, we published a Bulletin with updated 
Federal standard renewal and product discontinuation notices, which 
specify the form and manner for the notices required under these 
sections.
(7) Other Considerations
    Increasingly, the Exchanges serve as laboratories for innovations 
through which QHPs develop new ways to provide quality, cost-effective 
health care coverage 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 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. We continue to 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. In the proposed 
rule, we sought 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. We note 
that our past solicitations for means of facilitating innovation have 
prompted questions about whether an individual market plan is permitted 
to offer a wellness program. We are confirming that a plan is permitted 
to offer a participatory wellness program in the individual market 
provided that such a program is consistent with applicable State law 
and available to all similarly situated individuals enrolled in the 
individual health insurance coverage. As we explained in the preamble 
to the final regulations under section 2705(j) of the PHS Act \66\ and 
as reflected in the definition at Sec.  146.121(f)(1)(ii), a 
participatory wellness program is a program that does not condition a 
reward on an individual satisfying a standard related to a health 
factor or that does not provide a reward.
---------------------------------------------------------------------------

    \66\ See 78 FR 33157 (June 3, 2013).
---------------------------------------------------------------------------

    Comment: A majority of commenters supported our efforts to drive 
innovation in a variety of areas including benefit design, plan 
offerings, care coordination, consumer education and support tools, and 
technology infrastructure. Several commenters expressed support for 
continuing efforts related to patient-centered, high-value, coordinated 
care. The commenters suggested that HHS ensure that the Affordable Care 
Act's core consumer protections and coverage improvements be preserved, 
and one encouraged that HHS go farther to encourage use of preventive 
services. A few commenters requested that HHS ensure that further 
flexibility for plans does not produce policies that impede access for 
individuals with high-cost, chronic conditions or rare conditions. They 
also requested that we require that innovative benefit designs include 
predictable, simple appeals processes so that individuals can access 
needed treatments and services. A few commenters made suggestions about 
coordinated care noting the importance of community health and ensuring 
sufficient and sustainable support for providers.
    We received a few comments requesting that we require QHP issuers 
to accept charitable premium assistance on behalf of members. These 
commenters requested that we clarify the role of nonprofits, hospitals, 
hospital-affiliated foundations and other charitable organizations, in 
making third-party premium payments. One commenter commended HHS for 
not proposing to change current rules regarding when a QHP issuer must 
accept third-party payments from private grantees.
    We also received comments requesting that we dedicate more Federal 
resources toward both general and targeted outreach to increase the 
number of insured and improve the insurance market risk pools. 
Specifically, one commenter noted the importance of attracting and 
enrolling middle income enrollees and another commenter noted the 
importance of attracting younger, healthier enrollees.
    A number of commenters encouraged HHS to continue developing 
additional consumer tools that provide consumers with information that 
enables them to choose health plans based on the quality and 
effectiveness of care they will receive. We also received comments 
requesting that we develop and promote quality initiatives or programs 
that focus on clinical improvement, on the unique needs of children, 
and on women of reproductive age.
    One commenter requested that we build the technical infrastructure 
for a single-streamlined application and the ability to screen for 
eligibility for Medicaid family planning-only coverage. Another 
commenter encouraged HHS to explore options that would provide 
Exchanges flexibility to offer products such as vision insurance, 
disability, and other products that small businesses want as part of 
their full benefits package, as well as products that are hard to 
access in the individual market compared to the group market.
    Commenters encouraged HHS to work with States to permit innovative 
State-level solutions, including oversight of and consistency of rate 
review. One commenter encouraged us to combine coverage expansion with 
quality improvement and delivery system reform by working through a 
multi-stakeholder process including working with purchasers, health 
plans, providers and consumer advocates to develop a robust set of 
initiative. One commenter discouraged us from interfering in private 
markets for insurance.
    A few commenters suggested that we work on stabilizing the risk 
pool,

[[Page 94150]]

explore options for extending the reinsurance program, and ensure the 
viability of the individual market. They requested that we work with 
Congress to ensure sufficient risk corridor funds are available and are 
paid to make issuers whole.
    Two commenters requested that we make changes to policies 
surrounding pharmacy benefits and prescription drugs. One commenter 
requested that restrictions on use of mail-service pharmacy offerings 
should be made less restrictive to facilitate more mail order usage, 
encouraged HHS to revisit its decision to impose dual standards on 
formulary development, and requested that we assess whether we can 
waive (or allow States to waive) the Medicaid best price rebate program 
requirement in the Exchange. Another commenter requested that we 
revisit the regulation related to external review of pharmacy exception 
requests (Sec.  156.122(c)(3)(ii)) and noted their concern with 
adherence to external review timeliness standards by issuers.
    Response: We appreciate these comments and will take them under 
consideration.
d. 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 proposed to add new paragraph Sec.  155.200(f)(4), we also proposed 
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). Under our proposal, issuers in 
States operating an SBE-FP that uses the Federal platform for SHOP 
enrollment functions would be required to follow the process applicable 
in the FF-SHOPs, as described in Sec.  156.285(c)(5). We are finalizing 
this amendment and as noted in the proposed rule, this amendment will 
become effective with the effective date of the final rule.
    For a discussion of the addition of Sec.  156.350(a)(4) in this 
final rule, please see the preamble to Sec.  155.400.
e. Reconciliation of the Cost-Sharing Reduction Portion of Advance 
Payments Discrepancies and Appeals (Sec.  156.430(h))
    As implemented in the regulations at Sec.  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. 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.\67\
---------------------------------------------------------------------------

    \67\ On June 23, 2016 HHS 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.
---------------------------------------------------------------------------

    We proposed and are finalizing the addition of 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 are also finalizing our proposal to codify Sec.  156.430(h)(2), 
which provides 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, where a discrepancy is identifiable, 
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(h)(1), 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. In light of the comments received, we are amending Sec.  
156.1220(a)(3)(v) to provide that issuers may request reconsideration 
for reconciliation of cost-sharing reductions, within 60 calendar days 
of the date of the discrepancy resolution decision.
    Comment: Several commenters supported the discrepancy reporting 
process; however some commenters requested that HHS provide more than 
30 calendar days to file a discrepancy report.
    Response: HHS believes 30 calendar days is adequate time to file a 
discrepancy. The process will be similar to the first year of 
reconciliation for 2014 and 2015 benefit year cost-sharing reductions, 
when issuers were able to file discrepancies in a timely manner and HHS 
worked with issuers to resolve data issues. However, in light of the 
comments received, we are amending Sec.  156.1220(a)(3)(v) to provide 
that

[[Page 94151]]

issuers may request reconsideration for reconciliation of the cost-
sharing reduction portion of advance payments, within 60 calendar days 
of the date of the cost-sharing reduction reconciliation discrepancy 
resolution decision.
f. Compliance Reviews of QHP Issuers in Federally-Facilitated Exchanges 
(Sec.  156.715)
    In Sec.  156.715, HHS established that QHP issuers are subject to 
compliance reviews in order to ensure ongoing compliance with Exchange 
requirements and standards. In Sec.  156.715(b), HHS requires QHP 
issuers to make records that pertain to their activities on an FFE 
available to HHS. 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 has 
resulted in unnecessary delays of the compliance reviews. In the 
proposed rule, HHS proposed 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. We are finalizing 
the amendments as proposed.
    Comments: Several commenters fully supported the proposal to 
require QHP issuers to be responsive to compliance reviews. Other 
commenters did not support the proposal. However, all commenters who 
were opposed indicated that additional clarification to define ``non-
responsiveness'' would alleviate their concerns.
    Response: We are finalizing the amendments as proposed. We further 
clarify that examples of non-responsive or uncooperative QHP issuer 
behavior could be the failure to submit requested documentation on 
time, or repeated delays in submitting documentation. We expect QHP 
issuers to respond to documentation request timelines that are 
articulated in compliance review materials.
g. Qualified Health Plan Issuer Responsibilities
(1) Administrative Appeals (Sec.  156.1220)
    As discussed in the preamble to Sec.  153.630 above, we are adding 
paragraphs (a)(1)(vii) and (viii) to Sec.  156.1220, providing an 
administrative appeal 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.
    Because risk adjustment payments and charges for the 2015 benefit 
year will not be adjusted for results of the risk adjustment data 
validation process, we do not believe an administrative appeal right 
for risk adjustment data validation results is necessary for the 2015 
benefit year. Therefore, we proposed that the first year of risk 
adjustment data validation appeals would be the 2016 benefit year, 
which is the first year that risk adjustment data validation will 
affect the amount of risk adjustment payments and charges. We received 
no comments on this proposal, and are finalizing the provision to limit 
the new Sec.  156.1220(a)(1)(vii) and (viii) finalized above 
(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 are finalizing 
our proposal 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 finalize our proposed amendment to 
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.
    Also as discussed in the preamble to Sec. Sec.  153.630 and 
156.430(h), we proposed requiring issuers to report discrepancies 
related to risk adjustment data validation and discrepancies related to 
the reconciliation of the cost-sharing reduction portion of advance 
payments, if the issue is identifiable, prior to filing a request for 
reconsideration under Sec.  156.1220. In light of comments received, we 
are finalizing our proposal to 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.
    Additionally, in light of comments received to Sec.  156.430(h)--
the reconciliation of the cost-sharing reduction portion of advance 
payments discrepancies and appeals--we are amending Sec.  
156.1220(a)(3)(v) to clarify that issuers may request reconsideration 
for reconciliation of cost-sharing reductions, within 60 calendar days 
of the date of the cost-sharing reduction reconciliation discrepancy 
resolution decision. In light of experience from the 2014 and 2015 
benefit year reconciliation of the cost-sharing reduction portion of 
the advance payments process, HHS believes that resolution of 
discrepancies may resolve many, if not all issues an issuer may appeal. 
HHS believes that finalizing an appeal window which begins once issuers 
receive a discrepancy resolution decision from HHS will provide an 
informal opportunity for the issuer and HHS to resolve any issues and 
will result in reduced burden on issuers to file appeals. For clarity, 
we provide the following example. On June 30, 2018, an issuer receives 
the notification of the amount of reconciliation of the cost-sharing 
reduction portion of advance payments as described in Sec.  156.430(e). 
Under Sec.  156.430(h), within 30 calendar days of receiving this 
notification, the issuer files a discrepancy, in this example, on July 
30, 2018. If applicable, the issuer submits additional or corrected 
data in response to HHS validations. On August 30, 2018, HHS notifies 
the issuer of the discrepancy resolution decision. The issuer will then 
have 60 calendar days to request reconsideration of the discrepancy 
resolution decision, that is, by October 30, 2018. Therefore, we are 
amending Sec.  156.1220(a)(3)(v) to clarify that issuers may request 
reconsideration for reconciliation of cost-sharing reductions within 60 
calendar days of the date of the cost-sharing reduction reconciliation 
discrepancy resolution decision, effective beginning with the 2016

[[Page 94152]]

benefit year cost-sharing reduction reconciliation cycle.
    Comment: Numerous commenters supported our proposed amendment to 
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. Some commenters 
requested that HHS allow issuers to appeal the resolution of interim 
discrepancies related to the risk adjustment data validation initial 
audit sample provided by HHS under Sec.  153.630(b)(1).
    Response: HHS is finalizing the provisions as proposed. The initial 
validation audit entity is under contract with the issuer and HHS does 
not produce the initial validation audit results. Additionally, we 
believe that providing an interim discrepancy reporting process 
prevents the initial validation audit and subsequent second validation 
audit from being performed on an inaccurate sample of enrollees, 
thereby ensuring that the second validation audit can occur based on a 
valid and accurate initial validation audit sample. This allows issuers 
to identify any issues with the initial validation audit sample while 
those issues can still be addressed, rather than allowing an inaccurate 
sample of enrollees to permeate the initial validation audit, the 
second validation audit, and the calculation of error rates. Therefore, 
to ensure HHS can meet the June 30th requirement to report benefit year 
risk adjustment transfer amounts, including payment adjustments 
reflecting risk adjustment data validation error rates, we believe that 
it is more 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.
    Comment: One commenter requested that HHS permit issuers 
potentially impacted by risk adjustment appeals to resubmit risk 
corridors and MLR forms and issue MLR rebates after the resubmission 
period closes.
    Response: HHS provided direction on this issue in Sec.  
153.710(g)(2), which provides that an issuer must report during the 
current MLR and risk corridors reporting year any adjustment made or 
approved by HHS for any risk adjustment payment or charge, including an 
assessment of risk adjustment user fees; any reinsurance payment; any 
cost-sharing reduction payment or charge; or any risk corridors payment 
or charge before August 15, or the next applicable business day, of the 
current MLR and risk corridors reporting year, unless instructed 
otherwise by HHS. An issuer must report any adjustment made or approved 
by HHS for any risk adjustment payment or charge, including an 
assessment of risk adjustment user fees; any reinsurance payment; any 
cost-sharing reduction payment or charge; or any risk corridors payment 
or charge where such adjustment has not been accounted for in a prior 
MLR and Risk Corridor Annual Reporting Form, in the MLR and Risk 
Corridors Annual Reporting Form for the following reporting year.
(2) Direct Enrollment With the QHP Issuer in a Manner Considered To Be 
Through the Exchange (Sec.  156.1230)
    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 proposed 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 FFE. Specifically, in Sec.  156.1230, we proposed 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 provisions is contained in the preamble discussion 
regarding Sec.  155.220.
(3) 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 proposed 
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 proposed to make 
some minor non-substantive changes to the regulation text. We sought 
comments on this proposal.
    We are finalizing this change as proposed.
    Comment: One commenter expressed support for aligning the noticing 
requirement at Sec.  156.1256 with the proposed special enrollment 
period for material plan or benefit display errors at Sec.  
155.420(d)(12) to provide clarity to stakeholders about this noticing 
requirement. One commenter requested that this noticing requirement be 
extended to State-based Exchanges and that it be extended to include 
errors on the Web site, in marketing materials, or in other information 
provided by an issuer, a direct enrollment entity, or an agent or 
broker.
    Response: While we agree that clear and timely notification by an 
issuer of a material plan or benefit display error and the availability 
of a special enrollment period is most beneficial to an enrollee, we 
defer to States that operate State-based Exchanges, other than SBE-FP, 
to determine the appropriate timing and content of such requirements 
for issuers participating on their Exchanges. Similarly, while we 
recognize that incorrect QHP information, regardless of source, can be 
confusing to consumers, this noticing requirement is limited to those 
material plan or benefit display errors that may qualify an individual 
for a special enrollment period, as described at Sec.  155.420(d)(12).
10. 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. We are finalizing 
the proposal with modifications. For the reasons discussed in the 
preamble discussion of Sec.  155.725(g), we are finalizing the proposed 
amendments at Sec.  155.725(g) so that they generally do not apply to 
State-based Exchanges that are not using the Federal platform for SHOP 
functions. We are therefore modifying our proposed amendments to Sec.  
157.205 so that they generally apply only in FF-SHOPs and in SBE-FPs 
utilizing the Federal platform for SHOP functions. We are also 
modifying the proposed rule text for consistency with our position 
regarding when a newly qualified employee becomes otherwise eligible 
for coverage within the meaning of Sec.  147.116, which is discussed 
further

[[Page 94153]]

above in the preamble to Sec.  155.725(g). Additionally, in this final 
rule we are making a conforming amendment to Sec.  157.205(e)(1) to 
reflect the amendments made at Sec.  155.725(g).
11. Part 158--Issuer Use of Premium Revenue: Reporting and Rebate 
Requirements
a. Newer Experience (Sec.  158.121)
(1) Deferred Reporting of Newer Business
    The MLR December 1, 2010 interim final rule (75 FR 74863) adopted 
45 CFR 158.121 to allow 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. This flexibility is intended to take into consideration the 
special circumstances of newer plans, consistent with section 2718 (c) 
of the PHS Act. 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 now than it did prior to 
introduction of the Affordable Care Act market reforms), and could 
create a barrier to the entry of new issuers into a market. To align 
MLR reporting with the 2014 market reform requirement that non-
grandfathered coverage generally must provide coverage for a 
consecutive 12-month period (see definitions of ``plan year'' and 
``policy year'' in Sec.  144.103), in the proposed rule we proposed 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 only policies with less than 12 months of 
experience. We are finalizing this provision as proposed.
    Comment: Most commenters supported our proposal. Several commenters 
stated that the option to defer MLR reporting for a full 12 months will 
encourage new issuers to enter the market and allow issuers to gather 
data in order to make sound actuarial calculations. Many commenters who 
expressed support for the proposal recommended that HHS take action to 
recognize the special circumstances of newer plans and mitigate the 
impact of the MLR on growth, competition, and innovation. However, some 
commenters cautioned HHS to ensure that modifications to the MLR 
regulations preserve the MLR's objective of protecting consumers and 
providing transparency in public reporting. One commenter also 
requested clarification regarding the definitions of ``total earned 
premium'' and ``newly issued policies with 12 full months of 
experience'' as used in this section.
    Response: We agree with those commenters that suggested that the 
amendment will encourage new issuers to enter the market. We also 
recognize the importance of ensuring that modifications to the MLR 
regulations do not erode consumer protections promised by the law, and 
we will continue to monitor issuers' usage of this provision closely 
and its impact on consumers. We intend to clarify the definition of 
``newly issued policies'' used in this section when we update the MLR 
Annual Reporting Form Instructions for the future reporting years; we 
believe that ``earned premium'' is adequately defined in Sec.  158.130. 
We are finalizing this proposal. Consistent with the comments received 
that recommended that HHS mitigate the impact of the MLR on newer 
plans, as well as to align with the accompanying option to limit rebate 
liability for new and rapidly growing issuers (discussed below), this 
amendment will be implemented for the 2016 MLR reporting year.
b. Rebating Premium if the Applicable Medical Loss Ratio Standard Is 
Not Met (Sec. Sec.  158.232, 158.240)
(1) 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 are only able to calculate 
their first two MLRs based on 1 or 2 years of experience, which can 
lead to distorted MLR calculations and could be a barrier to the entry 
of new issuers into a market.
    In the proposed rule, we proposed to amend Sec. Sec.  158.232 and 
158.240 to mitigate the impact of 3-year averaging on new and rapidly 
growing issuers and thereby reduce barriers to entry and promote 
competition in health insurance markets. This flexibility is intended 
to take into consideration the special circumstances of smaller and 
newer plans, consistent with section 2718(c) of the PHS Act. Under our 
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 additionally proposed 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, as well as to reflect the credibility adjustment 
applicable in each of those 2 subsequent reporting years.
    We further proposed that for an issuer that elects this option, 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), starting with the earliest 
year in the relevant aggregation. Finally, we proposed that the actual 
rebate payable by the issuer for a given reporting year would be 
limited to the lesser of the amount of the combined outstanding rebate 
liability for all calendar years included in the aggregation or the 
amount calculated for the reporting year based on a multi-year average 
MLR. By design, our proposal would operate such that it would only 
benefit new issuers and established issuers that experience rapid 
growth and whose MLR falls below the standard in 1 year and increases 
within the following 2 years.
    We further proposed to make the use of the rebate liability limit 
optional for issuers, as well as to clarify Sec.  158.232 by defining 
the term ``preliminary MLR'' to refer to an MLR calculated without 
applying any credibility adjustment, and to explicitly specify 
instances where Sec.  158.232 was intended to refer to experience of a 
single year, rather than 3 years.
    We are finalizing these provisions as proposed.
    Comment: Most comments received on this topic supported our 
proposal. Several commenters suggested that HHS implement this 
modification for the 2016 MLR reporting year. Several commenters 
suggested that HHS provide clarification by: (1) Providing an example 
on how the process will work for an issuer that is not a start-up; and 
(2) discussing the methodology for the

[[Page 94154]]

two subsequent reporting years after the rebate limiting option is 
applied. Again, some commenters cautioned HHS to ensure that 
modifications to the MLR regulations preserve the MLR's objective of 
protecting consumers, and one commenter suggested that HHS impose 
limits on the proposed provision in order to prevent gaming.
    Response: We are finalizing this provision as proposed. We agree 
with those commenters that suggested that the modification should be 
implemented for the 2016 MLR reporting year. Additionally, we agree 
that it is important to ensure that modifications to the MLR 
regulations do not result in a loss of value to consumers. However, we 
note that the option to limit the rebate liability generally does not 
reduce rebates to consumers below the required value, but rather only 
limits it in a given calendar year in order to recognize the special 
circumstances of newer and smaller issuers by ensuring the equitable 
treatment of new or growing issuers. We also note that this option by 
design can benefit issuers only when they are disproportionately 
impacted by the 3-year averaging. For the same reason, this option will 
benefit such issuers proportionately to the size of their experience in 
the relevant State and market in each of the years included in the 
aggregation. For established issuers that do not experience rapid 
growth, 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; 
thereby making this option unattractive. We offered a simplified 
illustration in the proposed rule (81 FR 61517) and intend to publish 
on our Web site an updated MLR Calculator and Formula Tool in the near 
future that will enable users to evaluate the impact of this provision 
under various circumstances, and illustrate the application of rebate 
payments made in prior years against the maximum rebate liability of 
each year.

III. Amendments to Special Enrollment Periods and the Consumer Operated 
and Oriented Plan Program

A. Background

1. 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 final rule, we refer to the two 
statutes collectively as the Affordable Care Act.
    Subtitles A and C of title I of the Affordable Care Act 
reorganized, amended, and added to the provisions of part A of title 
XXVII of the Public Health Service Act (PHS Act) relating to group 
health plans and health insurance issuers in the group and individual 
markets.
    Section 1311(c)(6)(C) of the Affordable Care Act directs the 
Secretary of HHS to require an Exchange to provide for special 
enrollment periods specified in section 9801 of the Code and other 
special enrollment periods under circumstances similar to such periods 
under part D of title XVIII of the Act.
    Section 1322 of the Affordable Care Act directs the Secretary to 
establish the CO-OP program to foster the creation of consumer-
governed, private non-profit health insurance issuers to offer QHPs in 
the individual and small group markets in the States in which they are 
licensed. The CO-OP program, in addition to improving consumer choice 
and plan accountability, also seeks to promote integrated models of 
care and enhance competition in the Exchanges. Section 1322 establishes 
eligibility standards for the CO-OP program and terms for loans, and 
provides basic standards that organizations must meet to participate in 
this program and become a CO-OP, including market participation and 
governance requirements.
a. Special Enrollment Periods
    In the July 15, 2011 Federal Register (76 FR 41865), we published a 
proposed rule establishing special enrollment periods for the 
individual Health Insurance Exchange. We implemented these special 
enrollment periods in a final rule published in the March 27, 2012 
Federal Register (77 FR 18309) (Exchange Establishment Rule). In the 
January 22, 2013 Federal Register (78 FR 4594), we published a proposed 
rule amending certain special enrollment periods, including the special 
enrollment periods described in Sec.  155.420(d)(3) and (7). We 
finalized these rules in the July 15, 2013 Federal Register (78 FR 
42321).
    In the June 19, 2013 Federal Register (78 FR 37032), we proposed to 
add a special enrollment period at Sec.  155.420(d)(10). We finalized 
this proposal in the Oct. 30, 2013 Federal Register (78 FR 65095). In 
the May 27, 2014 Federal Register (79 FR 30348), we published a 
proposed rule amending Sec.  155.420(b), (c), (d)(4), (d)(5), (d)(9), 
(d)(10), and (e). We finalized these provisions in the May 27, 2014 
Federal Register (79 FR 30348). In the October 1, 2014 Federal Register 
(79 FR 59138), we published a correcting amendment related to Sec.  
155.420(b).
    In the November 26, 2014 Federal Register (79 FR 70673), we 
proposed to amend Sec.  155.420(b), (c), (d)(1), (d)(2), (d)(4), and 
(d)(6). We finalized these provisions in the February 27, 2015 Federal 
Register (80 FR 10866). In the July 7, 2015 Federal Register (80 FR 
38653), we issued a correcting amendment to Sec.  155.420(d)(2). In the 
December 2, 2015 Federal Register (80 FR 75487) (proposed 2017 Payment 
Notice), we sought comment and data related to existing special 
enrollment periods, including data relating to the potential abuse of 
special enrollment periods. In the March 8, 2016 Federal Register (81 
FR 12203) (2017 Payment Notice), we stated that in order to review the 
integrity of special enrollment periods, the FFEs will conduct an 
assessment by collecting and reviewing documents from consumers to 
confirm their eligibility for the special enrollment periods under 
which they enrolled.
    In the May 11, 2016 Federal Register, we published an interim final 
rule with comment (81 FR 29146) implementing amendments to the 
parameters of select special enrollment periods. This final rule 
finalizes these amendments.
b. CO-OP Program
    In the July 20, 2011 Federal Register (76 FR 43237), we published a 
proposed rule governing the CO-OP program (proposed CO-OP Rule). On 
December 13, 2011, we published the final CO-OP Rule (76 FR 77392).
    In the March 27, 2012 Federal Register, we published a final rule 
implementing components of the Exchanges and setting forth standards 
for eligibility for Exchanges (77 FR 18474) (Exchange Establishment 
Rule). This rule amended the regulations regarding the CO-OP program.
    In the May 11, 2016 Federal Register, we published an interim final 
rule with comment (81 FR 29146) implementing amendments to the 
governance requirements established for Consumer Operated and Oriented 
Plans (CO-OPs) under the CO-OP Rule. This final rule finalizes these 
amendments.
2. Stakeholder Consultation and Input
    HHS has consulted stakeholders on the policies related to 
implementation of the Affordable Care Act, including special enrollment 
periods and CO-OPs. We have held a number of listening sessions with 
consumers, providers, employers, health plans, the actuarial

[[Page 94155]]

community, and State representatives, to gather public input. We 
consulted with stakeholders through regular meetings with the National 
Association of Insurance Commissioners, regular contact with States, 
and meetings with health insurance issuers, organizations participating 
in the CO-OP program, trade groups, consumer advocates, employers, and 
other interested parties. We have held a number of recent meetings with 
issuers (including CO-OPs), regulators, and consumer groups relating to 
the effects of special enrollment periods on the risk pool, and on CO-
OPs' attempts to raise private capital. We considered all public input 
we received as we developed the policies in this interim final rule 
with comment.
3. Structure of Final Rule
    The regulations outlined in this final rule will be codified in 45 
CFR parts 155 and 156. The regulations in part 155 amends certain 
special enrollment periods. The regulations in part 156 establish 
eligibility criteria, CO-OP standards, and loan terms under the CO-OP 
Program. We finalize amendments related to the definitions of pre-
existing issuer and representative as well as revisions to the 
governance requirements for CO-OPs in order to provide flexibility and 
support their financial stability.

B. Provisions of the Interim Final Rule and Analyses and Responses to 
Public Comments

    In the May 11, 2016 Federal Register (81 FR 29146), we published 
the ``Patient Protection and Affordable Care Act; Amendments to Special 
Enrollment Periods and the Consumer Operated and Oriented Plan 
Program'' interim final rule with comment. We received 13 comments, 
including from 3 issuers/issuer trade associations, 2 providers/
provider associations, 2 research/policy groups, 3 advocacy groups, and 
3 individuals. The comments received included a number of comments and 
suggestions that will not be addressed in this final rule because they 
were outside the scope of the interim final rule.
1. Special Enrollment Periods (Sec.  155.420)
    Special enrollment periods provide a critical pathway to coverage 
for qualified individuals who experience qualifying events and need to 
enroll in or change plans outside of the annual open enrollment period 
or during open enrollment with a coverage effective date earlier than 
generally provided during the open enrollment period. One such special 
enrollment period described in Sec.  155.420(d)(7) may be granted to a 
qualified individual or enrollee, or his or her dependent, who gains 
access to new QHPs as a result of a permanent move.
    As discussed in the Exchange Establishment Rule (77 FR 18310, 
18392), the special enrollment period in Sec.  155.420(d)(7) was 
intended to afford individuals the full range of plan options when they 
relocate, which maximizes consumer choice and increases competition in 
the health insurance market. However, this special enrollment period 
was never intended to provide an opportunity for enrollment in coverage 
where individuals make a permanent move solely for the purpose of 
gaining health coverage outside of the annual open enrollment period. 
Stakeholders have raised concerns that, while such use of this special 
enrollment period may be consistent with the plain language of the 
rule, it is not aligned with the provision's intent. This use has the 
potential to destabilize the health insurance market by creating an 
opportunity for adverse selection where persons undertake a permanent 
move solely for the purpose of gaining health coverage, in which they 
would otherwise not be qualified to enroll. Because of concerns that 
unintended uses of the permanent move special enrollment period will 
lead to adverse selection and immediate, unexpected losses in the 
remaining months of this year, which could lead to significant premium 
increases or issuers exiting the market, we believed that action was 
needed as soon as possible, and delaying the rule revisions would be 
impracticable and contrary to the public interest, so we made these 
changes effective May 11, 2016 through 81 FR 29155.
    We amended the eligibility parameters for this special enrollment 
period by adding requirements in Sec.  155.420(d)(7)(i) and (ii). In 
paragraph (i), we require that individuals be enrolled in minimum 
essential coverage as described in 26 CFR 1.5000A-1(b) for one or more 
days in the 60 days preceding the date of the permanent move in order 
to qualify for the special enrollment period based on a permanent move.
    The addition of paragraph (i) required further amendments to the 
rule to maintain the availability of the permanent move special 
enrollment period for certain other individuals who should continue to 
be able to access this special enrollment period without the 
requirement of being previously enrolled in minimum essential coverage. 
Specifically, we made a necessary addition in paragraph (d)(7)(ii) to 
maintain eligibility for a special enrollment period for individuals 
previously living outside of the United States or in a United States 
territory who move to a location within the United States, so long as 
they seek to enroll in coverage within 60 days of completing their 
permanent move.
    In light of the addition of these new requirements, we made a 
further change to Sec.  155.420(d)(7) and to (d)(3) related to 
incarcerated individuals. As noted in the preamble to the Exchange 
Establishment Rule (77 FR 18392), qualified individuals newly released 
from incarceration are eligible for the special enrollment period 
afforded to individuals under the current version of paragraph (d)(7). 
However, paragraph (d)(7) as amended in this rule no longer enabled 
these individuals to qualify for the special enrollment period because 
the health care coverage offered to incarcerated individuals in 
correctional facilities is generally not considered minimum essential 
coverage. Incarcerated individuals are also not eligible for Exchange 
coverage.
    Therefore, we amended paragraph Sec.  155.420(d)(3) to include 
individuals who become newly eligible for a QHP due to a release from 
incarceration (other than incarceration pending disposition of 
charges), in addition to those who become newly eligible for a QHP by 
becoming a United States citizen or national or a lawfully present non-
citizen already included in this paragraph. In so doing, we removed the 
current language in paragraph (d)(3) that stated that a qualified 
individual or his or her dependent ``which was not previously a 
citizen, national, or lawfully present individual gains such status'' 
and replaced it with a cross reference to Sec.  155.305(a)(1). This did 
not change the scope of the current special enrollment period and the 
population who qualified. We added a cross reference to Sec.  
155.305(a)(2) for individuals who are no longer incarcerated, other 
than incarcerated pending disposition of charges.
    In order that, at their option, Exchanges could continue to offer 
advanced availability of the special enrollment period for those who 
become newly eligible for a QHP due to a release from incarceration now 
included in paragraph (d)(3), we amended paragraph Sec.  155.420(c)(2) 
to include this population. If an Exchange should or already has 
exercised this option to offer advance availability to those who become 
newly eligible for a QHP due to a release from incarceration, it must 
ensure that the coverage effective date is on the first day of the 
month following

[[Page 94156]]

the release from incarceration, as was required when this population 
was included in the special enrollment period in paragraph (d)(7) of 
this section. Accordingly, we amended Sec.  155.420(b)(2)(iv) to 
include those who become newly eligible for a QHP due to a release from 
incarceration now included in paragraph (d)(3).
    The amendment to Sec.  155.420(d)(7) also made the special 
enrollment period for a permanent move inaccessible to qualified 
individuals who were previously living in a non-Medicaid expansion 
State and, during the same timeframe, were ineligible for APTC solely 
because of a household income below 100 percent of the Federal poverty 
level (FPL), but who become newly eligible for APTC as a result of a 
permanent move to another State. By being previously ineligible for 
both Exchange coverage with APTC (because of their household income) 
and Medicaid (solely because of the State's decision not to expand), 
these individuals likely would have been exempted from the requirement 
under section 5000A(e)(1) of the Code and its implementing regulations 
to maintain minimum essential coverage; or they would likely have been 
eligible for an exemption from the minimum essential coverage 
requirement under Sec.  155.605(d) or (e). As a result, these 
individuals were therefore unlikely to qualify for the special 
enrollment period for a permanent move, as amended. In order to 
continue to provide for a special enrollment period for these 
individuals, we amended Sec.  155.420(d)(6)(iv) to include individuals 
who were previously living in a non-Medicaid expansion State and, 
during the same timeframe, were ineligible for Medicaid, but who become 
newly eligible for APTC as a result of a permanent move. This change 
secured the continued availability of a special enrollment period to 
qualified individuals who move out of a non-Medicaid expansion State to 
a State where they may newly qualify for APTC, but who might no longer 
qualify for the special enrollment period under Sec.  155.420(d)(7), as 
amended in this rule, because they did not previously have minimum 
essential coverage for one or more days in the 60 days preceding the 
date of the permanent move.
    In addition, as discussed in the 2017 Payment Notice, we are 
conducting an assessment of QHP enrollments that were made through 
special enrollment periods in the FFEs to ensure that consumers' 
eligibility for these special enrollment periods were properly 
determined.
    We considered the information technology system resources that 
would be needed to implement by January 1, 2017, advance availability 
of the special enrollment period for a permanent move and the special 
enrollment period for loss of a dependent or no longer being considered 
a dependent due to divorce, legal separation, or death. We were 
concerned that the requirement to meet the January 1, 2017 deadline 
could cause needless expenditures of Exchange funds. In light of the 
competing financial and operational priorities of Exchanges, we 
believed it was contrary to the public interest to require that 
Exchanges meet the January 1, 2017 deadline. Therefore, we determined 
that there was a need to take immediate action to delete this future 
deadline, rather than engaging in notice and comment rulemaking on this 
change, in order to avoid the unnecessary expenditure of funds by 
Exchanges to comply with the January 1, 2017, implementation deadline. 
Therefore, effective May 11, 2016, we amended the following special 
enrollment period provisions to leave the implementation timeline for 
advanced availability at the discretion of the Exchange.
    Section 155.420(c)(2) provides for advanced availability of the 
special enrollment period for a qualified individual or enrollee, or 
his or her dependent who gains access to new QHPs as a result of a 
permanent move as described in paragraph (d)(7) of this section, 
meaning that a qualified individual or enrollee, or his or her 
dependent, has 60 days before or after the triggering event (the 
permanent move) to select a QHP. Paragraph (c)(2) also provides that 
this advanced availability be available by January 1, 2017 or earlier, 
at the option of the Exchange. We amended this paragraph, effective May 
11, 2016, to remove the requirement for Exchanges to offer advanced 
availability of the permanent move special enrollment period by January 
1, 2017, which kept this provision at the option of the Exchange.
    We also amended paragraph (d)(2)(ii), which provides for a special 
enrollment period for an enrollee who loses a dependent or is no longer 
considered a dependent due to divorce, legal separation, or death, to 
remove the requirement that Exchanges offer this special enrollment 
period by January 1, 2017. We noted that, if a loss of a dependent or 
no longer being considered a dependent due to divorce, legal 
separation, or death results in a loss of minimum essential coverage, 
such individuals may qualify for the special enrollment period for loss 
of minimum essential coverage. Effective May 11, 2016, implementation 
of this provision remains at the option of the Exchange.
    We noted that certain special enrollment periods in Sec.  155.420 
are incorporated into the guaranteed availability regulations at Sec.  
147.104(b) and apply to issuers offering non-grandfathered individual 
coverage through or outside of the Exchange, and incorporated in the 
SHOP regulations at Sec.  155.725(j) and Sec.  156.285(b) and applied 
to QHP coverage offered through the SHOPs. The changes made to special 
enrollment periods in this rule therefore applied to the guaranteed 
availability and SHOP regulations, to the extent applicable.
    In this rule, we are finalizing the interim final rule with comment 
and the corresponding provisions as proposed.
    Comment: Commenters were divided in their support for or opposition 
to the addition of a prior minimum essential coverage requirement to 
the special enrollment period for a permanent move at Sec.  
155.420(d)(7). Those who supported this amendment believe that this 
addition will help eliminate misuse and abuse of this special 
enrollment period by preventing consumers from moving and enrolling in 
coverage only when they have health coverage needs. One commenter 
recommended that the 60 day prior minimum essential coverage 
requirement be reduced to 30 days.
    Those who opposed this amendment expressed concerns about adding 
additional barriers to coverage for disadvantaged populations, 
especially migrant workers who often cross State lines for work, 
individuals who previously lived in rural areas with unaffordable 
coverage and have moved to a more competitive service area where 
affordable health coverage is now available, and family caregivers who 
have left the workforce to care for a sick relative. Commenters also 
expressed concern that making it more difficult to qualify for special 
enrollment periods will have a negative impact on risk pools and will 
further decrease already low special enrollment period enrollment 
rates, citing a recent study that showed that five percent of consumers 
who could qualify for special enrollment periods actually utilized a 
special enrollment period to enroll in 2015 coverage.\68\ Commenters 
raised concern that by amending this special

[[Page 94157]]

enrollment period, HHS is restricting access to a special enrollment 
period prior to sharing evidence of misuse or abuse.
---------------------------------------------------------------------------

    \68\ Dorn, Stan. ``Helping Special Enrollment Periods Work under 
the Affordable Care Act.'' The Urban Institute. June 23, 2016. 
Accessed at http://www.urban.org/sites/default/files/alfresco/publication-pdfs/2000834-Helping-Special-Enrollment-Periods-Work-Under-the-Affordable-Care-Act.pdf on June 29, 2016.
---------------------------------------------------------------------------

    Response: We agree with commenters that adding a prior coverage 
requirement to the special enrollment period for a permanent move 
protects against misuse and abuse of this special enrollment period by 
preventing consumers who are moving for the sole purpose of obtaining 
medical treatment from newly enrolling in a QHP. We also believe that 
this requirement will encourage consumers to remain in coverage, even 
if they are anticipating a move in the future.
    However, we appreciate the concerns raised by commenters about 
legitimate reasons consumers may experience a gap in coverage and will 
no longer be able to qualify for this special enrollment period. 
Migrant workers who live and work in one service area, but maintain a 
home in another service area where they live other than during the 
seasonal employment, can establish residency in either or both service 
areas to enroll in QHP coverage. We encourage commenters to review the 
FAQs on the Marketplace Residency Requirement and the Special 
Enrollment Period due to a Permanent Move, published on January 19, 
2016 for more information on this topic.\69\ We will also continue to 
monitor utilization of this special enrollment period so that we can 
evaluate whether consumers are being prevented from enrolling in 
coverage for legitimate reasons that are beyond their control due to 
this change to our regulation.
---------------------------------------------------------------------------

    \69\ U.S. Department of Health and Human Services, ``FAQs on the 
Marketplace Residency Requirement and the Special Enrollment Period 
due to a Permanent Move'' January 19, 2016. Available at: https://www.regtap.info/uploads/library/ENR_FAQ_ResidencyPermanentMove_SEP_5CR_011916.pdf.
---------------------------------------------------------------------------

    Comment: Commenters were opposed to the elimination of the January 
1, 2017 implementation deadline for offering advance availability of 
the special enrollment period for a permanent move at Sec.  
155.420(c)(2) and for implementing the special enrollment period for 
enrollees for loss of a dependent or no longer being considered a 
dependent due to divorce, legal separation, or death at Sec.  
155.420(d)(2)(ii). Commenters expressed concerns that delaying 
implementation of advance availability of the special enrollment period 
for permanent move may lead to an unavoidable gap in coverage for 
someone who moves during the coverage year due to the fact that 
consumers can currently only qualify for this special enrollment period 
after they have moved and the associated coverage effective date is 
always prospective. This can result in negative health outcomes, 
especially for consumers with chronic conditions. Commenters pointed 
out that Medicare currently offers advance availability for their 
special enrollment period for a permanent move. In addition, commenters 
expressed concerns that consumers' health coverage needs may likely 
change after a divorce, legal separation, or death, when consumers' 
household composition has changed and especially if a dependent with 
greater health care needs is no longer part of the household. 
Commenters suggested that, since this special enrollment period would 
only be available to current QHP enrollees, HHS will be able to 
implement it in a way that prevents misuse or abuse.
    Lastly, one commenter recommended that HHS update, rather than 
eliminate, implementation deadlines for these provisions to minimize 
variation across States in terms of their availability. Failure to do 
so could lead to confusion to both enrollees and issuers about what 
special enrollment periods are available.
    Response: We appreciate the concerns raised by commenters about the 
elimination of the implementation deadlines for both offering advance 
availability for the special enrollment period for a permanent move and 
for the special enrollment period for enrollees who have lost a 
dependent or are no longer considered a dependent due to divorce, legal 
separation, or death. As mentioned above, we are conducting an 
assessment of QHP enrollments that were made through special enrollment 
periods in the FFEs, and, given the information technology system 
requirements necessary to implement these provisions by January 1, 
2017, we were concerned that the requirement to meet the January 1, 
2017, deadline could cause needless expenditures of Exchange funds.
    Comment: One commenter suggested HHS clarify how the special 
enrollment period provisions in the Exchange regulations at Sec.  
155.420 apply in the individual market outside the Exchange.
    Response: With the exception of certain triggering events specified 
in Sec.  147.104(b)(2), which are only relevant to enrollment in a QHP 
through the Exchange, the same special enrollment periods (also 
referred to as limited open enrollment periods) apply throughout the 
individual market, both inside and outside of the Exchange.
    Under the guaranteed availability and Exchange provisions at 
Sec. Sec.  147.104 and 155.420, respectively, when an individual (and, 
where specified, his or her dependent) experiences an event that 
triggers a special enrollment period at Sec.  155.420, the individual 
has a right to enroll in or change QHPs offered through the Exchange, 
and except for certain specified triggering events, also has the 
opportunity to purchase or enroll in any non-grandfathered individual 
health insurance coverage offered outside the Exchange pursuant to 
Sec.  147.104(b)(2). These special enrollment rights apply to any 
individual described in the regulations and are not limited solely to 
individuals who experience a triggering event while enrolled through 
the Exchange.
    To provide greater clarity about how these provisions apply in the 
context of the individual market outside the Exchange, we are adding a 
sentence in Sec.  147.104(b)(2) to specify that in applying special 
enrollment periods under the marketwide regulations, a reference in 
Sec.  155.420 to a ``QHP'' is deemed to refer to a plan, a reference to 
``the Exchange'' is deemed to refer to the applicable State authority, 
and a reference to a ``qualified individual'' is deemed to refer to an 
individual in the individual market.
    Furthermore, consistent with similar exclusions under the 
marketwide regulations for Exchange-specific special enrollment 
periods, we are also clarifying that the triggering event described at 
Sec.  155.420(d)(6) will not create a special enrollment period to 
enroll outside the Exchange to the extent it concerns an individual who 
becomes newly eligible for APTC or who has a change in eligibility for 
cost-sharing reductions other than a total elimination of eligibility, 
since financial assistance is only available for coverage purchased 
through an Exchange. Individuals who become newly ineligible for APTC 
or who have a change in eligibility for cost-sharing reductions as 
described in paragraphs (d)(6)(i) and (ii) will continue to qualify for 
a special enrollment period to enroll in individual market coverage 
through or outside of an Exchange.
    We intend to monitor the application of these special enrollment 
period rules and may provide additional guidance in the future to 
ensure that individuals eligible for special enrollment periods receive 
the protections they are entitled to under the law.
2. CO-OP Program
    Subpart F of part 156 of title 45 of the Code of Federal 
Regulations sets forth the standards applicable to the CO-OP Program. 
In the interim final rule with comment, we made a number of changes to 
the rules governing CO-OPs to provide additional flexibility for CO-OP

[[Page 94158]]

issuers to enter into strategic financial transactions with other 
entities. Given the financial challenges faced by some CO-OPs and the 
lack of opportunity for further Federal funding, these changes were 
implemented to improve their capital position and to further the 
ability of the program to facilitate the offering of competitive, high-
quality health insurance on Exchanges. Furthermore, these amendments 
were made in response to CO-OPs' requests for maximum flexibility in 
governance requirements to assist their efforts to enter into new, 
beneficial business relationships. We received five comments in 
response to the changes to CO-OP regulations set forth in the interim 
final rule with comment. Two of the five were not applicable to the 
changes in the interim final rule with comment and therefore are not 
addressed below.
a. Definitions (Sec.  156.505)
    In the interim final rule with comment, we amended the definitions 
of ``pre-existing issuer'' and ``representative'' to permit CO-OPs 
increased flexibility to explore and advance business opportunities, 
and increase the pool of eligible candidates for their boards of 
directors. The definition of the term ``pre-existing issuer'' was 
amended to limit the definition to State-licensed health insurance 
issuers that competed in the individual or small group commercial 
health insurance markets on July 16, 2009, as required by section 
1322(c)(2)(A) of the Affordable Care Act). The definition of the term 
``representative'' was revised to mean an officer, director, or trustee 
of an organization, or group of organizations; or a senior executive or 
high level representative of the Federal government, or a State or 
local government or a sub-unit thereof.
    The amended definitions expand the universe of individuals eligible 
for membership on a CO-OP board of directors, while ensuring that 
appropriate standards remain in place to protect against conflicts of 
interest and insurance industry involvement and interference. We are 
finalizing these provisions as implemented in the interim final rule 
with comment.
    Comment: One commenter recommended amending the revised definition 
of representative by adding the word ``current'' before ``officer, 
director, or trustee of an organization, or group of organizations; or 
a senior executive or high-level representative''. The commenter stated 
that this change would make clear that former or retired officers, 
directors, trustees, or senior executives are not included in the 
exclusion.
    Response: We agree that former or retired officers, directors, 
trustees, or senior executives should not be included in the definition 
of ``representative.'' However, we do not believe that the requested 
change is necessary. The amended definition of the term 
``representative'' in the interim final rule with comment currently 
does not include former or retired officers, directors, trustees, or 
senior executives. Therefore, we are finalizing the definition of 
``representative'' as implemented in the interim final rule with 
comment.
b. CO-OP Standards (Sec.  156.515)
    Under Sec.  156.515(b)(1), a CO-OP must be governed by a board of 
directors, with all of its directors elected by a majority vote of a 
quorum of the CO-OP's members that are age 18 or older, and the voting 
directors on the board must be members of the CO-OP. In the interim 
final rule with comment, we amended these standards to require that 
only a majority of directors be elected by the members and to remove 
the requirement that a majority of voting directors be members of the 
CO-OP. This revision allows entities offering loans, investments, and 
services to participate on the board of directors, as is common 
practice in the private sector, while maintaining the overall control 
of the board by the members of the CO-OP. We made this change in 
response to program experience demonstrating that the inability to 
grant designated board positions to prospective partners or investors 
may create obstacles to potentially favorable business arrangements for 
CO-OPs. This amendment also provides opportunities for CO-OPs to enlist 
qualified individuals from outside their membership to participate in 
board governance.
    We also revised Sec.  156.515(b)(2)(i) to comport with the changes 
in the types of representatives permitted to sit on the board of 
directors while still retaining ethical, conflict of interest, and 
disclosure standards. Section 156.515(b)(2)(ii) was revised to provide 
that each director has one vote. Section 156.515(b)(2)(iv), which 
provided that positions on the board designated for individuals with 
specialized expertise, experience, or affiliation cannot constitute a 
majority of the board, was removed and reserved. Section 
156.515(b)(2)(v) was revised to permit representatives of State or 
local governments or organizations described in Sec.  156.510(b)(1)(i) 
to participate on CO-OP boards of directors, provided the CO-OP does 
not issue policies in the State in which the government representative 
serves or the organization operates. These amendments are intended to 
provide CO-OPs with increased flexibility regarding board membership, 
as well as to increase business opportunities for CO-OPs. We note that 
any fiduciary duties that exist under State law would continue to apply 
for all members of a CO-OP's board.
    We also noted that the requirements of Sec.  156.515(c)(1) 
requiring that at least two-thirds of the policies issued by a CO-OP 
must be QHPs issued in the individual and small group markets, have at 
times posed an obstacle to potential strategic partners of CO-OPs. In 
the interim final rule with comment, HHS clarified that, if a CO-OP 
fails to meet the standard in a given year, it would not necessarily 
require immediate loan repayment as long as the CO-OP is in compliance 
with Sec.  156.515(c)(2); has a specific plan and timetable to meet the 
two-thirds requirement, and acts with demonstrable diligence and good 
faith to meet the standard. A CO-OP must ultimately come back into 
compliance with the two-thirds standard in future years. We are 
finalizing these provisions as implemented in the interim final rule 
with comment.
    Comment: One commenter objected to the new provision at 45 CFR 
156.515(b)(1) to the effect that no board members must be CO-OP 
members. Another commenter objected to the requirement that only a 
majority of directors be elected by the CO-OP's members. Both 
commenters indicated that these changes would compromise the mandate 
that CO-OPs be member run and consumer-focused.
    Response: CO-OPs are obligated to be, and remain, consumer-operated 
and consumer-focused entities. These broad principles are overarching, 
ongoing obligations of all CO-OP health plans. More generally, both 
principles are not specifically defined and admit wide application by 
each CO-OP under various circumstances, under its obligations to the 
public as a private, non-profit company that has assumed the task of 
fulfilling the goals of the CO-OP program. For these reasons, HHS 
believes the changes to the governance requirements implemented in the 
interim final rule with comment will assist CO-OPs in their efforts to 
remain viable over time, while maintaining their mission as consumer 
focused organizations.
    Comment: One commenter voiced support for the revisions HHS made to 
the definition of a prohibited

[[Page 94159]]

representative of State government or a preexisting issuer at 45 CFR 
515.505, and expressed that the amendment will assist CO-OPs in their 
efforts to attract board members with sufficient expertise. The 
commenter also supported the amendments to Sec.  156.515(b)(1) that 
limit the prohibition against representatives of preexisting issuers 
from sitting on a CO-OP board to such issuers that do business in the 
individual and small group health insurance markets. The commenter 
indicated the amendment will help CO-OPs attract new business alliances 
and enter into new lines of business that could promote overall 
business objectives.
    Response: We appreciate and agree with the commenter and thus, are 
finalizing the changes.
c. Loan Terms (Sec.  156.520)
    Under Sec.  156.520(f), a CO-OP may not convert or sell to a for-
profit or non-consumer operated entity, or undertake a transaction that 
would result in the CO-OP implementing a governance structure that does 
not meet our regulatory standards. In the preamble of the interim final 
rule we provided clarification regarding whether this provision 
prohibits the sale or conversion of policies to a non-CO-OP issuer in 
connection with the wind-down of a CO-OP. We clarified that if a CO-OP 
is out of compliance with this provision, the CO-OP will cease to be a 
qualified non-profit health insurance issuer, and certain rights under 
the CO-OP Loan Agreement will become available to HHS, including the 
right to accelerate repayment of the loans or terminate the Loan 
Agreement itself. In addition, we indicated that we recognize that a 
CO-OP could elect to enter into such a transaction in the appropriate 
circumstances, to preserve coverage for enrollees upon the insolvency 
of the issuer, notwithstanding the aforementioned remedies. We did not 
implement any changes to the regulation and thus, are not finalizing 
any changes to this section. Accordingly, the preamble as published 
previously will also remain unchanged.
3. Risk Adjustment
    Based on our experience operating the 2014 and 2015 benefit years 
risk adjustment program, HHS is aware that certain issuers, including 
some new, rapidly growing, and smaller issuers, owed substantial risk 
adjustment charges that they did not anticipate. HHS has had, and 
continues to have discussions with issuers and State regulators on ways 
to help ease issuers' transition to the new health insurance markets 
and the effects of unanticipated risk adjustment charge amounts. HHS 
believes that a robust risk adjustment program that addresses new 
market dynamics due to rating reforms and guaranteed issue requirements 
is critical to the proper functioning of these new markets. However, we 
are sympathetic to these concerns and recognize that States are the 
primary regulators of their insurance markets. As such, we encouraged, 
and continue to encourage States to examine whether any local 
approaches, under State legal authority, are warranted to help ease 
this transition to new health insurance markets.
    In addition to actively engaging in conversations with States, we 
are updating the risk adjustment methodology as described elsewhere in 
this final rule for the 2017 and 2018 benefit years to address some of 
the foregoing issues.
    Comment: One commenter requested that HHS improve the risk 
adjustment program. This commenter supported many of the changes 
discussed in the ``March 31, 2016, HHS-Operated Risk Adjustment 
Methodology Meeting: Discussion Paper'' (White Paper),\70\ especially 
the use of prescription drugs to help identify missing diagnoses, and 
transitioning from a concurrent model to a prospective risk adjustment 
model.
---------------------------------------------------------------------------

    \70\ March 31, 2016, HHS-Operated Risk Adjustment Methodology 
Meeting: Discussion Paper. March 24, 2016. Available at https://www.cms.gov/CCIIO/Resources/Forms-Reports-and-Other-Resources/Downloads/RA-March-31-White-Paper-032416.pdf.
---------------------------------------------------------------------------

    Response: In the HHS Notice of Benefit and Payment Parameters for 
2018 Proposed Rule (81 FR 61456) \71\ (September 6, 2016), consistent 
with our discussion in the White Paper, HHS proposed a number of 
updates to the risk adjustment model. We respond to comments about 
proposed updates to the risk adjustment methodology elsewhere in this 
final rule.
---------------------------------------------------------------------------

    \71\ ``HHS Notice of Benefit and Payment Parameters for 2018'' 
available at https://www.gpo.gov/fdsys/pkg/FR-2016-09-06/pdf/2016-20896.pdf.
---------------------------------------------------------------------------

    Comment: One commenter commented that States should explore State-
level solutions, including State wrap-around risk adjustment, 
reinsurance, and risk corridors programs. This commenter suggested that 
States should also evaluate their role in approving plan pricing, 
ensuring that issuers are accurately accounting for risk adjustment and 
permitting plans to make adjustments to rates that would enable them to 
mitigate predictable losses after rates have been set.
    Response: We agree that States play a critical role in ensuring 
that State markets are competitive and sustainable.
    Comment: One commenter disagreed with HHS's approach of encouraging 
States to explore local approaches to helping plans with this 
transition. The commenter stated that allowing States to modify the 
HHS-operated risk adjustment program after rates are filed would 
increase uncertainty in the market and further complicate pricing and 
financial forecasting, which are key to long-term stability. This 
commenter stated that State-level variations in an already complex 
program would increase complexity and administrative costs for issuers, 
suggesting that HHS consider policies and opportunities to help 
stabilize the individual market and avoid those that make it more 
difficult for the market to function well.
    Another commenter requested that HHS clarify that the language in 
the interim final rule with comment does not encourage States to adopt 
proposals that would undermine the HHS-operated risk adjustment 
program. The commenter stated a concern with any proposed State 
solution that would limit risk adjustment transfers based on a risk 
corridor approach, which assumes that all issuers should end up with 
similar financial results after risk adjustment. This commenter 
requested HHS to clarify that any proposal to exempt, limit, or 
artificially cap risk adjustment payments would undermine the purpose 
of the HHS-operated risk adjustment program, and could hurt consumers 
and the market as a whole.
    Response: We reiterate that States in which HHS is operating its 
risk adjustment methodology are not permitted to modify the 
methodology, but that States may take temporary, reasonable measures 
under State authority to mitigate effects under their own authority.

IV. Waiver of Delay in Effective Date

    We ordinarily provide a 60-day delay in the effective date of the 
provisions of a rule in accordance with the Administrative Procedure 
Act (APA) (5 U.S.C. 553(d)), which requires a 30-day delayed effective 
date, and the Congressional Review Act (5 U.S.C. 801(a)(3)), which 
requires a 60-day delayed effective date for major rules. However, we 
can waive the delay in the effective date if the Secretary finds, for 
good cause, that the delay is impracticable, unnecessary, or contrary 
to the public interest, and incorporates a statement of the finding and 
the reasons in the rule issued (5 U.S.C. 553(d)(3); 5 U.S.C. 808(2)).

[[Page 94160]]

    We have determined that it is appropriate to issue this regulation 
with an effective date 30 days from the date of display in the Federal 
Register. HHS has determined that delaying action on the provisions in 
this rule is contrary to the public interest. Prompt action is 
necessary to provide for certain critical changes to our programs for 
2017--including adjustments to incorporate partial year enrollment 
duration factors into risk adjustment; MLR policies allowing deferred 
reporting of new policies with a full 12 months of experience and 
providing the option to limit rebate liability; risk adjustment data 
validation policies to apply the default error rate to new entrants for 
2016 risk adjustment data validation; a policy to allocate a portion of 
FFE user fee eligible costs directly to outreach and education; 
policies around CSR reconciliation appeals and discrepancies for 2016 
benefit year; a policy allowing issuers to implement a reasonable 
extension of the binder payment deadlines when an issuer is 
experiencing billing or enrollment problems due to high volume or 
technical errors; a policy regarding termination of Exchange enrollment 
or coverage to require that issuers demonstrate the rescission is 
appropriate; policies permitting Exchanges to recalculate APTC; 
policies allowing an Exchange appeals entity to utilize a secure and 
expedient paper-based appeals processes; and language access policies 
allowing Exchanges, QHP issuers, and Web-brokers to more efficiently 
provide important information to LEP consumers. HHS has determined that 
implementation of these changes beginning early in 2017 is important 
for issuer confidence. Issuer confidence is necessary to maintain 
robust issuer participation in and competition on the Exchanges and to 
encourage affordability of coverage for enrollees and the continuity of 
care that is supported by the continued availability of plans on the 
Exchanges. We believe that the later effective date for the 2017 
Payment Notice added to issuers' uncertainty in preparing their 
products for the 2017 benefit year, which may have led to uncertainty 
in the market and may have resulted in premium increases. We are 
seeking a shorter effective date in order to allow issuers ample time 
to prepare for the 2018 benefit year and help stabilize the Exchanges 
for issuers and consumers. We also believe consumers' confidence in the 
Exchanges is especially important this time of year when they are 
making enrollment decisions, with Open Enrollment in the individual 
market ongoing and the Medicare General Enrollment period about to 
begin on January 1. Stakeholders, including States and issuers, have 
also requested that this rule become effective earlier in order to 
establish rates for 2018 in a timely fashion. Therefore, a 60-day delay 
in the effective date would be contrary to the public interest. We have 
therefore determined that the rule will become effective on January 17, 
2017.

V. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 30-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. This 
final 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 14. In the September 6, 2016 (81 FR 61456) proposed 
rule, we requested public comment on each of the following collection 
of information requirements. The comments received and our responses to 
them are discussed below. The May 11, 2016 interim final rule with 
comment (81 FR 29146) did not impose information collection 
requirements.

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-level 
plan enrollment data, enrollee claims data, and enrollee encounter 
data, as specified by HHS. Under Sec.  153.610(a) as finalized, 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. In order to collect enrollee-level data that 
will be used to recalibrate the HHS risk adjustment models, HHS will 
send a command to all issuers' EDGE servers that issuers must execute, 
which will provide HHS with a dataset that does not identify the EDGE 
server, plan, issuer, geographic rating area, State, or enrollee. 
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. We note, however, that in 
the future, HHS intends to add the applicable data elements to the 2018 
benefit year EDGE server collection. If HHS were to pursue that option, 
we would revise the information collection currently approved under OMB 
Control Number 0938-1155 to reflect any extra burden.

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 stated in 
the proposed rule that this audit would affect approximately 825 
issuers. Given the finalization of a materiality threshold beginning 
for 2017 benefit year risk adjustment validation and the implementation 
of pharmacy claim validation beginning for the 2018 benefit year risk 
adjustment data validation, we are revising our total number of issuers 
affected per year. We estimate that approximately 399 issuers have 
total premiums of $15 million or less, and that approximately one-third 
of these issuers would be subject to an initial validation audit each 
year. Therefore, we revise the total number of issuers affected 
annually for this provision from 825 issuers to 559 issuers. Under this 
final rule, beginning with risk adjustment data validation for the 2018 
benefit year, HHS will require the review of paid pharmacy claims for 
all sample enrollees in the initial validation audit. Based on 2015 
EDGE reinsurance data, and after a review of

[[Page 94161]]

risk adjustment data validation sampling strata, we are revising our 
estimate. We now estimate that, because two-thirds of risk adjustment 
data validation initial validation audit sample enrollees will be 
enrollees with HCCs, these enrollees are likely to have more pharmacy 
claims than on average in the EDGE data. As such, we estimate these 
enrollees with HCCs will have on average, 24 pharmacy claims each. We 
estimate the remaining half of the one-third of sample enrollees 
without HCCs will have on average approximately 4 pharmacy claims each, 
with the other half of the one-third sample enrollees having no 
pharmacy claims. Therefore, for 133 enrollees with 24 pharmacy claims 
each, 34 enrollees with 4 pharmacy claims each, and 33 enrollees 
without pharmacy claims, we would estimate 3,328 pharmacy claims per 
issuer, or on average, 17 pharmacy claims per enrollee within a sample 
of 200 enrollees. We continue to believe it would take approximately 5 
minutes per pharmacy claim to validate, but are revising our estimate 
per enrollee to require 85 minutes for an auditor (at a labor cost of 
$72 per hour) and would cost approximately $102 per enrollee to 
validate paid pharmacy claims. We assume that an initial validation 
audit would be performed on 111,800 enrollees, with an average of 17 
pharmacy claims each. 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 approximately 283 
hours (283 hours and 20 minutes) and cost approximately $20,400. 
Therefore, for 559 issuers, the total annual burden of conducting 
initial validation audits is approximately 158,383 hours with an 
equivalent cost of approximately $11,403,600. 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.
    Comment: A commenter asked HHS to present statistical data based on 
program experience rather than ``beliefs'' as a basis for regulatory 
cost analysis, and requested HHS to provide the basis for its 
``belief'' that half of all enrollees will have pharmacy claims and, of 
these, HHS expects six pharmacy claims per enrollee. The commenter also 
inquired how HHS determined the audit would be performed on 165,000 
enrollees and take 30 minutes per enrollee.
    Response: HHS based its initial estimate of pharmacy claims for 
sample enrollees on 2015 EDGE claims data submitted by issuers for 
reinsurance. We estimated initial validation audits would be performed 
on 200 enrollees per issuer, and multiplied that by 825 issuers to 
arrive at the total enrollees affected by the audit. Our estimate of 
the additional time it would take to examine pharmacy claims is 
consistent with previous estimates of the burden on issuers to submit 
EDGE data. However, upon further examination, because the risk 
adjustment data validation sample is weighted toward enrollees with 
HCCs, who likely have disproportionately high pharmacy claims, we 
reviewed and increased the burden, but also reduced the number of 
issuers affected annually, due to the finalization of the materiality 
threshold. The new burden estimated above in this ICR is based on an 
initial validation sample that includes two-thirds of the sample of 200 
enrollees as enrollees with HCCs, and the remaining one-third including 
enrollees without HCCs, with and without pharmacy claims, and 
approximately 559 issuers being subject to the initial validation audit 
annually.

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

    This final rule provides that under Sec.  153.630(d)(1), 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. As finalized in Sec.  153.630(d)(2), 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 are 
subject to this requirement, and that issuers will 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, as finalized in 
Sec.  153.630(d)(2), issuers will 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 at a cost of $624. Therefore, we estimate an aggregate 
annual burden of 6,600 hours and $514,800 for 825 issuers as a result 
of these requirements.
    Comment: A commenter requested the basis for estimating a response 
time of 8 hours and inquired whether HHS considered alternatives to 
reduce the burden of compliance.
    Response: HHS's estimate of response time is based on experience 
with previous discrepancy reporting processes for other financial 
programs, such as risk adjustment and reinsurance, see Sec.  
153.710(d). The burden estimates for the risk adjustment and 
reinsurance discrepancy reporting processes were subject to notice and 
comment rulemaking in the 2015 Payment Notice. Additionally, we believe 
the burden on issuers will be reduced over time, as the risk adjustment 
data validation program matures and issuers gain experience with the 
process.

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

    In Sec.  155.20, we are finalizing 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 will submit this information to HHS annually. 
Under 5 CFR 1320.3(c)(4), this ICR is not subject to the PRA as it will 
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 are finalizing requirements that 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 will 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 
will be required to comply with the standard. We estimate it will 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

[[Page 94162]]

equivalent cost of approximately $30,982.40.
    We anticipate that fewer than 10 Web-brokers and issuers will 
submit a request to deviate from the manner adopted by HHS for display 
on HealthCare.gov and from the standards defined by HHS. Under 5 CFR 
1320.3(c)(4), this ICR is not subject to the PRA as it will 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 are finalizing 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, enhanced oversight 
obligations for downstream access to a Web-broker's non-Exchange Web 
site, expanded standards of conduct pertaining to the use of direct 
enrollment partner Web sites that could mislead consumers into 
believing they are visiting HealthCare.gov, and demonstrating 
operational readiness prior to the use of a non-Exchange Web site to 
complete the QHP selection for Exchange enrollments. At Sec. Sec.  
156.265 and 156.1230, we finalize a number of parallel provisions for 
issuers using the direct enrollment channel. We will provide additional 
technical details regarding compliance with the specific requirements 
under these rules in guidance in the future. At that time, we will 
estimate the burden associated with these requirements, solicit public 
comment, and request OMB approval in accordance with the PRA, as may be 
necessary.

G. ICRs Regarding Standards for HHS-Approved Vendors To Perform Audits 
of Agents and Brokers Participating in Direct Enrollment (Sec.  
155.221)

    We are finalizing requirements related to the application, 
approval, monitoring and appeals process for vendors to perform audits 
of agents and brokers participating in direct enrollment. We will 
provide additional technical details regarding these requirements in 
guidance in the future. At that time, we will estimate the burden 
associated with these requirements, solicit public comment, and request 
OMB approval in accordance with the PRA, as may be necessary.

H. ICR Regarding Eligibility Standards (Sec.  155.305)

    We finalize amendments related to compliance with the income tax 
filing requirement in Sec.  155.305(f)(4). Under paragraph (f)(4)(ii), 
the Exchange may determine a tax filer eligible for APTC if other 
information available to the Exchange indicates that a tax filer or his 
or her spouse complied with the requirement specified in paragraph 
(f)(4)(i). The Exchange may obtain such other information by giving 
Exchange consumers the opportunity to attest to having filed their 
Federal income taxes and reconciled APTC or to submit documentary proof 
of filing. We will provide additional technical details about these 
options in future guidance. At that time, we will estimate the burden 
associated with these requirements, solicit public comment, and request 
OMB approval in accordance with the PRA, as may be necessary.

I. ICR Regarding Eligibility Redeterminations (Sec.  155.330)

    We finalize amendments 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 will 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 will submit a 
proposal. Therefore, under 5 CFR 1320.3(c)(4), this ICR is not subject 
to the PRA as it will affect fewer than 10 entities in a 12-month 
period.
    We also finalize amendments to permit the Exchange to recalculate 
APTC using the procedure described in Sec.  155.330(g)(1) or an 
alternate procedure approved by HHS. HHS anticipates that it will 
require participating Exchanges to submit a brief description of the 
alternate procedure and the extent to which the alternate procedure 
will protect tax filers from an excess APTC repayment. Here too, we 
anticipate that fewer than 10 Exchanges will submit a proposal. Under 5 
CFR 1320.3(c)(4), this ICR is not subject to the PRA as it will affect 
fewer than 10 entities in a 12-month period.

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

    We finalize our amendment of 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 will 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 will be subject to this requirement 
annually. Under 5 CFR 1320.3(c)(4), this ICR is not subject to the PRA 
as it will affect fewer than 10 entities in a 12-month period.

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

    We finalize a provision 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 will request reconsideration. Under 
5 CFR 1320.3(c)(4), this ICR is not subject to the PRA as it will 
affect fewer than 10 entities in a 12-month period.

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

    In Sec.  156.290, we established a requirement that QHP issuers 
provide a notification to enrollees when a plan is denied certification 
for a subsequent, consecutive certification cycle. We anticipate that 
fewer than 10 issuers will be subject to this requirement annually. 
Under 5 CFR 1320.3(c)(4), this ICR is not subject to the PRA as it will 
affect fewer than 10 entities in a 12-month period.

M. 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) as finalized in this rule, 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

[[Page 94163]]

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 one third will file a 
discrepancy report to dispute the notification of the amount of 
reconciliation of the cost-sharing reduction portion of advance 
payments for a benefit year. Issuers will 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 will 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 will 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 is approximately 18 hours with an equivalent cost of 
$1,404. Assuming that no more than 120 issuers will submit a 
discrepancy, we estimate a total aggregate annual burden of 
approximately 2,160 hours and $168,480 for issuers as a result of these 
requirements.

N. ICRs Regarding Administrative Appeals (Sec.  156.1220)

    In Sec.  156.1220, we previously established an administrative 
appeals process to address any issues or errors for APTC, 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). This final rule 
revises 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. 
This final rule amends 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. Under this final rule, 
issuers are required to use the administrative appeals process set 
forth in Sec.  156.1220. Under Sec.  156.1220(a), an issuer may file a 
request for reconsideration 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.
    While the hours involved in a request for reconsideration might 
vary, for purposes of this burden estimate, we estimate that it will 
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, will submit a request for reconsideration, 
resulting in a total aggregate annual burden of 9 hours with an 
equivalent cost of approximately $702.

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

    We are amending 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 provision will require minor changes to the MLR annual reporting 
form and we will revise the information collection currently approved 
under OMB Control Number 0938-1164 to reflect this provision, as may be 
necessary. However, we anticipate that only a small number of issuers 
will elect the option of additional reporting and we do not expect that 
this provision will increase the burden.

                                             Table 14--Annual Reporting, Recordkeeping and Disclosure Burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                      Hourly
                                                                                               Burden     Total    labor  cost  Total labor
          Regulation section                 OMB  control No.       Number of    Responses      per       annual        of         cost of    Total cost
                                                                   respondents                response    burden    reporting    reporting       ($)
                                                                                              (hours)    (hours)       ($)          ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   153.630 Risk Adjustment Data     0938-1155................          559      111,800      1.417    158,383          $72  $11,403,600  $11,403,600
 Validation.
Sec.   153.630(d) Discrepancy           0938-1155................          825         1650          4      6,600           78      514,800      514,800
 Reporting Processes for Risk
 Adjustment Data Validation.
Sec.  Sec.   155.220, 156.265           NEW......................          160          160          2        320        96.82       30,982       30,982
 Differential Display of Standardized
 Options.
Sec.   156.430(h) Discrepancy           0938-1266................          120            1         18      2,160           78      168,480      168,480
 Reporting for cost-sharing reduction
 reconciliation.
Sec.   156.1220 Administrative Appeals  NEW......................            9            9          1          9           68          702          702
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................  .........................        1,114      113,620     26.417    167,472       392.82   12,118,564   12,118,564
--------------------------------------------------------------------------------------------------------------------------------------------------------
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 14.

VI. Regulatory Impact Analysis

A. Statement of Need

    This rule finalizes 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. This rule finalizes additional standards 
related to enrollment and eligibility, appeals, consumer assistance 
tools and programs of an Exchange, Web-brokers, cost-sharing 
parameters, qualified health plans, network adequacy, stand-alone 
dental plans, fair health insurance premiums, guaranteed availability 
and guaranteed renewability, the rate review program, the medical loss 
ratio program, the Small Business Health Options Program, FFE user 
fees, standardized options, and CO-OPs. These 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.

[[Page 94164]]

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).
    OMB has determined that the provisions in this final rule related 
to the proposed rule are ``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 final rule with respect to those provisions.
    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 final rule are 
integral to the goal of expanding coverage. For example, the risk 
adjustment program helps mitigate the effects of adverse 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 final 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 and Web-brokers will incur costs to comply with the 
finalized 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 15 below depicts an 
accounting statement summarizing HHS's assessment of the benefits, 
costs, and transfers associated with this regulatory action.
    This final 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 final 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 15 reflect 
qualitative impacts and estimated direct monetary costs and transfers 
resulting from the provisions of this final rule. The annualized 
monetized costs described in Table 15 reflect direct administrative 
costs to health insurance issuers and Web-brokers as a result of the 
provisions, and include administrative costs related to requirements 
that are estimated in the Collection of Information section of this 
final rule. The annual monetized transfers described in Table 15 
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 
expect to collect a total of $40 million in risk adjustment user fees 
or $1.68 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.
    The annual monetized transfers described in Table 15 include a 
decrease in MLR rebates to consumers.

                                           Table 15--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......................
     Ensure that newly qualified employees in FF-SHOPs and SBE-FPs using the Federal platform for SHOP
     functions have adequate time to make informed decisions regarding their coverage and minimize the risk of
     group health plans in FF-SHOPs and SBE-FPs using the Federal platform for SHOP functions exceeding the
     limitations on waiting period length.......................................................................
     Ensure plan choice, allowing individuals to find coverage that fit their needs.....................
----------------------------------------------------------------------------------------------------------------
Costs:                                               Estimate       Year dollar    Discount rate  Period covered
                                                       (million)
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................          $12.12            2016               7       2017-2021
                                                           12.12            2016               3       2017-2021
----------------------------------------------------------------------------------------------------------------

[[Page 94165]]

 
Costs reflect administrative costs incurred by issuers and Web-brokers to comply with provisions in this final
 rule.
----------------------------------------------------------------------------------------------------------------
Transfers:                                           Estimate       Year dollar    Discount rate  Period covered
                                                       (million)
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................           $33.8            2016               7       2017-2021
                                                            34.4            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 precise risk adjustment charges and payments due to change in risk adjustment methodology.....
----------------------------------------------------------------------------------------------------------------

    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 2016 benefit year. 
Therefore, the costs associated with those programs are not included in 
Tables 15 or 16 for fiscal years 2019-2021. Table 16 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 final rule discussed in this RIA. We do not expect the 
provisions of this final rule to significantly alter CBO's estimates of 
the budget impact of the premium stabilization programs that are 
described in Table 16. 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 final rule (Table 
16).

   Table 16--Estimated Federal Government Outlays and Receipts for the Risk Adjustment, Reinsurance, and Risk
                                  Corridors Programs From Fiscal Year 2017-2021
                                              [billions of dollars]
----------------------------------------------------------------------------------------------------------------
               Year                     2017         2018         2019         2020         2021      2017-2021
----------------------------------------------------------------------------------------------------------------
Risk Adjustment, Reinsurance, and            10            8            8            9            9           44
 Risk Corridors Program Payments..
Risk Adjustment, Reinsurance, and            11            7            8            9            9           44
 Risk Corridors Program
 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 final rule creates multiple child age bands rather than a 
single age band for individuals age 0 through 20. Establishing single-
year age bands starting at age 15 will result in small annual increases 
in premiums attributable to age for children age 15 to 20, which will 
help mitigate large premium increases attributable to age due to the 
transition from child to adult age rating at age 21.
2. Guaranteed Renewability
    The final rule specifies two circumstances in which the 
discontinuation of all coverage currently offered by an issuer in a 
market in a State will not be considered a market withdrawal subject to 
the 5-year ban on market re-entry. These changes are generally 
consistent with State regulation of health insurance coverage. 
Consumers will benefit from the rule 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, collect charges 
from health insurance issuers that attract lower-risk populations in 
order 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 modifications 
to the risk adjustment model finalized in this rule are intended to 
improve the methodology and will 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 $40 million, and under this final rule, the risk 
adjustment user fee will be $1.68 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, 
including since the publication of the proposed rule.

[[Page 94166]]

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.\72\
---------------------------------------------------------------------------

    \72\ Available at http://cciio.cms.gov/resources/files/Files2/03162012/hie3r-ria-032012.pdf.
---------------------------------------------------------------------------

    In Sec.  155.230(d)(2), we require SHOPs to make electronic notices 
the default method of sending SHOP notices to employers and employees, 
unless otherwise required by State or Federal law, or unless the 
employer or employee elects otherwise. Electronic notices will provide 
a more cost effective way for SHOPs to distribute required notices and 
should decrease the SHOPs' costs for notifications.
    In Sec.  155.725(g), we amend the enrollment process for newly 
qualified employees in FF-SHOPs and in SBE-FPs using the Federal 
platform for SHOP functions, and specify that waiting periods in all 
SHOPs are calculated beginning on the date an employee becomes a 
qualified employee who is otherwise eligible for coverage. We believe 
these amendments will ensure that newly qualified employees in FF-SHOPs 
and in SBE-FPs using the Federal platform for SHOP functions have 
adequate time to make informed decisions regarding their coverage, and 
they are likely to have a negligible impact on plan premiums and to 
minimize the risk that qualified employers administering group health 
plans in FF-SHOPs and in SBE-FPs using the Federal platform for SHOP 
functions exceed the waiting period limits under Sec.  147.116.
5. Direct Enrollment--Standardized Options Differential Display and 
Privacy/Security and Oversight
    In Sec. Sec.  155.220, 156.265, and 156.1230, we finalize 
requirements for Web-brokers and issuers related to the direct 
enrollment process that will provide consumer protections and ensure 
that consumers have necessary information to select coverage that best 
fit their needs. Web-brokers and issuers will incur administrative 
costs to comply with these requirements.
6. Eligibility and Enrollment Provisions
    In Sec.  155.400, we 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 will allow consumers to 
remain enrolled through the Exchanges and to mitigate the problems 
associated with issuers receiving high-volumes of enrollments in a 
short timeframe. There will 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 will 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 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 will contribute to 
greater stability in the market, and in the use of these special 
enrollment periods, specifically. In addition, we do not anticipate 
that any of the amendments to the existing parameters of special 
enrollment periods will reduce their availability to those individuals 
who should qualify under the provision's original intent.
    We 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 will 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 enrollments conform to FFE and SBE-FP rules and guidance.
7. Standardized Options
    We are finalizing new standardized options for 2018. As in 2017, 
offering standardized options will be voluntary for QHP issuers for the 
2018 Plan Year. In keeping with the methodology used to design 
standardized options in 2017, we designed the 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 finalizing additional standardized 
options at each metal level and plan variation level (plus an 
additional bronze HDHP standardized option, within the meaning of 
section 223(c)(2) of the Code) with the goal of having one option at 
each metal level and plan variation level (plus the bronze HDHP option) 
that will comply with State cost-sharing laws as applicable. Each 
applicable State will have one standardized option at each metal level 
and plan variation that issuers will 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 will impact 2018 plan premiums 
significantly. To the extent it facilitates consumer shopping, it can 
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. Under this final rule, for the 2018 benefit year, 
the monthly FFE user fee rate is 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 15). For the user fee charges 
assessed on issuers in the FFE and State-based Exchanges using the 
Federal platform, we have sought and received 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 sought 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).

[[Page 94167]]

9. Levels of Coverage
    At Sec.  156.140, we are finalizing a change to the de minimis 
range of the actuarial value of bronze plans under certain 
circumstances. We believe that this policy will allow more flexibility 
in bronze plan designs which will allow increased consumer choice. We 
further believe that this policy will not be disruptive to the current 
bronze plan market, because it allows more options for issuers to leave 
2017 cost-sharing structures unchanged. We also believe that this 
policy will allow issuers to continue to offer a range of bronze plans 
as the AV Calculator is updated in future years. We do not require 
plans to utilize this expanded bronze de minimis range, and therefore 
we do not anticipate any significant impact on average bronze plan 
premiums as a result of this 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 many low- and 
moderate-income individuals and families obtain health insurance--for 
many people, cost sharing is a barrier to obtaining needed health 
care.\73\
---------------------------------------------------------------------------

    \73\ 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 final 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 of the reductions 
described in the Affordable Care Act to the estimated 2018 maximum 
annual limitation on cost sharing for self-only coverage, which is 
$7,350 for the 2018 benefit year, on the QHPs' AVs. We do not believe 
these changes will result in a significant economic impact. Therefore, 
we do not believe the provisions related to the cost-sharing reduction 
portion of advance payments in this final rule will have an impact on 
the program established by and described in the 2015, 2016, and 2017 
Payment Notices.
    We also finalized 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 section 4980H(a) and 4980H(b). We believe that the 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 provisions will alter CBO's March 2015 baseline 
estimates of the budget impact.
11. Qualified Health Plan Minimum Certification Standards
    In Sec.  156.200(c), we 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 will be any impact on premiums, 
while the requirements will help ensure continued plan choice for 
consumers.
    In Sec.  156.200(g), we specify that the certification standard 
regarding issuer participation in an FF-SHOP applies only for plan 
years beginning before January 1, 2018. The SHOP participation 
provision will no longer be a certification requirement for plan years 
that begin on or after January 1, 2018.
    Section 156.272 establishes, as a condition of certification, that 
QHP issuers must make their QHPs available for enrollment through the 
Exchanges for the duration of the plan year 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 can be subject to CMPs or a two-year ban. This will raise 
costs or burdens on some issuers, who may be forced to remain on the 
Exchange or face a 2-year ban or CMPs in certain situations. However, 
we believe this impact is minimal due to the small number of issuers 
that have sought to offer QHPs for less than a full plan year and is 
balanced by the additional choice and competition this requirement will 
offer.
12. Medical Loss Ratio
    In this final rule, we 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 when such business represents 50 percent or more of 
the total earned premium for an MLR reporting year. In general, the 
deferral of 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. Deferred 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 may reduce total rebate 
payments from issuers to consumers over a 4-year period by up to a 
total of $11.6 million.
    We additionally 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 clarifications to Sec.  158.232 because these 
clarifications are intended to simplify reporting for purposes of 
calculating the rebate limit provision in Sec.  158.240 and do not 
change the manner in which issuers currently calculate the credibility 
adjustment. Because the amendments to Sec.  158.240 generally will 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 limit on the rebate liability will depend on how 
issuers' enrollment and MLRs change in future years. Because estimating 
the impact of the limit on rebate liability would require multiple 
years of data, and the majority of new issuers have expanded or intend 
to expand into new markets in 2014 or later, the 2014 and earlier MLR 
reports are an insufficient

[[Page 94168]]

source of data on the types of issuers that will be impacted by this 
amendment. In addition, significant reporting differences exist between 
2011-13 and 2014 and later MLR data, and some rebates that were paid 
for 2014 are believe to be outliers and may therefore exaggerate 
estimates. Consequently, while we expect the amendment 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.
13. CO-OPs
    Although most of the original $6 billion appropriated for the CO-OP 
program has been rescinded (as mentioned above), the program has issued 
significant sums to its borrowers. The total loan awards for currently 
operating CO-OPs are shown in Table 17.

     Table 17--Total Loan Awards for CO-OPs Operating in 2016 CO-OPs
------------------------------------------------------------------------
                                                             Current
            CO-OP name                     State           obligations
------------------------------------------------------------------------
HealthyCT, Inc....................  CT................      $127,980,768
Land of Lincoln Mutual Health       IL................       160,154,812
 Insurance Company.
Minuteman Health, Inc.............  MA, NH............       156,442,995
Evergreen Health Cooperative, Inc.  MD................        65,450,900
Maine Community Health Options....  ME................       132,316,124
Montana Health Cooperative........  MT, ID............        85,019,688
Freelancers Consumer Operated and   NJ................       109,074,550
 Oriented Program of New Jersey,
 Inc..
New Mexico Health Connections.....  NM................        77,317,782
Coordinated Health Mutual, Inc....  OH................       129,225,604
Community Care of Oregon, Inc.....  OR................        56,656,900
Common Ground Healthcare            WI................       107,739,354
 Cooperative.
                                   -------------------------------------
    Total.........................  11................     1,207,379,477
------------------------------------------------------------------------

    With respect to the changes to the CO-OP program that we are 
implementing, we do not have any data available to estimate the likely 
number or magnitude of capital-raising transactions that may result 
from our changes. Directionally, we expect the changes to facilitate 
the raising of additional capital for some number of CO-OPs, and that 
the additional capital cushion will strengthen the financial base and 
allow those CO-OPs to better weather financial stress. We sought but 
did not receive any comments or supporting data that shed light on that 
potential impact.
D. Regulatory Alternatives Considered
    In developing the policies contained in this final rule, we 
considered numerous alternatives to the presented proposals. Below we 
discuss the key regulatory alternatives that we considered.
    Regarding the interpretation of what constitutes a market 
withdrawal, we considered imposing the 5-year prohibition on market re-
entry 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 some issuers would 
be obligated to leave the market. This approach could also 
unnecessarily restrict issuer corporate structuring transactions, 
reduce market competition and consumer choice, and conflict with 
States' approaches.
    Regarding changes to the uniform child age band, we considered 
maintaining the use of a single age band for rating purposes for all 
individuals age 0 through 20. However, establishing 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 provisions 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 various thresholds and coinsurance rates for the 
high-cost enrollee pool in the risk adjustment proposal. Lower 
thresholds and higher coinsurance rates could increase the risk of 
gaming among issuers and could decrease the incentive to contain costs, 
but would also increase the effectiveness of the high-cost enrollee 
pool. To balance these objectives, this final rule contains a threshold 
of $1 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 finalize here 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 and to 
mitigate interstate transfer effects based on differing medical costs 
between States.
    We considered using only 2014 MarketScan[supreg] data for 2018 
recalibration. However, commenters to the White Paper preferred to 
continue using the 3-year blended approach. We considered using the 
most current MarketScan[supreg] data for 2018 recalibration, but 
commenters objected

[[Page 94169]]

to release of the final coefficients after the rate setting period for 
the benefit year. As provided in this final rule, HHS will publish 
final 2018 coefficients in early 2017, before issuers price for plan 
year 2018.
    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 provisions regarding standardized options, HHS considered 
taking no action to design additional plans to account for State cost-
sharing laws. However, without this change, issuers in States with 
conflicting cost-sharing laws would not be able to offer standardized 
options. HHS believes that it is important for issuers in each State in 
which an FFE or SBE-FP operates to have the option to offer 
standardized options. HHS also considered designing a set of 
standardized plans for each State. However, HHS currently lacks the 
resources necessary to implement this option.
    For the amendments 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 that would 
fit our definition of a controlled group use a common technology 
platform across multiple States that is shared by their component 
health insurance issuers, and would pose difficult operational 
challenges for many such entities.
    For the amendments at Sec. Sec.  155.220(c)(3)(i)(H) and 
156.265(b)(3)(iv), HHS considered not requiring differential display of 
standardized options by Web-brokers or QHP issuers. However, this would 
have made consumers using a non-Exchange Web sites less likely to be 
aware of available standardized options. HHS believes that the 
requirement for non-Exchange Web sites to differentially display 
standardized options will help consumers to more easily compare and 
choose amongst the available plans. HHS notes that we will not require 
the manner of differentiation of standardized plans on non-Exchange Web 
sites to be identical to the one adopted for displaying standardized 
options on HealthCare.gov, but they must have the same level of 
differentiation and clarity as is provided on HealthCare.gov. Further, 
issuers are not required to offer standardized plans nor are consumers 
required to purchase standardized options.
    For amendments 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 believe, 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 amendments at Sec.  155.420, we considered not codifying 
the existing special enrollment periods for consumers who are or were 
victims of domestic abuse or spousal abandonment and need to enroll in 
coverage apart from their abusers or abandoners, 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 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 amendments related to SHOPs, HHS considered maintaining 
several provisions for the SHOPs. Specifically, HHS 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, HHS considered maintaining 
the current requirements at Sec.  155.230(d)(2), which require paper 
notices to be the default communication option for SHOPs, so that 
employers and employees must opt into electronic notices. HHS also 
considered maintaining the current SHOP participation provision at 
Sec.  156.200(g)(2). Finally, HHS considered maintaining existing 
requirements in State-based Exchanges using the Federal platform for 
SHOP eligibility, enrollment, or premium aggregation functions. With 
respect to the amendments proposed at Sec.  155.725(g), in order to 
preserve flexibility for State-based Exchanges not using the Federal 
platform for SHOP functions, HHS decided to generally maintain the 
current rule for State-based Exchanges not using the Federal platform, 
and to finalize most of its proposed amendments to apply only in FF-
SHOPs and SBE-FPs using the Federal

[[Page 94170]]

platform for SHOP functions, in order to minimize the risk that 
qualified employers administering group health plans in those SHOPs 
will exceed the waiting period limits under Sec.  147.116, and to 
provide newly qualified employees in those SHOPs with sufficient time 
to make plan selections. The only amendment to Sec.  155.725(g) that 
will apply in all SHOPs is a provision specifying when waiting periods 
in SHOPs begin. HHS also opted to finalize its proposal with respect to 
SHOP notices and SBE-FPs using the Federal platform for SHOP functions 
as proposed, in order to provide SHOPs with more cost-effective 
alternatives to sending notices, ensure efficient SHOP operations, and 
minimize the potential customization costs that could be associated 
with permitting State-based Exchanges to use the Federal platform for 
SHOP functions. HHS also decided to amend the policy in this final rule 
regarding the SHOP participation provision in order to encourage 
issuers to participate in the individual market FFEs.
    HHS considered alternatives for increasing the de minimis range for 
bronze plans. HHS considered simply increasing the de minimis range for 
bronze plans to -2/+5 without requiring that plans include certain plan 
design features in order to qualify for the extended de minimis range. 
This option would give issuers, and as a result, consumers, more 
flexibility and choice in bronze plan designs. However, HHS believes 
that the final policy better ensures that bronze plans are not less 
generous than catastrophic plans.
    At Sec.  156.200(c)(1), HHS specifies that 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 in order to satisfy the requirements of this 
section. HHS 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 all applicable service areas. This could result 
in fewer silver and gold plans available for consumers, and thus less 
choice for consumers. It also could complicate the calculation of the 
APTC for an individual market consumer. By revising our regulation, HHS 
ensures that consumers have adequate choice of QHPs at different 
coverage levels and that we are able to calculate APTC for all eligible 
individual market consumers.
    In Sec.  156.272, HHS requires issuers offering QHPs through an 
individual market Exchange or SHOP to make the QHP available for 
enrollment through the individual market Exchange or SHOP for the 
entirety of the period for which the plan was certified, unless a basis 
for suppression under Sec.  156.815 applies. HHS considered taking no 
action; however, HHS is concerned that inaction could result in more 
limited access to QHPs for qualified individuals and qualified 
employees outside of open enrollment periods.
    For the changes to Sec.  156.290, HHS considered a requirement that 
issuers notify enrollees within 30 days of the denial of QHP 
certification for a subsequent, consecutive certification cycle. As 
pointed out by commenters to our proposed rule, such a requirement 
could have caused consumers to receive multiple notices when a plan is 
not certified and discontinued. Moreover, the 30 day requirement would 
not have aligned with the required timing for discontinuation notices. 
Therefore, HHS finalized a revised rule that aligns with existing 
requirements for renewal and discontinuation notices, as described 
above.
    For the amendments to part 158, we considered an alternative 
approach 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 rule and 
the 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 for these issuers. Therefore, the prior year rebate approach would 
need to be limited to only the new and rapidly 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 calculations. Because the adopted 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 
adopted 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. 
In the proposed rule we certified that this regulation would not result 
in a significant impact on a substantial number of small entities. We 
did not receive any comments contradicting the RFA certification, so we 
are not required to prepare a final regulatory flexibility analysis for 
this final rule. (5 U.S.C. 604). 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 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 final rule, we provide 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 a final 
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 final rule:
     Health insurance issuers.
     Group health plans.

[[Page 94171]]

    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 owed to consumers under the amendments to the MLR 
provisions of this final rule in part 158, and the decrease is 
estimated to not exceed 5 percent of health insurance premium revenue 
for any of these entities. Therefore, we certify that the provisions of 
this final rule regarding MLR will not affect a substantial number of 
small entities.
    In this final rule, we finalize 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 
will be affected by the proposals will meet the SBA standard for small 
entities. The policies amend current requirements to ensure that newly 
qualified employees in FF-SHOPs and in SBE-FPs using the Federal 
platform for SHOP functions have adequate time to make informed 
decisions regarding their coverage. However, these provisions are 
likely to result in minimal increase in administrative costs for 
employers, and have negligible impact on plan premiums. 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 with respect to the 
final rule.

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 final rule does 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 regulations, 
States have choices regarding the structure, governance, and operations 
of their Exchanges and risk adjustment program. For example, our 
provisions 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 
provisions requiring SBE-FPs to establish requirements that are 
consistent with certain FF-SHOP requirements when using the Federal 
platform for certain SHOP functions will 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 final rule, HHS has attempted to balance the 
States' interests in regulating health insurance issuers, and the 
policy goal of providing access to 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 agents and brokers, including State laws related to appointments, 
contractual relationships with issuers, licensing, marketing, conduct, 
and fraud will continue to apply.
    The provisions from the interim final rule with comment do not 
impose substantial direct costs on State and local governments or 
preempt State law. However, we believe the rule has Federalism 
implications. In the amendments regarding the CO-OP program, we have 
amended a prohibition on participation on CO-OP board of directors that 
previously prevented any State employee from participating to allow 
certain State employees who are unlikely to have a

[[Page 94172]]

potential conflict of interest to participate. In removing the January 
1, 2017 implementation deadline for (1) offering advance availability 
of the special enrollment period for qualified individuals who gain 
access to new QHPs as a result of a permanent move and (2) for offering 
the special enrollment period for losing a dependent or no longer being 
considered a dependent due to divorce, legal separation, or death, we 
leave implementation at the option of Exchanges, including State 
Exchanges.

H. Congressional Review Act

    This 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.

0
For the reasons set forth in the preamble, the Department of Health and 
Human Services confirms as final, the interim rule published on May 11, 
2016 (81 FR 29146) and further amends 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 resulting new product will be considered 
to be the same as the modified, transferred, or replaced product if 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 paragraphs (d)(3) and (4) 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 will not be considered to have discontinued offering all 
health insurance coverage in a market in a State if--
    (i) The issuer (in this paragraph referred to as the initial 
issuer) or, if the issuer is a member of a controlled group, any other 
issuer that is a member of such controlled group, offers and makes 
available in the applicable market in the State at least one product 
that is considered in accordance with Sec.  144.103 of this subchapter 
to be the same product as a product the initial issuer had been 
offering in such market in such State; or

[[Page 94173]]

    (ii) The issuer--
    (A) Offers and makes available at least one product (in paragraphs 
(d)(3)(ii)(A) through (C) of this section referred to as the new 
product) in the applicable market in the State, even if such product is 
not considered in accordance with Sec.  144.103 of this subchapter to 
be the same product as a product the issuer had been offering in the 
applicable market in the State (in paragraphs (d)(3)(ii)(A) through (C) 
of this section referred to as the discontinued product);
    (B) Subjects such new product or products to the applicable process 
and requirements established under part 154 of this title as if such 
process and requirements applied with respect to that product or 
products, to the extent such process and requirements are otherwise 
applicable to coverage of the same type and in the same market; and
    (C) Reasonably identifies the discontinued product or products that 
correspond to the new product or products for purposes of the process 
and requirements applied pursuant to paragraph (d)(3)(ii)(B) of this 
section.
    (4) 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 
sections 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code 
of 1986, as amended, or a narrower group as may be provided by 
applicable State law.
* * * * *
    (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 if the 
issuer is a member of a controlled group (as described in paragraph 
(d)(4) of this section), any other health insurance issuer that is a 
member of such controlled group;
* * * * *

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) For plan years or policy years beginning 
before January 1, 2018, a single age band for individuals age 0 through 
20.
    (ii) For plan years or policy years beginning on or after January 
1, 2018:
    (A) A single age band for individuals age 0 through 14.
    (B) 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. (i) A health insurance issuer 
in the individual market must provide a limited open enrollment period 
for the triggering events described in Sec.  155.420(d) of this 
subchapter, excluding the following:
    (A) Section 155.420(d)(3) of this subchapter (concerning Exchange 
eligibility standards);
    (B) Section 155.420(d)(6) of this subchapter (to the extent 
concerning eligibility for advance payments of the premium tax credit 
or change in eligibility for cost-sharing reductions other than 
ineligibility);
    (C) Section 155.420(d)(8) of this subchapter (concerning Indians);
    (D) Section 155.420(d)(9) of this subchapter (concerning 
exceptional circumstances);
    (E) Section 155.420(d)(12) of this subchapter (concerning plan and 
benefit display errors); and
    (F) Section 155.420(d)(13) of this subchapter (concerning 
eligibility for insurance affordability programs or enrollment in the 
Exchange).
    (ii) In applying this paragraph (b)(2), a reference in Sec.  
155.420 of this subchapter to a ``QHP'' is deemed to refer to a plan, a 
reference to ``the Exchange'' is deemed to refer to the applicable 
State authority, and a reference to a ``qualified individual'' is 
deemed to refer to an individual in the individual market.
* * * * *

0
8. Section 147.106 is amended by adding paragraphs (d)(3) and (4) and 
revising paragraphs (e)(3)(i) and (h)(2) 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 will not be considered to have discontinued offering all 
health insurance coverage in a market in a State if--
    (i) The issuer (in this paragraph referred to as the initial 
issuer) or, if the issuer is a member of a controlled group, any other 
issuer that is a member of such controlled group, offers and makes 
available in the applicable market in the State at least one product 
that is considered in accordance with Sec.  144.103 of this subchapter 
to be the same product as a product the initial issuer had been 
offering in such market in such State; or
    (ii) The issuer--
    (A) Offers and makes available at least one product (in paragraphs 
(d)(3)(ii)(A) through (C) of this section referred to as the new 
product) in the applicable market in the State, even if such product is 
not considered in accordance with Sec.  144.103 of this subchapter to 
be the same product as a product the issuer had been offering in the 
applicable market in the State (in paragraphs (d)(3)(ii)(A) through (C) 
of this section referred to as the discontinued product);
    (B) Subjects such new product or products to the applicable process 
and requirements established under part 154 of this title as if such 
process and requirements applied with respect to that product or 
products, to the extent such process and requirements are otherwise 
applicable to coverage of the same type and in the same market; and
    (C) Reasonably identifies the discontinued product or products that 
correspond to the new product or products for purposes of the process 
and requirements applied pursuant to paragraph (d)(3)(ii)(B) of this 
section.
    (4) 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 
sections 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code 
of 1986, as amended, or a narrower group as may be provided by 
applicable State law.
    (e) * * *
    (3) * * *

[[Page 94174]]

    (i) The product is offered by the same health insurance issuer 
(within the meaning of section 2791(b)(2) of the PHS Act), or if the 
issuer is a member of a controlled group (as described in paragraph 
(d)(4) of this section), any other health insurance issuer that is a 
member of such controlled group);
* * * * *
    (h) * * *
    (2) Medicare entitlement or enrollment is not a basis to nonrenew 
an individual's health insurance coverage in the individual market 
under the same policy or contract of insurance.
* * * * *

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--
0
a. Revising paragraph (b)(2);
0
b. Adding paragraphs (e)(4) and (5); and
0
c. Revising paragraph (g)(3)(i).
    The revisions and addition read as follows:


Sec.  148.122  Guaranteed renewability of individual health insurance 
coverage.

* * * * *
    (b) * * *
    (2) Medicare entitlement or enrollment is not a basis to nonrenew 
an individual's health insurance coverage in the individual market 
under the same policy or contract of insurance.
* * * * *
    (e) * * *
    (4) For purposes of this paragraph (e), subject to applicable State 
law, an issuer will not be considered to have discontinued offering all 
health insurance coverage in a market in a State if--
    (i) The issuer (in this paragraph referred to as the initial 
issuer) or, if the issuer is a member of a controlled group, any other 
issuer that is a member of such controlled group, offers and makes 
available in the applicable market in the State at least one product 
that is considered in accordance with Sec.  144.103 of this subchapter 
to be the same product as a product the initial issuer had been 
offering in such market in such State; or
    (ii) The issuer--
    (A) Offers and makes available at least one product (in paragraphs 
(e)(4)(ii)(A) through (C) of this section referred to as the new 
product) in the applicable market in the State, even if such product is 
not considered in accordance with Sec.  144.103 of this subchapter to 
be the same product as a product the issuer had been offering in the 
applicable market in the State (in paragraphs (e)(4)(ii)(A) through (C) 
of this section referred to as the discontinued product);
    (B) Subjects such new product or products to the applicable process 
and requirements established under part 154 of this title as if such 
process and requirements applied with respect to that product or 
products, to the extent such process and requirements are otherwise 
applicable to coverage of the same type and in the same market; and
    (C) Reasonably identifies the discontinued product or products that 
correspond to the new product or products for purposes of the process 
and requirements applied pursuant to paragraph (e)(4)(ii)(B) of this 
section.
    (5) 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 
sections 52(a), 52(b), 414(m), or 414(o) of the Internal Revenue Code 
of 1986, as amended, or a narrower group as may be provided by 
applicable State law.
* * * * *
    (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 if the 
issuer that is a member of a controlled group (as described in 
paragraph (e)(5) of this section), any other health insurance issuer 
that is a member of such controlled group;
* * * * *

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.

[[Page 94175]]

    (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) Has a standardized cost-sharing structure specified by HHS in 
rulemaking that is modified only to the extent necessary to align with 
high deductible health plan requirements under section 223 of the 
Internal Revenue Code of 1986, as amended, or the applicable annual 
limitation on cost sharing 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) of this section, 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 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, 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 that operates multiple 
Exchanges, or if an Exchange relies on an entity to conduct its 
eligibility or enrollment functions and that entity conducts such 
functions for multiple Exchanges, the Exchange may aggregate the 
limited English proficient populations across all the States served by 
the entity that operates the Exchange or conducts its eligibility or 
enrollment functions 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 (defined for purposes of this 
section as a group of two or more persons that is treated as a single 
employer under sections 52(a), 52(b), 414(m), or 414(o) of the Internal 
Revenue Code of 1986, as amended), 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 stand-alone document 
linked to or embedded in the Web site. Exchanges, and QHP issuers that 
are also subject to Sec.  92.8 of

[[Page 94176]]

this subtitle, will be deemed in compliance with paragraph 
(c)(2)(iii)(A) of this section if they are in compliance with Sec.  
92.8 of this subtitle.
    (B) For an agent or broker subject to Sec.  155.220(c)(3)(i), 
beginning when such entity has been registered with the Exchange for at 
least 1 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. 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 
stand-alone 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 paragraph (c)(3)(i)(H) through (L); and
0
e. Revising paragraphs (c)(4)(i)(E) and (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 prominently and 
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 and with standards defined by 
HHS, 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) 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
    (L) 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 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 to complete the QHP selection or the Exchange 
eligibility application or ability to transact information with HHS to 
another agent or broker Web site is responsible for ensuring compliance 
with applicable requirements in paragraph (c)(3) of this section for 
any Web pages of the other agent's or broker's Web site that assist 
consumers, applicants, qualified individuals, and enrollees in applying 
for APTC and CSRs for QHPs, or in completing enrollment in QHPs, 
offered in the Exchanges.
* * * * *
    (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 155.221 is added to read as follows:


Sec.  155.221  Standards for HHS-approved vendors to perform audits of 
agents and brokers participating in direct enrollment.

    (a) Application for approval. (1) A vendor must be approved by HHS, 
in a form and manner to be determined by HHS, to have its auditing 
services recognized for Web-brokers assisting with or facilitating 
enrollment in individual market or SHOP coverage through the Exchanges 
consistent with Sec.  155.220.
    (2) HHS will approve vendors on an annual basis for a given plan 
year, and each vendor must submit an application for each year that 
approval is sought.
    (b) Standards. To be approved by HHS and maintain its status as an 
approved vendor, a vendor applicant must meet each of the following 
standards:
    (1) Submit a complete and accurate application by the deadline 
established by HHS that demonstrates prior experience successfully 
conducting auditing or similar services to a large customer base.
    (2) Adhere to HHS specifications for content, format, privacy and 
security in the delivery of auditing services, which includes ensuring 
that Web-brokers are in compliance with the applicable privacy and 
security standards.
    (3) Collect, store, and share with HHS data from Web-broker users 
of the vendor's auditing services in a manner, format, and frequency 
specified by HHS, and protect all data from Web-broker users of the 
vendor's auditing services in accordance with Sec.  155.260.
    (4) Permit any Web-broker registered with the FFEs to access the 
vendor's auditing services.
    (c) Monitoring. HHS may periodically monitor and audit vendors 
approved under this subpart, and their records related to the audit 
services described in this section, to ensure ongoing compliance with 
the standards in paragraph (b) of this section. If HHS determines that 
an HHS-approved vendor is not in compliance with

[[Page 94177]]

paragraph (b) of this section, the vendor may be removed from the 
approved list described in paragraph (d) of this section and may be 
required by HHS to cease performing the functions described under this 
section.
    (d) Approved list. A list of approved vendors will be published on 
an HHS Web site.
    (e) Appeals. A vendor that is not approved by HHS after submitting 
the application described in paragraph (a) of this section, or a vendor 
whose approval is revoked under paragraph (c) of this section, may 
appeal HHS's decision by notifying HHS in writing within 15 days from 
receipt of the notification of not being approved or having its 
approval revoked and submitting additional documentation demonstrating 
how the vendor meets the standards in paragraph (b) of this section and 
(if applicable) the terms of its agreement with HHS. HHS will review 
the submitted documentation within 30 days from receipt of the 
additional documentation.

0
24. 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
25. Section 155.305 is amended by revising paragraph (f)(4) to read as 
follows:


Sec.  155.305  Eligibility standards.

* * * * *
    (f) * * *
    (4) Compliance with filing requirement. (i) The Exchange may not 
determine a tax filer eligible for advance payments of the premium tax 
credit if HHS notifies the Exchange as part of the process described in 
Sec.  155.320(c)(3) that advance payments of the premium tax credit 
were made on behalf of the tax filer or either spouse if the tax filer 
is a married couple for a year for which tax data would be utilized for 
verification of household income and family size in accordance with 
Sec.  155.320(c)(1)(i), and the tax filer or his or her spouse did not 
comply with the requirement to file an income tax return for that year 
as required by 26 U.S.C. 6011, 6012, and implementing regulations and 
reconcile the advance payments of the premium tax credit for that 
period.
    (ii) Notwithstanding the requirement in paragraph (f)(4)(i) of this 
section, the Exchange may not deny eligibility for advance payments of 
the premium tax credit under paragraph (f)(4)(i) of this section unless 
direct notification is first sent to the tax filer, consistent with the 
standards set forth in Sec.  155.230, that his or her eligibility will 
be discontinued as a result of the tax filer's failure to comply with 
the requirement specified under paragraph (f)(4)(i) of this section.
* * * * *

0
26. Section 155.330 is amended by--
0
a. Revising paragraphs (d)(1)(ii), and (e)(2)(i) introductory text;
0
b. Adding paragraph (e)(2)(iii); and
0
c. Revising paragraph (g)(1).
    The addition and revisions 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 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) Recalculate advance payments of the premium tax credit using 
an alternate method that has been approved by the Secretary.
* * * * *

0
27. Section 155.400 is amended by--
0
a. Revising paragraphs (e) introductory text and (e)(1) introductory 
text;
0
b. Adding paragraph (e)(2); and
0
c. Revising paragraph (g) introductory text.
    The revisions and addition read as follows:


Sec.  155.400  Enrollment of qualified individuals into QHPs.

* * * * *
    (e) Premium payment. Exchanges may, and the Federally-facilitated 
Exchanges and State-Based Exchanges on the Federal Platform will, 
require

[[Page 94178]]

payment of a binder payment to effectuate an enrollment or to add 
coverage retroactively to an already effectuated enrollment. Exchanges 
may, and the Federally-facilitated Exchanges and State-Based Exchanges 
on the Federal Platform will, establish a standard policy for setting 
premium payment deadlines:
    (1) In a Federally-facilitated Exchange or State-Based Exchange on 
the Federal Platform:
* * * * *
    (2) Premium payment deadline extension. Exchanges may, and the 
Federally-facilitated Exchanges and State-Based Exchanges on the 
Federal Platform 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.
* * * * *
    (g) Premium payment threshold. Exchanges may, and the Federally-
facilitated Exchanges and State-Based Exchanges on the Federal Platform 
will, allow issuers to implement, a premium payment threshold policy 
under which issuers can consider enrollees to have paid all amounts due 
if the enrollees pay an amount sufficient to maintain a percentage of 
total premium paid out of the total premium owed equal to or greater 
than a level prescribed by the issuer, provided that the level is 
reasonable and that the level and the policy are applied in a uniform 
manner to all enrollees. If an applicant or enrollee satisfies the 
premium payment threshold policy, the issuer may:
* * * * *

0
28. Section 155.420 is amended by:
0
a. Revising paragraphs (b)(2)(iii) and (iv);
0
b. Adding paragraph (b)(5);
0
c. Revising paragraphs (c)(2), (d)(1)(i) and (iii), (d)(2)(ii), (d)(3), 
(d)(6)(iv), and (d)(7), (8), and (9); and
0
d. Adding paragraphs (d)(10) through (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.
    (iv) If a consumer loses coverage as described in paragraph (d)(1) 
or (d)(6)(iii) of this section, gains access to a new QHP as described 
in paragraph (d)(7) of this section, becomes newly eligible for 
enrollment in a QHP through the Exchange in accordance with Sec.  
155.305(a)(2) as described in paragraph (d)(3) of this section, or 
becomes newly eligible for advance payments of the premium tax credit 
in conjunction with a permanent move as described in paragraph 
(d)(6)(iv) of this section, if the plan selection is made on or before 
the day of the triggering event, the Exchange must ensure that the 
coverage effective date is on the first day of the month following the 
date of the triggering event. If the plan selection is made after the 
date of the triggering event, the Exchange must ensure that coverage is 
effective in accordance with paragraph (b)(1) of this section or on the 
first day of the following month, at the option of the Exchange.
* * * * *
    (5) Option for later coverage effective dates due to prolonged 
eligibility verification. At the option of the consumer, the Exchange 
must provide an appropriate coverage effective date that is later than 
the effective date specified in paragraph (b) of this section if a 
consumer's enrollment is delayed until after the Exchange's 
verification of the consumer's eligibility for a special enrollment 
period, and the assignment of a coverage effective date consistent with 
paragraph (b) of this section would result in the consumer being 
required to pay two or more months of retroactive premium to effectuate 
coverage or avoid termination for non-payment.
    (c) * * *
    (2) Advanced availability. A qualified individual or his or her 
dependent who is described in paragraph (d)(1) or (d)(6)(iii) of this 
section has 60 days before or after the triggering event to select a 
QHP. At the option of the Exchange, a qualified individual or his or 
her dependent who is described in paragraph (d)(7) of this section; who 
is described in paragraph (d)(6)(iv) of this section and becomes newly 
eligible for advance payments of the premium tax credit as a result of 
a permanent move to a new State; or who is described in paragraph 
(d)(3) of this section and becomes newly eligible for enrollment in a 
QHP through the Exchange because he or she newly satisfies the 
requirements under Sec.  155.305(a)(2), has 60 days before or after the 
triggering event to select a QHP.
* * * * *
    (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
* * * * *
    (2) * * *
    (ii) At the option of the Exchange, the enrollee loses a dependent 
or is no longer considered a dependent through divorce or legal 
separation as defined by State law in the State in which the divorce or 
legal separation occurs, or if the enrollee, or his or her dependent, 
dies.
    (3) The qualified individual, or his or her dependent, becomes 
newly eligible for enrollment in a QHP through the Exchange because he 
or she newly satisfies the requirements under Sec.  155.305(a)(1) or 
(2);
* * * * *
    (6) * * *
    (iv) A qualified individual who was previously ineligible for 
advance payments of the premium tax credit solely because of a 
household income below 100 percent of the FPL and who, during the same 
timeframe, was ineligible for Medicaid because he or she was living in 
a non-Medicaid expansion State, who either experiences a change in 
household income or moves to a different State resulting in the 
qualified individual becoming newly eligible for advance payments of 
the premium tax credit;
    (7) The qualified individual or enrollee, or his or her dependent, 
gains access to new QHPs as a result of a permanent move and either--
    (i) Had minimum essential coverage as described in 26 CFR 1.5000A-
1(b) for one or more days during the 60 days preceding the date of the 
permanent move, or
    (ii) Was living outside of the United States or in a United States 
territory at the time of the permanent move;
    (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

[[Page 94179]]

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;
    (9) The qualified individual or enrollee, or his or her dependent, 
demonstrates to the Exchange, in accordance with guidelines issued by 
HHS, that the individual meets other exceptional circumstances as the 
Exchange may provide;
    (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 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 through the 
Exchange; 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 
QHP 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
29. 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
30. 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
31. 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
32. Section 155.725 is amended by revising paragraphs (g)(1) and (2) 
and (j)(2)(i) to read as follows:


Sec.  155.725  Enrollment periods under SHOP.

* * * * *
    (g) * * *
    (1) In a State Exchange that does not use the Federal platform for 
SHOP functions, the following rules apply with respect to enrollment 
and coverage effective dates for newly qualified employees.
    (i) The SHOP must provide an employee who becomes a qualified 
employee outside of the initial or annual open enrollment period an 
enrollment period beginning on the first day of becoming a qualified 
employee. A newly qualified employee must have at least 30 days from 
the beginning of his or her enrollment period to select a QHP. The 
enrollment period 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.
    (ii) The effective date of coverage for a QHP selection received by 
the SHOP from a newly qualified employee must always be the first day 
of a month, and must generally be determined in accordance with 
paragraph (h) of this section, unless the employee is subject to a 
waiting period consistent with Sec.  147.116 of this subchapter, 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 
of this subchapter.
    (iii) Waiting periods in the SHOP are calculated beginning on the 
date the employee becomes a qualified employee who is otherwise 
eligible for coverage, regardless of when a qualified employer notifies 
the SHOP about a newly qualified employee.
    (2) In a Federally-facilitated SHOP or in a State Exchange that 
uses the Federal platform for SHOP functions, the following rules apply 
with respect to enrollment and coverage effective dates for newly 
qualified employees.
    (i) 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 a 
newly qualified employee.
    (ii) 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)(2)(iii) 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

[[Page 94180]]

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 the first day of the following month. 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 the 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.
    (iii) Waiting periods in the SHOP are calculated beginning on the 
date the employee becomes a qualified employee who is otherwise 
eligible for coverage, regardless of when a qualified employer notifies 
the SHOP about a newly qualified employee, and must not exceed 60 days 
in length. Waiting periods 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 (d)(1)(ii)), or experiences an event described in Sec.  
155.420(d)(2), (4), (5), (7), (8), (9), (10), (11), or (12);
* * * * *

0
33. 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
34. 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
35. 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
36. Section 156.80 is amended by--
0
a. Revising paragraph (d)(1);
0
b. Redesignating paragraph (d)(3) as paragraph (d)(4);
0
c. Adding new paragraph (d)(3); and
0
d. Revising newly redesignated paragraph (d)(4).
    The revisions 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 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.
* * * * *
    (3) Calibration. The issuer must calibrate the plan-adjusted index 
rate for its plans within the single risk pool 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, to ensure that any rating variation under Sec.  147.102 of 
this subchapter may be accurately applied with respect to a particular 
plan or coverage. The calibration must be applied uniformly to all 
plans within the single risk pool of the State market and cannot vary 
by plan.
    (4) Frequency of index rate and plan-level adjustments. (i) A 
health insurance issuer may not establish an index rate and make the 
market-wide adjustments pursuant to paragraph (d)(1) of this section, 
make the plan-level adjustments pursuant to paragraph (d)(2) of this 
section, or calibrate the plan-adjusted index rate for its plans 
pursuant to paragraph (d)(3) of this section more or less frequently 
than annually, except as provided in paragraph (d)(4)(ii) of this 
section.
    (ii) A health insurance issuer in the small group market (not 
including a merged market) may establish index rates and make the 
marketwide adjustments under paragraph (d)(1) of this section, make the 
plan-level adjustments under paragraph (d)(2) of this section, and 
calibrate the plan-adjusted index rate for its plans pursuant to 
paragraph (d)(3) of this section, no more frequently than quarterly. 
Any changes to rates must have effective dates of January 1, April 1, 
July 1, or October 1. Such rates may only apply to coverage issued or 
renewed on or after the rate effective date and will apply for the 
entire plan year of the group health plan.
* * * * *

0
37. 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

[[Page 94181]]

(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 health 
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
38. Section 156.200 is amended by revising paragraphs (c)(1) and (g) 
introductory text 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,
* * * * *
    (g) Certification standard specific to a Federally-facilitated 
Exchange for plan years beginning before January 1, 2018. A Federally-
facilitated Exchange may certify a QHP in the individual market of a 
Federally-facilitated Exchange only if the QHP issuer meets one of the 
conditions below:
* * * * *

0
39. 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 level 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
40. 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) in a manner consistent 
with that adopted by HHS for display on the Federally-facilitated 
Exchange Web site, unless HHS approves a deviation.
* * * * *

0
41. Section 156.272 is added to read as follows:


Sec.  156.272  Issuer participation for the 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 under Sec.  156.815 applies.
    (b) Unless a basis for suppression under Sec.  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
42. 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-availability. When, for a subsequent, 
consecutive certification cycle, a QHP issuer elects not to seek 
certification with the Exchange, or the Exchange denies certification 
of a QHP, the QHP issuer must provide written notice to each enrollee 
in the form and manner specified by the Secretary under Sec.  147.106 
of this subchapter.
* * * * *

0
43. Section 156.350 is amended by revising paragraph (a)(2) and adding 
paragraph (a)(4) 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
* * * * *
    (4) Section 156.265(d) of this subchapter regarding binder payments 
and premium payment deadlines.
* * * * *

0
44. 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
45. Section 156.505 is amended by revising the definitions of ``Pre-
existing issuer'' and ``Representative'' to read as follows:


Sec.  156.505  Definitions.

* * * * *
    Pre-existing issuer means a health insurance issuer licensed by a 
State regulator that marketed individual or group health insurance 
benefit plans

[[Page 94182]]

(other than Medicare or Medicaid Managed Care plans) on July 16, 2009.
* * * * *
    Representative means an officer, director, or trustee of an 
organization, or group of organizations; or a senior executive or high-
level representative of the Federal government, or a State or local 
government or a sub-unit thereof.
* * * * *

0
46. Section 156.515 is amended by revising paragraphs (b)(1)(i) through 
(v) and (b)(2)(i), (ii), (iii), and (v) to read as follows:


Sec.  156.515  CO-OP standards.

* * * * *
    (b) * * *
    (1) * * *
    (i) The CO-OP must be governed by an operational board with a 
majority of directors elected by a majority vote of a quorum of the CO-
OP's members that are age 18 or older;
    (ii) All members age 18 or older must be eligible to vote for each 
of the directors on the organization's operational board subject to a 
vote of the members under paragraph (b)(1)(i) of this section;
    (iii) Each member age 18 or older must have one vote in each 
election for each director subject to a vote of the members under 
paragraph (b)(1)(i) of this section in that election;
    (iv) The first elected directors of the organization's operational 
board must be elected no later than one year after the effective date 
on which the organization provides coverage to its first member; the 
entire operational board must be elected or in place, and in full 
compliance with paragraph (b)(1)(i) of this section, no later than two 
years after the same date;
    (v) Elections of the directors on the organization's operational 
board subject to a vote of the members under paragraph (b)(1)(i) of 
this section must be contested so that the total number of candidates 
for contested seats on the operational board exceeds the number of 
contested seats for such directors, except in cases where a seat is 
vacated mid- term due to death, resignation, or removal.
    (2) * * *
    (i) Each director must meet ethical, conflict-of-interest, and 
disclosure standards;
    (ii) Each director has one vote;
    (iii) Positions on the board of directors may be designated for 
individuals with specialized expertise, experience, or affiliation (for 
example, providers, employers, and unions); and
* * * * *
    (v) Limitation on government and issuer participation. No 
representative of any Federal, State or local government (or of any 
political subdivision or instrumentality thereof) and no representative 
of any organization described in Sec.  156.510(b)(1)(i) (in the case of 
a representative of a State or local government or organization 
described in Sec.  156.510(b)(1)(i), with respect to a State in which 
the CO-OP issues policies), may serve on the CO-OP's formation board or 
as a director on the organization's operational board.
* * * * *

0
47. 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
48. 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 a 
semicolon in its place;
0
c. Adding paragraphs (a)(1)(vii) and (viii); and
0
d. Revising paragraphs (a)(2), (a)(3)(ii), (a)(3)(v) 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 such paragraphs (a)(1)(i) 
through (viii) of this section 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;
* * * * *
    (v) For reconciliation of the cost-sharing reduction portion of 
advance payments, within 60 calendar days of the date of the cost-
sharing reduction reconciliation discrepancy resolution decision; and
* * * * *
    (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
49. 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 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.

[[Page 94183]]


0
50. 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
51. 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
52. Section 157.205 is amended by revising paragraphs (e)(1) and (f)(1) 
to read as follows:


Sec.  157.205  Qualified employer participation process in a SHOP.

* * * * *
    (e) * * *
    (1) An enrollment period to seek coverage in a QHP in accordance 
with Sec.  155.725(g) of this subchapter; and
* * * * *
    (f) * * *
    (1) Newly eligible dependents and newly qualified employees. In a 
Federally-facilitated SHOP or in a State Exchange that uses the Federal 
platform for SHOP functions, a qualified employer must provide 
information about a newly qualified employee on or before the thirtieth 
day after the day that the employee becomes a newly qualified employee; 
and
* * * * *

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

0
53. 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
54. 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
55. 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
56. 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;
0
c. Adding a new paragraph (d); and
0
d. Amending newly redesignated paragraph (f) by removing the reference 
``paragraph (d) of this section'' each time it appears and adding in 
its place the reference ``paragraph (e) of this section''.
    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: November 28, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.

    Dated: December 12, 2016.
Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-30433 Filed 12-16-16; 4:15 pm]
 BILLING CODE 4120-01-P