[Federal Register Volume 83, Number 74 (Tuesday, April 17, 2018)]
[Rules and Regulations]
[Pages 16930-17071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-07355]



[[Page 16929]]

Vol. 83

Tuesday,

No. 74

April 17, 2018

Part II





Department of Health and Human Services





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45 CFR Parts 147, 153, 154, et al.





Patient Protection and Affordable Care Act; HHS Notice of Benefit and 
Payment Parameters for 2019; Final Rule

Federal Register / Vol. 83 , No. 74 / Tuesday, April 17, 2018 / Rules 
and Regulations

[[Page 16930]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

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

[CMS-9930-F]
RIN 0938-AT12


Patient Protection and Affordable Care Act; HHS Notice of Benefit 
and Payment Parameters for 2019

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 and risk adjustment data validation 
programs; cost-sharing parameters; and user fees for Federally-
facilitated Exchanges and State Exchanges on the Federal platform. It 
finalizes changes that provide additional flexibility to States to 
apply the definition of essential health benefits (EHB) to their 
markets, enhance the role of States regarding the certification of 
qualified health plans (QHPs); and provide States with additional 
flexibility in the operation and establishment of Exchanges, including 
the Small Business Health Options Program (SHOP) Exchanges. It includes 
changes to standards related to Exchanges; the required functions of 
the SHOPs; actuarial value for stand-alone dental plans; the rate 
review program; the medical loss ratio program; eligibility and 
enrollment; exemptions; and other related topics.

DATES: Effective Date: These regulations are effective on June 18, 
2018.

FOR FURTHER INFORMATION CONTACT: 
    Lindsey Murtagh, (301) 492-4106, Rachel Arguello, (301) 492-4263, 
Alper Ozinal, (301) 492-4178, or Abigail Walker, (410) 786-1725, for 
general information.
    Krutika Amin, (301) 492-5153, for matters related to risk 
adjustment, and user fees for Federally-facilitated Exchanges and 
State-Exchanges on the Federal platform.
    Adrianne Patterson, (410) 786-0686, or Abigail Walker, (410) 786-
1725, for matters related to sequestration.
    Melissa Jaffe, (301) 492-4129, for matters related to risk 
adjustment data validation, cost-sharing reductions, and the premium 
adjustment percentage.
    Lisa Cuozzo, (410) 786-1746, for matters related to rate review.
    Jenny Chen, (301) 492-5156, for matters related to establishing a 
State Exchange, and State Exchanges on the Federal platform.
    Emily Ames, (301) 492-4246, for matters related to Navigators and 
non-Navigator assistance personnel.
    Elissa Dines, (301) 492-4388, for matters related to employer-
sponsored coverage verification.
    Kendra May, (301) 492-4477, for matters related to the requirement 
to file an income tax return and reconcile APTC and terminations.
    Carolyn Kraemer, (301) 492-4197, for matters related to special 
enrollment periods under part 155.
    Amanda Brander, (202) 690-7892, for matters related to exemptions 
from the individual shared responsibility payment.
    Terence Kane, (301) 492-4449, for matters related to income 
inconsistencies.
    Jacob Schnur, (410) 786-7703, for matters related to direct 
enrollment.
    Laura Eldon, (301) 492-4372, for matters related to the Federally-
facilitated SHOP.
    Shilpa Gogna, (301) 492-4257, for matters related to SHOP in State 
Exchanges.
    Leigha Basini, (301) 492-4380, Rebecca Zimmermann, (301) 492-4396, 
or Allison Yadsko, (410) 786-1740, for matters related to standardized 
options, essential health benefits, stand-alone dental plans and other 
standards for QHP issuers.
    Cam Moultrie Clemmons, (206) 615-2338, for matters related to 
minimum essential coverage.
    Christina Whitefield, (301) 492-4172, for matters related to the 
medical loss ratio program.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Executive Summary
II. Background
    A. Legislative and Regulatory Overview
    B. Stakeholder Consultation and Input
    C. Structure of Final Rule
III. Provisions of the Proposed Rule and Analysis of and Responses 
to Public Comments
    A. Part 147--Health Insurance Reform Requirements for the Group 
and Individual Health Insurance Markets
    B. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment Under the Affordable Care Act
    C. Part 154--Health Insurance Issuer Rate Increases: Disclosure 
and Review Requirements
    D. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
    E. Part 156--Health Insurance Issuer Standards Under the 
Affordable Care Act, Including Standards Related to Exchanges
    F. Part 157--Employer Interactions With Exchanges and SHOP 
Participation
    G. Part 158--Issuer Use of Premium Revenue: Reporting and Rebate 
Requirements
IV. Collection of Information Requirements
    A. Wage Estimates
    B. ICRs Regarding State Flexibility for Risk Adjustment
    C. ICRs Regarding Risk Adjustment Data Validation
    D. ICRs Regarding Health Insurance Issuer Rate Increases: 
Disclosure and Review Requirements--Applicability
    E. ICRs Regarding Rate Increases Subject To Review
    F. ICRs Regarding the Small Business Health Options Program
    G. ICRs Regarding Essential Health Benefits
    H. ICRs Regarding Medical Loss Ratio
    I. Summary of Annual Burden Estimates for Final Requirements
    J. Submission of PRA-Related Comments
V. 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
    I. Reducing Regulation and Controlling Regulatory Costs

I. Executive Summary

    American Health Benefit Exchanges, or ``Exchanges'' (also called 
``Marketplaces'') are entities established under the Patient Protection 
and Affordable Care Act (PPACA) through which qualified individuals and 
qualified employers can purchase health insurance coverage. Many 
individuals who enroll in qualified health plans (QHPs) through 
individual market Exchanges are eligible to receive a premium tax 
credit (PTC) to reduce their costs for health insurance premiums, and 
receive reductions in required cost-sharing payments to reduce out-of-
pocket expenses for health care services. The PPACA also established 
the risk adjustment program, which is intended to mitigate the 
potential impact of adverse selection and stabilize the price of health 
insurance in the individual and small group markets, both on and off 
Exchanges.
    Over time, issuer exits and increasing insurance premiums have 
threatened the stability of the individual and small group Exchanges in 
many geographic areas. In previous rulemaking, we established 
provisions and parameters to implement many PPACA provisions and 
programs. In this final rule, we amend these provisions and parameters, 
with a focus on enhancing the role of States in these programs and 
providing States with additional flexibilities, reducing unnecessary 
regulatory burden

[[Page 16931]]

on stakeholders, empowering consumers, and improving affordability.
    On January 20, 2017, the President issued an Executive Order which 
stated that, to the maximum extent permitted by law, the Secretary of 
HHS and heads of all other executive departments and agencies with 
authorities and responsibilities under the PPACA should exercise all 
authority and discretion available to them to waive, defer, grant 
exemptions from, or delay the implementation of any provision or 
requirement of the PPACA that would impose a fiscal burden on any State 
or a cost, fee, tax, penalty, or regulatory burden on individuals, 
families, health care providers, health insurers, patients, recipients 
of health care services, purchasers of health insurance, or makers of 
medical devices, products, or medications. In this rule, within the 
limitations of the current statute, we are finalizing policies to 
reduce fiscal and regulatory burdens across different program areas, 
and to support innovative health insurance models.
    We are finalizing several changes that would significantly expand 
the role of States in the administration of the PPACA. We received 
comments on additional ways to support State Exchanges (SBEs) in 
adopting innovative approaches to operating and sustaining their 
Exchanges, and to make the State Exchange on the Federal platform (SBE-
FP) model a more appealing and viable model for States. We finalize 
policies under which States assume a larger role in reviewing the QHP 
certification standards of network adequacy and essential community 
providers for the Federally-facilitated Exchanges (FFEs). This will 
confirm States' traditional role in overseeing their health insurance 
markets, and reduce the issuer burden associated with having to comply 
with duplicative State and Federal reviews.
    This rule also finalizes several policies that will provide States 
with greater flexibility. For example, this rule provides States with 
additional flexibility in applying the definition of EHBs to their 
markets starting with the 2020 plan year. In addition to granting 
States more flexibility regulating their markets, we believe this 
change would permit States to modify EHBs to increase affordability of 
health insurance in the individual and small group markets. This rule 
also provides States with significantly more flexibility in how they 
operate a Small Business Health Options Program (SHOP), permitting them 
to operate these Exchanges more efficiently, and therefore benefitting 
States, issuers, employers, and employees. These changes would allow 
for a more efficient SHOP, such that employers and employees could 
enroll in SHOP coverage by working with a QHP issuer or SHOP-registered 
agent or broker. Additionally, the finalized policies provide States 
more flexibility regarding risk adjustment transfers in their markets. 
We also make it easier for States to apply for and be granted an 
adjustment to the individual market medical loss ratio (MLR) standard 
in their State. We believe this change provides States with an 
additional tool to help stabilize, innovate and provide relief in their 
individual markets. Additionally, we make other changes to the MLR 
program to reduce the burden on issuers.
    Risk adjustment continues to be a core program for stabilizing the 
individual and small group markets both on and off Exchanges, and we 
are finalizing recalibrated parameters for the HHS risk adjustment 
methodology. We are also finalizing several changes related to the risk 
adjustment data validation program that are intended to ensure the 
integrity of the results of risk adjustment, while alleviating issuer 
burden.
    As we do every year in the HHS notice of benefit and payment 
parameters final rule, we are finalizing updated parameters applicable 
in the individual and small group markets. We are finalizing the user 
fee rate for issuers participating on FFEs and SBE-FPs for 2019 to be 
3.5 and 3.0 percent of premiums, respectively. We are finalizing the 
premium adjustment percentage for 2019, which is used to set the rate 
of increase for several parameters detailed in the PPACA, including the 
maximum annual limitation on cost sharing for 2019, the required 
contribution percentage used to determine eligibility for certain 
exemptions under section 5000A of the Internal Revenue Code of 1986 
(the Code), and the assessable payment amounts under section 4980H(a) 
and (b) of the Code. We are finalizing updates to the maximum annual 
limitations on cost sharing for the 2019 benefit year for cost-sharing 
reductions plan variations.
    We are finalizing a number of changes related to rate review that 
are intended to reduce regulatory burden on States and issuers in 
regard to the rate filing process. Specifically, we are exempting 
student health insurance coverage from Federal rate review 
requirements, beginning with coverage effective on or after July 1, 
2018. We are also modifying the 10 percent threshold for reasonableness 
review to a 15 percent default threshold.
    Recognizing that Exchanges, including the FFEs, face resource 
constraints, we are changing the requirements regarding Navigators, and 
the requirements regarding non-Navigator assistance personnel subject 
to Sec.  155.215, to enable Exchanges to more easily operate these 
programs with limited resources. Similarly, we are allowing an agent, 
broker or issuer participating in direct enrollment to have its 
selected third-party entity conduct operational readiness reviews, 
rather than requiring that those reviews be conducted by entities 
approved by HHS.
    We also finalize relatively minor adjustments to our programs and 
rules as we do each year in the HHS notice of benefit and payment 
parameters. We are finalizing a number of incremental amendments to our 
policies around coverage, eligibility, enrollment, and affordability 
exemptions.
    We continue to be very interested in exploring ways to improve 
Exchange program integrity. In the proposed rule, we sought comment on 
a number of program integrity items, including whether we should 
consider shortening the length of time the Exchanges are authorized to 
obtain enrollee tax information, as well as ways to prompt more timely 
consumer reporting of changes in circumstances during the benefit year 
that may impact an individual's eligibility for coverage and financial 
assistance. In addition, we requested comment on any additional program 
integrity improvements that were not outlined in the proposed rule, but 
could be beneficial in a future rulemaking.
    Finally, as noted in the proposed rule, we intend to consider 
proposals in future rulemaking that would help reduce drug costs and 
promote drug price transparency. We also intend to provide guidance on 
other aspects of Exchange eligibility in the near future. In 
particular, we intend to reconsider the appropriate thresholds for 
changes in income that will trigger a data matching inconsistency, 
processes for denying eligibility for advance subsidies for individuals 
who fail to reconcile advance payments of the premium tax credit (APTC) 
on their Federal income tax return, processes for matching enrollment 
data with the Medicare and Medicaid programs in order to help consumers 
avoid duplicate enrollments, and the appropriate manner of 
recalculating APTC following a midyear change in eligibility, and 
sought comments on each of these issues as we prepare rulemaking on 
these topics.
    Instituting strong program safeguards to ensure that only 
individuals who are eligible are enrolled in Exchange coverage, and 
that they are only

[[Page 16932]]

receiving the amount of financial assistance for which they are 
eligible, is essential to ensuring that the Exchanges operate as 
intended, and is also a key priority for the Administration. We have 
already taken action to strengthen safeguards around Exchange 
eligibility, most recently through the implementation of pre-enrollment 
verification for special enrollment periods; however, we continue to be 
interested in exploring ways to further safeguard Federal tax dollars 
flowing through Exchanges.

II. Background

A. Legislative and Regulatory Overview

    The Patient Protection and Affordable Care Act (Pub. L. 111-148) 
was enacted on March 23, 2010. The Health Care and Education 
Reconciliation Act of 2010 (Pub. L. 111-152), which amended and revised 
several provisions of the Patient Protection and Affordable Care Act, 
was enacted on March 30, 2010. In this final rule, we refer to the two 
statutes collectively as the ``Patient Protection and Affordable Care 
Act'' or ``PPACA.''
    Subtitles A and C of title I of the PPACA 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 2701 of the PHS Act, as added by the PPACA, 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. These factors are family 
size, rating area, age and tobacco use.
    Section 2701 of the PHS Act operates in coordination with section 
1312(c) of the PPACA. Section 1312(c) of the PPACA generally requires a 
health insurance issuer to consider all enrollees in all health plans 
(except for 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 market 
and small group market risk pools under section 1312(c)(3) of the 
PPACA.
    Section 2702 of the PHS Act, as added by the PPACA, 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.\1\
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    \1\ Before enactment of the Patient Protection and Affordable 
Care Act, the Health Insurance Portability and Accountability Act of 
1996 (HIPAA) 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 PPACA, and sections 
2712 and 2741 of the PHS Act, as added by the Health Insurance 
Portability and Accountability Act of 1996 (Pub. L. 104-191) (HIPAA) 
prior to the enactment of the PPACA, 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 PPACA, generally 
requires health insurance issuers to submit an annual MLR 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 PPACA, 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.'' \2\ 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 specifies that beginning with plan years starting in 2014, the 
Secretary, in conjunction with the States, will monitor premium 
increases of health insurance coverage offered through an Exchange and 
outside of an Exchange.
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    \2\ 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. See Rate Increase 
Disclosure and Review; Final Rule, 76 FR 29964, 29966 (May 23, 
2011).
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    Section 1252 of the PPACA provides that any standard or requirement 
adopted by a State under title I of the PPACA, or any amendment made by 
title I of the PPACA, is to be applied uniformly to all health plans in 
each insurance market to which the standard and requirement apply.
    Section 1302 of the PPACA provides for the establishment of an EHB 
package that includes coverage of EHB (as defined by the Secretary), 
cost-sharing limits, and actuarial value requirements. The law directs 
that EHBs be equal in scope to the benefits provided under 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 PPACA directs all issuers of QHPs to 
cover the EHB package described in section 1302(a) of the PPACA, 
including coverage of the services described in section 1302(b) of the 
PPACA, to adhere to the cost-sharing limits described in section 
1302(c) of the PPACA and to meet the AV levels established in section 
1302(d) of the PPACA. 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 health insurance 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 sections 1302(c)(1) of the PPACA.
    Section 1302(d) of the PPACA describes the various levels of 
coverage based on actuarial value (AV). Consistent with section 
1302(d)(2)(A) of the PPACA, AV is calculated based on the provision of 
EHB to a standard population. Section 1302(d)(3) of the PPACA directs 
the Secretary to develop guidelines that allow for de minimis variation 
in AV calculations.
    Section 1311(b)(1)(B) of the PPACA directs that the Small Business 
Health Options Program assist qualified small employers in facilitating 
the enrollment of their employees in QHPs offered in the small group 
market. Sections 1312(f)(1) and (2) of the PPACA define qualified 
individuals and qualified employers. Under section 1312(f)(2)(B) of the 
PPACA, beginning in 2017, States have the option to allow issuers to 
offer QHPs in the large group market through an Exchange.\3\ Section 
1312(a)(2) of the PPACA provides that in a SHOP, a qualified employer 
may select a level of coverage, and that employees may then, in turn, 
choose SHOP plans within the level selected by the qualified employer.
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    \3\ If a State elects this option, the rating rules in section 
2701 of the PHS Act and its implementing regulations will apply to 
all coverage offered in such State's large group market (except for 
self-insured group health plans) pursuant to section 2701(a)(5) of 
the PHS Act.

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    Section 1311(c)(1)(B) of the PPACA 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 PPACA requires the Secretary to continue 
to operate, maintain, and update the internet portal developed under 
section 1103 of the PPACA to provide information to consumers and small 
businesses on affordable health insurance coverage options.
    Sections 1311(d)(4)(K) and 1311(i) of the PPACA direct all 
Exchanges to establish a Navigator program.
    Section 1311(c)(6)(C) of the PPACA establishes special enrollment 
periods and section 1311(c)(6)(D) of the PPACA establishes the monthly 
enrollment period for Indians, as defined by section 4 of the Indian 
Health Care Improvement Act.
    Section 1312(e) of the PPACA 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 PPACA 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 PPACA. Section 1321(a)(1) of the PPACA directs the 
Secretary to issue regulations that set standards for meeting the 
requirements of title I of the PPACA with respect to, among other 
things, the establishment and operation of Exchanges.
    Sections 1313 and 1321 of the PPACA 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 PPACA 
provides for State flexibility in the operation and enforcement of 
Exchanges and related requirements.
    When operating an FFE under section 1321(c)(1) of the PPACA, HHS 
has the authority under sections 1321(c)(1) and 1311(d)(5)(A) of the 
PPACA to collect and spend user fees. In addition, 31 U.S.C. 9701 
permits a Federal agency to establish a charge for a service provided 
by the agency. Office of Management and Budget (OMB) Circular A-25 
Revised establishes Federal policy regarding user fees and specifies 
that a user charge will be assessed against each identifiable recipient 
for special benefits derived from Federal activities beyond those 
received by the general public.
    Section 1321(c)(2) of the PPACA 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 when a State fails to substantially 
enforce these provisions.
    Section 1321(d) of the PPACA provides that nothing in title I of 
the PPACA should be construed to preempt any State law that does not 
prevent the application of title I of the PPACA. Section 1311(k) of the 
PPACA specifies that Exchanges may not establish rules that conflict 
with or prevent the application of regulations issued by the Secretary.
    Section 1343 of the PPACA establishes a permanent risk adjustment 
program to provide payments to health insurance issuers that attract 
higher-risk populations, such as those with chronic conditions, funded 
by payments from those that attract lower-risk populations; thereby, 
reducing incentives for issuers to avoid higher-risk enrollees.
    Section 1402 of the PPACA provides for, among other things, 
reductions in cost sharing for EHB for qualified low- and moderate-
income enrollees in silver level health plans offered through the 
individual market Exchanges. This section also provides for reductions 
in cost sharing for Indians enrolled in QHPs at any metal level.
    Section 5000A of the Code, as added by section 1501(b) of the 
PPACA, requires all applicable individuals to maintain minimum 
essential coverage (MEC) for each month or make an individual shared 
responsibility payment. Section 5000A(f) of the Code defines MEC as any 
of the following: (1) Coverage under a specified government sponsored 
program; (2) coverage under an eligible employer-sponsored plan; (3) 
coverage under a health plan offered in the individual market within a 
State; and (4) coverage under a grandfathered health plan. In addition, 
the HEALTHY KIDS Act amended section 5000A(f)(1)(A)(iii) of the Code to 
include in the definition of MEC CHIP look-alike plans, which are CHIP 
buy-in programs that provide benefits that are at least identical to 
the benefits provided by the title XXI CHIP program.\4\ Section 
5000A(f)(1)(E) of the Code authorizes the Secretary of HHS, in 
coordination with the Secretary of the Treasury, to designate other 
health benefits coverage as MEC. Under tax reform legislation that was 
enacted on December 22, 2017, the individual shared responsibility 
payment is reduced to $0, effective for months beginning after December 
31, 2018.\5\
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    \4\ Public Law 115-120, 101 (2018).
    \5\ Public Law 115-97, 131 Stat. 2054.
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    The Protecting Affordable Coverage for Employees Act (Pub. L. 114-
60) amended section 1304(b) of the PPACA and section 2791(e) of the PHS 
Act to amend the definition of small employer in these statutes to 
mean, in connection with a group health plan with respect to a calendar 
year and a plan year, an employer who employed an average of at least 1 
but not more than 50 employees on business days during the preceding 
calendar year and who employs at least 1 employee on the first day of 
the plan year. It also amended these statutes to make conforming 
changes to the definition of large employer, and to provide that a 
State may treat as a small employer, with respect to a calendar year 
and a plan year, an employer who employed an average of at least 1 but 
not more than 100 employees on business days during the preceding 
calendar year and who employs at least 1 employee on the first day of 
the plan year.
1. Premium Stabilization Programs \6\
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    \6\ By ``premium stabilization programs,'' we are referring to 
the risk adjustment, risk corridors and reinsurance programs 
established by the PPACA.
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    In the July 15, 2011 Federal Register (76 FR 41929), we published a 
proposed rule outlining the framework for the premium stabilization 
programs. We implemented the premium stabilization programs in a final 
rule, published in the March 23, 2012 Federal Register (77 FR 17219) 
(Premium Stabilization Rule). In the December 7, 2012 Federal Register 
(77 FR 73117), we published a proposed rule outlining the benefit and 
payment parameters for the 2014 benefit year to expand the provisions 
related to the premium stabilization programs and set forth payment 
parameters in those programs (proposed 2014 Payment Notice). We 
published the 2014 Payment Notice final rule in the March 11, 2013 
Federal Register (78 FR 15409).
    In the December 2, 2013 Federal Register (78 FR 72321), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2015 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2015 Payment Notice). We published

[[Page 16934]]

the 2015 Payment Notice final rule in the March 11, 2014 Federal 
Register (79 FR 13743).
    In the November 26, 2014 Federal Register (79 FR 70673), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2016 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2016 Payment Notice). We published the 2016 Payment Notice 
final rule in the February 27, 2015 Federal Register (80 FR 10749).
    In the December 2, 2015 Federal Register (80 FR 75487), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2017 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2017 Payment Notice). We published the 2017 Payment Notice 
final rule in the March 8, 2016 Federal Register (81 FR 12203).
    In the September 6, 2016 Federal Register (81 FR 61455), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2018 benefit year, and to further promote stable premiums in 
the individual and small group markets. We proposed updates to the risk 
adjustment methodology, new policies around the use of external data 
for recalibration of our risk adjustment models, and amendments to the 
risk adjustment data validation process (proposed 2018 Payment Notice). 
We published the 2018 Payment Notice final rule in the December 22, 
2016 Federal Register (81 FR 94058).
2. Program Integrity
    In the June 19, 2013 Federal Register (78 FR 37031), we published a 
proposed rule that proposed certain program integrity standards related 
to Exchanges and the premium stabilization programs (proposed Program 
Integrity Rule). The provisions of that proposed rule were finalized in 
two rules, the ``first Program Integrity Rule'' published in the August 
30, 2013 Federal Register (78 FR 54069) and the ``second Program 
Integrity Rule'' published in the October 30, 2013 Federal Register (78 
FR 65045).
3. Exchanges
    We published a request for comment relating to Exchanges in the 
August 3, 2010 Federal Register (75 FR 45584). We issued initial 
guidance to States on Exchanges on November 18, 2010. We proposed a 
rule in the July 15, 2011 Federal Register (76 FR 41865) to implement 
components of the Exchanges, and a rule in the August 17, 2011 Federal 
Register (76 FR 51201) regarding Exchange functions in the individual 
market and SHOP, 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 additional standards for SHOP in the 2014 Payment 
Notice and in the Amendments to the HHS Notice of Benefit and Payment 
Parameters for 2014 interim final rule, published in the March 11, 2013 
Federal Register (78 FR 15541). The provisions established in the 
interim final rule were finalized in the second Program Integrity Rule. 
We also set forth standards related to Exchange user fees in the 2014 
Payment Notice. We established an adjustment to the FFE user fee in the 
Coverage of Certain Preventive Services Under the Affordable Care Act 
final rule, published in the July 2, 2013 Federal Register (78 FR 
39869) (Preventive Services Rule).
    In a final rule published in the July 17, 2013 Federal Register (78 
FR 42823), we established standards for Navigators and non-Navigator 
assistance personnel in FFEs and for non-Navigator assistance personnel 
funded through an Exchange establishment grant. This final rule also 
established a certified application counselor program for Exchanges and 
set standards for that program.
    In an interim final rule, published in the May 11, 2016 Federal 
Register (81 FR 29146), we made amendments to the parameters of certain 
special enrollment periods (2016 Interim Final Rule). We finalized 
these in the 2018 Payment Notice final rule in the December 22, 2016 
Federal Register (81 FR 94058). In the April 18, 2017 Market 
Stabilization final rule Federal Register (82 FR 18346), we amended 
standards relating to special enrollment periods and QHP certification.
4. Essential Health Benefits and Actuarial Value
    On December 16, 2011, HHS released a bulletin \7\ (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.\8\ 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). In the April 18, 2017 Market 
Stabilization final rule (82 FR 18346), we expanded the de minimis 
range applicable to plan metal levels.
---------------------------------------------------------------------------

    \7\ ``Essential Health Benefits Bulletin.'' December 16, 2011. 
Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf.
    \8\ ``Actuarial Value and Cost-Sharing Reductions Bulletin.'' 
February 24, 2012. Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/Av-csr-bulletin.pdf.
---------------------------------------------------------------------------

5. Minimum Essential Coverage
    In the February 1, 2013 Federal Register (78 FR 7348), we published 
a proposed rule that designates other health benefits coverage as MEC 
and outlines substantive and procedural requirements that other types 
of coverage must fulfill in order to be recognized as MEC. The 
provisions were finalized in the July 1, 2013 Federal Register (78 FR 
39494).
    In the November 26, 2014 Federal Register (79 FR 70674), we 
published a proposed rule seeking comments on whether State high risk 
pools should be permanently designated as MEC or whether the 
designation should be time-limited. In the February 27, 2015 Federal 
Register (80 FR 10750), we designated State high risk pools established 
on or before November 26, 2014 as MEC.
6. 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). The 2018 Payment Notice final 
rule in the December 22, 2016 Federal Register (81 FR 94058) provided 
additional guidance on guaranteed availability and

[[Page 16935]]

guaranteed renewability. In the April 18, 2017 Market Stabilization 
final rule (82 FR 18346), we released further guidance related to 
guaranteed availability.
7. 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 30239), the February 27, 2015 Federal Register 
(80 FR 10749), the March 8, 2016 Federal Register (81 FR 12203) and the 
December 22, 2016 Federal Register (81 FR 94058).
8. 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 with a 60-day comment period relating to the MLR 
program on December 1, 2010 (75 FR 74863). A final rule with a 30-day 
comment period was published in the December 7, 2011 Federal Register 
(76 FR 76573). An interim final rule with a 60-day comment period was 
published in the December 7, 2011 Federal Register (76 FR 76595). A 
final rule was published in the Federal Register on May 16, 2012 (77 FR 
28790). The medical loss ratio 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), the March 8, 2016 Federal 
Register (81 FR 12203), and the December 22, 2016 Federal Register (81 
FR 94183).

B. Stakeholder Consultation and Input

    HHS has consulted with stakeholders on policies related to the 
operation of Exchanges, including the SHOP, and the premium 
stabilization programs. We have held a number of listening sessions 
with consumers, providers, employers, health plans, and the actuarial 
community to gather public input. We have solicited input from State 
representatives on numerous topics, particularly EHB, QHP certification 
and Exchange establishment. We consulted with stakeholders through 
regular meetings with the National Association of Insurance 
Commissioners (NAIC), regular contact with States through the Exchange 
Establishment grant and Exchange Blueprint approval processes, and 
meetings with Tribal leaders and representatives, health insurance 
issuers, trade groups, consumer advocates, employers, and other 
interested parties. We considered all public input we received as we 
developed the policies in this final rule.
    HHS also received several thousand unique comments in response to a 
request for information, entitled ``Reducing Regulatory Burdens Imposed 
by the Patient Protection and Affordable Care Act and Improving 
Healthcare Choices to Empower Patients'', published in the June 12, 
2017 Federal Register (82 FR 26885) (Request for Information). We 
anticipate continuing to address comments in future rulemaking and 
guidance.

C. Structure of Final Rule

    The regulations outlined in this final rule will be codified in 45 
CFR parts 147, 153, 154, 155, 156, 157, and 158.
    The final regulations in part 147 amend the rules regarding fair 
health insurance premiums and guaranteed availability to reflect final 
changes related to the SHOPs and special enrollment periods.
    In connection with part 153, we are recalibrating the risk 
adjustment models consistent with the methodology finalized for the 
2018 benefit year with slight modifications to the drug classes 
included in the 2019 benefit year adult models and the incorporation of 
blended MarketScan[supreg] and the most recent enrollee-level External 
Data Gathering Environment (EDGE) data. This final rule addresses the 
high-cost risk pooling adjustment, where we are finalizing the same 
parameters that applied to the 2018 benefit year for the 2019 benefit 
year risk adjustment. The finalized provisions related to part 153 
include the risk adjustment user fee and modifications to risk 
adjustment data validation. We also finalize a policy to provide States 
flexibility to request reductions in risk adjustment transfers in the 
small group market starting for the 2020 benefit year and beyond.
    The final regulations in part 154 finalize certain modifications to 
reduce regulatory burden and enhance State flexibility for the rate 
review program. We are finalizing an exemption for student health 
insurance coverage from Federal rate review requirements. We are 
finalizing a proposal to raise the default threshold for review of 
reasonableness in the rate review process from 10 percent to 15 
percent. We also are finalizing a proposal to allow States with 
Effective Rate Review Programs to set later submission deadlines for 
rate filings from issuers that offer non-QHPs only. In addition, we are 
finalizing the change to the notification period for States with 
Effective Rate Review Programs to provide advance notice to HHS prior 
to posting rate increases (from 30 days to 5 business days).
    The final regulations in part 155 include modifications to the 
functions of an Exchange, and a new approach to operational readiness 
reviews for direct enrollment partners which will allow agents, 
brokers, and issuers to select their own third-party entities for 
conducting those reviews. We are finalizing modifications to the rules 
around verification of eligibility. We are also finalizing increased 
flexibility in the Navigator program by removing the requirement that 
each Exchange must have at least two Navigator entities, one of which 
must be a community and consumer focused non-profit, and by removing 
the standard requiring physical presence of the Navigator entity in the 
Exchange service area. We are modifying the parameters around certain 
special enrollment periods. We are modifying the effective date options 
for enrollee-initiated terminations, at the option of the Exchange, and 
amending the affordability exemption so that it may be based on the 
lowest cost Exchange plan if there is no bronze level plan sold through 
the Exchange in that rating area.
    The final regulations in part 156 include changes to EHB and the 
QHP certification process. The final regulations in part 156 set forth 
parameters related to cost sharing, 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 2019. The regulations at part 156 also include finalized 
FFE and SBE-FP user fee rates for the 2019 benefit year for all issuers 
participating on the FFEs or SBE-FPs. The regulations at part 156 also 
include finalized policies related to actuarial value for stand-alone 
dental plans (SADPs).
    The final amendments to the regulations in parts 155, 156, and 157 
include finalized proposals that would provide SHOPs with additional 
operational flexibility, and would modify the requirements for issuers, 
employers, and employees interacting with SHOPs.
    The final amendments to the regulations in part 158 include 
revisions related to reporting quality improvement activity expenses as 
part

[[Page 16936]]

of the formula for calculating MLR, and revisions related to State 
requests for adjustment to the individual market MLR standard.

III. Provisions of the Proposed Rule and Analysis of and Responses to 
Public Comments

    In the November 2, 2017 Federal Register (82 FR 51052), we 
published the ``Patient Protection and Affordable Care Act; HHS Notice 
of Benefit and Payment Parameters for 2019'' proposed rule (proposed 
2019 Payment Notice or proposed rule). We received 416 comments, 
including 99 comments that were substantially similar to one of four 
different letters, each regarding the proposals on EHBs, one addressing 
EHBs and the Navigator program, and one addressing proposals related to 
EHBs, Navigators, SHOPs and network adequacy. Comments were received 
from State entities, such as departments of insurance and State 
Exchanges; health insurance issuers; providers, both individuals and 
provider groups; consumer groups; industry 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.
    Comment: We received multiple comments criticizing the short 
comment period, stating that the comment period made it difficult for 
stakeholders to conduct an in-depth analysis of the proposed rule. 
Commenters suggested that HHS adopt a comment period of at least 30 
days from rule publication, and to fully comply with notice-and-comment 
requirements under the Administrative Procedure Act.
    Response: The timeline for publication of this final rule 
accommodates issuer filing deadlines for the 2019 benefit year. A 
longer comment period would have delayed the publication of this final 
rule, and created significant challenges for States, Exchanges, 
issuers, and other entities in meeting deadlines related to 
implementing these rules. We will continue to try to expand the comment 
period for the annual HHS notice of benefit and payment parameters 
while also providing industry and other stakeholders with more time to 
implement the final rule.
    Comment: We received some comments generally supportive of State 
flexibility, stating that by removing existing regulatory barriers, 
issuers will be able to offer a more diverse selection of coverage 
options that meet both the financial and health coverage needs of 
consumers while meeting various State needs.
    Response: We agree that State flexibility with respect to oversight 
of State insurance markets is an important goal, and recognize the 
traditional role States have as the primary regulators of their 
insurance markets. States are best positioned to address the specific 
needs of their consumers, and may be better able than the Federal 
government to develop policies that are tailored to allow issuers in 
their State to develop plans that address both the needs and cost 
concerns of beneficiaries in their State.
    Comment: We received numerous comments cautioning us about making 
changes that would weaken the PPACA. Some commenters expressed concern 
that the proposed changes would remove some of the protections afforded 
by the PPACA, such as the certainty of EHBs.
    Response: Our top priority at HHS is putting consumers first. While 
we have made great strides forward, there is still work to be done, 
including ensuring that coverage is affordable to all consumers. We 
have already taken important steps to streamline our regulations and 
our operations with the goal of reducing unnecessary burden, increasing 
efficiencies and improving the consumer experience. Yet, we have 
recently seen how regulations intended to protect consumers can, 
instead, undermine consumers' access to affordable health coverage. In 
this final rule, we finalize policies that are intended to help control 
costs of coverage in order to make coverage more affordable for 
consumers, particularly unsubsidized consumers. We will continue to 
find innovative ways to reduce costs and burdens while meeting the 
health needs of all Americans. We are continuing to address feedback we 
receive from stakeholders and the public, and in turn we are making 
changes that will better serve consumers and allow States to address 
the unique health needs of their populations.
    Comment: Commenters responded to our request for comment on ideas 
for future rulemaking about ways to help reduce drug costs and promote 
drug price transparency. All commenters acknowledged the consumer 
benefits of lowering drug costs and having more transparent drug 
pricing; however, commenters cautioned that any changes be done in a 
thoughtful manner, that considers value in addition to cost, with input 
from all stakeholders.
    Response: We appreciate the ideas for future rulemaking and will 
consider these suggestions.

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

1. Fair Health Insurance Premiums (Sec.  147.102)
    As discussed elsewhere in this final rule, we are finalizing 
substantial changes to the requirements applicable to SHOPs to provide 
those programs with the flexibility to operate in a leaner fashion, a 
flexibility that we intend to utilize in the Federally-facilitated 
Small Business Health Options Program (FF-SHOP). As part of these 
changes and, as discussed in the preamble to Sec. Sec.  156.285 and 
156.286, we proposed that, effective on the effective date of this 
rule, the requirement in Sec.  156.285(a)(4)(ii) regarding premium 
rating standards in the FF-SHOPs would not apply for plan years 
beginning on or after January 1, 2018. Therefore, we proposed to delete 
from Sec.  147.102(c)(3)(iii)(D) a reference to Sec.  156.285(a)(4), 
and to replace the reference to FF-SHOPs with a reference to SHOPs 
generally, to reflect that, under the proposed approach for SHOPs, some 
SHOPs may want to prohibit issuers from offering average enrollee 
premiums.
    We did not receive comments on this proposal, and are finalizing 
the change as proposed, with one minor typographical correction.
    We also sought comment on whether issuers offering coverage through 
SHOPs should always be required to offer average enrollee premiums, or 
should be required to do so only if required under applicable State 
law.
    Comment: Comments were mixed regarding whether issuers offering 
coverage through SHOPs should always be required to offer average 
enrollee premiums. One commenter stated that issuers offering coverage 
through SHOPs should always be required to offer average enrollee 
premiums, while others stated that issuers should be required to do so 
only if required by applicable State law. One of these commenters 
further recommended that average premium rating should be permitted 
only when a SHOP does not allow employees to choose plans among 
multiple issuers. The commenter stated that average enrollee premiums 
based

[[Page 16937]]

on employees selecting a particular plan could result in illogical 
rates, such as a richer plan having lower rates than a leaner plan 
because only younger employees selected the richer plan. Another 
commenter stated that all issuers, regardless of whether they are 
offering coverage on or off SHOP, should be allowed to offer average 
enrollee premiums.
    Response: For purposes of consistency, we believe that issuers 
offering coverage through a SHOP should be permitted to offer average 
enrollee premiums to the same extent that issuers may do so off SHOP 
under existing State rules. Also, given the decrease in issuer 
participation in the FF-SHOPs, some SHOP employers only have one issuer 
offering FF-SHOP plans in their area and will not be able to offer 
their employers a choice of plans across issuers. In addition, 
historically, a majority of employers have not offered employee choice 
across different issuers, thus mitigating the risk of variance in 
average premium rates across plans. Therefore, we do not believe 
Federal guidance or regulation is currently warranted in this area. 
Thus, issuers offering coverage through a SHOP may offer average 
enrollee premiums to the extent required or permitted by the applicable 
State, and will not be required under Federal law to do so, unless 
required by the State.
2. Guaranteed Availability of Coverage (Sec.  147.104)
i. SHOP
    As discussed elsewhere in this final rule, we proposed and are 
finalizing substantial changes to the requirements applicable to SHOPs 
to provide them with the flexibility to operate in a leaner fashion, a 
flexibility that we will utilize in the FF-SHOPs. Among those changes, 
effective on the effective date of this rule, the requirements in Sec.  
156.285 will apply for plan years starting before January 1, 2018. New 
Sec.  156.286 specifies those requirements contained in Sec.  156.285 
that, effective on the effective date of this rule, will continue to 
apply for plan years starting on or after January 1, 2018. Among those 
requirements is the requirement in Sec.  156.285(e) which permits a QHP 
offered in the SHOP to apply group participation rules under certain 
circumstances. This provision will be listed in new Sec.  156.286(e). 
The marketwide regulations at Sec.  147.104(b)(1)(i)(B) currently 
reference Sec.  156.285(e), and we proposed to add a reference to Sec.  
156.286(e) to clarify that, effective on the effective date of this 
rule, for plan years that start on or after January 1, 2018, QHPs 
offered in the SHOP may restrict the availability of coverage, with 
respect to a group health plan that cannot comply with group 
participation rules, to an annual enrollment period of November 15 
through December 15 of each calendar year. Because we are finalizing 
new Sec.  156.286(e) as proposed, we are also finalizing the proposal 
to reference new Sec.  156.286(e) in Sec.  147.104(b)(1)(i)(B).
    Comment: One commenter supported the proposal to add to Sec.  
147.104(b)(1)(i)(B) a reference to Sec.  156.286(e). One commenter 
opposed permitting QHPs to restrict coverage availability when a group 
health plan cannot comply with group participation rules, while another 
commenter stated that an employer that fails to comply with such rules 
should not be afforded guaranteed availability of coverage, either 
generally or during an annual open enrollment period, either on or off-
SHOP.
    Response: As indicated in the section of the preamble discussing 
the SHOP rule, we are finalizing, as proposed, the proposal to add new 
Sec.  156.286(e), which would apply, to plan years starting on or after 
January 1, 2018, the existing regulatory provision that allows QHPs 
offered in the SHOP to restrict the availability of coverage with 
respect to a group health plan that cannot comply with group 
participation rules, to an annual enrollment period of November 15 
through December 15 of each calendar year. Thus, we are also finalizing 
the proposal to reference new Sec.  156.286(e) in Sec.  
147.104(b)(1)(i)(B).
    We also proposed, and are finalizing, the removal of the small 
group coverage effective dates that are found in the SHOP regulations 
at Sec.  155.725 with respect to plan years beginning on or after 
January 1, 2018, effective on the effective date of this rule. However, 
there are currently requirements in Sec.  147.104(b)(1)(i)(C) that, by 
cross-referencing Sec.  155.725, apply those same requirements 
marketwide, and we did not propose to remove that marketwide 
requirement. We proposed changes to Sec.  147.104 to reflect the SHOP 
changes. Specifically, we proposed to eliminate, from Sec.  
147.104(b)(1)(i)(C), the cross-reference to Sec.  155.725. We proposed 
in place of the cross-reference to explicitly specify in Sec.  
147.104(b)(1)(i)(C) those same coverage effective dates for coverage in 
the small group market, and for the large group market if such coverage 
is offered through a SHOP, that would be eliminated from the SHOP 
regulations under our proposal for Sec.  155.725. We are finalizing 
this proposal, but are modifying the language that will replace the 
cross-reference to clarify that it is permissible for issuers to apply 
an effective date of coverage that is before or on the specified dates. 
We are also modifying the proposed language so that the effective date 
of coverage is tied to the date a group enrollment is received, rather 
than to the date a plan selection is received.
    Comment: All commenters supported in principle the proposal to 
eliminate, from Sec.  147.104(b)(1)(i)(C), the cross reference to the 
effective dates of coverage in Sec.  155.725, and in its place 
explicitly specify in Sec.  147.104(b)(1)(i)(C) those effective dates 
for coverage in the small group market, and for the large group market 
if such coverage is offered through a SHOP. However, several commenters 
noted that our proposal did not import the provisions in Sec.  155.725, 
describing the coverage effective dates, verbatim into Sec.  
147.104(b)(1)(i)(C). They observed that the proposed language in Sec.  
147.104(b)(1)(i)(C) tied the coverage effective date to the date a plan 
selection was received, rather than to the date a group enrollment was 
received, and that tying the coverage date to the date a group 
enrollment was received (as in the effective-date-of-coverage language 
currently set forth in Sec.  155.725) would be more appropriate. 
Commenters also stated that the language we proposed to add in Sec.  
147.104(b)(1)(i)(C), unlike the language in current regulations in 
Sec.  155.725, would prohibit issuers from applying a coverage 
effective date that falls before the first day of the following month, 
or before the first day of the second following month, as applicable, 
after the date a group enrollment is received.
    Response: As commenters pointed out, in the language we proposed 
for Sec.  147.104(b)(1)(i)(C), we tied the coverage effective date to 
the date a plan selection, rather than a group enrollment, was 
received. Given that the proposed language we added appears in a 
section of the rules (Sec.  147.104) that applies marketwide, and not 
just in SHOPs, we agree with the commenters that tying the coverage 
date to a group enrollment, which is a broader term than a plan 
selection (the latter is a SHOP-specific term), would be more 
appropriate. We also agree with the commenters that the existing 
language in Sec.  155.725, which requires issuers to ensure a coverage 
effective date of, rather than on, the dates specified in the existing 
language, permits issuers to apply an enrollment date that falls 
before, rather than only on, the first day of the first month or the 
first day of the second month (as applicable) following the date a 
group enrollment is received, and that issuers should continue to have

[[Page 16938]]

the flexibility to apply an enrollment date that falls before those 
dates. Therefore, in light of those comments, we are finalizing 
language in Sec.  147.104(b)(1)(i)(C).
ii. Special Enrollment Periods
    Section 147.104(b)(2)(i) extends several of the special enrollment 
periods that apply to issuers on the Exchange, to all issuers in the 
individual market. Although Sec.  147.104(b)(2)(i) is intended to 
specify which special enrollment periods offered through the Exchange 
must also be offered by health insurance issuers with respect to 
coverage offered outside of an Exchange, the paragraph as currently 
written could be read to apply the exceptions to any coverage offered 
by a health insurance issuer in the individual market. We recognize the 
potential for confusion, as coverage offered through an Exchange is 
offered by a health insurance issuer in the individual market, but this 
coverage is subject to the special enrollment rule at Sec.  155.420(d), 
which is intended to require special enrollment periods for qualifying 
events including those listed in the exceptions in Sec.  
147.104(b)(2)(i). Therefore, we proposed to amend that phrase in Sec.  
147.104(b)(2)(i) to clarify that the exceptions in the paragraph only 
apply with respect to coverage offered outside of the Exchange in the 
individual market. We received no comments on this proposal, and are 
finalizing it as proposed.
    With respect to the subset of special enrollment periods in Sec.  
155.420 that apply off-Exchange, current regulations at Sec.  
147.104(b)(2)(ii) state that, in applying Sec.  147.104(b)(2), 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. As discussed 
in the preamble to Sec.  155.420, we are finalizing a change to Sec.  
155.420(a)(5) to exempt qualified individuals from the prior coverage 
requirement that applies to certain special enrollment periods if they 
lived in a service area where no qualified health plan was available 
through the Exchange for 1 or more days during the 60 days preceding 
the qualifying event or during their most recent preceding enrollment 
period, as specified in Sec. Sec.  155.410 and 155.420. Section 
155.420(a)(5) applies to qualifying individuals seeking off-Exchange 
coverage through an applicable special enrollment period, so we 
proposed that this exception for individuals living in a service area 
where there were no QHPs offered through an Exchange would also 
apply.\9\ However, in this instance the reference to ``QHP'' should not 
be deemed to refer to a plan for purposes of applying Sec.  
147.104(b)(2). Therefore, we proposed to amend Sec.  147.104(b)(2)(ii) 
to state that a reference in Sec.  155.420 (other than in Sec.  
155.420(a)(5)) 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. We are finalizing this 
change as proposed.
---------------------------------------------------------------------------

    \9\ As stated in the preamble in the proposed rule to Sec.  
155.420, the exception to the requirement to have previous coverage 
is intended to relieve individuals of that requirement when there 
was no affordable coverage (that is, coverage that could be 
purchased through an Exchange to which APTC might apply) available 
in their previous service area. We believe affordability is key to 
this exception, and therefore, that the scope of the exception 
should apply equally, regardless of whether the individual is 
seeking to purchase coverage inside or outside an Exchange during 
the special enrollment periods for which this exception applies; 
that is, the exception should apply if there was no such affordable 
coverage available in the individual's previous service area 
(regardless of whether or not any coverage was being actively 
marketed in that service area outside the Exchange). Also, when an 
individual sought to purchase coverage outside an Exchange during 
such a special enrollment period, we believe it might be 
unreasonably difficult for an issuer to determine if at least one 
issuer was actively marketing coverage in the individual's previous 
service area outside the Exchange, as opposed to determining if at 
least one issuer was making coverage available in that service area 
specifically through an Exchange. We solicited comments on this 
approach.
---------------------------------------------------------------------------

    Comment: All commenters supported this proposal, while some 
commenters stated more generally that special enrollment periods should 
be the same, regardless of whether an individual is seeking coverage on 
or off-Exchange. One commenter suggested that we publish a list of bare 
counties so that the exemption to the prior-coverage requirement can be 
properly applied both on and off-Exchange.
    Response: We are finalizing the proposal, consistent with the way 
in which the amendment to Sec.  155.420(a)(5) is being finalized, and 
if there are ever any service areas in which no qualified health plans 
are offered through the Exchange, we will consider publishing a list of 
them, as the commenter suggested. For a more detailed response to 
comments regarding the amendment to Sec.  155.420(a)(5), see the 
preamble to that section.
    Among the special enrollment periods in Sec.  155.420 that apply 
off-Exchange are those specified in Sec.  155.420(d)(2)(i), under which 
a qualified individual gains a dependent or becomes a new dependent 
through marriage, birth, adoption, placement for adoption, or placement 
in foster care, or through a child support order or other court order. 
We sought comment on whether this special enrollment period should 
afford an individual's existing dependents an independent opportunity 
to enroll, off-Exchange, in new coverage or make changes to their 
existing coverage. As applied to on-Exchange coverage, when a qualified 
individual gains or becomes a new dependent under the circumstances 
described in Sec.  155.420(d)(2)(i), the qualified individual is 
afforded a special enrollment period to enroll in or change Exchange 
coverage with his or her dependents, including his or her newly-gained 
dependent, in accordance with any applicable metal level restrictions 
outlined in Sec.  155.420(a)(4)(i). The new dependent is also afforded 
an independent special enrollment period under which he or she can 
enroll in or change Exchange coverage as a subscriber, as opposed to as 
a dependent of the qualified individual. Under the HIPAA special 
enrollment provisions that continue to apply to group health plans and 
health insurance issuers in connection with group health coverage, 
there are similar special enrollment periods when a child becomes a 
dependent of the employee through marriage, birth, adoption, or 
placement for adoption.\10\ We sought comment on whether, in the off-
Exchange individual market, the special enrollment periods for when an 
individual gains a dependent or becomes a new dependent under the 
circumstances described in Sec.  147.104(b)(2), which cross-references 
Sec.  155.420(d)(2)(i), should continue to operate in the same manner 
as they do on-Exchange, whether they should operate in a manner 
consistent with the HIPAA group market regulations, or whether we 
should adopt some other approach.
---------------------------------------------------------------------------

    \10\ See Sec.  146.117(b).
---------------------------------------------------------------------------

    With respect to off-Exchange coverage, we are maintaining current 
policy under which an individual who qualifies for a special enrollment 
period for gaining a dependent through marriage, birth, adoption, 
placement for adoption, or placement in foster care, or through a child 
support order or other court order under Sec.  147.104(b)(2) may enroll 
in or change coverage along with his or her dependents, including the 
newly-gained dependent(s) and any existing dependents. The new 
dependent is also afforded an independent special enrollment period 
under which he or she can enroll in or change coverage as a subscriber, 
as opposed to as a dependent of the

[[Page 16939]]

individual. This off-Exchange special enrollment period does not 
otherwise provide to existing dependents an independent opportunity to 
enroll in new coverage or make changes to their existing coverage.
    Comment: Some commenters stated that existing dependents should be 
entitled to enroll with other family members who have qualified for the 
special enrollment period when a qualified individual in their 
household gains a dependent or becomes a new dependent through 
marriage, birth, adoption, placement for adoption, or placement in 
foster care, or through a child support order or other court order, 
while others believed they should not, stating that allowing this 
practice would contribute to adverse selection. Some commenters stated 
that special enrollment periods should apply uniformly on-Exchange and 
off-Exchange.
    Response: As stated previously, we are continuing to apply the 
parameters of the special enrollment period for those who have gained 
or become a new dependent through marriage, birth, adoption, foster 
care placement, or a child support or other court order off-Exchange in 
the same manner as applied on-Exchange. We believe the advantages and 
simplicity of uniformity between on-Exchange and off-Exchange coverage 
in this instance outweigh the concern about adverse selection.
iii. Technical Changes
    We proposed to remove paragraph Sec.  147.104(b)(1)(iii), along 
with the cross-reference to it in Sec.  147.104(b)(1)(ii), as paragraph 
(b)(1)(iii) applies to plan selections made in 2013, and is therefore 
no longer necessary. We received no comments regarding this proposal, 
and are finalizing these changes as proposed.

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

1. Sequestration
    In accordance with the OMB Report to Congress on the Joint 
Committee Reductions for Fiscal Year 2018,\11\ both the transitional 
reinsurance program and permanent risk adjustment program are subject 
to the fiscal year 2018 sequestration. The Federal government's 2018 
fiscal year began October 1, 2017. Although the 2016 benefit year was 
the final year of the transitional reinsurance program, HHS will 
continue to make reinsurance payments in the 2018 fiscal year, as the 
second contribution collection deadline for the 2016 benefit year was 
November 15, 2017. Therefore, the reinsurance program will be 
sequestered at a rate of 6.6 percent for payments made from fiscal year 
2018 resources (that is, funds collected during the 2018 fiscal year). 
The risk adjustment program will also be sequestered at a rate of 6.6 
percent for payments made from fiscal year 2018 resources (that is, 
funds collected during the 2018 fiscal year).
---------------------------------------------------------------------------

    \11\ Available at https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/sequestration_reports/2018_jc_sequestration_report_may2017_potus.pdf.
---------------------------------------------------------------------------

    HHS, in coordination with the OMB, has determined that, under 
section 256(k)(6) of the Balanced Budget and Emergency Deficit Control 
Act of 1985, as amended, and the underlying authority for the 
reinsurance and risk adjustment programs, the funds that are 
sequestered in fiscal year 2018 from the reinsurance and risk 
adjustment programs will become available for payment to issuers in 
fiscal year 2019 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.
2. Provisions and Parameters for the Risk Adjustment Program
    In subparts D and G of part 153, we established standards for the 
administration of the risk adjustment program. The risk adjustment 
program is a permanent program created by section 1343 of the PPACA 
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. Beginning with the 2017 
benefit year, HHS is operating risk adjustment in every State, and did 
not receive any applications from States to operate risk adjustment for 
the 2019 benefit year.
a. 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 risk assigned to an individual's age, 
sex, and diagnoses are added together to produce an individual risk 
score. Additionally, in the adult models, we added enrollment duration 
factors beginning for the 2017 benefit year, and prescription drug 
utilization factors (RXCs) beginning for the 2018 benefit year, in the 
calculation of enrollees' risk scores. Infant risk scores are 
determined by inclusion in one of 25 mutually exclusive groups, based 
on the infant's maturity and the severity of 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.
b. Final Updates to the Risk Adjustment Model (Sec.  153.320)
    For the 2019 benefit year, we proposed to recalibrate the risk 
adjustment models using the methodology finalized for the 2018 benefit 
year, with small modifications to the drug classes included in the 2019 
benefit year adult models, and incorporation of the 2016 benefit year 
enrollee-level EDGE data in the 2019 benefit year risk adjustment model 
recalibration.
i. Recalibration Using EDGE Data
    To recalibrate the 2016, 2017 and 2018 benefit year risk adjustment 
models, we used the 3 most recent years of Truven MarketScan[supreg] 
data. This approach 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 rare conditions with small sample sizes. We finalized 
in the 2018 Payment Notice the collection of enrollee-level EDGE data 
and the recalibration of the risk adjustment model for the 2019 benefit 
year using 2016 benefit year EDGE data. We believe that blending the 
coefficients calculated from the 2016 benefit year enrollee-level EDGE 
data with MarketScan[supreg] data will provide stability within the 
risk

[[Page 16940]]

adjustment program and minimize volatility in changes to risk scores 
from the 2018 to 2019 benefit years due to differences in the datasets' 
underlying populations. As such, we proposed blending 3 years of data 
to recalibrate the coefficients used in the risk adjustment models and, 
for the 2019 benefit year, blending separately solved coefficients from 
the 2016 benefit year enrollee-level EDGE data and the 2014 and 2015 
MarketScan[supreg] data.
    Given the timing of the proposed rule, we were not able to 
incorporate the 2016 benefit year enrollee-level EDGE data in the 
proposed rule. Instead, we used the 2014 and 2015 MarketScan[supreg] 
data for the coefficients displayed in the proposed rule. We proposed 
to finalize the 2019 benefit year blended coefficients with the 
separately solved models from the 2016 benefit year enrollee-level EDGE 
data, and the 2014 and 2015 MarketScan[supreg] data. This is similar to 
our approach in previous years, in which we updated the final 
coefficients using data from the most recently available benefit 
year.\12\ We explained that we expected to publish the final risk 
adjustment model coefficients for the 2019 benefit year in the final 
rule. However, we sought comment on whether we should publish the final 
risk adjustment model coefficients in guidance in the spring of 2018, 
prior to rate setting for the 2019 benefit year, if we needed 
additional time to analyze the 2016 enrollee-level EDGE data. Under 
either approach, we proposed that the final risk adjustment model 
coefficients for the 2019 benefit year would be determined using the 
methodology that we would finalize in this rule, and would be published 
prior to the 2019 benefit year rate setting. Additionally, if we found 
significant demographic or distributional differences in the enrollee-
level EDGE data compared to the MarketScan[supreg] data, we sought 
comment on whether we should make adjustments to the risk adjustment 
recalibration model age-sex, hierarchical condition categories (HCCs), 
and RXC categories for the 2019 benefit year. In such a case, we 
proposed we would make adjustments to the models to better align them 
with the enrollee-level EDGE data, to improve the prediction of plan 
liability.
---------------------------------------------------------------------------

    \12\ See, for example, 2018 Payment Notice, 81 FR 94058 
(December 22, 2016).
---------------------------------------------------------------------------

    We sought comment on our proposal to determine coefficients based 
on a blend of 2014 and 2015 MarketScan[supreg] data and 2016 enrollee-
level EDGE data. We also sought comment on the proposed methodology to 
equally weight the separately solved model coefficients from the 2014 
MarketScan[supreg], 2015 MarketScan[supreg], and 2016 enrollee-level 
EDGE data for the final coefficients, instead of using only the 2016 
enrollee-level EDGE data to recalibrate the risk adjustment model 
coefficients for the 2019 benefit year.
    We are finalizing the approach using equally blended coefficients 
from separately solved 2014 MarketScan[supreg], 2015 
MarketScan[supreg], and 2016 enrollee-level EDGE data to recalibrate 
the risk adjustment model coefficients for the 2019 benefit year. We 
are not making any changes to age-sex or HCC categories, because we did 
not find significant distributional differences, and we will continue 
to assess whether to propose any specific changes to the categories for 
future benefit years in future rulemaking. We did not propose and are 
not making any changes to the enrollment duration categories. Please 
see the preamble section below on ``Prescription Drugs'' for a 
discussion of changes being finalized with respect to the RXC 
categories. The final risk adjustment model coefficients for the 2019 
benefit year risk adjustment program are listed in Tables 2, 4 and 5 of 
this rule.
    Comment: Commenters supported the use of enrollee-level EDGE data 
in model recalibration noting the data would more closely reflect the 
relative risk differences of individuals in the individual and small 
group markets compared to the MarketScan[supreg] data. Most commenters 
also supported equally blending coefficients from separately solved 
models using 3 years of data to promote stability year over year, 
thereby phasing in the use of enrollee-level EDGE data. A few 
commenters supported overweighting the 2016 enrollee-level EDGE data, 
with one commenter supporting overweighting of the 2016 data if sample 
sizes are adequate. A few commenters supported using only the 2016 
enrollee-level EDGE data for recalibration, stating that 
MarketScan[supreg] data will have different utilization and risk 
patterns, and socioeconomic status for enrollees with employer-based 
coverage than the EDGE data, which directly reflects PPACA individual 
and small group market enrollees. These commenters also stated that 
these differences in the underlying data could cause the risk 
adjustment coefficients to over- or under-predict risk differences. One 
commenter stated that relying on older data to calibrate the model 
could lead to significant gaps in the risk adjustment methodology. One 
commenter requested clarification as to the volatility in changes to 
risk scores from the 2018 to 2019 benefit years that could occur due to 
differences in the datasets' underlying populations. Another commenter 
requested that recalibration using EDGE data be postponed until all 
States' data is available in the 2017 benefit year.\13\ Some commenters 
requested separate publication of the coefficients from the 2016 
enrollee-level EDGE data. One commenter requested clarification as to 
what weights would be applied in blending coefficients from the 3 years 
of data. Most commenters also supported HHS finalizing the 2019 benefit 
year coefficients prior to rate setting in guidance, while a few others 
requested the coefficients be finalized in the final rule. One 
commenter noted that delaying publication of the final coefficients 
past the publication of the final rule would pose challenges in 
issuers' rate setting timelines, while some commenters suggested that 
if HHS needs additional time beyond the publication of the final rule, 
the final coefficients for the 2019 benefit year should be published no 
later than February 28, 2018.
---------------------------------------------------------------------------

    \13\ Massachusetts is not included in the 2016 benefit year 
enrollee-level EDGE data, because Massachusetts operated its own 
risk adjustment program through the 2016 benefit year.
---------------------------------------------------------------------------

    Response: For small sample sizes, year-to-year differences in 
spending due to data anomalies can cause significant differences in a 
particular solved coefficient. We agree that blending coefficients from 
multiple years of data can provide stability in changes in the 
recalibrated model coefficients and provide certainty to issuers, 
particularly where small sample sizes could lead to volatility in the 
solved coefficients from year-to-year. Additionally, while there are 
differences in total spending in MarketScan[supreg] compared to 
enrollee-level EDGE data, we have found that the relative risk 
differences for age-sex, HCC and RXC categories are generally similar 
to those in the MarketScan[supreg] data, and therefore, do not believe 
that blending the data will cause significant over- or under-prediction 
of relative risk scores on average. Enrollee-level EDGE data shows 
lower spending and relative risk patterns for shorter enrollment 
durations compared to the MarketScan[supreg] data, resulting in smaller 
enrollment duration coefficients for all 11 months. This result was 
expected, given that enrollees in large group coverage have longer 
enrollment duration and a higher proportion of individuals with a full-
year of enrollment on average than enrollees in the individual and 
small group markets, and that the greater number of shorter average 
enrollment durations in the enrollee-level EDGE

[[Page 16941]]

data account for lower relative risk on average.
    Additionally, while Massachusetts is not included in the 2016 
benefit year enrollee-level EDGE data, the relative risk differences 
for enrollees in Massachusetts are likely similar on average to those 
for enrollees in other States. The 2017 benefit year enrollee-level 
risk EDGE data will not be available until the end of summer 2018, 
after the 2019 benefit year risk adjustment factors need to be 
published to support 2019 benefit year benefit design and rate 
development, and therefore cannot be used for this recalibration 
effort. We believe that a national dataset of individual and small 
group market claims experience for the most recent benefit year is the 
preferable data source--even without the incorporation of one State--
compared to only using commercial claims data for risk adjustment model 
recalibration and risk estimation in the individual and small group 
markets.
    In all, we believe blending the coefficients promotes stability and 
certainty for issuers in rate setting, smoothing any significant 
differences as with the EDGE enrollment duration factors, while 
maintaining the relative average risk differences stakeholders have 
expected from the MarketScan[supreg]-only coefficients. Therefore, we 
are finalizing our proposal to equally weight coefficients from 
separately solved models using 2014 MarketScan[supreg], 2015 
MarketScan[supreg], and 2016 enrollee-level EDGE data for the final 
2019 benefit year risk adjustment model recalibration. We also were 
able to complete our analysis of the 2016 EDGE data in time to publish 
the final coefficients blended with 2016 enrollee-level EDGE data in 
this final rule. The final 2019 benefit year risk adjustment model 
coefficients listed in Tables 2, 4, and 5 are blended coefficients 
using equally weighted coefficients solved from the 2014 
MarketScan[supreg], 2015 MarketScan[supreg], and 2016 enrollee-level 
EDGE data.
    Comment: Commenters requested clarification on the analytical 
dataset development process using the 2016 enrollee-level EDGE data, 
sample size of the enrollee-level EDGE data, and differences in EDGE 
and MarketScan[supreg] data.
    Response: We arrived at the 2016 enrollee-level EDGE analytical 
dataset using several criteria. We limited the sample to ages 0-64 to 
maintain the same age categories as those HHS has used in the 
MarketScan[supreg] data, with which the EDGE coefficients are blended. 
Currently, we use the age 60-64 factors for those over 65 years of age 
enrolled in individual and small group market coverage, and will 
continue to do so for the 2019 benefit year. We will consider whether 
to propose expanding the age and sex factors to include age groups and 
associated costs for enrollees ages 65 and above in future model 
recalibrations. We also excluded derived claims, any newborn diagnoses 
for infants older than one year of age, anomalous claims (for example, 
pregnancy diagnoses if sex is male) and those with sex unknown. There 
were approximately 47 million, 28 million and 31 million total unique 
enrollees in the 2014 MarketScan[supreg], 2015 MarketScan[supreg], and 
2016 enrollee-level EDGE data, respectively. Relative risks were 
similar in the 2016 enrollee-level EDGE data for most categories in all 
three adult, infant and child samples. As mentioned above, enrollee-
level EDGE data reflected lower spending and relative risk patterns for 
shorter enrollment duration enrollees compared to MarketScan[supreg] 
data.
    Comment: In case of significant demographic or distributional 
differences in the EDGE data compared to the MarketScan[supreg] data, 
most commenters supported HHS making adjustments to give greater weight 
to the EDGE data when recalibrating the model coefficients. However, 
commenters did not support making changes to the age-sex, HCC, 
enrollment duration or RXC factors categorizations beyond what was in 
the proposed rule, and instead supported such changes to be implemented 
for the 2020 benefit year.
    Response: We did not identify significant differences in the 
relative risk for enrollees over 65 compared to those in the 60-64 age 
group in the enrollee-level EDGE data compared to the 
MarketScan[supreg] data, and therefore, are finalizing the risk 
adjustment model categories as proposed. As noted above, we will 
continue to assess relative differences in demographic and spending 
patterns in the EDGE data and will consider amending the risk 
adjustment model categories in future recalibrations, particularly once 
we have multiple years of enrollee-level EDGE data.
    Comment: A few commenters requested that HHS limit the scope of 
enrollee-level EDGE data collection and use, clarify the types of data 
elements collected in the enrollee-level EDGE data, proceed with 
caution given the data privacy and trade secret information, and 
prohibit any other use of the data.
    Response: These comments are outside the scope of the proposed 
rule. As finalized in the 2018 Payment Notice, HHS is collecting 
enrollee-level EDGE data, which provides more granular claims data from 
the individual and small group markets, and is being used to improve 
the recalibration of HHS programs. Additionally, as noted in the 2018 
Payment Notice, HHS recognizes the sensitivity of enrollee-level EDGE 
data, and is not collecting masked enrollee IDs from issuers' EDGE 
servers, plan or issuer IDs, rating areas, or State data elements to 
safeguard the privacy and security of protected health information 
(PHI) and minimize potential risks to issuers' proprietary information.
ii. Prescription Drugs
    In the 2018 Payment Notice, we finalized the inclusion of 12 RXCs 
that interact with HCCs, or drug-diagnosis (RXC-HCC) pairs, in the 
adult risk adjustment models for the 2018 benefit year. Ten of the RXC-
HCC pairs have three levels of incremental predicted costs (diagnosis-
only, prescription drug-only, and both diagnosis and prescription 
drug), indicating that they can be used to impute a particular 
diagnosis. The 2018 benefit year risk adjustment adult models also 
included two RXC-HCC pairs that are used for severity-only--that is, 
they predict incremental costs for enrollees with the diagnosis-only, 
or with both the diagnosis and the prescription drug. For enrollees 
without the associated diagnoses documented for these severity-only 
RXC-HCC pairs, the presence of the drug alone would not lead to the 
attribution of additional plan liability costs to the plan.
    For the 2019 benefit year, we proposed to remove the two severity-
only RXCs (RXC 11: Ammonia Detoxicants, and RXC 12: Diuretics, Loop and 
Select Potassium-Sparing). Both have low average costs per enrollee per 
year and were constrained in the 2018 benefit year adult risk 
adjustment models final coefficients to the average cost of the drugs 
to avoid overcompensating issuers for these RXCs. Constraining these 
RXCs removed overprescribing and gaming incentives to prescribe a low-
cost drug to receive a much larger risk adjustment payment. However, 
after constraints, these two severity-only RXCs have extremely small 
coefficients that no longer predict meaningful incremental plan risk 
associated with a severe health condition. Therefore, we proposed 
eliminating these two RXCs from the adult models beginning with the 
2019 benefit year. As explained in the proposed rule, we believe the 
remaining RXCs do not engender significant gaming concerns due to the 
cost and side-effects of the drugs if prescribed

[[Page 16942]]

without cause. As we noted in the 2018 Payment Notice, where the risk 
of unintended effects on provider prescribing behavior is low, we will 
continue to include a small number of prescription drug classes as 
predictors of risk and plan liability. For the remaining RXCs, we 
explained there is a high rate of presence of a diagnosis code in the 
associated HCC in the MarketScan[supreg] data, indicating a positive 
predictive value for using these RXCs to impute missing diagnoses. 
Additionally, we noted that we intend to monitor prescription drug 
utilization for unintended effects, and may propose to remove drug 
classes based on such evidence in future rulemaking. We are finalizing 
the removal of RXC11 and RXC12 from the adult risk adjustment models 
beginning with the 2019 benefit year. Table 1 contains the final list 
of prescription drug factors included in the 2019 benefit year risk 
adjustment adult models. We will continue to evaluate the effects of 
incorporating prescription drugs in the adult models to determine 
whether to continue, broaden or reduce the impact of this set of 
factors.
    Comment: Most commenters supported the removal of the two severity-
only RXCs due to their low impact in predicting meaningful differences 
in risk. Commenters also supported HHS's intention to evaluate the 
impact of incorporating the prescription drug factors in the model and 
adding or removing drugs in future model recalibrations as appropriate. 
Commenters generally supported the inclusion of prescription drug 
factors in the HHS risk adjustment model, noting the benefit in 
imputing missing diagnoses. Additionally, we note that commenters on 
the Request for Information also supported the inclusion of 
prescription drugs in the risk adjustment methodology. One commenter to 
the proposed rule suggested HHS should use the MedID for drug 
classification instead of the RXNorm Concept Unique Identifier (RXCUI) 
system. The commenter noted MedID would improve stability, 
accessibility and predictability of the RXCs, as acquiring RXCUI 
mapping, keeping it up to-date, anticipating changes and ensuring drug 
inclusion has been a challenge for issuers in determining formularies 
and often excludes some drugs. Another commenter sought clarification 
as to whether drugs administered through hospital, office-based or home 
health settings and found on medical claims would receive credit for 
the RXC factors, in addition to drugs found on pharmacy claims. One 
commenter requested HHS release a mapping of RXCUIs to RXC factors for 
issuers to adequately assess how inclusion and exclusion of drugs will 
impact risk adjustment, and suggested HHS provide a crosswalk with the 
RXCUIs mapped to the RXCs prior to January 1, 2018. The commenter also 
noted that since there is a lag in the data used for recalibration, HHS 
should consider how to incorporate newer drugs that are approved after 
the data years and before or during the benefit year. On the other 
hand, commenters who had a chance to review the draft RXC crosswalk HHS 
released in September 2017 for the 2018 benefit year risk adjustment 
adult models suggested that if a drug is included, then all strengths 
and formulations of that drug ought to be included in the drug class, 
including the generic or brand name drugs, or requested clarification 
as to why specific drugs were excluded. A few commenters requested that 
HHS consider including prescription drugs used by individuals with 
mental health and substance use disorders in the model, with one 
suggesting that adding drugs used by those with mental health and 
substance use disorders to the model may better capture the costs 
associated with these individuals, and citing a study suggesting that 
those costs may not be well captured in the associated HCCs in the 
current model.\14\
---------------------------------------------------------------------------

    \14\ Montz, E., Layton, T., Busch, A.B., Ellis, R.P., Rose, S., 
& McGuire, T.G. (2016). Risk-adjustment simulation: Plans may have 
incentives to distort mental health and substance use coverage. 
Health Affairs, 35(6), 1022-1028.
---------------------------------------------------------------------------

    Response: We are finalizing our proposal to remove the two 
severity-only RXCs (RXC 11: Ammonia Detoxicants, and RXC 12: Diuretics, 
Loop and Select Potassium-Sparing) from the 2019 benefit year risk 
adjustment adult models. As we explained in the 2018 Payment Notice, we 
selected the RxNorm tool developed by the U.S. National Library of 
Medicine because it is frequently updated, reliable, and easily 
accessible, and issuers commented on the ease of the RxNorm tool in 
mapping drugs to RXCUIs. As such, we do not see a need to adopt another 
classification system at this time. HHS posted an RXC to RXCUI draft 
crosswalk on September 18, 2017,\15\ to provide issuers an initial set 
of RXCUIs that would be included for 2018 benefit year risk adjustment 
adult models in the HHS-operated risk adjustment program. As we noted 
in the crosswalk, drugs were excluded based on expert or clinician 
input as to drugs' cross indications, empirical and statistical 
analyses that indicated a weak association between the drug and the 
diagnoses, or if drugs were older or discontinued. Drugs were also 
excluded in situations where drugs had substantially lower costs 
compared to other drugs included in the RXC, and therefore these drugs 
were less likely to be the focus of risk-selection behavior by health 
plans. In these instances, USP classes contained a mix of newer, more 
expensive drug treatments, and older, often generic, lower-cost drug 
treatments. For example, the combined USP classes Immune Suppressants 
and Immunomodulators encompass a wide range of drugs. They include 
expensive biologics costing several thousands of dollars each month and 
drugs like generic methotrexate, a month's supply of which can cost 
less than $100. Clinician review determined that many of the drugs in 
this class are substitutable and the general prescribing process would 
be to first prescribe a cheaper drug, and if the patient does not 
respond to that then move to a more expensive biologic. However, 
because concern over patient access and health plan selection behavior 
(reflected in formulary design) centers around the expensive biologics, 
the cheaper non-biologics were removed from RXC 9.
---------------------------------------------------------------------------

    \15\ Creation of the 2018 Benefit Year HHS-Operated Risk 
Adjustment Adult Models Draft Prescription Drug (RXCUIs) to HHS Drug 
Classes (RXCs) Crosswalk Memorandum. September 18, 2017. Available 
at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Draft-RxC-Crosswalk-Memo-9-18-17.pdf.
    2018 Benefit Year HHS-Operated Risk Adjustment Adult Models 
Draft Prescription Drug (RXCUIs) to HHS Drug Classes (RXCs) 
Crosswalk. September 18, 2017. Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/RARx_RxCUIs-Crosswalk-9-6-17.xlsx.
---------------------------------------------------------------------------

    We review drugs in the United States Pharmacopeia (USP) 
classification and consult clinicians and experts to ensure relevant 
drugs are included. However, as some commenters noted in response to 
the proposed rule, new drugs have been released since we released the 
draft 2018 benefit year crosswalk and a few drugs that may be eligible 
under our other criteria were not classified by the USP classification 
version used for the draft crosswalk. We expect to publish the final 
2018 benefit year crosswalk in the spring of 2019, after the conclusion 
of the 2018 benefit year, so that newly approved drugs released through 
the end of the year and the latest USP classification are evaluated and 
included, as appropriate. As such, we intend to make quarterly updates 
to the 2018 benefit year prescription drug crosswalk, to ensure we are 
capturing all new drug releases and drug class inclusions or 
modifications. We are also reviewing drugs administered through 
clinicians in hospital, office-based, or

[[Page 16943]]

home health settings crosswalked to national drug codes (NDCs) to 
determine whether it is appropriate under our inclusion criteria to 
include these drugs in the 2018 benefit year crosswalk for 2018 benefit 
year risk adjustment risk score calculation. However, as these drugs 
are often more expensive when administered in hospital, office-based, 
or home health settings, we are not including such drugs in the 
recalibration of the adult models for the 2019 benefit year to limit 
gaming incentives. We anticipate the 2019 benefit year drug crosswalk 
will be published on a similar quarterly schedule, following the final 
2018 benefit year crosswalk publication. We also intend to monitor the 
impact of the drugs included in the adult models on prescribing 
incentives and will evaluate adding or removing other RXCs as 
appropriate in future recalibrations for future benefit years. We had 
previously considered, but did not include, antimanic agents for 
depression and bipolar disorders due to their low imputation value in 
identifying the risk solely based on the RXC and low relative cost of 
the drugs. We are continuing to assess if mental health and substance 
use disorder treatments should be included in the adult models in 
future benefit years.
    Comment: One commenter noted that pharmacy claims should not be 
included in the risk adjustment data validation process as no clinical 
documentation is available for pharmacy claims, and HHS should not 
include data that cannot be easily audited in risk adjustment. Another 
commenter sought clarification as to how HHS intends to conduct risk 
adjustment data validation for prescription drugs included in the risk 
adjustment adult models.
    Response: As we noted in the 2018 Payment Notice, HHS does not 
perform risk adjustment data validation audits with the intent of 
determining whether a clinician correctly diagnosed a patient. Rather, 
the goal for the HHS-operated risk adjustment program is to ensure 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 and beyond. We will 
consider whether additional adjustments to the risk adjustment data 
validation process are needed for the 2018 benefit year to ensure risk 
adjustment data validation appropriately audits pharmacy claims 
submitted to EDGE by issuers.

                     Table 1--Final Drug-Diagnosis (RXC-HCC) Pairs for the 2019 Adult Model
----------------------------------------------------------------------------------------------------------------
        RXC              RXC label                 HCC                   HCC label            Final RXC use
----------------------------------------------------------------------------------------------------------------
RXC 01.............  Anti-HIV Agents.  001.......................  HIV/AIDS............  imputation/severity.
RXC 02.............  Anti-Hepatitis C  037C, 036, 035, 034.......  Chronic Hepatitis C,  imputation/severity.
                      (HCV) Agents.                                 Cirrhosis of Liver,
                                                                    End-Stage Liver
                                                                    Disease, and Liver
                                                                    Transplant Status/
                                                                    Complications.
RXC 03.............  Antiarrhythmics.  142.......................  Specified Heart       imputation/severity.
                                                                    Arrhythmias.
RXC 04.............  Phosphate         184, 183, 187, 188........  End Stage Renal       imputation/severity.
                      Binders.                                      Disease, Kidney
                                                                    Transplant Status,
                                                                    Chronic Kidney
                                                                    Disease, Stage 5,
                                                                    Chronic Kidney
                                                                    Disease, Severe
                                                                    (Stage 4).
RXC 05.............  Inflammatory      048, 041..................  Inflammatory Bowel    imputation/severity.
                      Bowel Disease                                 Disease, Intestine
                      Agents.                                       Transplant Status/
                                                                    Complications.
RXC 06.............  Insulin.........  019, 020, 021, 018........  Diabetes with Acute   imputation/severity.
                                                                    Complications;
                                                                    Diabetes with
                                                                    Chronic
                                                                    Complications;
                                                                    Diabetes without
                                                                    Complication,
                                                                    Pancreas Transplant
                                                                    Status/
                                                                    Complications.
RXC 07.............  Anti-Diabetic     019, 020, 021, 018........  Diabetes with Acute   imputation/severity.
                      Agents, Except                                Complications,
                      Insulin and                                   Diabetes with
                      Metformin Only.                               Chronic
                                                                    Complications,
                                                                    Diabetes without
                                                                    Complication,
                                                                    Pancreas Transplant
                                                                    Status/
                                                                    Complications.
RXC 08.............  Multiple          118.......................  Multiple Sclerosis..  imputation/severity.
                      Sclerosis
                      Agents.
RXC 09.............  Immune            056, 057, 048, 041........  Rheumatoid Arthritis  imputation/severity.
                      Suppressants                                  and Specified
                      and                                           Autoimmune
                      Immunomodulator                               Disorders, Systemic
                      s.                                            Lupus Erythematosus
                                                                    and Other
                                                                    Autoimmune
                                                                    Disorders,
                                                                    Inflammatory Bowel
                                                                    Disease, Intestine
                                                                    Transplant Status/
                                                                    Complications.
RXC 10.............  Cystic Fibrosis   159, 158..................  Cystic Fibrosis,      imputation/severity.
                      Agents.                                       Lung Transplant
                                                                    Status/
                                                                    Complications.
----------------------------------------------------------------------------------------------------------------

iii. High-Cost Risk Pool Adjustment
    HHS finalized a high-cost risk pool adjustment in the 2018 Payment 
Notice to account for the incorporation of risk associated with high-
cost enrollees in the risk adjustment model. Specifically, we finalized 
adjusting the risk adjustment model for high-cost enrollees beginning 
for the 2018 benefit year by excluding a percentage of costs above a 
certain threshold level in the calculation of enrollee-level plan 
liability risk scores so that risk adjustment factors are calculated 
without the high-cost risk, because the average risk associated with 
HCCs and RXCs is better accounted for without the inclusion of the 
high-cost enrollees. In addition, to account for issuers' risk 
associated with the high-cost enrollees, issuers will be compensated 
for a percentage of costs above the threshold. We set the threshold and 
percentage of costs at a level that would continue to incentivize 
issuers to control costs while improving the risk prediction of the 
risk adjustment model. Issuers with high-cost enrollees will receive a 
payment for the percentage of costs above the threshold in their 
respective transfers. Using claims data submitted to the EDGE server by 
issuers of risk adjustment covered plans, HHS will calculate the total 
amount of paid claims costs for high-cost enrollees based on the 
threshold and the coinsurance rate. HHS will then calculate a charge as 
a percentage of the issuers' total premiums in the individual 
(including catastrophic and non-catastrophic plans and merged

[[Page 16944]]

market plans), or small group markets, which will be applied to the 
total transfer amount in that market, maintaining the balance of 
payments and charges within the risk adjustment program. In the 2018 
Payment Notice, we finalized a threshold of $1 million and a 
coinsurance rate of 60 percent across all States for the individual 
(including catastrophic and non-catastrophic plans and merged market 
plans) and small group markets for the 2018 benefit year.
    For the 2019 benefit year, we proposed to maintain the same 
parameters that apply to the 2018 benefit year. Therefore, we proposed 
to maintain a $1 million threshold and 60 percent coinsurance rate for 
the high-cost risk pool for the 2019 benefit year risk adjustment 
program. We explained that we believe this threshold and coinsurance 
rate would result in total payments or charges nationally that are very 
small as a percentage of premiums for issuers, and will prevent States 
and issuers with very high-cost enrollees from bearing a 
disproportionate amount of unpredictable risk. We sought comments on 
alternative methods for reimbursing issuers for exceptionally high-cost 
enrollees through the high-cost risk pool and improving the calculation 
of plan liability in the HHS-operated risk adjustment models for future 
benefit years. We also shared suggestions from stakeholders that the 
pool be multi-tiered, with multiple thresholds and increased 
coinsurance as the thresholds increase to account for the reduced 
number of enrollees at higher thresholds where costs to an issuer are 
catastrophic.
    We are finalizing the high-cost risk pool adjustment parameters for 
the 2019 benefit year as proposed.
    Comment: Most commenters supported our proposal to maintain the 
same high-cost risk pool adjustment parameters as those used for the 
2018 benefit year and noted that keeping the parameters the same 
provides stability and certainty in the markets. One commenter 
questioned why the parameters are not trended for increasing medical 
costs. Some commenters noted that the $1 million threshold level may be 
too high to have any meaningful impact on premiums or provide stability 
in smaller State markets with low claims costs that would have 
additional charges assessed, which could cause volatility. A few 
commenters did not support the high-cost risk pool adjustment to 
transfers, yet one of these commenters supported the removal of these 
costs from the risk adjustment model recalibration. One commenter did 
not support the proposal based on what appears to be a misunderstanding 
that the high-cost risk pool adjustment requires individuals to pay 40 
percent of costs above $1 million. Some commenters did not support 
tiering the high-cost risk pool adjustment program for the 2019 benefit 
year without the first year of experience with this adjustment, noting 
it would lead to additional complexity. One commenter supported a 
tiered approach in parameters with maximum coinsurance rates of 80 to 
90 percent phased in over multiple years, and another commenter 
supported a tiered approach if the approach and parameters result in an 
equivalent cost and scope as the $1 million threshold and 60 percent 
coinsurance rate parameters.
    Response: As we noted in the 2018 Payment Notice, removing 
extremely high costs improves the risk adjustment model's predictive 
ability. Additionally, the high-cost risk pool adjustment to the 
transfer formula mitigates issuers' risk selection incentives to avoid 
high-cost risk enrollees. Because high-cost enrollees are outliers and 
thus, unpredictable, they have the potential to significantly distort 
risk in smaller markets. Removing the high-cost risk from the 
recalibration model and separately adjusting transfers will allow for 
greater stability in risk scores to compensate issuers for predictable 
risk and transfers to compensate issuers for unpredictable risk. We 
will consider whether a tiered approach would improve model prediction 
and better compensate issuers for high-cost enrollees than the current 
approach for future benefit years. We are continuing to assess the 
market impact of tiered approaches nationally on the model's risk 
prediction and issuers' risk differences, and whether such an approach 
would meaningfully improve the model in accounting for high-cost 
enrollees' risk. We continue to believe a $1 million threshold and 60 
percent coinsurance rate for the 2019 benefit year are appropriate to 
incentivize issuers to control costs while improving the risk 
adjustment model's risk prediction. Additionally, as we noted in the 
2018 Payment Notice, if an issuer were to fail the data quality 
analysis for a risk adjustment transfer and be assessed a default 
charge under Sec.  153.740(b) on that basis, we would perform 
additional data quality analysis to determine an issuer's eligibility 
for high-cost risk pool adjustments.
    We are finalizing our proposal to maintain a $1 million threshold 
and 60 percent coinsurance rate for the high-cost risk pool for the 
2019 benefit year risk adjustment program.
c. List of Factors To Be Employed in the Risk Adjustment Model (Sec.  
153.320)
    The final factors resulting from the equally weighted blended 
factors from the 2014 and 2015 MarketScan[supreg] data and the 2016 
enrollee-level EDGE data separately solved models (with the 
incorporation of the partial year enrollment adjustment and 
prescription drugs reflected in the adult models only) are shown in 
Tables 2, 4, and 5. The adult, child and infant models have been 
truncated to account for the high-cost enrollee pool payment parameters 
by removing 60 percent of costs above the $1 million threshold as 
finalized in this rule. As discussed in the preceding section, we are 
finalizing our proposal to keep the 2019 benefit year high-cost 
enrollee risk pool payment parameters the same as those finalized for 
the 2018 benefit year. The final factors for the adult models also 
reflect the removal of the two severity-only RXCs (RXC 11: Ammonia 
Detoxicants, and RXC 12: Diuretics, Loop and Select Potassium-Sparing) 
discussed above in the preamble section on ``Prescription Drugs.'' 
Table 2 contains factors for each adult model, including the age-sex, 
HCCs, RXCs, HCC-RXC interaction, and enrollment duration coefficients. 
As we previously noted,\16\ 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.
---------------------------------------------------------------------------

    \16\ 2018 Benefit Year Final HHS Risk Adjustment Model 
Coefficients. April 18, 2017. Available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/Downloads/2018-Benefit-Year-Final-HHS-Risk-Adjustment-Model-Coefficients.pdf.
---------------------------------------------------------------------------

    Table 3 contains the HHS HCCs in the severity illness indicator 
variable. Table 4 contains the factors for each child model. Table 5 
contains the factors for each infant model. Tables 6 and 7 contain the 
HCCs included in the infant model maturity and severity categories, 
respectively.
    Comment: A few commenters requested for HHS to separately publish 
the coefficients solved only from the 2016 enrollee-level EDGE data.
    Response: We are not separately publishing the coefficients from 
only 1 year of data to avoid any confusion that could be caused from 
publishing two sets of coefficients in the final rule. However, we note 
that stakeholders interested in coefficients from the 2016 enrollee-
level EDGE data will be able to solve for them based on the proposed 
and finalized coefficients. We published the model coefficients using 
equally weighted coefficients solved from the

[[Page 16945]]

2014 and 2015 MarketScan[supreg] data in the proposed rule. The 
coefficients finalized in Tables 2, 4 and 5 include the coefficients 
solved from the 2016 enrollee-level EDGE data without changing the 
coefficients solved from the 2014 and 2015 MarketScan[supreg] data 
published in the proposed rule, and equally weighted coefficients 
solved from the 3 years of data.

                    Table 2--Final Adult Risk Adjustment Model Factors for 2019 Benefit Year
----------------------------------------------------------------------------------------------------------------
         HCC or RXC No.                  Factor          Platinum     Gold      Silver     Bronze   Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
                                  Age 21-24, Male.....      0.167      0.133      0.091      0.051         0.048
                                  Age 25-29, Male.....      0.153      0.119      0.078      0.037         0.034
                                  Age 30-34, Male.....      0.186      0.144      0.093      0.043         0.039
                                  Age 35-39, Male.....      0.236      0.185      0.125      0.063         0.058
                                  Age 40-44, Male.....      0.292      0.233      0.164      0.093         0.088
                                  Age 45-49, Male.....      0.346      0.280      0.202      0.121         0.115
                                  Age 50-54, Male.....      0.455      0.378      0.287      0.192         0.184
                                  Age 55-59, Male.....      0.511      0.424      0.324      0.217         0.209
                                  Age 60-64, Male.....      0.573      0.473      0.359      0.235         0.225
                                  Age 21-24, Female...      0.269      0.218      0.153      0.088         0.083
                                  Age 25-29, Female...      0.304      0.245      0.173      0.098         0.092
                                  Age 30-34, Female...      0.410      0.338      0.253      0.167         0.160
                                  Age 35-39, Female...      0.491      0.410      0.317      0.226         0.219
                                  Age 40-44, Female...      0.545      0.454      0.352      0.249         0.241
                                  Age 45-49, Female...      0.553      0.458      0.350      0.237         0.229
                                  Age 50-54, Female...      0.616      0.516      0.401      0.278         0.268
                                  Age 55-59, Female...      0.601      0.499      0.380      0.252         0.241
                                  Age 60-64, Female...      0.616      0.505      0.379      0.240         0.229
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HCC001..........................  HIV/AIDS............      0.626      0.529      0.434      0.359         0.352
HCC002..........................  Septicemia, Sepsis,       8.000      7.812      7.688      7.731         7.737
                                   Systemic
                                   Inflammatory
                                   Response Syndrome/
                                   Shock.
HCC003..........................  Central Nervous           5.750      5.666      5.604      5.625         5.626
                                   System Infections,
                                   Except Viral
                                   Meningitis.
HCC004..........................  Viral or Unspecified      4.396      4.192      4.060      3.989         3.983
                                   Meningitis.
HCC006..........................  Opportunistic             6.143      6.060      6.006      5.972         5.968
                                   Infections.
HCC008..........................  Metastatic Cancer...     21.806     21.372     21.040     21.084        21.087
HCC009..........................  Lung, Brain, and         12.392     12.068     11.825     11.807        11.804
                                   Other Severe
                                   Cancers, Including
                                   Pediatric Acute
                                   Lymphoid Leukemia.
HCC010..........................  Non-Hodgkin`s             5.575      5.356      5.189      5.117         5.110
                                   Lymphomas and Other
                                   Cancers and Tumors.
HCC011..........................  Colorectal, Breast        4.291      4.074      3.905      3.831         3.823
                                   (Age <50), Kidney,
                                   and Other Cancers.
HCC012..........................  Breast (Age 50+) and      2.640      2.482      2.356      2.283         2.276
                                   Prostate Cancer,
                                   Benign/Uncertain
                                   Brain Tumors, and
                                   Other Cancers and
                                   Tumors.
HCC013..........................  Thyroid Cancer,           1.211      1.084      0.976      0.860         0.849
                                   Melanoma,
                                   Neurofibromatosis,
                                   and Other Cancers
                                   and Tumors.
HCC018..........................  Pancreas Transplant       4.439      4.246      4.114      4.122         4.122
                                   Status/
                                   Complications.
HCC019..........................  Diabetes with Acute       0.603      0.531      0.463      0.389         0.381
                                   Complications.
HCC020..........................  Diabetes with             0.603      0.531      0.463      0.389         0.381
                                   Chronic
                                   Complications.
HCC021..........................  Diabetes without          0.603      0.531      0.463      0.389         0.381
                                   Complication.
HCC023..........................  Protein-Calorie          11.438     11.430     11.416     11.494        11.502
                                   Malnutrition.
HCC026..........................  Mucopolysaccharidosi      2.380      2.280      2.200      2.137         2.132
                                   s.
HCC027..........................  Lipidoses and             2.380      2.280      2.200      2.137         2.132
                                   Glycogenosis.
HCC029..........................  Amyloidosis,                 NA         NA         NA         NA            NA
                                   Porphyria, and
                                   Other Metabolic
                                   Disorders.
HCC030..........................  Adrenal, Pituitary,       2.380      2.280      2.200      2.137         2.132
                                   and Other
                                   Significant
                                   Endocrine Disorders.
HCC034..........................  Liver Transplant          2.380      2.280      2.200      2.137         2.132
                                   Status/
                                   Complications.
HCC035..........................  End-Stage Liver          10.515     10.418     10.353     10.334        10.331
                                   Disease.
HCC036..........................  Cirrhosis of Liver..      5.696      5.491      5.349      5.341         5.339
HCC037_1........................  Chronic Viral             0.707      0.604      0.545      0.509         0.505
                                   Hepatitis C.
HCC037_2........................  Chronic Hepatitis,        0.703      0.584      0.523      0.474         0.469
                                   Other/Unspecified.
HCC038..........................  Acute Liver Failure/      4.300      4.155      4.055      4.026         4.024
                                   Disease, Including
                                   Neonatal Hepatitis.
HCC041..........................  Intestine Transplant     28.253     28.206     28.169     28.209        28.209
                                   Status/
                                   Complications.
HCC042..........................  Peritonitis/              9.718      9.488      9.318      9.328         9.329
                                   Gastrointestinal
                                   Perforation/
                                   Necrotizing
                                   Enterocolitis.
HCC045..........................  Intestinal                5.510      5.274      5.115      5.104         5.102
                                   Obstruction.
HCC046..........................  Chronic Pancreatitis      4.439      4.246      4.114      4.122         4.122
HCC047..........................  Acute Pancreatitis/       2.243      2.085      1.972      1.896         1.888
                                   Other Pancreatic
                                   Disorders and
                                   Intestinal
                                   Malabsorption.
HCC048..........................  Inflammatory Bowel        2.192      2.011      1.868      1.765         1.755
                                   Disease.
HCC054..........................  Necrotizing               5.507      5.332      5.200      5.206         5.207
                                   Fasciitis.
HCC055..........................  Bone/Joint/Muscle         5.507      5.332      5.200      5.206         5.207
                                   Infections/Necrosis.
HCC056..........................  Rheumatoid Arthritis      3.316      3.130      2.980      2.923         2.918
                                   and Specified
                                   Autoimmune
                                   Disorders.
HCC057..........................  Systemic Lupus            0.993      0.878      0.780      0.666         0.654
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders.
HCC061..........................  Osteogenesis              2.654      2.477      2.337      2.257         2.249
                                   Imperfecta and
                                   Other
                                   Osteodystrophies.
HCC062..........................  Congenital/               2.654      2.477      2.337      2.257         2.249
                                   Developmental
                                   Skeletal and
                                   Connective Tissue
                                   Disorders.
HCC063..........................  Cleft Lip/Cleft           1.417      1.266      1.155      1.071         1.065
                                   Palate.
HCC066..........................  Hemophilia..........     53.096     52.795     52.549     52.553        52.553
HCC067..........................  Myelodysplastic          12.454     12.326     12.228     12.227        12.227
                                   Syndromes and
                                   Myelofibrosis.
HCC068..........................  Aplastic Anemia.....     12.454     12.326     12.228     12.227        12.227
HCC069..........................  Acquired Hemolytic        7.864      7.738      7.636      7.604         7.602
                                   Anemia, Including
                                   Hemolytic Disease
                                   of Newborn.
HCC070..........................  Sickle Cell Anemia        7.864      7.738      7.636      7.604         7.602
                                   (Hb-SS).
HCC071..........................  Thalassemia Major...      7.864      7.738      7.636      7.604         7.602
HCC073..........................  Combined and Other        5.198      5.074      4.982      4.979         4.979
                                   Severe
                                   Immunodeficiencies.
HCC074..........................  Disorders of the          5.198      5.074      4.982      4.979         4.979
                                   Immune Mechanism.
HCC075..........................  Coagulation Defects       2.657      2.572      2.503      2.464         2.461
                                   and Other Specified
                                   Hematological
                                   Disorders.
HCC081..........................  Drug Psychosis......      3.804      3.574      3.401      3.278         3.265

[[Page 16946]]

 
HCC082..........................  Drug Dependence.....      3.804      3.574      3.401      3.278         3.265
HCC087..........................  Schizophrenia.......      3.057      2.822      2.651      2.559         2.550
HCC088..........................  Major Depressive and      1.624      1.472      1.350      1.231         1.219
                                   Bipolar Disorders.
HCC089..........................  Reactive and              1.624      1.472      1.350      1.231         1.219
                                   Unspecified
                                   Psychosis,
                                   Delusional
                                   Disorders.
HCC090..........................  Personality               1.124      1.010      0.901      0.780         0.769
                                   Disorders.
HCC094..........................  Anorexia/Bulimia          2.549      2.397      2.275      2.201         2.194
                                   Nervosa.
HCC096..........................  Prader-Willi, Patau,      4.019      3.924      3.847      3.789         3.783
                                   Edwards, and
                                   Autosomal Deletion
                                   Syndromes.
HCC097..........................  Down Syndrome,            1.056      0.963      0.880      0.802         0.795
                                   Fragile X, Other
                                   Chromosomal
                                   Anomalies, and
                                   Congenital
                                   Malformation
                                   Syndromes.
HCC102..........................  Autistic Disorder...      1.124      1.010      0.901      0.780         0.769
HCC103..........................  Pervasive                 1.124      1.010      0.901      0.780         0.769
                                   Developmental
                                   Disorders, Except
                                   Autistic Disorder.
HCC106..........................  Traumatic Complete        9.989      9.853      9.752      9.735         9.732
                                   Lesion Cervical
                                   Spinal Cord.
HCC107..........................  Quadriplegia........      9.989      9.853      9.752      9.735         9.732
HCC108..........................  Traumatic Complete        7.568      7.420      7.310      7.278         7.274
                                   Lesion Dorsal
                                   Spinal Cord.
HCC109..........................  Paraplegia..........      7.568      7.420      7.310      7.278         7.274
HCC110..........................  Spinal Cord               5.212      5.008      4.857      4.816         4.812
                                   Disorders/Injuries.
HCC111..........................  Amyotrophic Lateral       1.965      1.764      1.620      1.534         1.524
                                   Sclerosis and Other
                                   Anterior Horn Cell
                                   Disease.
HCC112..........................  Quadriplegic              0.302      0.192      0.120      0.072         0.071
                                   Cerebral Palsy.
HCC113..........................  Cerebral Palsy,           0.255      0.176      0.120      0.072         0.071
                                   Except Quadriplegic.
HCC114..........................  Spina Bifida and          0.355      0.300      0.265      0.241         0.236
                                   Other Brain/Spinal/
                                   Nervous System
                                   Congenital
                                   Anomalies.
HCC115..........................  Myasthenia Gravis/        5.262      5.137      5.045      5.027         5.025
                                   Myoneural Disorders
                                   and Guillain-Barre
                                   Syndrome/
                                   Inflammatory and
                                   Toxic Neuropathy.
HCC117..........................  Muscular Dystrophy..      2.064      1.922      1.819      1.720         1.708
HCC118..........................  Multiple Sclerosis..      8.436      8.144      7.920      7.895         7.892
HCC119..........................  Parkinson's,              2.064      1.922      1.819      1.720         1.708
                                   Huntington's, and
                                   Spinocerebellar
                                   Disease, and Other
                                   Neurodegenerative
                                   Disorders.
HCC120..........................  Seizure Disorders         1.390      1.248      1.138      1.044         1.035
                                   and Convulsions.
HCC121..........................  Hydrocephalus.......      5.922      5.814      5.724      5.696         5.694
HCC122..........................  Non-Traumatic Coma,       8.310      8.176      8.067      8.059         8.058
                                   and Brain
                                   Compression/Anoxic
                                   Damage.
HCC125..........................  Respirator               26.626     26.590     26.555     26.637        26.644
                                   Dependence/
                                   Tracheostomy Status.
HCC126..........................  Respiratory Arrest..      8.048      7.900      7.794      7.864         7.872
HCC127..........................  Cardio-Respiratory        8.048      7.900      7.794      7.864         7.872
                                   Failure and Shock,
                                   Including
                                   Respiratory
                                   Distress Syndromes.
HCC128..........................  Heart Assistive          28.421     28.219     28.071     28.120        28.125
                                   Device/Artificial
                                   Heart.
HCC129..........................  Heart Transplant....     28.421     28.219     28.071     28.120        28.125
HCC130..........................  Congestive Heart          2.800      2.705      2.635      2.624         2.623
                                   Failure.
HCC131..........................  Acute Myocardial          8.077      7.789      7.577      7.664         7.672
                                   Infarction.
HCC132..........................  Unstable Angina and       4.820      4.558      4.388      4.378         4.378
                                   Other Acute
                                   Ischemic Heart
                                   Disease.
HCC135..........................  Heart Infection/          5.473      5.356      5.268      5.237         5.235
                                   Inflammation,
                                   Except Rheumatic.
HCC142..........................  Specified Heart           2.467      2.335      2.233      2.158         2.150
                                   Arrhythmias.
HCC145..........................  Intracranial              7.621      7.366      7.186      7.162         7.159
                                   Hemorrhage.
HCC146..........................  Ischemic or               2.164      2.012      1.918      1.896         1.894
                                   Unspecified Stroke.
HCC149..........................  Cerebral Aneurysm         3.167      2.994      2.869      2.802         2.796
                                   and Arteriovenous
                                   Malformation.
HCC150..........................  Hemiplegia/               4.517      4.422      4.355      4.402         4.407
                                   Hemiparesis.
HCC151..........................  Monoplegia, Other         2.734      2.612      2.525      2.486         2.482
                                   Paralytic Syndromes.
HCC153..........................  Atherosclerosis of        9.056      8.976      8.915      9.004         9.013
                                   the Extremities
                                   with Ulceration or
                                   Gangrene.
HCC154..........................  Vascular Disease          6.714      6.556      6.439      6.424         6.422
                                   with Complications.
HCC156..........................  Pulmonary Embolism        3.352      3.207      3.101      3.044         3.038
                                   and Deep Vein
                                   Thrombosis.
HCC158..........................  Lung Transplant          25.564     25.421     25.310     25.384        25.391
                                   Status/
                                   Complications.
HCC159..........................  Cystic Fibrosis.....     14.108     13.825     13.596     13.601        13.601
HCC160..........................  Chronic Obstructive       0.878      0.776      0.686      0.591         0.582
                                   Pulmonary Disease,
                                   Including
                                   Bronchiectasis.
HCC161..........................  Asthma..............      0.878      0.776      0.686      0.591         0.582
HCC162..........................  Fibrosis of Lung and      1.869      1.767      1.693      1.639         1.633
                                   Other Lung
                                   Disorders.
HCC163..........................  Aspiration and            6.270      6.223      6.188      6.194         6.195
                                   Specified Bacterial
                                   Pneumonias and
                                   Other Severe Lung
                                   Infections.
HCC183..........................  Kidney Transplant         7.462      7.260      7.119      7.070         7.064
                                   Status.
HCC184..........................  End Stage Renal          29.905     29.678     29.495     29.641        29.654
                                   Disease.
HCC187..........................  Chronic Kidney            1.319      1.263      1.224      1.233         1.235
                                   Disease, Stage 5.
HCC188..........................  Chronic Kidney            1.319      1.263      1.224      1.233         1.235
                                   Disease, Stage 4.
HCC203..........................  Ectopic and Molar         1.156      1.011      0.879      0.670         0.648
                                   Pregnancy, Except
                                   with Renal Failure,
                                   Shock, or Embolism.
HCC204..........................  Miscarriage with          1.156      1.011      0.879      0.670         0.648
                                   Complications.
HCC205..........................  Miscarriage with No       1.156      1.011      0.879      0.670         0.648
                                   or Minor
                                   Complications.
HCC207..........................  Completed Pregnancy       3.329      2.913      2.690      2.416         2.386
                                   With Major
                                   Complications.
HCC208..........................  Completed Pregnancy       3.329      2.913      2.690      2.416         2.386
                                   With Complications.
HCC209..........................  Completed Pregnancy       3.329      2.913      2.690      2.416         2.386
                                   with No or Minor
                                   Complications.
HCC217..........................  Chronic Ulcer of          1.988      1.888      1.818      1.798         1.796
                                   Skin, Except
                                   Pressure.
HCC226..........................  Hip Fractures and         8.801      8.587      8.428      8.457         8.460
                                   Pathological
                                   Vertebral or
                                   Humerus Fractures.
HCC227..........................  Pathological              3.874      3.744      3.644      3.579         3.575
                                   Fractures, Except
                                   of Vertebrae, Hip,
                                   or Humerus.
HCC251..........................  Stem Cell, Including     24.334     24.334     24.329     24.357        24.360
                                   Bone Marrow,
                                   Transplant Status/
                                   Complications.
HCC253..........................  Artificial Openings       8.284      8.198      8.131      8.164         8.168
                                   for Feeding or
                                   Elimination.
HCC254..........................  Amputation Status,        3.486      3.371      3.290      3.313         3.316
                                   Lower Limb/
                                   Amputation
                                   Complications.
----------------------------------------------------------------------------------------------------------------
                                               Interaction Factors
----------------------------------------------------------------------------------------------------------------
SEVERE x HCC006.................  Severe illness x          7.694      7.897      8.035      8.180         8.193
                                   Opportunistic
                                   Infections.
SEVERE x HCC008.................  Severe illness x          7.694      7.897      8.035      8.180         8.193
                                   Metastatic Cancer.
SEVERE x HCC009.................  Severe illness x          7.694      7.897      8.035      8.180         8.193
                                   Lung, Brain, and
                                   Other Severe
                                   Cancers, Including
                                   Pediatric Acute
                                   Lymphoid Leukemia.
SEVERE x HCC010.................  Severe illness x Non-     7.694      7.897      8.035      8.180         8.193
                                   Hodgkin's Lymphomas
                                   and Other Cancers
                                   and Tumors.

[[Page 16947]]

 
SEVERE x HCC115.................  Severe illness x          7.694      7.897      8.035      8.180         8.193
                                   Myasthenia Gravis/
                                   Myoneural Disorders
                                   and Guillain-Barre
                                   Syndrome/
                                   Inflammatory and
                                   Toxic Neuropathy.
SEVERE x HCC135.................  Severe illness x          7.694      7.897      8.035      8.180         8.193
                                   Heart Infection/
                                   Inflammation,
                                   Except Rheumatic.
SEVERE x HCC145.................  Severe illness x          7.694      7.897      8.035      8.180         8.193
                                   Intracranial
                                   Hemorrhage.
SEVERE x G06....................  Severe illness x HCC      7.694      7.897      8.035      8.180         8.193
                                   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 HCC      7.694      7.897      8.035      8.180         8.193
                                   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 End-     1.449      1.541      1.596      1.722         1.733
                                   Stage Liver Disease.
SEVERE x HCC038.................  Severe illness x          1.449      1.541      1.596      1.722         1.733
                                   Acute Liver Failure/
                                   Disease, Including
                                   Neonatal Hepatitis.
SEVERE x HCC153.................  Severe illness x          1.449      1.541      1.596      1.722         1.733
                                   Atherosclerosis of
                                   the Extremities
                                   with Ulceration or
                                   Gangrene.
SEVERE x HCC154.................  Severe illness x          1.449      1.541      1.596      1.722         1.733
                                   Vascular Disease
                                   with Complications.
SEVERE x HCC163.................  Severe illness x          1.449      1.541      1.596      1.722         1.733
                                   Aspiration and
                                   Specified Bacterial
                                   Pneumonias and
                                   Other Severe Lung
                                   Infections.
SEVERE x HCC253.................  Severe illness x          1.449      1.541      1.596      1.722         1.733
                                   Artificial Openings
                                   for Feeding or
                                   Elimination.
SEVERE x G03....................  Severe illness x HCC      1.449      1.541      1.596      1.722         1.733
                                   group G03 (G03 is
                                   HCC Group 3 which
                                   includes the
                                   following HCCs in
                                   the musculoskeletal
                                   disease category:
                                   54, 55).
----------------------------------------------------------------------------------------------------------------
                                           Enrollment Duration Factors
----------------------------------------------------------------------------------------------------------------
                                  1 month of                0.417      0.365      0.325      0.306         0.305
                                   enrollment.
                                  2 months of               0.382      0.333      0.293      0.275         0.273
                                   enrollment.
                                  3 months of               0.327      0.282      0.244      0.227         0.225
                                   enrollment.
                                  4 months of               0.279      0.240      0.206      0.189         0.188
                                   enrollment.
                                  5 months of               0.249      0.216      0.185      0.169         0.168
                                   enrollment.
                                  6 months of               0.207      0.181      0.153      0.138         0.137
                                   enrollment.
                                  7 months of               0.189      0.165      0.141      0.126         0.125
                                   enrollment.
                                  8 months of               0.137      0.120      0.102      0.091         0.091
                                   enrollment.
                                  9 months of               0.097      0.085      0.074      0.067         0.067
                                   enrollment.
                                  10 months of              0.070      0.065      0.060      0.057         0.057
                                   enrollment.
                                  11 months of              0.064      0.060      0.057      0.055         0.055
                                   enrollment.
----------------------------------------------------------------------------------------------------------------
                                            Prescription Drug Factors
----------------------------------------------------------------------------------------------------------------
RXC 01..........................  Anti-HIV Agents.....      7.822      7.257      6.830      6.605         6.580
RXC 02..........................  Anti-Hepatitis C         39.880     39.337     38.905     39.062        39.075
                                   (HCV) Agents.
RXC 03..........................  Antiarrhythmics.....      0.113      0.113      0.113      0.113         0.113
RXC 04..........................  Phosphate Binders...      0.730      0.730      0.730      0.730         0.730
RXC 05..........................  Inflammatory Bowel        2.022      1.842      1.701      1.509         1.487
                                   Disease Agents.
RXC 06..........................  Insulin.............      1.498      1.349      1.185      0.993         0.973
RXC 07..........................  Anti-Diabetic             0.495      0.430      0.361      0.272         0.264
                                   Agents, Except
                                   Insulin and
                                   Metformin Only.
RXC 08..........................  Multiple Sclerosis       21.141     20.350     19.757     19.731        19.721
                                   Agents.
RXC 09..........................  Immune Suppressants      13.273     12.681     12.240     12.270        12.268
                                   and
                                   Immunomodulators.
RXC 10..........................  Cystic Fibrosis          13.045     12.712     12.485     12.565        12.574
                                   Agents.
RXC 01 x HCC001.................  Additional effect         2.459      2.560      2.655      3.010         3.046
                                   for enrollees with
                                   RXC 01 (Anti-HIV
                                   Agents) and HCC 001
                                   (HIV/AIDS).
RXC 02 x HCC037_1, 036, 035, 034  Additional effect         2.645      2.838      2.974      3.020         3.025
                                   for enrollees with
                                   RXC 02 (Anti-
                                   Hepatitis C (HCV)
                                   Agents) and (HCC
                                   037_1 (Chronic
                                   Viral Hepatitis C)
                                   or 036 (Cirrhosis
                                   of Liver) or 035
                                   (End-Stage Liver
                                   Disease) or 034
                                   (Liver Transplant
                                   Status/
                                   Complications)).
RXC 03 x HCC142.................  Additional effect         0.000      0.000      0.000      0.000         0.000
                                   for enrollees with
                                   RxC 03
                                   (Antiarrhythmics)
                                   and HCC 142
                                   (Specified Heart
                                   Arrhythmias).
RXC 04 x HCC184, 183, 187, 188..  Additional effect         0.000      0.000      0.000      0.000         0.000
                                   for enrollees with
                                   RxC 04 (Phosphate
                                   Binders) and (HCC
                                   184 (End Stage
                                   Renal Disease) or
                                   183 (Kidney
                                   Transplant Status)
                                   or 187 (Chronic
                                   Kidney Disease,
                                   Stage 5) or 188
                                   (Chronic Kidney
                                   Disease, Severe
                                   Stage 4)).
RXC 05 x HCC048, 041............  Additional effect        -1.192     -1.096     -0.997     -0.888        -0.878
                                   for enrollees with
                                   RxC 05
                                   (Inflammatory Bowel
                                   Disease Agents) and
                                   (HCC 048
                                   (Inflammatory Bowel
                                   Disease) or 041
                                   (Intestine
                                   Transplant Status/
                                   Complications)).
RXC 06 x HCC018, 019, 020, 021..  Additional effect         0.421      0.395      0.456      0.533         0.538
                                   for enrollees with
                                   RxC 06 (Insulin)
                                   and (HCC 018
                                   (Pancreas
                                   Transplant Status/
                                   Complications) or
                                   019 (Diabetes with
                                   Acute
                                   Complications) or
                                   020 (Diabetes with
                                   Chronic
                                   Complications) or
                                   021 (Diabetes
                                   without
                                   Complication)).
RXC 07 x HCC018, 019, 020, 021..  Additional effect        -0.202     -0.184     -0.153     -0.153        -0.155
                                   for enrollees with
                                   RxC 07 (Anti-
                                   Diabetic Agents,
                                   Except Insulin and
                                   Metformin Only) and
                                   (HCC 018 (Pancreas
                                   Transplant Status/
                                   Complications) or
                                   019 (Diabetes with
                                   Acute
                                   Complications) or
                                   020 (Diabetes with
                                   Chronic
                                   Complications) or
                                   021 (Diabetes
                                   without
                                   Complication)).
RXC 08 x HCC118.................  Additional effect        -5.507     -4.981     -4.597     -4.422        -4.399
                                   for enrollees with
                                   RxC 08 (Multiple
                                   Sclerosis Agents)
                                   and HCC 118
                                   (Multiple
                                   Sclerosis).
RXC 09 x HCC056 or 057 and 048    Additional effect        -0.337     -0.352     -0.336     -0.370        -0.375
 or 041.                           for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and (HCC 048
                                   (Inflammatory Bowel
                                   Disease) or 041
                                   (Intestine
                                   Transplant Status/
                                   Complications)) and
                                   (HCC 056
                                   (Rheumatoid
                                   Arthritis and
                                   Specified
                                   Autoimmune
                                   Disorders) or 057
                                   (Systemic Lupus
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders)).
RXC 09 x HCC056.................  Additional effect        -2.862     -2.632     -2.452     -2.323        -2.307
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and HCC 056
                                   (Rheumatoid
                                   Arthritis and
                                   Specified
                                   Autoimmune
                                   Disorders).
RXC 09 x HCC057.................  Additional effect        -0.595     -0.444     -0.322     -0.175        -0.161
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and HCC 057
                                   (Systemic Lupus
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders).

[[Page 16948]]

 
RXC 09 x HCC048, 041............  Additional effect         1.128      1.392      1.563      1.764         1.788
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and (HCC 048
                                   (Inflammatory Bowel
                                   Disease) or 041
                                   (Intestine
                                   Transplant Status/
                                   Complications)).
RXC 10 x HCC159, 158............  Additional effect        29.170     29.398     29.528     29.588        29.594
                                   for enrollees with
                                   RxC 10 (Cystic
                                   Fibrosis Agents)
                                   and (HCC 159
                                   (Cystic Fibrosis)
                                   or 158 (Lung
                                   Transplant Status/
                                   Complications)).
----------------------------------------------------------------------------------------------------------------


      Table 3--HHS HCCs in the Severity Illness Indicator Variable
------------------------------------------------------------------------
                               Description
-------------------------------------------------------------------------
Septicemia, Sepsis, Systemic Inflammatory Response Syndrome/Shock.
Peritonitis/Gastrointestinal Perforation/Necrotizing Enter colitis.
Seizure Disorders and Convulsions.
Non-Traumatic Coma, Brain Compression/Anoxic Damage.
Respirator Dependence/Tracheostomy Status.
Respiratory Arrest.
Cardio-Respiratory Failure and Shock, Including Respiratory Distress
 Syndromes.
Pulmonary Embolism and Deep Vein Thrombosis.
------------------------------------------------------------------------


                    Table 4--Final Child Risk Adjustment Model Factors for 2019 Benefit Year
----------------------------------------------------------------------------------------------------------------
             Factor                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 2-4, Male...................           0.200           0.149           0.092           0.042           0.038
Age 5-9, Male...................           0.138           0.100           0.055           0.018           0.015
Age 10-14, Male.................           0.193           0.152           0.100           0.060           0.058
Age 15-20, Male.................           0.258           0.209           0.151           0.099           0.095
Age 2-4, Female.................           0.153           0.109           0.062           0.025           0.022
Age 5-9, Female.................           0.102           0.068           0.031           0.005           0.003
Age 10-14, Female...............           0.182           0.142           0.095           0.059           0.056
Age 15-20, Female...............           0.281           0.224           0.155           0.091           0.086
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS........................           5.368           4.942           4.622           4.506           4.493
Septicemia, Sepsis, Systemic              13.803          13.633          13.522          13.529          13.530
 Inflammatory Response Syndrome/
 Shock..........................
Central Nervous System                     8.179           8.020           7.905           7.913           7.913
 Infections, Except Viral
 Meningitis.....................
Viral or Unspecified Meningitis.           3.563           3.358           3.225           3.077           3.063
Opportunistic Infections........          16.934          16.887          16.848          16.832          16.829
Metastatic Cancer...............          32.479          32.270          32.092          32.101          32.102
Lung, Brain, and Other Severe             10.021           9.785           9.590           9.509           9.501
 Cancers, Including Pediatric
 Acute Lymphoid Leukemia........
Non-Hodgkin's Lymphomas and                7.835           7.601           7.411           7.304           7.292
 Other Cancers and Tumors.......
Colorectal, Breast (Age <50),              3.051           2.879           2.737           2.618           2.605
 Kidney, and Other Cancers......
Breast (Age 50+) and Prostate              3.051           2.879           2.737           2.618           2.605
 Cancer, Benign/Uncertain Brain
 Tumors, and Other Cancers and
 Tumors.........................
Thyroid Cancer, Melanoma,                  1.188           1.057           0.943           0.818           0.805
 Neurofibromatosis, and Other
 Cancers and Tumors.............
Pancreas Transplant Status/               22.337          22.078          21.875          21.901          21.904
 Complications..................
Diabetes with Acute                        2.550           2.234           2.032           1.749           1.721
 Complications..................
Diabetes with Chronic                      2.550           2.234           2.032           1.749           1.721
 Complications..................
Diabetes without Complication...           2.550           2.234           2.032           1.749           1.721
Protein-Calorie Malnutrition....          12.783          12.694          12.618          12.658          12.661
Mucopolysaccharidosis...........           7.948           7.723           7.536           7.494           7.489
Lipidoses and Glycogenosis......           7.948           7.723           7.536           7.494           7.489
Congenital Metabolic Disorders,            7.948           7.723           7.536           7.494           7.489
 Not Elsewhere Classified.......
Amyloidosis, Porphyria, and                7.948           7.723           7.536           7.494           7.489
 Other Metabolic Disorders......
Adrenal, Pituitary, and Other              7.948           7.723           7.536           7.494           7.489
 Significant Endocrine Disorders
Liver Transplant Status/                  22.337          22.078          21.875          21.901          21.904
 Complications..................
End-Stage Liver Disease.........          11.834          11.685          11.584          11.580          11.579
Cirrhosis of Liver..............           5.782           5.646           5.535           5.507           5.507
Chronic Viral Hepatitis C.......           6.269           6.114           5.983           5.966           5.967
Chronic Hepatitis, Other/                  1.200           1.086           0.983           0.923           0.920
 Unspecified....................
Acute Liver Failure/Disease,              11.636          11.494          11.390          11.392          11.391
 Including Neonatal Hepatitis...

[[Page 16949]]

 
Intestine Transplant Status/              22.337          22.078          21.875          21.901          21.904
 Complications..................
Peritonitis/Gastrointestinal              11.572          11.283          11.063          11.060          11.061
 Perforation/Necrotizing
 Enterocolitis..................
Intestinal Obstruction..........           4.506           4.310           4.154           4.057           4.049
Chronic Pancreatitis............          10.521          10.314          10.163          10.167          10.167
Acute Pancreatitis/Other                   2.265           2.148           2.046           1.948           1.938
 Pancreatic Disorders and
 Intestinal Malabsorption.......
Inflammatory Bowel Disease......           7.055           6.685           6.402           6.291           6.279
Necrotizing Fasciitis...........           3.907           3.706           3.544           3.468           3.461
Bone/Joint/Muscle Infections/              3.907           3.706           3.544           3.468           3.461
 Necrosis.......................
Rheumatoid Arthritis and                   4.282           4.052           3.856           3.762           3.754
 Specified Autoimmune Disorders.
Systemic Lupus Erythematosus and           1.092           0.970           0.854           0.726           0.714
 Other Autoimmune Disorders.....
Osteogenesis Imperfecta and                1.402           1.292           1.193           1.110           1.102
 Other Osteodystrophies.........
Congenital/Developmental                   1.402           1.292           1.193           1.110           1.102
 Skeletal and Connective Tissue
 Disorders......................
Cleft Lip/Cleft Palate..........           1.435           1.260           1.121           0.992           0.980
Hemophilia......................          61.183          60.705          60.325          60.299          60.296
Myelodysplastic Syndromes and             14.718          14.596          14.505          14.474          14.470
 Myelofibrosis..................
Aplastic Anemia.................          14.718          14.596          14.505          14.474          14.470
Acquired Hemolytic Anemia,                 6.928           6.714           6.544           6.456           6.448
 Including Hemolytic Disease of
 Newborn........................
Sickle Cell Anemia (Hb-SS)......           6.928           6.714           6.544           6.456           6.448
Thalassemia Major...............           6.928           6.714           6.544           6.456           6.448
Combined and Other Severe                  5.849           5.705           5.592           5.531           5.526
 Immunodeficiencies.............
Disorders of the Immune                    5.849           5.705           5.592           5.531           5.526
 Mechanism......................
Coagulation Defects and Other              4.662           4.542           4.439           4.366           4.359
 Specified Hematological
 Disorders......................
Drug Psychosis..................           5.648           5.392           5.211           5.131           5.125
Drug Dependence.................           5.648           5.392           5.211           5.131           5.125
Schizophrenia...................           4.819           4.473           4.217           4.086           4.073
Major Depressive and Bipolar               2.214           2.007           1.833           1.653           1.636
 Disorders......................
Reactive and Unspecified                   2.129           1.931           1.762           1.584           1.567
 Psychosis, Delusional Disorders
Personality Disorders...........           0.622           0.517           0.405           0.257           0.243
Anorexia/Bulimia Nervosa........           2.657           2.471           2.318           2.238           2.228
Prader-Willi, Patau, Edwards,              2.119           1.961           1.850           1.796           1.790
 and Autosomal Deletion
 Syndromes......................
Down Syndrome, Fragile X, Other            1.785           1.639           1.526           1.435           1.427
 Chromosomal Anomalies, and
 Congenital Malformation
 Syndromes......................
Autistic Disorder...............           2.017           1.836           1.677           1.511           1.495
Pervasive Developmental                    0.686           0.592           0.484           0.349           0.338
 Disorders, Except Autistic
 Disorder.......................
Traumatic Complete Lesion                 11.525          11.463          11.427          11.507          11.514
 Cervical Spinal Cord...........
Quadriplegia....................          11.525          11.463          11.427          11.507          11.514
Traumatic Complete Lesion Dorsal           9.265           9.094           8.948           8.933           8.928
 Spinal Cord....................
Paraplegia......................           9.265           9.094           8.948           8.933           8.928
Spinal Cord Disorders/Injuries..           3.678           3.487           3.339           3.247           3.239
Amyotrophic Lateral Sclerosis              4.952           4.754           4.592           4.506           4.499
 and Other Anterior Horn Cell
 Disease........................
Quadriplegic Cerebral Palsy.....           2.968           2.768           2.638           2.642           2.642
Cerebral Palsy, Except                     0.496           0.392           0.322           0.263           0.261
 Quadriplegic...................
Spina Bifida and Other Brain/              1.422           1.303           1.209           1.137           1.130
 Spinal/Nervous System
 Congenital Anomalies...........
Myasthenia Gravis/Myoneural                9.749           9.588           9.461           9.440           9.440
 Disorders and Guillain-Barre
 Syndrome/Inflammatory and Toxic
 Neuropathy.....................
Muscular Dystrophy..............           2.584           2.410           2.280           2.179           2.168
Multiple Sclerosis..............          10.447          10.104           9.835           9.801           9.797
Parkinson's, Huntington's, and             2.584           2.410           2.280           2.179           2.168
 Spinocerebellar Disease, and
 Other Neurodegenerative
 Disorders......................
Seizure Disorders and                      2.004           1.852           1.714           1.567           1.553
 Convulsions....................
Hydrocephalus...................           4.256           4.146           4.063           4.044           4.042
Non-Traumatic Coma, and Brain              5.714           5.590           5.487           5.444           5.440
 Compression/Anoxic Damage......
Respirator Dependence/                    31.959          31.852          31.774          31.912          31.924
 Tracheostomy Status............
Respiratory Arrest..............           9.776           9.552           9.401           9.366           9.360
Cardio-Respiratory Failure and             9.776           9.552           9.401           9.366           9.360
 Shock, Including Respiratory
 Distress Syndromes.............
Heart Assistive Device/                   22.337          22.078          21.875          21.901          21.904
 Artificial Heart...............
Heart Transplant................          22.337          22.078          21.875          21.901          21.904
Congestive Heart Failure........           5.773           5.674           5.588           5.545           5.540
Acute Myocardial Infarction.....           5.179           5.104           5.062           5.048           5.046
Unstable Angina and Other Acute            3.842           3.765           3.707           3.676           3.675
 Ischemic Heart Disease.........

[[Page 16950]]

 
Heart Infection/Inflammation,             11.892          11.786          11.703          11.684          11.683
 Except Rheumatic...............
Hypoplastic Left Heart Syndrome            4.742           4.584           4.427           4.311           4.301
 and Other Severe Congenital
 Heart Disorders................
Major Congenital Heart/                    1.345           1.248           1.130           1.012           1.002
 Circulatory Disorders..........
Atrial and Ventricular Septal              0.876           0.787           0.684           0.591           0.584
 Defects, Patent Ductus
 Arteriosus, and Other
 Congenital Heart/Circulatory
 Disorders......................
Specified Heart Arrhythmias.....           3.734           3.576           3.438           3.360           3.353
Intracranial Hemorrhage.........          12.674          12.462          12.308          12.302          12.303
Ischemic or Unspecified Stroke..           5.445           5.367           5.318           5.328           5.331
Cerebral Aneurysm and                      3.374           3.188           3.056           2.980           2.972
 Arteriovenous Malformation.....
Hemiplegia/Hemiparesis..........           4.146           4.041           3.967           3.933           3.927
Monoplegia, Other Paralytic                3.501           3.373           3.284           3.255           3.254
 Syndromes......................
Atherosclerosis of the                    11.717          11.481          11.305          11.230          11.223
 Extremities with Ulceration or
 Gangrene.......................
Vascular Disease with                     14.161          14.049          13.958          13.980          13.981
 Complications..................
Pulmonary Embolism and Deep Vein          13.582          13.475          13.396          13.432          13.436
 Thrombosis.....................
Lung Transplant Status/                   22.337          22.078          21.875          21.901          21.904
 Complications..................
Cystic Fibrosis.................          22.337          22.078          21.875          21.901          21.904
Chronic Obstructive Pulmonary              0.375           0.310           0.225           0.134           0.126
 Disease, Including
 Bronchiectasis.................
Asthma..........................           0.375           0.310           0.225           0.134           0.126
Fibrosis of Lung and Other Lung            3.073           2.971           2.872           2.801           2.795
 Disorders......................
Aspiration and Specified                   8.178           8.122           8.074           8.105           8.108
 Bacterial Pneumonias and Other
 Severe Lung Infections.........
Kidney Transplant Status........          12.436          12.166          11.969          11.943          11.938
End Stage Renal Disease.........          36.073          35.963          35.872          35.976          35.985
Chronic Kidney Disease, Stage 5.           4.148           4.017           3.909           3.812           3.806
Chronic Kidney Disease, Severe             4.148           4.017           3.909           3.812           3.806
 (Stage 4)......................
Ectopic and Molar Pregnancy,               1.061           0.906           0.761           0.532           0.507
 Except with Renal Failure,
 Shock, or Embolism.............
Miscarriage with Complications..           1.061           0.906           0.761           0.532           0.507
Miscarriage with No or Minor               1.061           0.906           0.761           0.532           0.507
 Complications..................
Completed Pregnancy With Major             2.897           2.512           2.294           1.986           1.950
 Complications..................
Completed Pregnancy With                   2.897           2.512           2.294           1.986           1.950
 Complications..................
Completed Pregnancy with No or             2.897           2.512           2.294           1.986           1.950
 Minor Complications............
Chronic Ulcer of Skin, Except              2.338           2.247           2.159           2.086           2.079
 Pressure.......................
Hip Fractures and Pathological             5.437           5.163           4.942           4.830           4.822
 Vertebral or Humerus Fractures.
Pathological Fractures, Except             1.665           1.535           1.404           1.262           1.248
 of Vertebrae, Hip, or Humerus..
Stem Cell, Including Bone                 22.337          22.078          21.875          21.901          21.904
 Marrow, Transplant Status/
 Complications..................
Artificial Openings for Feeding           11.371          11.258          11.185          11.294          11.305
 or Elimination.................
Amputation Status, Lower Limb/             6.737           6.497           6.322           6.207           6.195
 Amputation Complications.......
----------------------------------------------------------------------------------------------------------------


                    Table 5--Final Infant Risk Adjustment Model Factors for 2019 Benefit Year
----------------------------------------------------------------------------------------------------------------
              Group                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
Extremely Immature * Severity            253.927         252.583         251.467         251.462         251.464
 Level 5 (Highest)..............
Extremely Immature * Severity            154.510         153.094         151.930         151.820         151.808
 Level 4........................
Extremely Immature * Severity             33.920          32.887          32.017          31.768          31.749
 Level 3........................
Extremely Immature * Severity             33.920          32.887          32.017          31.768          31.749
 Level 2........................
Extremely Immature * Severity             33.920          32.887          32.017          31.768          31.749
 Level 1 (Lowest)...............
Immature * Severity Level 5              159.462         158.128         157.021         157.005         157.004
 (Highest)......................
Immature * Severity Level 4.....          72.478          71.132          70.018          69.946          69.937
Immature * Severity Level 3.....          32.912          31.777          30.841          30.633          30.613
Immature * Severity Level 2.....          24.333          23.245          22.351          22.082          22.055
Immature * Severity Level 1               24.333          23.245          22.351          22.082          22.055
 (Lowest).......................
Premature/Multiples * Severity           115.833         114.548         113.499         113.406         113.398
 Level 5 (Highest)..............
Premature/Multiples * Severity            27.460          26.234          25.253          25.043          25.026
 Level 4........................
Premature/Multiples * Severity            14.214          13.255          12.482          12.044          12.001
 Level 3........................
Premature/Multiples * Severity             7.992           7.259           6.638           6.009           5.940
 Level 2........................
Premature/Multiples * Severity             5.323           4.790           4.246           3.652           3.600
 Level 1 (Lowest)...............
Term * Severity Level 5                   91.593          90.463          89.524          89.335          89.320
 (Highest)......................
Term * Severity Level 4.........          14.962          14.042          13.315          12.830          12.788
Term * Severity Level 3.........           5.857           5.300           4.767           4.150           4.092
Term * Severity Level 2.........           3.574           3.148           2.666           1.994           1.935
Term * Severity Level 1 (Lowest)           1.546           1.321           0.916           0.449           0.423
Age1 * Severity Level 5                  253.927         252.583         251.467         251.462         251.464
 (Highest)......................

[[Page 16951]]

 
Age1 * Severity Level 4.........         154.510         153.094         151.930         151.820         151.808
Age1 * Severity Level 3.........          33.920          32.887          32.017          31.768          31.749
Age1 * Severity Level 2.........          33.920          32.887          32.017          31.768          31.749
Age1 * Severity Level 1 (Lowest)          33.920          32.887          32.017          31.768          31.749
Age 0 Male......................         159.462         158.128         157.021         157.005         157.004
Age 1 Male......................          72.478          71.132          70.018          69.946          69.937
----------------------------------------------------------------------------------------------------------------


     Table 6--HHS HCCs Included in Infant Model Maturity Categories
------------------------------------------------------------------------
           Maturity category                     HCC/description
------------------------------------------------------------------------
Extremely Immature.....................  Extremely Immature Newborns,
                                          Birth weight <500 Grams.
Extremely Immature.....................  Extremely Immature Newborns,
                                          Including Birth weight 500-749
                                          Grams.
Extremely Immature.....................  Extremely Immature Newborns,
                                          Including Birth weight 750-999
                                          Grams.
Immature...............................  Premature Newborns, Including
                                          Birth weight 1,000-1,499
                                          Grams.
Immature...............................  Premature Newborns, Including
                                          Birth weight 1,500-1,999
                                          Grams.
Premature/Multiples....................  Premature Newborns, Including
                                          Birth weight 2,000-2,499
                                          Grams.
Premature/Multiples....................  Other Premature, Low Birth
                                          weight, Malnourished, or
                                          Multiple Birth Newborns.
Term...................................  Term or Post-Term Singleton
                                          Newborn, Normal or High Birth
                                          weight.
Age 1..................................  All age 1 infants.
------------------------------------------------------------------------


     Table 7--HHS HCCs Included in Infant Model Severity Categories
------------------------------------------------------------------------
      Severity category                           HCC
------------------------------------------------------------------------
Severity Level 5 (Highest)...  Metastatic Cancer.
Severity Level 5.............  Pancreas Transplant Status/Complications.
Severity Level 5.............  Liver Transplant Status/Complications.
Severity Level 5.............  End-Stage Liver Disease.
Severity Level 5.............  Intestine Transplant Status/
                                Complications.
Severity Level 5.............  Peritonitis/Gastrointestinal Perforation/
                                Necrotizing Enterocolitis.
Severity Level 5.............  Respirator Dependence/Tracheostomy
                                Status.
Severity Level 5.............  Heart Assistive Device/Artificial Heart.
Severity Level 5.............  Heart Transplant.
Severity Level 5.............  Congestive Heart Failure.
Severity Level 5.............  Hypoplastic Left Heart Syndrome and Other
                                Severe Congenital Heart Disorders.
Severity Level 5.............  Lung Transplant Status/Complications.
Severity Level 5.............  Kidney Transplant Status.
Severity Level 5.............  End Stage Renal Disease.
Severity Level 5.............  Stem Cell, Including Bone Marrow,
                                Transplant Status/Complications.
Severity Level 4.............  Septicemia, Sepsis, Systemic Inflammatory
                                Response Syndrome/Shock.
Severity Level 4.............  Lung, Brain, and Other Severe Cancers,
                                Including Pediatric Acute Lymphoid
                                Leukemia.
Severity Level 4.............  Mucopolysaccharidosis.
Severity Level 4.............  Major Congenital Anomalies of Diaphragm,
                                Abdominal Wall, and Esophagus, Age <2.
Severity Level 4.............  Myelodysplastic Syndromes and
                                Myelofibrosis.
Severity Level 4.............  Aplastic Anemia.
Severity Level 4.............  Combined and Other Severe
                                Immunodeficiencies.
Severity Level 4.............  Traumatic Complete Lesion Cervical Spinal
                                Cord.
Severity Level 4.............  Quadriplegia.
Severity Level 4.............  Amyotrophic Lateral Sclerosis and Other
                                Anterior Horn Cell Disease.
Severity Level 4.............  Quadriplegic Cerebral Palsy.
Severity Level 4.............  Myasthenia Gravis/Myoneural Disorders and
                                Guillain-Barre Syndrome/Inflammatory and
                                Toxic Neuropathy.
Severity Level 4.............  Non-Traumatic Coma, Brain Compression/
                                Anoxic Damage.
Severity Level 4.............  Respiratory Arrest.
Severity Level 4.............  Cardio-Respiratory Failure and Shock,
                                Including Respiratory Distress
                                Syndromes.
Severity Level 4.............  Acute Myocardial Infarction.
Severity Level 4.............  Heart Infection/Inflammation, Except
                                Rheumatic.
Severity Level 4.............  Major Congenital Heart/Circulatory
                                Disorders.
Severity Level 4.............  Intracranial Hemorrhage.
Severity Level 4.............  Ischemic or Unspecified Stroke.
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.

[[Page 16952]]

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


[[Page 16953]]

d. Cost-Sharing Reductions Adjustments (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 (induced demand) in all 
States where HHS operates risk adjustment. The proposed cost-sharing 
reductions adjustment factors for the 2019 benefit year were unchanged 
from those finalized in the 2018 Payment Notice. These adjustments 
would be effective for 2016, 2017, 2018, and 2019 risk adjustment, and 
would be multiplied against the sum of the demographic, diagnosis, and 
interaction factors, and enrollment and prescription drug utilization 
factors (for the adult models). We are finalizing the cost-sharing 
reductions adjustment factors as proposed. See Table 8 for the list of 
final cost-sharing reductions adjustments for the 2019 benefit year.
    Comment: Commenters supported our proposal to use the same cost-
sharing reductions adjustment induced demand factors as prior years, 
noting that the use of these factors would promote stability and 
certainty in the markets, and supported making updates in 2020 to the 
induced demand factors based on EDGE enrollee-level data. One commenter 
requested that HHS maintain the induced demand factors of 1.12 for 
wrap-around, premium assistance plans for Massachusetts, as established 
in the 2014 Payment Notice and used by Massachusetts for the 2014, 2015 
and 2016 benefit years.
    Response: We are finalizing the cost-sharing reductions adjustment 
induced demand factors as proposed. We anticipate proposing adjustments 
to the cost-sharing reductions adjustment induced demand factors in the 
annual HHS notice of benefit and payment parameters for the 2020 
benefit year based on enrollee-level EDGE data. Consistent with the 
approach outlined in the final 2017 Payment Notice, we will continue to 
use cost-sharing reductions adjustment factors of 1.12 for all 
Massachusetts wrap-around plans in the risk adjustment transfers 
calculation, as all of Massachusetts' cost-sharing plan variations have 
actuarial values above 94 percent.

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

e. Model Performance Statistics (Sec.  153.320)
    To evaluate model performance, we examined each model's R-squared 
statistic 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 ratios are in the range of published estimates for 
concurrent risk adjustment models.\17\ Because we are blending the 
coefficients from separately solved models based on 2014 and 2015 
MarketScan[supreg] data and 2016 enrollee-level EDGE data, we are 
publishing the R-squared statistic for each model and benefit year 
separately to verify their statistical validity. The R-squared 
statistic for each model is shown in Table 9.
---------------------------------------------------------------------------

    \17\ Winkleman, Ross and Syed Mehmud. ``A Comparative Analysis 
of Claims-Based Tools for Health Risk Assessment.'' Society of 
Actuaries. April 2007.

[[Page 16954]]



                        Table 9--R-Squared Statistic for Final HHS Risk Adjustment Models
----------------------------------------------------------------------------------------------------------------
                                                                            R-squared statistic
                                                         -------------------------------------------------------
                  Risk adjustment model                          2014                2015          2016 Enroll-
                                                          MarketScan[supreg]  MarketScan[supreg]    level EDGE
----------------------------------------------------------------------------------------------------------------
Platinum Adult..........................................            0.4221              0.4212            0.4283
Platinum Child..........................................             0.293              0.3314            0.3099
Platinum Infant.........................................            0.3284              0.3329            0.3239
Gold Adult..............................................            0.4179              0.4164            0.4228
Gold Child..............................................            0.2883              0.3269            0.3053
Gold Infant.............................................            0.3264              0.3309            0.3201
Silver Adult............................................            0.4143              0.4123            0.4181
Silver Child............................................            0.2841              0.3227            0.3013
Silver Infant...........................................             0.325              0.3295             0.317
Bronze Adult............................................            0.4117              0.4095            0.4152
Bronze Child............................................            0.2805              0.3188            0.2978
Bronze Infant...........................................            0.3247              0.3292            0.3154
Catastrophic Adult......................................            0.4115              0.4094            0.4145
Catastrophic Child......................................            0.2803              0.3186            0.2971
Catastrophic Infant.....................................            0.3247              0.3292            0.3151
----------------------------------------------------------------------------------------------------------------

f. Overview of the Payment Transfer Formula (Sec.  153.320)
i. Accounting for High-Cost Risk Pool in the Transfer Formula
    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 high-cost 
risk pool payments and charges) 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 separate transfer amounts for each rating area in 
which a plan operates).
    The risk adjustment transfer formula generally calculates the 
difference between the revenues required by a plan, based on the health 
risk of the plan's enrollees, and the revenues that a plan can generate 
for those enrollees. These differences are compared across plans in the 
State market risk pool and converted to a dollar amount based on the 
Statewide average premium. Thus, each plan in the risk pool receives a 
risk adjustment payment or charge designed to compensate for risk for a 
plan with average efficiency. Scaling the risk adjustment transfers by 
the Statewide average premium, as opposed to, for example, the plan's 
own premium, minimizes issuers' ability to manipulate their transfers 
by adjusting their own plan premiums, and results in a calculation of 
equal payments and charges, ensuring that risk adjustment transfers for 
the entire market sum to zero.
    In the absence of additional funding, we established, through 
notice and comment rulemaking,\18\ risk adjustment as a budget neutral 
program in order to provide certainty to issuers regarding risk 
adjustment payments and allow them to set rates based on those 
expectations. Adopting an approach that would not result in balanced 
payments and charges would create considerable uncertainty for issuers 
regarding the proportion of risk adjustment payments they could expect 
to receive from the Federal government. Additionally, in establishing 
the HHS-operated risk adjustment program, HHS could not have relied on 
the potential availability of general appropriation funds without 
creating uncertainty for issuers in the amount of risk adjustment 
payments they could expect, or reducing funding available for other 
programs. Relying on each year's budget would have required HHS to 
delay setting the parameters for any risk adjustment payment proration 
rates well after the plans were in effect for the applicable benefit 
year. HHS also would not have been able to rely on any potential State 
budget appropriations for States that elected to operate a State-based 
risk adjustment program as such funds would not have been available for 
purposes of administering the HHS-operated risk adjustment program. 
Without the adoption of a budget neutral framework, HHS would have 
needed to assess a charge, or otherwise collect additional funds, or 
prorate payments based on the charges collected to balance the risk 
adjustment transfers. This uncertainty would conflict with the overall 
goals of the risk adjustment program: to stabilize premiums and reduce 
incentives for issuers to avoid enrolling individuals with higher than 
average actuarial risk.
---------------------------------------------------------------------------

    \18\ See, for example, Standards Related to Reinsurance, Risk 
Corridors and Risk Adjustment. Proposed Rule, 76 FR 41938 (July 15, 
2011); Standards Related to Reinsurance, Risk Corridors and Risk 
Adjustment. Final Rule, 77 FR 17232 (March 23, 2012); and HHS Notice 
of Benefit and Payment Parameters for 2014. Final Rule, 78 FR 15441 
(March 11, 2013).
---------------------------------------------------------------------------

    The State payment transfer formula in the HHS risk adjustment 
methodology is designed to provide a per member per month (PMPM) 
transfer amount. The PMPM transfer amount derived from the State 
payment transfer formula would be multiplied by each plan's total 
billable member months for the benefit year to determine the total 
payment due to 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 or payment assessed for an issuer 
in a State market risk pool based on plan liability risk scores, in the 
2018 Payment Notice, we added to the risk adjustment methodology 
additional transfers that would reflect the payments and charges 
assessed with respect to the high-cost risk pool. To account for costs 
associated with exceptionally high-risk enrollees, we added transfer 
terms (a payment term and a charge term) that would be calculated 
separately from the State transfer formula in the HHS risk adjustment 
methodology. Beginning for the 2018 benefit year, we added one term 
that reflects 60 percent of costs above $1 million (HRPi, in the total 
plan transfer calculation described below), and another term that 
reflects a percent of premium adjustment to fund the high-cost risk 
pool and maintain the

[[Page 16955]]

balance of payment and charges within the risk adjustment program. The 
percent of premium adjustment factor applied to a plan's total premium 
amounts results in the same adjustment as a percent of PMPM premium 
adjustment factor applied to a plan's PMPM premium amount and 
multiplied by the plan's number of billable member months. For this 
calculation, we will use a percent of premium adjustment factor that is 
applied to each plan's total premium amounts, rather than the percent 
of PMPM premium adjustment factor described in 2018 Payment Notice and 
the proposed rule, for simplicity; and, as detailed above, we note that 
the mathematical outcome is the same. The percent of premium adjustment 
factor (HRPCm) is determined based on the sum of payments for the high-
cost risk pool enrollees divided by the sum of premiums in the 
respective high-cost risk pool market (m), nationally--one for the 
individual market, including catastrophic, non-catastrophic and merged 
market plans, and another for the small group market. The percent of 
premium adjustment factor is multiplied by the plan's total premium 
(HRPCm [middot] Pi).
    For the 2019 benefit year, we are finalizing the proposed policy to 
maintain this adjustment to the risk adjustment transfers with the 
threshold of $1 million and a coinsurance rate of 60 percent, as 
finalized for the 2018 benefit year.
    Comment: In addition to the comments discussed above, one commenter 
requested that the high-cost risk pool adjustment factors be included 
in the risk adjustment formula.
    Response: We have included a calculation for the total plan 
transfer amount below to illustrate the inclusion of the high-cost risk 
pool adjustment terms in the HHS risk adjustment methodology. As noted 
above, these terms will be applied within the high-cost risk pool 
markets nationally--one for the individual market, including 
catastrophic, non-catastrophic and merged market plans, and another for 
the small group market. We are finalizing the high-cost risk pool 
adjustment parameters for the 2019 benefit year as proposed.
ii. Administrative Cost Reduction to Statewide Average Premium
    Additionally, we proposed to continue the policy finalized in the 
2018 Payment Notice to reduce the Statewide average premium, the cost 
scaling factor in the risk adjustment transfer formula, by 14 percent 
to account for the proportion of administrative costs that do not vary 
with claims for the 2019 benefit year and future benefit years until 
changed in rulemaking. As a note, we have previously defined the cost 
scaling factor, or the Statewide average premium term, as the sum of 
average premium per member month of plan (Pi) multiplied by plan i's 
share of Statewide enrollment in the market in the risk pool (si). For 
the 2019 benefit year, the Statewide average premium, which will also 
be used for the transfer calculation for the 2018 benefit year, will be 
adjusted to remove a portion of the administrative costs as follows:

PS = ([Sigma]i(si [middot] Pi)) * 0.86

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.

    We are finalizing the policy to reduce the Statewide average 
premium in the risk adjustment formula by 14 percent, as proposed, for 
the 2019 benefit year and future benefit years until changed in 
rulemaking.
    Comment: Most commenters supported our proposal to continue to 
remove a portion of the administrative costs from the Statewide average 
premium factor of the risk adjustment transfer formula. Other 
commenters requested HHS publish the methodology used to create the 14 
percent reduction from the MLR data. One commenter suggested HHS 
increase the reduction to 16 percent and another commenter requested 
HHS set the 14 percent reduction as the floor. Another commenter 
suggested HHS should set the factor closer to the market average of 
administrative costs, or allow the level to vary with issuers' claims 
experience.
    Response: As we noted in the 2018 Payment Notice, we analyzed 
administrative and other non-claims expenses, including quality 
improvement expenses, taxes and fees, and non-claims costs, 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 reductions 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 that does not vary with claims is 14 percent. We continue to 
believe that this percentage represents the mean administrative cost 
percentage that does not vary with claims in the individual and small 
group markets, and represents a reasonable percentage of administrative 
costs on which risk adjustment transfers should not be calculated. 
Based on this analysis, we are finalizing the policy as proposed to 
reduce the Statewide average premium factor of the risk adjustment 
formula by 14 percent. Allowing the factor to vary with claims 
experience could lead to gaming and risk selection, as issuers with 
lower risk would receive lower charges if their administrative costs 
are relatively higher. Therefore, we will continue to reduce the 
Statewide average premium factor of the risk adjustment formula by the 
same percentage for all issuers.
iii. State Flexibility
    The HHS risk adjustment payment transfer formula generally 
transfers amounts from issuers with lower than average actuarial risk 
to those with higher than average actuarial risk. Risk adjustment is 
widely used in health insurance markets, and is recognized as a 
critical measure in mitigating the effects of adverse selection, 
ensuring financial viability of plans that enroll a higher proportion 
of high-risk enrollees, and fostering competitive health insurance 
markets. The State transfer formula in the HHS-operated risk adjustment 
program is scaled with the Statewide average premium in the applicable 
State market. In the 2018 Payment Notice, we noted that compared to 
other scaling factors, such as plans' own premiums, our analyses found 
that the Statewide average premium proves to be a more appropriate 
means of scaling the transfers for differences in relative actuarial 
risk, particularly in the context of a budget-neutral system. As noted 
in the above section, beginning with the 2018 benefit year, we also 
adopted an administrative cost adjustment to the Statewide average 
premium to remove a portion of administrative costs that did not vary 
based on claims differences from the Statewide average premium and base 
the transfers on the portion of the premiums that vary with claims.\19\ 
We continue to believe the Statewide average premium, as adjusted, is a 
reasonable metric to measure the costs of adverse selection. Based on 
our experience operating the risk

[[Page 16956]]

adjustment program, HHS has become aware that certain issuers, 
including some new, rapidly growing, or smaller issuers, owed 
substantial risk adjustment charges that they did not anticipate. HHS 
has had a number of discussions with issuers and State regulators on 
ways to encourage new participation in the health insurance markets and 
mitigate the effects of substantial risk adjustment charge amounts. We 
believe that a robust risk adjustment program that addresses concerns 
of risk selection is critical to the proper functioning of health 
insurance markets. However, we recognize that States are the primary 
regulators of their insurance markets. In the May 2016 Interim Final 
Rule,\20\ HHS recognized some State regulators' belief that reducing 
the magnitude of risk adjustment charge amounts could be beneficial to 
the insurance markets in their States. For some States, an adjustment 
to risk adjustment transfers calculated under the HHS-operated risk 
adjustment program might more precisely account for cost differences 
attributable to adverse selection in the respective State market risk 
pools. We encouraged States to examine whether any local approaches 
under State legal authority are warranted to help ease the transition 
for new entrants to the health insurance markets and mitigate the 
effects of large risk adjustment charge amounts. In the small group 
market, employers select the plans offered to their employees and often 
pay a significant portion of employees' premiums to encourage 
enrollment. Depending on the participation rules and market dynamics 
within a particular State, risk selection can be significantly less in 
a State's small group market compared to its individual market. The HHS 
methodology calculates relative risk scores between issuers in a State 
market, and in the case of the small group market, the differences 
between risk scores for issuers within State markets are generally 
smaller, leading to a smaller magnitude of risk adjustment transfers in 
the small group market as compared to the individual market. Certain 
States have opined that the HHS risk adjustment methodology, which is 
calibrated on a national dataset and does not take into account the 
effect of State-specific laws and rating rules, in some circumstances 
may not precisely account for risk differences for their particular 
State. We note that States have the statutory authority to operate 
their own State risk adjustment program under a Federally certified 
alternate risk adjustment methodology and are free to exercise that 
authority to develop a risk adjustment program tailored to the markets 
in their State. However, we also believe that allowing certain State-
specific adjustments to the HHS risk adjustment methodology can account 
for the effect of State-specific rules without the necessity for States 
to undertake operation of their own risk adjustment program.
---------------------------------------------------------------------------

    \19\ 81 FR 94099, 94100. (December 22, 2016). Available at 
https://www.gpo.gov/fdsys/pkg/FR-2016-12-22/pdf/2016-30433.pdf.
    \20\ 91 FR 29146, 29152. (May 11, 2016). Available at https://www.gpo.gov/fdsys/pkg/FR-2016-05-11/pdf/2016-11017.pdf.
---------------------------------------------------------------------------

    In the case of small group markets, where States can demonstrate 
that the differential risk profiles observed in the small group market 
plans in that State are attributable to factors other than systematic 
risk selection, and adverse selection risk is mitigated by the small 
group market dynamics, such as those described above, we proposed to 
permit States' primary insurance regulators to request a percentage 
reduction in the calculation of the risk adjustment transfer amounts in 
the small group market in their State, beginning for the 2019 benefit 
year.
    We proposed that HHS would require any State that seeks this 
flexibility to submit its proposal for an adjustment to the Statewide 
average premium in the small group market within 30 calendar days after 
publication of the proposed HHS notice of benefit and payment 
parameters for the applicable benefit year, in order to permit issuers 
to incorporate any such adjustment into their proposed rates. In order 
to promote transparency and solicit feedback from consumers and 
stakeholders on the proposed reductions to the HHS risk adjustment 
transfer formula, we proposed HHS would publish the requested State 
reduction percentages for public comment in guidance while it begins 
its initial review of the State requests. We proposed that HHS would 
then make final determinations on State requests by March 1 of the 
benefit year prior to the applicable benefit year, in time for issuers' 
initial rate setting deadline. The proposed timing of the State 
adjustment request, publication of HHS guidance setting forth the 
requested State reduction percentages, public notice and comment period 
and HHS approval process would permit plans to incorporate approved 
adjustments in their rates for the applicable benefit year.
    Under the proposal, HHS would consider requests from State 
regulators to reduce the calculation of the Statewide average premium 
used in the HHS risk adjustment transfer formula in the small group 
market by up to 50 percent for the applicable benefit year. We sought 
comment on all aspects of this proposal for the small group market, 
including the size of the reduction, the timing of the request 
submission, what evidence States should be required to provide, and 
what procedural requirements should be established.
    We also sought comment on whether we should establish a similar 
process through which States could request a reduction to the 
calculation of risk adjustment transfers in the individual market. 
Although adverse selection in the individual market is not mitigated by 
group enrollment or minimum participation requirements as is the 
selection in the small group market, we recognized that a State may 
believe the HHS risk adjustment methodology, which is calibrated on a 
national dataset, may not precisely account for relative actuarial risk 
differences in its individual market risk pool. We sought comment on 
whether, if a State can demonstrate such a difference in calculated 
relative actuarial risk, we should reduce States' administrative burden 
in operating its own risk adjustment program by allowing some 
flexibility in the HHS risk adjustment methodology to the extent 
permissible under the statute. Therefore, we sought comment on what 
individual market features would justify such a reduction, and what 
additional submissions a State should provide in order to justify such 
a departure for that market.
    We recognize that it is possible the HHS risk adjustment 
methodology, which is calibrated on a national dataset and does not 
take into account State-specific rules or market dynamics, may not 
precisely account for relative actuarial risk differences in certain 
States' individual, small group or merged markets, and those State-
specific rules or other relevant factors could support a reduction to 
transfers in that State's individual, small group or merged market. To 
accommodate situations where there may be such differences in State 
factors compared to the national norm, HHS is finalizing the policy to 
provide States the flexibility to request a reduction to the otherwise 
applicable risk adjustment transfers in the individual, small group or 
merged market by up to 50 percent with some modifications, outlined 
below, in response to comments. In States that request a reduction to 
transfers, the reduction percentage up to 50 percent, if approved by 
HHS, would be applied to the plan PMPM payment or charge transfer 
amount (Ti in the State transfer formula below), beginning 
with the 2020 benefit year. We are amending Sec.  153.320 to add a new 
paragraph (d) to capture this State flexibility to request

[[Page 16957]]

reduction to transfers in the individual, small group or merged market. 
States requesting such reductions must submit evidence and analysis to 
HHS identifying the State-specific rules or market dynamics that 
warrant an adjustment and demonstrating the actuarial risk differences 
in plans in the applicable State market are attributable to factors 
other than systematic risk selection, as well as substantiating the 
amount of the transfer reduction requested. For example, a State could 
submit evidence and analysis detailing the effect of a State rating 
rule that might lead to a portion of the State average premium that 
does not precisely reflect the cost of relative differences in 
actuarial risk in the individual, small group or merged market. The 
State request must specify in detail the State-specific rules or market 
dynamics that warrant an adjustment to the HHS risk adjustment 
methodology to more precisely account for the expected cost of relative 
risk differences in the State's individual, small group or merged 
market. Additionally, the State must submit evidence and analysis 
justifying the reduction percentage requested. To justify the amount of 
the transfer reduction requested, the State's evidence and analysis 
must explain how the requested transfer adjustment was determined by 
outlining the set of State-specific factors and the percentage 
reduction warranted to account for those factors in the State's market; 
or alternatively, it must demonstrate the requested reduction in risk 
adjustment payments would be so small for issuers who would receive 
risk adjustment payments, that the reduction would have a de minimis 
effect on the necessary premium increase to cover the affected issuer's 
or issuers' reduced payments. In the latter case, a State must 
demonstrate that the reduced risk adjustment payments would result in 
less than a 1 percent increase in the affected issuer's or issuers' 
premiums. We are adding paragraph (d)(1) to Sec.  153.320 to specify 
the submission requirements for the State requests, as outlined above. 
We are also adding paragraph (d)(4) to specify that HHS will approve 
the State requests if, based on a review of the information submitted 
as part of the State request, along with other relevant factors, 
including the premium impact of the transfer reduction for the State 
market, and relevant public comments, HHS determines that the State-
specific factors warrant an adjustment and the State request includes 
support justifying the percentage reduction requested or includes 
information demonstrating that the reduction to transfers would have a 
de minimis impact as described above. As reflected in paragraph 
(d)(4)(ii) to Sec.  153.320, HHS may approve a reduction amount lower 
than that requested by the State if the supporting evidence and 
analysis do not fully support the percentage reduction requested. In 
response to commenters' concerns about market impacts on issuers with 
higher than average actuarial risk, HHS will assess other relevant 
factors, including the premium impact of the transfer reduction for the 
State market.
    The approved reductions will be made on the calculated risk 
adjustment transfer amounts, rather than the Statewide average premium 
as proposed, prior to the application of the high-cost risk pool 
adjustments (high-cost risk pool payment and charge amounts). Applying 
the reduction is simply a mathematical operation and applying it on the 
otherwise calculated transfer amounts will result in the same final 
transfer amount mathematically as if the reduction was applied to the 
Statewide average premium, but will simplify the process for 
submission, review and calculation of the reductions to transfers.
    We are finalizing modified timelines and adding paragraphs (d)(2) 
and (d)(3) at Sec.  153.320 to capture the timeframe for submission and 
publication of State requests to reduce transfers in the individual, 
small group and merged markets in response to comments. We are not 
finalizing this proposed policy for the 2019 benefit year, in order to 
accommodate the evidence and analysis required and to provide more time 
for the development and review of such requests. Additionally, we 
believe the requests should be published in the relevant benefit year's 
proposed HHS notice of benefit and payment parameters to seek comment 
from relevant stakeholders. As such, consistent with paragraph (d)(2), 
beginning with 2020 and future benefit years, States must submit 
requests with the supporting evidence and analysis by August 1st, 2 
calendar years prior to the beginning of the applicable benefit year 
(for example, August 1, 2018, for the 2020 benefit year) to 
RARIpaymentoperations@cms.hhs.gov with the subject ``[Insert applicable 
benefit year] State request to reduce risk adjustment transfers.'' This 
modified timeline responds to comment received and provides States the 
opportunity to review the most recent year of risk adjustment transfers 
data in determining the requested percentage reduction to transfers and 
when submitting the supporting evidence. As outlined in paragraph 
(d)(3), we will publish the 2020 and future benefit year requests in 
the respective benefit year's proposed HHS notice of benefit and 
payment parameters and make the supporting evidence available to the 
public in order to seek public comment, and will publish any approved 
State reduction requests or denied State reduction requests in the 
respective benefit year's final HHS notice of benefit and payment 
parameters.
    Comment: A few commenters supported providing States the 
flexibility to request transfer reductions in the individual, small 
group and merged markets, noting that the risk adjustment program has 
been a barrier to entry for issuers in certain States. These commenters 
stated such a reduction to transfers could enable issuer participation 
in the individual, small group and merged markets. Additionally, these 
commenters noted the expense of operating a State-based risk adjustment 
program limits States from establishing their own risk adjustment 
methodologies. A few State regulators noted their intent to consider 
the reduction and potential impacts for future benefit years, and 
requested ``off-cycle'' dialogues with HHS to consider such reductions.
    Several commenters supported the reduction to transfers only for 
the small group market, noting that the adverse selection in the 
individual market requires the risk adjustment program to ensure 
competitive and stable markets. These commenters noted such a reduction 
to transfers would be detrimental to market stability in the individual 
market, with one commenter noting that unexpectedly large charges were 
a risk for issuers in the early years of the program and the markets 
have since stabilized. A few commenters noted that HHS should allow 
States to permit reductions in merged markets as well, while others 
noted this policy should not be made available in merged markets given 
the impact on individual market dynamics in the merged market States. 
Yet a few commenters suggested the flexibility be allowed across the 
individual, small group and merged markets. One commenter noted that 
such a reduction would be appropriate in the individual market as well 
to reduce carrier-specific transfers to adjust for administrative 
costs, limit distortions due to how many family members are counted 
toward premiums, or prevent perverse incentives to avoid care 
management or network variations that lower costs.
    Other commenters did not support a reduction to the risk adjustment 
transfers, stating the reduction to

[[Page 16958]]

transfers would undermine affordability of plans with sicker patients. 
Commenters were also concerned that providing such reductions would 
encourage risk selection behavior by issuers, encourage risk 
segmentation in the markets, reduce effectiveness of the risk 
adjustment program, lead to higher premiums for small employers and 
consumers where issuers with higher than average risk are not 
adequately compensated for their risk, reduce choices for consumers 
even further, and destabilize the markets. Commenters stated the 
importance of the risk adjustment program in promoting competition in 
the individual, small group, and merged markets by mitigating the 
issuers' risk of adverse selection. Commenters noted that the risk 
adjustment methodology already adjusts for a multitude of State- and 
rating area-specific factors as the methodology calculates risk scores 
at the individual level, and transfers at the rating area level. A few 
commenters also noted that maintaining risk adjustment as is would 
become increasingly important, especially if HHS were to move forward 
with the EHB flexibilities discussed elsewhere in this rule, as issuers 
could enroll differential risk enrollees based on the EHBs offered. 
Commenters noted that if HHS finalizes the policy to permit requests 
for adjustments in the small group market, issuers would no longer have 
an incentive to enroll all types of employers and could target 
healthier employers in certain sized employers through marketing and 
other strategies. Additionally, commenters noted that if relative risk 
for health conditions in an individual State is substantially different 
than the national average, it is not clear that a reduction of 50 
percent to risk adjustment transfers would be appropriate, and the 
State ought to consider developing its own risk adjustment model to 
address significant deviations in the State's risk profiles that 
deviate from the national average or use the section 1332 of PPACA 
waiver process to implement a reinsurance type program. Commenters 
agreed with HHS that the smaller magnitude of transfers in the small 
group market than in the individual market indicates the lower adverse 
selection risk in the small group market, but stated that the HHS risk 
adjustment program is properly calibrated for this lower risk of 
adverse selection in the small group market. Commenters noted that 
while employer contributions, employer choice of benefit plans, and 
participation rules mitigate selection in the small group market, the 
risk adjustment methodology appropriately accounts for these market 
differences because the lower adverse selection is reflected in the 
lower risk score differential. Commenters noted that Oliver Wyman, 
American Academy of Actuaries, and HHS's studies have all shown the 
risk adjustment program is working as intended in mitigating adverse 
selection. A few commenters also noted a study by Oliver Wyman \21\ 
that suggested reducing transfers by up to 50 percent may make the risk 
adjustment program less effective in compensating plans with higher 
than average risk and would therefore increase issuers' risk selection 
incentives. Additionally, one commenter noted that the significant 
adjustments to the risk adjustment program being implemented for the 
2017 and 2018 benefit years should be evaluated prior to making any 
additional changes.
---------------------------------------------------------------------------

    \21\ Available at http://health.oliverwyman.com/transform-care/2017/11/risk_adjustment.html.
---------------------------------------------------------------------------

    Response: In certain State individual, small group or merged 
markets, it is possible that the HHS risk adjustment methodology, which 
is calibrated on a national dataset, may not reflect State-specific 
factors that could result in relative risk differences in the State's 
market(s) compared to the national norm. Such unique State rules or 
other relevant factors could support a reduction to the otherwise 
applicable risk adjustment transfers to more precisely account for the 
differences in relative actuarial risk in the State's individual, small 
group or merged market. We agree with commenters that, in such 
instances, allowing certain State-specific adjustments to the otherwise 
applicable transfers can tailor the HHS-operated risk adjustment 
program to the particularities of a State's individual, small group or 
merged market without requiring the State to undertake operation of its 
own risk adjustment program or pursue a section 1332 waiver to 
implement a reinsurance program. In those circumstances, in which 
States can provide evidence and analysis showing the State-specific 
rules or market dynamics that warrant an adjustment to the HHS risk 
adjustment methodology to more precisely account for the relative risk 
differences in the State's market, HHS will consider requests to reduce 
transfers beginning with the 2020 benefit year. We agree with 
commenters that the small group market features, such as employers' 
selection of plans, and minimum participation and contribution rules, 
that lead to lower risk of adverse selection compared to the individual 
market are addressed in the current HHS risk adjustment methodology. 
Therefore, a State requesting a reduction of up to 50 percent of 
transfers in its small group market must provide supporting evidence 
and analysis outlining the State-specific factors that warrant an 
adjustment to the HHS risk adjustment methodology to more precisely 
account for relative risk differences in that State market compared to 
the national norm, rather than demonstrating the factors that are 
addressed in the current methodology. States must also justify the 
amount requested by outlining how the percentage reduction would more 
precisely account for risk differences in the State's individual, small 
group or merged market or by demonstrating that the reduction in risk 
adjustment payments would have a de minimis effect on the necessary 
premium increase to cover the affected issuer or issuers' reduced 
payments. HHS will not approve State requests for reduction to 
transfers based on factors in the State's individual, small group or 
merged market that are addressed by the current HHS risk adjustment 
methodology.
    We appreciate commenters' concerns about extending the flexibility 
to the individual or merged markets. We believe that those enrolled in 
the individual or merged markets typically have higher actuarial risk, 
risk selection, and risk segmentation in plan selection than those 
enrolled in the small group market, and risk adjustment transfers are 
particularly required in these markets to mitigate issuers' risk of 
adverse selection and incentives to avoid risk. However, we recognize 
that, just as with certain States' small group markets, it is possible 
that certain factors unique to the States' individual or merged market, 
such as State rating requirements, could support a reduction to 
transfers in that State market, and therefore are finalizing the State 
flexibility to request reduction to otherwise applicable risk 
adjustment transfers in the individual and merged markets as well. We 
note that guaranteed availability, guaranteed renewability, as well as 
the non-discrimination provisions at Sec. Sec.  147.104(e), 147.110 and 
156.125(a), provide protections against potential employment of 
marketing practices or benefit designs that have the effect of avoiding 
less healthy employer groups, discriminating based on health 
conditions, or otherwise discouraging enrollment of individuals with 
significant health needs. Finally, allowing for the State flexibility 
for the 2020 benefit year, will allow us to assess

[[Page 16959]]

the impact of the changes made to the risk adjustment program beginning 
for the 2017 and 2018 benefit years, and we intend to monitor the 
impact of the changes to the risk adjustment program. States will also 
have the opportunity to assess the effects of the risk adjustment model 
changes implemented for the 2017 benefit year prior to submitting any 
State requests to reduce transfers for the 2020 benefit year.
    Comment: A few commenters noted the extent of the reduction seemed 
arbitrary or too high, and requested HHS explain how it chose the 50 
percent adjustment threshold. Commenters also suggested that HHS should 
finalize a smaller percentage reduction if it finalizes the proposal. 
One commenter stated that it is equally likely that a State needs to 
increase the risk adjustment transfers and HHS ought to allow for this 
type of a request as well.
    Response: We are clarifying that the adjustment applicable to a 
State individual, small group or merged market would not necessarily be 
50 percent, but would be the amount, up to 50 percent, justified by the 
State request. HHS reviewed transfers, the potential impact of such a 
reduction on market premiums and the proportion of the transfers as a 
percent of issuers' payments when considering the appropriate 
threshold. We believe that an adjustment of up to 50 percent, justified 
by State-specific factors, represents a reasonable balance between 
adjustment for actuarial risk based on a national methodology and 
recognition of unique State-specific factors that suggest that 
actuarial risk difference is not precisely accounted for by the 
national methodology. In instances where a State believes that an 
increase to risk adjustment transfers would be appropriate, State 
regulators under their own State authority could take actions outside 
of this flexibility to ease the transition for new entrants and/or 
mitigate the effects of large risk adjustment transfers. States can 
also elect to establish and operate the PPACA risk adjustment program. 
Additionally, we do not believe that an increase to the transfers could 
be deemed necessary as the current methodology would be sufficient to 
calculate the transfers necessary to compensate for the relative 
actuarial risk differences scaled to the average cost for the State 
market.
    Comment: Some commenters noted that States should be required to 
submit an actuarially certified report demonstrating the extent to 
which the transfers overstate differentials in uncompensated predicted 
risk, the method of estimating the requested adjustment factor, an 
attestation that the percent reduction requested results in a risk 
adjustment methodology that complies with Actuarial Standard of 
Practice (ASOP) 12, Risk Classification, and an assessment of adverse 
selection effects that may result from the implementation of the 
payment transfer reduction. A few commenters also suggested HHS require 
States to provide evidence that issuers with large charges in the risk 
adjustment program did not have issues related to coding, operational 
data submission, incorrect rate setting, or suboptimal provider 
contracting and medical expenses that contributed to their risk 
adjustment results rather than differences in the State risk pool 
compared to the national average.
    Response: We agree with commenters that States should be required 
to submit evidence and analysis supporting the requests for reductions 
to transfers in the individual, small group or merged market, and 
therefore, are requiring that States requesting a reduction in risk 
adjustment transfers submit supporting evidence and analysis to HHS. We 
are requiring States to submit supporting evidence and analysis 
demonstrating the State-specific rules or relevant factors that warrant 
an adjustment to more precisely account for risk differences in the 
State's individual, small group or merged market. Additionally, we are 
requiring the States to justify the percentage reduction requested 
based on supporting evidence and analysis that demonstrate how the 
adjustment would accommodate the State-specific factors and more 
precisely account for risk differences in the State's individual, small 
group or merged market or how the reduction would have a de minimis 
effect on the percent of premium increase necessary to cover the 
reduced payments to the affected issuers. We considered but are not 
requiring States to submit actuarially certified reports, an 
attestation, or simulation of the potential effects of the requested 
reduction as part of their requests. We determined that to ensure 
issuers are adequately compensated for the actuarial risk of their 
enrollees and do not have incentives to avoid higher risk enrollees, 
the State regulators need to submit evidence and analysis demonstrating 
the State-specific factors that warrant an adjustment to more precisely 
account for the differences in actuarial risk in the State's market, 
and justifying the percent reduction requested based on the State 
factors or a de minimis effect. Additionally, HHS will publish the 
requests in the proposed rulemaking for the respective benefit year and 
make the supporting evidence publicly available for comment, and 
consider the relevant comments in its review. We note that the data 
integrity issues flagged by commenters are assessed during the EDGE 
server data quality and quantity assessments, as well as through the 
risk adjustment data validation program.
    Comment: Commenters generally requested additional time for States 
to submit requests. Commenters noted that if HHS were to move forward 
with this proposal, the agency should consider implementing the policy 
in 2020, as this policy will affect small group policies that are 
offered starting on and after January 1, 2018, as small group plans are 
not offered on a calendar year basis, and quarterly rate filings, which 
would already be in effect, would adversely affect these plans. One 
commenter suggested HHS set the State request deadline at 30 days after 
the June 30, 2018 risk adjustment summary report or request State 
submissions for the 2020 benefit year before August 2018. Other 
commenters suggested HHS allow States to provide the requests and any 
supporting material 60 days or 75 days from the publication of the 
proposed rule. Most commenters agreed that HHS should provide an 
opportunity for comment for the issuers and other stakeholders in the 
States that make such requests before approving or denying the 
reduction. One commenter also noted States require additional time to 
develop their respective requests and issuers require additional time 
to communicate their position with State regulators than that allowed 
by the timing in the proposed rule.
    Response: We appreciate commenters' suggestions regarding timing, 
and are finalizing modified timelines for States to request a reduction 
to the risk adjustment transfers in response to these comments. As 
discussed above, States will be permitted to request these adjustments 
to transfers beginning for the 2020 benefit year. We agree with 
commenters that small group market issuers may have already begun 
policies that would be affected by a reduction to transfers for the 
2019 benefit year, and issuers may need additional time to incorporate 
changes and reflect any reduction to transfers in their rates. 
Additionally, for the individual, small group and merged markets, we 
also considered the amount of time State regulators would require to 
assemble the supporting evidence and analysis to justify their requests 
and to consider the annual HHS June 30th risk adjustment transfers 
calculation results in determining the State reduction request.

[[Page 16960]]

The timeframe we are adopting in response to comments requires States 
to submit the request by August 1st, 2 calendar years prior to the 
applicable benefit year which will allow States to submit documentation 
to satisfy the supporting evidence and analysis requirements in this 
rule and incorporate the most recent available year of HHS risk 
adjustment transfer results in the State's request. Additionally, we 
agree with commenters about the importance of providing issuers and 
stakeholders an opportunity to comment on the request and supporting 
evidence. As outlined in paragraph (d)(3) of Sec.  153.320, HHS will 
publish the requests in the respective benefit year's proposed HHS 
notice of benefit and payment parameters and make the supporting 
evidence available to the public to seek comment from relevant 
stakeholders, and will publish any final approved or denied reduction 
amounts in the final HHS notice of benefit and payment parameters for 
the respective benefit year. The modified timelines and supporting 
evidence requirements finalized in this rule, including the delayed 
application of this policy until the 2020 benefit year, are intended to 
provide States, issuers and other stakeholders with sufficient 
opportunity to develop, submit and comment on these reduction requests 
prior to finalization of the HHS-operated risk adjustment methodology 
for the applicable benefit year.
    Comment: A few commenters noted that New York has already taken 
action to reduce transfers under the State's authority, and requested 
clarification whether other States could continue to take steps under 
existing State authority. One commenter noted that the New York 
adjustment could be seen as permitting States to make adjustments 
without HHS approval and requested clarification that States making 
adjustments to the risk adjustment formula must first obtain approval 
from HHS under the risk adjustment program prior to implementing any 
State-specific adjustments.
    Response: As we noted above, States are the primary regulators of 
their insurance markets, and as such, we encourage States to examine 
whether any local approaches under State legal authority are warranted 
to help ease the transition for new participants to the health 
insurance markets. States that take such actions and make adjustments 
do not generally need HHS approval as these States are acting under 
their own State authority and using State resources. However, the 
flexibility finalized in this rule involves a reduction to the risk 
adjustment transfers calculated by HHS and will require HHS review as 
outlined above.
iv. The Payment Transfer Formula
    The finalized State payment transfer formula for the 2019 benefit 
year is unchanged from what was finalized in the 2014 Payment Notice 
(78 FR 15430 through 15434). We believe it useful to republish the 
formula in its entirety. 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. The State payment transfer calculation that is part of 
the HHS risk adjustment payment transfer formula is:
[GRAPHIC] [TIFF OMITTED] TR17AP18.000

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 State enrollment;

The denominator is summed across all plans in the risk pool in the 
market in the State.
    The difference between the two premium estimates in the State 
payment transfer calculation determines whether a plan pays a risk 
adjustment charge or receives a risk adjustment payment. 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 
the risk adjustment transfer calculation, not including the national 
high-cost risk pool payments and charges. This resulting PMPM plan 
payment or charge is multiplied by the number of billable member months 
to determine the plan payment or charge based on plan liability risk 
scores for a plan's geographic rating area for the risk pool market 
within the State.
    Beginning with the 2018 benefit year, the high-cost risk pool 
adjustment amount will be added to the plan transfers (payment or 
charge) to account for: (1) The payment term, representing the portion 
of costs above the threshold reimbursed to the issuer for high-cost 
risk pool payments (HRPi), if applicable, and (2) the charge term, 
representing a percent of premium adjustment, which is the product of 
the high-cost risk pool adjustment factor (HRPCm) for the respective 
national high-cost risk pool m (one for the individual market, 
including catastrophic, non-catastrophic and merged market plans, and 
another for the small group market), and the plan's total premiums 
(Pi). As we noted above, the percent of premium adjustment factor 
applied to a plan's total premium amounts results in the same 
adjustment as a percent of PMPM premium adjustment factor applied to a 
plan's PMPM premium amount and multiplied by the plan's number of 
billable member months. For this calculation, we will use a percent of 
premium adjustment factor that is applied to each plan's total premium 
amounts, rather than the percent of PMPM premium adjustment factor for 
simplicity; and reiterate that the mathematical outcome is the same.
    With the high-cost risk pool adjustment amount, the total plan 
transfers would be calculated as the product of the plan PMPM transfer 
amount (Ti) multiplied by the plan's billable member months 
(Mi), plus the high-cost risk pool adjustments. The total 
plan transfer (payment or charge) amounts under the HHS risk adjustment 
payment transfer formula would be calculated as follows:

Total transferi = (Ti [middot] Mi) + HRPi - (HRPCm [middot] Pi)

Where:

Ti = Plan i's PMPM transfer amount;
Mi = Plan i's billable member months;
HRPi = Plan i's total high-cost risk pool payment;
HRPCm = High-cost risk pool percent of premium adjustment factor for 
the respective national high-cost risk pool m;
Pi = Plan i's total premium amounts.

In States that requested a reduction to transfers in the individual, 
small group or merged market, the reduction

[[Page 16961]]

percentage up to 50 percent, if approved by HHS for the applicable 
benefit year beginning with the 2020 benefit year, would be applied to 
the plan PMPM payment or charge transfer amount (Ti). This 
potential reduction to the PMPM transfer amounts is not shown in the 
risk adjustment transfer formula above.
g. Risk Adjustment Data Validation Requirements When HHS Operates Risk 
Adjustment (Sec.  153.630)
    HHS will conduct risk adjustment data validation under Sec.  
153.630 in any State where HHS is operating risk adjustment on a 
State's behalf.\22\ 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 auditor for data 
validation. Set forth below are final amendments and clarifications to 
the risk adjustment data validation program in light of experience and 
feedback from issuers during the first pilot year.
---------------------------------------------------------------------------

    \22\ Starting with the 2017 benefit year, no State has elected 
to operate a risk adjustment program. Therefore, HHS operates risk 
adjustment in all States.
---------------------------------------------------------------------------

i. Payment Adjustments for Error Rates
    Under Sec.  153.350(c), HHS may adjust risk adjustment payments and 
charges to all issuers of risk adjustment covered plans based on 
adjustments to the average actuarial risk of a risk adjustment plan due 
to errors discovered during risk adjustment data validation. Under the 
original risk adjustment data validation payment adjustment approach, 
all issuers of risk adjustment covered plans would receive an 
adjustment to payment transfers in the subsequent benefit year based on 
risk adjustment data validation audit results and using the audit-
confirmed, issuer-specific risk score error rate. However, we believe 
that some variation and error should be expected in the compilation of 
data for risk scores, because providers' documentation of enrollee 
health status varies across provider types and groups. Our experiences 
with the Medicare Advantage risk adjustment data validation program and 
the HHS risk adjustment data validation pilot for the 2015 benefit year 
reinforce this belief.
    To avoid adjusting all issuers' risk adjustment payments for 
expected variation and error, we proposed evaluating material 
statistical deviation in error rates beginning with 2017 benefit year 
risk adjustment data validation. In the proposed rule, we explained 
that we were considering adjusting an issuer's risk score only when the 
issuer's error rate materially deviates from a statistically meaningful 
value, such as the central tendency (a mean or typical value) of 
errors, nationally. When an error rate materially deviates from the 
central tendency, we proposed to apply the difference between the mean 
error rate or the confidence interval around the population's central 
tendency and the calculated error rate instead of the full error rate. 
If all error rates in a State risk pool do not materially deviate from 
the national central tendency of error rates, we proposed to not apply 
any adjustments to issuers' risk scores for that benefit year in the 
respective State risk pool.
    We also noted that alternatively, HHS could evaluate error rates 
within each HCC, or groups of HCCs, and then only apply error rates to 
outlier issuers' risk scores within each HCC or group of HCCs. In 
evaluating the ``error rate'' of HCCs, or groups of HCCs, we mean the 
probability of an assigned HCC being found to be incorrect based on the 
risk adjustment data validation audit, or a ``failure rate.'' The 
percent of the EDGE risk score that is incorrect due to audit findings 
(that is, due to HCCs that could not be validated through audit), we 
consider to be the issuer's risk score error rate. For example, an 
issuer could have a 50 percent failure rate for an HCC, in that two of 
four instances of the HCC on EDGE could not be validated. The impact of 
HCC failure rates on an issuer's error rate will then depend on the 
magnitude of the missing HCC's coefficient and the incidence of that 
HCC in the audit sample.
    We believe the implementation of any of the alternative evaluations 
and subsequent adjustments we proposed would streamline the risk 
adjustment data validation process, improve issuers' ability to predict 
risk adjustment transfers, and promote confidence and stability in the 
budget-neutral payment transfer methodology, while ensuring the 
integrity and quality of data provided by issuers.
    We are finalizing the approach described above of using failure 
rates specific to HCC groups and subsequently adjusting the issuer's 
risk score when the issuer's failure rate for a group of HCCs is 
statistically different from the weighted mean failure rate, or total 
failure rate, for that group of HCCs for all issuers that submitted 
initial validation audits. We are selecting this approach based on 
comments received, which generally were more supportive of the HCC or 
HCC-grouping methodology for evaluating failure rates than an approach 
under which we would calculate a national overall error rate. 
Additionally, we believe determining outlier failure rates based on HCC 
groups mitigates gaming concerns raised by commenters in using a 
national error rate, and mitigates commenters' sample size concerns in 
using HCC-specific failure rates. Our simulations of failure rates by 
HCC group suggest that such an approach yields a more equitable measure 
to evaluate statistically different HCC failure rates affecting an 
issuer's error rate than an approach based on an overall failure rate, 
which may overly adjust issuers with abnormal distributions of certain 
HCCs due to their underlying populations rather than differences due to 
errors in diagnoses codes. Illustrations of the methodology we will use 
to evaluate failure rate differences by HCC group, calculate error 
rates based on failure rates, and apply error rates to risk scores are 
provided below.
    Using data from the 2017 benefit year risk adjustment data 
validation, HHS will first calculate the failure rate for each HCC in 
issuers' initial validation audit samples as:
[GRAPHIC] [TIFF OMITTED] TR17AP18.001

Where:

Freq_EDGEh is the frequency of HCC code h occurring on EDGE, which 
is the number of sampled enrollees recording HCC code h on EDGE.
Freq_IVAh is the frequency of HCC code h occurring in IVA results, 
which is the number of sampled enrollees with HCC code h on in IVA 
results.
FRh is the failure rate of HCC code h.

    HHS will then create three HCC groups based on the HCC failure 
rates derived in the calculation above. These HCC groups will be 
determined by first ranking all HCC failure rates and then dividing the 
rankings into three groups, weighted by total observations or 
frequencies, of that HCC across all issuers' initial validation audit 
samples, to assign each unique HCC in the initial validation audit 
samples to a high, medium, or low failure rate group with an 
approximately even number of observations in each group. That is, each 
HCC group may have an unequal number of unique HCCs, but the total

[[Page 16962]]

observations in each group should be approximately equal based on total 
observations of HCCs reflected in EDGE data for all issuers' initial 
validation audit sample enrollees, to prevent small sample sizes for an 
HCC group for any issuer.
    HHS will then compare each issuer's failure rate for each HCC group 
based on the number of HCCs validated in the initial validation audit, 
compared to the number of HCCs recorded on EDGE within that HCC group 
for the initial validation audit sample enrollees. The issuer's HCC 
group failure rate will be compared to the weighted mean failure rate, 
or total failure rate, for that HCC group. We calculate an issuer's HCC 
group failure rate as:
[GRAPHIC] [TIFF OMITTED] TR17AP18.002

    We will also calculate the weighted mean failure rate and the 
standard deviation of each HCC group as:
[GRAPHIC] [TIFF OMITTED] TR17AP18.003

[GRAPHIC] [TIFF OMITTED] TR17AP18.004

If an issuer's failure rate for an HCC group falls outside the 
confidence interval for the weighted mean failure rate for the HCC 
group, the failure rate for the issuer's HCCs in that group would be 
considered an outlier. We will use a 1.96 standard deviation cutoff, 
for a 95 percent confidence interval, to identify outliers. To 
calculate the thresholds to classify an issuer's group failure rate as 
outliers or not, the lower and upper limits are computed as:

LBG = [mu](GFRG) - sigma_cutoff * Sd(GFRG)
UBG = [mu](GFRG) + sigma_cutoff * Sd(GFRG)

Where:

sigma_cutoff is the parameter used to set the threshold for the 
outlier detection as the number of standard deviations away from the 
mean.
LBG, UBG are the lower and upper thresholds to classify issuers as 
outliers or not outliers for group G.

    When an issuer's HCC group failure rate is an outlier, we will 
reduce (or increase) each of the applicable initial validation audit 
sample enrollees' HCC coefficients by the difference between the 
outlier issuer's failure rate for the HCC group and the weighted mean 
failure rate for the HCC group. Specifically, this will result in the 
sample enrollees' applicable HCC risk score components being reduced 
(or increased) by a partial value, or percentage, calculated as the 
difference between the outlier failure rate for the HCC group and the 
weighted mean failure rate for the applicable HCC group. The adjustment 
amount for outliers will be the distance between issuer i's Group 
Failure Rate GFRiG and the weighted mean [mu](GFRG), calculated as:

[[Page 16963]]

[GRAPHIC] [TIFF OMITTED] TR17AP18.007

    The adjustment to an enrollee's total risk score is calculated as 
the ratio of the total adjusted risk score for individual HCCs to the 
total risk score components for individual HCCs. For example, if an 
issuer has one enrollee with the HIV/AIDS HCC and the issuer's HCC 
group adjustment rate is 10 percent (the difference between the 
issuer's group failure rate and the weighted mean failure rate) for the 
HCC group that contains the HIV/AIDS HCC, the enrollee's HIV/AIDS 
coefficient would be reduced by 10 percent. We calculate the total 
adjustment amount across all HCCs per enrollee as:
[GRAPHIC] [TIFF OMITTED] TR17AP18.005

The adjusted risk score for enrollee e of issuer i is calculated as:

AdjRSi,e = EdgeRSi,e * (1 - Adjustmenti,e)

Where:

EdgeRSi,e is the risk score for EDGE HCCs of enrollee e of issuer i.
AdjRSi,e is the adjusted risk score for sampled enrollee e of issuer 
i.

    We will then calculate an issuer's error rate using the EDGE risk 
score and adjusted risk score for all enrollees in the sample 
(excluding enrollees with no HCCs). The weight we in the error rate 
calculation formula is obtained by the ratio of an enrollee's stratum 
size in the issuer's population to the number of sample enrollees in 
the same stratum as the enrollee, to extrapolate the sample adjusted 
risk scores and determine the issuer's risk score error rate. The 
formula to compute the error rate using the stratum weighted risk score 
for issuer i before and after the adjustment is shown as:

[[Page 16964]]

[GRAPHIC] [TIFF OMITTED] TR17AP18.006

    The risk score error rate would then be applied to the subsequent 
benefit year calculated plan level risk scores, to adjust the issuer's 
plan level risk scores before risk adjustment transfers are calculated, 
unless the issuer exited the market during or at the end of the benefit 
year being audited.\23\
---------------------------------------------------------------------------

    \23\ See section III.B.2.g.ii. of this rule, for a discussion of 
changes being finalized with respect to payment adjustments for 
issuers that have exited the market.
---------------------------------------------------------------------------

    Comment: Most commenters supported the proposal to only adjust 
issuers' risk scores if their failure or error rates materially deviate 
from a statistical mean, with some noting that this approach could help 
streamline risk adjustment data validation and increase market 
stability. A few commenters noted the complexity of the approach and 
requested more information on various aspects of the proposed approach, 
such as the definitions of material deviation and statistically 
meaningful value, the methodology that HHS would use to evaluate 
material deviation, the calculation of national or HCC-level error 
rates, and the sufficiency of the sample sizes under the HCC or group 
of HCCs approach.
    Response: As outlined above, for the purposes of risk adjustment 
data validation, we will determine that an issuer's failure rate is 
statistically different if the issuer's failure rate for a particular 
HCC group is more than 1.96 standard deviations away from the weighted 
mean failure rate for the high, medium, or low HCC group. Issuers with 
outlier failure rates in a particular HCC group will then have their 
sample enrollee risk scores adjusted by the difference between the 
issuer's failure rate and the mean failure rate for that HCC group for 
all applicable HCCs in their sample enrollees' risk scores. We will not 
use an overall mean failure rate or error rate to determine outliers 
under the approach finalized in this rule. We believe that the HCC 
grouping approach described above, which utilizes three large HCC 
groupings, will mitigate the risk of an issuer having a small sample 
size for a particular HCC group. We also note that we intend to propose 
updates to the sampling methodology for the 2018 benefit year HHS-
operated risk adjustment data validation initial validation audit 
samples in the 2020 Payment Notice.
    Comment: One commenter supported the proposed application of the 
difference between the calculated error rate and the statistically 
meaningful value, instead of the full error rate, to the issuer's 
subsequent year risk score when material deviation occurs. One 
commenter opposed the proposal due to concerns that if the average 
failure rate is exceedingly high or increasing, it could encourage 
issuers to be less accurate over time in their risk adjustment data, as 
long as they are not outliers relative to other issuers. Another 
commenter expressed concerns that issuers within the calculated 
confidence interval would receive no adjustments, while issuers outside 
of the confidence interval would receive substantial and punitive 
adjustments.
    Response: The primary purpose of determining statistically 
meaningful differences is to avoid the unwarranted application of risk 
score adjustments--that is, risk scores would be adjusted only when the 
issuers' failure rates are outside a range of statistically acceptable 
errors. We believe that statistically meaningful errors should be 
adjusted to the weighted mean failure rate of each HCC group. We are 
finalizing an approach under which, when an issuer's failure rate for 
its associated HCCs in one of the HCC groupings is statistically 
different than the mean for that grouping, HHS will adjust the sample 
enrollees' risk score component for that HCC group by the difference 
between the issuer's failure rate for the HCCs in that group and the 
weighted mean failure rate for the HCC group for all issuers that 
submitted initial validation audits. We will continue to evaluate this 
approach; however, we expect that as issuers and initial validation 
auditors gain additional experience performing risk adjustment data 
validation, HCC failure rates should improve and stabilize, rather than 
grow.
    Comment: Several commenters recommended that HHS provide issuers 
with more transparency about the calculation of error rates, as well as 
benchmark national and State-level error rate data against which 
issuers could evaluate their performance relative to other issuers and 
in the context of this proposal. Two commenters suggested that HHS 
apply the proposed approach to the 2016 benefit year pilot results to 
illustrate how issuers' risk scores and payment transfers might be 
affected in future years.
    Response: We appreciate the recommendations, and we intend to 
publish benchmark failure and error rate data based on the results of 
the 2016 benefit year data validation second pilot year. We also intend 
to provide additional information to issuers about risk score error 
rates based on 2016 benefit year risk adjustment data validation 
results, prior to implementation in 2017 benefit year risk adjustment 
data validation. In addition, illustrations of the methodology we will 
use to evaluate failure rate differences by HCC group, calculate error 
rates based on failure rates and apply error rates to risk scores are 
provided above.
    Comment: Two commenters recommended that HHS continue to study 
failure rates by HCCs or groups of HCCs for a longer period of time 
before proceeding with this approach, and another commenter opposed the 
calculation of failure rates at the HCC or HCC group-level.
    Response: We evaluated the HCC group-level and other proposed 
approaches using a simulation with underlying Medicare risk adjustment 
data validation failure rates, and we agree with commenters that 
additional data from HHS-operated risk adjustment data validation 
results in a payment adjustment year would be preferable. However, 
under the current error rate estimation and application policy for HHS-
operated risk adjustment data

[[Page 16965]]

validation, all issuers' risk scores and payment transfers would be 
adjusted, for any identified error, regardless of issuer size or 
distribution of HCCs in its enrollee population beginning with the 2017 
benefit year data validation. We believe the approach being finalized 
in this rule will increase predictability of risk adjustment transfers 
for issuers, and improve our ability to identify statistically 
meaningful data discrepancies in the data validation process. By 
focusing on issuer errors that are statistically meaningful, we can 
adjust issuers' risk scores with confidence, as opposed to adjusting 
all issuers for any difference, significant or not, from EDGE data. As 
such, we believe implementing this approach as soon as possible ensures 
the most accurate payment adjustments and promotes stability and 
predictability of risk adjustment transfers.
    Comment: A few commenters raised concerns that the calculation of a 
national average error rate could fail to account for State or regional 
variations in provider coding practices, and therefore result in 
harmful adjustments that could discourage new entrants in some States.
    Response: We agree with commenters and believe the evaluation of 
failure rate deviation by groups of HCCs, based on HCC failure rates 
outlined above, rather than a single, national average failure rate for 
all HCCs, will mitigate the risk of adjustments due to errors or 
differences that can be explained by regional variation in provider 
documentation of enrollee health status. We will evaluate the impact of 
this approach on issuers across regions and States and consider 
adjustments in future years if there is evidence of regional bias in 
payment adjustments resulting from this policy.
    Comment: One commenter requested that HHS conduct another pilot 
year prior to implementing payment adjustments, since data validation 
is still new for issuers in the commercial market.
    Response: While we will continue to educate issuers about the HHS 
risk adjustment data validation process, we believe that it is 
necessary to use the results of data validation to adjust risk scores 
beginning with 2017 benefit year data validation to encourage issuers 
to continue to improve the accuracy of data used to compile risk scores 
and to preserve confidence in the HHS-operated risk adjustment program.
ii. Payment Adjustments for Issuers That Have Exited the Market
    In the 2015 Payment Notice, we established that HHS will use a 
prospective approach to adjust risk scores and payment transfers based 
on the results of risk adjustment data validation. Specifically, HHS 
will apply the error rate calculated through the risk adjustment data 
validation process for the applicable benefit year to plan risk scores 
in the subsequent benefit year, and then make risk adjustment payment 
transfers based on adjusted plan average risk scores in that subsequent 
benefit year. However, in some cases, an issuer of a risk adjustment 
covered plan may have exited a State market during or at the end of the 
benefit year being audited and therefore would not have risk scores or 
payment transfers in the subsequent benefit year to which HHS could 
make adjustments.
    As previously noted, the purpose of risk adjustment data validation 
is to promote confidence in the budget-neutral payment transfer 
methodology by ensuring the integrity and quality of data provided from 
issuers. HHS believes that the prospect of not receiving payment 
adjustments based on the results of risk adjustment data validation 
results could undermine these goals by eliminating the incentive for an 
exiting issuer to carefully and accurately submit risk adjustment data 
for its final benefit year in the market. Not only could this type of 
inaccuracy result in overpayments to the exiting issuer, it could also 
cause the other issuers in the market to be over or undercompensated 
for the actual risk of their enrollee populations. Therefore, we 
proposed that HHS would use the error rate derived from the risk 
adjustment data validation process to adjust the payment transfer for 
the issuer's final benefit year in the State market, which would be 
concurrent with the benefit year being audited, for issuers that exit a 
State market during or at the end of the benefit year being audited. 
Because risk adjustment transfers for a given benefit year are 
calculated and paid before the risk adjustment data validation process 
for that benefit year is completed, this approach would require HHS to 
make a retroactive (that is, post-transfer) adjustment to the issuer's 
payment transfer for its final benefit year and reallocate the adjusted 
transfer amount to the other issuers in the State market in that year.
    We sought comment on this proposal to make these adjustments to 
payment transfers for issuers that have exited the market based on the 
results of risk adjustment data validation for the most recent benefit 
year in which they participated in risk adjustment. We are finalizing 
this policy as proposed, and we clarify that it will be effective 
beginning with the 2017 benefit year risk adjustment data validation. 
Therefore, for an issuer that exited a State market during or at the 
end of the 2017 benefit year who had a statistically meaningful error 
rate under the revised approach to payment adjustments finalized above 
in this rule, HHS would apply the risk score error rate to the issuer's 
2017 benefit year risk score, and recalculate 2017 benefit year risk 
adjustment transfers for the affected State market risk pools. We note 
that, under this timeline, issuers that exited a State market during or 
at the end of 2017 benefit year have ample opportunity to review and 
correct data submitted to their EDGE servers that will be used to 
calculate risk scores for the 2017 benefit year.
    Comment: The majority of commenters supported using the error rate 
derived from data validation for the most recent benefit year in which 
an exited issuer participated in risk adjustment to make an adjustment 
to exited issuers' risk adjustment transfers for their final benefit 
year in the State market, and to reallocate the adjusted amount to the 
other issuers in the State market in that year. Commenters agreed that 
a post-transfer adjustment, based on results of data validation for the 
most recent benefit year for which the issuer participated in risk 
adjustment, would reduce the risk of gaming by an issuer leaving a 
State market and ensure that other issuers remaining in the State 
market are not harmed by an exited issuer's incorrect or incomplete 
data. One commenter expressed concern that the adjustments for exited 
issuers would complicate payment transfers and requested that HHS 
provide additional guidance or create a forum with issuers to discuss 
which method would result in the least disruption to the data 
validation process over multiple years.
    Response: We agree with commenters who supported a post-transfer 
adjustment for issuers who exit the market during or at the end of a 
given benefit year, and we are finalizing the policy as proposed. 
Adjusting an exited issuer's payment transfer will help ensure that an 
issuer with inaccurate or incomplete data does not benefit from this 
error and that other issuers in the State market are not harmed by it. 
We acknowledge that adjustments to final benefit year payment transfers 
for issuers that exited a State market could complicate the calculation 
of transfers; however, we believe the revised policy for error rate 
payment adjustments finalized above will help mitigate the potential 
complexity, because only exited issuers with statistically meaningful 
failure rates will receive

[[Page 16966]]

post-transfer adjustments. Furthermore, we believe the benefits 
associated with applying adjustments to exited issuers' payment 
transfers, based on the results of risk adjustment data validation for 
the most recent benefit year in which they participated in risk 
adjustment, outweigh the complexities. For State market risk pools 
where HHS determines that an issuer that exited the market will receive 
an adjustment to their risk adjustment transfer for their final benefit 
year in the market, we intend to provide all issuers in the affected 
prior year risk pool with the adjustments for exited issuers at the 
same time as adjustments for any issuers remaining in the market are 
made in the subsequent benefit year.
iii. 500 Billable Member Months
    Numerous small issuers have expressed concern regarding the 
regulatory burden and cost associated with complying with the risk 
adjustment data validation program. HHS has previously considered these 
concerns and provided relief where possible. In the proposed rule, we 
proposed that, beginning with 2017 benefit year risk adjustment data 
validation, issuers with 500 billable member months or fewer that elect 
to establish and submit data to an EDGE server would not be subject to 
the requirement to hire an initial validation auditor or submit initial 
validation audit results. We explained that we believe exempting 
issuers with 500 billable member months or fewer from the requirement 
to hire an initial validation auditor is appropriate because issuers of 
this size would have a disproportionately high operational burden for 
compliance with risk adjustment data validation. We noted that, 
beginning with 2018 benefit year risk adjustment data validation, these 
issuers would not be subject to random sampling under the materiality 
threshold discussed below, and would continue to not be subject to the 
requirement to hire an initial validation auditor or submit initial 
validation audit results. We also explained that if the approach for 
payment adjustments for error rates outlined in the proposed rule were 
finalized, then it would be possible that no adjustment would occur for 
issuers below this threshold. We sought comments on the proposal, 
including the 500 billable member month threshold.
    We are finalizing the exemption for issuers with 500 billable 
member months or fewer as proposed. We clarify that, consistent with 
the approach in the 2017 Payment Notice for the lower, separate risk 
adjustment default charge for small issuers, the determination of 
whether an issuer has 500 billable member months or fewer will be 
calculated Statewide (that is, combining an issuer's enrollment in a 
State's individual and small group markets in a benefit year).
    Comment: A commenter agreed with the proposal, but suggested that 
issuers with 500 or fewer billable member months be excluded from risk 
adjustment data validation entirely. One commenter disagreed with the 
proposal stating that all issuers should be subject to audits for 
accountability. One commenter agreed with the proposal, but wanted an 
option for small issuers to be adjusted by a default error rate based 
on the issuer's parent company's aggregate or average error rate.
    Response: HHS recognizes that issuers' company-level affiliations 
may vary in size considerably, but note that regardless of parent 
company size, issuers with 500 or fewer billable member months 
Statewide face a relatively large burden in complying with an initial 
validation audit where the initial validation audit sample would be the 
issuer's entire population. Consistent with the risk adjustment data 
validation error rate payment adjustment policy finalized above, we 
believe that only issuers with statistically meaningful errors should 
receive payment adjustments. We believe that the implementation of this 
policy provides similar relief to smaller issuers for whom audits would 
have a disproportionately high cost and who, due to small size, are 
unlikely to have a significant or material impact on adjustments to 
other issuers. We note that the risk adjustment data validation 
policies finalized in this rule result in issuers with 500 or fewer 
billable member months Statewide effectively being excluded from risk 
adjustment data validation, as they do not have to hire an initial 
validation auditor, submit initial validation audit results, or be 
subject to risk adjustment data validation payment adjustments.
iv. Materiality Threshold for Risk Adjustment Data Validation
    In the 2018 Payment Notice, HHS implemented a materiality threshold 
for risk adjustment data validation to ease the burden of annual audit 
requirements for smaller issuers of risk adjustment covered plans. 
Specifically, we stated that issuers with total annual premiums at or 
below $15 million (calculated based on the premiums of the benefit year 
being validated) would not be subject to annual initial validation 
audit requirements, beginning with the 2017 benefit year, but would 
still be subject to an initial validation audit approximately every 3 
years. HHS based the timeline for enforcement of the materiality 
threshold on the expectation that we would begin making payment 
adjustments based on the results of the 2016 benefit year risk 
adjustment data validation, effectively requiring all issuers of risk 
adjustment covered plans to participate in the first benefit year for 
which risk adjustment payments are adjusted. However, in light of our 
subsequent decision to convert the 2016 benefit year to another pilot 
year,\24\ in the proposed rule, we proposed to postpone application of 
the materiality threshold to the 2018 benefit year. Therefore, all 
issuers of risk adjustment covered plans would be required to conduct 
an initial validation audit for the 2017 benefit year risk adjustment 
data validation, other than issuers with 500 billable member months or 
fewer Statewide as discussed above. Beginning with the 2018 benefit 
year risk adjustment data validation, issuers below the $15 million 
premium materiality threshold would not be required to conduct an 
initial validation audit every year. Under this proposal, HHS would 
still conduct random and targeted sampling under which issuers below 
the materiality threshold would be subject to an initial validation 
audit approximately every 3 years, beginning with 2018 benefit year 
risk adjustment data validation.\25\ In addition, we explained that if 
the proposed approach for error rate payment adjustments outlined in 
the proposed rule were to be finalized, issuers below the $15 million 
threshold that are not selected for the random and targeted sampling 
might not have their risk adjustment transfers adjusted for a given 
benefit year.
---------------------------------------------------------------------------

    \24\ ``HHS-Operated Risk Adjustment Data Validation (HHS-RADV)--
2016 Benefit Year Implementation and Enforcement.'' May 3, 2017. 
Available at https://www.regtap.info/uploads/library/HRADV_PilotGuidance_5CR_050317.pdf.
    \25\ In the 2018 Payment Notice, we stated that we would 
consider risk-based metrics such as an issuer's prior year risk 
adjustment data validation results and material changes to data 
submission, as measured by our quality metrics, in selecting issuers 
below the materiality threshold for more frequent initial validation 
audits.
---------------------------------------------------------------------------

    We are finalizing the postponement of the materiality threshold to 
2018 benefit year risk adjustment data validation, as proposed.
    Comment: One commenter agreed with the proposal. Another commenter 
advocated for having a lower materiality threshold such as 12,000 or 
fewer billable member months. Some commenters stated that there should 
be no materiality threshold, and that all issuers should be subject to 
risk adjustment data validation.

[[Page 16967]]

    Response: Although we appreciate the comments, we did not propose 
and are not modifying the level at which the materiality threshold is 
set in this rule. The proposal addresses the timing for implementation 
of the threshold and the applicability of potential adjustments to risk 
adjustment transfers for issuers at or below the $15 million threshold. 
All issuers of risk adjustment covered plans will be required to 
conduct an initial validation audit for the 2017 benefit year risk 
adjustment data validation, other than issuers with 500 billable member 
months or fewer Statewide as discussed above. Beginning with the 2018 
benefit year, issuers at or below the $15 million premium threshold 
will not be required to conduct an initial validation audit every year. 
HHS will still conduct random and targeted sampling under which issuers 
below the materiality threshold would be subject to an initial 
validation audit approximately every 3 years, beginning with 2018 
benefit year risk adjustment data validation. Under the policy 
finalized in this rule with respect to error rate payment adjustments, 
issuers below the $15 million materiality threshold that are not 
selected for the random and targeted sampling will not have their risk 
adjustment transfers adjusted.
v. Data Validation Sampling Methodology
    Section 153.350(a) requires that a statistically valid sample of 
enrollees from each issuer of risk adjustment covered plans be 
validated. In the 2015 Payment Notice, HHS finalized its methodology 
for selecting the sample of enrollees for the initial validation audit 
for each issuer of a risk adjustment covered plan. We established a 
sample size per issuer for each State in which the issuer offers risk 
adjustment covered plans.\26\ In the proposed rule, we explained that 
HHS would not calculate a risk score, or apply risk adjustment payment 
transfers except for high-cost risk pool transfers beginning with the 
2018 benefit year, on behalf of a State in a market and risk pool when 
there is only one issuer in the market and risk pool. In addition, we 
proposed that the issuer would not be required to validate data for its 
plans in a risk pool that was not risk adjusted against another issuer 
in the State risk pool in the applicable benefit year. Therefore, we 
proposed to change the sampling methodology so that, beginning with the 
2017 benefit year data validation, the initial data validation audit 
sample would only include enrollees from State risk pools in which 
there was more than one issuer.\27\ We are finalizing this policy as 
proposed.
---------------------------------------------------------------------------

    \26\ The proposed rule described the sampling methodology 
incorrectly by stating that the sample would include 200 enrollees 
per issuer for each risk pool in which the issuer participates, 
instead of 200 enrollees per issuer across risk pools.
    \27\ For the 2018 and future benefit years, HHS would not 
require the sole issuer in the State market risk pool to include 
high-cost risk pool enrollees in its sample for data validation, as 
these payments will be subject to a separate audit process.
---------------------------------------------------------------------------

    Comment: One commenter stated that the proposed approach to allow 
sole issuers to participate in another market in the State where it is 
not the sole issuer has the potential to create market instability, as 
non-similar plans are brought into the calculation.
    Response: We clarify that, under the finalized policy, HHS would 
only sample from the issuer's risk pool where it is not the only issuer 
in the risk pool for the initial validation audit. Currently, the 
initial validation audit sample pulls from an issuer's population 
across a State, irrespective of risk pool. The finalized policy ensures 
that only enrollee data for which risk adjustment transfers were 
calculated in a risk pool are validated.
    Comment: One commenter disagreed with our proposal due to concerns 
about accountability of sole issuers.
    Response: For issuers that are the sole issuer in a risk pool, 
there is no risk adjustment transfer and thus, there is no payment or 
accountability to other issuers in that risk pool. As explained above, 
HHS will not calculate a risk score or risk adjustment payment 
transfers, on behalf of a State in a market and risk pool in which 
there is only one issuer, except for high-cost risk pool transfers 
beginning with the 2018 benefit year, and data submitted for high-cost 
risk pool transfers by all issuers will be subject to a separate audit. 
Therefore, we are finalizing the proposal to change the sampling 
methodology so that, beginning with 2017 benefit year risk adjustment 
data validation, the initial validation audit sample will only include 
enrollees from State risk pools in which there was more than one issuer 
and where HHS conducted risk adjustment on behalf of the State for the 
benefit year being validated.
vi. Mental and Behavioral Health Records
    Under Sec.  153.630(b)(6), the issuer of a risk adjustment covered 
plan must provide the initial validation auditor and second validation 
auditor with all relevant source enrollment documentation, all claims 
and encounter data, and medical record documentation from providers of 
services to each enrollee in the applicable sample without unreasonable 
delay and in a manner that reasonably assures confidentiality and 
security in transmission. Issuers have advised HHS that certain States' 
medical privacy laws may limit providers' ability to furnish mental and 
behavioral health records for risk adjustment data validation purposes. 
As we explained in the proposed rule, we believe that section 1343 of 
the PPACA and associated regulations require issuers of risk adjustment 
covered plans to furnish any records needed for purposes of the risk 
adjustment program, including mental and behavioral health records, and 
that the HIPAA Privacy Rule at 45 CFR 164.512(a) generally permits 
disclosures of protected health information that are required by law 
within the meaning of Sec.  164.103. Nevertheless, we recognize that 
some State and Federal privacy laws impose requirements for mental and 
behavioral health information that are different from, and potentially 
more restrictive than, the HIPAA regulations. However, without the 
necessary mental and behavioral health information, the diagnosis code 
for an applicable enrollee cannot be validated and, therefore, it would 
be rejected during risk adjustment data validation.
    To address these potential issues, we proposed to amend Sec.  
153.630(b)(6) to provide that, if a provider is prohibited from 
furnishing a full mental or behavioral health record by State or 
Federal privacy laws, the provider instead may furnish a mental or 
behavioral health assessment that providers routinely prepare, for 
validation of a mental or behavioral health diagnosis. We explained 
that, although HHS needs the full content of the mental or behavioral 
health record to ensure full validation of the accuracy of diagnosis 
codes, we believed that we can still perform some risk adjustment data 
validation based on the information contained in mental or behavioral 
health assessments in those instances in which State or Federal law 
prohibits submission of the full record. For risk adjustment data 
validation purposes, we would expect a mental or behavioral health 
assessment to be signed by a qualified provider who is licensed by the 
State to diagnose mental illness and, to the extent permissible under 
governing privacy and confidentiality laws, to contain: (i) The 
enrollee's name; (ii) sex; \28\ (iii) date of birth; (iv) current

[[Page 16968]]

status of all mental or behavioral health diagnoses; and (v) dates of 
service. We noted that ``psychotherapy notes,'' a subset of mental and 
behavioral health information that receives special protections under 
the HIPAA Privacy Rule, are not required for the purposes of risk 
adjustment data validation.\29\ We also noted that some State and 
Federal privacy laws require that providers obtain patient consent 
before disclosing mental or behavioral health records, and that these 
consent requirements may apply to mental or behavioral health 
assessments. We clarified that we do not view a State or Federal law 
requiring patient consent as inconsistent with the risk adjustment data 
validation requirements to furnish a mental or behavioral health record 
or assessment. Additionally, we noted that certain substance use 
disorder patient records are subject to the Federal confidentiality law 
at 42 U.S.C. 290dd-2 and the regulations issued thereunder in 42 CFR 
part 2 and certain State laws, and generally require consent prior to 
disclosure. We stated that we believed that this proposal is consistent 
with the foregoing Federal and State confidentiality rules, and that 
the substance use disorder confidentiality requirements should govern 
when applicable. Therefore, issuers or providers may be required to 
obtain written patient consent to comply with this proposal.
---------------------------------------------------------------------------

    \28\ For purposes of consistency, we made a technical revision 
to the name of this data element to ``sex'' in the final rule, 
rather than ``gender'' as was specified in the proposed rule. HHS 
uses the data element of sex, as biologically determined, to 
calculate enrollees' risk scores under the PPACA risk adjustment 
program.
    \29\ ``Psychotherapy notes'' are notes recorded by a health care 
provider who is a mental health professional documenting or 
analyzing the contents of conversation during a private counseling 
session, or a group, joint, or family counseling session and that 
are separated from the rest of the individual's medical record. 
Psychotherapy notes do not include medication prescription and 
monitoring, counseling session start and stop times, modalities and 
frequency of treatment, test results, and summaries of diagnoses, 
functional status, treatment plan, symptoms, prognosis, and progress 
to date. See Sec.  164.501.
---------------------------------------------------------------------------

    We noted the proposal would allow issuers an additional avenue to 
achieve compliance by permitting abbreviated mental or behavioral 
health assessments for risk adjustment data validation in the event 
that a provider is subject to State or Federal privacy laws that 
prohibit the provider from providing a complete mental or behavioral 
health record to HHS. Under the proposal, to submit a mental or 
behavioral health assessment instead of the full mental or behavioral 
health record, a provider would be required to attest that relevant 
State or Federal privacy laws prohibit him or her from providing the 
complete mental or behavioral health record. We explained in the 
proposed rule that we also believed that the proposal supports the 
integrity of the risk adjustment data validation program by ensuring 
that an initial validation auditor obtains data that will enable proper 
validation of mental or behavioral health HCCs, which are susceptible 
to discretionary coding. Furthermore, we noted our belief that the 
flexibility to use mental or behavioral health assessments would 
minimize the burden on providers of complying with this requirement 
because providers may be able to utilize records they routinely prepare 
and may already have, as opposed to preparing special summaries solely 
for the purpose of risk adjustment data validation.
    Based on our review of the comments we received, we are generally 
finalizing the amendments to Sec.  153.630(b)(6) to permit providers 
that are prohibited by State law from furnishing a full mental or 
behavioral health record to submit an assessment instead. We are making 
one clarification to convey that this flexibility will not apply to 
providers that are prohibited solely by Federal law from furnishing a 
full mental or behavioral health record. We recognize that other State 
and Federal laws, including the Federal confidentiality law at 42 
U.S.C. 290dd-2 and associated regulations that govern certain patient 
substance use disorder records potentially apply to mental or 
behavioral health assessments, and would require a provider to obtain 
enrollee consent before disclosing the assessment if applicable. We 
reiterate that the proposal on mental or behavioral health assessments 
was not intended to provide an exception to any applicable enrollee 
consent requirement under State or Federal law.
    Comment: Most commenters supported the proposal. These commenters 
stated that the proposal would reduce burden, ensure compliance with 
privacy rules, and assist with the chart retrieval process. Others 
supported the proposal with certain modifications. For example, one 
commenter requested a safe harbor if mental health diagnosis failure, 
or error rates, are high due to noncompliance from mental health 
providers. Similarly, another commenter requested that HHS avoid 
punitive payment adjustments for issuers whose production of records is 
constrained by compliance with State law. The commenter also requested 
that HHS acknowledge the existence of varying State-specific 
limitations on consent for disclosure of mental or behavioral health 
records, evaluate the extent to which State-specific rules can be 
appropriately incorporated into the data collection, and engage in a 
separate solicitation of input from stakeholders on this topic.
    Response: Since we only have final results from the first pilot 
year of risk adjustment data validation thus far, we do not currently 
have adequate experience to be able to determine whether failure rates 
for mental health diagnoses are higher than other diagnoses, and 
whether those failure rates are consistent by State. The policy for 
error rate payment adjustments finalized in this rule mitigates the 
potential for punitive payment adjustments, because only issuers with 
statistically meaningful failure rates will receive risk score error 
rates resulting in payment transfer adjustments.\30\ We will continue 
to evaluate whether additional relief is necessary, based on analysis 
of risk adjustment data validation results. Our policy to permit the 
use of mental or behavioral health assessments by providers that are 
prohibited by State law from furnishing a full record is intended to 
offer broadly applicable relief and flexibility to account for the 
variation in privacy laws in particular States. Therefore, we do not 
intend to solicit input on or otherwise engage in an evaluation of 
State-specific requirements.
---------------------------------------------------------------------------

    \30\ Please see the above preamble section on ``Payment 
Adjustments for Error Rates'' for more information.
---------------------------------------------------------------------------

    Comment: Two commenters expressed concern that initial validation 
auditors may interpret or utilize mental or behavioral health 
assessments differently, and requested that HHS provide guidance or 
training to ensure consistent interpretation of the assessments.
    Response: We agree that consistent interpretation and utilization 
of mental and behavioral health assessments is important, and seek to 
encourage it. For purposes of risk adjustment data validation, the 
assessment is limited to the five discrete elements specified in Sec.  
153.630(b)(6), most of which are straightforward, so HHS does not 
anticipate a material risk of disparate interpretation or utilization 
of mental or behavioral health assessments by initial validation 
auditors. HHS continues to work to leverage existing provider networks 
and communication channels to educate providers on the HHS-operated 
risk adjustment data validation requirements.
    Comment: One commenter requested the extension of flexibility to 
the actual submission of documentation regarding treatment for mental 
or behavioral health conditions, expressing concern that there may not 
be an affected

[[Page 16969]]

underlying record to identify in the first instance. The commenter also 
requested additional information regarding who bears responsibility for 
preparation of the mental or behavioral health assessment and how it 
differs from a full record.
    Response: The provider is responsible for preparing the mental or 
behavioral health assessment, and the assessment is limited to the five 
elements specified in Sec.  153.630(b)(6). When being used for risk 
adjustment data validation purposes, it should be accompanied by the 
provider's signature and an attestation that State privacy laws 
prohibit the provider from furnishing a complete medical record. This 
policy provides flexibility in cases where the State law prevents 
submission of the full record, but that flexibility does not extend to 
the provision of any documentation regarding mental or behavioral 
health conditions. HCCs without adequate documentation, whether through 
a full record or a mental or behavioral health assessment, would result 
in an error.
    Comment: Several commenters did not support the proposal. For 
example, one commenter indicated that this policy of permitting mental 
or behavioral health assessments would not significantly reduce burden, 
and generally objected to the other State or Federal laws that may 
require the provider to obtain patient consent, indicating that doing 
so may not be possible. One commenter stated that requiring provider 
attestation or patient consent will add burden and reduce the 
likelihood of mental or behavioral health records being furnished by 
issuers in risk adjustment data validation. The commenter also 
expressed concern that there will likely be higher error rates for HCCs 
related to mental health or substance use disorders.
    Response: HHS believes that the finalized policy to permit the use 
of existing mental or behavioral health assessments affords flexibility 
to providers to use an alternative source for the documentation that 
otherwise would be necessary under risk adjustment data validation to 
maintain the integrity of the risk adjustment program while complying 
with State and Federal privacy requirements. As discussed previously in 
this section and in the proposed rule, State and Federal privacy 
requirements may independently require a provider to obtain patient 
consent in order to furnish a mental or behavioral health assessment. 
In providing the flexibility to submit assessments for risk adjustment 
data validation purposes, HHS does not intend to limit or otherwise 
affect the application of any such consent requirements under State or 
Federal law, which provide important protections to enrollees.
    HHS recognizes, however, that our policy to allow providers to 
furnish a mental or behavioral health assessment may impose a slight 
increase in the burden of compliance with risk adjustment data 
validation requirements because the assessment must be accompanied by 
an attestation from the provider. Attestations are necessary to 
demonstrate that the provider is prohibited from furnishing the 
complete medical record by State privacy laws, but we do not expect 
compliance with the attestation requirement to be difficult.
    As noted above, HHS does not intend to exempt providers from any 
other applicable consent requirements under State or Federal law, and 
we do not yet have adequate experience as to whether failure rates will 
be higher for mental health conditions or substance use disorders. We 
reiterate that only issuers with statistically meaningful failure rates 
will receive risk score error rates and subsequent payment transfer 
adjustments pursuant to the policy finalized in this rule.\31\ We will 
analyze risk adjustment data validation results to evaluate the impact 
of this policy on error rates, and will consider whether further 
refinements are appropriate.
---------------------------------------------------------------------------

    \31\ Please see the above preamble section on ``Payment 
Adjustments for Error Rates'' for more information.
---------------------------------------------------------------------------

    Comment: Commenters expressed concern that enrollees could be 
waiving their HIPAA rights if their providers furnish medical records 
that include enrollees' diagnoses for risk adjustment data validation. 
The commenter suggested that if a diagnosis can be imputed by the 
presence of a prescription drug, HHS should include treatments for 
mental illness as a drug class in the risk adjustment models, to impute 
diagnoses for which a medical record cannot easily be obtained.
    Response: As noted above and in the proposed rule, we believe that 
section 1343 of the PPACA and associated regulations require issuers of 
risk adjustment covered plans to furnish any records needed for 
purposes of the risk adjustment program, including mental and 
behavioral health records. The HIPAA Privacy Rule generally permits 
disclosures that are required by law (see 45 CFR 164.512(a)). We 
recognize that some State and Federal privacy laws impose requirements 
for mental and behavioral health information that are different from, 
and potentially more restrictive than, the HIPAA regulations, and may 
require that providers obtain patient consent before disclosing mental 
or behavioral health records or assessments. We do not view the risk 
adjustment data validation requirements to furnish a mental or 
behavioral health record or assessment as inconsistent with these 
consent requirements or involving any ``waiver'' of enrollee privacy 
rights.
    As discussed in the 2018 Payment Notice, in specific instances, 
risk adjustment permits the use of prescription drugs to impute 
diagnoses. As noted elsewhere in this rule, HHS will continue to 
evaluate the inclusion of additional prescription drug classes in the 
risk adjustment model, including mental or behavioral health 
treatments, to potentially impute missing diagnoses for future benefit 
years.
    Comment: One commenter requested that HHS provide issuers 
flexibility to develop standard language requiring the provider's 
signature to ease the administrative burden of creating mental or 
behavioral health assessments.
    Response: The approach being finalized in this rule does not 
prevent an issuer from developing standard language for the provider 
attestation if the issuer believes it will help providers furnish 
mental or behavioral health assessments and other required 
documentation for risk adjustment data validation purposes.
    Comment: Some commenters expressed concerns about the Federal rules 
governing confidentiality of substance use disorder patient records 
under 42 CFR part 2, or their alignment with the HIPAA Privacy Rule.
    Response: The comments on the Federal rules governing 
confidentiality of substance use disorder patient records under 42 CFR 
part 2 and the HIPAA Privacy Rule concern regulations that are 
implemented and enforced by other agencies within HHS, the Substance 
Abuse and Mental Health Services Administration and the Office for 
Civil Rights, respectively. Although we appreciate these comments, we 
are not able to address them in this rulemaking.
vii. Inter-Rater Reliability Rates
    Under Sec.  153.630(b)(8), the initial validation auditor must 
measure and report to the issuer and HHS, in a manner and timeframe 
specified by HHS, its inter-rater reliability rates among its 
reviewers. An initial validation auditor must achieve a consistency 
measure of at least 95 percent for his or her review outcomes, except 
for the initial benefit years of risk

[[Page 16970]]

adjustment data validation, for which the initial validation auditor 
may meet an inter-rater reliability standard of 85 percent. Consistent 
with our decision to make the 2016 benefit year another pilot year as 
referenced above, we proposed to amend Sec.  153.630(b)(8) to add the 
2016 benefit year as an initial year of risk adjustment data validation 
for which the initial validation auditor may meet the lower inter-rater 
reliability standard of 85 percent. We are finalizing the amendment to 
Sec.  153.630(b)(8) as proposed.
    Comment: All commenters supported the addition of the 2016 benefit 
year as an initial year of risk adjustment data validation for which 
the initial validation auditor may meet an inter-rater reliability 
standard of 85 percent. One commenter noted that permitting the 85 
percent standard for another year would allow issuers to gain an 
additional year of experience and process improvement before the 
standard is increased.
    Response: We agree with commenters and are finalizing the amendment 
to Sec.  153.630(b)(8) as proposed.
viii. Civil Money Penalties
    An effective risk adjustment data validation program is essential 
to the proper functioning of the HHS-operated risk adjustment program. 
In order to enforce risk adjustment data validation standards when 
operating risk adjustment data validation on behalf of a State, we 
proposed to clarify and amend the bases upon which HHS may impose CMPs 
for violations of risk adjustment data validation requirements.
    To give HHS additional flexibility for ensuring compliance with the 
risk adjustment data validation requirements and in light of our 
experience in the first pilot year of the risk adjustment data 
validation program, HHS proposed to amend Sec.  153.630(b)(9) to give 
HHS the authority to impose a CMP on an issuer of a risk adjustment 
covered plan in the event of misconduct or substantial non-compliance 
with the risk adjustment data validation standards and requirements. 
Specifically, we proposed to amend Sec.  153.630(b)(9) to state that, 
if an issuer of a risk adjustment covered plan (1) fails to engage an 
initial validation auditor; (2) fails to submit the results of an 
initial validation audit to HHS; (3) engages in misconduct or 
substantial non-compliance with the risk adjustment data validation 
standards and requirements applicable to issuers of risk adjustment 
covered plans; or (4) intentionally or recklessly misrepresents or 
falsifies information that it furnishes to HHS, HHS may impose CMPs in 
accordance with the procedures set forth in Sec.  156.805(b) through 
(e). We note that Sec.  153.630(b)(9) already addresses the possible 
imposition of CMPs for (1) and (2) above, and provides a cross-
reference to Sec.  156.805, which contains the bases and procedures for 
imposing CMPs for (3) and (4) above. Section 153.630(b)(9) provides the 
authority to assess CMPs on all issuers of risk adjustment covered 
plans, not just issuers on an FFE as does Sec.  156.805.\32\ We 
clarified that the proposal to impose CMPs for (3) and (4) would apply 
to all issuers of risk adjustment covered plans, not just those issuers 
on an FFE. We noted that the CMP authority would be in addition to 
HHS's ability to adjust an issuer's transfers under Sec.  153.350(c).
---------------------------------------------------------------------------

    \32\ Pursuant to Sec.  153.20, risk adjustment covered plan 
means, for the purpose of the risk adjustment program, any health 
insurance coverage offered in the individual or small group market 
with the exception of grandfathered health plans, group health 
insurance coverage described in 45 CFR 146.145(c), individual health 
insurance coverage described in 45 CFR 148.220, and any plan 
determined not to be a risk adjustment covered plan in the 
applicable Federally certified risk adjustment methodology.
---------------------------------------------------------------------------

    As previously noted in the Second 2013 Program Integrity Rule, and 
in the 2015 Payment Notice, we proposed that HHS's possible application 
of CMPs would continue to take into account the totality of the 
issuer's circumstances, including such factors as an issuer's previous 
record of non-compliance (if any), the frequency and level of the 
violation, and any aggravating or mitigating circumstances. 
Additionally, we would continue to impose any CMPs so that the level of 
the enforcement action is proportional to the level of the violation. 
While we reserved the right to impose penalties up to the maximum 
amounts set forth in Sec.  156.805(c), as a general principle, we 
explained that we intend to work collaboratively with issuers to 
address any problems in conducting the risk adjustment data validation 
process.
    We believe this additional CMP authority will improve program 
integrity and fairness by permitting HHS the authority to assess CMPs 
on issuers that engage in misconduct in risk adjustment data 
validation. Although Sec.  153.630(e) permits HHS to adjust payments 
and charges for issuers that do not comply with audit requirements and 
standards, this provision only makes the markets whole in the event of 
a violation of the risk adjustment data validation standards or 
misconduct. We do not believe this provision provides a sufficient 
deterrent effect to ensure program integrity of the risk adjustment 
data validation program. Additionally, we believe this additional 
authority is necessary in light of the policies finalized in the 2018 
Payment Notice, specifically, the concerns HHS highlighted around 
gaming and the inclusion of prescription drug data in the risk 
adjustment model. We are finalizing as proposed the amendments to Sec.  
153.630(b)(9) to clarify and strengthen HHS's CMP authority. We also 
clarify that HHS would not impose a CMP under Sec.  153.630(b)(9) for a 
benefit year on an issuer that is not required to submit an initial 
validation audit for risk adjustment data validation for that benefit 
year.
    Comment: Most of the comments received supported the proposal. One 
commenter requested definitions for misconduct, substantial 
noncompliance, and reckless misrepresentation, along with examples for 
each case under which an issuer could receive a CMP.
    Response: The terms misconduct, substantial noncompliance, and 
reckless misrepresentation are incorporated from Sec.  156.805(a)(1) 
and (5). Examples of issuer misconduct that could warrant imposition of 
a CMP under the amended Sec.  153.630(b)(9) include knowingly hiring an 
initial validation auditor who has conflicts of interest, or failing to 
ensure confidentiality and security of data transmitted to the initial 
validation auditor or second validation auditors. Examples of 
substantial noncompliance include unreasonable delays in providing 
complete enrollment documentation, claims and encounter data, or 
medical records documentation to an auditor, or failing to properly 
oversee an initial validation auditor. However, the determination of 
whether conduct rises to the level of any of these terms in any 
specific case is highly fact sensitive, involving consideration of any 
mitigating or aggravating factors.
ix. Adjustment of Risk Adjustment Transfers Due to Submission of 
Incorrect Data
    On September 2, 2015, HHS released the Adjustment of Risk 
Adjustment Transfers Due to Submission of Incorrect Data guidance,\33\ 
describing the process by which HHS addresses instances of materially 
incorrect EDGE server data submissions. We reiterated this guidance on 
November 3, 2017, through the release of Evaluation of EDGE Data 
Submissions for the 2017 Benefit Year.\34\ We proposed to include risk 
adjustment data validation as a

[[Page 16971]]

method of discovering materially incorrect EDGE server data submissions 
and making adjustments pursuant to Sec.  153.630(e), as described in 
the September 2, 2015 guidance.\35\ We proposed that demographic or 
enrollment errors discovered during risk adjustment data validation 
would be the basis for an adjustment to the applicable benefit year 
transfer amount, rather than the subsequent benefit year risk score. 
The elements being validated are related to the transfer formula and 
demographic variables in the risk adjustment models. We explained that 
we believe the process of identifying demographic and enrollment errors 
is substantially similar to a discrepancy in the transfer formula, 
which is addressed in the current benefit year as part of the EDGE data 
discrepancy process under Sec.  153.710, as opposed to a discrepancy in 
underlying enrollee diagnoses contributing to risk scores, which is 
addressed through subsequent year risk score adjustments as part of 
risk adjustment data validation.
---------------------------------------------------------------------------

    \33\ Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/RA-Adjustment-Guidance-9-2-15.pdf.
    \34\ Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/EDGE-Submissions-2017.pdf.
    \35\ This guidance is also included in the Evaluation of EDGE 
Data Submissions for the 2017 Benefit Year, released on November 3, 
2017, available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/EDGE-Submissions-2017.pdf.
---------------------------------------------------------------------------

    An overstatement or understatement of premium data may affect 
issuers differently, because it will lead to an increase or decrease in 
the absolute value of the magnitude of the risk adjustment transfers 
(and will affect the calculation of the geographic rating area 
factors). Therefore, an issuer's submission of incorrect EDGE server 
premium data may have the effect of increasing or decreasing the 
magnitude of risk adjustment transfers to other issuers in the market, 
depending on the direction of the premium error, holding constant the 
other elements of the payment transfer formula. In cases where there is 
a material impact on risk adjustment transfers for that particular 
market as a result of incorrect EDGE server premium data, HHS would 
calculate the dollar value of differences in risk adjustment transfers, 
and, where the difference is detrimental to one or more issuers in the 
market, adjust the other issuers' risk adjustment transfer amount by 
that calculation, and increase the risk adjustment charge (or decrease 
the risk adjustment payment) to the issuer that made the data error, in 
order to balance the market.\36\ We explained that we believe this 
approach would allow HHS to operate the risk adjustment program 
efficiently, while ensuring that issuers do not profit from their data 
submission errors or harm their competitors in the relevant market. We 
sought comment on this proposal.
---------------------------------------------------------------------------

    \36\ Calculation of the dollar value will include adjustment to 
the Statewide premium average and, to the extent possible, 
adjustment to the geographic cost factor.
---------------------------------------------------------------------------

    We are finalizing this policy as proposed.
    Comment: Commenters supported the proposal, or agreed with it but 
requested additional clarification. For example, one commenter 
requested examples of materially incorrect data submissions. Another 
commenter sought clarification on certain technical issues related to 
the proposal, including the definition of demographic and enrollment 
data errors, whether these errors will impact elements of the transfer 
formula, the error rate, or both, and the timing of any adjustments 
that HHS would make with respect to current year risk adjustment 
transfer amounts and related data transfer element errors. One 
commenter supported HHS's current approach of taking a subsample of 50 
enrollees to verify demographic and enrollment information, but 
stressed that the subsample results should not be the sole basis for 
applying current year transfer adjustments. Rather, if errors are 
identified from the subsample, HHS should then investigate the issuer's 
data further to assess if there were materially incorrect EDGE data 
submissions.
    Response: We clarify that significant errors found in the risk 
adjustment data validation demographic and enrollment subsample review 
will result in communications from HHS to the issuer regarding the 
issuer's underlying data before the potential application of any 
adjustments to risk adjustment transfers. The demographic and 
enrollment data elements collected for purposes of risk adjustment are 
date of birth, sex, plan identifier, enrollment start and end dates, 
premium amount, and rating area. In addition to the issues described 
above regarding incorrect premium, certain demographic or enrollment 
errors could indicate the presence of larger issues such as assignment 
of enrollees to the incorrect model or metal level, which would lead to 
incorrect risk scores and a miscalculation of the AVs and induced 
demand factors (IDF) in the transfer formula, or incorrect age factors. 
If this occurs, we would initiate a separate process outside of risk 
adjustment data validation to further evaluate the impact of the 
incorrect data submission, determine whether the market needs to be 
made whole due to the errors, and then make the necessary adjustments 
to affected issuers. Therefore, HHS will not be relying solely on 
subsample results as the basis for applying current year transfer 
adjustments. Whether an error has an effect on the transfer formula, 
error rate, or both amounts will depend on the specifics of the error. 
For example, if an error affects premiums alone, only the Statewide 
average premium would need to be adjusted. HHS intends to be in 
communication with affected issuers throughout the second validation 
audit process, and to resolve potential discrepancies in a manner 
similar to the EDGE data submission discrepancy process.
h. Risk Adjustment User Fee for the 2019 Benefit Year (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 its behalf. In 2019, HHS will be operating a risk 
adjustment program in every State. 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 must remit a 
user fee to HHS equal to the product of its monthly billable member 
enrollment in the plan and the per member per month risk adjustment 
user fee specified in the annual HHS notice of benefit and payment 
parameters for the applicable benefit year.
    OMB Circular No. A-25R established Federal policy regarding user 
fees, and specified that a user charge will be assessed against each 
identifiable recipient for special benefits derived from Federal 
activities beyond those received by the general public. The risk 
adjustment program will provide special benefits as defined in section 
6(a)(1)(B) of Circular No. A-25R to issuers of risk adjustment covered 
plans because it mitigates the financial instability associated with 
potential adverse risk selection. The risk adjustment program also 
contributes to consumer confidence in the health insurance industry by 
helping to stabilize premiums across the individual and small group 
markets.
    In the 2018 Payment Notice, we calculated the Federal 
administrative expenses of operating the risk adjustment program for 
the 2018 benefit year to result in a risk adjustment user fee rate of 
$1.68 per billable member per year or $0.14 PMPM, based on our 
estimated contract costs for risk adjustment operations and estimates 
of billable member months for individuals enrolled in a risk adjustment 
covered plan. For the 2019 benefit year, we proposed to use the same 
methodology to estimate our administrative expenses to operate the 
program. These contract costs cover development of the model

[[Page 16972]]

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 in HHS-operated risk adjustment States for the 
benefit year.
    We previously estimated that the total cost for HHS to operate the 
risk adjustment program on behalf of States for 2019 will be 
approximately $38 million, and the risk adjustment user fee would be 
$1.68 per billable member per year, or $0.14 PMPM. However, we now 
estimate the cost for HHS to operate the risk adjustment program on 
behalf of States for the 2019 benefit year to be approximately $40 
million, and are finalizing a risk adjustment user fee of $1.80 per 
billable member per year, or $0.15 PMPM, to take account of eligible 
administrative and personnel costs related to the operation of the HHS-
operated risk adjustment program that were previously excluded from the 
estimate.

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

1. Applicability (Sec.  154.103)
    Since July 18, 2011, issuers have been required to submit rate 
filing justifications for rate increases for non-grandfathered plans in 
the individual and small group markets. This requirement was 
established, in part, to carry out the Secretary's responsibility, in 
conjunction with States, under section 2794(b)(2)(A) of the PHS Act to 
monitor premium increases of health insurance coverage offered through 
an Exchange and outside of an Exchange. Student health insurance 
coverage is considered by HHS to be a type of individual market 
coverage and is generally subject to the PHS Act individual market 
requirements, which has included rate review. We proposed to modify 
Sec.  154.103(b) to exempt student health insurance coverage from the 
Federal rate review requirements, effective for plan or policy years 
beginning on or after January 1, 2019. As we discussed in the proposed 
rule, and as commenters noted, student health insurance coverage is 
generally rated and administered differently from other forms of 
individual health insurance coverage.\37\
---------------------------------------------------------------------------

    \37\ See preamble discussion in the final rule, ``Health 
Insurance Market Rules; Rate Review'' 78 FR 13406, 13424 (February 
27, 2013).
---------------------------------------------------------------------------

    States have allowed rating practices for student health insurance 
coverage to be more in line with large group pricing, in which 
experience rating and other factors can be used to determine rates. 
Because student health insurance coverage is typically experience 
rated, and is typically only available to students and their dependents 
with an open enrollment period coinciding with the start of the 
academic year, it is exempt from single risk pool rating requirements 
and not guaranteed to be available or renewable to individuals who are 
not students or dependents of students in an institution of higher 
education. We are finalizing the exemption as proposed, except that we 
are modifying the applicability date to align with the timing of when 
student health insurance coverage typically begins, such that the 
exemption will be effective for student health rate filings for the 
next plan year. This change, effective for student health insurance 
coverage effective on or after July 1, 2018, will reduce the regulatory 
burden on States and issuers of student health insurance plans.
    Comment: Most commenters supported the proposal to exempt student 
health insurance coverage from Federal rate review requirements. 
Commenters suggested that the exemption should apply to coverage 
effective on or after July 1, 2018, to coincide with the traditional 
school year. Some commenters expressed concern that exempting student 
health insurance coverage would result in minimal oversight and 
decreased affordability.
    Response: We are finalizing the exemption and it will apply to 
student health insurance coverage, as defined in Sec.  147.145, with an 
effective date on or after July 1, 2018. We note that States maintain 
the flexibility to review rate increases of any size and any other 
aspects of student health insurance coverage. In States that do not 
have an Effective Rate Review Program, we will continue to monitor the 
compliance of student health insurance coverage with applicable market 
rating reforms based on complaints and as part of targeted market 
conduct examinations. In States where we are enforcing market reforms, 
we will continue to review form filings for student health insurance 
coverage for compliance with applicable PHS Act individual market 
requirements.
2. Rate Increases Subject to Review (Sec.  154.200)
    Section 2794(a)(1) of the PHS Act requires the Secretary, in 
conjunction with States, to establish a process for the annual review 
of unreasonable premium increases for health insurance coverage. 
Section 2794(a)(2) of the PHS Act requires health insurance issuers to 
submit to the Secretary and relevant State a justification for an 
unreasonable premium increase prior to implementation. States may 
establish a more robust review process, and many have.
    Section 154.200(a)(1) currently provides that a rate increase for 
single risk pool coverage beginning on or after January 1, 2017 is 
subject to a reasonableness review if: (1) The average increase, 
including premium rating factors described in Sec.  147.102, for all 
enrollees, weighted by premium volume for any plan within the product, 
meets or exceeds 10 percent; or (2) the increase exceeds a State-
specific threshold approved by the Secretary. We proposed to amend this 
provision to establish a 15 percent default threshold for 
reasonableness review, in recognition of significant rate increases in 
the past number of years, rather than the current 10 percent default 
threshold.\38\
---------------------------------------------------------------------------

    \38\ The 10 percent threshold was established in the ``Rate 
Increase Disclosure and Review'' Final rule (76 FR 29963, May 23, 
2011) based upon three indices. These indices are: (1) The medical 
component of the Consumer Price Index (CPI); (2) the National Health 
Expenditure data (NHE); and (3) the Standard and Poor's Healthcare 
Economic Commercial Index. The threshold was finalized at 10 percent 
based on the analysis of the trend in health care costs and rate 
increases provided in the preamble to the proposed rule.
---------------------------------------------------------------------------

    Section 154.200(a)(2) currently requires States to submit a 
proposal to the Secretary for approval of any State-specific threshold. 
We proposed to amend Sec.  154.200(a)(2) to require submission of a 
proposal only if the State-specific threshold is higher than the 
Federal default threshold. We proposed this change to reduce burden and 
promote State flexibility.
    We also proposed to delete paragraph (b) in its entirety. That 
paragraph currently requires that the Secretary publish a notice each 
year indicating which threshold applies to each State. For States that 
request a State-specific threshold above what is set by CMS, CMS noted 
it would continue to post information on its website beginning with 
requests submitted on or after January 1, 2019.
    We proposed to redesignate paragraph (c) as paragraph (b) and 
revise that paragraph to delete the language related

[[Page 16973]]

to rates filed for coverage beginning before January 1, 2017, currently 
captured in paragraph (c)(1) as this provision is no longer 
necessary.\39\ We proposed to redesignate paragraph (d) as paragraph 
(c). Finally, we proposed conforming changes to update the cross 
references in Sec.  154.200 to align with the changes described above.
---------------------------------------------------------------------------

    \39\ This standard (that is, the average increase for all 
enrollees weighted by premium volume meets or exceeds the applicable 
threshold), however, continues to apply to rates filed for coverage 
beginning before January 1, 2017, including with respect to 
compliance reviews and enforcement actions.
---------------------------------------------------------------------------

    We are finalizing these changes as proposed with one modification, 
described below. These changes will apply to single risk pool rate 
filings submitted by issuers for plan or policy years beginning on or 
after January 1, 2019.
    Comment: Some commenters supported a threshold increase, noting 
that raising the threshold to 15 percent would allow regulators to 
focus their attention on higher rate increases and reduce the 
regulatory burden for both States and issuers. Other commenters 
supported raising the threshold, but did not specify an alternative to 
10 percent. Many commenters opposed changing the reasonableness review 
threshold to 15 percent, concerned that the change may normalize 
excessive increases. Other commenters opposed the change because it 
would negatively affect transparency of rate setting, noting that the 
Consumer Justification Narrative (Part II of the Rate Filing 
Justification) is only required for increases that meet or exceed the 
review threshold. Some commenters suggested a 6 percent threshold would 
be appropriate because that would be in line with health expenditures 
and still above the general rate of inflation. A few commenters 
suggested there should be a 15 percent threshold at the product level 
and 20 percent threshold at the plan level.
    Response: We note that the threshold set by HHS constitutes a 
minimum standard. By increasing the threshold trigger to 15 percent, we 
are providing an opportunity for States to reduce their review burden, 
although most States currently employ stricter rate review standards 
and may continue to do so. Additionally, increasing the Federal default 
threshold for review will reduce burden for issuers. After an analysis 
of all rates subject to review that were determined to be 
``unreasonable'' since the inception of the review threshold, only one 
filing with this determination has fallen between the 10 to 15 percent 
range. For these reasons, we do not believe this change will normalize 
excessive increases.
    We are not lowering the threshold to 6 percent, as doing so may 
increase the burden on issuers and States. We are not establishing two 
thresholds (one at the product level and one at the plan level). When 
determining whether an increase is subject to review, rate increases 
are calculated at the plan level. That ensures that a plan that 
experiences a significant rate increase does not avoid review simply 
because the average increase for the product did not meet or exceed the 
applicable threshold. Because consumers are affected by rate increases 
at the plan level, we believe that increases for the plan, not the 
product, should continue to be the trigger for determining whether an 
increase is subject to review.
    We expect the change to have a minimal impact on transparency. All 
issuers must continue to submit a Uniform Rate Review Template (URRT) 
(Part I of the Rate Filing Justification) for all single risk pool plan 
submissions. Issuers offering a QHP or any single risk pool submission 
containing a rate increase of any size must continue to submit an 
actuarial memorandum (Part III of the Rate Filing Justification). We 
are finalizing the proposal to change the Federal default review 
threshold to 15 percent beginning with single risk pool rate filings 
submitted by issuers for plan or policy years beginning on or after 
January 1, 2019.
    Comment: Some commenters opposed CMS requiring submission of a 
proposal (and posting of that proposal) only if the State-specific 
threshold is higher than the Federal default threshold.
    Response: The Federal review threshold is a minimum standard. 
States are able to apply a stricter standard, and many already do. 
Because States that apply a lower threshold meet the Federal minimum 
standard, we do not believe it is necessary or appropriate to require 
those States to submit a proposal to CMS. Therefore, we are finalizing 
the proposed changes to Sec.  154.200(a)(2) with the following 
modification: We added language to clarify that these State proposals 
must be submitted in the form and manner specified by the Secretary. 
CMS will only require a proposal from States requesting a higher 
threshold. States that impose stricter standards will communicate those 
standards to their issuers as they currently do with many other aspects 
of State-specific requirements. CMS will post information from States 
that request a threshold higher than 15 percent and will issue further 
guidance on the process for submission and review of such State 
requests.
3. Submission of Rate Filing Justification (Sec.  154.215)
    Section 154.215(h)(2) includes a reference to 45 CFR 5.65, which 
defined trade secret and confidential commercial or financial 
information under HHS regulations implementing the Freedom of 
Information Act, 5 U.S.C. 552. HHS revised 45 CFR part 5 in a final 
rule issued on October 28, 2016, effective on November 28, 2016 (81 FR 
74930). We proposed to make a technical correction to Sec.  
154.215(h)(2) to refer to 45 CFR 5.31(d) because 45 CFR 5.65 no longer 
exists and Sec.  5.31(d) now lists the reasons a record may be 
withheld. We are finalizing the change as proposed.
    Comment: Some commenters opposed CMS's use of the Freedom of 
Information Act and requested issuer information be provided without 
any redaction.
    Response: We proposed and are finalizing a technical correction to 
the regulatory reference. We did not propose any change to our 
interpretation of a trade secret and confidential commercial or 
financial information. The issuer may submit a redacted actuarial 
memorandum, but CMS does not make any redaction beyond what is 
submitted in the rate filing.
4. Timing of Providing the Rate Filing Justification (Sec.  154.220)
    Section 154.220(b) provides that a health insurance issuer must 
submit applicable sections of the Rate Filing Justification for all 
single risk pool coverage in the individual or small group market by 
the earlier of (1) the date by which the State requires submission of a 
rate filing; or (2) the date specified in guidance by the Secretary. We 
have interpreted that section to require submission of all rate 
filings, for both QHPs and non-QHPs, at a uniform time.\40\ We proposed 
to allow a State to set a later submission deadline for issuers who 
offer non-QHPs only, starting with the 2019 plan year. We are 
finalizing the change as proposed.
---------------------------------------------------------------------------

    \40\ 80 FR 10782.
---------------------------------------------------------------------------

    Comment: Some commenters expressed concern that the proposal 
provides an advantage to issuers offering only non-QHPs and may provide 
an opportunity for competitors to shadow price. Many commenters 
supported the proposal, in order to reduce State burden.
    Response: We are finalizing the proposal. We remind issuers that 
offer both QHPs and non-QHPs in a market in a given State to submit its 
rate filing

[[Page 16974]]

in accordance with the deadlines established for QHPs to support 
regulatory review of compliance with the single risk pool requirement. 
Establishing a later submission deadline for issuers that offer only 
non-QHPs is a State option, not a requirement. We believe it will 
reduce burden while empowering States to pick the timeframe that works 
best for their markets, and also accounts for market differences 
between States. We also remind States and issuers that even if the 
submission deadlines differ; all information must be submitted to CMS 
by the earlier of the State deadline or the Federal deadline. We also 
remind States and issuers that only submission deadlines may vary; 
uniform posting will still be required, as discussed below, to help 
mitigate the potential for shadow pricing and other anti-competitive 
behaviors.
5. Determinations of Effective Rate Review Programs (Sec.  154.301)
a. State Posting of Rate Increases
    We proposed to modify Sec.  154.301(b)(2), by reducing the advance 
notification required, so that a State with an Effective Rate Review 
Program must notify us in writing, no later than 5 business days prior 
to the date it intends to make any proposed or final rate filing 
information public if the State will be posting prior to the date 
specified by the Secretary. We are finalizing this change as proposed.
    Comment: The majority of commenters supported this proposal. Some 
commenters requested that CMS require States to inform issuers prior to 
posting. Some commenters requested that CMS require States to post rate 
filing information on State websites even if the information is also 
posted on CMS's website. Two commenters opposed the proposal because 
they interpreted the proposal as a reduction to the public's 
opportunity to review and comment.
    Response: We appreciate the importance of State communication with 
issuers, and we expect States to maintain satisfactory communication 
regarding posting deadlines to issuers, but decline to propose 
requirements related to such. We also did not propose and are not 
making changes to the requirements regarding States posting on their 
own website. States are permitted to use CMS's website because we are 
mindful of the burden and cost associated with such posting, but we 
encourage States to consider posting rate filing information directly 
on their respective websites, while also providing a link to the CMS 
website. We are finalizing the proposal. This change will reduce the 
amount of time prior to posting that the State must notify CMS, but 
does not reduce the public comment period.
b. Posting of Rate Increases
    Section 154.301(b)(3) provides that a State with an Effective Rate 
Review Program must ensure that information regarding rate increases is 
made available to the public at a uniform time for all proposed and 
final rate increases, as applicable, in the relevant market segment and 
without regard to whether coverage is offered on or off of an Exchange. 
That provision was codified in order to set a level playing field, to 
prevent issuers that submit rate filings later from having an advantage 
over their competitors that submitted rate filings earlier.
    We proposed to eliminate the requirement for uniform posting so 
that States that have an Effective Rate Review Program would have the 
option to post proposed and final rate filing information on a rolling 
basis. We are not finalizing this proposal.
    Comment: A few commenters supported the proposal, but the majority 
of commenters opposed the proposal, noting that uniform posting 
protects issuers from shadow pricing and ensures a level playing field 
in a fair competitive market. Those commenters were also concerned that 
posting on a rolling basis may promote manipulation by some market 
competitors, and could inadvertently contribute to market 
destabilization.
    Response: We proposed to give States the option to post rate 
increase information on a rolling basis in order to accommodate a few 
States that have laws requiring immediate posting upon receipt. We did 
not receive overwhelming support for that change, as only two States 
supported it; the majority of commenters opposed the change. We agree 
with commenters' concerns that removing the requirement for uniform 
posting could have unintended, negative effects on competition in the 
markets. Some commenters also feared that posting on a rolling basis 
could cause confusion among consumers, and eliminate the likelihood of 
consumers easily comparing a rate increase across all products. We do 
not want to provide unfair advantages to issuers that file later in the 
filing season, or contribute to consumer confusion. Therefore, we are 
not finalizing the proposal. We are retaining Sec.  154.301(b)(3) as it 
exists in our current regulations to require that a State with an 
Effective Rate Review Program ensure that the information in Sec.  
154.301(b)(1)(i) and (ii) is made available to the public at a uniform 
time for all proposed and final rate increases, as applicable, in the 
relevant market segment and without regard to whether coverage is 
offered on or off of an Exchange.

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

1. Standardized Options (Sec.  155.20)
    In the 2017 Payment Notice, HHS introduced standardized options 
(also now referred to as Simple Choice plans). A standardized option is 
a QHP offered for sale through an individual market Exchange that 
either has a standardized cost-sharing structure specified by HHS in 
rulemaking or has a standardized cost-sharing structure specified by 
HHS in rulemaking that is modified only to the extent necessary to 
align with the high deductible health plan (HDHP) requirements under 
section 223 of the Code or the applicable annual limitation on cost 
sharing and HHS actuarial value requirements. For the 2017 and 2018 
benefit years, HHS specified standardized options in rulemaking, 
encouraged issuers to offer such plans, and provided differential 
display of these plans on HealthCare.gov.
    As noted in the proposed rule, we seek to encourage free market 
principles in the individual market, and to maximize innovation by 
issuers in designing and offering a wide range of plans to consumers. 
We noted concerns that providing differential display for these plans 
may limit enrollment in coverage with plan designs that do not match 
the standardized options, removing incentives for issuers to offer 
coverage with innovative plan designs. We believe that encouraging 
innovation is especially important now, given the stresses faced by the 
individual market. Therefore, we are finalizing our proposal to not 
specify any standardized options for the 2019 benefit year, and not to 
provide differential display for standardized options on 
HealthCare.gov. Agents, brokers, and issuers that assist consumers with 
QHP selection and enrollment as described in Sec.  155.220(c)(3) and 
Sec.  156.265(b), respectively, are also not required to provide 
differential display for standardized options on those third-party 
websites. We are finalizing the policies on standardized options as 
proposed.
    Comment: Many commenters supported the proposed policy to 
discontinue standardized options for the 2019 plan year. Commenters 
noted that they believed standardized options

[[Page 16975]]

stifled issuers' ability to develop innovative plan designs. Commenters 
also noted that because of the differential display, issuers may have 
offered and consumers may have purchased HHS-designed plans that did 
not best meet consumers' needs. Other commenters noted that consumers 
may have mistakenly thought that standardized options were superior to 
other plans; and that other tools, such as AV, EHB, and other 
HealthCare.gov plan filters were sufficient in assisting consumers in 
selecting and comparing plans. Other commenters questioned the benefits 
of standardized options.
    Many other commenters supported HHS continuing to specify 
standardized options, noting that they are a useful consumer-support 
tool that aids in plan comparisons and selection and that withdrawing 
the standardized options could create confusion for consumers, 
especially those with low health literacy or certain health conditions. 
Others noted that removing the standardized option designation could 
make plan selection more difficult resulting in fewer people enrolling 
in QHPs.
    Some commenters noted that the standardized cost sharing encourages 
issuers to innovate on other plan features and encourages issuers to 
compete on networks and formularies. Other commenters noted that the 
standardized plan designs ensure offerings had certain desirable 
features, such as fewer specialty drug tiers and first dollar coverage. 
Commenters noted that standardized options were voluntary and therefore 
could not stifle innovation. Another commenter noted that removing 
standardized options could result in issuers designing plans 
specifically for a healthy population. Another commenter supported 
making standardized options mandatory and expanding to include SADPs.
    Response: As we noted in the proposed rule, we believe that not 
specifying standardized options for the 2019 plan year will remove 
disincentives for issuers to offer coverage with innovative plan 
designs. We agree that issuers are in the best position to design and 
offer innovative plan designs. We are similarly finalizing the removal 
of the differential display of standardized options.
    As we noted in the 2017 Payment Notice final rule,\41\ we designed 
the standardized options to be as similar as possible to the most 
popular (weighted by enrollment) QHPs in the FFEs in order to minimize 
market disruption and impact on premiums. Consequently, we believe that 
the plan design features, such as annual limitations on cost sharing 
and deductibles, previously specified as part of standardized options 
are mostly available to consumers in FFEs. Therefore, we do not believe 
it is necessary to mandate or otherwise further provide an incentive 
for issuers to offer plans that meet the characteristics of 
standardized options.
---------------------------------------------------------------------------

    \41\ 81 FR at 12289 (March 8, 2016).
---------------------------------------------------------------------------

    We agree with commenters that HealthCare.gov plan filters for other 
tools are sufficient to enable most consumers to make plan selections. 
However, we continue to explore strategies to make shopping on 
HealthCare.gov as easy as possible, and to better support consumers in 
choosing coverage that is best for them. Consumers are able to select a 
QHP based on metal level, and are generally offered coverage of a 
similar set of essential health benefits. We agree with commenters that 
certain populations with specific health conditions may not purchase a 
QHP that best meets their needs if they merely select based on a 
standardized option designation. Standardized options offer simple plan 
comparisons at a high level to assess comparability on cost sharing of 
certain services. However, consumers with specific health conditions 
may be better served by a different QHP that provides benefits better 
suited for their individual needs. By removing standardized options, we 
are mitigating the risk that consumers with special coverage needs 
choose a standardized option plan that may not provide the optimal mix 
of cost-sharing protections, benefits, and networks for their 
situation. We believe these benefits outweigh any potential additional 
difficulty in selecting a QHP that could result from the elimination of 
the standardized option designation.
    For these reasons we are finalizing the policy as proposed.
    Comment: One commenter requested clarification that if the proposal 
is finalized as proposed standardized options would not appear on 
HealthCare.gov or be designated in public use files. Another commenter 
requested that HHS release data related to standardized options 
offerings and enrollment publicly prior to making a decision about 
ceasing to specify standardized options.
    Response: The proposal is being finalized as proposed. Therefore 
standardized options will not display as ``Simple Choice Plans'' on 
HealthCare.gov, nor will information be collected and reported in 
public use files for the 2019 benefit year. We have previously released 
data regarding standardized options offerings in public use files. We 
believe releasing data regarding recent enrollment in standardized 
options could cause competitive harm to issuers, but intend to continue 
to release historical enrollment data for all QHPs, including 
standardized options, in the future.
    Commenter: A commenter noted that standardized options assist 
States in Federal and State review, certification, and oversight.
    Response: States have previously been able to complete QHP 
certification, review, and oversight for issuers that are not offering 
standardized options, and therefore, we believe that they will be able 
to continue doing so without relying on standardized options.
2. General Standards Related to the Establishment of an Exchange
a. Flexibility for State Exchanges and State Exchanges on the Federal 
Platform (Sec.  155.106 and Sec.  155.200)
    While the PPACA allowed each State to operate its own State 
Exchange, currently 11 States and the District of Columbia operate 
their own Exchanges, five States utilize the SBE-FP model, and FFEs 
operate in the remaining 34 States. We seek to support innovation by 
States operating State Exchanges by providing opportunities for 
increased program flexibilities to help support the retention and 
financial self-sustainability of States that adopted the SBE model. In 
particular, we sought comment on how HHS can best support State 
Exchange efforts to utilize commercial platform services, including 
what type of technical support would be useful and what, if any, 
specific regulatory changes would facilitate the use of these services.
    We also proposed to explore strategies to make the SBE-FP model 
more appealing and viable to States with FFEs, as well as to support 
retention of existing SBE-FPs. As codified in the 2017 Payment Notice, 
the SBE-FP model allows States to establish the legal status of their 
Exchanges as State Exchanges while leveraging the economies of scale 
available through the Federal eligibility and enrollment platform and 
information technology infrastructure. The SBE-FP model offers States 
opportunities to retain more control over their Exchanges than if an 
FFE operated in the State, as it allows them to control plan management 
and consumer assistance activities, without the additional 
responsibility of building the infrastructure required to operate an 
information technology eligibility and enrollment platform. 
Accordingly, we seek to explore options for streamlining current 
requirements and leveraging private sector and Federal platform

[[Page 16976]]

technologies and advances to increase opportunities for those States 
interested in remaining or becoming SBE-FPs. We also intend to continue 
to explore areas where current authority, technology, and operational 
capacities would permit HHS to provide additional options in 
operational functions to SBE-FPs and provide SBE-FPs with a greater 
role in decision-making. We sought comment on ways to strengthen and 
enhance the SBE-FP model.
    Comment: Several commenters supported further actions by HHS to 
allow SBE-FPs greater access to enrollment data and consumer assistance 
tools, and supported efforts to customize the Federal platform to meet 
SBE-FP needs. Other commenters encouraged HHS to lower or eliminate the 
SBE-FP user fee, increase predictability of the user fee, or to tailor 
the user fee to an Exchange based on use of certain Federal platform 
options. One commenter proposed HHS consider new Federal grant funding 
for State Exchanges to purchase commercial technology platforms, while 
others requested HHS reduce market uncertainty and further streamline 
eligibility verification requirements to support the success of SBEs. 
Another commenter requested that HHS promote regional State Exchanges 
to mitigate financial sustainability challenges faced by smaller 
States. Several commenters encouraged the use of direct enrollment and 
enhanced direct enrollment capabilities and private and Federal 
platform technologies by State Exchanges and SBE-FPs. One commenter 
suggested State Exchanges consolidate into a single entity utilizing 
Federal platform technology while enabling private partnerships and 
non-profit entities to perform consumer facing functions. Two 
commenters suggested the Federal platform include functionality to 
support independent enrollment in dental plans in SBE-FPs.
    Other commenters supported the concepts of innovation and increased 
customization of the Federal platform, but suggested HHS prioritize 
improvements to the overall HealthCare.gov system infrastructure before 
focusing on State-specific enhancements to HealthCare.gov. Some 
commenters emphasized the need for guardrails to protect patients and 
consumers as HHS explores flexibilities and innovations in Exchange 
models. One commenter expressed concern that HHS's support for 
expanding the SBE-FP model signaled an intent to reduce Federal support 
for small population States and requested assurance the FFE would 
continue to be available for small States.
    Response: We appreciate the comments, and will consider them as we 
continue to explore incentives and program flexibilities for the SBE 
and SBE-FP models. The SBE-FP model was intended to improve States' 
ability to operate efficient Exchanges by providing the option for 
State Exchanges to agree to rely on the Federal eligibility and 
enrollment platform and information technology infrastructure to carry 
out certain functions in order for the State to fulfill requirements as 
a State Exchange. We continue to explore ways to make this a more 
appealing option to States that currently have FFEs. In 2017, at the 
request of the SBE-FPs, we shared new data with the SBE-FPs to enhance 
their consumer outreach functions, customer relationships, and fiscal 
planning activities. HHS intends to continue to enhance these data-
sharing efforts with SBE-FPs to support their ability to fulfill their 
responsibilities. However, at this time, HHS is unable to offer a menu 
of Federal platform functionalities to an SBE-FP. Likewise, at this 
time, HHS is unable to offer State-specific customization of the 
Federal platform agreement, but will continue engaging with SBE-FPs to 
refine the agreement. We also note that Sec.  155.140 permits States to 
participate in regional Exchanges spanning two or more States. This 
allows States interested in operating State Exchanges to partner with 
each other and leverage economies of scale by sharing a common 
information technology infrastructure or platform, and HHS encourages 
States to explore this as an option. States that are interested in this 
option would need to obtain HHS approval to operate as a regional 
Exchange, fulfill the requirements under Sec.  155.140, and meet the 
functional requirements in 45 CFR part 155 that are applicable to 
States who wish to operate their own SBE. We also note that HHS has 
provided the authority and flexibility for SBEs to utilize the direct 
enrollment pathway as an alternative option for enrolling consumers 
into SBEs. HHS continues to encourage SBEs and SBE-FPs to explore this 
option in the context of evaluating options that best suit the needs of 
their Exchange, State, and consumers.
b. Election To Operate an Exchange After 2014 (Sec.  155.106)
    Section 155.106 describes the process for a State electing to 
operate a State Exchange, terminating its State Exchange and 
transitioning to an FFE, or seeking to operate an SBE-FP. This section 
applies to both individual market and SHOP Exchanges. Currently, under 
Sec.  155.106(c), as finalized in the 2017 Payment Notice, States can 
elect to operate an individual market SBE-FP, an SBE-FP for SHOP, or 
both. If a State operates an SBE-FP for SHOP, the SBE-FP utilizes the 
Federal platform for enrollment, eligibility, and premium aggregation 
functions.
    As discussed more fully in section III.D.9 of this final rule, we 
proposed changes to required SHOP functionality, effective on the 
effective date of this rule, for plan years beginning on or after 
January 1, 2018, under which qualified employers and employees could 
enroll in SHOP plans by working with a QHP issuer or SHOP-registered 
agent or broker. As a result of the finalization of these proposals, 
many Federal platform functions currently available to a State 
operating an SBE-FP for SHOP will no longer exist, including employee 
eligibility, enrollment, and premium aggregation functions. Therefore, 
States operating an SBE-FP for SHOP will no longer be able to utilize 
the Federal platform for those functions.
    We proposed to amend Sec.  155.106(c) to remove the option for 
States to seek approval to operate an SBE-FP for SHOP after the 
effective date of this rule, and are finalizing the policy as proposed. 
Nonetheless, States that are currently operating an SBE-FP for SHOP, 
which include Kentucky and Nevada, can choose to maintain their 
existing SBE-FPs for SHOP, using the Federal platform functionality 
that would remain, subject to the applicable requirements in Sec.  
155.200(f)(4), which we are amending to align with the changes to SHOP 
functionality requirements. Issuers in these SBE-FPs for SHOP will 
continue to be subject to Sec.  156.350, which we are amending to align 
with the changes to SHOP functionality requirements. For those issuers 
that offer SHOP QHPs in SBE-FPs for SHOP beginning on or after January 
1, 2018, the expected burden (as well as expected reduction in burden) 
should be similar to that of issuers in the FF-SHOPs.
    Comment: One commenter suggested HHS should consider continuing to 
permit States to elect to operate as an SBE-FP for SHOP, to increase 
the type of Exchange models available to States. Otherwise, we did not 
receive substantive comments regarding the proposed changes to Sec.  
155.106.
    Response: As described above, as a result of the finalization of 
the SHOP proposals described in this rule, the SHOP Federal platform 
currently available to a State operating an SBE-FP for SHOP will 
essentially no longer exist, including the Federal platform functions 
of employee eligibility, enrollment, and premium aggregation

[[Page 16977]]

on which SBE-FPs for SHOP currently rely. Therefore, States operating 
an SBE-FP for SHOP will no longer have an option to rely on the Federal 
platform for those functions. We are finalizing the policy as proposed, 
with a minor, non-substantive change to the regulatory text.
c. Additional Required Benefits (Sec.  155.170)
    Section 1311(d)(3)(B) of the PPACA permits a State, at its option, 
to require QHPs to cover benefits in addition to the EHB, but requires 
a State to make payments, either to the individual enrollee or to the 
issuer on behalf of the enrollee, to defray the cost of these 
additional State-required benefits. In previous rulemaking, we directed 
States to identify additional State-required benefits that are subject 
to defrayal and provided direction on how QHP issuers in a State must 
calculate the cost of those benefits.\42\
---------------------------------------------------------------------------

    \42\ See 155.170(b) and (c). Also see the EHB Rule, available at 
https://www.gpo.gov/fdsys/pkg/FR-2013-02-25/pdf/2013-04084.pdf, the 
2016 Payment Notice Final Rule, available at https://www.gpo.gov/fdsys/pkg/FR-2015-02-27/pdf/2015-03751.pdf, and the 2017 Payment 
Notice Final Rule, available at https://www.gpo.gov/fdsys/pkg/FR-2016-03-08/pdf/2016-04439.pdf.
---------------------------------------------------------------------------

    We made a number of proposals at Sec.  156.111 related to State 
changes to EHB-benchmark plans beginning for the 2019 plan year. In 
light of those proposed changes, we stated that we were not proposing 
any changes to the policies governing State-required benefits at Sec.  
155.170. That is, whether a benefit mandated by State action could be 
considered EHB would continue to depend on when the State enacted the 
mandate (unless the benefit mandated was for the purposes of compliance 
with Federal requirements). Under any of the proposed methods for a 
State to select a new EHB-benchmark plan, benefits mandated by a State 
action prior to or on December 31, 2011 would be considered EHB in that 
State according to the continuing policy described above and would not 
require State defrayal. However, State-required benefits mandated by 
State action taking place after December 31, 2011, other than for 
purposes of compliance with Federal requirements, would continue to be 
considered in addition to EHB even if embedded in the State's newly 
selected EHB-benchmark plan under the proposals at Sec.  156.111. 
Therefore, their costs would be required to be defrayed by the State.
    As discussed more fully in the preamble for Sec.  156.111, we 
proposed that Sec.  155.170 would continue to apply in the same manner 
as it currently applies to Sec.  156.110, and that the proposed Sec.  
156.111, which offers States the flexibility to select a new EHB-
benchmark plan, would not remove the obligations required with regard 
to maximum allowed generosity for a State's EHB-benchmark plan. For 
further discussion of how the State mandate policy at Sec.  155.170 
would apply to EHB under the proposals at Sec.  156.111 providing 
States with options to select a new EHB-benchmark plan for plan years 
beginning in 2020 and later, see the preamble to Sec.  156.111.
    We sought comments on this approach. Specifically, we were 
interested in comments on different applications of the State mandate 
policy to the proposed policy for EHB-benchmark plan selections at 
Sec.  156.111 that would increase State flexibility while also being 
cost effective for States, consumers, and the Federal government, such 
as an approach that would allow States the flexibility to update 
benefits mandated by State action prior to or on December 31, 2011, 
that are considered EHB, so long as the State can prove that the update 
to the State mandate is budget neutral.
    In this final rule, we are finalizing the approach described above 
of not making changes to the policy under Sec.  155.170.
    Comment: Many commenters requested changes to the policies 
governing State-required benefits at Sec.  155.170 in light of new EHB-
benchmark plan selection options established at Sec.  156.111. Some of 
these commenters were concerned about States selecting a more generous 
benchmark plan under the proposed options at Sec.  156.111(a) that 
could reduce affordability by allowing the selecting State to include 
another State's mandates in its benchmark plan and thereby allow the 
selecting State to indirectly adopt another State's mandates without 
defrayal. These commenters recommended that States be required to 
defray the costs of any additional required benefits that result from 
the selection of a new EHB-benchmark plan if those benefits are more 
generous than the State's previous EHB-benchmark plan, regardless of 
whether the additional benefits were put in place by the newly-selected 
EHB-benchmark plan or were the result of benefits mandated by State 
action in the selecting State. Other commenters were concerned that the 
current policy of requiring States to defray the costs of State-
required benefits mandated after December 31, 2011, other than for 
purposes of compliance with Federal requirements, would prevent States 
from updating benefits in response to medical advances and their 
population's changing needs. These commenters requested that HHS create 
a public process for States to consider new State-required benefits as 
EHB without additional cost to the State. Other commenters opposed 
requiring States to defray mandated benefits at all, because the policy 
discourages States from ensuring access to key health care services for 
consumers--such as autism and opioid dependency disorder services. 
Several commenters supported the proposal to maintain the policies at 
Sec.  155.170, noting that section 1302(b)(4)(H) of the PPACA grants 
the Secretary flexibility to update EHB benefit categories as it 
becomes necessary to do so. Other commenters believed that a stricter 
standard regarding defrayal is needed to ensure that States comply with 
the current defrayal requirement at Sec.  155.170, and to ensure that a 
sufficient defrayal requirement is in place based on new State EHB-
benchmark plan selection options at Sec.  156.111.
    Response: We understand the importance of benefit mandates to 
States under the policies described above. With the finalization of the 
State's new EHB-benchmark plan options at Sec.  156.111, States will 
continue to have the authority to implement benefit mandates as part of 
EHB, in accordance with Sec.  155.170.
    Specifically, if a State selects a new EHB-benchmark plan under any 
of the options finalized in this rule at Sec.  156.111, the benefits 
mandated by the selecting State's action prior to or on December 31, 
2011 will continue to be considered EHB and will not be subject to 
defrayal, in accordance with Sec.  155.170. If the State is selecting 
from another State's EHB-benchmark plan under the first or second 
option, as discussed in preamble to Sec.  156.111, and the selected 
EHB-benchmark plan (or category of services) includes benefits mandated 
by the State from which the plan originated that are EHB, those 
benefits will also be incorporated into the selecting State's EHB-
benchmark plan without a requirement that the selecting State defray 
their related costs, unless the selecting State has its own mandates 
regarding these same benefits and those mandates meet the requirements 
for defrayal in Sec.  155.170.
    Relatedly, our decision to maintain the policies governing State-
required benefits at Sec.  155.170 is motivated by our goal to provide 
States with more flexibility and reduce administrative burden for 
selecting a new EHB-benchmark plan under Option 1 or 2 described in 
Sec.  156.111. Specifically, we believe that many benefits that are 
State mandates are likely already embedded

[[Page 16978]]

in States' existing 2017 EHB-benchmark plans, and removing them would 
be complicated for a selecting State. In particular, we are concerned 
that this additional level of effort would create a barrier to States 
trying to select another State's 2017 EHB-benchmark plan under Options 
1 or 2 being finalized at Sec.  156.111(a)(1) and (2), particularly 
when several types of benefits mandated by State action overlap with 
one of the ten EHB categories. More specifically, because benefits 
mandated by State action are generally EHB if the mandates were enacted 
on or before December 31, 2011, and the 2017 EHB-benchmark plans that 
are used for the options under Sec.  156.111 are based on base-
benchmark plans that were available in 2014, we believe that the 
majority of benefits mandated by State action that are EHB in 
accordance with Sec.  155.170 are already embedded in the originating 
State's EHB-benchmark plan documents.
    We also note that we are finalizing that all options for a State to 
select a new EHB-benchmark plan described in Sec.  156.111 are limited 
by a generosity standard. This generosity standard will limit the 
State's ability to increase the overall scope of benefits in its EHB-
benchmark plan beyond the generosity of a set of comparison plans that 
includes a State's 2017 EHB-benchmark plan and any of the State's base-
benchmark plan options for the 2017 plan year described in Sec.  
156.100(a)(1), supplemented as necessary under Sec.  156.110. In 
practice, this requirement limits States' overall ability to select a 
new EHB-benchmark plan that transfers benefits that were previously 
only applied to the State's large group market, or that were mandated 
by other States' actions prior to 2012, into its new EHB-benchmark 
plan. As a result, we believe that this approach balances our goal to 
promote State flexibility with the need to preserve coverage 
affordability. For additional discussion on considerations related to 
Sec.  155.170 for States that select a new EHB-benchmark plan using an 
option described at Sec.  156.111, see the preamble to section Sec.  
156.111.
3. General Functions of an Exchange
a. Functions of an Exchange (Sec.  155.200)
    The 2017 Payment Notice finalized requirements at Sec.  
155.200(f)(2) for SBE-FPs to establish and oversee certain requirements 
for their QHPs and QHP issuers that are no less strict than the 
requirements that apply to QHPs and QHP issuers on an FFE. Due to the 
operational complexities in implementing these requirements from both 
the State and Federal perspective, and to promote the goal of returning 
regulatory authority over the insurance markets to States, we proposed 
to eliminate requirements for SBE-FPs to enforce FFE standards for 
network adequacy at Sec.  155.200(f)(2)(ii) and essential community 
providers at Sec.  155.200(f)(2)(iii). Instead, we proposed that the 
SBE-FPs, like other State Exchanges, would have the flexibility to 
determine how to implement the network adequacy and essential community 
provider (ECP) standards with which issuers offering QHPs through the 
SBE-FP must comply. We believe SBE-FPs are best positioned to determine 
these standards for the QHP certification process in their States, and 
that the removal of the requirement that SBE-FPs establish and oversee 
requirements for their issuers that are no less strict than the manner 
in which these regulatory requirements are applied to FFE issuers would 
streamline certain aspects of the QHP certification process, and return 
traditional insurance market regulatory authority to the States. 
Additionally, HHS proposed that, for 2019 plan years and later, the 
FFEs would rely on State reviews of network adequacy standards where 
the States have been determined to have an adequate review process. 
Accordingly, we believe similar deference should be granted to States 
with SBE-FPs. We believe these changes will further empower SBE-FPs to 
use their QHP certification authority to encourage issuers to stay in 
the Exchange, enter the Exchange for the first time, or expand into 
additional service areas. We are finalizing these changes as proposed.
    We also proposed to remove the requirement at Sec.  
155.200(f)(2)(iv) that QHP issuers in SBE-FPs comply with the Federal 
meaningful difference standard to reflect the removal of Sec.  156.298 
described elsewhere in this rule. We are finalizing this change as 
proposed.
    Comment: Several commenters opposed eliminating requirements for 
SBE-FPs to enforce FFE standards for network adequacy at Sec.  
155.200(f)(2)(ii) and ECPs at Sec.  155.200(f)(2)(iii) for the 2019 
benefit year and beyond. They urged HHS to continue requiring SBE-FPs 
to enforce these FFE standards, stating that some State Exchanges that 
do not currently use the Federal platform have adopted less robust 
network adequacy and ECP standards, which are critical to providing 
access to providers that serve vulnerable populations. Other commenters 
supported this proposal if the States have an adequate review process, 
and encouraged HHS to monitor State oversight of networks to ensure 
that the States in fact have the capacity to ensure health plan 
compliance. Other commenters supported this proposal, stating that they 
believe networks are best developed and regulated at the State level to 
allow for variations in State geography, demographics, and market 
conditions.
    Response: We are finalizing the proposal to remove the requirement 
that SBE-FPs establish and oversee requirements for their issuers that 
are no less strict than the manner in which these regulatory 
requirements are applied to FFE issuers. We believe SBE-FPs are best 
positioned to determine these standards for the QHP certification 
process in their States, and elimination of this requirement would 
streamline certain aspects of the QHP certification process by reducing 
oversight burden on SBE-FPs.
    Section 155.200(f)(4) describes requirements for States that 
operate an SBE-FP for SHOP. As discussed earlier in this preamble, 
although we proposed that States can no longer elect to operate SBE-FPs 
for SHOP after the effective date of this rule, which we are finalizing 
as proposed, Kentucky and Nevada are already approved to operate SBE-
FPs for SHOP, and thus the requirements in Sec.  155.200(f)(4) remain 
relevant for those SBE-FPs for SHOP. Therefore, we proposed to amend 
Sec.  155.200(f)(4) to reflect the proposed amendments (described in 
section III.D.9 of this final rule) under which the functionality of 
the FF-SHOPs' platform would be reduced for plan years beginning on or 
after January 1, 2018. Specifically, we proposed to amend the 
introductory text to Sec.  155.200(f)(4) to describe the requirement 
applicable, effective on the effective date of this rule for plan years 
beginning on January 1, 2018 and beyond, and to make the requirements 
in paragraphs (f)(4)(i) through (vii), effective on the effective date 
of this rule applicable for only plan years beginning prior to January 
1, 2018.
    Specifically the requirements in (f)(4)(i) and (iv), which require 
SBE-FPs for SHOP to align their premium payment and employer 
contribution calculation methodologies with those used by the Federal 
platform, would not apply for plan years beginning on or after January 
1, 2018, effective on the effective date of this rule. Because under 
our amendments to Sec.  155.705 and newly finalized Sec.  155.706, for 
plan years beginning on or after January 1, 2018, the Federal platform 
for SHOP will no longer calculate premium rates or employer 
contributions, and will no longer aggregate premium payments (as of the 
effective date of the final rule),

[[Page 16979]]

there will be no further need for such alignment for plan years 
beginning on or after January 1, 2018.
    Because under the approach we are finalizing, the Federal platform 
will continue to include plan display with premium amounts, we did not 
propose changes to the requirement that States operating an SBE-FP must 
require its QHP issuers to make any changes to rates in accordance with 
the timeline applicable in a Federally-facilitated SHOP under current 
Sec.  155.705(b)(6)(i)(A), which regulation is mirrored in our proposed 
introduction of Sec.  155.706(b)(6)(i)(A). However, we proposed to 
specify that this requirement applies in the introductory text to 
(f)(4), to reflect the proposed change to make the requirements in 
(f)(4)(i) through (vii) applicable for only plan years beginning prior 
to January 1, 2018, effective on the effective date of this rule.
    Additionally, because under the approach we are finalizing, for 
plan years beginning on or after January 1, 2018, the Federal platform 
will, effective on the effective date of this rule no longer calculate 
whether a qualified employer has met the applicable minimum 
participation rate, there will no longer be any need for States 
operating an SBE-FP for SHOP to align their minimum participation rate 
requirements and calculation methodologies with those applicable in the 
FF-SHOPs for plan years beginning on or after January 1, 2018. 
Therefore, we proposed that this requirement would only apply for plan 
years beginning prior to January 1, 2018, effective on the effective 
date of this rule.
    To align with our amendments at Sec.  155.725 and newly finalized 
Sec.  155.726, under which the FF-SHOPs, effective on the effective 
date of this rule, for plan years beginning on or after January 1, 
2018, will no longer establish annual employee open enrollment periods, 
or establish effective dates of coverage for an initial group 
enrollment or group renewal, we also proposed that the requirements in 
Sec.  155.200(f)(4)(v) and (vi) would only apply for plan years 
beginning prior to January 1, 2018, effective on the effective date of 
this rule. Finally, to align with our amendments at Sec.  155.735, 
under which the FF-SHOP, effective on the effective date of this rule 
for plan years beginning on or after January 1, 2018, will no longer 
determine the timing, form, and manner in which coverage or enrollment 
in a SHOP QHP may be terminated, we proposed that the requirement in 
Sec.  155.200(f)(4)(vii) would only apply for plan years beginning 
prior to January 1, 2018, effective on the effective date of this rule.
    We are finalizing as proposed the changes to Sec.  155.200. 
Substantive comments related to SHOP proposals are summarized in 
section III.D.9 of this final rule.
b. Navigator Program Standards (Sec.  155.210)
    Each Exchange is required under section 1311(d)(4)(K) and 1311(i) 
of the PPACA to establish a Navigator program under which it awards 
grants to entities that, among other things: Conduct public education 
activities to raise awareness of the availability of QHPs, distribute 
fair and impartial information concerning enrollment in QHPs and the 
availability of PTCs and CSRs, and facilitate enrollment in QHPs. Under 
section 1311(i)(2)(B) of the PPACA, these entities may include trade, 
industry, and professional associations; commercial fishing industry 
organizations; ranching and farming organizations; community and 
consumer-focused nonprofit groups; chambers of commerce; unions; 
resource partners of the Small Business Administration; other licensed 
insurance agents and brokers; and other entities that meet the 
statutory requirements at section 1311(i)(3), (4), and (5) of the 
PPACA.
    Currently, Sec.  155.210(c)(2) specifies that each Exchange must 
include among its Navigator grantees both a community and consumer-
focused nonprofit group and at least one other entity that is from one 
of the other categories listed at Sec.  155.210(c)(2), including other 
public or private entities or individuals that meet the requirements of 
Sec.  155.210. Section 155.210(c)(2)(viii) specifies that these other 
entities may include Indian tribes, tribal organizations, urban Indian 
organizations, and State or local human service agencies.
    To maximize the flexibility and efficiency of the Navigator 
program, we proposed to amend Sec.  155.210(c)(2) to remove the 
requirements that each Exchange must have at least two Navigator 
entities and that one of these entities must be a community and 
consumer-focused nonprofit group. As discussed further below, we are 
finalizing this amendment as proposed. We believe removing these 
requirements will provide Exchanges with improved flexibility to award 
funding to the number and type of entities that will be most effective 
for the specific Exchange. We believe that eliminating the requirement 
to have at least two Navigator entities will allow each Exchange to 
optimally use the funding amounts available to direct investments to 
effective and efficient Navigators, which may include selecting a 
single, high performing grantee in an Exchange.
    The requirement that one Navigator grantee in each Exchange must be 
a community and consumer-focused nonprofit group may unnecessarily 
limit an Exchange's ability to award grants to the strongest 
applicants, particularly in an Exchange that opts under this final rule 
to have only one Navigator grantee and where the strongest applicant is 
not a community and consumer-focused nonprofit group. Keeping this 
requirement would effectively exclude any other type of statutorily 
eligible entities from becoming Navigators in an Exchange that opts to 
have only one Navigator grantee. Eliminating this requirement will 
provide Exchanges with the flexibility to target grants to the highest 
scoring and performing entities, regardless of organization type.
    Removing these requirements at Sec.  155.210(c)(2) will also 
promote Exchange flexibility and autonomy to structure Navigator 
programs tailored to each Exchange. An Exchange could award a grant to 
a single Navigator entity from any of the permitted types. 
Alternatively, Exchanges could elect to continue awarding two or more 
grants, as they have been doing thus far, and include a community and 
consumer-focused nonprofit group among those grantees.
    Section 155.210(e)(7) requires each Navigator entity to maintain a 
physical presence in the Exchange service area, so that face-to-face 
assistance can be provided to applicants and enrollees. We proposed to 
remove this requirement to provide more flexibility to each Exchange to 
structure its Navigator program to best serve the Exchange service 
area, and as discussed further below, are finalizing this amendment as 
proposed. Under section 1311(i)(2)(A) of the PPACA and Sec.  
155.210(c)(1)(ii), entities seeking to become Navigator grantees must 
demonstrate to the Exchange that they have existing relationships, or 
could readily establish relationships, with employers and employees, 
consumers (including uninsured and underinsured consumers), or self-
employed individuals likely to be eligible for enrollment in a QHP. 
Consistent with those provisions, Navigator grant applicants in the 
FFEs are scored on their ability to make this demonstration. Based on 
HHS's experience with Navigator programs in FFEs and other public 
programs, we believe entities with strong relationships in their FFE 
service areas tend to deliver the most effective outreach and 
enrollment

[[Page 16980]]

results. However, we believe that each Exchange is best suited to 
determine the weight to give a physical presence in the Exchange 
service area when selecting Navigator entities, as long as the 
Exchange's Navigator grantee selection process is consistent with 
section 1311(i)(2)(A) of the PPACA and Sec.  155.210(c)(1)(ii).
    For reasons similar to those motivating our proposed changes to 
Sec.  155.210(e)(7), as well as to promote consistency across programs, 
we proposed to remove the corresponding requirement at Sec.  155.215(h) 
that requires maintenance of a physical presence in the Exchange 
service area by all non-Navigator entities subject to Sec.  155.215. We 
are also finalizing this amendment as proposed.
    In addition to the requirement to maintain a physical presence in 
the Exchange service area, Sec. Sec.  155.210(e)(7) and 155.215(h) 
currently provide that, in an FFE, no individual or entity is 
ineligible to operate as a Navigator or non-Navigator assistance 
personnel solely because its principal place of business is outside of 
the Exchange service area. We did not propose to amend or remove that 
language, and it will remain in effect.
    In addition to seeking comment on the proposed amendments described 
above, we also sought comment on statutorily acceptable alternative 
types of entities that could serve as Navigators and on possible new 
ways in which Navigators could carry out their duties.
    Comment: We received comments in support of removing the 
requirement that each Exchange must have at least two Navigator 
entities. Several commenters believed that adopting this change could 
assist HHS with ensuring that Navigator grants are expended efficiently 
and effectively. Many commenters, however, expressed concern about 
reducing the number of required Navigator entities per Exchange, 
conveying that removing this requirement could potentially negatively 
affect consumer access to in-person assistance, and therefore make it 
harder for consumers to understand their coverage options and enroll in 
health coverage. Several commenters suggested that having two Navigator 
entities per Exchange ensures that an Exchange can have a general 
entity and one more tailored to specific needs within an Exchange, such 
as a focus on young adults, limited English proficient individuals, or 
other targeted populations.
    Response: We agree with commenters who stated that removing these 
requirements will provide Exchanges with improved flexibility to award 
funding to the number and type of entities that would be most effective 
for each specific Exchange. We appreciate the importance of consumer 
access to experienced, in-person assistance, and believe this change 
will allow each Exchange to optimally use available funding amounts, 
such as by selecting a single, high-performing grantee in an Exchange. 
In this way, we do not believe this change will have a detrimental 
effect on the availability of professional, unbiased, in-person 
consumer assistance. Additionally, the proposal does not require an 
Exchange to have only one Navigator. It simply provides Exchanges with 
that option. We are finalizing this change as proposed.
    Comment: We received comments in support of removing the 
requirement that each Exchange must have one Navigator entity that is a 
community and consumer-focused nonprofit. Several of these commenters 
supported HHS's promotion of Exchange flexibility with this change. 
However, many commenters expressed concern about removing this 
requirement, conveying that Navigators, and in particular independent, 
nonprofit Navigators, have proven to be a critical resource for helping 
consumers enroll in coverage that is appropriate for their needs in 
previous enrollment periods. Many commenters stated that nonprofit 
Navigator entities are unique among other types of Navigator groups 
because they typically have expertise with one or more hard-to-reach 
populations within their communities, such as veterans, limited English 
proficiency individuals, or other targeted populations, and have the 
trust of many community members. In addition, commenters suggested that 
this requirement was initially added to address concerns about fraud, 
abuse, and the difficulty that Exchanges faced overseeing other types 
of Navigator entities.
    Response: We agree with commenters who emphasized the importance of 
funding nonprofit Navigator entities, and also agree that nonprofit 
Navigator entities often have expertise with one or more hard-to-reach 
populations within their communities. Nothing in this rule prevents an 
Exchange from selecting and funding a nonprofit Navigator entity if it 
determines that such an entity best meets the needs of the community 
served by the Exchange. However, we also recognize that there are 
circumstances in which another type of entity may be the strongest 
applicant. In these cases, an Exchange that chooses to have only one 
Navigator grantee (as permitted by the change finalized in this rule), 
would be unable to select its strongest applicant absent a change to 
the requirement that one Navigator grantee in each Exchange must be a 
community and consumer-focused nonprofit group. We also agree with 
commenters that removing this requirement will support Exchange 
flexibility and autonomy to structure Navigator programs tailored to 
each Exchange and target grants to the highest scoring and performing 
entities, regardless of organization type. We believe that Exchanges 
are well-situated to determine the proper use of the funding amounts 
available and are able to determine the type of entity or entities that 
will serve their Exchange service areas best. We are finalizing this 
change as proposed.
    Comment: We received comments in support of removing the standard 
requiring Navigators to maintain a physical presence in the Exchange 
service area. Several commenters believed that removing this 
requirement will provide Exchanges with greater flexibility and enable 
them to expand options for consumer support. On the other hand, many 
commenters believed that entities not physically present in an Exchange 
service area may not be able to provide a full spectrum of local 
outreach, education, and assistance to support enrollment and post-
enrollment activities. Many commenters suggested that removing this 
requirement would negatively affect hard-to-reach populations, as the 
in-person assistance provided by Navigator entities is often the only 
known resource and form of support for some low-income and other at-
risk populations. In addition, some commenters believe that web or 
phone-based assistance is a poor substitute for in-person assistance 
delivered by a known and trusted community-based organization, and that 
this is particularly true for those living with significant health 
needs for whom remote assistance may prove inadequate and frustrating.
    Response: We agree with commenters who emphasized the importance of 
providing more flexibility to each Exchange to structure its Navigator 
program to best serve the Exchange's service area. As we stated in the 
proposed rule, we believe that entities with a physical presence and 
strong relationships in their FFE service areas tend to deliver the 
most effective outreach and enrollment results. Nothing in this final 
rule prevents an Exchange from selecting grantees that are physically 
present and available to provide a spectrum of in-person, local 
outreach, education, and assistance, including directing these services

[[Page 16981]]

towards vulnerable and hard-to-reach populations, if the Exchange 
elects to weight its selection process in that way and its selection 
process is consistent with section 1311(i)(2)(A) of PPACA and Sec.  
155.210(c)(1)(ii). Furthermore, we believe that there are various 
organizations that might prove to be promising partners in the delivery 
of both local and remote consumer assistance with regard to health 
coverage enrollment and education. While in-person assistance may be 
more helpful than remote services in some situations, we believe that 
determining which entities are well-situated to serve consumers within 
a particular Exchange is best left up to each Exchange. By allowing 
Exchanges greater flexibility, each Exchange will be better able to 
ensure that its service area can be assisted by the entity or entities 
that best fits the needs of its population. We are finalizing this 
change as proposed.
    Comment: We received comments about the potential use of other 
entities to provide enrollment assistance or remote services to 
consumers, beyond Navigator entities. Some commenters conveyed that 
other types of organizations are well-situated to provide enrollment 
assistance, such as local agents and brokers and direct enrollment 
partners. Some commenters believe that an approach to consumer 
assistance that leverages experts from different types of organizations 
that have strong ties to the community is a comprehensive way to 
provide consumers with the best available expertise.
    Response: We agree that local collaboration and leveraging 
community partnerships can help in reaching marginalized communities. 
For FFEs, we will take these comments into consideration when drafting 
Navigator selection criteria for Navigator funding opportunity 
announcements in future years. While agents, brokers, and direct 
enrollment partners might in many cases not be eligible to become 
Navigators due to statutory limitations on Navigator eligibility at 
section 1311(i)(4) of PPACA, we also agree that agents, brokers, and 
direct enrollment partners can be well situated to provide enrollment 
assistance or remote services to consumers, and we intend to continue 
to work with these stakeholders to ensure consumers in FFEs have access 
to a range of enrollment assistance, including Navigators.
c. Standards Applicable to Navigators and Non-Navigator Assistance 
Personnel Carrying Out Consumer Assistance Functions Under Sec. Sec.  
155.205(d) and (e) and 155.210 in a Federally-Facilitated Exchange and 
to Non-Navigator Assistance Personnel Funded Through an Exchange 
Establishment Grant (Sec.  155.215)
    For a discussion of the provisions of this final rule related to 
standards applicable to non-Navigator Assistance Personnel subject to 
Sec.  155.215, please see the preamble to Sec.  155.210.
d. Standards for Third-Party Entities To Perform Audits of Agents, 
Brokers, and Issuers Participating in Direct Enrollment (Sec.  155.221)
    HHS proposed new standards in the proposed rule to replace the 
standards set forth in the 2018 Payment Notice for Sec.  155.221 for 
third-party onboarding operational readiness reviews and audits for 
direct enrollment partners. HHS also proposed to expand the 
applicability of this section to require issuers, in addition to agents 
and brokers, participating in direct enrollment to engage third-party 
entities to conduct the required operational readiness reviews. We 
proposed a conforming edit to Sec.  156.1230(b)(2) to reflect this 
proposal.
    HHS proposed to implement an approach wherein agents, brokers, and 
issuers that participate in direct enrollment and use their own 
internet website for QHP selection or to complete the Exchange 
eligibility application would select their own third-party entities for 
conducting audits, rather than requiring HHS to initially review and 
approve these entities. As detailed in the proposed rule, HHS 
anticipates this approach would reduce the regulatory burden for 
agents, brokers, and issuers, and reduce duplicative HHS oversight. 
This approach will also reduce the burden on third-party entity 
reviewers.
    Beginning with the open enrollment period for the 2019 benefit 
year, we proposed that an agent, broker, or issuer must engage a third-
party entity that meets the standards outlined in the new Sec.  
155.221(b) to conduct an annual operational readiness review prior to 
participating in direct enrollment. Consistent with Sec.  
155.220(c)(3)(i)(K) and Sec.  156.1230(b)(2), the operational readiness 
review would be performed using the third parties' own audit processes 
and methods subject to HHS-defined specifications and requirements. The 
third-party entity's review would verify compliance by the agent, 
broker, or issuer with the applicable requirements in Sec. Sec.  
155.220, 155.260, 156.265, and 156.1230, and would need to be completed 
prior to the use of the agent, broker, or issuer internet website for 
submission of an Exchange application or completion of QHP selection. 
HHS would publish technical guidance outlining the review standards and 
other operational details, as well as provide other resources to assist 
the third-party entities in conducting the reviews at a later date. As 
outlined in the last sentence of the new Sec.  155.221(a), the third-
party entity would be a downstream or delegated entity of the agent, 
broker, or issuer that participates or wishes to participate in direct 
enrollment. Therefore, these third-party entities would be subject to 
HHS oversight as delegated or downstream entities of an agent, broker, 
or issuer, and the agent, broker, or issuer will remain responsible for 
compliance with all applicable direct enrollment requirements.
    We also proposed revisions to Sec.  155.221(b), which establishes 
standards that third-party entities must satisfy to perform the reviews 
to demonstrate operational readiness under Sec.  155.220(c)(3)(i)(K) 
and Sec.  156.1230(b)(2), beginning with the open enrollment period for 
the 2019 benefit year. The proposed new introductory language at Sec.  
155.221(b) aligns with the new approach where the agent, broker, or 
issuer selects the third-party entity to perform the audit under 
paragraph (a). As proposed, new Sec.  155.221(b)(1) would require the 
entity to have experience conducting audits or similar services, 
including specific experience with relevant privacy and security 
standards due to the operational requirements of the current direct 
enrollment processes and any potential future enhancements. This would 
include demonstrated experience with current National Institute of 
Standards and Technology (NIST) SP 800-53 or the HIPAA Security Rule 
standards, and the review of compliance with those standards. We 
proposed that auditors must also be capable of performing penetration 
testing on all interfaces that collect personally identifiable 
information or connect with HHS. We proposed to modify Sec.  
155.221(b)(2) to include issuers participating in direct enrollment and 
to expand the scope of the audit to also include review of compliance 
with other applicable program requirements (for example, website 
design, or consumer disclosures). Under proposed Sec.  155.221(b)(3), 
auditors would be required to collect, store, and share with HHS all 
data related to its audits of

[[Page 16982]]

agents, brokers, and issuers under paragraph (a) in a manner, format, 
and frequency specified by HHS until 10 years from the date of 
creation, and would be required to comply with the privacy and security 
standards HHS adopts for agents, brokers, and issuers as required in 
accordance with Sec.  155.260.
    The proposed revisions to paragraph (b)(4) would implement a 
conflict of interest standard that requires disclosure of financial 
relationships between a third-party entity conducting a direct 
enrollment operational readiness review and the agent, broker, or 
issuer. In addition, the third-party entity would be required, under 
Sec.  155.221(b)(5), to comply with all applicable Federal and State 
requirements; under Sec.  155.221(b)(6), to ensure, on an annual basis, 
that appropriate staff successfully complete operational readiness 
review training as established by HHS prior to conducting audits under 
paragraph (a) of this section; and, under Sec.  155.221(b)(7), to 
permit access by the Secretary and the Office of the Inspector General 
(OIG), or their designees, in connection with their right to evaluate 
through audit, inspection, or other means, to the third-party entity's 
books, contracts, computers, or other electronic systems, relating to 
the third-party entity's audits of agents, broker's, or issuer's 
obligations in accordance with Federal standards under paragraph (a) of 
this section until 10 years from the date of creation. Finally, to 
provide flexibility, under Sec.  155.221(c) an agent, broker, or issuer 
would be permitted to engage multiple third-party entities to perform 
the audits under paragraph (a) and each such third-party entity would 
need to separately comply with the standards under paragraph (b). We 
are finalizing these amendments as proposed, with a minor, non-
substantive change described below.
    Comment: Most commenters were concerned that enrollment through a 
non-governmental site would occur without proper oversight and 
controls. They expressed concern about the potential for fraud, or the 
possibility that agents, brokers, and issuers would unfairly direct 
consumers to QHPs with which the agent, broker, or issuer, had an 
existing relationship. Additionally, a number of commenters were 
concerned about the potential for conflicts of interest arising from 
relationships between the agents, brokers, and issuers and the third-
party auditors they select to conduct their audits.
    Response: We are finalizing the modifications to Sec.  155.221 as 
proposed, with a minor non-substantive edit to paragraph (b)(7) to 
remove the acronym ``OIG''. We have put in place guidelines and 
processes to oversee the activities of agents, brokers, and issuers 
participating in direct enrollment, and anticipate continuing to 
monitor enrollments through the direct enrollment pathway for evidence 
of fraud or abuse. While we acknowledge the potential for conflicts of 
interest, we believe the required disclosures, continuous monitoring 
and oversight, and standards established for third-party auditors will 
sufficiently mitigate these concerns. Furthermore, we believe the 
requirements being finalized in this rule will ensure that quality 
operational readiness reviews are conducted. Lastly, we agree that it 
is important that consumers enrolling using direct enrollment be able 
to make informed decisions about coverage. We believe Sec.  155.220, 
which establishes standards that apply when Exchange consumers select 
an individual market QHP through an agent's or broker's website, 
including a requirement that agents and brokers engaged in direct 
enrollment display all QHP data provided by the Exchange, will help 
promote informed consumer choice about all available QHPs, not just 
those with which the agent or broker has an existing relationship.
4. Exchange Functions in the Individual Market: Eligibility 
Determinations for Exchange Participation and Insurance Affordability 
Programs
a. Eligibility Standards (Sec.  155.305)
    Section 155.305(f)(4)(i) prohibits an Exchange from determining 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 married) for a previous year for which tax data would be used 
for verification of household income and family size, and the tax filer 
or his or her spouse did not comply with the requirement to file an 
income tax return and reconcile APTC paid on their behalf that year. 
Under the current regulation at paragraph (f)(4)(ii), Exchanges cannot 
discontinue APTC due to a failure to file and reconcile (FTR) 
associated APTC unless direct notification is first sent to the tax 
filer 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 Sec.  155.305.
    We proposed to amend Sec.  155.305(f)(4) by removing the direct 
notification requirement in paragraph (f)(4)(ii) and revising the 
remaining paragraph (f)(4) to move the content in paragraph (f)(4)(i) 
into paragraph (f)(4).
    We are finalizing this policy as proposed.
    Comment: Nearly all commenters on this issue expressed concern that 
relying on a notice that is not explicit to inform consumers that APTC 
eligibility may be discontinued--without giving consumers the specific 
reason and clearly instructing them how to correct the issue--is 
insufficient to ensure those wishing to continue their eligibility have 
the necessary information to do so. A few commenters stated that FFE 
\43\ notices are often difficult for consumers to understand, and 
consumers often bring their notices to assisters for help understanding 
them. One commenter stated that this confusion can be compounded for 
non-English or non-Spanish speakers, who often are unable to understand 
notices because they are unable to read them and may not take the 
notices to an enrollment assister or otherwise have the notice 
translated in time to take the appropriate action. One commenter 
recommended Exchanges send multiple notices regarding failure to file 
and reconcile to affected consumers and tax filers.
---------------------------------------------------------------------------

    \43\ All Exchanges using the Federal eligibility and enrollment 
platform, including SBE-FPs, take the same approach to handling FTR 
associated APTC. Therefore, in this section, the term ``FFE'' 
describes all Exchanges using the Federal eligibility and enrollment 
platform.
---------------------------------------------------------------------------

    Response: We recognize that describing complex information about 
eligibility for APTC to consumers involves a complicated balance 
between providing complete and accurate information, and being clear 
and concise enough that the consumer is likely to read and understand 
the information. Understanding this information can be especially 
challenging for non-English speakers. Exchanges must notify consumers 
when they make eligibility determinations based on FTR, but rules on 
the disclosure of Federal tax information (FTI) present significant 
challenges in communicating with this population. Historically, all 
communications regarding FFE applicants and enrollees are addressed to 
the household contact, who in most cases is the tax filer for the 
applicants on the relevant application. Internal Revenue Service (IRS) 
rules generally prohibit the disclosure of FTI to anyone other than the 
tax filer, and FTI includes all information from a tax return, 
including information as to whether a tax return has been filed with 
IRS. Also considered FTI is any list that is generated based only on 
information that is FTI itself. For example, a list of consumers who 
have not filed a tax return is considered FTI. The FFE's current 
noticing infrastructure does not

[[Page 16983]]

have FTI privacy safeguards built into its system to send notices to 
tax filers (as distinct from the household contact), to store notices 
in a manner compliant with required protections for FTI, or to 
establish user permissions for approved Exchange and Exchange 
contractor personnel only to access these notices for operationally 
necessary purposes, such as Call Center support, casework, or appeals.
    To avoid unauthorized disclosure of FTI to individuals who are not 
the relevant tax filer, the FFE sends notices to FTR and non-FTR 
consumers that contain language regarding FTR, but also language that 
is broad enough to apply to all consumers who receive them; these 
notices are referred to as ``combined notices.'' For example, the FFE 
sends the same Marketplace Open Enrollment Notice to three groups of 
consumers at risk for APTC discontinuation in the upcoming coverage 
year: Those flagged as FTR, those for whom the FFE has received updated 
income information that suggests the consumers may have income too high 
to qualify for APTC, and those who did not permit the Exchange to check 
IRS data. Because the combined notices apply and are sent to some 
consumers who are currently unaffected by FTR, and not exclusively to 
individuals who are affected by FTR, these notices are not considered 
FTI under IRS rules and are able to be sent using the standard FFE 
notice functionality.
    To supplement the combined notice, in November 2017, the FFE also 
mailed warning notices that complied with FTI rules to tax filers on 
whose behalf APTC was being paid but for whom the FFE had information 
the tax filer had not met the requirement to file and reconcile. These 
notices, which we refer to as ``direct notices,'' urged the tax filers 
to file and reconcile to avoid losing APTC starting in January 2018. To 
comply with FTI requirements, the direct notices were not generated by 
the FFE itself; rather, data was securely sent to an FTI-compliant 
print contractor for printing and mailing. In order to be FTI-
compliant--including being accessible only to the tax filer--direct 
notices are not available through the online Exchange account for the 
application.
    We intend for the FFE to continue sending two notices in advance of 
open enrollment where the Exchange has information that the tax filer 
on whose behalf APTC is being paid has failed to meet the requirement 
to file and reconcile: (1) A combined notice provided according to the 
communication preference set for the household contact (electronic or 
via U.S. mail) that will be available in consumers' online accounts and 
to the Exchange call center; and (2) a direct notice sent via U.S. mail 
to the tax filer that is not available electronically in the 
household's online account or to the Exchange call center, in order to 
protect FTI. The direct notice serves to unambiguously explain that the 
tax filer has been identified as having failed to meet the requirement 
to file and reconcile and must come into compliance to avoid 
termination of APTC. In 2018, the FFE will also send a combined notice 
and a direct notice in connection with its periodic check of tax data 
described in Sec.  155.330(e)(2)(iii)(B). As commenters noted, we 
believe sending more than one notice may increase the likelihood that 
consumers identify and read the notices and ultimately take action.
    Comment: Many commenters disagreed with our suggestion that a 
success rate of 60 percent of FFE household tax filers taking 
appropriate action to file and reconcile in response to the combined 
notices was sufficient and stated that 40 percent of households failing 
to take appropriate action demonstrates the lack of clarity the 
combined noticing approach creates among consumers.
    Response: We agree that there is room for improvement on a success 
rate of 60 percent. We foresee this success rate rising as the 
Exchanges mature and consumers become more familiar with the 
requirement to file and reconcile, and as the FFE continues pairing the 
combined notices with direct notices to tax filers that more explicitly 
address the requirement to file and reconcile.
    Comment: Many commenters were concerned that our proposal to remove 
Sec.  155.305(f)(4)(ii) does not comply with constitutional due process 
rights--stating that when determining a tax filer ineligible to 
continue receiving APTC, Exchanges must issue a direct individual 
notice that contains a statement of the intended action, reasons for 
the action, specific legal support for the action, an explanation of 
the individual's hearing rights, and rights to representation and to 
continued benefits. They expressed concerns about consumer confusion 
given that neither the FFE's combined (non-FTI) notices nor follow-up 
through the call center can give consumers definitive guidance on their 
household tax filer's current tax filing status, whether they will be 
redetermined ineligible for APTC for the upcoming benefit year (and 
why), how to correct the problem, or how to challenge a redetermination 
of eligibility for APTC.
    Response: We recognize there are limitations with the combined 
notices, which are unable to be explicit; however, this approach may be 
the only option available to many State Exchanges whose systems 
(including notice functionality) were not built for FTI compliance, and 
for which costly and time-consuming infrastructure upgrades are 
infeasible in the short term. As described previously, the FFE has 
begun mailing FTI-compliant direct notices to tax filers that contain a 
statement of the intended action, reasons for the action including 
regulatory support for the action, and an explanation of the 
individual's appeal rights if APTC is discontinued. While the FFE has 
been able to develop this workaround to provide FTI-compliant notices 
directly to tax filers, SBEs may have fewer options available to them. 
While some SBEs may be able to contract with the FFE's print contractor 
or another FTI-compliant contractor, we have heard that some are 
required to use only in-State contractors, which can create a 
significant barrier if there are no FTI-compliant contractors in the 
State.
    We agree with commenters that it is important for all Exchanges to 
protect consumers' due process rights. Even in the case of an Exchange 
that cannot arrange to send direct notices that explicitly address FTR 
to the tax filer and that is limited to the combined notice approach, 
we believe there are adequate protections for due process. First, the 
tax filer still has an opportunity before the Exchange redetermines 
eligibility to file a tax return (or an amended tax return, as 
applicable) and reconcile APTC paid for the relevant benefit and tax 
year. We expect Exchanges to send appropriate notices to households 
affected by FTR that alert the tax filer that FTR may be the reason 
enrollees' eligibility for APTC is at risk. Second, for enrollees whose 
eligibility for APTC is terminated as a result of FTR, the enrollee 
will receive an updated eligibility determination notice that contains 
a full explanation of appeal rights. Enrollees who appeal may request 
to continue receiving financial assistance during the appeal, 
consistent with Sec.  155.525. We believe these measures, including the 
option to maintain eligibility during an appeal, are consistent with 
due process.
    Comment: Some commenters stated that tax filers have a property 
interest in the continued receipt of APTC for which they are eligible, 
and challenged our belief that the financial and operational burden for 
the Exchange of establishing a mechanism to notify tax filers without 
making an unauthorized disclosure of protected FTI would be

[[Page 16984]]

out of proportion with the limited need for FTI handling in Exchange 
operations, including generating notices. Some referenced a Federal 
judicial decision \44\ stating that the ``public interest in assuring 
that health benefits will not be erroneously terminated or denied 
outweighs the State's competing fiscal and administrative concerns. Any 
inconvenience the State might suffer is out-balanced by the State's and 
the recipient's interest in providing health benefits to those who 
cannot otherwise afford them.''
---------------------------------------------------------------------------

    \44\ Rodriguez by and through Corella v. Chen, 985 F.Supp. 1189 
(D. Ariz. 1996).
---------------------------------------------------------------------------

    One SBE supported the proposal to remove the direct notification 
provision in Sec.  155.305(f)(4)(ii), citing significant implementation 
challenges to communicate with consumers without violating IRS's FTI 
security protections. It stated that current FTR processes and 
notifications being implemented by most Exchanges provide adequate 
notice to consumers.
    Response: HHS is committed to ensuring consumers eligible for APTC 
maintain that important benefit; however, we also believe that ensuring 
consumers are not receiving APTC improperly is necessary for program 
integrity. Additionally, it is important to reduce burden on Exchanges, 
which have varying capacities. Establishing a mechanism through which 
to notify tax filers without making an unauthorized disclosure of 
protected FTI is a heavy undertaking for an Exchange if its 
notification system was not originally designed with that capability in 
mind. For the FFE, it would involve not only changes to its notice 
generation and storage infrastructure, including enhancements to 
segregate and secure FTI data, but also substantial modification to its 
entire account creation framework.\45\ For a number of SBEs, upgrading 
their systems to be FTI compliant represents an undertaking that may be 
infeasible to implement in the short term. SBEs may also be unable to 
take the FFE's dual noticing approach because of limited print 
contracting options, as discussed above. The FFE plans to continue 
sending direct notices to tax filers to supplement the combined 
notices; we encourage SBEs to take a similar noticing approach, where 
feasible. We are available to provide technical assistance, as needed.
---------------------------------------------------------------------------

    \45\ The FFE's current workaround of sending print-only FTI 
notices directly to tax filers is being performed outside of the 
FFE's standard notice processes, which allow household contacts to 
be notified according to their communication preferences (U.S. mail 
or electronic) and provides availability of all notices in 
consumers' online accounts. At a minimum, enhancements to the FFE's 
identity proofing requirements for all FFE accounts would be 
required in order to prevent disclosure of FTI information to anyone 
except the tax filer. Further, the call center's identity proofing 
practices and data systems would need to be enhanced to safeguard 
the information to an FTI standard, in order to continue assisting 
consumers with the application and enrollment process.
---------------------------------------------------------------------------

    Comment: A few commenters recommended more research be done prior 
to the rule change. One commenter suggested we learn more about why 
taxes are not being filed in a timely way, suggesting there may be many 
reasons for non-compliance, and that this additional understanding 
could inform appropriate Exchange and IRS policies. Other commenters 
recommended we retain the current rule until we understand the impact 
of the new direct notice mailed in November 2017 to FFE enrollee tax 
filers affected by FTR. They suggested that, following the open 
enrollment period for 2018, we should assess whether there was an 
increase in the proportion of tax filers who took the necessary action 
to file their tax return and reconcile APTC, and a decrease in consumer 
confusion (for example, evidenced by the number of FTR-related call 
center questions), and consider whether any change is due to the 
cumulative impact of the two notices before finalizing any regulatory 
changes related to FTR procedures.
    Response: We agree that gathering data on the effectiveness of FTR 
notices is a worthwhile endeavor, and we look forward to analyzing the 
numbers as suggested by the commenter, now that the open enrollment 
period for 2018 coverage is closed, to determine if recent messaging 
increased compliance and reduced the discontinuation of APTC as a 
result of FTR. However, we believe this regulatory change must be 
implemented in the short term in the interest of program integrity and 
to reduce burden on Exchanges.
    Comment: A few commenters discussed the limitations when the 
household tax filer (to whom the FFE sent the direct notice in November 
2017) does not reside with the household contact on the application (to 
whom the FFE sent the combined Marketplace Open Enrollment Notice in 
October 2017), which could hinder the affected individual's ability to 
understand the totality of the circumstances, and disagreed with our 
assumption that the household contact is likely to share the combined 
notice with the tax filer, since not all household contacts and tax 
filers on an application can readily and easily communicate with one 
another, including during medical or other emergency situations, death, 
separation or divorce, domestic abuse, or spousal abandonment. One 
commenter suggested that the combined notice sent to the household 
contact explain that the specific reason for the potential 
discontinuation of APTC will be contained in the direct notice to the 
tax filer. This commenter further suggested that the mailing addresses 
be verified against the United States Postal Service National Change of 
Address Database to help ensure deliverability, and that the envelopes 
be conspicuous to signify their importance (for example, red in color).
    Response: We recognize there are household circumstances in which 
the tax filer and the household contact on the application do not live 
together. However, our data show that for 2017 and 2018 applications 
for which any amount of APTC was paid, 99.8 percent of household 
contacts listed on the application were also the tax filer. We agree 
that adding language to the combined notice pointing to the direct 
notice for additional specifics may help increase the likelihood that 
the tax filer fully understands the risk to continued APTC eligibility 
for enrollees in the household, and we may explore this approach 
through discussions with IRS regarding any potential FTI concerns. The 
FTI-compliant print contractor used by the FFE in November 2017 does 
verify addresses against the USPS National Change of Address Database, 
and we acknowledge that making envelopes more conspicuous could help 
ensure FTR notices are opened and read by consumers.
    When consumers submit an FFE application, the filer of the 
application must agree to a statement that he or she has obtained 
consent for all people listed on the application for their information 
to be used for eligibility determination purposes, including verifying 
this information using the Exchange's trusted electronic data sources. 
In addition, following application submission and when selecting a plan 
and choosing the amount of APTC to apply to the monthly premium, the 
tax filer is required to agree to a statement that he or she must file 
a tax return for the year during which APTC is paid on his or her 
behalf (or on behalf of his or her spouse) and to reconcile those 
payments with IRS. The filer of the application specifies the contact 
person for Exchange communications (the household contact), as well as 
the method of communication they prefer--either electronic or via U.S. 
mail to the address they enter on the application. Because this 
household contact is designated as the point of contact for the 
enrollee(s) on the application, we

[[Page 16985]]

believe it is reasonable to assume he or she intends to receive 
communications about enrollees' eligibility for and enrollment in 
health coverage through the Exchange. Further, as this designated point 
of contact for Exchange enrollees, we believe this household contact 
would likely read these communications, and if their content discussed 
risk for financial assistance loss, share with the tax filer in the 
rare case that he or she is not the tax filer. We further believe it is 
reasonable to assume that the tax filer--if not the household contact--
would be in contact with the Exchange enrollees for whom he or she is 
responsible with respect to tax filing, managing communications related 
to health coverage through the Exchange, or both.
    We are finalizing these provisions as proposed, but remain 
committed to improving the clarity and effectiveness of the FTR 
notification process in circumstances where the Exchange has 
information that the tax filer has failed to file and reconcile.
b. Verification Process Related to Eligibility for Insurance 
Affordability Programs (Sec.  155.320)
i. Income Inconsistencies (Sec.  155.320(c))
    Section Sec.  155.320(c)(3)(iii) sets forth the verification 
process for increases in household income. Generally, if income data 
from our electronic data sources indicate a tax filer's attested 
projected annual income is more than the income amount represented by 
income data returned by the IRS and the SSA and current income data 
sources, Sec.  155.320(c)(3)(iii) requires the Exchange to accept the 
attestation without further verification. Currently, Exchanges 
generally are not permitted to create inconsistencies (data matching 
issues) for consumers when the consumer's attested income is greater 
than the amount represented by income data returned by IRS and the SSA 
and current income data sources.
    We proposed to revise Sec.  155.320(c)(3)(iii) to specify that the 
Exchange will generate annual income inconsistencies in certain 
circumstances when a tax filer's attested projected annual income is 
greater than the income amount represented by income data returned by 
IRS and the SSA and current income data sources. Current regulations 
generally require the Exchange to accept a consumer's attestation to 
projected annual household income when the attestation reflects a 
higher income than what is indicated in data from the IRS and Social 
Security Administration. This approach makes sense from a program 
integrity perspective when both the attestation and data from trusted 
data sources are over 100 percent Federal poverty level (FPL), since an 
attestation that is higher than data from trusted data sources in that 
situation would reflect a lower APTC than would be provided if the 
information from trusted data were used instead.
    However, where electronic data sources reflect income under 100 
percent FPL and a consumer attests to income between 100 percent FPL 
and 400 percent FPL, where the attested income exceeds the income 
reflected in trusted data sources by more than some reasonable 
threshold, we believe it would be reasonable to request additional 
documentation to protect against overpayment of APTC, since the 
consumer's attested income could make him or her eligible for APTC that 
would not be available using income data from electronic data sources. 
Accordingly, we proposed to add new paragraphs (c)(3)(iii)(D) and (E), 
and to modify paragraphs (c)(3)(vi)(C), (D), (F), and (G), to specify 
that the Exchange will follow the procedures in Sec.  155.315(f)(1) 
through (4) to create an annual income data matching issue for 
consumers if: (1) The consumer attested to projected annual income 
between 100 percent and 400 percent of the FPL; (2) the Exchange has 
data from IRS and SSA that indicates income is below 100 percent FPL; 
(3) the Exchange has not assessed or determined the consumer to have 
income within the Medicaid or CHIP eligibility standard; and (4) the 
consumer's attested projected annual income exceeds the income 
reflected in the data available from electronic data sources by a 
reasonable threshold established by the Exchange and approved by HHS. 
We proposed that a reasonable threshold must not be less than 10 
percent, and can also include a threshold dollar amount. In accordance 
with the existing process in Sec.  155.315(f)(1) through (4), if the 
applicant fails to provide documentation verifying their income 
attestation, the Exchange would redetermine the applicant's eligibility 
for APTC and CSRs based on available IRS and SSA data, which under this 
proposal would typically result in discontinuing APTC and CSR as 
required in paragraph (c)(3)(vi)(G). The adjustment and notification 
process would work in a manner consistent with other inconsistency 
adjustments laid out in paragraph (c)(3)(vi)(F).
    We proposed to allow the Exchange to set the threshold for setting 
a data matching issue similar to Sec.  155.320(c)(3)(vi). We proposed 
that a reasonable threshold should take into account that consumers 
with incomes near 100 percent FPL have a smaller margin for error in 
dollar terms. Therefore, a reasonable threshold might also include a 
fixed dollar amount in addition to a percentage threshold.
    We are finalizing this policy as proposed, with two changes. First, 
after considering the intended purpose of this new program integrity 
measure, we have decided to add additional regulatory language to Sec.  
155.320(c)(3)(iii)(D) that exempts from this additional verification 
check non-citizen applicants who are lawfully present and ineligible 
for Medicaid by reason of immigration status.\46\ These applicants do 
not have the same incentive to inflate their reported household income 
to qualify for APTC, since they are also able to qualify for APTC with 
a household income under 100 percent FPL. Additionally, if these 
applicants inflate their income, they will receive less APTC than they 
are eligible for, and, therefore, performing the additional 
verification check is not necessary to prevent overpayment of APTC. 
Second, we also removed the proposed regulatory language that clarified 
that non-citizens who attested to projected income under 100 percent 
FPL are not subject to this verification, because the policy only 
applies to consumers who attested to projected annual income between 
100 percent and 400 percent of the FPL, and therefore would not apply 
to any applicant (either citizen or lawfully present non-citizen), 
making this clarifying language unnecessary.
---------------------------------------------------------------------------

    \46\ FFEs generally verify citizenship/immigration status prior 
to verifying income. If an applicant's immigration status has not 
been verified when the income verification would occur, they would 
not be exempted from this additional verification check.
---------------------------------------------------------------------------

    At Sec.  155.320(c)(3)(vi)(D), we proposed to make changes to 
provide consistency with changes finalized in the 2017 Payment Notice 
regarding the threshold for the generation of annual income data 
matching issues for decreases in annual household income. This proposed 
change would specify that the 10 percent threshold standard no longer 
applies to cases when a tax filer's attested projected income is less 
than all data sources, or when no electronic data sources are 
available. Instead, an Exchange would use the reasonable threshold 
established in accordance with Sec.  155.320(c)(3)(vi). We are 
finalizing this change as proposed.
    In the proposed rule, we also noted our interest in providing 
further guidance on the appropriate thresholds for the generation of 
data matching issues generally. We intend to reconsider and provide 
further guidance

[[Page 16986]]

on these thresholds in the near future, and in anticipation of that 
effort, we sought comment on the appropriate thresholds to use at 
various income levels and in various circumstances. In particular, we 
welcomed data and evidence on this issue.
    We intend to address this issue as part of broader rulemaking and 
guidance on a number of related program integrity issues, including 
further examination of our processes for denying eligibility for 
subsidies for individuals who have failed to reconcile APTC on their 
Federal income tax return, Exchange processes for matching enrollment 
data with Medicare and Medicaid in order to address consumers who may 
be enrolled in duplicative coverage, and our rules around recalculation 
of eligibility for APTC following a mid-year change in eligibility. In 
anticipation of these actions, we sought comment generally on these and 
other program integrity topics.
    Comment: Several SBEs expressed concerns over the cost and time 
needed to implement the change in their IT systems to accommodate the 
proposed new verification process. They also stated that State 
Exchanges should have the flexibility to not conduct this verification. 
One commented that there is no incentive for applicants to inflate 
their income in a State that expanded Medicaid.
    Response: HHS understands that Exchanges may need additional time 
to implement this proposal in order to update their information 
technology systems to incorporate new logic. However, we believe this 
is a critical program integrity measure. This process is primarily 
intended as a program integrity safeguard with respect to States that 
did not expand Medicaid. However the verification check could also help 
identify some applicants who inaccurately attested to too high an 
income amount and were therefore inaccurately determined or assessed 
not to be eligible for Medicaid. This check could help applicants 
identify potential eligibility through their State Medicaid program and 
encourage them to disenroll from their Exchange plan.
    Comment: Many commenters were concerned that this new verification 
process would disadvantage households with lower household incomes, 
since these households often have income amounts that fluctuate more 
regularly and by a larger percentage margin than higher income 
households. Additionally, many commenters expressed concern that low-
income consumers have difficulty in providing documentation to resolve 
their annual income data matching issues and that this proposal would 
exacerbate that problem. Commenters also suggested that HHS should more 
strongly consider providing notice to applicants that they should 
update their application with any income changes, rather than creating 
annual income data matching issues for this population.
    Response: We recognize that households with lower income might 
experience higher relative levels of variance in their income from 
year-to-year. This policy recognizes the need to have a reasonable 
threshold for income discrepancies to allow for normal variations in 
income, which may include a dollar threshold amount. HHS believes that 
the alternate verification process has improved significantly since the 
program has launched. The calculator used by HHS to calculate income 
submitted by applicants has been specifically modified to handle 
instances where income fluctuates, or is seasonal in nature. We 
released a consumer guide to households to help them provide the 
correct documentation to verify their income in the event of an 
inconsistency. We also released a worksheet for households to help them 
verify their attested income amount. HHS supports encouraging 
applicants to continue to update their income throughout the year, as 
needed, through notices and other appropriate consumer outreach and 
educational materials. We are also exploring strategies to promote more 
timely and accurate reporting of changes in circumstances by consumers.
    Comment: Several commenters expressed concern that HHS did not 
provide evidence or data that this issue was sufficiently problematic 
to require a change in the regulation.
    Response: HHS acknowledges that it does not have firm data on the 
number of applicants that might be inflating their income to gain APTC, 
but believes that it is reasonable to design an appropriate program 
integrity check, particularly when incentives may exist for applicants 
to do so.
    Comment: Commenters also suggested that instead of generating 
annual income data matching issues for this population, HHS should 
instead closely assess the eligibility for loss of MEC special 
enrollment periods involving the loss of Medicaid.
    Response: HHS currently monitors and verifies eligibility for 
special enrollment periods due to loss of MEC, including the loss of 
eligibility for Medicaid/CHIP.
    Comment: Several commenters expressed concern that applicants who 
could not successfully verify their income in States that have not 
expanded Medicaid would be left with no practical ability to purchase 
health insurance.
    Response: HHS understands the concern regarding these consumers and 
believes the alternate verification process will be able to verify 
income information for applicants who accurately reported their income 
information. Applicants who inflate their income to gain access to APTC 
would not be able to produce documentation required to verify their 
income attestation, which would properly result in the inconsistency 
process under the proposed policy determining these applicants 
ineligible for APTC. This proposal is designed to provide a program 
integrity check that helps protect taxpayers from the overpayment of 
APTC.
    Comment: One commenter stated that the proposal would not result in 
the Treasury recouping excess APTC paid for applicants who inflated 
their income to gain access to APTC because applicants with household 
income under 100 percent FPL are exempted from repaying APTC through 
the reconciliation process at tax time under current regulations.
    Response: We view this policy as a critical program integrity 
measure, notwithstanding any liability that the tax filer may have when 
filing income taxes and reconciling APTC paid during the inconsistency 
period. As observed by the U.S. Government Accountability Office, 
without proper procedures for verifying incomes and family sizes, the 
risk of providing APTC on behalf of individuals who do not meet the 
minimum income eligibility requirements--including those who may 
purposefully misstate their incomes in order to gain access for APTC--
is increased.\47\ Particularly to the extent funds paid for APTC cannot 
be recouped through the tax reconciliation process, it is important to 
ensure these funds are not paid out inappropriately in the first 
instance.
---------------------------------------------------------------------------

    \47\ U.S. Government Accountability Office, Improper Payments: 
Improvements Needed in CMS and IRS Controls over Health Insurance 
Premium Tax Credit (July 2017), available at https://www.gao.gov/assets/690/685777.pdf. See, also Office of Inspector General, U.S. 
Department of Health and Human Services, Not All of the Federally 
Facilitated Marketplace's Internal Controls Were Effective in 
Ensuring That Individuals Were Properly Determined Eligible for 
Qualified Health Plans and Insurance Affordability Programs (August 
2015), available at https://oig.hhs.gov/oas/reports/region9/91401011.pdf (concluding that HHS should improve its processes for 
verifying income eligibility for insurance affordability programs).
---------------------------------------------------------------------------

    Comment: One commenter suggested that the proposed policy could 
result in increased churn between Medicaid and coverage through the 
Exchange for

[[Page 16987]]

consumers whose household income fluctuates near the 100 percent FPL 
level if they are unable to verify their income for APTC eligibility. 
The commenter was concerned that in States that expanded Medicaid, the 
applicants that lost their APTC would not necessarily know that their 
income may make them eligible for Medicaid.
    Response: HHS acknowledges this concern and will explore ways to 
provide helpful information in any notice provided to these applicants 
that lose APTC because of their inability to verify their income and 
may be eligible for Medicaid.
    We are finalizing the changes as proposed.
ii. Verification of Eligibility for Employer Sponsored Coverage (Sec.  
155.320(d))
    An employee, or a member of the employee's family, who is eligible 
to enroll in qualifying coverage in an eligible employer-sponsored plan 
is not eligible for the PTC unless the plan's coverage for the employee 
is either unaffordable, as defined in section 36B(c)(2)(C)(i)(II) of 
the Code, or does not provide minimum value, as defined in section 
36B(c)(2)(C)(ii) of the Code. An employee (or member of the employee's 
family) also is not eligible if he or she actually enrolls in the 
employer-sponsored plan, even if the plan is not affordable or fails to 
provide minimum value.
    When an individual submits a request for an eligibility 
determination for insurance affordability programs, including as part 
of the eligibility verification process for APTC and CSRs, Sec.  
155.320(d) requires the Exchange to verify whether the applicant 
reasonably expects to be enrolled in an eligible employer-sponsored 
plan or is eligible for qualifying coverage in an eligible employer-
sponsored plan for the benefit year for which coverage is requested. 
Paragraph (d)(2) of Sec.  155.320 describes the data sources an 
Exchange must use to perform verification. Paragraph (d)(2)(i) requires 
an Exchange to obtain data from any electronic data sources that are 
available to the Exchange and which have been approved by HHS based on 
evidence showing that such data sources are sufficiently current, 
accurate, and minimize administrative burden. Paragraph (d)(2)(ii) 
requires that the Exchange also obtain available data based on Federal 
employment through HHS, and paragraph (d)(2)(iii) requires the Exchange 
to obtain available data from the SHOP that corresponds to the State in 
which the Exchange is operating. Under Sec.  155.320(d)(4), if an 
Exchange is unable to fulfill the requirement to connect to the data 
sources set forth in (d)(2), the Exchange is required to conduct 
sampling as described under paragraph (d)(4)(i), or--for benefit years 
2016 and 2017--it may conduct an HHS-approved alternative process 
instead of sampling, as provided under paragraph (d)(4)(ii).
    We proposed to amend Sec.  155.320(d)(4) to allow an Exchange to 
conduct an HHS-approved alternative process instead of sampling, as 
provided under paragraph (d)(4)(ii), for benefit years through 2019. 
When we introduced this option for benefit years 2016 and 2017, we 
received comments that encouraged us to make this option permanent. 
However, at the time we stated that we believed the alternative process 
should be used as an interim measure to gather information about the 
verification process as Exchanges improve their long-term verification 
programs.\48\ When we first introduced this option, we also stated that 
we believed the temporary option would provide Exchanges with needed 
flexibility as verification processes are refined and employer 
databases compiled, to improve long-term verification programs. We 
noted in the proposed rule that while Exchanges have since gained 
greater access to data and explored approaches to sampling, challenges 
remain. To reduce regulatory burdens on Exchanges while they address 
remaining hurdles to developing a long-term approach to verification, 
we stated we believe the option to use an alternative process instead 
of sampling should be extended through plan year 2019.
---------------------------------------------------------------------------

    \48\ 81 FR 12203, 12269 (March 8, 2016).
---------------------------------------------------------------------------

    After the option to use an alternate process for benefit years 2016 
or 2017 was finalized, HHS investigated the feasibility of connecting 
to a comprehensive database of information on employer-sponsored 
coverage that could be used by all Exchanges to fulfill verification 
requirements under Sec.  155.320(d)(2)(i). Such a database would be 
most useful and cost-effective if it contained information on employer-
sponsored coverage from as many non-Federal and non-SHOP employers as 
possible. We found that a comprehensive database does not currently 
exist and building such a database would be a resource-intensive 
endeavor. In addition, employers are not required to provide 
information to Exchanges or HHS regarding the coverage they offer, 
potentially limiting the completeness of such a database.
    Because of the current challenges associated with building an HHS-
approved database that is sufficiently complete and accurate to satisfy 
requirements under paragraph (d)(2)(i), we stated we anticipate many 
Exchanges will fulfill verification requirements using an alternate 
process, as described under paragraph (d)(4). In recognition of the 
challenges that Exchanges may encounter with conducting sampling, as 
explained below, we proposed to extend the option for Exchanges to 
conduct an alternative process to sampling through benefit year 2019. 
Our hope is that Exchanges can continue to compile databases sufficient 
to meet verification requirements under paragraph (d)(2) and to 
continue to refine their approaches to sampling to meet verification 
requirements under paragraph (d)(4)(i).
    In accordance with the requirement at paragraph (d)(4) to pursue an 
alternate process, the FFE conducted a pilot study that incorporated 
many components of sampling. The pilot was intended to assess 
sampling's value protecting the integrity of the attestation process 
regarding applicant access to and enrollment in employer-sponsored 
coverage. As part of this sampling pilot, employers for a small sample 
of enrollees receiving APTC through the FFEs were contacted by 
telephone, based on the employer contact information applicants 
provided on their Exchange applications, and asked whether specified 
employees were also enrolled in a qualifying employer-sponsored plan or 
were offered qualifying coverage in an employer-sponsored plan. Since 
the FFE does not have access to relevant data from employers across the 
38 States for which the FFE operates Exchanges, this effort provided an 
attempt to collect information on each sampled employee by contacting 
employers' human resources personnel. The FFE found that this approach 
was not a cost-effective way for the FFE to fulfill verification 
requirements using an alternate process.
    We acknowledged that sampling may be a more cost-effective option 
for SBEs compared to FFEs. For example, the FFE operates Exchanges for 
38 States, and the volume of employers that the FFE encompasses may 
inherently present challenges in relying on sampling results that 
States may not face. Some States may collect and have access to data 
from employers that make verifying consumers' attestations more 
efficient and reliable, or may have existing channels through which 
they can communicate with in-State employers. Therefore, we proposed to 
maintain the option to use sampling as an alternate method of 
verification under paragraph (d)(4) to allow SBEs maximum

[[Page 16988]]

flexibility. We stated that we expect that the proposed change to 
paragraph (d)(4) to allow Exchanges to continue to use an HHS-approved 
alternative process to sampling through plan year 2019 will provide 
Exchanges with important flexibility to conduct the most efficient, 
reliable alternate method of verification as Exchanges refine their 
approaches to conducting sampling over time, and until data sources 
exist that provide an effective way to verify consumers' enrollment in 
or access to qualifying employer-sponsored coverage. If SBEs use an 
alternative process to sampling to conduct verification under paragraph 
(d)(4)(ii), the process must be approved by HHS. To be approved by HHS, 
we expect an Exchange to develop an alternate process that provides 
insight into whether employees provide accurate information or the 
Exchange effectively verifies information about enrollment in and 
eligibility for qualifying coverage in an eligible employer-sponsored 
plan.\49\ This requires Exchanges to conduct reliable and sufficient 
verification, while giving them the flexibility to find the most 
efficient ways of doing so for their Exchange.
---------------------------------------------------------------------------

    \49\ 81 FR 94058, 94125 (December 22, 2016).
---------------------------------------------------------------------------

    We noted that to the extent an Exchange believes an alternate 
process to verification through data sources or methods other than 
those described under paragraph (d) may result in a more efficient or 
comprehensive verification procedure, the Exchange may also, in 
accordance with Sec. Sec.  155.315(h) and 155.320(a)(2), request HHS 
approval for use of an alternate process for verifying enrollment in 
and access to employer-sponsored coverage. We noted that HHS received 
support for providing flexibility for the use of alternate data sources 
by Exchanges in comments to the Request for Information. For example, 
we received comments indicating that, for some Exchanges, due to the 
limited number of Federal employees in their State, connecting to the 
database containing data on Federal employment provides little utility 
in Exchange verification of applicants' eligibility for employer-
sponsored coverage. One commenter encouraged HHS to consider removing 
the regulatory requirement to connect to this database for purposes of 
employer-sponsored coverage verification. We have also received 
feedback from some Exchanges noting challenges and limitations 
connecting to a SHOP database. These Exchanges noted that, given the 
limited enrollment in SHOP in many States and that many States do not 
have a SHOP database with which to connect, requiring verification 
through SHOP imposes a technical and financial challenge for States 
that may not be the most efficient and cost-effective way to perform 
verification.
    Additionally, we sought information and suggestions on ways to 
improve verification of whether an applicant reasonably expects to be 
enrolled in an eligible employer-sponsored plan or is eligible for 
qualifying coverage in an eligible employer-sponsored plan for the 
benefit year for which coverage is requested.
    We are finalizing this policy as proposed.
    Comment: All commenters supported the proposal to amend Sec.  
155.320(d)(4) to allow an Exchange to conduct an HHS-approved 
alternative process instead of sampling, as provided under paragraph 
(d)(4)(ii), for benefit years through 2019. Most commenters noted the 
continued need to perform verification through an alternate process 
under paragraph (d)(4), and supported the flexibility to perform 
alternative methods of verification to sampling under paragraph 
(d)(4)(ii).
    Response: We acknowledge the continuing need Exchanges may have to 
use an alternate verification process and the flexibility to perform an 
alternative verification procedure to sampling. We are finalizing this 
provision as proposed.
    Comment: Most commenters indicated that challenges remain in 
performing verification through some or all of the databases described 
under paragraph (d)(2). One commenter questioned the value of verifying 
based on Federal employment data and through data based on the State's 
SHOP Exchange due to the low number of applicants offered eligible 
coverage from those sources in the relevant State. Several commenters 
supported the flexibility provided under Sec.  155.315(h) for Exchanges 
to request HHS approval to perform verification through data sources or 
methods other than those specified in paragraph (d) where an Exchange 
believes alternate data sources or methods may result in a more 
efficient verification procedure for that Exchange.
    Response: We agree that challenges remain to performing 
verification through databases described under paragraph (d)(2), and 
that an Exchange may believe verification through alternate data 
sources would be a more appropriate method of verification for their 
Exchange. While we believe that verification through databases 
described under paragraph (d)(2) remains a viable option for some 
Exchanges, we continue to provide Exchanges the flexibility afforded 
under Sec.  155.315(h), and support Exchanges in considering this 
option for verification.
c. Eligibility Redetermination During a Benefit Year (Sec.  155.330)
    We sought comment on ways to better encourage enrollees to report 
changes in circumstance occurring during the benefit year that may 
affect their eligibility for Exchange coverage or for APTC or CSRs. The 
FFEs currently conduct proactive outreach to enrollees through a 
variety of means, including emails, phone calls, and paper mail, to 
encourage them to return to the Exchange to update their information 
throughout the benefit year and during key Exchange operational 
efforts, such as open enrollment. The FFEs also periodically provide 
general information and reminders to enrollees. However, many changes 
in circumstance, such as changes in household income or size, remain 
unknown by the Exchanges until reported by the enrollee.
    We are interested in hearing from stakeholders about ways to 
increase enrollee reporting of individual changes in circumstance 
within 30 days of the change in order to ensure compliance with Sec.  
155.330(b). Increasing such reporting would benefit enrollees by 
ensuring that they continue to be enrolled based on their current 
eligibility for financial assistance, and would improve program 
integrity.
    Comment: Commenters supported finding ways to better encourage 
Exchange enrollees to report changes in circumstance during the benefit 
year so that they receive updated eligibility determinations, including 
with respect to any APTC they are receiving. Commenters acknowledged 
the benefit of timely updates to an enrollee's household income or 
family size as a way to help minimize any large APTC reconciliation 
payments due to the Federal government upon filing a Federal income tax 
return. Commenters also acknowledged the benefit to the program 
integrity of the Exchanges, so that they may continue to have updated 
and accurate enrollee information, as well as the benefit to the 
Federal government to minimize the amount of financial assistance being 
paid on behalf of enrollees who are not eligible (or are eligible for a 
lesser amount).
    Commenters recommended increasing Exchange outreach efforts, 
through mail, email, and social media networks, to periodically remind 
consumers to report any life changes that may have occurred. One 
commenter recommended that Exchanges use more distinct envelopes when 
an enrollee action is required to improve the rate at

[[Page 16989]]

which these mailings are recognized, read, and acted upon. Commenters 
acknowledged the benefit of personal interactions as a way to encourage 
consumer behavior and recommended that Exchanges engage Navigators who 
have personal relationships with many Exchange enrollees to keep in 
contact with the enrollees throughout the year and remind them that 
they should timely report changes in circumstance to the Exchange.
    Commenters recommended that Exchanges make it easier for enrollees 
to report changes in circumstance online. One State Exchange stated 
they have information about reporting changes in circumstance on the 
main page of their Exchange website outside of open enrollment, and 
that enrollees are asked about whether they need to report a change 
either over the phone if they call the Exchange call center, or online 
upon logging into their Exchange accounts.
    Response: We appreciate comments received on this topic and will 
take them into consideration for FFE operations and possibly in future 
rulemaking.
d. Annual Eligibility Redetermination (Sec.  155.335)
    We are considering the possibility of amending the length of time 
that individuals may authorize the Exchanges to obtain the updated tax 
return information for enrollees as described in Sec.  155.335(k)(2). 
Currently, the Exchanges may obtain updated tax return information for 
a period of no more than 5 years based on a single authorization.
    We sought comment on whether 5 years is an appropriate duration for 
this type of an authorization, or whether a shorter time period should 
be considered. In particular, we are contemplating whether shortening 
this authorization period would improve Exchange program integrity by 
helping to ensure that the enrollee's application at the time of re-
enrollment accurately reflects his or her data collection preferences, 
that all sources of income that may affect his or her eligibility for 
APTC and cost-sharing reductions are listed on the application, and 
that individuals update their applications on a more regular basis to 
reflect other changes in circumstances that affect eligibility (such as 
changes in employment or marital status).
    Comment: Many commenters opposed changing the length of time that 
individuals may authorize Exchanges to obtain their updated tax 
information. Many commenters agreed that 5 years is the appropriate 
length of time for this type of authorization, and that this period 
accurately balances the Exchanges' need for updated information with 
the consumer burden of actively authorizing Exchanges to access this 
information. One commenter recommended that we consider extending the 
authorization period past 5 years, and another recommended that 
Exchanges be able to access this information indefinitely. In addition, 
several commenters questioned how shortening this authorization window 
would improve Exchange program integrity.
    Response: We appreciate the comments and will take them into 
consideration in future rulemaking.
5. Exchange Functions in the Individual Market: Enrollment in Qualified 
Health Plans
a. Special Enrollment Periods (Sec.  155.420)
i. Plan Options Under Select Special Enrollment Periods
    For many special enrollment periods, a dependent of an Exchange 
enrollee may newly enroll in Exchange coverage or switch Exchange plans 
when the dependent or another qualified individual on the Exchange 
application qualifies for a special enrollment period. Even though 
dependents may access special enrollment periods based on different 
qualifying events, when they qualify for a special enrollment period to 
newly enroll in Exchange coverage, regardless of whether it is a 
special enrollment period due to gaining or becoming a dependent or due 
to a loss of minimum essential coverage, we believe that they should be 
treated alike. Section 155.420(a)(4) defines the coverage changes 
Exchange enrollees may make when they or their dependents qualify for 
special enrollment periods. We proposed to modify how paragraph 
(a)(4)(iii) treats dependents to align more closely with paragraph 
(a)(4)(i) which addresses when an existing enrollee gains a new 
dependent. To do this, we proposed to modify paragraph (a)(4)(iii) to 
establish a distinction between how the rule treats existing enrollees 
who qualify for one of the relevant special enrollment periods 
themselves or when existing Exchange enrollees themselves and their 
dependent(s) qualify for one of the relevant special enrollment 
periods; and when only new dependents qualify for one of the relevant 
special enrollment periods and are enrolling in coverage with an 
existing Exchange enrollee. We proposed to establish this distinction 
by separating these situations into new paragraphs (a)(4)(iii)(A) and 
(a)(4)(iii)(B). We believe the latter situation is akin to when an 
enrollee adds a new dependent to their coverage, even though in this 
situation the dependent is qualifying for a different special 
enrollment period.
    Proposed new paragraph (a)(4)(iii)(A) would address the coverage 
options available to current enrollees and dependents who qualify for a 
special enrollment period. As is current policy under paragraph 
(a)(4)(iii), paragraph (a)(4)(iii)(A) would continue to allow enrollees 
and their dependents who qualify for the special enrollment periods 
specified in paragraphs (d), other than those described in paragraphs 
(d)(2)(i), (d)(4), (d)(6)(i) or (ii) for becoming newly eligible for 
CSRs, (d)(8), (d)(9), and (d)(10) of this section, to use their special 
enrollment period to change to another QHP within the same level of 
coverage or one metal level higher or lower, if no such QHP is 
available, as outlined in Sec.  156.140(b) of this subchapter.
    Proposed new paragraph (a)(4)(iii)(B) would address the coverage 
options available when only a dependent who is not currently enrolled 
in Exchange coverage qualifies for a special enrollment period. We 
proposed to revise the policy for these qualified individuals to align 
with paragraph (a)(4)(i) of this section. We proposed that, if a new 
dependent qualifies for one of the special enrollment periods specified 
in paragraphs (d)(1), (d)(3), (d)(6)(iii), (d)(6)(iv), (d)(7), (d)(11), 
and (d)(13) of this section and an enrollee would like to add the 
dependent to his or her QHP at that time, the Exchange must allow the 
enrollee to add the dependent to his or her current QHP; or, if the 
plan's business rules do not allow the dependent to enroll, the 
Exchange must allow the enrollee and dependent to change to another QHP 
within the same level of coverage; or, if no such QHP is available, 
allow them to switch to a QHP one metal level lower or higher, as 
outlined in Sec.  156.140(b) of this subchapter. Alternatively, the 
enrollee may enroll the dependent in a separate QHP at any metal level.
    We believe that these modifications are needed in order to align 
the flexibilities available to enrollees and dependents when a 
dependent is newly enrolling in Exchange coverage during the benefit 
year due to qualifying for a special enrollment period. With this 
proposed change, regardless of the special enrollment period for which 
a dependent qualifies, an enrollee may either add the dependent to his 
or her existing QHP, as long as he or she continues to qualify for it, 
or enroll the new dependent in a separate QHP at any metal level.

[[Page 16990]]

    In the event that both the enrollee and the new dependent qualify 
for special enrollment periods referenced in proposed paragraphs 
(a)(4)(iii)(A) and (a)(4)(iii)(B), respectively, and the enrollee wants 
to add this new dependent to his or her QHP, the Exchange would allow 
both the enrollee and dependent to switch to a new QHP at the same 
metal level, if available, as described in proposed paragraph 
(a)(4)(iii)(A).
    We are finalizing this policy as proposed.
    Comment: The majority of commenters supported the proposal to align 
plan options for a dependent of an Exchange enrollee who qualifies for 
a special enrollment period to newly enroll in Exchange coverage along 
with the existing Exchange enrollee, regardless of the special 
enrollment period the dependent qualifies for, thereby aligning the 
dependent policies in paragraphs (a)(4)(i) and (a)(4)(iii)(B). 
Commenters appreciated the simplification of plan option rules for 
enrollees who seek to newly enroll a dependent in Exchange coverage 
after that dependent has qualified for a special enrollment period, and 
stated that this simplification will benefit Exchange enrollees, as 
well as those providing enrollment assistance, such as Navigators, 
agents, and brokers, by making it easier for them to understand and 
explain the enrollee's enrollment options. In addition, some commenters 
supported aligning the plan option rules out of fairness, to ensure 
that all similarly situated dependents who are newly enrolling in 
Exchange coverage should have the same enrollment options available to 
them.
    A few commenters supported this proposal, but also requested that 
changes to the plan option restrictions in paragraph (a)(4) be amended 
to give affected enrollees and dependents the option to enroll in a QHP 
at a lower level of coverage, alongside the option to enroll in either 
the same QHP or another QHP at the same level of coverage, as 
applicable. Commenters stated that this increased flexibility is 
especially necessary for situations where enrollees are gaining or 
become a new dependent, in accordance with paragraph (d)(2)(i) of this 
section, because changes in household composition, especially the 
addition of a new infant or child to a household, likely change a 
household's health care needs and what level of coverage is best suited 
to meet those needs. Other special enrollment periods included in 
paragraph (a)(4)(iii)(B), such as the special enrollment periods for 
loss of minimum essential coverage in paragraph (d)(1) of this section 
and for being determined ineligible for Medicaid or the Children's 
Health Insurance Program, may similarly change a household's health 
care needs if, for example, dependents had been previously enrolled in 
Medicaid or CHIP and are losing that coverage for the first time.
    Several commenters expressed concern about the technical impact the 
proposed changes would have on State Exchanges, especially those States 
that had already been working toward implementing the plan option 
restrictions as finalized in the 2017 Market Stabilization Rule. States 
cautioned that finalizing this proposal would delay their ability to 
implement this policy and several States requested State flexibility 
with respect to this proposal.
    Other commenters expressed opposition to this proposed change 
because it would further restrict plan options available to enrollees 
and dependents newly enrolling in QHP coverage. These commenters stated 
that imposing restrictions of individuals' choice of QHPs to enroll in 
after he or she qualifies for a special enrollment period contradicts 
the intent of special enrollment periods. One commenter stated that 
limiting plan options for enrollees or dependents upon qualifying for a 
special enrollment period is prohibited by the guaranteed issue 
provision of the PPACA statute. The guaranteed issue provision requires 
that issuers accept every individual in the State who applies for such 
coverage and, while issuers may restrict enrollment periods, they 
stated, restrictions on the type of plan the individual enrolls in is 
not permitted.
    Response: We agree that there is a benefit to aligning the plan 
options available to enrollees who are adding a dependent newly 
enrolling in Exchange coverage through a special enrollment period. We 
appreciate commenters' concerns about the impact household changes may 
have on a family's health coverage needs, but believe that maintaining 
these restrictions is necessary in order to continue to avoid adverse 
selection. We continue to encourage enrollees to explore all available 
QHPs during open enrollment, and to change plans if another QHP better 
meets their or their family's needs.
    We understand that the proposed changes may delay State Exchanges' 
ability to implement the plan option restrictions, especially in those 
States where this proposal will require a change to Exchange system 
functionality, and, therefore, we believe it is appropriate for States 
to take additional time, as needed, in order to comply with this 
change.
    Lastly, as we noted in the 2017 Market Stabilization Rule, we 
considered the concerns regarding conflicts of this policy with the 
statute, but believe that limiting enrollees' ability to change QHPs or 
metal levels is consistent with the requirements in section 
1311(c)(6)(C) of the PPACA directing the Secretary to require Exchanges 
to establish special enrollment periods as specified in section 9801 of 
the Code and under circumstances similar to such periods under Part D 
of title XVIII of the Act, as well as the Secretary's authority under 
section 2702(b)(3) of the PHS Act to promulgate regulations for the 
individual market with respect to special enrollment periods for 
qualifying events under section 603 of the Employee Retirement Income 
Security Act of 1974. Given that the PPACA itself called for one annual 
open enrollment period and additional enrollment opportunities only in 
the case of special circumstances, we believe it is reasonable to 
interpret the special enrollment period and guaranteed issue provisions 
of the PPACA in this manner.
    We proposed to exclude the special enrollment period in paragraph 
(d)(12) for material plan or benefit display errors from paragraph 
(a)(4)(iii). This is because we understand that certain material plan 
or benefit display errors may impact an enrollees' decision to enroll 
in a level of coverage, in addition to his or her decision to enroll in 
a specific QHP. Therefore, we believe that, if an enrollee qualifies 
for the special enrollment period because of a material plan or benefit 
display error, he or she should be allowed to switch to a different QHP 
at any metal level that better meets his or her needs.
    We are finalizing the policy as proposed.
    Comment: Commenters supported the proposal to exempt from the plan 
option restrictions in paragraph (a)(4)(iii) the special enrollment 
period in paragraph (d)(12) for when a qualified individual, 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. Such a material plan error may 
have impacted not only the specific QHP an individual enrolled in, but 
also the level of coverage the individual decided to purchase. One 
commenter requested that we provide additional guidance regarding the 
types

[[Page 16991]]

of errors that we would consider material for purposes of being 
excluded from the plan option restrictions in paragraph (a)(4)(iii).
    Response: We are finalizing this policy as proposed. We also 
clarify that, while we are finalizing an amendment to exempt this 
special enrollment period from the plan option restrictions in 
paragraph (a)(4)(iii), we are not amending the criteria for qualifying 
for the special enrollment period in paragraph (d)(12), which is 
intended for when an enrollee 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 and refer the commenter to the 
preamble discussion of the 2018 Payment Notice where we discuss this 
special enrollment period.
ii. Exception to Prior Coverage Requirement for Qualified Individuals 
Who Have Lived in Service Areas Where No QHP Is Offered Through an 
Exchange
    HHS recently added a prior coverage requirement to the special 
enrollment period for gaining access to new QHPs as a result of a 
permanent move, described in Sec.  155.420(d)(7), and the special 
enrollment period for gaining or becoming a dependent through marriage, 
described in Sec.  155.420(d)(2)(i). Section 155.420(a)(5) specifies 
how a qualified individual can satisfy the prior coverage requirement. 
Qualified individuals can demonstrate that they had minimum essential 
coverage as described in 26 CFR 1.5000A-1(b) for 1 or more days during 
the 60 days preceding the date of the qualifying event; lived in a 
foreign country or in a United States territory for 1 or more days 
during the 60 days preceding the date of the qualifying event; or are 
an Indian, as defined by section 4 of the Indian Health Care 
Improvement Act. This prior coverage requirement encourages individuals 
to maintain coverage throughout the year.
    However, we recognize that individuals living in a service area 
where no Exchange QHPs are offered may not be able to obtain affordable 
coverage. We believe that individuals in this situation should not 
later be prevented from enrolling in coverage through a special 
enrollment period that requires prior coverage when they were 
previously unable to enroll in Exchange coverage because it was 
unavailable or inaccessible. Therefore, we proposed to amend paragraph 
(a)(5) to exempt qualified individuals from the prior coverage 
requirement if, for at least 1 of the 60 days prior to the date of 
their qualifying event, they lived in a service area where there were 
no QHPs offered through an Exchange. Absent this change, qualified 
individuals who have lived for part of the benefit year in a location 
where no QHPs were offered through an Exchange, and, therefore, may 
have been unable to enroll in minimum essential coverage, would be 
prevented from subsequently qualifying for a special enrollment period 
due to a permanent move or marriage.
    Additionally, we noted that the proposed amendment to paragraph 
(a)(5) would apply, along with the rest of the paragraph, to the 
individual market outside of the Exchange through the cross-reference 
to Sec.  155.420(d) in Sec.  147.104(b)(2). In this context, health 
insurance issuers offering coverage outside an Exchange would not be 
able to require qualified individuals to demonstrate prior coverage if 
they lived for at least 1 of the 60 days prior to their qualifying 
event in a service area where there were no QHPs offered through an 
Exchange.
    We are finalizing the policy as proposed, except that we are 
amending the regulatory text to ensure the exception applies to 
individuals who lived in a service area where no QHPs were offered 
through an Exchange during their most recent Exchange enrollment 
period, regardless of whether that enrollment period was an Exchange 
open enrollment period or a special enrollment period. This change will 
address situations where no QHPs were available to an individual during 
their enrollment window, but later became available in the individual's 
service area prior to his or her marriage or move.
    Comment: Commenters supported the proposal to exempt qualified 
individuals from the prior coverage requirement if, for at least 1 of 
the 60 days prior to the date of their qualifying event, they lived in 
a service area where there were no QHPs offered through an Exchange. 
Several commenters added that HHS should continue to implement 
procedures currently in place to verify other aspects of the applicable 
special enrollment period qualifying event, such as a move, within the 
required 60-day window. Commenters also requested, if this exception to 
the prior coverage requirement becomes necessary, that HHS publish a 
list of service areas in which no QHPs are offered through an Exchange, 
in part to ensure that issuers can apply the exception accurately in 
the off-Exchange individual market.
    One commenter raised the concern that our proposed criteria for the 
exception, in particular that a person only have lived for 1 of the 60 
days prior to their qualifying event in a service area where there were 
no QHPs offered through an Exchange, was not stringent enough. This 
commenter suggested that such a brief residency requirement could lead 
individuals to move to an affected service area on a transitional basis 
in order to avoid the prior coverage requirement. To reduce the 
likelihood that individuals who did not qualify would be able to take 
advantage of this exception, the commenter recommended that we require 
individuals to have been residents in a service area without QHPs for 
the entire 60 day period prior to their qualifying event.
    Response: We will consider publishing a list of service areas in 
which no QHPs are offered by the Exchange, so that this exception can 
be applied consistently and accurately off-Exchange. In addition, we 
may release additional guidance if a service area is left without QHP 
coverage and it becomes necessary to implement this exception.
    We understand concerns that individuals may seek to fraudulently 
claim this exception in order to avoid the prior coverage requirement, 
and we remain committed to promoting continuity of coverage and 
ensuring that only eligible consumers may access coverage through 
special enrollment periods. However, we believe that this exception for 
individuals who have lived in a service area where no QHPs are offered 
by the Exchange for at least 1 of the 60 days before a qualifying event 
or during their most recent preceding enrollment period is important, 
because it takes into account the potential for a service area to 
temporarily be without a QHP, such as in the case of a temporary QHP 
suppression or mid-year QHP decertification, and the need to protect 
individuals who may be affected by this lack of availability. 
Additionally, we note the need to ensure that individuals are not 
prevented from accessing coverage through a special enrollment period 
mid-year because of having lived in a service area where no QHPs were 
offered through the Exchange during their most recent enrollment period 
(open enrollment or special enrollment period) when they could have 
otherwise enrolled in affordable coverage, even if during the 60 days 
before a subsequent qualifying event a QHP is available in their 
service area. Therefore, we are finalizing this exception to the prior 
coverage requirement that currently applies to certain special 
enrollment periods to include consumers who lived

[[Page 16992]]

in a service area where no QHP was available through the Exchange 
during their most recent preceding enrollment period.
    We also note that concerns that individuals will fraudulently claim 
eligibility for an exception to the prior coverage requirement are 
addressed in part because the FFE will continue to require document-
based verification of the individual's eligibility for the special 
enrollment period and, in order to qualify for the special enrollment 
period due to a permanent move, individuals will continue to be 
required to meet the residency requirements for their new and former 
addresses, in accordance with Sec.  155.305(a)(3) and as explained in 
the January 2016 FAQs on the Marketplace Residency Requirement and the 
Special Enrollment Period due to a Permanent Move.\50\ Finally, we 
anticipate that this exception will be granted extremely rarely, which 
minimizes the risk that it will be used inappropriately.
---------------------------------------------------------------------------

    \50\ Available at https://www.regtap.info/uploads/library/ENR_FAQ_ResidencyPermanentMove_SEP_5CR_011916.pdf.
---------------------------------------------------------------------------

iii. Effective Date Options for Special Enrollment Periods Relating To 
Gaining or Becoming a Dependent
    Paragraph (b)(2)(i) of Sec.  155.420 requires Exchanges to provide 
individuals who qualify for a special enrollment period due to gaining 
or becoming a dependent through birth, adoption, placement for 
adoption, or placement in foster care, as described in paragraph 
(d)(2)(i), with a retroactive coverage effective date back to the date 
of the qualifying event. It also gives Exchanges the option to allow 
these consumers to elect an effective date of the first of the month 
following the date of the event or following regular coverage effective 
dates, in accordance with paragraph (b)(1) of this section. Paragraph 
(b)(2)(v) addresses coverage effective date options for special 
enrollment periods related to gaining or becoming a dependent due to a 
child support or other court order, as also described in paragraph 
(d)(2)(i). It requires Exchanges to ensure that coverage takes effect 
on the date of the court order, and it permits Exchanges to allow 
qualified individuals to elect an effective date based on paragraph 
(b)(1). However, it does not provide Exchanges with the option to allow 
qualified individuals to elect that their coverage begin the first of 
the month following the date of the event.
    We proposed to remove paragraph (b)(2)(v) of this section and to 
revise paragraph (b)(2)(i) to include the special enrollment period for 
a court order and redesignate current paragraph (b)(2)(vi) as paragraph 
(b)(2)(v). These revisions would align the coverage effective dates for 
all special enrollment periods based on gaining or becoming a 
dependent, with the exception of gaining or becoming a dependent 
through marriage. Aligning coverage effective date options ensures that 
Exchanges provide qualified individuals in similar situations with the 
same flexibility with regard to coverage effective dates.
    We also proposed to modify paragraph (b)(2)(i) so that, in addition 
to requiring an Exchange to ensure that coverage is effective 
retroactive to the date of the qualifying event, it may permit the 
qualified individual or enrollee to elect a coverage effective date of 
the first of the month following plan selection, rather than the first 
of the month following the qualifying event, as currently written, or 
following regular coverage effective dates, in accordance with 
paragraph (b)(1) of this section. This amendment would streamline 
Exchange operations and align this coverage effective date option with 
the accelerated prospective coverage effective date rule as it applies 
to other special enrollment periods, including the special enrollment 
period for gaining or becoming a dependent through marriage, as 
described in (b)(2)(ii) of this section.
    Therefore, individuals who qualify for a special enrollment period 
due to gaining or becoming a dependent through birth, adoption, 
placement for adoption, or placement in foster care, or through a child 
support or other court order, will be able to elect from the same 
alternate coverage effective date options, if offered by their 
Exchange.
    We are finalizing this policy as proposed.
    Comment: Commenters supported the proposal to align the coverage 
effective date options for those who gain or become a dependent through 
birth, adoption, or foster care placement with those who gain or become 
a dependent through a child support or other court order. Commenters 
agreed that aligning special enrollment period coverage effective date 
options for most situations where individuals are gaining or becoming a 
dependent would result in a simpler rule and more intuitive operational 
processes, both reducing administrative burden on issuers and on agents 
and brokers and helping individuals better understand their coverage 
effective date options. One commenter opposed this proposal due to 
concerns that it would reduce State flexibility, could increase burden 
on Exchanges due to costs associated with updating their systems to 
reflect new effective date options in States that offer this optional 
alternate coverage effective date option to consumers, and limit 
individuals' access to retroactive coverage options.
    Response: We agree that these changes will promote the goals of 
providing the same alternate coverage effective date options to 
consumers who qualify for a special enrollment period due to gaining or 
becoming a dependent through a birth, adoption, foster care placement, 
or court order, and of streamlining Exchange operations by revising the 
``first of the month'' coverage effective date option so that it can be 
operationalized in the same way for all special enrollment periods for 
which it is an option. We note that this proposal does not remove or 
alter the requirement at Sec.  155.420(b)(2) that Exchanges ensure that 
coverage is effective retroactive to the date of the qualifying event 
for consumers who qualify for a special enrollment period due to 
gaining or becoming a dependent through a birth, adoption, foster care 
placement, or court order.
    We acknowledge that allowing Exchanges to permit individuals to 
elect that their coverage take effect on the first of the month 
following plan selection instead of on the first of the month after the 
date of their qualifying event will mean that consumers only have one 
option for their coverage to take effect retroactively--back to the 
date of their qualifying event--whereas prior to the change, they could 
request that coverage take effect retroactive to the first of the month 
after their qualifying event if their Exchange allowed this option. 
However, we also note that the proposed change adds an accelerated 
prospective option that is not currently available to these consumers.
    Additionally, we believe that, while some Exchanges may need to 
make system updates based on this change, they will have the 
flexibility that they need in order to manage the potential impact 
because Exchanges are not required to offer these alternate coverage 
effective date options and may delay implementation if necessary. 
Finally, the alignment of this effective date option with the ``first 
of the month'' effective date that also applies to other types of 
special enrollment periods (in particular the special enrollment period 
due to gaining or becoming a dependent through a marriage), will also 
likely generate efficiencies for Exchanges in the long term.

[[Page 16993]]

iv. Loss of Coverage Special Enrollment Period (Sec.  
155.420(d)(1)(iii))
    Section 155.420(d)(1) establishes a special enrollment period for 
qualified individuals who lose certain types of coverage, including 
minimum essential coverage. As described in paragraph (d)(1)(iii), 
qualified individuals who lose certain types of Medicaid pregnancy-
related coverage not considered minimum essential coverage may also 
qualify for this special enrollment period. This is to ensure that 
women losing eligibility for coverage of pregnancy-related services 
that often meet their primary and specialty health care needs are not 
left without the option to enroll in a QHP through an Exchange after 
they lose access to those services.
    We proposed to revise paragraph (d)(1)(iii) to include women who 
lose access to health care services that they were receiving through 
CHIP coverage for their unborn child. While CHIP coverage for unborn 
children, provided based on the definition of a child described in 42 
CFR 457.10, is considered minimum essential coverage for the unborn 
child, it is not considered minimum essential coverage for the pregnant 
woman. Nonetheless, these pregnant women may receive a set of health 
services comparable to those available to women enrolled in Medicaid 
pregnancy-related coverage. For this reason, pregnant women who have 
received prenatal care as part of CHIP coverage for their unborn child 
may apply and be determined eligible for a hardship exemption from the 
FFEs so that they are not required to also maintain minimum essential 
coverage during that time.
    The proposed revision to paragraph (d)(1)(iii) would provide a 
pathway to coverage for new mothers who lose access to health care 
services provided through unborn child CHIP coverage following the 
birth of their child, and who are otherwise eligible to enroll in a QHP 
through the Exchange. Under paragraph (c)(2) of this section, these 
qualified individuals would have up to 60 days before or after the loss 
of access to CHIP unborn child coverage to qualify for the loss of 
coverage special enrollment period and enroll in a QHP. If they select 
a plan prior to their loss of CHIP unborn child coverage, their 
Exchange coverage would begin as soon as the first day of the month 
following the loss of coverage. If they select a plan after the loss of 
CHIP unborn child coverage, their Exchange coverage would begin either 
the first of the following month or following regular, prospective 
coverage effective dates at the option of the Exchange, as provided 
under paragraph (b)(2)(iv). We believe that this revision is needed to 
ensure a pathway to coverage for women in the 17 States that offer 
unborn child CHIP coverage, so that they may maintain access to 
continuous coverage after the birth of their child.
    We are finalizing this policy as proposed.
    Comment: We received overwhelming support for this proposal; 
commenters did not raise any concerns, and noted that it would help 
streamline Exchange operations and ensure that women losing access to 
CHIP coverage for their unborn child are able to maintain continuous 
coverage.
    Response: We are finalizing this provision as proposed.
iv. Technical Amendment (Sec.  155.420(d)(10)(i))
    We proposed to make a technical amendment to update the cross 
reference to 26 CFR 1.36B-2T in Sec.  155.420(d)(10)(i), regarding the 
special enrollment period for victims of domestic abuse or spousal 
abandonment. The temporary regulation under section 36B of the Code 
originally cited has now been finalized without change to the 
definition cited in this special enrollment period. This technical 
correction would not alter the parameters of this special enrollment 
period.
    Commenters supported this proposal; we are finalizing this change 
as proposed.
b. Effective Dates for Terminations (Sec.  155.430)
    Section 155.430 specifies the termination dates for Exchange 
enrollees. Paragraph (d)(1)(i) of Sec.  155.430 defines ``reasonable 
notice'' as at least 14 days before the requested effective date of 
termination. Paragraph (d)(2) sets forth three possible effective dates 
for enrollee-initiated terminations made in accordance with paragraph 
(b)(1): (1) The termination date specified by the enrollee, if the 
enrollee provides reasonable notice; (2) 14 days after the termination 
is requested by the enrollee, if the enrollee does not provide 
reasonable notice; or (3) on a date on or after the date on which the 
termination is requested by the enrollee, if the enrollee's QHP issuer 
agrees to effectuate termination in fewer than 14 days, and the 
enrollee requests an earlier termination effective date. Further, 
current paragraph (d)(2)(iv) sets the QHP termination effective date 
for enrollees newly eligible for Medicaid, CHIP, or the Basic Health 
Program (BHP) as the day before the individual is determined eligible 
for Medicaid, CHIP, or BHP.
    We proposed to remove paragraphs (d)(1)(i) and (d)(2)(i) through 
(d)(2)(iii) to align the effective dates for all enrollee-initiated 
terminations on the date on which the termination is requested by the 
enrollee or on another prospective date selected by the enrollee. We 
also proposed removing existing paragraph (d)(2)(iv), which states that 
the QHP termination date for an enrollee newly determined eligible for 
Medicaid, CHIP or a BHP is the date before the Medicaid, CHIP, or BHP 
eligibility determination. We invited comment from Exchanges, issuers, 
and other stakeholders on any burdens these rule changes may impose, as 
well as whether we should make the changes at the option of the 
Exchange or the issuer.
    We are not finalizing this policy as proposed. Rather, we are 
restructuring paragraph (d)(2) to improve its readability, and, in 
response to comments from Exchanges responding to our solicitation of 
comments, providing additional flexibility to allow Exchanges to retain 
the current policy or operate under the proposed policy.
    Comment: Supporters of our proposal to eliminate the ``reasonable 
notice'' requirement referenced the more streamlined and 
straightforward approach to terminations for consumers and its ability 
to reduce duplicate or overlapping coverage when enrollees obtain other 
coverage. Many supporters cited challenges consumers face transitioning 
into Medicare and stated that being able to choose the date of their 
QHP termination would alleviate the need to reach out to the Exchange 
multiple times to ensure the proper termination date to avoid having 
dual coverage.
    Response: We agree that allowing enrollees to terminate their 
coverage immediately or on a future date of their choosing will provide 
consumers with greater control over ending their QHP coverage and will 
help minimize or eliminate overlaps in coverage, for example, when 
aging into Medicare. Such flexibility will also allow Exchanges to send 
termination transactions to issuers that do not need subsequent 
adjustment, reducing the need for casework or direct consumer contact 
with issuers to request termination dates to effectuate in less than 14 
days.
    Comment: Some commenters requested that we provide flexibility in 
the implementation of this rule, citing technical and operational 
challenges with premium proration, in addition to the common consumer 
desire to terminate plans at the end of the month.

[[Page 16994]]

    Response: We acknowledge that not all Exchanges have the same 
system capabilities, and are providing Exchanges flexibility to 
implement this change at their discretion.
    Comment: Several commenters opposed the rule, stating that 14 days 
is a reasonable industry practice for issuers, while others expressed 
concerns that same-day terminations are not feasible for issuer 
processing, due to the timing of Exchange-sent 834 transactions. Some 
urged HHS to work with issuers to determine a more realistic 
timeframe--ranging from next-day to 5 days--and implement a default 
end-of-month termination effective date. One commenter discussed the 
importance of coordination between issuers and Exchanges to synchronize 
enrollment and termination effective dates to reduce adverse downstream 
effects on payment reconciliation processes.
    Response: Issuers already process a significant number of same-day 
terminations when removing less than the whole enrollment group from 
QHP coverage, and they have reported no difficulties in doing so. While 
we expect the vast majority of enrollees will want their coverage to 
end at the end of month, this option for a more precise termination 
date is necessary for consumers because retroactive terminations are 
only available in very limited circumstances.
    Comment: One commenter urged us to allow issuers to transmit 834 
files to the Exchange with consumer-initiated terminations, stating 
that most consumers notify their issuers first when terminating 
coverage.
    Response: We recognize that many enrollees reach out to their 
issuers to initiate terminations. However, terminations must be 
triggered through the Exchange so enrollees remaining on the 
application can receive an updated eligibility determination.
    Comment: Supporters of the proposal to remove the current Medicaid/
CHIP/BHP termination rule--which allows for retroactive QHP 
terminations based on new Medicaid/CHIP/BHP eligibility 
determinations--described the current rule as a source of confusion for 
issuers, States, Exchanges and consumers, and noted challenges 
coordinating with State Medicaid agencies, as well as the volume of 
complex casework the rule currently triggers. One commenter recommended 
that HHS permit retroactive QHP terminations if the Medicaid, CHIP or 
BHP determination was less than 30 days in the past because it is more 
difficult for plans to reverse claims after 30 days.
    A few commenters encouraged flexibility to maintain existing policy 
and business operations, and others encouraged HHS to allow States to 
determine how the change would impact their populations, given their 
Medicaid eligibility processing times, as well as their ability to 
reach and inform consumers about their need to take action.
    Response: We agree that the current Medicaid/CHIP/BHP rule causes 
unnecessary confusion, given that we do not provide QHP termination 
dates according to eligibility for other forms of coverage, such as 
Medicare or employer-sponsored coverage. We also recognize that 
eligibility determinations conducted through the State Medicaid agency, 
instead of the Exchange, can result in challenges coordinating 
effective dates through the State agency, the Exchange, and its 
issuers; and can result in consumer complaints and subsequent casework. 
We recognize issuer challenges with retroactive terminations and 
appreciate willingness to process limited retroactive terminations. 
However, because we recognize that Exchanges' coordination with their 
Medicaid and CHIP programs varies, we are providing Exchanges 
flexibility to implement this change at their discretion.
    Comment: Most commenters who opposed the proposal to remove the 
Medicaid/CHIP/BHP rule cited adverse consumer impact, and were 
primarily concerned about placing the burden to terminate QHP coverage 
on the Medicaid/CHIP/BHP enrollee who may not understand the need to 
terminate. One commenter stated it was important for QHP enrollees to 
continue to be able to recoup premium payments made when in fact 
eligible for Medicaid due to Medicaid's 90-day retroactive eligibility 
rules. Others stated that the QHP should terminate automatically with 
Medicaid eligibility.
    Response: We recognize there may be some consumer impacts with the 
implementation of this rule. We also recognize that the removal of this 
rule may limit enrollees' ability to retroactively terminate QHP 
coverage when it overlaps with Medicaid/CHIP/BHP coverage, which could 
result in consumers being unable to recoup premiums paid for periods 
when the enrollee was enrolled in QHP coverage through the Exchange and 
gains retroactive eligibility for Medicaid/CHIP/BHP. However, these 
types of retroactive terminations can lead to major challenges for 
consumers as Medicaid/CHIP/BHP providers may not cover claims reversed 
by the QHP--leading to unexpected out-of-pocket costs for consumers. 
Finally, we agree that automatic transition from QHP coverage to 
Medicaid/CHIP/BHP coverage without consumer intervention is a worthy 
goal, but we recognize that many Exchanges do not have real-time 
coordination with their Medicaid/CHIP/BHP agencies in order to do so.
    Comment: A few commenters expressed concerns about possible 
downstream effects on eligibility for future QHP coverage from putting 
the full responsibility for QHP termination on the Medicaid/CHIP/BHP 
consumer. For example, if a consumer fails to terminate QHP coverage 
for which APTC are paid, he may stop paying premiums because he is 
enrolled in Medicaid and the issuer will terminate his coverage for 
nonpayment. At the end of the grace period, he will still owe premium 
for one month of coverage after the Medicaid determination.\51\ Under 
certain circumstances set forth in the Market Stabilization final 
rule,\52\ the QHP issuer could then attribute payments made toward 
subsequent enrollments to the premium amount owed, and deny enrollment 
in the new coverage for failure to pay the binder payment. In regions 
with only one issuer, this could leave consumers who rise above the 
Medicaid income threshold without access to coverage options.
---------------------------------------------------------------------------

    \51\ This grace period only applies to APTC recipients. 
Termination rules for non-payment of premium default to State law 
for non-financial assistance enrollees, for whom the last day of 
coverage is generally the last day of the month in good standing.
    \52\ 82 FR 18349-18353.
---------------------------------------------------------------------------

    Response: We acknowledge there may be downstream effects on 
eligibility for future QHP coverage due to non-payment of premiums for 
those who do not terminate their coverage timely and enter a grace 
period. The FFEs continue to make IT improvements and enhance consumer 
education and outreach with the purpose of making it easier and clearer 
for an individual to terminate QHP coverage in a timely manner.
6. Definitions (Sec.  155.500)
    This section defines terms that are relevant to this subpart. We 
proposed to amend the definitions of ``Appeal request'' and ``Appeals 
entity'' by adding a cross reference to proposed section Sec.  
155.716(e)'' to align with other proposals discussed throughout the 
proposed rule, and finalized in this rule, regarding SHOP. We did not 
receive substantive comments specific to this proposal, and are 
finalizing as proposed.

[[Page 16995]]

7. Eligibility Standards for Exemptions (Sec.  155.605)
a. Hardship Exemptions (Sec.  155.605(d))
    Section 1311(d)(4)(H) of the PPACA and section 5000A(e)(5) of the 
Code allow individuals to seek an exemption from the individual shared 
responsibility provision due to a lack of affordable coverage based on 
an individual's projected income. Although tax reform legislation 
enacted in December 2017 reduces to $0 the individual shared 
responsibility payment for months beginning after December 31, 2018, 
individuals may still have a need to seek a hardship exemption for 2019 
and future years due to a lack of affordable coverage based on 
projected income. For example, individuals may continue to seek a 
hardship exemption after 2018 to be eligible for catastrophic coverage.
    Section 155.605(d)(2) establishes the circumstances under which an 
Exchange must determine an applicant eligible for an exemption due to 
lack of affordable coverage based on projected income. For determining 
whether affordable coverage is available, paragraph (d)(2) states that 
the Exchange should use the standards specified in section 5000A(e)(1) 
of the Code that, among other things, specify that the Exchange should 
use, for individuals not eligible for employer-sponsored coverage, the 
annual premium for the lowest-cost bronze plan available in the 
individual market through the Exchange in the State in the county in 
which the individual resides.
    However, market instability has resulted in limited offerings of 
plans on the Exchanges in many regions, and there may be individuals 
who live in a county without a bronze plan. Under the current 
regulation, the Exchange would not be able to make a determination as 
to whether an individual not eligible for employer-sponsored coverage 
who lives in a rating area without a bronze plan is eligible for the 
exemption due to lack of affordable coverage based on projected income. 
We proposed to amend paragraph Sec.  155.605(d)(2)(iv), to allow an 
Exchange to make a determination of lack of affordable coverage based 
on projected income for individuals not eligible for employer-sponsored 
coverage using the annual premium for the lowest cost Exchange metal 
level plan, excluding catastrophic plans, available in the individual 
market through the Exchange in the State in the county in which the 
individual resides if there is no bronze level plan sold through the 
Exchange in that county. Absent this proposed change, individuals may 
lack access to affordable coverage, but be unable to qualify for an 
exemption determination from the Exchange due to the Exchange's 
inability to calculate whether coverage is unaffordable due to the 
absence of a bronze plan in that county. Under the proposed amendment 
to Sec.  155.605(d)(2), Exchanges would use the amount of the lowest 
cost Exchange metal level plan available to the individual when no 
bronze level plan is available.
    Comment: All commenters supported the proposed change to use the 
lowest cost metal level plan when calculating whether a plan is 
affordable in the instances when no bronze plan is available. 
Commenters suggested that the regulatory text clarify that the 
determination of the lowest[hyphen]cost plan is made at the county 
level rather than the rating area level, and that the determination of 
the ``lowest[hyphen]cost Exchange plan'' on which to base eligibility 
for an exemption should be made without consideration of catastrophic 
plans. Some commenters supported the proposal, but asked that the 
exemption not be interpreted broadly so that the exemption would weaken 
the risk pool. One commenter recommended that HHS bring forward the 
effective date of the rule to plan year 2018.
    Response: We are finalizing this policy, and are clarifying that 
eligibility for an exemption should be made at the county level and 
without consideration of catastrophic plans. We appreciate the concerns 
about the risk pool, but believe that this change is targeted 
specifically to handle the issue of when no bronze plans are available 
to the individual. This change will be effective on the effective date 
of this rule, which occurs during the 2018 plan year.
b. 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 an 
individual shared responsibility payment. 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. Although tax reform legislation enacted in December 2017 
reduces to $0 the individual shared responsibility payment for months 
beginning after December 31, 2018, individuals may continue to seek a 
hardship exemption based on the required contribution amount after 2018 
to obtain catastrophic coverage. Further, 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. As such, we are continuing to finalize the excess of the 
rate of premium growth over the rate of income growth and the required 
contribution percentage for the 2019 benefit year below.
    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 of HHS that reflects the excess of the rate 
of premium growth between the preceding calendar year and 2013, over 
the rate of income growth for that period.
    We established a methodology for determining the excess of the rate 
of premium growth over the rate of income growth for plan years after 
2014 in the 2015 Market Standards Rule (79 FR 30302), and we stated 
that 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.\53\
---------------------------------------------------------------------------

    \53\ 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.

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[[Page 16996]]

    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.\54\ (As 
discussed elsewhere in this preamble, we are finalizing the proposed 
2019 premium adjustment percentage of 1.2516634051, (or an increase of 
about 25 percent over the period from 2013 to 2018). This reflects an 
increase of about 7.7 percent over the 2018 premium adjustment 
percentage (1.2516634051/1.1617303196).)
---------------------------------------------------------------------------

    \54\ 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 preceding 
year exceeds the most recent NHEA estimate 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 2019 is the 
percentage (if any) by which the most recent projection of per capita 
PI for the preceding calendar year ($53,729 for 2018) exceeds per 
capita PI for 2013 ($44,555), carried out to ten significant digits. 
The ratio of per capita PI for 2018 over the per capita PI for 2013 is 
estimated to be 1.2059028167 (that is, per capita income growth of 
about 20.6 percent). This reflects an increase of about 4.5 percent 
relative to the increase for 2013 to 2017 (1.2059028167/1.1540603665) 
used in the 2019 Payment Notice final rule.
    Thus, using the 2019 premium adjustment percentage finalized in 
this rule, the excess of the rate of premium growth over the rate of 
income growth for 2013 to 2018 is 1.2516634051/1.2059028167, or 
1.0379471610. This results in a required contribution percentage for 
2019 of 8.00 * 1.0379471610 or 8.30 percent, when rounded to the 
nearest one-hundredth of one percent, an increase of 0.25 percentage 
point from 2018 (8.30358-8.05317).
    We sought comment on whether there are other measures of premium 
growth or income growth that we could use to calculate the required 
contribution percentage.
    Comment: We received no comments on other measures of premium 
growth or income growth that we could use to calculate the required 
contribution percentage. One commenter supported the current 
methodology, saying it provides consistency and stability, given highly 
volatile premiums.
    Response: We are finalizing the required contribution percentage as 
proposed.
8. Eligibility Process for Exemptions
    Section 155.610(h)(2) describes the timeframe during which the 
Exchange will accept an individual's application for a hardship 
exemption. We proposed to make a technical correction to Sec.  
155.610(h)(2) to reflect the prior redesignation of paragraph Sec.  
155.605(g)(1), which describes the criteria for a hardship exemption, 
to Sec.  155.605(d)(1) in the 2017 Payment Notice.\55\
---------------------------------------------------------------------------

    \55\ 81 FR 12346 (March 8, 2016).
---------------------------------------------------------------------------

    Commenters did not oppose this correction, and we are finalizing as 
proposed.
9. Exchange Functions: Small Business Health Options Program
    We previously interpreted the PPACA's provisions regarding the 
SHOPs to require that all SHOPs provide for employer eligibility, 
employee eligibility, and certain enrollment functions, including 
premium aggregation functions.
    As we have stated in previously released guidance,\56\ the FF-SHOPs 
and the SBE-FPs for SHOPs have seen lower than expected enrollment, to 
date. As of January 1, 2017, approximately 7,554 employer groups were 
enrolled in the FF-SHOPs, covering 38,749 lives. Further, we recognize 
that many SHOPs, including FF-SHOPs, continue to face challenges and, 
to accommodate those challenges and to provide SHOPs with more 
flexibility in operating their programs, we proposed to allow SHOPs to 
operate in a leaner fashion beginning for plan years beginning on or 
after January 1, 2018. We are generally finalizing the policies as 
proposed, and describe changes to certain of the regulations later in 
this section of the preamble. These changes will be effective as of the 
effective date of this rule. In the 2018 Payment Notice, HHS finalized 
the removal of a participation provision that had required certain QHP 
issuers to participate in an FF-SHOP in order to participate in an FFE. 
As a result, HHS expected a significant decrease in the number of 
issuers in the FF-SHOPs in the 2018 plan year and fewer enrollments in 
the FF-SHOPs and SBE-FPs for SHOP. With the significant decreases in 
SHOP QHP issuer participation and enrollment for plan year 2018, and, 
due to lower than expected enrollment in the FF-SHOPs and SBE-FPs for 
SHOP to date, it is not cost effective for the Federal government to 
continue to maintain certain FF-SHOP functionalities, collect 
significantly reduced user fees on a monthly basis, maintain the 
technologies required to maintain an FF-SHOP website and payment 
platform, generate enrollment and payment transaction files, and 
perform enrollment reconciliation.
---------------------------------------------------------------------------

    \56\ https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/The-Future-of-the-SHOP-CMS-Intends-to-Allow-Small-Businesses-in-SHOPs-Using-HealthCaregov-More-Flexibility-when-Enrolling-in-Healthcare-Coverage.pdf.
---------------------------------------------------------------------------

    We proposed to remove regulatory burden on SHOPs by removing 
several of the existing requirements imposed upon the SHOPs, focusing 
on removing requirements to provide certain functionality that is not 
expressly required by the PPACA, while still ensuring appropriate 
implementation of statutorily required functions of the SHOP. Under the 
proposals, employer groups that are currently enrolled in a SHOP QHP 
for plan years that began prior to January 1, 2018, would not be 
affected by the proposed changes to enrollment through a SHOP. We are 
generally finalizing this rule as proposed, and describe changes to 
certain of the regulations later in this section of the preamble. The 
changes will take effect for plan years beginning on or after January 
1, 2018, as of the effective date of this rule.
    Under the approach we proposed and are finalizing, SHOPs will no 
longer be required to provide employee eligibility, premium 
aggregation, and online enrollment functionality for plan years 
beginning on or after January 1, 2018, effective on the effective date 
of this rule. The FF-SHOPs, and SBE-FP for SHOPs, will take advantage 
of these flexibilities. Despite the removal of several regulations on 
SHOPs, State Exchanges will continue to have the flexibility to operate 
their SHOPs as they choose, in accordance with applicable Federal and 
State law. Notably, we received comments to the Request for Information 
that provided support for this proposed enrollment approach. Moreover, 
a few State Exchanges currently utilize a similar enrollment approach 
as is being finalized as a transitional measure that was expected to 
extend through plan years beginning in 2018. These SBEs have already 
inquired about continuing to permit enrollment of their SHOP

[[Page 16997]]

consumers through a participating QHP SHOP issuer, or a SHOP-registered 
agent or broker, for plan years beginning in 2019 and beyond.\57\ 
Additionally, these SBEs have each indicated that this enrollment 
method has contributed to reduced SHOP Exchange programmatic expenses, 
which is critical for SBEs to maintain financial sustainability as 
required by section 1311(d)(5)(A) of the PPACA.
---------------------------------------------------------------------------

    \57\ Extension of State-based SHOP Direct Enrollment Transition 
(April 18, 2016), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/1332-and-SHOP-Guidance-508-FINAL.pdf.
---------------------------------------------------------------------------

    We are finalizing the modifications throughout the requirements 
applicable in the SHOPs for plan years beginning on or after January 1, 
2018, effective on the effective date of this rule. However, because 
some groups' plan years that begin prior to the effective date of this 
final rule will continue beyond the effective date of this rule, both 
the existing requirements applicable to plans beginning before January 
1, 2018, and the new requirements applicable to plans beginning after 
January 1, 2018 will need to be in place simultaneously. For this 
reason, we are finalizing our proposal to make many of the existing 
regulatory sections regarding SHOP applicable for plan years beginning 
prior to January 1, 2018 only, and new regulatory sections applicable 
for plan years beginning on or after January 1, 2018. After the 
effective date of this rule, the new regulatory sections will be 
effective for all 2018 plans, regardless of whether the plans started 
prior to the effective date of the rule. Except as described in this 
rule, we proposed and now finalize that these new regulatory sections 
will mirror the existing regulatory sections.
    Specifically, we proposed to amend Sec. Sec.  155.705, 155.715, 
155.720, 155.725, 155.730, 155.735, 155.740, 156.285 and 157.205 to 
make each section applicable only to plan years beginning prior to 
January 1, 2018. Additionally, we proposed to introduce mirroring new 
sections, applicable for plan years beginning on or after January 1, 
2018, at Sec. Sec.  155.706, 155.716, 155.721, 155.726, 155.731, 
155.741, 156.286 and 157.206. We did not propose a new section 
mirroring current Sec.  155.735, as further explained later in this 
preamble. We also proposed minor changes to Sec.  155.700. These are 
described in the sections that follow. We also proposed additional 
changes related to the proposed new approach to SHOP in Sec. Sec.  
155.106, 155.200, and 156.350, to define the streamlined enrollment 
approach that groups enrolling in a SHOP QHP in an SBE-FP for SHOP will 
take when this rule becomes effective. In light of the substantial 
changes, we have made conforming amendments and updated applicable 
cross references in these and other regulations, including Sec. Sec.  
147.102, 147.104, 155.500, 156.200, and 156.340.
    We are finalizing the following policies as proposed. SHOPs that 
opt to operate in a leaner fashion, such as the FF-SHOPs, will still 
assist qualified employers who are small employers in facilitating the 
enrollment of their employees in QHPs offered in the small group market 
in the State, consistent with section 1311(b)(1)(B) of the PPACA, 
because the basic functionalities of an Exchange will still be 
provided. SHOPs will continue to be required to certify plans for sale 
through a SHOP, and the following features will still be available: An 
internet website that displays and provides QHP information, a premium 
calculator that generates estimated prices of the available QHPs, and a 
call center to answer questions related to the SHOP. Further, small 
employers will continue to obtain an eligibility determination from the 
SHOP website but will enroll in a SHOP QHP by working with a SHOP-
registered agent or broker, or with a QHP issuer participating in a 
SHOP to complete the enrollment process.
    An enrollment completed by working with a SHOP-registered agent or 
broker, or with a QHP issuer participating in a SHOP in the SHOPs that 
decide to operate in a leaner fashion, like the FF-SHOPs, will be 
considered to be an enrollment through a SHOP, and an employer will be 
considered to have offered its employees coverage through a SHOP for 
purposes of section 45R of the Code (the Small Business Health Care Tax 
Credit), if the employer: (1) Obtains from the SHOP a favorable 
determination of eligibility to participate in the SHOP; (2) enrolls in 
a SHOP QHP offered by an issuer; and (3) chooses to have the enrollment 
identified as being through the SHOP. If an enrollment meets this 
definition, the QHP issuer will be required to conduct enrollment with 
all applicable SHOP rules and policies.
    Because SHOPs will be required to determine employer eligibility to 
participate in a SHOP only, and will not be required to determine 
employer group members' eligibility to enroll, SHOPs will only be 
required to handle appeals as they relate to an employer's eligibility 
in a SHOP, as currently described in Sec.  155.740. If, under the 
flexibilities described here, employer group members enrolled in a SHOP 
QHP needed to file an appeal related to their SHOP coverage, they 
generally will file the appeal directly with the insurance company, or 
could take advantage of other appeals mechanisms under applicable State 
and Federal law. If an employer group member enrolled in coverage 
though a SHOP operating under the flexibilities outlined in this rule 
and believes that he or she were entitled to a SHOP special enrollment 
period, but was denied that special enrollment period, the employer 
group member could file a complaint with the SHOP and the SHOP will 
investigate. SHOP special enrollment periods will continue to be 
available to enrollees who experience specified qualifying events. 
SHOPs that use the new flexibilities, such as the FF-SHOPs, will no 
longer have the information required to determine employer group 
members' eligibility for special enrollment periods. Therefore, issuers 
wishing to participate in such a SHOP will be required to administer 
special enrollment periods.
    SHOPs opting to operate in a leaner fashion, like the FF-SHOPs, 
will continue to provide employers with the option to offer a choice of 
plans, consistent with section 1312(a)(2) of the PPACA, by continuing 
to allow employers to offer their employees a choice of plans, either 
by coverage level, or, in some States, by participating QHP issuer. 
Employers will be able to see the SHOP plans available, by coverage 
level and issuers, in their area using the plan comparison tool 
available on a SHOP website. Employers who choose to offer a choice of 
plans to employees would contact the participating QHP issuers whose 
plans they would like to offer to their employees to obtain the 
application information necessary in order to enroll in coverage.
    Once the necessary information required to enroll is obtained from 
the QHP issuer or issuers or from the SHOP-registered agent or broker, 
the employer could disseminate the application information to its 
employees. The employer could later collect the information from its 
employees and send it to the applicable QHP issuer or issuers or the 
SHOP-registered agent or broker. Employers generally will also be 
responsible for collecting monthly premium payments from employees and 
sending them to the appropriate issuers. While initially offered to 
support employers' option to offer a choice of plans across issuers, 
premium aggregation functions are not a function mandated by the PPACA 
and therefore may be altered or removed, as previously proposed and now 
finalized with this rule. SHOP-registered agents and brokers will be 
able to assist employers in performing these tasks, if

[[Page 16998]]

the employer chooses to work with a SHOP-registered agent or broker.
    Additionally, to further support employers' option to offer a 
choice of plans across issuers, under the proposals we are finalizing, 
an employer's minimum participation rate will continue to be calculated 
at the employer level, though the SHOPs will not be required to 
calculate it, and the FF-SHOPs will no longer calculate it. No changes 
were proposed to the way in which an employer's minimum participation 
rate is calculated or to the 70 percent minimum participation rate 
default in FF-SHOPs. Participating QHP issuers will not be permitted to 
deny enrollment on the basis of failure to meet minimum participation 
requirements to employers who have been determined eligible to 
participate in the SHOP, and who have met the applicable minimum 
participation rate, as specified by the SHOP, even if only one employee 
in a group wishes to enroll with a particular issuer.
    Under the approach we proposed and are finalizing, SHOPs will also 
still be able to administer the provision at section 1304(b)(4)(D) of 
the PPACA that guarantees continuing eligibility for growing small 
employers by limiting the validity of an employer's eligibility 
determination such that it terminates when the employer makes a change 
that could end its eligibility under Sec.  155.710(b), by requiring the 
employer to submit a new single employer application to the SHOP if the 
employer makes a change that could end its eligibility under Sec.  
155.710, and by requiring issuers to be able to distinguish SHOP 
enrollments from non-SHOP enrollments. Under the flexibilities being 
finalized, issuers will be expected to rely on the determination of 
eligibility to reflect the employer's ongoing eligibility to 
participate in the SHOP, and the IRS will have the option to follow up 
with an employer for additional information if necessary.
    HHS understands that the changes outlined in this final rule will 
allow SHOPs to adopt changes (and that the FF-SHOPs will adopt such 
changes) that result in a substantial departure from current operations 
for participating SHOP QHP issuers, employers, and enrollees. It is 
important to note that employer groups enrolled in a SHOP plan that 
began in 2017 in a SHOP that will opt to operate in a leaner fashion, 
like the FF-SHOPs, will not be affected until their plan year ends, as 
the current regulations will be in effect for the entirety of a plan 
that began in 2017. We recognize that some employers have already 
completed an enrollment that took effect on or after January 1, 2018. 
The current regulations will also be in place for the beginning of plan 
year 2018 for those plans that start before the effective date of this 
rule. But, after the effective date of this rule, the finalized 
regulations pertaining to plan year 2018 will be effective for all 
plans that begin or began in 2018, regardless of whether the enrollment 
occurred prior to the effective date. HHS acknowledged that this 
transition would create challenges and was concerned about employers 
enrolling between when rates become available for plan years beginning 
in 2018 and when the flexibilities in this rule will go into effect. We 
sought comment on how to best ease this transition and did not receive 
any comments on this point. In addition, we released guidance on this 
issue in conjunction with the release of the proposed rule.\58\
---------------------------------------------------------------------------

    \58\ CMS to Allow Small Businesses and Issuers New Flexibilities 
in the Small Business Health Options Program (SHOP) For Plan Year 
2018 (October 27, 2017), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/New-Flexibilities-SHOP-2018.pdf.
---------------------------------------------------------------------------

    Because many comments focused on the general approach we had 
proposed for SHOPs, we have summarized comments related to SHOP 
proposals here, with a few exceptions, rather than after summarizing 
the proposed amendments to each section.
    Comment: Many commenters supported our proposal to remove many of 
the regulatory requirements imposed upon SHOPs. Some commenters 
expressed concern over our proposal to remove the regulatory burden on 
SHOPs, stating that removing such requirements does not address the 
reasons the SHOP Exchanges have been unattractive to small employers. 
We received a comment specifically noting that SHOPs saw low enrollment 
for reasons other than a poor enrollment system. Some commenters 
requested that HHS should require that State Exchanges either operate 
entirely under the SHOP regulations prior to them being amended or 
otherwise identically to how the FF-SHOP will operate. We also received 
a comment stating that removing many of the requirements on SHOPs will 
also do away with a centralized system for free and impartial 
information for small employers looking for coverage. One commenter 
noted that the proposals would impose an additional burden on agents, 
brokers, and issuers without providing additional compensation.
    Response: We are finalizing the policies as proposed, with minor, 
mostly non-substantive adjustments further described in the following 
sections of the preamble. The primary purpose of these regulatory 
changes was not to increase the attractiveness of SHOPs to small 
employers, but to remove the regulatory burden on SHOPs to give 
Exchanges the flexibility to operate their SHOPs in a cost-effective 
way that best meets the needs of their State's small group market. We 
believe this rule achieves that primary purpose. Nonetheless, under 
this rule, SHOPs will continue to offer a centralized system that will 
provide certain free and impartial information to small employers 
looking for coverage. For example, all SHOPs, including FF-SHOPs, will 
still be required to make a premium calculator available. This 
calculator will provide small employers seeking SHOP coverage with free 
and impartial information about the SHOP QHP and stand-alone dental 
plan QHP options available in their area. With regard to any burden on 
agents, brokers, and issuers, we believe that the proposed changes will 
reduce, rather than increase, the burden for agents, brokers and 
issuers. For example, in SHOPs that use the finalized flexibilities, 
issuers will no longer be required to maintain the infrastructure to 
connect with SHOPs, and agents and brokers who assist small groups in 
enrolling in SHOP coverage will use the issuer enrollment channels they 
are most familiar with, not a SHOP website. As previously noted, given 
the reduction in issuer participation in the SHOPs, HHS believes the 
impact of removing the requirement to maintain premium aggregation 
functions, which the FF-SHOPs and SBE-FPs for SHOP will no longer have, 
will be minimal. HHS also notes that State Exchanges are encouraged to 
continue to operate their SHOPs as they do today, or design a SHOP 
within the bounds of the flexibilities being finalized within this 
final rule.
    Comment: We received comments seeking clarification on the 
applicability of other Exchange requirements to SHOPs where we did not 
explicitly propose changes. Specifically, we received comments 
requesting clarification on whether HHS will collect SHOP enrollment 
data under Sec.  155.1200(b)(2) from either States or issuers, in 
States where the Exchange pursues the flexibilities outlined herein, 
such as the FF-SHOP States. We also received a comment seeking 
clarification on whether States that operate under the flexibilities 
described herein would be required to perform enrollee satisfaction 
surveys, as described under Sec.  155.200(d).
    Response: HHS recognizes that Exchanges that operate under these

[[Page 16999]]

SHOP flexibilities may not have records of SHOP enrollments, and as 
such, does not expect these Exchanges to submit SHOP enrollment data to 
HHS under Sec.  155.1200(b)(2). QHP issuers are required to contract 
with an HHS-approved enrollee satisfaction survey vendor to administer 
the enrollee satisfaction survey of QHPs' enrollees, and Exchanges, 
including SHOPs, are merely required to continue overseeing 
implementation of the enrollee satisfaction surveys, as described at 
Sec.  155.200(d).
a. Standards for the Establishment of a SHOP (Sec.  155.700)
    Section 155.700 outlines the general requirements to establish a 
SHOP and defines certain terms specific to SHOPs. We proposed to amend 
Sec.  155.700(a) by adding paragraph (a)(1) to make the current 
requirements applicable for only plan years beginning prior to January 
1, 2018. We proposed to add paragraph (a)(2) to describe the general 
requirements applicable for plan years beginning on or after January 1, 
2018. Proposed paragraph (a)(2) more closely aligns with the statutory 
language in section 1311(b)(1)(B) of the PPACA than existing paragraph 
(a), and will specify that SHOPs must assist qualified employers in 
facilitating the enrollment of their employees in small group market 
QHPs. We believe that the PPACA does not have to be interpreted to 
require SHOPs to process the enrollment of qualified employees into 
QHPs, as is required by the current regulation. Instead, we believe it 
can also be interpreted in a less burdensome way, to require SHOPs to 
assist qualified employers in facilitating employees' enrollment into 
QHPs, which will still be provided for under our proposals. We sought 
comment on this proposal.
    We are finalizing as proposed; these changes will be effective as 
of the effective date of this rule. Comments related to the proposed 
approach for SHOP are discussed at the beginning of section III.D.9 of 
this rule.
b. Functions of a SHOP (Sec.  155.705) for Plan Years Beginning Prior 
to January 1, 2018 (Sec.  155.705)
    As discussed in the following section, we proposed to modify the 
regulatory requirements regarding functions of a SHOP for plan years 
beginning on or after January 1, 2018, and to introduce those 
requirements in a new Sec.  155.706. To reflect the proposal that the 
requirements currently in Sec.  155.705 will apply only for plan years 
beginning before January 1, 2018, we proposed to amend the heading of 
Sec.  155.705 and add paragraph (f), to state that the section would 
apply only for plan years that begin prior to January 1, 2018. We 
discuss new Sec.  155.706 below.
    We are finalizing this policy as proposed. Comments related to the 
proposed approach for SHOP are discussed at the beginning of section 
III.D.9 of this rule.
c. Functions of a SHOP for Plan Years Beginning on or After January 1, 
2018 (Sec.  155.706)
    Section 155.705 describes required Exchange functions that are 
specific to SHOPs. To permit SHOPs to operate in a leaner fashion for 
plan years beginning on or after January 1, 2018, we proposed several 
changes to the required functions of a SHOP to become effective as of 
the effective date of this rule. Under these proposals, which we 
proposed to introduce in new Sec.  155.706, certain functions that are 
currently required would become optional for SHOPs for plan years 
beginning on or after January 1, 2018, and the FF-SHOPs would not 
provide them. With the exception of the proposed changes to the 
functions described here, the functions would remain the same as in 
Sec.  155.705. We proposed only to include the paragraphs in current 
paragraph (b)(3) of Sec.  155.705, that would be applicable to plan 
years beginning on or after January 1, 2018, maintaining the currently 
applicable policy requiring SHOPs to allow employers to select a level 
of coverage and to offer a choice of QHPs across that level of 
coverage, and permitting SHOPs to allow employers to offer a choice of 
all QHPs from a single issuer, or another method of providing employer 
choice. To provide additional flexibility, we also proposed to codify 
that State Exchanges may, as the FF-SHOPs have, offer employers a 
choice of SADPs in their SHOPs. To reflect the proposals described in 
Sec.  156.150(b) of this document, we proposed that State Exchanges 
could, and FF-SHOPs would, allow employers to offer a choice of SADPs 
in their SHOP. If no SADP coverage levels are available, employers 
would be able to offer a choice of all SADPs offered in an area. We 
also proposed conforming amendments to the structure of this paragraph.
    Because, as discussed earlier in this preamble, premium aggregation 
functions are not mandated by the PPACA and to maximize the 
flexibilities associated with operating a SHOP, we proposed to remove 
required functions related to premium aggregation. Specifically, we 
proposed that the only premium aggregation function from Sec.  
155.705(b)(4) that would be applicable in plan years beginning on or 
after January 1, 2018, would be an amended version of the function in 
Sec.  155.705(b)(4)(ii)(A), relating to the continuation of coverage. 
State Exchanges would be permitted to continue providing remaining 
premium aggregation functions in their SHOPs currently described at 
Sec.  155.705(b)(4) if they choose to do so. SHOPs electing not to 
provide premium aggregation functions, like the FF-SHOPs, would still 
be required to provide an opportunity for employers to offer employees 
a choice of plans. In SHOPs not offering premium aggregation functions, 
we stated that we expected that employers generally would receive 
premium bills from each of the plans or issuers with which an employee 
enrolls and will pay premiums to each such plan or issuer. Section 
155.705(b)(4)(ii)(A) (which we proposed to include in a revised form in 
Sec.  155.706) describes the process through which the SHOP may enter 
into an agreement with a qualified employer related to the 
administration of continuation coverage. Under the approach for 
enrollment in a SHOP QHP for plan years beginning on or after January 
1, 2018, the FF-SHOPs would no longer facilitate the collection of 
premiums. Therefore, we proposed that Sec.  155.706(b)(4) would mirror 
Sec.  155.705(b)(4)(ii)(A), but would not include the provision that 
permits the FF-SHOPs to limit the service to the collection of premiums 
related to the requirements under 29 U.S.C. 1161, et seq.
    Paragraph (b)(7) of Sec.  155.705 describes the SHOP function 
related to QHP availability in merged markets and paragraph (b)(8) 
describes the function related to QHP availability in unmerged markets. 
We proposed to include these functions in Sec.  155.706(b)(7) and 
(b)(8).
    However, under the proposal to streamline SHOP enrollment for plan 
years beginning on or after January 1, 2018, we proposed to change the 
references to a ``qualified employee'' to an ``employer group'' in both 
paragraphs, as the SHOP would no longer be required to process employee 
enrollments.
    Paragraph (b)(10) of Sec.  155.705 establishes requirements related 
to minimum participation rates and SHOP coverage; we proposed to 
include these requirements in Sec.  155.706(b)(10), with certain 
modifications. In order to facilitate employers' ability to offer 
employees a choice of plans through a SHOP, as is required under 
section 1312(a)(2) of the PPACA, Sec.  155.705(b)(10) requires that any

[[Page 17000]]

minimum participation rate applicable in a SHOP be calculated based on 
the rate of employee participation in the SHOP, rather than on the rate 
of participation in any particular QHP or QHPs of any particular 
issuer. In the FF-SHOPs, this requirement has been implemented through 
the requirements currently outlined at Sec.  155.705(b)(10)(i)-(iii). 
Currently, the FF-SHOPs calculate a group's minimum participation rate 
based on the information provided by the employer and the employees 
during online enrollment. Under the approach we proposed, SHOPs would 
not be required to collect the enrollment information needed to 
calculate a group's minimum participation rate. Issuers would be 
permitted to use their established practices allowed under State law 
for groups enrolling in their certified SHOP plans for plan years 
beginning on or after January 1, 2018, so long as they comply with 
Sec.  147.104, and so long as the minimum participation rate is 
calculated based on the level of participation in the SHOP instead of 
on the level of participation in any one QHP or with any one issuer 
(that is, so long as SHOP participation is measured at the employer 
group level). We did not propose to make any changes to the way in 
which the minimum participation rate in SHOPs is calculated or the 
default 70 percent minimum participation rate used in the FF-SHOPs 
unless otherwise determined by a State. Issuers participating in the 
FF-SHOPs would be required to adhere to the level of participation as 
would continue to be specified in Sec.  155.706(b)(10), and issuers 
offering QHPs in State Exchanges would be subject to any minimum 
participation rate established by the SHOP, consistent with this 
provision. We also proposed that Sec.  155.706(b)(10) would not include 
the language in Sec.  155.705(b)(10)(i) because it applies to plan 
years beginning before January 1, 2016, and would therefore not be 
applicable for the period covered in Sec.  155.706. We also proposed to 
clarify that, under the proposed approach, the reference in proposed 
Sec.  155.706(b)(10) to the time the employer submits the SHOP group 
enrollment would be interpreted to mean the time when the employer 
submits a complete group enrollment or renewal to the QHP issuer or 
SHOP-registered agent or broker, if applicable.
    Section 155.705(b)(11) specifies the requirements related to an 
online premium calculator. For plan years beginning on or after January 
1, 2018, we proposed to modify these requirements and include the 
modified requirements in Sec.  155.706(b)(11). Specifically, Sec.  
155.706 (b)(11) would specify that the premium calculator described in 
Sec.  155.205(b)(6) must facilitate the comparison of available QHPs. 
This would reflect that SHOPs would no longer be required to maintain 
enrollment and premium payment information or administer premium 
billing, and therefore, would no longer necessarily have employer 
contribution information. SHOPs would be required to maintain a 
calculator that facilitates the comparison of available QHPs and would 
generate premium estimates, but would no longer be required to reflect 
any employer contribution. Therefore, we proposed to not include the 
requirements in Sec.  155.705(b)(11)(i) or (ii) in Sec.  
155.706(b)(11), since these reflect methods SHOPs would use for 
determining employer contributions. In the FF-SHOPs, this premium 
calculator would be where an employer or SHOP-registered agent or 
broker could go to see a complete listing of all the QHPs available in 
a given area. The tool has served and would continue to serve as a 
resource for employers and SHOP-registered agents and brokers. Because 
we believe the premium calculator requirement at section 1311(d)(4)(G) 
of the PPACA could be interpreted to apply to only individual market 
Exchanges based on its reference to APTCs and CSRs, which are not 
available through SHOPs, we believe that this proposal is consistent 
with the statute.
    Section 155.705(c) generally requires a SHOP to provide data 
related to eligibility and enrollment of a qualified employee to the 
applicable individual market Exchange. For plan years beginning on or 
after January 1, 2018, we proposed that this requirement would apply 
only in SHOPs that collect employee enrollment data related to 
eligibility and enrollment of a qualified employee, unless the SHOP is 
operated pursuant to Sec.  155.100(a)(2).
    Finally, we proposed in paragraph (e) that the provisions of the 
section would be applicable for plan years beginning on or after 
January 1, 2018.
    We are finalizing these policies as proposed, except that we are 
finalizing minor changes to reflect the changes to the actuarial value 
requirements for SADP QHPs in Sec.  156.150 of this rule, and small, 
nonsubstantive changes to the regulatory text for clarity and 
consistency; these policies will be effective as of the effective date 
of this rule.
    Comment: We received a few comments regarding the minimum 
participation rate in SHOPs. One commenter requested that we maintain 
the 70 percent minimum participation rate in FF-SHOPs, and another 
requested that the 70 percent minimum participation rate be lowered. We 
also received a comment disagreeing with the intent of the proposals 
within this section. A commenter noted that groups that do not meet the 
minimum participation rate should not be permitted to enroll in 
coverage. Finally, a commenter requested that HHS continue to promote 
the annual 1-month window in which the minimum participation rate does 
not apply.
    Response: In our proposed changes to SHOPs, we did not propose to 
change the applicable minimum participation rate, or the way in which 
the minimum participation rate is calculated. The FF-SHOPs will 
continue to maintain a minimum participation rate of 70 percent unless 
otherwise specified by the State. This percentage is consistent with 
industry standards. The annual 1-month window from November 15-December 
15, when employers can enroll in a SHOP QHP without meeting any minimum 
participation rate for their State, will remain in place. This window 
aligns with the guaranteed availability standards outlined in the 
PPACA.
    Comment: We received a comment in support of our proposal to codify 
an employer's ability to offer a choice of SADPs and our proposal to 
allow employers to offer a choice of all SADPs offered through a SHOP, 
in accordance with the proposals made elsewhere in this rule to remove 
actuarial values for SADPs.
    Response: We are finalizing this policy as proposed, with revisions 
to the regulation text to reflect the changes to the actuarial value 
requirements for SADP QHPs, as noted in the proposed rule, and to 
clarify that the third option refers to all SADPs offered in an area by 
a single issuer. We also added a title for paragraph (b)(4) that was 
inadvertently omitted in the proposed rule.
    Comment: We received a comment requesting that the option for 
States to submit an annual letter opting out of the third method of 
employee choice, a choice of all plans offered by a single issuer, be 
removed.
    Response: We did not propose to remove this option in the proposed 
rule, and are finalizing this section as described earlier in the 
preamble for this section. We continue to believe it is important for 
States to have a choice regarding whether employee choice of all QHPs 
offered by a single issuer applies in their markets.
    Comment: One commenter noted that without premium aggregation, it 
is difficult or impossible for small businesses to offer a choice of 
multiple

[[Page 17001]]

insurers and plans to their employees. The commenter recommended that 
HHS provide data on the number of employers currently offering employee 
choice in the FF-SHOPs and provide annual updates on that data, so that 
HHS, stakeholders, and policymakers can monitor the impact of this 
change on employee choice in SHOP.
    Response: As discussed throughout this preamble, HHS believes that 
the PPACA does not have to be interpreted to require SHOPs to provide 
premium aggregation functions and thus is finalizing the proposals to 
allow SHOPs to not provide premium aggregation functions other than 
those related to continuation of coverage under finalized Sec.  
155.706(b)(4). State SHOPs are permitted to continue offering premium 
aggregation functionality. While we recognize that the elimination of 
premium aggregation in the FF-SHOPs could increase the administrative 
burden on employers, we believe that potential increased burden is 
outweighed by the other benefits to the SHOPs and, ultimately, to the 
employers described throughout this preamble regarding the changes to 
the SHOPs. Under the proposals being finalized in this rule, SHOPs will 
not be required to have access to ongoing enrollment information, and 
the FF-SHOPs will not require issuers to report SHOP employee choice 
enrollment information to HHS.
d. Eligibility Determination Process for SHOP for Plan Years Beginning 
Prior to January 1, 2018 (Sec.  155.715)
    As discussed in the following section, we proposed to modify the 
regulatory requirements regarding the eligibility determination process 
for SHOP for plan years beginning on or after January 1, 2018, 
effective on the effective date of this rule, and to introduce those 
requirements in a new Sec.  155.716. To reflect that the requirements 
currently in Sec.  155.715 will apply only for plan years beginning 
before January 1, 2018, we proposed to amend the heading of Sec.  
155.715 and add paragraph (h), to state that the section applies only 
for plan years that begin prior to January 1, 2018.
    We are finalizing this section as proposed. Comments related to the 
proposed approach for SHOP are discussed at the beginning of section 
III.D.9 of this rule.
e. Eligibility Determination Process for SHOP for Plan Years Beginning 
on or After January 1, 2018 (Sec.  155.716)
    Section 155.715 describes the SHOP eligibility determination 
process for employers and employees. We proposed to add new Sec.  
155.716 to describe the eligibility determination process for SHOPs for 
plan years beginning on or after January 1, 2018. With the exception of 
the changes to the process described here, the process will remain the 
same as in Sec.  155.715. However, this new section will modify and 
remove some of the requirements in Sec.  155.715. The proposals 
described in this section will be effective on the effective date of 
this rule.
    Section 155.715(a) requires that before permitting the purchase of 
coverage in a QHP, a SHOP must determine that the employer or 
individual who requests coverage is eligible. This requirement means 
that employers and employees must complete an application to 
participate in a SHOP. Accordingly, the FF-SHOPs have established 
certain operational requirements related to submitting an application 
through the FF-SHOP website, including providing information on the 
business (including location, Employer Identification Number, and 
number of employees), and identity verification.
    To reduce the barriers on employers to obtain SHOP coverage, we 
proposed in Sec.  155.716 that SHOPs must determine that the employer 
who requests coverage is eligible, but that SHOPs generally would not 
always need to do so before the issuer permits the purchase of coverage 
in a QHP through a SHOP, for plan years beginning on or after January 
1, 2018. This would generally permit an employer to purchase a QHP 
before obtaining a determination of SHOP eligibility and confirming 
with the issuer the status of the enrollment as being through the SHOP. 
As further explained in the preamble to Sec.  156.286, issuers would be 
expected to establish processes to ensure that they can accurately 
identify which enrollments are considered SHOP enrollments and which 
are not. We encouraged employers to obtain an eligibility determination 
from a SHOP as close to the date in which they purchase a SHOP QHP as 
possible. We considered establishing a limit on how long an employer 
can wait between purchasing the QHP and obtaining the determination of 
eligibility for that QHP to be considered purchased through the SHOP. 
We solicited comments on whether to establish such a limit, and how 
long it should be. Ultimately, we are finalizing this policy as 
proposed, and are not establishing a timeline under which employers 
must obtain an eligibility determination from a SHOP for their 
enrollments to be considered through the SHOP.
    As a condition of claiming the Small Business Health Care Tax 
Credit, small employers must be prepared to provide sufficient proof 
that they meet applicable criteria. Part of the employer's 
responsibility in providing evidence that it is a small employer 
eligible for the Small Business Health Care Tax Credit includes the 
ability to verify not only the purchase of a SHOP QHP, but the ability 
to produce a favorable eligibility determination from a SHOP. 
Therefore, employers applying for the Small Business Health Care Tax 
Credit are also encouraged to obtain an eligibility determination from 
the SHOP in the taxable year in which they intend to apply for the 
credit.
    Section 155.715(b) requires the SHOP to accept SHOP applications 
from both employers and employees, and Sec.  155.715(c) provides for 
the verification of both employer and employee eligibility. For plan 
years beginning on or after January 1, 2018, we proposed to provide 
SHOPs flexibility to forgo providing for employee eligibility 
determinations and related functionality and obligations (and the FF-
SHOPs will pursue this flexibility). We proposed that SHOPs would not 
be required to accept applications by employees or determine 
eligibility of employees because, under the proposed approach to 
enrollment in a SHOP, SHOPs will not be required to interact with 
employees. Proposed paragraphs (b) and (c) of Sec.  155.716 would still 
require SHOPs to accept a SHOP single employer application form from 
employers, and to verify employer eligibility subject to provisions 
like those currently in Sec.  155.715(c)(2) through (4). We have 
updated and made available a single employer application that SHOPs can 
use to determine employer eligibility to participate in the SHOP to 
reflect the new rule at Sec.  155.731, described elsewhere in this 
preamble. Currently, employee information is primarily collected for 
purposes of enrollment, and therefore will not be necessary for SHOPs 
to collect under the approach we are finalizing, allowing SHOPs to 
operate in a leaner fashion. State Exchanges that intend to maintain 
more robust SHOP functionalities, in lieu of the flexibilities adopted 
in this rule, will be permitted to continue to determine employee 
eligibility. We believe this proposal is consistent with the statute 
because, as noted above, the PPACA does not have to be interpreted to 
require SHOPs to provide for employee enrollment functionality, and 
does not define qualified employees.
    Paragraph (d) of Sec.  155.715 describes the eligibility adjustment 
period. We proposed to include in Sec.  155.716(d) these requirements 
as they relate to eligibility for employers. However,

[[Page 17002]]

because SHOPs will not be required to accept applications from 
employees, we proposed not to include the requirements in Sec.  
155.715(d)(2), relating to eligibility for employees, in new Sec.  
155.716. We also proposed to add language to reflect that SHOPs also 
must address inconsistencies in employer eligibility information 
received from sources other than those used in the employer eligibility 
process described in Sec.  155.715(c).
    To reflect our proposed changes to the employer eligibility 
verification process, as further described in this section and in the 
preamble to Sec.  157.205, and our proposal not to include a section 
mirroring Sec.  155.735 regarding terminations, we are adding a 
requirement in the paragraphs mirroring paragraphs (d)(3)(i) and (e) of 
Sec.  155.715 to require the SHOP to notify employers not only of a 
denial of the employer's eligibility to participate in the SHOP, but 
also of a termination of the employer's eligibility to participate in 
the SHOP.
    Paragraph (f) of Sec.  155.715 specifies the requirement that the 
SHOP notify an employee of his or her eligibility to enroll in a SHOP. 
Because we will not be requiring SHOPs to determine employee 
eligibility for plan years beginning on or after January 1, 2018, we 
proposed not to include this requirement in Sec.  155.716. SHOPs that 
continue to provide employee eligibility functionality should continue 
notifying employees of their eligibility. In the SHOPs that operate in 
a leaner fashion, like the FF-SHOPs, we anticipate that the 
participating QHP issuer or employer will determine the method of 
employee enrollment and notification, consistent with otherwise 
applicable Federal or State law.
    Paragraph (g) of Sec.  155.715 describes the requirements 
surrounding communication between the SHOP and QHP issuers in the event 
of an employer withdrawing from the SHOP and the notification of 
qualified employees of an employer's withdrawal from SHOP. Under the 
proposed approach for SHOPs beginning for plan years that begin on or 
after January 1, 2018, the enrollment and disenrollment processes would 
be addressed between the employer and the issuer or the agent or 
broker. Therefore, we proposed not including these requirements in 
Sec.  155.716.
    We further proposed in paragraph (f) of Sec.  155.716 that an 
employer's determination of eligibility to participate in the SHOP 
obtained under paragraph (a) remains valid until the employer makes a 
change that could end its eligibility under Sec.  155.710(b). This 
could include terminating offers of coverage to employees maintaining 
full-time status, growing to be a large employer without having 
maintained continuous SHOP coverage, or moving its principal business 
address or eligible employee worksites out of the SHOP service area. 
The employer will be required under new regulations being finalized in 
part 157 to take further action upon termination of the validity of the 
determination of eligibility to participate in a SHOP to submit a new 
application for determination of eligibility or to withdraw from 
participation in the SHOP. We considered requiring SHOPs to acknowledge 
an employer's withdrawal from participation in the SHOP within a 
reasonable time. Alternatively, we considered requiring that employers 
reapply to determine their SHOP eligibility on an annual basis. We 
sought comment on these proposals, and ultimately are moving to 
finalize our proposal without requiring employers to reapply to 
determine their SHOP eligibility on an annual basis or requiring SHOPs 
to acknowledge such a withdrawal.
    We proposed to specify in paragraph (g) that the provisions in 
Sec.  155.716 will be applicable for plan years beginning on or after 
January 1, 2018.
    We are finalizing these policies as proposed. These changes will 
become effective as of the effective date of this rule.
    Comment: We received several comments urging us not to establish a 
30-day timeline on employers to obtain an eligibility determination 
because the timeframe would be burdensome on employers. We received 
comments from State Exchanges also recommending that no timeline should 
be established for SHOP. These State Exchanges do not impose such a 
timeline in their SHOPs and have found success with the model.
    Response: We are finalizing this section as proposed, and no 
timeline will be imposed on employers to obtain an eligibility 
determination from a SHOP. We note that issuers may require employers 
to obtain an eligibility determination from the SHOP as a condition of 
enrollment when there is a legal basis for restricting enrollment to 
enrollment through the SHOP. Further, the IRS may request to see an 
employer's eligibility determination from the SHOP if the employer 
chooses to apply for the Small Business Health Care Tax Credit.
    Comment: We received one comment regarding whether employers should 
be required to notify a SHOP of their intent to withdraw from a SHOP, 
and if a SHOP should acknowledge an employer's withdrawal. The 
commenter recommended that we not require employers to notify the SHOP 
of their intent to withdraw their participation from a SHOP and, 
therefore not require SHOPs to acknowledge an employer's withdrawal.
    Response: Although we appreciate the commenter's suggestion as 
another way to ease burden on employers, for SHOPs to be able to 
determine which employers remain eligible to participate, the rules 
must impose some obligation on employers to notify the SHOP when their 
eligibility ends. As such, as further described in the preamble to 
Sec.  157.206, we are finalizing our proposal that requires employers 
to submit a new single employer application to the SHOP or withdraw 
from participating in the SHOP if the employer makes a change that 
could end its eligibility under Sec.  155.710 of this subchapter. As 
noted above, SHOPs will not be required to acknowledge an employer's 
withdrawal.
f. Enrollment of Employees Into QHPs Under SHOP for Plan Years 
Beginning Prior to January 1, 2018 (Sec.  155.720)
    Section 155.720 contains requirements related to the enrollment of 
employees into QHPs under SHOP. To reflect that our proposed approach 
would no longer require SHOPs to provide functionality related to 
enrollment of employees for plan years beginning on or after January 1, 
2018, we proposed to amend the heading of Sec.  155.720 and add 
paragraph (j), to state that the section will apply only for plan years 
that begin prior to January 1, 2018.
    Specifically, we proposed that the requirement in paragraph (b) of 
Sec.  155.720 that SHOPs establish a timeline and process for QHP 
issuers and employers to follow regarding purchasing coverage and 
processing of enrollment would not be applicable for plan years that 
begin on or after January 1, 2018. State Exchanges that choose to 
maintain their current operations may continue establishing enrollment 
timelines, as State law and SHOP technology permit. We also proposed 
that the requirements to transmit enrollment information on behalf of 
qualified employers and employees to QHP issuers as described in 
current paragraph (c), and to process payments as described in current 
paragraph (d) would not apply after plan year 2017, since SHOPs may not 
have enrollment or payment information to transmit. We proposed that 
the requirement in paragraph (e) that SHOPs ensure a QHP issuer 
notifies a qualified employee enrolled in a QHP of the effective date 
of his or her coverage would not apply

[[Page 17003]]

for plan years beginning on or after January 1, 2018 because SHOPs may 
not have the enrollment information necessary to enforce this 
requirement. We anticipated QHP issuers will notify employees in 
accordance with applicable State law. Additionally, after plan year 
2017 plans have ended, we proposed not to require SHOPs to reconcile 
enrollment information as described in paragraph (g), as SHOPs may not 
have enrollment files to reconcile with issuers. We also proposed that 
the requirements described in current paragraph (h), which requires a 
SHOP to notify a qualified employee's employer in the event the 
qualified employee terminates his or her SHOP coverage, would no longer 
apply for plan years beginning on or after January 1, 2018. Under the 
proposed approach, SHOPs may not have that information to communicate 
to the qualified employee's employer.
    We are finalizing these policies as proposed. These changes will 
become effective as of the effective date of the final rule. Comments 
related to the proposed approach for SHOP are discussed at the 
beginning of section III.D.9 of this rule.
g. Record Retention and IRS Reporting for Plan Years Beginning on or 
After January 1, 2018 (Sec.  155.721)
    The approach we are finalizing will not require SHOPs to provide 
functionality related to enrollment of employees for plan years 
beginning on or after January 1, 2018, and therefore, we proposed that 
Sec.  155.720 be inapplicable for those plan years, effective on the 
effective date of this rule. However, there are requirements in that 
section related to record retention and IRS reporting that will 
continue to be applicable with some modifications. We proposed to 
include modified versions of these requirements in a new Sec.  155.721, 
titled ``Record retention and IRS Reporting for plan years beginning on 
or after January 1, 2018.''
    We proposed that all SHOPs still be required to maintain records of 
employer eligibility for 10 years, as described in paragraph (f). 
Because SHOPs utilizing the proposed flexibilities, like the FF-SHOPs, 
would not have information on employees, we did not propose to continue 
requiring that SHOPs maintain information on employees.
    Section 155.720(i) describes the information a SHOP is currently 
required to communicate to the IRS for purposes of the Small Business 
Health Care Tax Credit. We proposed to modify the reporting requirement 
for SHOPs such that for plan years beginning on or after January 1, 
2018, effective on the effective date of this final rule, SHOPs would 
be required to send the IRS information about the employers determined 
eligible to purchase a SHOP QHP only upon the request of the IRS. We 
stated that we believe providing the IRS with a list of employers 
determined eligible to participate in a SHOP, at the IRS's request, 
fulfills HHS's reporting responsibility. As mentioned earlier in this 
document, employers in all States must be able to provide sufficient 
evidence to the IRS that they meet all the necessary eligibility 
requirements for the Small Business Health Care Tax Credit, if they 
intend to apply for it. The IRS may ask employers to produce the 
aforementioned evidence and employers have a responsibility to produce 
it. Further, we stated that employers may work with their issuer to 
verify their contribution information, employee enrollment information, 
and any other applicable information required to apply for the Small 
Business Health Care Tax Credit through their tax filings.
    We are finalizing these policies as proposed.
    Comment: Commenters were generally supportive of these proposals. 
One commenter disagreed with the premise of this section, citing their 
lack of support for the overall proposed approach to allow SHOPs to 
operate in a leaner fashion. We also received a comment supporting the 
proposals to require SHOPs to only report information to the IRS as 
requested. This commenter sought clarification on whether HHS will 
continue to collect SHOP enrollment data per Sec.  155.1200, which was 
addressed earlier in this rule at the beginning of section III.D.9. 
Finally, one commenter expressed concern about an employer's access to 
claim the Small Business Health Care Tax Credit if an employer is in a 
county where no SHOP plans are available. The commenter noted that in 
the past, the IRS has granted flexibility to employers in counties that 
had no SHOP plans available and allowed employers to still claim the 
Small Business Health Care Tax Credit, if otherwise applicable.
    Response: We are finalizing this section as proposed. As noted 
above, we believe that the information being collected under our 
proposals and communicating that information only as requested by the 
IRS is sufficient for the purposes of their administration of the Small 
Business Health Care Tax Credit. The Treasury Department and the IRS 
have jurisdiction over the Small Business Health Care Tax Credit.
h. Enrollment Periods Under SHOP for Plan Years Beginning Prior to 
January 1, 2018 (Sec.  155.725)
    As discussed in the following section, we proposed to modify the 
regulatory requirements regarding enrollment periods under a SHOP for 
plan years beginning on or after January 1, 2018, and to introduce 
those requirements in a new Sec.  155.726. To reflect the proposal that 
the requirements currently in Sec.  155.725 would apply only for plan 
years beginning before January 1, 2018, we proposed to amend the 
heading of Sec.  155.725 and add paragraph (l), to state that the 
section would only apply for plan years that begin prior to January 1, 
2018. These changes would become effective as of the effective date of 
the final rule. We discuss the proposed new Sec.  155.726 below.
    We are finalizing these policies as proposed. Comments related to 
the proposed approach for SHOP are discussed at the beginning of 
section III.D.9 of this rule.
i. Enrollment Periods Under SHOP for Plan Years Beginning on or After 
January 1, 2018 (Sec.  155.726)
    Section 155.725 describes enrollment periods under SHOP, including 
the timeline under which employer groups must enroll in SHOP coverage, 
and the notices the SHOP is required to send related to enrollment 
periods. We proposed to introduce a new Sec.  155.726, which would 
retain the rolling enrollment and minimum participation rate provisions 
of Sec.  155.725(b) and (k), but would remove the requirements 
applicable to enrollment periods under SHOP other than those related to 
special enrollment periods for plan years beginning on or after January 
1, 2018, to reflect the increased flexibility we proposed. The policies 
described in this section were proposed to be effective on the 
effective date of this rule.
    Section Sec.  155.725(a) requires that SHOPs ensure that enrollment 
transactions are sent to QHP issuers and that issuers adhere to 
coverage effective dates in accordance with this section. We proposed 
that many previously required enrollment and election periods would no 
longer apply for plan years beginning on or after January 1, 2018. 
State Exchanges that continue to provide online enrollment 
functionality for their SHOP will be able to continue to adhere to 
these requirements. However, under the proposed approach, some SHOPs 
(including the FF-SHOPs) may not have enrollment information to 
communicate to the issuers and may not want to continue setting and 
enforcing coverage effective dates under the

[[Page 17004]]

previously specified requirements. In SHOPs that pursue the full extent 
of the proposed approach, like the FF-SHOPs, we anticipated that most 
enrollment timelines, deadlines, and coverage effective dates in SHOPs 
would be set by employers and issuers consistent with applicable State 
law and otherwise applicable Federal law. We stated that we did, 
however, believe that, under the proposed approach, the SHOP should be 
responsible for ensuring that QHP issuers adhere to the remaining 
required enrollment periods and their corresponding coverage effective 
dates. Therefore, we proposed to include this requirement in Sec.  
155.726(a).
    Paragraph (c) of Sec.  155.725 states that the SHOP must provide 
qualified employers with an annual election period prior to completion 
of the employer's plan year and paragraph (d) of Sec.  155.725 requires 
the SHOP to provide notice of that period in advance. Given that, under 
the proposed approach for SHOPs for plan years beginning on or after 
January 1, 2018, SHOPs would not be required to process enrollments, we 
proposed that these requirements would not apply for plan years 
beginning on or after January 1, 2018. We anticipated that 
participating QHP issuers in SHOPs pursuing the proposed approach, like 
in the FF-SHOPs, would be responsible for setting any requirements 
around renewals, annual employer election periods, and annual employee 
open enrollment periods, based on their current practices, and subject 
to applicable State law and otherwise applicable Federal law, including 
Sec. Sec.  147.104 and 147.106. For similar reasons, we proposed that 
the requirements in Sec.  155.725(e), which requires the SHOP to set a 
standard open enrollment period for qualified employees, and Sec.  
155.725(f), which requires the SHOP to send a notice to the employee 
about the open enrollment period, would not apply for plan years 
beginning on or after January 1, 2018.
    Section 155.725(g) requires SHOPs to establish and maintain 
enrollment and coverage effective dates, including waiting periods, for 
newly qualified employees. However, the amendments we proposed at Sec.  
155.716 would remove the requirement for SHOPs to perform employee 
eligibility determinations, accept and process single employee SHOP 
application forms, as well as verify employee eligibility for plan 
years beginning on or after January 1,2018. Furthermore, our proposed 
amendments not to include paragraphs (c) and (d) of Sec.  155.725 in 
Sec.  155.726 would remove the requirement for SHOPs to maintain 
enrollment records for plan years beginning on or after January 1, 
2018. SHOPs that utilize these proposed flexibilities, like the FF-
SHOPs, may be unable to satisfy the requirements in Sec.  155.725(g). 
To align with these proposed amendments, we proposed that the 
requirements in Sec.  155.725(g) would not apply for plan years 
beginning on or after January 1, 2018. Instead, we anticipated that 
enrollment timelines, deadlines, and coverage effective dates for newly 
qualified employees in SHOPs that pursue the proposed approach would be 
set by employers and issuers consistent with applicable State law and 
otherwise applicable Federal law, including Sec.  147.116. Further, as 
noted above, issuers offering plans in SHOPs would still be required to 
adhere to the guaranteed availability requirements set in Sec.  
147.104(b)(1)(i) and the special enrollment period requirements in 
proposed Sec.  155.726(c).
    We also proposed that the requirement in Sec.  155.725(h)(1) that a 
SHOP establish the effective dates of coverage for initial and annual 
group enrollments would not apply for plan years beginning on or after 
January 1, 2018. Because SHOPs utilizing the proposed flexibilities, 
like the FF-SHOPs, would no longer be involved in processing group 
enrollments, and would therefore not be able to hold issuers 
accountable to these enrollment deadlines, we stated that we believed 
it was more appropriate to permit QHP issuers in SHOPs to set their own 
enrollment timelines. However, State Exchanges would be permitted to 
continue establishing these effective dates for their SHOPs. We also 
proposed to remove paragraph (h)(2) for plan years beginning on or 
after January 1, 2018, which establishes the effective dates for 
initial and annual group enrollments in FF-SHOPs, because the FF-SHOPs 
would utilize the proposed flexibilities. We anticipated that issuers 
in SHOPs that pursue this approach, like in FF-SHOPs, would set 
enrollment timelines for employer groups participating in these SHOPs, 
based on their current practices, and consistent with the market rules 
set forth in Sec. Sec.  147.104 and 147.106, and otherwise applicable 
State law.
    We proposed that the special enrollment periods specified in Sec.  
155.725(j) would continue to be applicable in the SHOPs for plan years 
beginning on or after January 1, 2018, and proposed to include these in 
Sec.  155.726(c). We also proposed that the requirements regarding 
special enrollment periods in Sec.  155.725(j)(3) would apply for plan 
years beginning on or after January 1, 2018. However, we proposed to 
modify the SHOPs' responsibilities with respect to special enrollment 
periods. As stated earlier in this preamble, under the new 
flexibilities for SHOPs beginning in plan years starting on or after 
January 1, 2018, SHOPs would no longer be required to provide 
functionality related to enrollment of employees. For SHOPs that pursue 
this flexibility, like the FF-SHOPs, issuers will preliminarily be 
responsible for completing enrollments, and so we expected issuers 
would implement enrollment periods. Therefore, we proposed to modify 
the requirements to reflect that the SHOP's revised role would not be 
to provide special enrollment periods, but to ensure that QHP issuers 
offering coverage through the SHOP provide the special enrollment 
periods set forth in regulation.
    We are finalizing these policies as proposed, with one minor non-
substantive change to correct the placement of numbering in the 
regulation text.
    Comment: Some commenters requested clarification on our proposals 
at Sec.  155.726(c), and recommended that the proposals better align 
with Sec.  155.420, while another recommended that issuers be permitted 
to provide the same special enrollment periods as they provide outside 
the SHOP.
    Response: Special enrollment periods offered through a SHOP are 
aligned with the special enrollment periods available in the individual 
market FFEs unless the special enrollment periods offered in the FFEs 
do not practically apply in the SHOP. We did not propose any changes to 
special enrollment periods in SHOPs and finalize this section as 
proposed.
j. Application Standards for SHOP for Plan Years Beginning Prior to 
January 1, 2018 (Sec.  155.730)
    As discussed in the following section, we proposed to modify the 
regulatory requirements regarding application standards of a SHOP for 
plan years beginning on or after January 1, 2018 and to introduce those 
requirements in a new Sec.  155.731. To reflect the proposal that the 
requirements currently in Sec.  155.730 would apply only for plan years 
beginning before January 1, 2018, we proposed to amend the heading of 
Sec.  155.730 and add paragraph (h), to state that the section would 
apply for only plan years that begin prior to January 1, 2018.
    We are finalizing these policies as proposed; the policies will be 
effective on the effective date of the final rule. Comments related to 
the proposed approach for SHOP are discussed at the beginning of 
section III.D.9 of this rule.

[[Page 17005]]

k. Application Standards for SHOP for Plan Years Beginning on or After 
January 1, 2018. (Sec.  155.731)
    Section 155.730 describes the requirements for employer and 
employee applications in the SHOPs. We proposed to modify these 
requirements for plan years beginning on or after January 1, 2018, and 
to introduce these modified requirements in Sec.  155.731. With the 
exception of the proposed changes to the requirements described here, 
the requirements would remain the same as in Sec.  155.730.
    In accordance with our approach allowing SHOPs to operate in a 
leaner fashion for plan years beginning on or after January 1, 2018, 
effective as of the effective date of this rule, QHP issuers would 
complete the process of enrolling qualified employees into coverage in 
SHOPs that will operate in a leaner fashion, like the FF-SHOPs. In 
those SHOPs it would not be necessary for a SHOP to collect information 
necessary for purchasing coverage. Therefore, we proposed to modify the 
information collection requirements related to the single employer 
application to require SHOPs to collect only information that would be 
necessary for SHOPs to determine employer eligibility to participate in 
the SHOP under Sec.  155.710(b). To more closely align the description 
of the data elements collected with those standards for eligibility to 
participate, we proposed to require the SHOP to collect the employer 
name and address of the employer's locations; information sufficient to 
confirm that the employer is a small employer; the Employer 
Identification Number; and information sufficient to confirm that the 
employer is offering, at a minimum, all full-time employees' coverage 
in a QHP through a SHOP. SHOPs could collect other information, at 
their option subject to the limitations in Sec.  155.716(c)(2) and 
Sec.  155.731(f).
    Paragraph (c) of Sec.  155.730 requires the use of a single 
employee application. We proposed that this requirement would not apply 
for SHOP beginning for plan years starting on or after January 1, 2018, 
as the information collected in this application would no longer be 
necessary, since the SHOP would no longer be required to process 
employees' enrollment.
    Section 155.730(d) permits a SHOP to use a model single employer 
application and model single employee application provided by HHS, and 
Sec.  155.730(e) permits the use of HHS-approved alternatives to these 
model applications. We also proposed to maintain these options, but for 
consistency with the new approach to SHOP, we proposed not to reference 
a model single employee application. The model single employer 
application with the elements described in proposed Sec.  155.731(b) 
has been updated to reflect these changes.\59\
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    \59\ Available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/SHOP-Eligibility-Determination-Form.pdf.
---------------------------------------------------------------------------

    Paragraph (g) of Sec.  155.730 describes additional application 
safeguards for SHOP employer and employee applications, which we 
proposed to maintain in Sec.  155.731(f) with minor amendments to 
reflect the proposal to eliminate the requirement to collect a single 
employee application. We also proposed in new paragraph (g) to state 
that Sec.  155.731 would only be applicable for plan years beginning on 
or after January 1, 2018.
    We are finalizing these policies as proposed. These changes will 
become effective as of the effective date of this rule.
    Comment: One commenter expressed concern that our proposals to 
approve alternative applications will be burdensome, since applications 
are reviewed by the State.
    Response: Section 155.731(b) discusses the application an employer 
submits to the SHOP for the purposes of determining eligibility to 
participate in a SHOP. No State review is required under Sec.  
155.731(b) (although a State Exchange could perform such a review, at 
its option, for its SHOP). The information that SHOPs are required to 
collect under these rules is minimal. HHS does not believe that 
additional information to determine an employer's eligibility to 
participate in a SHOP is necessary, and therefore maintains the ability 
to review any alternate application a SHOP may use to determine an 
employer's eligibility to participate in a SHOP. This section is being 
finalized as proposed.
    Comment: We received one comment requesting clarification that 
State Exchanges can meet Sec.  155.731(e)(2) by making an application 
available for download on a website as opposed to implementing an 
interactive web application portal.
    Response: Section 155.730(e)(2) does not currently distinguish 
whether an employer application be available for download on an 
internet website as opposed to through an interactive web application 
portal on an internet website, so long as the tools to file an 
application be available on an internet website. We did not make any 
changes to this language in Sec.  155.731(e)(2).
l. Termination of SHOP Enrollment or Coverage (Sec.  155.735)
    Section 155.735 outlines requirements related to terminations of 
SHOP coverage or enrollment. Under our proposed approach, described in 
detail in the preamble to earlier sections of this final rule, the 
process of completing enrollments, as well as terminating coverage, 
could be completed by issuers, and would not be required to be 
completed by SHOPs operating in a leaner fashion under the 
flexibilities provided for in this rule, like the FF-SHOPs. Issuers 
would be expected to comply with otherwise applicable State and Federal 
law regarding terminating coverage, the timelines and effective dates 
for termination, and any notice requirements, including those at 
Sec. Sec.  147.106 and 156.285. Accordingly, we proposed that this 
section would be applicable for only plan years beginning prior to 
January 1, 2018, as described in the proposed amendment to the heading 
and new paragraph (h), effective on the effective date of this rule. 
SHOPs maintaining current enrollment functions were encouraged to set 
termination guidelines and distribute notices for terminations based on 
nonpayment of premiums or loss of employee eligibility, unless State 
law requires QHP issuers to send the notices. Because SHOPs, such as 
the FF-SHOPs, would no longer be required to enroll groups into a SHOP 
QHP, they would no longer be required to maintain the ability to 
terminate coverage. We believe new Sec. Sec.  155.716 and 157.206 
sufficiently address terminations of eligibility for participation in a 
SHOP.
    We are finalizing these policies as proposed. Comments related to 
the proposed approach for SHOP are discussed at the beginning of 
section III.D.9 of this rule.
m. SHOP Employer and Employee Eligibility Appeals Requirements for Plan 
Years Beginning Prior to January 1, 2018 (Sec.  155.740)
    As discussed in the following section, we proposed to modify the 
regulatory requirements regarding employer and employee eligibility 
appeals in SHOP for plan years beginning on or after January 1, 2018, 
and to introduce those modified requirements in a new Sec.  155.741. To 
reflect the proposal that the requirements currently in Sec.  155.740 
would apply only for plan years beginning before January 1, 2018, 
effective on the effective date of this rule, we proposed to amend the 
heading of Sec.  155.740 and add paragraph (p), to state that the 
section would apply only

[[Page 17006]]

for plan years that begin prior to January 1, 2018.
    We are finalizing these policies as proposed. Comments related to 
the proposed approach for SHOP are discussed at the beginning of 
section III.D.9 of this rule.
n. SHOP Employer and Employee Eligibility Appeals Requirements for Plan 
Years Beginning on or After January 1, 2018 (Sec.  155.741)
    Section 155.740 describes the SHOP eligibility appeals process for 
employers and employees. These provisions describe the applicable 
definitions, the general requirements to provide for appeals, and 
employers' and employees' rights to appeal an eligibility determination 
from the SHOP.
    To continue to provide for employer eligibility appeals, we 
proposed to add new Sec.  155.741, mirroring Sec.  155.740, with the 
following exceptions. Because we proposed elsewhere that the 
requirement to provide employees with eligibility determinations and 
the requirement in Sec.  155.715(f) regarding notification of employee 
eligibility would no longer apply in plan years beginning on or after 
January 1, 2018, we proposed not to include a paragraph mirroring Sec.  
155.740(d), which describes employees' rights to appeal. We also 
proposed to omit other references to employee appeal rights, to add 
references to provide for appeals of terminations of eligibility to 
participate in a SHOP, and to update cross-references as applicable.
    We proposed in paragraph (o) that the provisions of Sec.  155.741 
would only be applicable to plan years beginning on or after January 1, 
2018, effective on the effective date of this rule.
    We are finalizing these policies as proposed. Comments related to 
the proposed approach for SHOP are discussed at the beginning of 
section III.D.9 of this rule.

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

1. FFE and SBE-FP User Fee Rates for the 2019 Benefit Year (Sec.  
156.50)
    Section 1311(d)(5)(A) of the PPACA 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 PPACA directs HHS to operate an Exchange within the State. 
Accordingly, in Sec.  156.50(c), we specified that a participating 
issuer offering a plan through an FFE or SBE-FP 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 and SBE-FPs 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 or SBE-FP.
    OMB Circular No. A-25R establishes Federal policy regarding user 
fees; it 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. As in benefit 
years 2014 through 2018, issuers seeking to participate in an FFE in 
the 2019 benefit year 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 for the 2019 benefit year 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; and
     Certification processes for QHPs (including ongoing 
compliance verification, recertification and decertification).
    OMB Circular No. A-25R further states that user fee charges should 
generally be set at a level that is 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). 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.
    Based on estimated contract costs, enrollment and premiums for the 
2019 benefit year, we proposed to maintain the 2019 benefit year user 
fee rate for all participating FFE issuers at 3.5 percent of total 
monthly premiums. We sought comment on this proposal.
    State Exchanges on the Federal platform enter into an agreement 
with HHS to leverage the systems established for 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 specified 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 monthly user fee rate specified in the 
annual HHS notice of benefit and payment parameters for SBE-FPs for the 
applicable benefit year, unless the SBE-FP and HHS agree on an 
alternative mechanism to collect the funds from the SBE-FP or State 
instead of direct collection from the SBE-FP issuers. The benefits 
provided to issuers in SBE-FPs by the Federal government will include 
use of 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 PPACA, and enrollment in QHPs 
under Sec.  155.400. As previously discussed, OMB Circular No. A-25R 
established Federal policy regarding user fees, and specified that a 
user charge will be assessed against each identifiable recipient for 
special benefits derived from Federal activities beyond those received 
by the general public. The user fee rate for SBE-FPs is calculated 
based on the proportion of FFE costs that are associated with the FFE 
information technology infrastructure, the consumer call center 
infrastructure, and eligibility and enrollment functions, and 
allocating a share of those costs to issuers in the relevant SBE-FPs. A 
significant portion of expenditures for FFE functions 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 
PPACA, and personnel who perform the functions set forth in Sec.  
155.400 to facilitate enrollment in QHPs. Based on this methodology, 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 plans offered through an SBE-FP. This fee would 
support FFE operations associated with providing the functions 
described above. We sought comment on this proposal.
    We are finalizing the FFE and SBE-FP user fees rates at 3.5 and 3.0 
percent

[[Page 17007]]

of monthly premiums, respectively, as proposed.
    As we describe elsewhere in this rule, for plan years beginning on 
or after January 1, 2018, effective on the effective date of this rule, 
we are removing employee eligibility, premium aggregation, and online 
enrollment functionality through the FF-SHOPs for FFE and SBE-FP SHOP 
issuers. Given the changes to the functionality for the FF-SHOPs, HHS 
will not provide these special benefits through the FF-SHOPs or SBE-FP 
SHOPs after the effective date of the rule. Therefore, we proposed that 
HHS would not assess a user fee on issuers offering QHPs through FF-
SHOPs or SBE-FP SHOPs because these user fees are only charged to 
issuers who receive special benefits from enrolling individuals through 
the Federal platform. In instances where enrollment did occur through 
the Federal platform, for example, for plan years beginning prior to 
the effective date of the final rule, HHS will continue charging SHOP 
issuers monthly FFE or SBE-FP user fees, as applicable. We are 
finalizing this policy as proposed.
    Comment: Commenters noted the FFE user fee rate should decrease 
over time, particularly given the reduction in outreach and education 
activities that HHS conducts. Additionally, commenters noted that the 
collection and allocation of the user fees should be made more 
transparent. Other commenters also noted that HHS should allocate a 
greater portion of the user fees to outreach and education programs.
    Response: The FFE and SBE-FP user fee rates for the 2019 benefit 
year are based on expected total costs to offer the special benefits to 
issuers offering plans on FFEs or SBE-FPs and evaluation of expected 
enrollment and premiums for the 2019 benefit year. These estimates 
yielded an FFE user fee rate of 3.5 percent of premiums and an SBE-FP 
user fee rate of 3.0 percent of premiums. We reiterate that under OMB 
Circular No. A-25R, collections are only spent on user fee eligible 
activities. We will continue to examine cost estimates for the special 
benefits provided to issuers offering QHPs on the FFEs and SBE-FPs for 
future benefit years. Additionally, outreach and education efforts will 
be evaluated annually and funded at the appropriate level.
    Comment: Some commenters did not support the proposed SBE-FP user 
fee rate, stating the proportion of FFE costs allocated to SBE-FP 
functions do not represent market value, the fee is overstated 
particularly in context of reduced outreach and education functions by 
the Federal platform, and increased premiums due to cost-sharing 
reductions amounts loaded to silver premiums ought to also reduce the 
user fee rate. Some of these commenters also stated that HHS has not 
provided SBE-FPs with enrollment data or access to HealthCare.gov back-
end customer tools that the SBE-FPs could use to improve outreach and 
enrollment activities at the State level. Commenters suggested that HHS 
maintain the 2018 benefit year SBE-FP user fee rate of 2 percent given 
the impact of user fee rates on market premiums.
    Response: The final SBE-FP user fee rate for the 2019 benefit year 
of 3.0 percent of premiums is based on HHS's calculation of the percent 
of contract costs of the total FFE functions utilized by SBE-FPs--the 
costs associated with the information technology, call center 
infrastructure, and eligibility determinations for enrollment in QHPs 
and other applicable State health subsidy programs. We have calculated 
the total costs allocated to SBE-FP functions and enrollment and 
premium estimates to yield a user fee rate of 3.0 percent for SBE-FP 
issuers benefiting from functions provided by the Federal platform. We 
believe issuers offering QHPs through the Federal platform, either the 
FFEs or SBE-FPs, ought to be charged proportionally for the special 
benefits provided by the Federal platform. HHS has provided SBE-FPs 2 
years to transition to the full rate. Additionally, although HHS 
reduced its outreach and education costs, we do not charge SBE-FPs for 
these costs as outreach and education activities are SBE-FPs' 
responsibility, and therefore the proportion of Federal platform costs 
associated with SBE-FP functions increased slightly compared to prior 
years. We also continuously collaborate with our SBE-FP partners to 
share data within our information disclosure agreements, and welcome 
continued conversations with SBE-FPs on their data needs.
    Comment: Commenters also noted that HHS setting the SBE-FP user fee 
rate at 3 percent requires State entities to operate a referral 
hotline, consumer assistance, QHP rate review and certification, legal 
and finance operations, auditing and other functions with collections 
based on a State user fee rate of 0.5 percent of premiums, which would 
not be feasible, or require SBE-FPs to increase assessments on 
carriers. Commenters noted keeping a lower user fee rate for the SBE-FP 
model would likely increase States' take-up of these models and 
enrollment due to the resulting slightly lower increase in premiums.
    Response: As we have previously stated, we are not requiring SBE-
FPs to allocate a certain share of the State's assessments on various 
functions, and we are not requiring the SBE-FPs to set the State 
assessment at any specific rate. If SBE-FP States require more than 0.5 
percent of premiums to carry out State functions for the 2019 benefit 
year, one option for the SBE-FP States could be to assess a higher 
State charge on issuers, and another option is for the SBE-FP States to 
assess a charge more broadly on issuers rather than just on issuers 
offering QHPs on the respective SBE-FPs. We are setting the 2019 SBE-FP 
user fee rate at 3.0 percent of premiums charged on participating 
issuers in SBE-FPs to recover the proportion of costs to the Federal 
government for the benefits associated with SBE-FPs, as required under 
OMB Circular No. A-25R. We continue to encourage and support States in 
pursuing the SBE-FP model, in assessing charges on participating 
issuers, or otherwise, to recover the costs associated with the State's 
functions and most effectively carry out those functions. We do not 
believe the total Federal charge assessed on FFE issuers are 
appropriately compared to the total State and Federal charge assessed 
on SBE-FP issuers because SBE-FPs provide the benefit of more 
proximately engaging issuers and consumers.
2. Essential Health Benefits Package
    Section 2707(a) of the PHS Act, as added by the PPACA, directs 
health insurance issuers that offer non-grandfathered health insurance 
coverage in the individual or small group market to ensure that such 
coverage includes the EHB package, which is defined under section 
1302(a) of the PPACA to include coverage that provides for the EHB 
defined by the Secretary under section 1302(b) of the PPACA; limits 
cost sharing in accordance with section 1302(c) of the PPACA; and 
provides either the bronze, silver, gold, or platinum level of 
coverage, or is a catastrophic plan under sections 1302(d) and (e) of 
the PPACA. Section 1302(b) of the PPACA states that the Secretary is to 
define EHB, except that EHB must include at least the following general 
categories and the items and services covered within the categories: 
(1) Ambulatory patient services; (2) emergency services; (3) 
hospitalization; (4) maternity and newborn care; (5) mental health and 
substance use disorder services including behavioral health treatment; 
(6) prescription drugs; (7) rehabilitative and habilitative services 
and devices; (8) laboratory services; (9) preventive and wellness 
services and chronic disease

[[Page 17008]]

management; and (10) pediatric services, including oral and vision 
care. Additionally, section 1302(b)(2) of the PPACA states that the 
Secretary must ensure that the scope of EHB for the 10 EHB categories 
be equal to the scope of benefits provided under a typical employer 
plan, as determined by the Secretary. Furthermore, section 1302(b)(2) 
of the PPACA states, in defining and revising EHB, that the Secretary 
is to submit a report to the appropriate committees of Congress 
containing a certification from the CMS Chief Actuary that such EHB are 
equal in scope to the benefits provided under a typical employer plan. 
In defining and revising the 10 EHB categories, the Secretary must also 
provide notice and an opportunity for public comment. Additionally, 
section 1302(b)(4)(G) and (H) of the PPACA require the Secretary to 
periodically review and update the definition of EHB and provide a 
report to Congress and the public that contains assessments related to 
the need to update the definition of EHB.
    Section 1302(b)(4) of the PPACA requires the Secretary, in defining 
the EHB, to: (1) Ensure that such EHB reflect an appropriate balance 
among the categories so that benefits are not unduly weighted toward 
any category; (2) not make coverage decisions, determine reimbursement 
rates, establish incentive programs, or design benefits in ways that 
discriminate against individuals because of their age, disability, or 
expected length of life; (3) take into account the health care needs of 
diverse segments of the population, including women, children, persons 
with disabilities, and other groups; (4) ensure the health benefits 
established as essential not be subject to denial to individuals 
against their wishes on the basis of the individuals' age or expected 
length of life or of the individuals' present or predicted disability, 
degree of medical dependency, or quality of life; and (5) provide that 
a QHP shall not be treated as providing coverage for EHB unless it 
meets certain requirements for coverage of emergency services.
    To implement section 1302(b) of the PPACA, HHS defined EHB based on 
a benchmark plan approach, which provided at Sec.  156.100 for the 
States' selection from one of 10 base-benchmark plans, including the 
largest health plan by enrollment in any of the three largest small 
group insurance products by enrollment, any of the largest three 
employee health benefit plan options by enrollment offered and 
generally available to State employees in the State, any of the largest 
three national Federal Employees Health Benefits Program (FEHBP) plan 
options by aggregate enrollment that is offered to all health-benefits-
eligible Federal employees under 5 U.S.C. 8903, or the coverage plan 
with the largest insured commercial non-Medicaid enrollment offered by 
a health maintenance organization operating in the State. States were 
required at Sec.  156.110 to supplement their base-benchmark plan from 
Sec.  156.100 to ensure the 10 EHB categories were being covered to 
establish the State's EHB-benchmark plan. Section 156.110 also ensures 
that the EHB-benchmark plan meets the standards of nondiscrimination 
and balance of benefits, and allows habilitative services to be 
determined by the State.
    We believe that States should have additional choices with respect 
to benefits and affordable coverage. As such, we proposed to provide 
States with additional flexibility in their selection of an EHB-
benchmark plan for plan year 2019 and later plan years. In addition to 
granting States more flexibility regulating their markets, we believed 
these changes would permit States to modify EHB to increase 
affordability of health insurance in the individual and small group 
markets beginning in 2019. We proposed that the current EHB-benchmark 
plan selection would continue to apply for any year for which a State 
does not select a new EHB-benchmark plan under this proposal.
    In the preamble of the proposed rule, we stated that we were 
considering establishing a Federal default definition of EHB for plan 
years further in the future that would allow States continued 
flexibility to adopt their own EHB-benchmark plans, provided they 
defray costs that exceed the Federal default. We understood that in 
developing this type of default definition there are trade-offs in 
adjusting benefits and services. We gave an example of establishing a 
national benchmark plan standard for prescription drugs that could 
balance these tradeoffs and provide a consistent prescription drug 
default standard across States. We solicited initial comments on this 
type of long-term approach and the trade-offs in adjusting benefits 
from the current EHBs with a plan to solicit further comments in the 
future.
    Comment: Many commenters requested more detail on a Federal default 
definition of EHB, with some commenters suggesting the publication of a 
white paper to discuss such a policy in more detail.
    Most commenters opposed a Federal default definition of EHB. Many 
commenters were concerned that a Federal default definition of EHB 
would be implemented in the pursuit of seeking arbitrary benefit 
limits, even at the cost of inferior health outcomes.
    Some commenters expressed concern over diminishing the State's 
flexibility in defining their own EHB, especially since other proposals 
with regard to EHB concentrated on giving additional flexibility to the 
States. These commenters also expressed concern over requiring States 
to defray the costs of benefits in excess of a Federal standard.
    Many commenters expressed support for a Federal default EHB 
definition if such a standard represented a minimum level of benefits 
required in an EHB-benchmark plan, rather than a maximum level of 
benefits. Commenters noted that plans should include a wide array of 
benefits to account for the diverse needs of the population at large. 
Other commenters supported a Federal default EHB definition to the 
extent that certain benefits would be included in such a definition.
    Most commenters opposed a Federal default definition of EHB as it 
pertains to a national prescription drug benefit, noting that States 
and issuers are best positioned to evaluate and respond to prescription 
drug needs. Many of these commenters expressed concerns similar to 
those raised regarding a general Federal default EHB definition: 
Concerns that such a standard would, in the pursuit of arbitrary 
benefit limits, have a negative impact on health outcomes by inhibiting 
the availability of needed drugs; establish a maximum level of benefits 
for EHB-benchmark plans; diminish the States' flexibility to define 
EHB; and increase the defrayals required by States.
    Some commenters noted that a national prescription drug benefit 
standard would require continuous and frequent updating to account for 
changes in clinical guidelines and drug innovation. These commenters 
supported a national prescription drug benefit standard that uses a 
qualitative approach reliant upon Pharmacy & Therapeutics Committees to 
respond to such rapid changes, rather than a standard based on 
providing a minimum number of drugs per category or class.
    A few commenters supported a national prescription drug benefit, 
noting that multi-State issuers face complexity dealing with minimum 
drug counts which vary widely across EHB-benchmark plans, with no 
rational medical justification for the variation.
    Some commenters expressed concern about the impact of a Federal 
prescription drug benefit on the ability

[[Page 17009]]

of entities to negotiate drug prices. One commenter noted that a 
Federal default EHB definition for prescription drugs would stifle 
innovation due to uncertainty over whether a new drug would be covered.
    Response: Our intention is to better align medical risk in 
insurance products by balancing costs to the scope of benefits. We will 
take these comments under consideration as we consider this policy. In 
order to avoid market instability and inefficiencies for States that 
have used the expanded flexibilities regarding EHB that we are 
finalizing in this rule and issuers in those States, it is our intent 
that any Federal default standard would not require a State to make 
immediate changes to its EHB-benchmark plan within 3 years following a 
State change.
a. State Selection of Benchmark Plan for Plan Years Beginning Prior to 
January 1, 2020 (Sec.  156.100)
    To reflect the proposed options in Sec.  156.111 for States to 
adopt new EHB-benchmark plans for plan years 2019 and later, we 
proposed to make conforming changes to Sec.  156.100 to explicitly 
state that the selection process in Sec.  156.100 applies only through 
plan years beginning in 2018, and Sec.  156.111 applies for plan years 
beginning after 2018. Because we are finalizing Sec.  156.111 to apply 
for plan years 2020 and later, we are not finalizing these conforming 
changes as proposed, but are instead making changes to Sec.  156.100 to 
state that the selection process in Sec.  156.100 applies only through 
plan years beginning in 2019, and Sec.  156.111 applies for plan years 
beginning on or after January 1, 2020.
    Comment: A few commenters commented on the proposal to make 
conforming changes to Sec.  156.100 as a result of our proposed changes 
to Sec.  156.111. These commenters generally did not support the 
proposed policy of Sec.  156.111 and supported retaining the current 
benchmark plan options at Sec.  156.100 that provided benchmark plan 
options at the State level.
    Response: Since we are finalizing the new options for a State's 
EHB-benchmark plan at Sec.  156.111 starting for plan year 2020, we are 
finalizing conforming changes to Sec.  156.100, to reflect Sec.  
156.111.
b. State Selection of EHB-Benchmark Plan for Plan Years Beginning on or 
After January 1, 2020 (Sec.  156.111)
i. States' EHB-Benchmark Plan Options (Sec.  156.111(a))
    We proposed to add new Sec.  156.111, which would provide States 
with the flexibility to update their EHB-benchmark plans more 
frequently and to select among more options. Specifically, we proposed 
that a State may change its EHB-benchmark plan by: (1) Selecting the 
EHB-benchmark plan that another State used for the 2017 plan year \60\ 
under Sec.  156.100 and Sec.  156.110; (2) replacing one or more EHB 
categories of benefits under Sec.  156.110(a) in its EHB-benchmark plan 
used for the 2017 plan year with the same categories of benefits from 
another State's EHB-benchmark plan used for the 2017 plan year under 
Sec.  156.100 and Sec.  156.110; or (3) otherwise selecting a set of 
benefits that would become the State's EHB-benchmark plan, provided 
that the EHB-benchmark plan does not exceed the generosity of the most 
generous plan among a set of comparison plans. Under this third option, 
the comparison plans would be the State's EHB-benchmark plan used for 
the 2017 plan year and the plans described in Sec.  156.100(a)(1) for 
the 2017 plan year, supplemented as necessary under Sec.  156.110. 
These plans would include the largest health plan by enrollment in each 
of the three largest small group insurance products by enrollment from 
the State's 2017 base-benchmark plan options.\61\ Under any of the 
available three options, we proposed that a State could change its EHB-
benchmark plan in any given year, not only in the years that HHS 
specified. At the same time, this proposed policy would also allow 
States that prefer to maintain their current EHB-benchmark plans to do 
so without action.
---------------------------------------------------------------------------

    \60\ The States' EHB-benchmark plans used for the 2017 plan year 
are based on plans from the 2014 plan year, but we occasionally 
refer to them as 2017 plans because these plans are applicable as 
the States' EHB-benchmark plans for plan years beginning in 2017.
    \61\ The Essential Health Benefits: List of the Largest Three 
Small Group Products by State for 2017 is available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Top3ListFinal-5-19-2015.pdf. States' EHB-benchmark plans used for 
the 2017 plan year are able at https://www.cms.gov/CCIIO/Resources/Data-Resources/Downloads/Final-List-of-BMPs_4816.pdf.
---------------------------------------------------------------------------

Option 1: Select Another State's EHB-Benchmark Plan
    Under the first option, we proposed that a State be permitted to 
select one of the EHB-benchmark plans used for the 2017 plan year by 
another State. We did not propose to change the State mandate policy at 
Sec.  155.170 under this option. Under this proposed policy, we 
proposed that benefits mandated by State action prior to or on December 
31, 2011 could continue to be considered EHB under Sec.  155.170, and 
would not require the State to defray the costs. Conversely, if a State 
selects an EHB-benchmark plan from another State using this option, the 
selecting State would still be required to defray the cost of any 
benefits included in that State's EHB-benchmark plan that are benefits 
mandated by the selecting State after December 31, 2011, and that are 
subject to defrayal under the current regulations.\62\ For example, if 
State A selects the EHB-benchmark plan of State B, State A would be 
required to defray the cost of any benefits included in State B's EHB-
benchmark plan that are required to be provided by State A's action 
after December 31, 2011, and that are subject to defrayal under current 
regulations. We solicited comments on this proposal, including on the 
application of the State mandate policy under this proposal and on 
whether other flexibilities are needed by States under this proposed 
option.
---------------------------------------------------------------------------

    \62\ Under Sec.  155.170, the State must make payments to defray 
the cost of additional required benefits either to an enrollee, as 
defined in Sec.  155.20, or directly to the QHP issuer on behalf of 
the enrollee.
---------------------------------------------------------------------------

Option 2: Replace Category or Categories From Another State's EHB-
Benchmark Plan
    Under the second option, we proposed that a State be allowed to 
partially replace its current EHB-benchmark plan, using EHB-benchmark 
plans used by other States for the 2017 plan year. Under this option, 
we proposed that a State may replace any EHB category or categories of 
benefits in its EHB-benchmark plan from the 10 required EHB categories 
with the same category or categories of benefits from another State's 
EHB-benchmark plan used for the 2017 plan year. For example, a State 
may select the prescription drug coverage from another State's EHB-
benchmark plan (which might include a different formulary drug count) 
and a third State's EHB-benchmark plan hospitalization category. 
Similar to the first option, we proposed that benefits mandated by 
State action prior to or on December 31, 2011, could continue to be 
considered EHB under this proposal in accordance with Sec.  155.170, 
and would not require the State to defray their costs. However, if a 
State uses this option to replace one or more categories of its EHB-
benchmark plan used for the 2017 plan year with a category or 
categories of benefits from another State's EHB-benchmark plan used for 
the 2017 plan year, the selecting State would be required to defray the 
cost of any benefits included in the categories of benefits from the 
other State's EHB-benchmark plan that are mandated by the selecting 
State's action after

[[Page 17010]]

December 31, 2011 and that are subject to defrayal under current 
regulations. For example, if State A replaces a category of benefits in 
its EHB-benchmark plan with a category of benefits from State B's EHB-
benchmark plan, State A must defray the cost of any benefits in that 
category mandated by State A after December 31, 2011 that are included 
in the replacement category of benefits and that are subject to 
defrayal under current regulations.
Option 3: Select a Set of Benefits To Become the State's EHB-Benchmark 
Plan
    Lastly, under the third option, we proposed that a State be 
permitted to select a set of benefits that would become its EHB-
benchmark plan using a different process, so long as the new EHB-
benchmark plan does not exceed the generosity of the most generous 
among a set of comparison plans. Under this option, the set of 
comparison plans would be the State's EHB-benchmark plan used for the 
2017 plan year and the plans described in Sec.  156.100(a)(1) that were 
available as base-benchmark plan options for the 2017 plan year, 
supplemented as necessary under Sec.  156.110. These plans would 
include the largest health plan by enrollment in each of the three 
largest small group insurance products by enrollment from the State's 
base-benchmark options for the 2017 plan year. We proposed that the 
State would determine if its proposed EHB-benchmark plan does not 
exceed the generosity of the most generous of a set of comparison plans 
using an actuarial certification, developed by an actuary who is a 
member of American Academy of Actuaries, in accordance with generally 
accepted actuarial principles and methodologies. For this actuarial 
certification, we proposed that the State could determine generosity in 
the same manner as we would use to measure whether the plan provides 
benefits that are equal in scope of benefits provided under a typical 
employer plan, described later in this section.
    We also recognized that the increased flexibility offered to States 
under this proposed option to define an EHB-benchmark plan could allow 
a State to embed any desired benefit mandate into the EHB-benchmark 
plan, without any requirement to defray the obligation. For this 
reason, we proposed to apply the benefit mandate defrayal policy under 
Sec.  155.170 to this option. Specifically, we proposed that benefits 
mandated by State action prior to or on December 31, 2011 could 
continue to be considered EHB under this proposal according to Sec.  
155.170, and would not require State defrayal. However, if a State 
selects its EHB-benchmark plan using this option, the State must 
continue to defray the cost of any benefits mandated by State action 
after December 31, 2011 that are subject to defrayal under current 
regulations. For example, if the State selects a set of benefits to 
become its EHB-benchmark plan under paragraph (a)(3), any benefits 
mandated by that State after December 31, 2011 that are subject to 
defrayal under current regulations would not be considered EHB, and the 
State would be required to defray the cost of any such benefits 
included in the State's EHB-benchmark plan under this proposed option.
    We solicited comments on all of the proposals, including on whether 
to allow a State to select its EHB-benchmark plan from any of the 10 
previous base-benchmark plan options available to the State or other 
States under Sec.  156.100, supplemented as necessary under Sec.  
156.110, on whether a different approach is needed to defray the cost 
of any benefits mandated by State action, on whether other 
flexibilities are needed by States under the proposed options, on our 
proposed approach to limit a State's new EHB-benchmark plan under 
Option 3, such that it does not exceed the generosity of the comparison 
plans, and on whether other options should be provided to States to 
select their EHB-benchmark plans beyond the three proposed options. We 
are finalizing these new EHB-benchmark plan options as proposed, with 
one amendment. As further discussed in the comments and responses 
below, we are extending the proposed requirements at Sec.  
156.111(a)(3)(i) and (ii) that ensure that the State's new EHB-
benchmark plan does not exceed the generosity of the most generous 
among a set of comparison plans to all of the State's options to select 
a new EHB-benchmark plan at Sec.  156.111(a). We are finalizing these 
requirements at Sec.  156.111(b)(2)(ii).
    Comment: Some commenters supported the proposed EHB-benchmark plan 
options for States because they offer increased State flexibility 
through additional options for States. Many commenters did not support 
the proposed EHB-benchmark plan policy or supported retaining the 
current policy, and noted that it already allows State flexibility. 
Many of these commenters were concerned that States would decrease EHB 
benefits as a result of the proposed policy, or that issuers would not 
cover benefits that are not EHB. Some commenters were concerned that 
the options would create a patchwork of benefit designs that could 
diminish care, increase or shift costs or affect issuer competition.
    Other commenters believed that the proposed policy was inconsistent 
with the statutory requirements that the Secretary define EHB and that 
the Secretary ensure other EHB consumer protections under section 
1302(b)(2), (3), and (4) of the PPACA are incorporated into the 
definition of EHB. These commenters believed that the Secretary has no 
authority to delegate defining EHB or its parameters to States or 
issuers. Commenters also believed that the proposed options allowed 
States to select an EHB-benchmark plan from among an endless set of 
options, whereas the prior policy allowed a preset list of 10 plan 
options per State, with most options being from the State in which the 
plan was applying. Some commenters also believed that the proposed 
policy was inconsistent with the statutory requirement that the 
Secretary update EHB based on gaps in coverage or changes in the 
evidence identified in the Secretary's report to Congress as 
established at section 1302(b)(4)(H) of PPACA. Some of these commenters 
also noted that this report has not been completed.
    Response: As described in the EHB Final Rule, we originally 
established the benchmark plan policy to ensure that EHB is equal to 
the scope of benefits provided under a typical employer plan and in 
recognition that the typical employer plans differ by State. 
Specifically, the Secretary balanced these directives, and minimized 
market disruption, by directing plans to offer the 10 statutory EHB 
categories while allowing the State to select the specific details of 
their EHB coverage from a set of reference plans. Accordingly, States 
maintained their traditional role in defining the scope of insurance 
benefits and exercised that authority by selecting a plan that reflects 
the benefit priorities of that State, within the bounds of the 
definition of EHB set by the Secretary.\63\ This deference to States 
within the definition established by the Secretary continues under the 
policies finalized in this rule.
---------------------------------------------------------------------------

    \63\ EHB Rule, 78 FR at 12843. February 23, 2013.
---------------------------------------------------------------------------

    We believe that States should have additional choices with respect 
to benefits, which may foster innovation in plan design and greater 
access to coverage, and provide States with a mechanism for affecting 
affordability. This approach may balance these considerations in 
manners different from the balance achieved under the previous 
benchmark plans. The Secretary is defining an expanded set of options 
from which the State can select

[[Page 17011]]

its EHB-benchmark plan, allowing the State to select the specific 
details of that plan. This policy recognizes the need for increased 
State flexibility beyond that which the original policy allowed.
    For this reason, we are finalizing the new options for a State's 
EHB-benchmark plan, along with additional requirements for the State's 
selection as detailed later in this preamble. We believe these 
requirements, when taken together, provide States with significant 
flexibility while appropriately limiting the range of choices, thereby 
fulfilling the Secretary's obligation to define EHB. Specifically, the 
requirement that a State's EHB-benchmark plan provide a scope of 
benefits that is equal to, or greater than, to the extent any 
supplementation is required to provide coverage within each EHB 
category at Sec.  156.110(a), the scope of benefits provided under a 
typical employer plan, as defined at Sec.  156.111(b)(2), establishes a 
minimum scope of benefits that is required to be covered as EHB. 
Furthermore, the requirement that the EHB-benchmark plan cannot exceed 
the generosity of the most generous among a set of comparison plans, 
which are those group market plans that comprise the basis for the 
scope of benefits under the current definition of EHB, further limits 
the range of benefits that can be considered EHB. Together with the 
other requirements specified at Sec.  156.111(b)(2), these requirements 
provide States with flexibility to adjust their States' EHB-benchmark 
plan within a limited range.
    At the same time, this policy also allows a State to retain its 
current EHB-benchmark plan. This flexibility was not afforded under the 
previous policy. In fact, the previous default option, which was the 
largest plan by enrollment in the largest product by enrollment in the 
State's small group market, could vary between benchmark plan selection 
years, creating unnecessary disruption for States that were unable to 
select a benchmark plan. Under the new policy, these States, as well as 
States that do not wish to make changes, will not be required to do so, 
and will not need to take action to prevent the disruption caused by a 
change to the State's EHB-benchmark plan.
    We are not completing the report to Congress and the public on the 
periodic review of EHB under section 1302(b)(4)(G) of the PPACA at this 
time. We do not believe that a report on EHB at this time will provide 
conclusive results on the assessments required under section 
1302(b)(4)(G) of the PPACA, as a large portion of plans required to 
comply with EHB are QHPs offered both on and off of the Exchanges. 
These QHP markets have seen significant changes from year to year since 
their inception, with the number of issuers offering plans in each 
market changing on an annual basis and the number of enrollees in these 
plans fluctuating. Furthermore, the frequent modifications to EHB 
policies and other related Federal benefit policies, such as guidance 
on complying with the Paul Wellstone and Pete Domenici Mental Health 
Parity and Addiction Equity Act of 2008 (MHPAEA) and preventive 
services regulations, have not allowed these plans' benefit structures 
to stabilize enough for conclusive analysis. Since the PPACA only 
requires this report to Congress to be conducted periodically, and we 
do not believe that conducting this report at this time will establish 
meaningful conclusions, this report will not be completed at this time. 
We intend to conduct this report once the market has stabilized, which 
we believe will be furthered by the policy we are finalizing in this 
rule.
    Comment: Many commenters were concerned that the proposed EHB-
benchmark plan options would create a race to the bottom among States' 
scope of benefits for their EHB-benchmark plans. These commenters were 
especially concerned that these benefit designs would not meet the 
needs of vulnerable populations, would increase costs to consumers, and 
would reduce the value of coverage. Some commenters were concerned that 
benchmark plans selected under one of the first two options would not 
reflect plans in the State or meet the needs of beneficiaries in that 
State. Some commenters were concerned that these proposed options 
discourage States from selecting more generous coverage, with some 
commenters stating that if the true goal of the policy was to increase 
State flexibility, the State should also have the option to increase 
benefits.
    Other commenters were concerned that the first two options allow 
States to pick more generous plans, and some commenters recommended 
preventing States from being able to select an option without being 
responsible for the costs of the additional benefits. In general, these 
commenters were concerned that the proposed policy would allow States 
to select benchmark plans with more generous State mandates. Other 
commenters were concerned that there is significant variation in 
benchmark plan coverage of particular services, and some commenters 
stated that the goal of allowing State flexibility should be secondary 
to ensuring comprehensiveness of the benefit package.
    Other commenters noted that the second option allows the State to 
define EHB by selecting the least generous benefits for each category, 
thus creating a standard that does not resemble any existing plan in 
the market today. Commenters were similarly concerned that the third 
option could allow a State to greatly reduce the generosity of 
coverage, even though the definition would still require the coverage 
of the 10 EHB categories. Some commenters were concerned that the third 
option was too broad and did not ensure consumer protections to ensure 
the comprehensive scope of benefits.
    Response: We are not persuaded that the new options will create a 
race for States to establish the least generous plan possible because 
all States' EHB-benchmark plans will be required to include coverage 
for all 10 EHB categories of benefits, and the State will be required 
to confirm its EHB-benchmark plan includes coverage for each EHB 
category in accordance with Sec.  156.111(e)(1). Section 156.111(e)(1) 
also requires States to confirm that its new EHB-benchmark plan meets 
the applicable requirements of Sec.  156.111(b) on scope of benefits, 
including that the State's EHB-benchmark plan provide a scope of 
benefits that is equal to, or greater than, to the extent any 
supplementation is required to provide coverage within each EHB 
category at Sec.  156.110(a), the scope of benefits provided under a 
typical employer plan in accordance with Sec.  156.111(e)(2).\64\ 
Through those requirements, the options at Sec.  156.111(a) do not 
allow a State to substantially reduce the level of coverage, and 
instead allow a State the option to adjust its EHB-benchmark

[[Page 17012]]

plan to use benefit structures that have worked well in other States or 
other parts of the employer markets, or otherwise innovate benefits 
within the range of plans in the employer market. Because each State 
has different market conditions and demographic distributions, a plan 
that may be the least generous plan in one State may not be the least 
generous plan in another State, and for that reason, we are not 
concerned that this policy is going to create a race to establish the 
least generous plan.
---------------------------------------------------------------------------

    \64\ We are also retaining the current issuer requirements 
related to EHB at Sec. Sec.  [thinsp]156.115, 156.122, and 156.125 
and those requirements would continue to apply to all plans subject 
to the EHB requirements. This includes 45 CFR 156.122(a)(1) that 
establishes that, generally, a health plan does not provide EHB 
unless it covers at least the greater of: (1) One drug in every USP 
category and class; or (2) the same number of prescription drugs in 
each category and class as the EHB-benchmark plan. Under the current 
version of the USP Medicare Model Guidelines (MMG) drug 
classification system used for the EHB drug count at Sec.  
[thinsp]156.122(a)(1), this proposal means that all plans required 
to comply with EHB will continue to have to cover at least one drug 
in the Anti-Addiction/Substance Abuse Treatment Agents (Opioid 
Reversal Agent) class. Naloxone is currently the only active 
ingredient in the Opioid Reversal Agent class, and as a result all 
plans required to comply with EHB would be required to continue to 
cover at least one form of naloxone under this proposed policy. This 
was previously addressed in the 2018 Letter to Issuers in the 
Federally-facilitated Marketplaces available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-2018-Letter-to-Issuers-in-the-Federally-facilitated-Marketplaces-and-February-17-Addendum.pdf.
---------------------------------------------------------------------------

    In short, this flexibility established under Sec.  156.111(a) is 
not intended to reduce benefits, but to allow for more innovative 
benefits within the current benefit requirements. This means that a 
State's EHB-benchmark plan may not have the exact same benefits and 
limits as the typical employer plan the State identifies under this 
policy, but this policy will still result in the State's EHB-benchmark 
plan providing a scope of benefits equal to, or greater than, to the 
extent any supplementation is required to provide coverage within each 
EHB category at Sec.  156.110(a), the scope of benefits provided under 
a typical employer plan, satisfying the Secretary's obligations at 
section 1302(b) of the PPACA. Furthermore, as described later in this 
rule, we are finalizing a definition of a typical employer plan that 
requires the plan have enrollment and be sold in the State. This 
definition ensures that regardless of the benchmark plan option 
selected by the State under this rule, that benchmark plan will be at 
least equal to the scope of benefits to a popular employer plan that 
was previously offered in the State's employer plan market.
    Furthermore, we encourage States to select EHB-benchmark plans that 
foster innovation in plan design that would provide greater access to 
coverage that would ultimately improve affordability. As discussed in 
the proposed rule, in addition to granting States more flexibility in 
regulating their markets, one of the goals with this policy was to 
permit States to modify EHB to increase affordability of health 
insurance in the individual and small group markets.\65\ As we also 
note in our discussion of benefits mandated by State action at Sec.  
155.170, we want to ensure that States do not select EHB in a manner 
that decreases affordability of coverage. Therefore, in response to 
commenters' concerns about ensuring that the options under Sec.  
156.111(a) do not undermine the goal of affordability, we are 
incorporating into the regulation protections to ensure that a State's 
EHB-benchmark plan selections take into account affordability of 
coverage, by applying the generosity test proposed in connection with 
the third option to all three EHB-benchmark plan selection options for 
States. Accordingly, Sec.  156.111(b)(2)(ii) provides that a State may 
not select a new EHB-benchmark plan that exceeds the most generous 
among a set of comparison plans, no matter the option used to generate 
the EHB-benchmark plan. These comparison plans include the State's EHB-
benchmark plan used for the 2017 plan year and the plans described in 
Sec.  156.100(a)(1) for the 2017 plan year, supplemented as necessary 
under Sec.  156.110.\66\ We recognize that it may be possible for a 
State's EHB-benchmark plan to provide a scope of benefits that is equal 
to (or greater than, to the extent any supplementation is required to 
provide coverage within each EHB category at Sec.  156.110(a)) the 
scope of benefits provided under a typical employer plan at Sec.  
156.111(b)(2)(i), and not meet the generosity standard at Sec.  
156.111(b)(2)(ii) (for example, a proposed EHB-benchmark plan could 
satisfy the typical employer plan requirement but exceed the generosity 
standard because of the way supplementation was performed). However, we 
believe that by extending this generosity limit to all selection 
options, we are minimizing the opportunity for a State to select EHB in 
a manner that would make coverage unaffordable for patients and 
increase Federal costs, while still helping to ensure that States are 
ensuring that benefits are equal to the scope of benefits provided 
under a typical employer plan.
---------------------------------------------------------------------------

    \65\ 82 FR at 51102.
    \66\ The actual number of comparison plans for each State 
depends on the State's EHB-benchmark plan for 2017. Most States will 
only have three comparison plans as the State's EHB-benchmark plan 
for 2017 is a plan within the options at Sec.  156.100(a)(1). 
However, a few States will have four comparison plans as the State's 
EHB-benchmark plan for 2017 is not a plan within the options at 
Sec.  156.100(a)(1). The list of plan options at Sec.  156.100(a)(1) 
for each State for 2017 is available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Top3ListFinal-5-19-2015.pdf. Also, the States' EHB-benchmark plans used for the 2017 
plan year are available at https://www.cms.gov/CCIIO/Resources/Data-Resources/Downloads/Final-List-of-BMPs_4816.pdf.
---------------------------------------------------------------------------

    Comment: Some commenters were concerned that a State would have 
difficulty knowing what another State's EHB-benchmark plan was 
covering, because the benefits or benchmark plan documentation were not 
broken into separate EHB categories. Some commenters were generally 
concerned about using the 2017 EHB-benchmark plans. These commenters 
noted that States are only supplementing categories of benefits in 
those plans when those categories are missing and are not considering 
the scope of benefits within the category, leading to inadequate 
coverage. Other commenters wanted to understand how supplementation 
would work under the options.
    Response: Additional supplementation of the EHB-benchmark plans 
generally should not be required under the three State EHB-benchmark 
plan selection options being finalized at Sec.  156.111(a). For the 
first option at Sec.  156.111(a)(1), the selecting State would be 
selecting another State's EHB-benchmark plan, which already would be 
supplemented, as necessary.\67\ For the second option at Sec.  
156.111(a)(2), the State would replace a category or categories of 
benefit from its current EHB-benchmark plan with another State's EHB-
benchmark plan's category or categories of benefits, which already 
would have been supplemented, if necessary, by that other State.
---------------------------------------------------------------------------

    \67\ Information on whether the State supplemented its EHB-
benchmark plan for 2017 is available at https://www.cms.gov/CCIIO/Resources/Data-Resources/Downloads/Final-List-of-BMPs_4816.pdf.
---------------------------------------------------------------------------

    A State using the third option will need to ensure that its EHB-
benchmark plan satisfies the requirements being finalized at Sec.  
156.111(b), such as the requirements to cover items and services in 
each of the ten statutory categories of EHB; to not have benefits 
unduly weighted towards any of those categories of benefits; and to 
provide a scope of benefits equal to (or greater than, to the extent 
any supplementation is required to provide coverage within each EHB 
category at Sec.  156.110(a)), the scope of benefits provided under a 
typical employer plan. Since States have been supplementing their EHB-
benchmark plans since the inception of the EHB policy, we expect States 
to be familiar with categorizing benefits.
    Comment: Various commenters supported coverage of specific services 
within an EHB category, with some commenters noting that many of the 
services that might be considered for reduction are only a small 
portion of spending. They stated that not covering these services would 
not meaningfully reduce premiums and would increase or shift costs for 
the services for the consumers who need them. Other commenters noted 
that all of the options are linked in part to the 2017 EHB-benchmark 
plans (including the generosity standard under Option 3), and that 
these are in fact 2014 plans. Certain commenters were concerned

[[Page 17013]]

that these 2014 plans do not comply with new requirements, such as the 
applicability of requirements under MHPAEA or noted that using 2014 
plans in the long term means that EHB would still be linked to 2014 
plans. Comments varied on whether States that are selecting an EHB-
benchmark plan should be allowed to select from any States' previous 
EHB-benchmark plans for options Sec.  156.111(a)(1) or (2). A few 
commenters recommended that HHS give States additional technical 
assistance. For example, one commenter sought clarification on which 
State entity would be authorized to select the State's EHB-benchmark 
plan. Certain commenters also had concerns about provider 
discrimination under the proposed policy.
    Response: Because Sec.  156.111 continues to define EHB based on a 
``benchmark plan'' approach, we are continuing the policy of not 
requiring that a State's EHB-benchmark plan cover a specific service or 
services or use particular providers. We are limiting the policy to the 
2017 EHB-benchmark plans under Options 1 and 2 at Sec.  156.111(a)(1) 
and (2) to ensure that the set of plans available for States to select 
from under Option 1 and 2 are clearly defined and reflect an EHB-
benchmark plan that was used by another State. We believe that this 
policy balances providing flexibility to States to select from more 
options for their EHB-benchmark plans while at the same time providing 
simplification of choice within a defined set of plan options. 
Furthermore, this policy will not overly limit State flexibility, as 
the third option would permit a State to select from any of the other 
10 previous base-benchmark plan options. While the 2017 EHB-benchmark 
plans and the benchmark plans selected by States under Sec.  
156.111(a)(3) may not comply with all of the market reforms and 
consumer protections applicable to plans offered in the individual and 
small group markets, this is not a departure from the benchmarks that 
have been used to date. We reiterate the policy that non-grandfathered 
insurance plans in the individual and small group markets that are 
required to comply with EHB must not only provide benefits that are 
substantially equal to the EHB-benchmark plan, but must also comply 
with all Federal requirements applicable to plans offered in those 
markets, such as those benefit requirements at Sec. Sec.  156.115, 
156.122, 156.125, and 156.130(g).
    We also recognize that States have different processes for 
selecting a benchmark plan and as a result, the State needs discretion 
in determining what entity has the authority to select the State's EHB-
benchmark plan. We therefore will not dictate which State entity must 
act to select a State's EHB-benchmark plan, but we may consider 
providing States with additional technical assistance to aid in their 
selection under the policy finalized in this rule.
    Comment: Many commenters were concerned about the impact of the 
proposed policy on the determination of which benefits are subject to 
the prohibition of annual and lifetime dollar limits in section 2711 of 
the PHS Act, as added by the PPACA, and the annual limitation on cost 
sharing at section 1302(c) of the PPACA (which is incorporated into 
section 2707(b) of the PHS Act). Some commenters were particularly 
concerned about the impact of this policy on markets beyond the 
Exchanges, particularly the large group market and self-insured group 
health plans. These plans are not required to provide coverage of EHB 
but must use a definition of EHB to determine which benefits apply to 
the prohibition of annual and lifetime dollar limits and the annual 
limitation on cost sharing. These commenters were generally concerned 
about increased or shifting costs to consumers for benefits that are no 
longer EHB, particularly for vulnerable populations. Some commenters 
were concerned that since large group market and self-insured group 
health plans could use any State's definition of EHB for purposes of 
the annual and lifetime dollar limit prohibition and the annual 
limitation on cost sharing, any State's definition could have the 
potential to impact plans nationwide. Other commenters wanted 
additional information and evaluation of the impact on how the change 
in definition would be implemented.
    Response: As discussed in more detail earlier in this section, the 
flexibility established under Sec.  156.111(a) is not intended to 
reduce benefits, but to allow for more innovative benefits within the 
current benefit requirements. This means that a State's EHB-benchmark 
plan may not have the exact same benefits and limits as the typical 
employer plan the State identifies under this policy, but this policy 
will still result in the State's EHB-benchmark plan providing a scope 
of benefits that is equal to, or greater than, the scope of benefits 
provided under a typical employer plan in accordance with Sec.  
156.111(b)(2)(i), satisfying the Secretary's obligations at section 
1302(b) of the PPACA. Accordingly, we do not expect that there will be 
a substantial change to the scope of the protections afforded under the 
annual and lifetime dollar limit prohibition or the annual limitation 
on cost sharing.
ii. The Requirements for States' EHB-Benchmark Plans (Sec.  156.111(b) 
Through (d))
    Under the proposed options for States to select a new EHB-benchmark 
plan, we proposed that a State's EHB-benchmark plan must meet certain 
requirements established under the PPACA with regard to EHB coverage, 
scope of benefits, and notice and opportunity for public comment. 
First, under paragraph (b)(1), we proposed to require that the State's 
EHB-benchmark plan provide an appropriate balance of coverage for the 
10 EHB categories of benefits as established at Sec.  156.110(a) and 
under section 1302(b)(1) of the PPACA. Second, we proposed at paragraph 
(b)(2) to define requirements regarding the scope of benefits that must 
be provided by a State's EHB-benchmark plan. Specifically, we proposed 
at paragraph (b)(2)(i) that the State's EHB-benchmark plan must be 
equal in scope of benefits to what is provided under a typical employer 
plan. This proposed requirement reflects section 1302(b)(2) of the 
PPACA, which requires the Secretary to ensure that the scope of the EHB 
is equal to the scope of benefits provided under a typical employer 
plan, as determined by the Secretary. We proposed to define a typical 
employer plan as an employer plan within a product (as these terms are 
defined in Sec.  144.103 of this subchapter) with substantial 
enrollment in the product of at least 5,000 enrollees sold in the small 
group or large group market, in one or more States, or a self-insured 
group health plan with substantial enrollment of at least 5,000 
enrollees in one or more States. We sought comment on many parts of 
this definition, including:
     Whether the definition of a typical employer plan should 
reflect in substantial part a plan that would be typical in the State 
in question;
     Whether an appropriate way to measure typicality in that 
case would be to provide that the typical employer plan be defined to 
also have at least 100 enrollees enrolled in that plan or product in 
the applicable State;
     Whether typicality should be defined in other ways, 
including whether it should be based upon the State's 10 base-benchmark 
plan options for plan year 2017, supplemented as required to become the 
State's EHB-benchmark plan under Sec.  156.110;
     Whether the definition of a typical employer plan for this 
purpose should be limited to plans that already cover all 10 EHB 
categories;

[[Page 17014]]

     Whether the proposed typical employer plan definition 
should exclude self-insured plans, since States may not have the 
ability to obtain the required information on those plans; and
     Whether we should provide additional guidance or 
requirements for the definition of a typical employer plan, such as 
requiring that the plan selected as a typical employer plan be from a 
recent year after December 31, 2013, requiring that the plan provide 
minimum value, or requiring that the plan selected as a typical 
employer plan not be an indemnity plan or an account-based plan like a 
health reimbursement arrangement.
    Given that the proposed definition of a typical employer plan was a 
plan with enrollment of at least 5,000 enrollees in one or more States, 
we believed that the State's option to select another State's EHB-
benchmark plan at proposed Sec.  156.111(a)(1) would automatically meet 
the typical employer plan requirement because each of the available 
options is an employer plan that had substantial enrollment.
    We also solicited comment on whether actuaries could develop a 
standard of practice for a benefit comparison calculation to determine 
that a plan is equal to the scope of benefits provided under a typical 
employer plan that could also apply to determine that a State's EHB-
benchmark plan does not exceed the generosity of the most generous plan 
in accordance with the third option under proposed Sec.  156.111(a)(3). 
We specifically sought comment on our draft example of an acceptable 
methodology for comparing benefits of a State's EHB-benchmark plan 
selection to the benefits of a typical employer plan.\68\
---------------------------------------------------------------------------

    \68\ The Draft Example of an Acceptable Methodology for 
Comparing Benefits of a State's EHB-benchmark Plan Selection to 
Benefits of a Typical Employer Plan As Proposed under the HHS Notice 
of Benefit and Payment Parameters for 2019 (CMS-9930-F) is available 
at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Example-Acceptable-Methodology-States-EHB.pdf.
---------------------------------------------------------------------------

    In addition to meeting the typical employer plan requirements, we 
proposed at paragraph (b)(2)(ii) that the State's EHB-benchmark plan 
must also not have benefits unduly weighted towards any of the 
categories of benefits at Sec.  156.110(a) as established under section 
1302(b)(4)(A) of the PPACA. Furthermore, we proposed at paragraph 
(b)(2)(iii) that the State's EHB-benchmark plan must provide benefits 
for diverse segments of the population, including women, children, 
persons with disabilities, and other groups as established under 
section 1302(b)(4)(C) of the PPACA.
    At paragraph (c), we proposed that the State must provide 
reasonable public notice and an opportunity for public comment on the 
State's selection of an EHB-benchmark plan. We proposed that this 
process would apply whenever a State changes its EHB-benchmark plan in 
accordance with proposed Sec.  156.111(a).
    Lastly, we proposed at paragraph (d) that a State must notify HHS 
of the selection of a new EHB-benchmark plan by a date to be determined 
by HHS for each applicable plan year. We also proposed that if the 
State does not make a selection by the annual selection date, the 
State's EHB-benchmark plan for the applicable plan year would be that 
State's EHB-benchmark plan applicable for the prior plan year. Taken 
together, these proposed requirements were intended to align with 
statutory requirements. We affirmed that Sec. Sec.  156.115, 156.122, 
and 156.125 would continue to apply to all plans subject to the EHB 
requirements.
    We are finalizing the requirements for a State's EHB-benchmark plan 
with certain amendments to: (1) Clarify that the State's EHB-benchmark 
must provide coverage of items and services for at least the 10 EHB 
categories; (2) add a codification of the currently applicable 
requirement at Sec.  156.110(d) that the State's EHB-benchmark plans 
must not include discriminatory benefit designs that contravene the 
non-discrimination standards defined in Sec.  156.125; (3) modify the 
definition of a typical employer plan; (4) add a requirement that the 
State must post a notice of its opportunity for public comment with 
associated information on a relevant State website; (5) provide that 
any State EHB-benchmark plan may be no more generous than the most 
generous among a set of comparison plans, as described above; and (6) 
codify in regulation text the proposed standard in the preamble of the 
proposed rule that if a State's benchmark plan selection does not meet 
the requirements of this section and section 1302 of the PPACA, the 
State's EHB-benchmark plan will be the State's EHB-benchmark plan 
applicable for the prior year, as further described under the data 
collection section below. To reflect the application of the generosity 
standard to all three options under this regulation, we moved that 
provision from Sec.  156.111(a)(3) to Sec.  156.111(b)(2), and have 
renumbered parts of Sec.  156.111(b)(2) for clarity.
    Comment: Many commenters stated that the definition of EHB provides 
important protection to consumers, particularly with regard to various 
populations. Some commenters appreciated the codification of certain 
EHB protections under section 1302(b) of the PPACA into the regulation 
text, with some requesting the non-discrimination provisions from 
section 1302(b) of the PPACA be included, too. Some commenters wanted 
strong Federal enforcement of EHB requirements, such as non-
discrimination. Some commenters believed that the standards were too 
vague or wanted additional guardrails on States' EHB-benchmark plans. A 
few commenters wanted certain clarifications to Sec.  156.111(b)(1), 
such as the inclusion of items and services or on requiring coverage of 
the 10 EHB categories.
    Response: In the proposed rule, we did not propose to eliminate the 
EHB-benchmark plan standards under Sec.  156.110. However, we recognize 
based on comments that the applicability of that section to benchmark 
plans selected under the proposed Sec.  156.111 was not as clear as it 
could have been. Therefore, in response to commenters, we are 
finalizing Sec.  156.111(b) with certain amendments that align with the 
statute and that clarify the applicability of EHB-benchmark plan 
standards. We are amending Sec.  156.111(b)(1) to more explicitly state 
that the EHB-benchmark plan must not only provide an appropriate 
balance of coverage of the 10 statutory categories of EHB, but also 
cover items and services in all 10 categories.
    We are also adding a new Sec.  156.111(b)(2)(v) to codify the 
continuing applicability of the currently applicable benchmark plan 
non-discrimination provisions under Sec.  156.110(d) to the EHB-
benchmark plan selection options under Sec.  156.111(a). Specifically, 
a State's EHB-benchmark plan may not violate the non-discrimination 
standards defined in Sec.  156.125, which reflects the non-
discrimination provisions of section 1302(b)(4) of the PPACA.
    Comment: Many commenters opposed allowing States to annually update 
their EHB-benchmark plans. These commenters had a variety of concerns 
about annual updates to the benchmark plans, such as annual updating 
would be administratively and financially burdensome to issuers, 
confusing for consumers, lack predictability, or would create 
instability that would not allow issuers to assess the effectiveness of 
previous changes before new changes are implemented. Some commenters 
recommended limiting the changes to every few years, with some 
supporting every 3 years, which aligns with the

[[Page 17015]]

frequency with which the benchmark plans have previously been updated. 
Some commenters recommended timeframes for the State's annual 
submission process, such as requiring the EHB-benchmark plans to be 
finalized 18 months prior to the benefit year, to help ensure that 
issuers have sufficient time to design products in advance of the 
filing deadlines for the upcoming benefit year.
    Response: As discussed in the proposed rule, we recognize the 
burden on States and issuers of making changes to a State's EHB-
benchmark plan. Specifically, we anticipated most States would need to 
invest resources to analyze the three new EHB-benchmark plan selection 
options to make an informed selection, even if a State defaults. We 
also anticipated that issuers offering plans that provide EHB would 
incur additional administrative costs associated with designing plans 
compliant with the State's newly selected EHB-benchmark plan.\69\ 
Because of the level of effort needed by the State and its issuers to 
make changes to a State's EHB-benchmark plan, we believe that in only 
very limited cases will a State choose to make EHB-benchmark plan 
changes on an annual basis. We believe that if a State does decide to 
make changes annually, there may be a specific reason for needing an 
annual change such as for a medical innovation where such benefits 
would outweigh any potential for consumer confusion. We also do not 
believe that such changes would rise to the level of creating market 
instability. The purpose of this policy is to allow for State 
flexibility in selecting an EHB-benchmark plan, and we believe it is 
important for States to retain the flexibility to choose when the State 
wants to make changes to its EHB-benchmark plan. Therefore, we are 
finalizing the policy as proposed.
---------------------------------------------------------------------------

    \69\ 82 FR at 51131.
---------------------------------------------------------------------------

    As described in the next section, we are finalizing the 2020 
deadline for submission of a State's EHB-benchmark plan under Sec.  
156.111(a). For plan years after 2020, we intend to announce the annual 
EHB-benchmark plan selection deadline to States in the annual notice of 
benefits and payment parameters. Because we expect that the number of 
submissions for each plan year will vary, we will not be providing a 
specific date as to when the State's EHB-benchmark plans for a given 
plan year will be finalized.
    Comment: Many commenters opposed allowing the definition of typical 
employer plan to include self-insured plans, as these plans can have 
unique benefit designs, and are not directly regulated by States, and 
because it would be difficult to obtain plan information for such 
plans. Some commenters stated that the lack of specificity in the 
definition of a typical employer plan could allow rare, outlier plans 
with extremely limited coverage to become the typical employer plan, or 
they requested that there be additional requirements on the typical 
employer plan to prevent outlier plans from being the typical employer 
plan. Commenters were concerned that the definition could jeopardize 
adequate coverage of the 10 EHB categories, lowering the threshold for 
minimum coverage, or allowing insurers to offer plans with less 
generous benefits, weakening the PPACA protections for individuals with 
disabilities and complex medical needs.
    Some commenters were particularly concerned that the policy in the 
proposed rule generally focused on using the definition of EHB to 
create a ceiling for the scope of benefits. They expressed concern that 
the generosity standard limits the scope of benefits to certain 
previous benchmark plan options, instead of providing the floor for the 
scope of benefits, as they stated PPACA intended the definition of EHB 
to be. These commenters were concerned that decreased benefits would 
result in high costs for consumers to access those services.
    Some commenters wanted more specificity in the definition of 
typical employer plan, such as wanting the plan to be specific to the 
State to ensure compatibility in the State or meet State requirements, 
be required to cover all 10 EHB categories or minimum benefit 
standards, be from a recent plan year, constitute MEC, provide minimum 
value (or some other actuarial value standard), not be an account-based 
plan, not be a preventive-services-only plan or an excepted benefit 
plan or not be an indemnity plan. Some commenters supported the 
definition of a typical employer plan for its flexibility or supported 
aspects of the proposed definition. Another commenter noted that if a 
State-specific enrollment requirement is added, current EHB-benchmark 
plans under the first option may not automatically meet the definition.
    Commenters recommended different enrollment thresholds for the 
typical employer plan, with some commenters noting that substantial 
enrollment varies by State or the lack of justification for the 5,000 
enrollee threshold. Other commenters believed that the proposed policy 
disregarded the concept of typicality as being the scope of coverage 
typically seen in employer-based plans or did not believe enrollment 
should be an indicator for typicality (as typicality is about 
comparability and enrollment is about size).
    Response: We agree with commenters that the definition of EHB 
should establish a minimum level of benefits. In response to 
commenters' concerns with the proposed definition of typical employer 
plan, we are finalizing two sets of typical employer plans from which a 
State may choose for purposes of ensuring a minimum scope of benefits 
for the State's EHB-benchmark plan, which establishes the State's EHB 
definition.
    First, we are finalizing that the typical employer plan may be one 
of the selecting State's 10 base-benchmark plan options established at 
Sec.  156.100 from which the State could select for the 2017 plan year. 
This definition, which allows the selecting State to continue to select 
from its previous options, will allow a selecting State to modify its 
previous base-benchmark plan options to innovate those benefits to 
better meet the needs of consumers in its market.
    Second, we are finalizing that a typical employer plan also may be 
the largest health insurance plan by enrollment in any of the five 
largest large group health insurance products by enrollment in the 
selecting State, as product and plan are defined at Sec.  144.103, 
provided that: (1) The product has at least 10 percent of the total 
enrollment of the five largest large group health insurance products by 
enrollment in the selecting State; (2) the plan provides minimum value, 
as defined under Sec.  156.145; (3) the benefits are not excepted 
benefits, as established under Sec.  146.145(b) and Sec.  148.220; and 
(4) the benefits in the plan are from a plan year beginning after 
December 31, 2013.
    For purposes of this definition, we are applying the Federal 
definitions of plan and product at Sec.  144.103.\70\ Under these 
definitions, the product comprises all plans offered with the same 
covered benefits and as a result, each plan within a product must have 
the same benefit package. To ensure that these plans are typical within 
the selecting State, the determination of each product's enrollment 
numbers is based on enrollment in the selecting State.

[[Page 17016]]

Also, to ensure that none of these products are outliers within the 
State, only plans from products that have at least 10 percent of the 
total enrollment of the five largest large group health insurance 
products can be selected. For example, if a selecting State's three 
largest large group health insurance products under the second 
definition at Sec.  156.111(b)(2)(ii) have 92 percent of the enrollment 
in the selecting State among the five largest large group health 
insurance products in the State, the fourth and fifth largest large 
group health insurance products in the selecting State will not have at 
least 10 percent of the enrollment and therefore, will not be an option 
under the second prong of the typical employer plan definition. The use 
of enrollment size in defining the typical employer plan aligns with 
the previous policy where the base-benchmark plan options were also 
determined based on the enrollment in those markets. Furthermore, by 
using the largest products by enrollment in the selecting State, rather 
than on a specified enrollment size, we ensure that any variation in 
population size by the selecting State is taken into account. We 
believe this second prong of the definition provides States with 
important additional flexibility, as it expands the comparison options 
available to States when comparing their selected EHB-benchmark plan to 
a typical employer plan, while simultaneously ensuring the statutory 
requirement that the definition of EHB be equal in scope to a typical 
employer plan is met.
---------------------------------------------------------------------------

    \70\ Section 144.103 defines ``product'' as ``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'' and a plan as ``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.''
---------------------------------------------------------------------------

    We agree with commenters that self-insured plans have a 
significantly greater likelihood of being plans with atypical benefit 
designs. Therefore, this definition for typical employer plan does not 
include self-insured plans, including health reimbursement 
arrangements. We also recognize that States would have challenges 
obtaining information about these other types of plans, especially at 
the level of detail needed for the plan to be used as a comparison to 
the State's EHB-benchmark plan. To limit the burden on States to 
determine which plans in the State would be included in the second set 
of plans, we are limiting the second set under the definition of 
typical employer plan to large group market health insurance plans and 
products.
    In response to commenters who recommended that the typical employer 
plan be required to provide minimum value (MV), we are also finalizing 
as part of the second prong of the definition of the typical employer 
plan that the plan must meet MV requirements under Sec.  156.145. Under 
Sec.  156.145, an employer-sponsored plan provides minimum value only 
if the percentage of the total allowed costs of benefits provided under 
the plan is greater than or equal to 60 percent, and the benefits under 
the plan must include substantial coverage of inpatient hospital 
services and physician services, characteristics that we believe are 
reflective of typical employer plans. For example, by requiring the 
typical employer plan meet MV, outlier plans, such as preventive-
services-only plans, which do not provide substantial coverage of 
inpatient hospital and physician services in accordance with the MV 
requirement, could not satisfy the second definition of typical 
employer plan.
    To further respond to comments recommending that we ensure that 
outlier plans are excluded from the definition of typical employer 
plan, we are finalizing as part of the second prong of the definition a 
requirement that the plan's benefits are not excepted benefits, as 
defined under Sec.  146.145(b), and Sec.  148.220. For example, a 
worker's compensation plan would not meet the second prong of the 
definition of a typical employer plan. This requirement specifically 
ensures that the typical employer plan is a major medical plan. Lastly, 
we are requiring that the benefits in the plan are from a plan year 
beginning after December 31, 2013. This requirement is consistent with 
the options under the first prong of the typical employer plan 
definition, which references plans originally offered in 2014.
    In applying the typical employer plan definition, we recognize that 
States may find that the plans that meet the definition of a typical 
employer plan may not provide coverage for items and services within 
each EHB category at Sec.  156.110(a). Therefore, we are finalizing 
that the State's EHB-benchmark plan must provide a scope of benefits 
that is equal to, or greater than, to the extent any supplementation is 
required to provide coverage within each EHB category at Sec.  
156.110(a), the scope of benefits provided under a typical employer 
plan. The purpose of this approach is to permit States' EHB-benchmark 
plans' scope of benefits not to be equal to the benefits under the 
typical employer plan definition, only by exceeding the scope of 
benefits provided by the typical employer plan, and only if necessary 
to ensure that all EHB categories of benefits are being covered. We 
believe that these requirements, when taken together, ensure outlier 
plans are excluded from the definition of a typical employer plan, 
respond to commenters' concerns regarding the risk that the definition 
of typical employer plan would include atypical plans and ensure that 
the requirement for the EHB-benchmark plans' scope of benefits to be 
equal to that of a typical employer plan can account for benefits 
within each EHB category at Sec.  156.110(a).
    Comment: Some commenters believed that the statute requires that 
the scope of benefits for the typical employer plan be informed by the 
Department of Labor report \71\ required under section 1302(b)(2)(A) of 
PPACA. These commenters did not believe that the proposed typical 
employer plan definition was informed by the 2011 DOL report and were 
concerned that defining the typical employer plan using enrollment 
instead of typicality of benefits allows skimpier benefits, which would 
have a detrimental effect on the most vulnerable enrollees in a way 
that contravenes the PPACA requirement and implicates the Americans 
with Disabilities Act. Some commenters were particularly concerned 
about the impact of the proposed typical employer plan definition under 
the third option and some commenters expressed concern about the 
potential scope of coverage under plans that meet the proposed 
definition. Some commenters expressed concern about coverage of 
benefits for specific groups, such as those with opioid use disorders.
---------------------------------------------------------------------------

    \71\ Selected Medical Benefits: A Report from the Department of 
Labor to the Department of Health and Human Services. April 15, 
2011. https://www.bls.gov/ncs/ebs/sp/selmedbensreport.pdf.
---------------------------------------------------------------------------

    Response: As required by section 1302(b)(2)(A) of the PPACA, the 
Department of Labor conducted a survey of employer-sponsored coverage 
and published a report on the survey on April 15, 2011. In determining 
what constitutes a typical employer plan, HHS reviewed and considered 
the findings of this survey. As discussed in more detail earlier in 
this section, the flexibility established under Sec.  156.111(a) is not 
intended to reduce benefits, but to allow for more innovative benefits 
within the current benefit requirements. Similarly, with regard to 
comparing the scope of benefits of an EHB-benchmark plan to a typical 
employer plan, we note that the scope of benefits refers to the overall 
extent of benefits covered, not to the inclusion of any particular 
benefits. A State's EHB-benchmark plan is not required to cover a 
particular benefit because that benefit is part of the typical employer 
plan the State uses to assess the scope of benefits in its EHB-
benchmark plan. Rather, the particular

[[Page 17017]]

benefits and limitations in a State's EHB-benchmark plan are 
established through one of the options defined in Sec. Sec.  156.100, 
156.110 or 156.111 and the resulting EHB-benchmark plan provides a 
scope of benefits that is equal to, or greater than the scope of 
benefits that typical employer plan, as explained earlier in this 
preamble.
    We encourage States to consider, as they select their EHB-benchmark 
plans, the potential impact on vulnerable populations, and the need to 
educate consumers on benefit design changes. Specifically, as States 
work to address the opioid crisis, we urge States to consider whether 
and how selecting a new EHB-benchmark plan could help address the 
crisis in their State.
    Comment: Commenters generally supported requiring States to provide 
public notice and an opportunity for public comment on its selection of 
an EHB-benchmark plan, with some commenters supporting State 
flexibility to determine the process. Most commenters, on the other 
hand, wanted minimum or standardized requirements for the public 
comment process, such as requiring the solicitation of input from 
certain groups, a public hearing, a comment period of 30 days or 60 
days, the posting of usable and understandable data, analysis and plan 
documents (such as the documentation to be submitted to HHS under Sec.  
156.111(e)), posting of any changes, a requirement that the State 
submit documentation on its public hearing process to HHS, or some 
combination of these standards. These commenters typically wanted a 
transparent process to ensure meaningful and equal participation of 
consumers, or wanted to reduce the burden of having a different process 
for each State. One commenter wanted the regulation to at least 
reference the State's applicable public comment period under the 
State's administrative procedure act or department of insurance rules 
while another was concerned that the rule assumes that a State has in 
place a reasonable public comment process. Some commenters supported 
requiring the State to post public notice while other comments wanted a 
process to identify inadequacies or appeal a State's decision.
    Response: We agree with commenters that the State public notice and 
comment period is important for transparency to allow consumers to 
provide feedback on the States' proposed changes to their EHB-benchmark 
plans. However, we believe that States have varying processes for 
soliciting and receiving comments and may have used varying processes 
previously to provide public notice and an opportunity for public 
comment on their EHB-benchmark plan selections.
    Therefore, in an effort to retain State flexibility under this 
requirement, with one exception, we are finalizing a policy under which 
States must provide reasonable public notice and opportunity for public 
comment, but will look to States to reasonably interpret that 
requirement. In response to comments, we are finalizing a requirement 
that the State, regardless of the public comment process it uses to 
select its EHB-benchmark plan, must post a notice on a relevant State 
website regarding the opportunity for public comment with associated 
information.
    For States that do not have a public notice and comment process for 
these purposes, these States should consider using a similar process 
for public comment to the one established at Sec.  155.1312(a)-(c). We 
also remind States that any public participation processes must 
continue to comply with applicable Federal civil rights laws, including 
those that require covered entities to provide meaningful access for 
individuals with limited English proficiency, and those that require 
effective communications for individuals with disabilities, including 
web accessibility requirements. The public notice process at Sec.  
156.111(c) applies whenever a State changes its EHB-benchmark plan in 
accordance with Sec.  156.111(a).
iii. Data Collection for State's EHB-Benchmark Plans for 2020 Plan Year 
and Later (Sec.  156.111(e))
    We proposed data collection requirements at Sec.  156.111(e) for a 
State that opts to select a new EHB-benchmark plan under Sec.  
156.111(a) in any given year, beginning with the 2019 plan year. We 
proposed that a State must submit documents in a format and manner 
specified by HHS by a date determined by HHS and proposed four areas of 
documentation. First, at paragraph (e)(1), we proposed to require 
documentation that would confirm that the State's EHB-benchmark plan 
complies with the requirements under proposed Sec.  156.111(a), (b) and 
(c), which includes the requirement that the 10 EHB categories of 
benefits are covered under the State's EHB-benchmark plan. This 
documentation would also include information on which selection option 
under proposed Sec.  156.111(a) the State is using, including whether 
the State is using another State's EHB-benchmark plan.
    Second, in paragraph (e)(2), we proposed, for a State selecting an 
EHB-benchmark plan under Sec.  156.111(a)(2) or (3), that the State's 
documentation must include an actuarial certification and an associated 
actuarial report from an actuary, who is a member of the American 
Academy of Actuaries, in accordance with generally accepted actuarial 
principles and methodologies, affirming that the State's EHB-benchmark 
plan is equal in scope of benefits provided under a typical employer 
plan. We proposed that if the State is selecting its EHB-benchmark plan 
using Sec.  156.111(a)(3), which allows the State considerable 
flexibility to otherwise select a set of benefits that would become its 
EHB-benchmark plan, that the actuarial certification and associated 
report would also affirm that the new EHB-benchmark plan does not 
exceed the generosity of the most generous among the set of comparison 
plans specified in paragraph (a)(3). For the actuarial certification, 
we proposed that these documents, in accordance with generally accepted 
actuarial principles and methodologies, would include complying with 
all applicable Actuarial Standards of Practice (ASOP) (including but 
not limited to ASOP 41 on actuarial communications). We also sought 
comment on a draft methodology for comparing benefits of a State's EHB-
benchmark plan selection to the benefits of a typical employer plan for 
the actuarial certification and associated actuarial report \72\ and on 
whether the draft methodology should be the required approach for the 
State's actuarial certification and associated actuarial report.
---------------------------------------------------------------------------

    \72\ The Draft Example of an Acceptable Methodology for 
Comparing Benefits of a State's EHB-benchmark Plan Selection to 
Benefits of a Typical Employer Plan As Proposed under the HHS Notice 
of Benefit and Payment Parameters for 2019 (CMS-9930-F) is available 
on CCIIO's Regulation and Guidance web page at https://www.cms.gov/cciio/resources/regulations-and-guidance/index.html.
---------------------------------------------------------------------------

    Third, we proposed at paragraph (e)(3) that the State would be 
required to submit an EHB-benchmark plan document that reflects the 
benefits and limitations in the benchmark plan, including the medical 
management requirements, a schedule of benefits and, if the State is 
selecting its EHB-benchmark plan using the option in paragraph (a)(3), 
a formulary drug list in a format and manner specified by HHS similar 
to current Sec.  156.120. For a State that chooses an EHB-benchmark 
plan under proposed Sec.  156.111(a)(1), the State may submit the plan 
document from the other State's EHB-benchmark plan used for the 2017 
plan year to fulfill this proposed requirement. For a State that 
selects an EHB-benchmark plan under proposed Sec.  156.111(a)(2), the

[[Page 17018]]

State could create a combined plan document by assembling parts of the 
plan documents from the other State's or States' benchmark plan 
documents. We acknowledged that States may need to make conforming 
edits in the other States' plan documents to align language and 
terminology. For a State that chooses the option proposed at Sec.  
156.111(a)(3), the State may need to develop a plan document. 
Additionally, under proposed Sec.  156.111(e)(3), if the State is 
selecting its EHB-benchmark plan using the option in Sec.  
156.111(a)(3), we proposed that the State must also include a formulary 
drug list for the State's EHB-benchmark plan in a format and manner 
specified by HHS. We also proposed that for a benefit, such as the 
pediatric dental benefit, that is defined by another program under the 
State's EHB-benchmark plan, the State may submit a separate document 
that reflects the benefits and limitations, including the medical 
management requirements and a schedule of benefits comparable to how 
States that defined their dental coverage using their State's CHIP 
programs have done previously. Otherwise, regardless of which option 
the State is using to select a new EHB-benchmark plan, the State would 
be expected to submit one comprehensive plan document for the entire 
State's EHB-benchmark plan selection.
    Lastly, we proposed under paragraph (e)(4) to require the State to 
submit documentation specified by HHS, which is necessary to 
operationalize the State's EHB-benchmark plan. This documentation would 
be used to provide public resources on a State's EHB-benchmark plan and 
support related templates and tools. We proposed that this 
documentation would include a complete and accurate EHB summary chart 
that reflects the State's EHB-benchmark plan and aligns with the 
documentation that we currently make publicly available on a State's 
EHB-benchmark plan. For States that choose Sec.  156.111(a)(1) or 
(a)(2) where the State is developing its benchmark plan based on 
another State's EHB-benchmark plan, the State could develop this 
document utilizing information from the EHB summary chart that is 
currently publicly available.\73\
---------------------------------------------------------------------------

    \73\ All States' current benchmark plan documents are posted on 
CCIIO's website at https://www.cms.gov/CCIIO/Resources/Data-Resources/ehb.html.
---------------------------------------------------------------------------

    We proposed that HHS would post the State's EHB summary document 
and the State's EHB-benchmark plan document on the Center for Consumer 
Information and Insurance Oversight (CCIIO) website. We also considered 
posting the State's EHB-benchmark plan confirmations proposed at Sec.  
156.111(e)(1).
    We proposed that in order for a State's selection of a new EHB-
benchmark plan from the proposed options to be accepted, the State's 
new EHB-benchmark plan must comply with the associated EHB regulatory 
and statutory requirements, including those under this final rule. If a 
State's EHB-benchmark plan selection does not meet these regulatory and 
statutory requirements, the State's current EHB-benchmark plan would 
continue to apply. We solicited comments on the proposed processes and 
deadlines for the 2019 and 2020 plan years.\74\ We also solicited 
comments on the proposed data collection and associated documents and 
whether other specifications for these documents are needed. We are 
finalizing the provisions at Sec.  156.111(e) with an amendment to 
Sec.  156.111(e)(2) to reflect the changes to Sec.  156.111(b)(2)(i) 
and (ii) described above. We are finalizing that the policy will begin 
applying for the 2020 plan year.
---------------------------------------------------------------------------

    \74\ For the 2019 plan year, HHS would post States' EHB-
benchmark plan documents after the proposed State submission 
deadline, which would likely be in April 2018.
---------------------------------------------------------------------------

    Comment: Commenters generally supported transparency in EHB-
benchmark plan documents and making these documents publicly available. 
Some commenters noted concerns about the completeness and accuracy of 
current EHB-benchmark plan documents and the inconsistent level of 
detail among EHB summary charts, encouraging accuracy in plan 
information to limit confusion.
    Response: Section 156.111(e) is designed to ensure that the State's 
EHB-benchmark plan meets the requirements at Sec.  156.111(b), (c), and 
(d) and to ensure that the State's EHB-benchmark plan has a clearly 
defined set of covered benefits. In an effort to support transparency, 
we will post all documents \75\ that a State submits pertaining to its 
EHB-benchmark plan selection on CCIIO's website with the exception of 
the drug list. These documents will include the State's confirmations 
(Sec.  156.111(e)(1)), any actuarial certification and associated 
actuarial report (Sec.  156.111(e)(2)), the plan documents (Sec.  
156.111(e)(3)), and the documents necessary to operationalize the 
State's EHB-benchmark plan (Sec.  156.111(e)(4)). The State's EHB-
benchmark plan drug list will be posted in the category and class count 
format in the EHB summary chart as the current drug counts are 
currently posted.\76\
---------------------------------------------------------------------------

    \75\ CMS's PRA website is available at https://www.cms.gov/Regulations-and-Guidance/Legislation/PaperworkReductionActof1995/PRA-Listing.html.
    \76\ https://www.cms.gov/CCIIO/Resources/Data-Resources/ehb.html.
---------------------------------------------------------------------------

    Because EHB-benchmark plan benefits are based on plans that were 
sold in 2014, some of the benchmark plan documents may not comply with 
current Federal requirements. For this reason, the State confirmations 
require the State to confirm that its EHB-benchmark plan meets the 
requirements to be an EHB-benchmark plan. Since States are typically 
the primary enforcer of EHB policy, States may take varying approaches 
to the level of details included in the EHB Summary Chart, as we 
believe the manner in which the State displays the EHB-benchmark plan 
in the EHB Summary Chart may be reflective of the State's EHB 
enforcement strategies.
    Furthermore, we also recognize that the States' 2017 EHB-benchmark 
plans may need conforming edits to comply with other laws and 
regulations, and to account for any benefits considered EHB under Sec.  
155.170. For these reasons, we clarified in the proposed rule that 
benefits and limits described in the available benchmark plan documents 
on our website may not be fully applicable due to other laws and 
regulations. For instance, under section 2711 of the PHS Act, as added 
by the PPACA, issuers may not impose lifetime or annual dollar limits 
on EHBs. When lifetime or annual dollar limits are specified in 
available EHB-benchmark plan documents, States would have removed the 
dollar limits or converted them to non-dollar limits when interpreting 
and applying EHB policy. HHS recognizes most States as the primary 
enforcers of EHB policy. Thus, when a State would use an EHB-benchmark 
plan that originated in another State under any proposals under Sec.  
156.111, we would generally defer to the selecting State's 
implementation of the benefits and limits consistent with otherwise 
applicable law, even when such interpretation differs from the 
originating State's interpretation. Where possible, States should 
provide clarity on benefits and limits in the documents collected under 
Sec.  156.111(e) or note differences in the States' EHB summary chart.
    Lastly, we are codifying in regulation text at Sec.  156.111(d)(1) 
a proposed standard that we discussed in the preamble of the proposed 
rule, under which the State's new EHB-benchmark plan must comply with 
the regulatory

[[Page 17019]]

and statutory requirements, including those under this final rule, in 
order for HHS to accept a State's selection of a new EHB-benchmark plan 
from the options under Sec.  156.111(a). If a State's EHB-benchmark 
plan selection does not meet these regulatory and statutory 
requirements, the State's current EHB-benchmark plan would continue to 
apply.
    Comment: Some commenters on the Draft Example of an Acceptable 
Methodology for Comparing Benefits of a State's EHB-benchmark Plan 
Selection to Benefits of a Typical Employer Plan As Proposed under the 
HHS Notice of Benefit and Payment Parameters for 2019 (CMS-9930-F) did 
not support parts of the proposed methodological approach. Comments 
generally did not support the use of small group index rates or wanted 
an upper-bound limit of 98 percent to 102 percent for the category 
comparison, with some commenters, noting the difficulty in conducting 
this type of calculation or recommending additional input or more 
detail. Others wanted to require actuarial data from the States to 
justify adoption of a benchmark plan that varies significantly from 
their current benchmarks in any category. Comments on the actuarial 
certification and associated actuarial report requirements varied on 
which EHB-benchmark selection options it should apply to.
    Response: To account for the application of the typical employer 
plan definition at Sec.  156.111(b)(2)(i) and the generosity standard 
at Sec.  156.111(b)(2)(ii) to all selection options, we are finalizing 
Sec.  156.111(e)(2) with certain changes. Specifically, we are 
finalizing the requirement that States provide an actuarial 
certification and an associated report from an actuary from the 
American Academy of Actuaries, in accordance with generally accepted 
actuarial principles and methodologies, that affirms: (1) That the 
State's EHB-benchmark plan provides a scope of benefits that is equal 
to, or greater than, to the extent any supplementation is required to 
provide coverage within each EHB category at Sec.  156.110(a), the 
scope of benefits provided under a typical employer plan as defined at 
Sec.  156.111(b)(2)(i); and (2) the State's EHB-benchmark plan does not 
exceed the generosity of the most generous among the set of comparison 
plans at Sec.  156.111(b)(2)(ii)(A) and (B). States will be required to 
submit an actuarial certification and an associated report under Sec.  
156.111(e)(2) to affirm that both of the standards at Sec.  
156.111(b)(2)(i) and Sec.  156.111(b)(2)(ii) are met, regardless of 
which selection option under Sec.  156.111(a) they use.
    The purpose of the policy being finalized at Sec.  156.111 is to 
strike a balance between providing flexibility to allow States' 
additional options to select their EHB-benchmark plans and ensuring 
that States' EHB-benchmark plans meet the associated statutory 
requirements. To that end, the actuarial certification and associated 
actuarial report are intended to ensure that the scope of EHB is equal 
in scope to the benefits provided under a typical employer plan, and to 
provide the information to support the certification from the Chief 
Actuary of CMS for the Secretary to submit along with a report to 
Congress, consistent with section 1302(b)(2)(B) of the PPACA. Section 
1302(b)(2)(B) of the PPACA requires that the Chief Actuary of CMS 
certify that the scope of EHB as defined by the Secretary is equal to 
the scope of benefits provided under a typical employer plan. Through 
this rule, the Secretary is determining that the actuarial 
certification and associated actuarial report at Sec.  156.111(e)(2) 
ensures any EHB-benchmark plan selection is meeting the requirements at 
section 1302(b)(2)(A) of PPACA; therefore, we are finalizing these 
requirements.
    This includes the requirement that the actuarial certification and 
associated actuarial report be prepared in accordance with generally 
accepted actuarial principles and methodologies. This includes all 
applicable ASOPs. For example, ASOP 41 contains disclosure 
requirements, including those that apply to the disclosure of 
information on the methods and assumptions being used and ASOP 50 
contains information on determining MV and AV. In accordance with ASOP 
41, we would expect that the actuarial report is based on a data 
analysis that is reflective of an appropriate population.
    State actuaries may need flexibility in developing the actuarial 
certification and report depending on the type of changes that the 
State is interested in making to its EHB-benchmark plan and depending 
on the typical employer plan that the State is using for the 
certification and report. For these reasons, we are finalizing an 
example methodology with several changes.\77\ First, to provide 
clarification for actuaries, we expanded the methodology to address the 
determination of the plan generosity under Sec.  156.111(b)(2)(ii) in 
parallel to the determination of the typical employer plan, and further 
explained how an actuary could use a typical employer plan or a 
comparison plan for this certification and associated report.
---------------------------------------------------------------------------

    \77\ Example of an Acceptable Methodology for Comparing Benefits 
of a State's EHB-benchmark Plan Selection in Accordance with 45 CFR 
156.111(b)(2)(i) and (ii) is available at https://www.cms.gov/cciio/resources/regulations-and-guidance/index.html.
---------------------------------------------------------------------------

    Second, we are finalizing the definition of a typical employer plan 
to establish the minimum level of benefits for the State's EHB-
benchmark plan and the generosity standard to establish the maximum 
level of benefits for a State's EHB-benchmark plan selection. By tying 
the maximum level of benefits, in part, to certain previous States' 
EHB-benchmark plan options, the new State EHB-benchmark plan selections 
are tied to generosity of the current EHB-benchmark plans in the 
States, which is not what a 102 percent upper bound limit would 
provide. For these reasons, we believe that creating an additional 
upper-bound limit under the typical employer plan in the example 
methodology is not necessary, would be duplicative, and would be 
difficult to implement with the generosity standard at Sec.  
156.111(b)(2)(ii).
    Lastly, to support the use of more appropriate data for the 
actuarial certification and associated actuarial report, we removed the 
use of small group index rates from the calculation of the expected 
value. Instead, we provide other examples of acceptable data that an 
actuary may use, including data acquired from issuers in the State for 
a recent plan year, and weighted the services and benefits provided in 
each EHB category. We believe that the changes to the methodology will 
help inform actuaries on how to approach the actuarial certification 
and associated report at Sec.  156.111(e)(2).
    Comment: Commenters generally opposed implementing the new EHB-
benchmark plan options for the 2019 benefit year. Some of these 
commenters were concerned about operational and administrative 
feasibility and burden to implement an EHB change for 2019, as well as 
the lack of adequate time to design products and meet 2019 rate and 
form filing deadlines. Other commenters were concerned about the 
ability for States and issuers to evaluate options, or the impact of 
the policy leading to market instability, increased costs, or consumer 
confusion. Some commenters noted that the goal of market stability was 
more important than the goal of providing States with added 
flexibility. Another commenter was concerned about the potential for 
data errors due to short timeframes.
    Commenters generally supported making EHB-benchmark plan changes 
for the 2020 plan year at the earliest, with some noting that the 2020 
timelines aligns with previous

[[Page 17020]]

benchmark plan timelines. Certain commenters wanted additional analysis 
or information before implementing any change. Other commenters wanted 
to ensure that States provide outreach to consumers on the EHB-
benchmark plan changes. A commenter wanted to understand how guaranteed 
renewability might affect changes to plans being made to reflect 
changes from a new State EHB-benchmark plan selection.
    Response: We acknowledge the operational and administrative 
difficulties for States, issuers and consumers with implementing a 
changing benefit design under the timeframes for the 2019 benefit year, 
and believe that a 2020 implementation date would provide these 
stakeholders with additional time to ensure a smooth implementation of 
any benefit design changes. For these reasons, we will make Sec.  
156.111 effective for the 2020 plan year. We are also finalizing the 
deadline for State submission of its EHB-benchmark plan as July 2, 
2018, for the 2020 plan year.\78\ This deadline aligns with the timing 
of HHS's previous updates to the benchmark plans.
---------------------------------------------------------------------------

    \78\ We proposed July 1, 2018, but recognize that July 1, 2018 
is a Sunday, so we are finalizing the 2020 deadline as July 2, 2018.
---------------------------------------------------------------------------

    As for guaranteed renewability, under some circumstances, issuers 
may be permitted to change their products to reflect new requirements 
for providing EHB as uniform modifications of their products. 
Otherwise, if the changes to products are deemed to result in the 
removal of products from the market, issuers would be required to meet 
the product discontinuance requirements under Sec.  147.106, which 
generally require at least 90 days advanced notice to the enrollees of 
the discontinuance.
c. Provision of EHB (Sec.  156.115)
    Currently, to provide EHB, plans are required to provide benefits 
that are substantially equal to the EHB-benchmark plan. However, an 
issuer of a plan offering EHB may substitute benefits within 
categories, if allowed by the State, provided that the benefits are 
actuarially equivalent to the benefit that is being replaced. 
Substitutions of prescription drug benefits are not permitted.\79\ In 
the EHB Rule, we finalized a policy at Sec.  156.115(b)(1) under which 
substitution may not occur between different benefit categories.
---------------------------------------------------------------------------

    \79\ See Sec.  156.115(b)(1)(iii), as established in the EHB 
Rule.
---------------------------------------------------------------------------

    In an effort to promote greater flexibility, consumer choice, and 
plan innovation through coverage and plan design options, we proposed 
modifying paragraph (b)(1)(ii) to allow States to permit issuers to 
substitute benefits within the same EHB category and between EHB 
categories, as long as the substituted benefit is actuarially 
equivalent to the benefit being replaced and is not a prescription drug 
benefit. The plan with substitutions would still be required to provide 
benefits that are substantially equal to the EHB-benchmark plan, to 
provide an appropriate balance among the EHB categories such that 
benefits are not unduly weighted towards any category, and to provide 
benefits for diverse segments of the population. It is generally the 
State's responsibility to assess that plans required to provide EHB 
adhere to these requirements.
    We noted that nothing in this proposal would prohibit plans 
required to provide EHB from imposing non-dollar limits, unless 
otherwise prohibited by Federal law.\80\ In addition, we noted that we 
would continue to defer to States, which have the option to set 
criteria for benefit substitution, to enforce a stricter standard on 
benefit substitution, or to prohibit it altogether consistent with 
paragraph (b) of this section. We sought comment on examples of 
substitution that issuers would be interested in pursuing.
---------------------------------------------------------------------------

    \80\ See Frequently Asked Questions on Essential Health Benefits 
Bulletin (February 17, 2012), Q9, available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/ehb-faq-508.pdf and the EHB rule. As 
finalized in the EHB Rule, issuers of QHPs were permitted to make 
actuarially equivalent substitutions within statutory categories 
under Sec.  156.115(b)(1)(ii). Therefore, and as further explained 
in the EHB FAQ, plans are permitted to impose non-dollar limits, 
consistent with other guidance, that are at least actuarially 
equivalent to the annual dollar limits.
---------------------------------------------------------------------------

    We are finalizing the proposal with amendments to clarify when 
issuers may substitute benefits and States' roles in permitting or 
prohibiting substitution. Specifically, we are finalizing the change to 
allow issuers to substitute benefits between EHB categories, beginning 
with plan year 2020, if the State in which the plan will be offered 
permits such substitution and notifies HHS of its decision to allow 
substitution between categories. We also add a clarification at Sec.  
156.115(b)(3)(i) that plans with substitutions are not relieved of 
their requirements under Sec.  156.115(a), including the requirement to 
cover preventive health services, as required under 45 CFR part 147.
    We are finalizing 2020 as the first plan year in which issuers, 
with the permission of the State, may substitute benefits between 
categories to align with the first year for which States may update 
their EHB-benchmark plans under Sec.  156.111.
    We believe States are best positioned to weigh the benefits of 
innovative plan design with any effects on State risk pools, and 
therefore, will only permit substitution between EHB categories in 
States that have notified HHS that substitution between EHB categories 
is permitted by the State. Further, because States are generally the 
primary enforcers of EHB requirements, including the prohibition on 
discrimination at Sec.  156.125, we believe States can best assure that 
plan designs meet the needs of their State residents. We anticipate 
that States will notify HHS of their decision, if any, to allow 
substitution between EHB categories through the same means States use 
to notify HHS of an updated EHB-benchmark plan selection under Sec.  
156.111. If a State wishes to permit between-category substitution, it 
will notify HHS, and that notification will be in effect unless and 
until the State notifies HHS otherwise. States that permit between-
category substitution should work with their issuers to ensure they are 
aware of this option. We plan to post on CCIIO's website a list of 
States that allow substitution between EHB categories.
    Comment: The majority of commenters to this proposal expressed 
concerns about this proposed policy, and many commenters to this 
proposal raised concerns about this policy's potential impact on the 
risk pool. Specifically, commenters were concerned that the proposal 
would permit issuers to design products that are intended to be 
unattractive to higher-cost populations to discourage enrollment from 
these populations. Some of these commenters were concerned about 
resulting adverse selection, and were concerned that finalizing the 
policy could ultimately interfere with the stability of the individual 
and small group market risk pools. Several commenters were concerned 
that the requirement that substituted benefits be actuarially 
equivalent does not address this concern, because actuarial equivalence 
is based on a standard population and cannot take into account the 
potential effects of adverse selection. Commenters were concerned that 
this type of ``gaming'' to deter enrollment from members of certain 
groups could undermine State risk adjustment programs. Additionally, 
many commenters requested that if we chose to finalize this proposal, 
we publish additional guidance clarifying how issuers could utilize 
substitution between EHB categories without violating 
antidiscrimination

[[Page 17021]]

requirements. Some commenters stated that they could not conceive of a 
situation in which cross-category substitution would be useful, and 
notwithstanding our request for such examples, we did not receive 
any.\81\
---------------------------------------------------------------------------

    \81\ One commenter submitted what they described as an example 
of how an issuer could use this policy to promote the use of high-
value services, but their example was a case of adjustments to 
actuarial value, as opposed to an example of substitution between 
EHB categories.
---------------------------------------------------------------------------

    Response: We seek to promote issuer flexibility and consumer choice 
with this proposal, but recognize that there are potential trade-offs 
with regard to the risk pool and risk adjustment programs. We believe 
that States are more attuned to the needs of their issuers and 
consumers than HHS and can better assess the proper balance between 
flexibility in plan benefits and risk pool stability. Because issuers 
are required under the rule to provide benefits that are substantially 
equal to the EHB-benchmark plan, provide an appropriate balance among 
the EHB categories such that benefits are not unduly weighted towards 
any category, and provide benefits for diverse segments of the 
population, we expect that effects on the risk pool will be limited and 
can be appropriately managed through State regulation. Because States 
are generally the primary enforcers of the prohibition on 
discrimination in the provision of EHB, we defer to States to provide 
guidance to issuers on how to utilize substitution while meeting anti-
discrimination requirements.
    Comment: While commenters generally supported efforts to provide 
States and issuers with additional flexibility, a majority of 
commenters expressed strong concerns that this specific policy would 
put undue burden on multiple stakeholders due to increased plan design 
complexity. For example, many commenters wrote that regulators in 
States that choose to permit substitution between EHB benefit 
categories would face additional challenges due to the difficulty of 
determining whether plans that substituted benefits between EHB offered 
an adequate distribution of benefits across all EHB categories. One 
commenter added that evaluating plans that incorporated substitution 
between EHB categories would be more difficult for States than 
evaluating plans with substitution within EHB categories, because when 
comparing the allowed cost associated with particular types of services 
and limits on those services with other services in the same EHB 
category, the same dollar amount represents the same proportion of all 
services in that EHB category. However, this equivalence of dollar 
amounts and proportionality does not apply when comparing between 
different categories, making a comparison more difficult. Relatedly, 
another commenter noted that the lack of uniformity among plans this 
policy could produce could increase administrative burden on issuers, 
as well as States, by making it more difficult for issuers to conform 
plans to filing templates related to QHP certification.
    Due to concerns including additional burden on State regulators, 
commenters also requested that if we were to finalize this proposal, 
States be permitted to bar substitution between EHB categories.
    Almost all commenters asked that we consider the increased burden 
that consumers would face when comparing plans due to plan complexity 
related to a possible lack of uniformity across EHB benefit categories 
and across available plans. In particular, commenters noted that it 
would become more difficult for consumers in States that chose to 
permit this option to make meaningful comparisons between plans due to 
the difficulty in determining whether benefits had been substituted 
between EHB categories and, if so, whether the resulting coverage 
package adequately met their needs. One commenter added that these 
difficulties could also undermine the value of the market signals that 
consumers' choices currently generate to issuers and other key 
stakeholders.
    Finally, in addition to concerns about consumer burden due to 
increased plan complexity, many commenters also objected to this 
proposal due to the possibility that it could undermine coverage for 
services that are crucial for vulnerable consumers and prevent coverage 
of chronic conditions.
    Response: We agree that permitting substitution between EHB 
categories could make it more difficult for State regulators to review 
plans. However, we believe States should have the flexibility to 
determine whether allowing such a policy will in fact create challenges 
for State regulators, and if so, whether those challenges are offset by 
the benefits of allowing more innovation in plan design in the form of 
between-category substitution. Under the policy we are finalizing, 
States that determine that allowing substitution between EHB categories 
would pose excessive burden on regulators have the authority to 
withhold permission and avoid such burden.
    In response to comments, we are finalizing that substitution 
between categories would only be permitted if the State in which the 
plan will be offered has notified HHS that substitution between EHB 
categories is permitted in the State. We recognize that State 
legislative cycles may make it challenging for States to adopt 
legislative requirements allowing or prohibiting substitution between 
categories in time for plan year 2020. By finalizing this notification 
approach, we seek to make it easier for States to immediately exercise 
the flexibility provided in this rule.
    We appreciate the comment about increased burden on issuers. 
Because issuers are already familiar with substituting benefits within 
benefit categories, we do not believe that broadening the policy to 
allow benefit substitution between benefit categories will create 
additional burden for issuers. However, if it does, issuers have the 
discretion to avoid additional burden by choosing not to substitute 
benefits between EHB categories, even if allowed by their State. If a 
State chooses, we believe issuers should be permitted to decide whether 
the additional flexibility in plan design provided by substitution 
between categories is worth any additional required effort. We also 
encourage States to consider the impact on issuers as they weigh 
whether to allow substitution between categories.
    We recognize that consumers may face some additional burden in 
comparing plans when States allow between-benefit substitution and one 
or more issuers in the State utilize such substitution. However, we 
believe permitting substitution between categories could offer 
significant benefit to consumers in the form of more choices, 
particularly those actively engaged in shopping for health plans. Some 
consumers are likely to find plans that better meet their needs under 
this change, because issuers are likely to make substitutions that 
fulfill consumer demands. Further, we believe States are best 
positioned to weigh the benefits of innovative plan design with the 
potential for increased burden for consumers in their individual and 
small group markets.
    We believe that this change will not undermine coverage for 
vulnerable consumers or prevent coverage of chronic conditions, because 
issuers will still be required to offer benefits substantially equal to 
the EHB-benchmark plan, cover each EHB category without undue weight 
toward any, provide benefits for diverse segments of the population, 
and refrain from discrimination 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.

[[Page 17022]]

d. Premium Adjustment Percentage (Sec.  156.130)
    Section 1302(c)(4) of the PPACA directs the Secretary of HHS to 
determine an annual premium adjustment percentage, which is used to set 
the rate of increase for three parameters detailed in the PPACA: 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; 
\82\ 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 in the annual HHS notice of 
benefit and payment parameters.
---------------------------------------------------------------------------

    \82\ As noted above, although the individual shared 
responsibility payment in section 5000A is reduced to $0, effective 
for months beginning after December 31, 2018, individuals may still 
have a need to seek certain exemptions under section 5000A of the 
Code to obtain catastrophic coverage after 2018.
---------------------------------------------------------------------------

    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 estimates and projections of average per enrollee employer-
sponsored insurance premiums from the NHEA, which are calculated by the 
CMS Office of the Actuary. Accordingly, using the employer-sponsored 
insurance data, the premium adjustment percentage for 2019 is the 
percentage (if any) by which the most recent NHEA projection of per 
enrollee employer-sponsored insurance premiums for 2018 ($6,396) 
exceeds the most recent NHEA estimate of per enrollee employer-
sponsored insurance premiums for 2013 ($5,110).\83\ Using this formula, 
the premium adjustment percentage for 2019 is 1.2516634051 or 
approximately 25 percent. We are finalizing this index as proposed. 
Based on the proposed 2019 premium adjustment percentage, we proposed 
the following cost-sharing parameters for calendar year 2019.
---------------------------------------------------------------------------

    \83\ We note that the 2013 premium used for this calculation has 
been updated to reflect the latest NHEA data. See ``NHE Projections 
2016-2025--Tables'' available at https://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/proj2016.pdf.
---------------------------------------------------------------------------

Maximum Annual Limitation on Cost Sharing for Calendar Year 2019
    Under Sec.  156.130(a)(2), for the 2019 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 2019, 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 1.2516634051 for 2019 as proposed 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,\84\ we 
proposed that the 2019 maximum annual limitation on cost sharing would 
be $7,900 for self-only coverage and $15,800 for other than self-only 
coverage. This represents an approximately 7 percent increase above the 
2018 parameters of $7,350 for self-only coverage and $14,700 for other 
than self-only coverage.
---------------------------------------------------------------------------

    \84\ See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

    Comment: Several commenters supported the 7 percent increase in the 
maximum limitation on cost sharing, saying it permits flexible plan 
design. Many other commenters objected to the 2019 maximum limitation 
on cost sharing noting it is the highest increase since 2014, saying 
the HHS methodology no longer works when paired with plan designs that 
offer less generous EHBs and asked HHS to revisit factors including the 
premium adjustment percentage used in the methodology.
    Commenters noted that while many people with high health needs 
benefit from a maximum limitation on cost sharing, the percentage 
increase in 2019 is more than twice the rate of medical inflation and 
wage growth and far higher than general inflation. Two commenters asked 
HHS to spread the maximum limitation over the benefit year to reduce 
the financial burden on chronically ill enrollees whose medical 
conditions require them to meet the limitation during the first month 
or quarter of the year.
    Response: The annual maximum limitation on cost sharing reflects 
changes in the underlying economic data, as stated above. We are 
sympathetic to the hardship faced by those whose health needs require 
them to meet their maximum limitation on cost sharing early in the 
year, but the indexing of this parameter is required by statute, and a 
payment plan for the maximum annual limitation is inconsistent with 
industry practice. We are finalizing the 2019 maximum limitation on 
cost sharing as proposed.
e. Reduced Maximum Annual Limitation on Cost Sharing (Sec.  156.130)
    Sections 1402(a) through (c) of the PPACA direct issuers to reduce 
cost sharing for EHBs for eligible individuals enrolled in a silver 
level QHP. In the 2014 Payment Notice, we established standards related 
to the provision of these cost-sharing reductions. Specifically, in 
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. At Sec.  
156.420(a), we detailed the structure of these plan variations and 
specified that QHP issuers must ensure that each silver plan variation 
has an annual limitation on cost sharing no greater than the applicable 
reduced maximum annual limitation on cost sharing specified in the 
annual HHS notice of benefit and payment parameters. Although the 
amount of the reduction in the maximum annual limitation on cost 
sharing is specified in section 1402(c)(1)(A) of the PPACA, section 
1402(c)(1)(B)(ii) of the PPACA 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 PPACA (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. As we 
discussed above, the 2019 maximum annual limitation on cost sharing is 
$7,900 for self-only coverage and $15,800 for other than self-only 
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 2019 benefit year and our proposed 
results.
    Consistent with our analysis in the 2014 through 2018 Payment 
Notices, we developed three test silver level QHPs, and analyzed the 
impact on AV of the reductions described in the PPACA to

[[Page 17023]]

the estimated 2019 maximum annual limitation on cost sharing for self-
only coverage ($7,900). 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 2019, the test 
silver level QHPs included a PPO with typical cost-sharing structure 
($7,900 annual limitation on cost sharing, $2,350 deductible, and 20 
percent in-network coinsurance rate), a PPO with a lower annual 
limitation on cost sharing ($5,250 annual limitation on cost sharing, 
$3,050 deductible, and 20 percent in-network coinsurance rate), and an 
HMO ($7,900 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, $500 emergency department visit, $25 primary 
care office visit, and $55 specialist office visit). All three test 
QHPs meet the AV requirements for silver level health plans.
    We then entered these test plans into the proposed 2019 AV 
Calculator and observed how the reductions in the maximum annual 
limitation on cost sharing specified in the PPACA affected the AVs of 
the plans. We found that the reduction in the maximum annual limitation 
on cost sharing specified in the PPACA for enrollees with a household 
income between 100 and 150 percent 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 levels (94 and 87 percent, 
respectively). In contrast, the reduction in the maximum annual 
limitation on cost sharing specified in the PPACA 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 2017 benefit year with 
a household income between 200 and 250 percent of FPL be reduced by 
approximately \1/5\, rather than \1/2\. 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 
10. These proposed reductions in the maximum annual limitation on cost 
sharing should adequately account for unique plan designs that may not 
be captured by our three model QHPs. We also note that selecting a 
reduction for the maximum annual limitation on cost sharing that is 
less than the reduction specified in the statute would not reduce the 
benefit afforded to enrollees in aggregate because QHP issuers are 
required to further reduce their annual limitation on cost sharing, or 
reduce other types of cost sharing, if the required reduction does not 
cause the AV of the QHP to meet the specified level. We are finalizing 
these reductions as proposed.
    In prior years, we have found that for individuals with household 
incomes of 250 to 400 percent of the FPL, without any change in other 
forms of cost sharing, any reduction in the maximum annual limitation 
on cost sharing will cause an increase in AV that exceeds the maximum 
70 percent level set in the statute. In the Market Stabilization Rule, 
we analyzed the effect of reducing the maximum annual limitation on 
cost sharing based on how we calculated the 2018 reduced maximum annual 
limitation on cost sharing. We stated that we were not certain what the 
AV spread of plan designs will be under the finalized policy, whether 
issuers will in fact reduce the AVs of their base silver plans to the 
lower end of the de minimis range, and whether issuers will retain plan 
designs above the 70 percent AV range and that we would monitor 2018 
standard silver plan designs. As a result, we did not propose to reduce 
the maximum annual limitation on cost sharing for individuals with 
household incomes between 250 and 400 percent FPL.\85\
---------------------------------------------------------------------------

    \85\ 2014 Payment Notice, 78 FR at 15481; Market Stabilization 
Rule. 82 FR at 18370-18371.
---------------------------------------------------------------------------

    We note that for 2019, as described in Sec.  156.135(d), States are 
permitted to submit for approval by HHS State-specific datasets for use 
as the standard population to calculate AV.\86\ No State submitted a 
dataset by the September 1, 2017 deadline.
---------------------------------------------------------------------------

    \86\ The annual deadline for submitting State specific data for 
the AV Calculator was announced August 15, 2014. See https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/final-state-avc-guidance.pdf.

                   Table 10--Reductions in Maximum Annual Limitation on Cost Sharing for 2019
----------------------------------------------------------------------------------------------------------------
                                                                       Reduced maximum        Reduced maximum
                                                                     annual limitation on   annual limitation on
                       Eligibility category                         cost sharing for self-    cost sharing for
                                                                      only coverage for     other than self-only
                                                                             2019            coverage for 2019
----------------------------------------------------------------------------------------------------------------
Individuals eligible for cost-sharing reductions under Sec.                        $2,600                 $5,200
 155.305(g)(2)(i) (that is, 100-150 percent of FPL)...............
Individuals eligible for cost-sharing reductions under Sec.                         2,600                  5,200
 155.305(g)(2)(ii) (that is, 150-200 percent of FPL)..............
Individuals eligible for cost-sharing reductions under Sec.                         6,300                 12,600
 155.305(g)(2)(iii) (that is, 200-250 percent of FPL).............
----------------------------------------------------------------------------------------------------------------

    Comment: Several commenters objected to reducing the maximum annual 
limitation on cost sharing by only one-fifth for enrollees with 200-250 
percent FPL, calling the resulting reduced maximum annual limitation on 
cost sharing about 28 percent of income in this category and too high 
for most consumers. Commenters asked HHS to revise its test plan, with 
one commenter saying it does not reflect shifts in plan network type 
and structure and, as a result, hurts enrollees in this income level.
    Response: When developing our test plan, we generally try to match 
features of actual 2018 plans submitted for certification. We 
understand State-by-State plans may differ from the HHS test plans and 
we will continue to apply statutory reductions in maximum annual 
limitation on cost sharing to plans that most accurately represent 
those submitted for certification.

[[Page 17024]]

    Comment: One commenter cautioned HHS against introducing a new plan 
variation for enrollees with incomes between 250-400 percent FPL in the 
absence of Federal payments to issuers for cost-sharing reductions, 
stating that additional requirements to provide reduced cost sharing 
would cause issuers to increase premium for all enrollees, and 
disproportionately hurt those not eligible for any or all subsidies.
    Response: We share the commenter's concern that additional 
reductions for some enrollees could result in higher charges for others 
without other changes. We will continue to monitor plan AV and benefit 
design for impact on premiums and out-of-pocket costs.
f. Application to Stand-Alone Dental Plans Inside the Exchange (Sec.  
156.150)
    Section 1302(d)(2) of the PPACA directs the Secretary to issue 
regulations on the calculation of AV and its application to the levels 
of coverage. In the 2013 EHB Rule, HHS finalized the requirements for 
the calculation of AV for stand-alone dental plans. Specifically, Sec.  
156.150 directs SADPs to cover the pediatric dental EHB at one of two 
AV levels, within an allowable de minimis variation of +/- 2 percentage 
points.
    We proposed to remove the requirement under Sec.  156.150(b) for 
SADP issuers to meet the low (70 percent +/- 2 percentage points) or 
high (85 percent +/- 2 percentage points) AV level. We are finalizing 
the elimination of the requirement that SADP issuers offer EHBs at the 
low or high levels of coverage. The PPACA does not specifically require 
SADP issuers to offer coverage at the high or low levels of AV. 
Removing the AV level requirement will give SADP issuers the 
opportunity to offer more flexible plan designs to consumers. In 
previous comments, SADP issuers had noted that it is difficult to meet 
the low AV requirement and offer preventive care without cost sharing, 
to which consumers are accustomed in the large group market. Issuers 
could offer SADPs at varying premiums and levels of coverage, so long 
as they continue to offer the pediatric dental EHB and meet the annual 
limitations on cost sharing. We believe that this will allow consumers 
to select from a greater variety of plans and find one that is more 
likely to meet their specific needs.
    We are not finalizing the elimination of the requirement that SADP 
issuers certify their plans' level of coverage of EHB, as proposed. We 
will no longer require certification of the level of coverage since 
SADPs will no longer be required to be offered at certain levels of 
coverage. However, HHS will continue to require certification by a 
member of the American Academy of Actuaries of the AV of the SADPs' 
coverage of EHB. HHS will consider ways to use the certified AV to 
provide consumers with additional information to assist in plan 
selection.
    Comment: Several commenters opposed the proposal. They expressed 
concern that the removal of AV requirements for EHB would allow SADP 
issuers to offer plans with little value, and that consumers would have 
difficulty comparing SADPs. Several commenters requested that HHS 
establish a minimum AV of 70 percent for EHB covered by SADPs, and that 
the level of coverage of EHB of an SADP be displayed to consumers when 
they choose plans.
    Several commenters supported the proposal. They expected the 
proposal to result in greater plan choice for consumers. Some also 
expected SADPs to have greater ability to maintain similar cost sharing 
from year to year, since SADP issuers would not be required to alter 
their plans to meet a particular level of coverage. One commenter 
observed that AV for pediatric EHB is a poor indicator of plan value 
for SADPs, since most SADP enrollees are adults. Some commenters 
requested that HHS implement consumer support tools to aid consumers in 
choosing among SADPs.
    Response: In order to facilitate the implementation of consumer 
support tools related to SADPs in the future, we are not finalizing the 
elimination of the requirement that SADPs' AV for EHB be certified by a 
member of the American Academy of Actuaries. Further, we are codifying 
an operational requirement that such certification be reported to the 
Exchange, which issuers of SADPs have already been fulfilling, as part 
of the QHP certification process.
    We believe consumers benefit when they have a range of plan 
choices, including some plans with lower premiums and a lower AV. All 
SADPs will continue to be required to cover the pediatric dental EHB 
and to limit annual cost sharing on EHB. We expect many SADPs with AVs 
at and above 70 percent will remain available to consumers, even 
without a minimum AV standard, because SADPs often provide preventive 
services without cost sharing. While we acknowledge that removing AV 
standards will make plan comparison more difficult for some consumers, 
we note that standardized levels of coverage of pediatric dental EHB 
are not a useful plan comparison tool for the large share of SADP 
enrollees who are adults. HHS will consider ways to provide consumers 
with additional information to assist in comparison and selection of 
SADPs.
    Comment: Some commenters questioned whether an SADP with a 
different AV from one year to the next would be considered the same 
plan for the purposes of guaranteed renewability or plan crosswalk.
    Response: We note that guaranteed renewability requirements at 45 
CFR 147.106 generally do not apply to SADPs because they are excepted 
benefit plans. HHS plans to develop a plan crosswalk hierarchy for 
Exchanges that use the Federal eligibility and enrollment platform that 
does not rely on SADPs being offered at either a high or low level of 
coverage.
3. Qualified Health Plan Minimum Certification Standards
a. Qualified Health Plan Certification (Subpart C)
    HHS is committed to recognizing States' role as the primary 
regulator of their insurance markets, and has made a number of recent 
changes in the QHP certification process to promote this role, and to 
limit duplicative oversight over issuers. Previously, in the Guidance 
to States on Review of Qualified Health Plan Certification Standards in 
Federally-facilitated Marketplaces for Plan Years 2018 and Later,\87\ 
released on April 13, 2017, we outlined areas where, starting in plan 
year 2018, HHS began relying on State reviews of QHP certification 
standards for States with FFEs, including States with FFEs that perform 
plan management functions in partnership with HHS. We made these 
changes to streamline the QHP certification process and avoid 
duplicative Federal and State efforts. In that guidance, we provided 
that in FFE States that do not perform plan management functions, HHS 
will continue to review QHP data, but will rely on State review for 
licensure and good standing standards required at Sec.  156.200(b)(4), 
and for network adequacy standards required at Sec.  156.230. For FFEs 
in States performing plan management functions, HHS will continue to 
rely on State plan data review for QHP certification standards, 
including for service area and prescription drug formulary outliers and 
non-discrimination in cost sharing. We stated that we will continue to 
review plan data relating to Federal funds or plan display on 
HealthCare.gov, such as cost-sharing reductions structures, data

[[Page 17025]]

integrity, and plan crosswalks to implement annual re-enrollment at 
Sec.  155.335(j). In the proposed rule, we reaffirmed this approach, 
and did not propose changes to this guidance.
---------------------------------------------------------------------------

    \87\ https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/QHP-Certifcation-Reviews-Guidance-41317.pdf.
---------------------------------------------------------------------------

    To further streamline QHP certification by avoiding duplicative 
reviews, we also previously announced in the QHP Rate Outlier Analysis 
for Plan Year 2018 and Beyond \88\ that we would rely on States to 
identify rate outliers for purposes of QHP certification,\89\ except 
for those States that do not have an Effective Rate Review Program. 
These changes were intended to allow States and issuers greater 
flexibility in facilitating the certification of plans best suited to 
their markets, while avoiding duplicative State and Federal activities. 
We did not propose any changes to the approach described in this 
guidance.
---------------------------------------------------------------------------

    \88\ https://www.regtap.info/uploads/library/QHP_RateOutlier_FAQ_5CR_071017.pdf.
    \89\ This review generally identifies rates that are relatively 
low compared to other QHP rates in the same rating area. The 
identification of a QHP rate as an outlier does not necessarily 
indicate inappropriate rate development; instead, this information 
helps inform the determination of whether certifying the QHP to be 
offered on the Exchange would be in the interest of consumers.
---------------------------------------------------------------------------

    In the Market Stabilization final rule, HHS also finalized several 
standards to affirm the traditional role of States in overseeing their 
health insurance markets while reducing the regulatory burden of 
participating in Exchanges for issuers for the 2018 plan year.
    In the proposed rule, we continued these efforts to enhance States' 
role in the QHP certification process. We proposed to continue to 
enhance the State flexibilities in QHP certification that began for 
plan year 2018 by identifying additional areas where States are already 
performing reviews that are duplicative of the Federal QHP 
certification process and incorporating these reviews into the QHP 
certification process. In addition to empowering States, we believed 
these proposals would reduce issuer burden.
    We proposed to extend for the 2019 benefit year and beyond policies 
related to QHP certification standards for network adequacy (Sec.  
156.230) and essential community providers (Sec.  156.235) that we had 
finalized in the Market Stabilization final rule for only plan year 
2018. Specifically, with respect to network adequacy, we proposed to 
rely on the States' reviews in States in which an FFE is operating, 
provided the State has a sufficient network adequacy review process. 
For the 2019 benefit year and beyond, we proposed to defer to the 
States' reviews in States with the authority to enforce standards that 
are at least equal to the ``reasonable access standard'' defined in 
Sec.  156.230 and means to assess issuer network adequacy. In States 
that do not have the authority and means to conduct sufficient network 
adequacy reviews, we proposed for the 2019 benefit year and beyond to 
rely on an issuer's accreditation (commercial, Medicaid, or Exchange) 
from an HHS-recognized accrediting entity, which we proposed would 
include the three accrediting entities HHS has previously recognized 
for the accreditation of QHPs: The National Committee for Quality 
Assurance, URAC, and Accreditation Association for Ambulatory Health 
Care.\90\ Unaccredited issuers would be required to submit an access 
plan as part of the QHP application. To show that the QHP's network 
meets the requirement in Sec.  156.230(a)(2), the access plan would 
need to demonstrate that an issuer has standards and procedures in 
place to maintain an adequate network consistent with the National 
Association of Insurance Commissioners' Health Benefit Plan Network 
Access and Adequacy Model Act (the Model Act is available at http://www.naic.org/store/free/MDL-74.pdf). We proposed to further coordinate 
with States to monitor network adequacy, for example, through complaint 
tracking.
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    \90\ Recognition of Entities for the Accreditation of Qualified 
Health Plans 77 FR 70163 (November 23, 2012) and Approval of an 
Application by the Accreditation Association for Ambulatory Health 
Care (AAAHC) To Be a Recognized Accrediting Entity for the 
Accreditation of Qualified Health Plans 78 FR 77470 (December 23, 
2013).
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    With respect to QHP certification review for the essential 
community provider (ECP) standard, we proposed for the 2019 benefit 
year and beyond that we would continue to allow issuers to use the ECP 
write-in process to identify ECPs that are not on the HHS list of 
available ECPs and would maintain the 20 percent ECP standard. We 
believe this standard will substantially reduce the regulatory burden 
on issuers while preserving adequate access to care provided by ECPs. 
As in previous years, if an issuer's application does not satisfy the 
ECP standard, the issuer would be required to include as part of its 
application for QHP certification a satisfactory narrative 
justification describing how the issuer's provider networks, as 
presently constituted, provide an adequate level of service for low-
income and medically underserved individuals and how the issuer plans 
to increase ECP participation in the issuer's provider networks in 
future years. At a minimum, such narrative justification would include 
the number of contracts offered to ECPs for the applicable plan year; 
the number of additional contracts an issuer expects to offer and the 
timeframe of those planned negotiations; the names of the specific ECPs 
to which the issuer has offered contracts that are still pending; and 
contingency plans for how the issuer's provider network, as currently 
designed, will provide adequate care to enrollees who might otherwise 
be cared for by relevant ECP types that are missing from the issuer's 
provider network.
    We are finalizing as proposed the policies for network adequacy 
(Sec.  156.230) and ECPs (Sec.  156.235).
    Comment: Many commenters supported the network adequacy proposal, 
favoring the elimination of duplicative reviews, while others opposed 
the proposal, stating that States' and accrediting entities' review 
processes do not do enough to ensure enrollees have adequate access to 
necessary care. We also received many comments that strongly opposed 
the continuation of the 20 percent ECP standard and urged that HHS 
return to the 30 percent ECP standard, expressing concerns that the 
lower threshold requirement will result in access barriers to care for 
low-income consumers.
    Response: We are finalizing as proposed our policies for network 
adequacy and ECP, as we believe they will continue to help stabilize 
the markets by reducing regulatory burden on issuers, while also 
preserving adequate access to care, and streamlining the QHP 
certification process. We have relied on State and accrediting entities 
for this review in the past, and believe they provide appropriate 
review because both typically have requirements in place that 
specifically address access to adequate networks. Many States already 
address issuer network adequacy in State-specific regulation. The 
National Committee for Quality Assurance requires accredited plans to 
create standards for the number and geographic distribution of 
providers and establish standards regarding the ability of consumers to 
access care. Similarly, URAC requires that plans have proper methods in 
place to build, manage, and evaluate their networks. We will also 
continue to monitor enrollee complaints for access concerns.
    For plan years 2019 and later, HHS proposed to further expand the 
role of States in the QHP certification process for FFEs, including 
FFEs where the State performs plan management functions. Specifically, 
we proposed to defer to States for additional review

[[Page 17026]]

areas, including accreditation requirements at Sec.  156.275, 
compliance reviews at Sec.  156.715, minimum geographic area of the 
plan's service area at Sec.  155.1055, and quality improvement strategy 
reporting at Sec.  156.1130, if feasible and appropriate. In the 
proposed rule, we stated that we believed States currently perform 
reviews in these areas that are duplicative of the Federal reviews for 
QHP certification. As a result, we did not believe this policy would 
require States to undertake additional reviews or change existing 
reviews to match the Federal standards for QHPs. We are not finalizing 
the proposal to defer to States for reviews in these four areas.
    Comment: Some commenters supported the proposal to defer the 
additional review areas of accreditation, minimum geographic area of 
the plan's service area, compliance reviews, and quality improvement 
strategy reporting to States for purpose of QHP certification, while 
some commenters--including some States--opposed the proposal, citing 
lack of State resources, insufficient staff, and the possibility of 
increased costs.
    Response: We are not finalizing as proposed the deferral to States 
for the review of service area; accreditation; compliance review--which 
in this context we interpreted to be review of an issuer's 
organizational chart and compliance plan; and quality improvement 
strategy reporting. Based on comments received, we understand that 
States presently lack resources, including staffing resources, to 
conduct these reviews. We are less concerned about the potential for 
Federal reviews to impose unnecessary additional burden on issuers, 
given information from States and commenters that not all States 
currently perform these reviews. Our proposal was intended to eliminate 
duplication in reviews, not to compel States to take on reviews that 
they are not already performing.
b. QHP Issuer Participation Standards
    Section 156.200 sets forth many of the standards a plan must meet 
to be certified as a QHP. We proposed to amend paragraph (b)(2) to add 
a cross reference to proposed Sec.  155.706 to align with other changes 
made throughout this final rule regarding changes to SHOP. Comments 
related to the proposed approach for SHOP are discussed at the 
beginning of section III.D.9 of this rule. We are finalizing the change 
as proposed.
c. Additional Standards Specific to SHOP for Plan Years Beginning Prior 
to January 1, 2018 (Sec.  156.285)
    As discussed in the following section, we proposed and are 
finalizing a modification to the regulatory requirements regarding 
additional standards specific to SHOP for plan years beginning on or 
after January 1, 2018 and are introducing those requirements in a new 
Sec.  156.286. To reflect the proposal that the requirements currently 
in Sec.  156.285 would apply only for plan years beginning before 
January 1, 2018, we proposed to amend the heading of Sec.  156.285 and 
add paragraph (f), to state that the section would only apply for plan 
years that begin prior to January 1, 2018. We discuss the new standards 
applicable for plan years beginning on or after January 1, 2018 in the 
following section. These changes will be effective on the effective 
date of the final rule.
    Comments related to the proposed approach for SHOP are discussed at 
the beginning of section III.D.9 of this rule; we are finalizing these 
policies as proposed.
d. Additional Standards Specific to SHOP for Plan Years Beginning on or 
After January 1, 2018 (Sec.  156.286)
    As discussed above, we proposed to make Sec.  156.285, which 
describes the requirements on QHP issuers participating in SHOPs to 
accept enrollment and payment information from a SHOP on behalf of an 
employer or enrollee applicable only for plan years beginning prior to 
January 1, 2018, and to modify the additional standards specific to QHP 
issuers participating in SHOPs applicable for plan years beginning on 
or after January 1, 2018, through the introduction of a new Sec.  
156.286. We proposed that new Sec.  156.286 would include only those 
standards that have been applicable under Sec.  156.285 that would 
continue to apply to the SHOPs under the proposed approach discussed 
earlier in this preamble, with minor modifications and clarifications.
    We proposed to retain Sec.  156.285(a) as Sec.  156.286(a). 
However, we proposed to require issuers to accept payment not only from 
the SHOP, but from a qualified employer or enrollee or a SHOP, to 
reflect the proposal that a SHOP would not be required to process 
enrollments and payments. We also proposed not to include the 
requirement currently in Sec.  156.285(a)(4)(ii), which prohibits 
issuers in FF-SHOPs from using average enrollee premiums, as the FF-
SHOPs and SBE-FPs for SHOP, would no longer be involved in premium 
payments. For the same reason, we also proposed a narrower version of 
Sec.  156.285(b) as Sec.  156.286(b), requiring only that issuers 
adhere to the enrollment periods and processes established by the SHOP 
consistent with Sec.  155.726, and establish uniform enrollment 
timelines and processes for qualified employers and group members. We 
also proposed in Sec.  156.286(c) to include only those requirements 
from Sec.  156.285(c) that do not relate to the payment and enrollment 
processes that we have proposed would no longer be required.
    We proposed not to include a paragraph mirroring paragraph (d) of 
Sec.  156.285. This reflects our proposal to remove the requirements 
contained in current Sec.  155.735, and generally not to impose 
coverage related timelines on issuers of QHPs through the SHOPs for 
plans beginning on or after January 1, 2018. We proposed to include a 
paragraph mirroring Sec.  155.285(e) as Sec.  156.286(d).
    Finally, under our proposed and finalized approach, SHOPs will no 
longer be required to provide employee enrollment functionality. When 
enrollments are completed by working with SHOP issuers or SHOP-
registered agents or brokers, which will be the case for FF-SHOPs, it 
may not always be immediately apparent to the issuer whether the 
enrollment is through the SHOP, and whether it is part of an employer's 
offering a choice of plans. To ensure that issuers offering QHPs 
through a SHOP do so in a manner that is consistent with our new 
interpretation of the SHOP provisions of the statute, we proposed to 
add new paragraphs (e) and (f) in Sec.  156.286. These will require 
that QHP issuers offering a QHP through the SHOP accept enrollments 
from groups in accordance with the employer choice policies applicable 
to the SHOP under Sec.  155.706(b)(3), that they maintain processes 
sufficient to identify whether a group market enrollment is an 
enrollment through the SHOP, and they maintain records of SHOP 
enrollments for a period of 10 years following the enrollment. Proposed 
paragraph (f) also would require issuers to utilize a uniform 
enrollment form, as required by section 1311(c)(1)(F) of the PPACA. As 
noted in the preamble to Sec.  155.716, we intend to update the single 
employer application to reflect our changes in Sec.  155.731. An issuer 
will be considered to satisfy this requirement if it uses that 
application form.
    Finally, we proposed in paragraph (g) to state that the 
requirements contained within Sec.  156.286 are only applicable for

[[Page 17027]]

plan years beginning on or after January 1, 2018.
    We are finalizing these policies as proposed, with a minor change 
to Sec.  156.286(a)(1) to reflect that SBEs can continue operating 
their SHOPs under current practices. These changes are effective as of 
the effective date of this rule.
    Comment: We received a comment that requested clarification on the 
issuer requirements at Sec.  156.286(a)(1), regarding whether the 
proposal precluded State Exchanges from directing issuers offering QHPs 
in their SHOPs to accept payments only from the SHOP.
    Response: State Exchanges that do not take advantage of the 
flexibilities described above for their SHOPs are encouraged to 
continue operating in a manner consistent with Sec.  156.285, or in a 
way that best meets the needs of their small group market. The 
requirements in Sec.  156.286(a)(1) represent minimum SHOP requirements 
for issuers that would apply to all SHOPs, including those that take 
advantage of the flexibilities provided for by this final rule, like 
the FF-SHOPs. We did not intend that the leaner approach to SHOP 
prohibit State Exchanges from requiring QHP issuers in their SHOPs from 
accepting payments on behalf of a qualified employer or enrollee from 
sources other than the SHOP, as the FF-SHOPs had previously done. We 
have clarified the regulatory text accordingly.
e. Meaningful Difference Standard for Qualified Health Plans in the 
Federally-Facilitated Exchanges (Sec.  156.298)
    We proposed to remove Sec.  156.298 to eliminate meaningful 
difference standards for QHPs offered through an FFE or SBE-FP. Under 
this standard, in order to be certified as a QHP, a plan must be 
meaningfully different from all other QHPs offered by the same issuer 
of that plan within a service area and level of coverage in the 
Exchange. As defined in Sec.  156.298(b), QHPs are considered 
meaningfully different from other plans if a reasonable consumer would 
be able to identify one or more material differences among five key 
characteristics between the plan and other plans to be offered by the 
same issuer.
    This meaningful difference standard was implemented to make it 
easier for consumers to understand differences between plans, and 
choose the right plan option for them. However, with fewer issuers 
participating in the Exchange, and fewer plans for consumers to choose 
from, we proposed to remove these standards, as we no longer believe 
the requirement is necessary. We believe removing the meaningful 
difference standard would encourage plan design innovation, by 
providing more flexibility to issuers in designing plans, and thus 
increase plan offerings and choice for consumers.
    We are finalizing this policy as proposed.
    Comment: While some commenters supported removing the meaningful 
difference standard, several commenters opposed removing it, stating 
that the standard helps consumers avoid confusion and improves the 
consumer shopping experience. Some commenters stated that removing the 
standard would decrease the comparative value of the data and increase 
the probability of duplicative QHP offerings, with one commenter 
stating that removing the standard would encourage a proliferation of 
plans. One commenter stated that removing the standard could lead to 
benefit designs aimed to attract healthy enrollees and repel sick 
enrollees. One commenter recommended that we provide an exception to 
the meaningful difference standard in cases where a comparison is not 
feasible, while maintaining the requirement in cases where comparisons 
are feasible. One commenter supported removing the standard as long as 
certain conditions outside the scope of this rule were met.
    Response: We believe that removing the meaningful difference 
standard will not substantially increase the number of materially 
similar plans from the same issuer. Plan selection tools provide 
consumers with information to distinguish between plans and see 
similarities or differences. With fewer plans on the Exchanges than in 
prior years, we believe removing this standard will encourage 
innovation and increase plan offerings and choice for consumers, the 
benefits of which would outweigh any potential confusion.
f. Other Considerations
    We sought comment on ways in which HHS can foster market-driven 
programs that can improve the management and costs of care and that 
provide consumers with quality, person-centered coverage. As we stated 
in the 2017 and 2018 Payment Notices, we believe that innovative 
issuer, provider, Exchange, and local programs or strategies can 
successfully promote and manage care, in a manner that contributes to 
better health outcomes and lower rates while creating important 
differentiation opportunities for market participants. We 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 in order to better meet the goals of affordability, 
quality, and access to care.
    We also sought comment on how we may encourage value-based 
insurance design within the individual and small group markets and ways 
to support issuers in using cost sharing to incentivize more cost-
effective enrollee behavior and higher quality health outcomes, in 
accordance with section 2713(c) of the PHS Act. Currently, under our 
rules, issuers have considerable discretion in the design of cost-
sharing structures, subject to certain statutory AV requirements, non-
discrimination laws and rules,\91\ and other applicable law, such as 
MHPAEA.
---------------------------------------------------------------------------

    \91\ We note that issuers are also subject to Federal civil 
rights laws, including Title VI of the Civil Rights Act, section 504 
of the Rehabilitation Act, the Age Discrimination Act, section 1557 
of the Affordable Care Act, and conscience and religious freedom 
laws.
---------------------------------------------------------------------------

    We would like to encourage issuers to offer HDHPs that can be 
paired with a health savings account (HSA) as a cost effective option 
for enrollees. While the proportion of available HSA-eligible HDHPs has 
been stable in the FFEs, the percentage of enrollees in HDHPs has 
decreased slightly over the last 3 years as there are certain technical 
barriers for issuers in offering HDHPs.\92\ We are particularly 
interested in exploring how to use plan display options on 
HealthCare.gov to promote the availability of HDHPs to applicants, and 
sought comment on how best to do so.
---------------------------------------------------------------------------

    \92\ For instance, the maximum annual limitation on cost sharing 
established at section 1302(c) of the PPACA is increasing at a 
faster rate than the maximum out of pocket cost limits for HDHPs 
under section 223 of the Code. Therefore, a plan that utilizes the 
maximum annual limitation on cost sharing under the PPACA would not 
meet the requirements to be an HDHP under the Code that could be 
paired with an HSA.
---------------------------------------------------------------------------

    We are also interested in value-based insurance designs that focus 
on cost effective drug tiering structures; address overused, higher 
cost health services; provide innovative network design that 
incentivizes enrollees to use higher quality care; and promote use of 
preventive care and wellness services. We solicited comments on how HHS 
can better encourage these types of plan designs, and whether any 
existing regulatory provisions or practices discourage such designs.
    Comment: Many commenters supported HHS exploring ways to encourage 
innovation and value-based insurance design. There was general support 
for HHS to drive towards improved health outcomes and efficient health 
care delivery. Commenters noted that issuers should be encouraged to

[[Page 17028]]

engage in value-based insurance design that utilizes clinical 
effectiveness research and drives consumers to efficient high quality 
providers. Commenters questioned how services would be deemed high-
value and cautioned against disincentivizing consumers from seeking 
preventive and wellness care, and care for chronic conditions. 
Commenters suggested that HHS seek public comment on services that are 
high value or leverage data from comparative effectiveness research to 
identify low-value services.
    Commenters generally supported increasing transparency of health 
information, but cautioned that consumers would need education and 
tools in order to make information useful. Some requested that 
additional information be incorporated into HealthCare.gov, plan 
selection tools, the Summary of Benefits and Coverage, or the out-of-
pocket estimator tool.
    Others suggested that specific alternative payment options be 
allowable, such as reference pricing or allowing issuers the 
flexibility to apply the annual limitation on cost sharing to 
accumulate differently in tiered networks.
    Comments were mixed regarding HSA-eligible HDHPs. Many commenters 
cautioned that HDHPs do not meet the needs of low-income consumers and 
urged that HHS provide appropriate explanations and ensure there are 
consumer protections to make sure consumers make appropriate plan 
selections. Others noted that HealthCare.gov should provide more 
information on how to use HDHPs and how to set up HSAs. Others 
commented that promoting HDHPs would require training of Navigators and 
call center staff to handle additional questions. Some noted that 
HealthCare.gov support should not answer questions more appropriate for 
HSA custodians.
    Commenters noted the statutory and regulatory issues with offering 
HSA-eligible HDHPs on Exchanges, including the misalignment of annual 
limitations on cost sharing between the PPACA and the Code. Others 
requested that the IRS expand preventive care safe harbors under 
section 223(c)(2)(C) of the Code to include services and benefits 
related to the management of chronic conditions and medications.
    One commenter suggested that HHS provide subsidies in the form of 
HSA contributions instead of cost-sharing reductions. Other commenters 
offered additional responses related to drug pricing, encouraging HHS 
to prioritize the transparency of drug pricing in general, and other 
health care costs. Others noted that with the removal of standardized 
options, HHS should consider other ways to incentivize issuers to offer 
at least some QHPs with prescription drugs not subject to the 
deductible. Other commenters noted specific examples where issuers were 
waiving cost sharing for high value prescription drugs, such as those 
to treat high blood pressure. Others suggested that drug rebates could 
be available to consumers at the point of sale. Additional commenters 
expressed concerns about changes to the 340B drug discount program.
    Response: We appreciate these comments and will take them under 
consideration. We note that the Treasury Department and the IRS have 
jurisdiction over HSAs and HSA-eligible HDHPs under section 223 of the 
Code.
4. Standards for Downstream and Delegated Entities (Sec.  156.340)
    Section 156.340 sets forth the responsibilities of a QHP issuer and 
its applicable downstream entities. We proposed to amend paragraph 
(a)(2) to add a cross reference to proposed Sec.  155.706 to align with 
other changes made throughout this rule regarding SHOP. Comments 
related to the proposed approach for SHOP are discussed at the 
beginning of section III.D.9 of this rule.
    We are finalizing the change as proposed.
5. Eligibility and Enrollment Standards for Qualified Health Plan 
Issuers on State-Based Exchanges on the Federal Platform (Sec.  
156.350)
    Section 156.350 describes the eligibility and enrollment standards 
for issuers that offer QHP coverage in the SBE-FPs. Currently, Sec.  
156.350(a)(1) and (2) state that for a QHP issuer to participate in an 
SBE-FP for SHOP, it must comply with the requirements at Sec.  
156.285(a)(4)(ii) and Sec.  156.285(c)(5) and (c)(8)(iii), 
respectively. However, as discussed elsewhere in this final rule, to 
align with our proposal regarding the SHOPs, we proposed, and are 
finalizing, that these referenced requirements at Sec.  156.285 would 
not be applicable for plan years beginning on or after January 1, 2018, 
effective on the effective date of this rule. Therefore, we proposed to 
amend Sec.  156.350(a)(1) and (a)(2) to specify that they only apply 
through plan years beginning prior to January 1, 2018.
    Comments related to the proposed approach for SHOP are discussed at 
the beginning of section III.D.9 of this rule. We are finalizing the 
changes as proposed.
6. Minimum Essential Coverage
a. Other Coverage That Qualifies as Minimum Essential Coverage (Sec.  
156.602)
    A CHIP program is a type of government-sponsored coverage, defined 
under title XXI of the Act that provides low-cost health coverage to 
children in low-income families that do not otherwise have health 
coverage. States may be eligible to receive Federal funds to initiate 
and expand such programs. A CHIP buy-in program, a ``full pay'' option 
where a covered family pays the full premium typically without any 
Federal or State assistance, often provides similar or identical 
benefits as the State's CHIP program under title XXI of the Act (the 
title XXI CHIP program) for children in families that do not 
financially qualify for the title XXI CHIP program.\93\ We proposed to 
amend Sec.  156.602 to specifically designate as MEC CHIP buy-in 
programs that provide identical coverage to that title XXI CHIP program 
pursuant to the Secretary's authority under section 5000A(f)(1)(E) of 
the Code. We sought comment on whether CHIP buy-in programs that 
provide greater coverage than the title XXI CHIP program should be 
categorically designated as MEC. Finally, we sought comment on whether 
other types of government-sponsored buy-in programs, such as Medicaid 
buy-in programs, should be categorically designated as MEC. We are not 
finalizing the policy to categorically designate as MEC CHIP buy-in 
programs that provide identical or greater coverage to the title XXI 
CHIP program.
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    \93\ Under IRS Notice 2015-37, individuals who may enroll in a 
CHIP buy-in program designated as MEC are eligible for MEC under the 
CHIP buy-in program for purposes of the premium tax credit under 
section 36B of the Code only if they are enrolled in the program.
---------------------------------------------------------------------------

    Comment: Some commenters supported categorically designating as MEC 
CHIP buy-in programs that provide identical or greater coverage to the 
title XXI CHIP program because the categorical designation would drive 
down premiums and out-of-pocket costs for full-pay families, as well as 
eliminate deductibles. In addition, the change would permit consumers 
to move between the title XXI CHIP program and CHIP buy-in programs 
without experiencing a change in benefits. Other commenters expressed 
concern that a categorical designation would prevent HHS from verifying 
that the benefits of a CHIP buy-in program are identical to the title 
XXI CHIP program which could lead to adverse selection in the 
individual market or erosion of CHIP benefits.

[[Page 17029]]

    Response: Following the publication of the proposed rule, Congress 
designated qualified CHIP look-alike plans as MEC. Section 
5000A(f)(1)(A)(iii) of the Code, as amended by section 3002(g)(2)(A) of 
the HEALTHY KIDS Act, specifically designates CHIP look-alike plans as 
MEC. Section 2107 of the Social Security Act, as amended by section 
3002(g)(1) of the HEALTHY KIDS Act, defines a CHIP look-alike plan as a 
CHIP buy-in program that provides ``benefits that are at least 
identical to the benefits provided'' by the title XXI CHIP program.\94\ 
Therefore, we are not finalizing the proposed changes to Sec.  156.602 
since CHIP look-alike plans are now statutorily designated as MEC.
---------------------------------------------------------------------------

    \94\ Extension of Continuing Appropriations Act, 2018; HEALTHY 
KIDS Act; Federal Register Printing Savings Act of 2017, Public Law 
115-120, 101 (2018).
---------------------------------------------------------------------------

    However, because the amendment does not designate all CHIP buy-in 
programs as MEC, we recognize that States and enrollees may have 
questions regarding whether a particular State's CHIP buy-in program is 
MEC. To provide States and enrollees with certainty as to whether their 
coverage constitutes MEC, States will have the option to verify with 
HHS that their CHIP buy-in program meets the definition of a CHIP look-
alike plan. A State may verify that a CHIP buy-in program is a 
qualified CHIP look-alike plan by submitting documentation to HHS via 
the Health Insurance Oversight System (HIOS) (as described in section V 
of the October 31, 2013 Insurance Bulletin \95\) that provides a 
detailed summary of the coverage provided by the CHIP buy-in program 
and the title XXI CHIP program. Upon review and comparison of the 
coverage, if HHS determines that the CHIP buy-in program provides at 
least the same coverage as the title XXI CHIP program, then HHS will 
confirm that the CHIP buy-in program is a CHIP look-alike plan. If HHS 
determines that the CHIP buy-in program does not provide at least the 
same coverage as the title XXI CHIP program, then the plan sponsor may 
work with HHS to modify the CHIP buy-in program to offer at least the 
same coverage as the title XXI CHIP program. In the alternative, the 
plan sponsor may apply for MEC recognition through the process outlined 
in Sec.  156.604 under which HHS will evaluate whether the CHIP buy-in 
program complies with ``substantially all'' of the provisions of title 
I of the PPACA that apply to non-grandfathered individual health 
insurance coverage.
---------------------------------------------------------------------------

    \95\ See CCIIO Sub-regulatory Guidance: Process for Obtaining 
Recognition as Minimum Essential Coverage (October 31, 2013). 
Available at http://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/mec-guidance-10-31-2013.pdf.
---------------------------------------------------------------------------

    CHIP buy-in plans that are not CHIP look-alike plans may also 
continue to receive MEC recognition through the MEC application process 
if the State can demonstrate that the coverage meets substantially all 
the requirements of title I of the PPACA pertaining to non-
grandfathered, individual health insurance coverage.
    Comment: One commenter stated that States should have the 
flexibility to offer a Medicaid buy-in program in an effort to 
stabilize the market and increase competition.
    Response: While we are not finalizing that Medicaid buy-in programs 
are designated as MEC, HHS invites all States to apply for their 
Medicaid buy-in programs to be recognized as MEC in the process 
outlined in Sec.  [thinsp]156.604.
b. Requirements for Recognition as Minimum Essential Coverage for Types 
of Coverage Not Otherwise Designated Minimum Essential Coverage in the 
Statute or This Subpart (Sec.  156.604)
    Under Sec.  156.604, the Secretary may recognize coverage as MEC 
provided HHS determines that the plan meets substantially all the 
requirements of title I of the PPACA pertaining to non-grandfathered, 
individual health insurance coverage (the ``substantially all'' 
standard). In the proposed rule, we sought comment on whether HHS 
should create a new standard of review under which CHIP buy-in programs 
must ``substantially resemble'' the title XXI CHIP program under title 
XXI to qualify as MEC under Sec.  156.604. We are not finalizing a 
substantially resemble standard of review.
    Comment: One commenter stated that the ``substantially resemble'' 
standard is more meaningful to State CHIP administrators than the 
``substantially all'' standard and would allow for more reasonable 
evaluation by HHS of each individual buy-in program. Some commenters 
stated the ``substantially resemble'' standard must be better defined 
and delineated to provide clear guidelines on what constitutes a 
qualifying buy-in program. The commenters stated that, without clarity, 
there would be confusion and States could be more arbitrary in their 
decision-making for the scope of benefits. Other commenters stated that 
the CHIP buy-in programs should be subject to the ``substantially all'' 
standard that applies to other MEC applicants. To provide a lesser 
standard to CHIP buy-in programs could result in fewer benefits for the 
children in those programs.
    Response: After reviewing these comments, we agree that it is 
important for HHS to provide clear standards of review for the MEC 
application process and to ensure that enrollees in these programs 
obtain benefits that are similar to the benefits in PPACA compliant 
coverage. We are not finalizing a ``substantially resemble'' standard. 
As described in the previous section, section 5000A(f)(1)(A)(iii) of 
the Code, as amended by section 3002(g)(2)(A) of the HEALTHY KIDS Act, 
specifically designates CHIP buy-in programs that provide benefits that 
are at least identical to the benefits provided by the title XXI CHIP 
program as MEC. CHIP buy-in programs that do not provide identical or 
greater benefits than what is provided in the State's title XXI program 
will be subject to the ``substantially all'' standard for MEC 
recognition.
7. Quality Rating System (Sec.  156.1120)
    We recognize that social risk factors play a major role in health, 
and one of our core objectives is to improve patients' outcomes 
including reducing health disparities. In addition, we seek to ensure 
that the quality of care furnished by providers and health plans is 
assessed as fairly and accurately as possible under HHS quality 
reporting programs, including the Quality Rating System established 
under section 1311(c)(3) of the PPACA, while helping to ensure that 
individuals and populations receive high quality, person-centered care. 
In response to several comments we received from the Request for 
Information, we continue to assess ways to reduce burden and promote 
State flexibility in the implementation of all statutorily required 
Exchange quality programs, including the Quality Rating System, and we 
continue to prioritize strategies to improve the value for consumers. 
We received many comments as part of the annual Quality Rating System 
Call Letter process in response to our request for public comment on 
whether we should account for social risk factors in the Quality Rating 
System, which provides quality ratings (or star ratings from 1 to 5 
stars) that account for member experience, medical care and health plan 
administration for QHPs, offered through an Exchange. We did not 
propose amendments to the Quality Rating System regulations in the 
proposed rule.
    We sought comment as part of this rulemaking on types of social 
risk factors that may be most appropriate, as well as the methods to 
account for social risk factors for QHP issuer quality

[[Page 17030]]

reporting. Examples of social risk factors include: Low income subsidy; 
race and ethnicity; and geographic area of residence. Approaches to 
account for social risk factors include stratifying measure scores or 
risk adjustment of a particular measure. We sought comment on which 
social risk factors could be used alone or in combination, current data 
sources where this information would be available, and whether other 
data should be collected to better capture the effects of social risk.
    Comment: Although many commenters expressed that accounting for 
social risk factors in measuring performance is contentious and 
challenging, there was overall support for the need to address 
socioeconomic factors that can affect quality in reporting of quality 
data and for CMS to closely monitor the ongoing work of the Office of 
the Assistant Secretary for Planning and Evaluation and the National 
Quality Forum regarding socioeconomic status in health outcomes and 
quality. Commenters encouraged HHS to increase opportunities for 
collaboration across all HHS quality rating programs, including the 
Exchange Quality Rating System, Medicare Advantage and Medicaid health 
plans and provided some recommendations on methods of accounting for 
social risk factors in the Quality Rating System. Some commenters did 
not support adjusting for socioeconomic status because they believe 
that could be counter-productive and potentially signal an expectation, 
even acceptance, of lower outcomes for financially disadvantaged 
consumers.
    Commenters provided examples of types of social risk factors and 
combination of factors that would most appropriately account for QHP 
issuer quality reporting and clarified which data is readily collected 
by Exchanges. The types of social risk factors mentioned included 
patient level data about race and ethnicity; income level; preferred 
language; disability status; sexual orientation and gender identity; 
psychological and behavioral status; alcohol and tobacco use; 
residential address; low-income subsidy eligibility status; and per the 
recommendations of the National Academies of Sciences, Engineering, and 
Medicine: Health and Medicine Division,\96\ the systematic collection 
of data in the following domains: Depression, education, financial 
resource strain, intimate partner violence, physical activity, social 
connections and social isolation, stress, housing status, insurance 
status, employment, transportation, incarceration and refugee status. 
Commenters also provided support for stratifying measure data and not 
risk adjusting the Quality Rating System for social risk factors, to 
help plans identify and distinguish efforts to improve quality from 
efforts to reduce disparities. Commenters stated that stratifying 
measure results by socioeconomic status of patients within affected 
measures would highlight disparities, showing plans which 
subpopulations among their enrollees most need targeted quality 
improvement efforts.
---------------------------------------------------------------------------

    \96\ IOM (Institute of Medicine). 2014. Capturing social and 
behavioral domains and measures in electronic health records: Phase 
2. Washington, DC: The National Academies Press. https://www.nap.edu/read/18951/chapter/1.
---------------------------------------------------------------------------

    Response: We appreciate the comments, and will take them under 
consideration as we continue to assess the appropriateness and 
feasibility of accounting for social risk factors in the Quality Rating 
System. We will continue to collaborate with the Office of the 
Assistant Secretary for Planning and Evaluation, the National Quality 
Forum, and with issuer, provider, and enrollee stakeholders to assess 
methods for the collection and application of social risk factor 
information for future years of the Quality Rating System program.
8. Direct Enrollment With the QHP Issuer in a Manner Considered To Be 
Through the Exchange (Sec.  156.1230)
    We proposed to amend paragraph (b)(2) of Sec.  156.1230 to conform 
with the proposed amendments to Sec.  155.221. The change requires 
that, prior to a QHP issuer's internet website being used to complete a 
QHP selection, the QHP issuer must engage a third-party entity in 
accordance with Sec.  155.221 to demonstrate operational readiness and 
compliance with applicable requirements. For a discussion of the 
provisions of this final rule related to third-party entities 
performing operational readiness reviews, please see the preamble to 
Sec.  155.221. We are finalizing the amendments to Sec.  156.1230 as 
proposed.
    Comment: One commenter requested clarification on whether the 
proposed Sec.  156.1230(b)(2) is meant to apply only when an Exchange 
delegates the enrollment function to plans operating in the individual 
market.
    Response: No FFE has delegated the enrollment function to plans 
operating in the individual market. Notwithstanding this, Sec.  
156.1230(b) permits QHPs in FFEs to directly enroll individual market 
applicants in a manner that is considered through the Exchange, to the 
extent permitted by applicable State law. Paragraph (b)(2) applies in 
all circumstances where an issuer participating in an FFE performs such 
a direct enrollment. A QHP issuer participating in an SBE-FP may also, 
under Sec.  156.350, directly enroll applicants, and must comply with 
the requirements in Sec.  156.1230(b)(2) as if it were an issuer of 
QHPs on an FFE when using the direct enrollment pathway.

F. Part 157--Employer Interactions With Exchanges and SHOP 
Participation

1. Qualified Employer Participation Process in a SHOP for Plan Years 
Beginning Prior to January 1, 2018 (Sec.  157.205)
    As discussed in the following section, we proposed to modify the 
regulatory requirements regarding the qualified employer participation 
process in a SHOP for plan years beginning on or after January 1, 2018 
and to introduce those requirements in a new Sec.  157.206. To reflect 
the proposal that the requirements currently in Sec.  157.205 would 
apply only for plan years beginning before January 1, 2018, we proposed 
to amend the heading of Sec.  157.205 and add paragraph (h), to state 
that the section would apply only for plan years that begin prior to 
January 1, 2018.
    Comments related to the proposed approach for SHOP are discussed at 
the beginning of section III.D.9 of this rule. We are finalizing these 
policies as proposed. These changes will be effective on the effective 
date of this rule.
2. Qualified Employer Participation Process in a SHOP for Plan Years 
Beginning on or After January 1, 2018 (Sec.  157.206)
    Section 157.205 describes requirements for participating SHOP 
employers. To reflect the proposal to allow SHOPs to operate in a 
leaner fashion, we proposed several changes to the requirements related 
to qualified employer participation process in a SHOP for plan years 
beginning on or after January 1, 2018, and proposed to introduce these 
requirements in Sec.  157.206. With the exception of the proposed 
changes to the process described here, the process will remain the same 
as in Sec.  157.205. The proposals described in this section will be 
effective on the effective date of the final rule.
    Paragraph (d) of Sec.  157.205 requires a qualified employer to 
submit any contribution towards the premiums of any qualified employee 
according to the standards and processes described in Sec.  155.705. 
Because we proposed that the requirements in Sec.  155.705 regarding

[[Page 17031]]

employer contribution methods will not apply for plan years beginning 
on or after January 1, 2018, we also proposed that the requirement in 
Sec.  157.705(d) will not apply for those plan years.
    Paragraph (e)(1) of Sec.  157.205 describes obligations of 
qualified employers to employees hired outside of the initial or annual 
open enrollment periods. We proposed in Sec.  157.206(d) that qualified 
employers must provide employees hired outside of the initial or annual 
open enrollment period with information about the enrollment process. 
We proposed that the requirement in paragraph (e)(1) of Sec.  157.705, 
which requires qualified employers to provide these employees with an 
enrollment period in accordance with Sec.  155.725(g), would not be 
included in Sec.  157.206, as the requirement in Sec.  155.725(g) will 
not be applicable for plan years beginning on or after January 1, 2018. 
We also proposed that the requirement in Sec.  157.205(e)(2) to provide 
information about the enrollment process in accordance with Sec.  
155.725 would not apply for plan years beginning on or after January 1, 
2018 to reflect that the process provided for in many of the provisions 
in Sec.  155.725 will not apply for those plan years.
    We also proposed that the requirements in Sec.  157.205(f) 
regarding the process for notifying the SHOP in the event the 
eligibility status of an employee, or employee's dependent has changed 
would not apply for plan years beginning on or after January 1, 2018. 
Under the approach finalized in this rule for plan years beginning on 
or after January 1, 2018, SHOPs will not be required to process 
employee enrollment, so there will be no reason for all qualified 
employers to provide such information.
    Further, we proposed that the requirement in Sec.  157.205(g) that 
qualified employers adhere to the annual employer election period under 
Sec.  155.725(c) would not apply for plan years beginning on or after 
January 1, 2018. Elsewhere, we finalized that the annual employer 
election period provision in Sec.  155.725(c) will not apply for those 
plan years, and this change reflects that removal.
    Finally, we proposed in paragraph (e) of Sec.  157.206 to include 
new requirements for qualified employers reflective of the proposed 
approach for SHOPs generally. First, since we proposed in Sec.  
155.716(f) that an employer's determination of eligibility to 
participate in the SHOP remains valid until the employer makes a change 
that could end its eligibility under Sec.  155.710(b), we proposed in 
Sec.  157.205(e)(1) that employers must submit a new application to the 
SHOP if the employer makes a change that could end its eligibility 
under Sec.  155.710 or withdraw from participation in the SHOP. Second, 
because under the changes we have finalized elsewhere in this rule, 
SHOPs will not be required to process group enrollments, and therefore 
will not necessarily communicate with QHP issuers about employer 
eligibility determinations, we proposed to require employers to notify 
the QHP issuer of an unfavorable eligibility determination. However, we 
proposed that the employer be required to provide the notification 
within 5 business days of the end of any applicable appeal process 
under Sec.  155.741. Specifically, the end of the appeal process could 
occur when the time to file an appeal lapses without an appeal being 
filed, when the appeal is rejected or dismissed, or when the appeal 
process concludes with an adjudication by the appeals entity, as 
applicable. We also proposed in paragraph (e)(3) to describe the 
employer's obligations regarding loss of eligibility to participate in 
a SHOP or termination of enrollment or coverage through the SHOP. Given 
that under the approach finalized in this rule there will not 
necessarily be communication between the SHOP and a participating QHP 
issuer regarding employer eligibility, enrollment, or terminations, 
there may be no way for the SHOP to notify an issuer in the event an 
employer becomes ineligible to participate in SHOP. Therefore, we 
proposed to add paragraph (e)(3) to require employers to notify an 
issuer of a loss of eligibility to participate in SHOP, or a desire to 
terminate SHOP enrollment or coverage.
    We proposed in paragraph (f) of Sec.  157.205 that the section 
would apply for plan years beginning on or after January 1, 2018, only.
    Substantive comments relating to our proposals regarding SHOP are 
addressed in section III.D.9 of this rule, as well as in the preamble 
discussing Sec. Sec.  156.285 and 156.286. We are finalizing new Sec.  
157.206 as proposed, with minor changes to paragraphs (e)(2) and 
(e)(3). As noted in the preamble to the SHOP sections in part 155, 
State Exchanges are encouraged to continue to operate their SHOPs as 
they do today, or design a SHOP within the bounds of the flexibilities 
being finalized within this rule. To ensure that SHOPs can continue to 
operate as they do today, we are providing flexibility to employers to 
allow them not to notify issuers of determinations of ineligibility to 
participate in the SHOP or their desire to terminate their 
participation in the SHOP in cases where the SHOP has notified the 
issuer. We are making this change to recognize that State-based SHOPs 
may continue to provide these notifications, in which case employers 
should not be required to provide duplicative notifications. Section 
156.206 will become effective as of the effective date of the final 
rule.

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

1. Reporting of Federal and State Taxes (Sec.  158.162)
    Section 2718 of the PHS Act requires that Federal and State taxes 
be reported, but that such amounts be excluded from premium revenue 
when calculating an issuer's MLR and accompanying rebates. However, the 
statute does not define what is included in Federal and State taxes. 
The MLR December 1, 2010, interim final rule (75 FR 74864) interprets 
this language and broadly describes Federal and State taxes that must 
be reported but are excluded from premiums in the MLR and rebate 
calculations, and Federal and State taxes that must be reported and are 
not excluded from premiums in MLR and rebate calculations. In order to 
provide consistency and clarity for MLR reporting, HHS amended Sec.  
158.162 in the 2016 Payment Notice (80 FR 10750) to specify that all 
issuers must include employment taxes in earned premiums and must not 
deduct such taxes in the MLR and rebate calculations starting with the 
2016 MLR reporting year.
    However, we received several comments in favor of allowing issuers 
to deduct such taxes from these calculations in response to the Request 
for Information. Therefore, in the proposed rule, we invited comments 
on whether, in order to encourage issuer participation and competition 
in the markets, HHS should revise paragraph (a)(2) and paragraph 
(b)(2)(iv) of Sec.  158.162 to allow all issuers to deduct Federal and 
State employment taxes from premiums in their MLR and rebate 
calculations, starting with the 2017 MLR reporting year for reports to 
be filed by July 31, 2018.
    We solicited comments on this approach from all stakeholders, 
including on whether we should instead amend the MLR regulations to 
collect the employment tax data separately from other tax data as an 
informational item on the MLR Annual Reporting Form to gather data to 
inform a decision regarding whether to amend the regulation for future 
years, and whether changing the treatment of employment

[[Page 17032]]

taxes would be likely to help improve market stability and competition.
    Comment: We received almost an equal number of comments opposing 
and supporting exclusion of Federal and State employment taxes from 
earned premium in the MLR and rebate calculations. Some who commented 
in opposition noted that modifying the treatment of employment taxes 
would contradict HHS's previous decision. Other commenters expressed 
concern that such policy would raise MLRs without producing greater 
value for consumers and would undermine consumer protections. Several 
commenters stated that it is the uncertainty and the changes to the MLR 
reporting parameters, rather than employment taxes that negatively 
affect market stability. In contrast, several other commenters stated 
that excluding employment taxes would improve market stability and 
provide incentives for issuers to enter or remain in the market. Some 
commenters stated that the PPACA provides for the exclusion of taxes 
from the MLR calculation and that including employment taxes is 
inconsistent with the treatment of other taxes. Lastly, a number of 
commenters recommended that HHS gather additional information on the 
impact of excluding employment taxes on consumers and issuers before 
making changes to the current policy. One commenter encouraged HHS to 
consider the impact on issuers providing coverage on- versus off-
Exchanges, as well as the potential double-counting that may occur 
between excluding employment taxes from premium while also including 
them in quality improvement activity (QIA) expenses.
    Response: HHS appreciates the comments submitted regarding the 
treatment of Federal and State employment taxes in the MLR and rebate 
calculations. We share the concern of some commenters that reversing 
the policy on the treatment of employment taxes only 1 year after the 
policy became effective could contribute to instability. We also 
continue to disagree that the PPACA unambiguously requires exclusion of 
employment taxes from the MLR and rebate calculations. However, it is 
our objective to explore and pursue all policy solutions that may help 
stabilize the health insurance market. Therefore, after reviewing the 
comments and recommendations, HHS intends to gather data to help 
analyze the potential impact on consumers and issuers that would result 
from excluding Federal and State employment taxes from earned premium 
in the MLR and rebate calculations, and perform additional data 
analysis to inform whether a modification to the current policy would 
be appropriate. Specifically, while issuers already report the 
employment tax amounts together with other taxes on the MLR reporting 
form, HHS intends to propose changes to the MLR Annual Reporting Form 
to include a separate line that will show these tax amounts for each 
issuer. This will provide HHS with more up-to-date and consistent data 
on employment taxes to more precisely estimate how potential 
modifications to the current policy may affect issuers and consumers 
and to determine whether such modifications would likely improve market 
stability.
2. Allocation of Expenses (Sec.  158.170)
    For a discussion of the proposed amendment to Sec.  158.170(b) 
regarding the description of the allocation method for quality 
improvement activity (QIA) expenses and a summary of the comments 
received and responses provided, please see the preamble to Sec.  
158.221. We are finalizing the change as proposed.
3. Formula for Calculating an Issuer's Medical Loss Ratio (Sec.  
158.221)
    We proposed amending Sec.  158.221 by adding new paragraph (b)(8) 
to provide issuers with an option to report quality improvement 
activity (QIA) expenses as a single fixed percentage of premium amount 
starting with the 2017 MLR reporting year (for reports to be filed by 
July 31, 2018). We also proposed conforming amendments to Sec.  
158.170(b) (Allocation of expenses) to recognize the new proposed 
option for reporting QIA expenses.
    Consistent with the NAIC's recommendation to HHS,\97\ the MLR 
interim final rule, published on December 1, 2010 (75 FR 74863), allows 
issuers to include in the MLR numerator expenditures for five 
categories of activities that improve health care quality. Accordingly, 
issuers are currently required to report QIA expenditures in alignment 
with the five separate categories codified in Sec.  158.150(b)(2)(i)-
(v). Additionally, Sec.  158.170 requires issuers to use and disclose 
specific allocation methods to report expenses, including QIA 
expenditures.
---------------------------------------------------------------------------

    \97\ National Association of Insurance Commissioners--Model 
Regulation Service, Regulation for Uniform Definitions and 
Standardized Methodologies for Calculation of the Medical Loss Ratio 
for Plan Years 2011, 2012 and 2013 per Section 2718(b) of the Public 
Health Service Act (Oct 27, 2010), available at http://www.naic.org/documents/committees_ex_mlr_reg_asadopted.pdf.
---------------------------------------------------------------------------

    In the course of conducting the MLR audits, HHS observed that the 
current MLR regulations require a substantial effort by issuers to 
accurately identify, track and report QIA expenses. HHS has also 
observed that, between 2011 and 2015, issuers that did report QIA 
expenses have reported spending, on average, a consistent percentage of 
premium on total QIA: approximately 0.7 percent in 2011, and 0.8 
percent in 2012 through 2015.
    Given issuers' relatively low and consistent reported expenditures 
on QIA and the significant burden associated with identifying, tracking 
and reporting these expenditures, we proposed adding Sec.  
158.221(b)(8) to permit issuers an option to report on their MLR 
reporting form a single QIA amount equal to 0.8 percent of earned 
premium in the relevant State and market, in lieu of tracking and 
reporting the issuer's actual expenditures for QIA, as defined in Sec.  
158.150 and Sec.  158.151. The accompanying proposed amendments to 
Sec.  158.170(b) would require issuers that elect the option to include 
0.8 percent of earned premium for QIA expenses to indicate as such when 
describing the allocation method used for QIA expenses. Issuers that 
spend more than 0.8 percent of earned premium on QIA would have the 
option to report the total actual, higher amount spent and, if choosing 
this option, would have to report QIA in the five categories described 
in Sec.  158.150(b)(2)(i)-(v), as well as comply with the allocation of 
expenses requirements established under Sec.  158.170.
    We are finalizing this policy as proposed, except that, in response 
to comments, we are specifying, as described below, how the optional 
QIA reporting method may be used across affiliated issuers, markets, 
and years.
    Comment: We received comments from consumer and patient advocacy 
groups, health insurance issuers, States, and individuals regarding the 
proposal to provide a standardized option to report QIA. Most 
commenters opposing the proposal stated that the current QIA 
requirements motivate issuers to invest in improving the health and 
well-being of consumers, and therefore allowing issuers who spend 
nothing on QIA to take a standardized credit for QIA would 
disincentivize issuers from making such investments. Many commenters 
stated that by giving issuers credit for expenses that issuers may not 
actually incur, the proposal would result in consumers receiving 
coverage of a lower value. Some commenters expressed concern that the 
0.8 percent standardized option would further provide a competitive 
advantage to issuers that get credit without investing

[[Page 17033]]

in QIA. Many commenters stated that State regulators and consumers are 
interested in knowing how much and what types of innovative QIA are 
being implemented, and would lose access to this information under the 
proposal. These commenters were also concerned that reduced 
accountability would adversely affect the integrity of the MLR program. 
One commenter pointed out that premiums tend to increase faster than 
non-medical expenses so using a flat 0.8 percent may overstate QIA in 
the future. Most commenters who supported the proposal stated that the 
current process for identifying, tracking and reporting QIA expenses is 
burdensome, time consuming and costly. Some commenters indicated that 
it is hard for issuers to segregate QIA expenses since QIA is ingrained 
throughout issuers' activities and the current process requires issuers 
to track individual employees' time spent on a specific task. A few 
commenters suggested raising the standardized credit to 1.0 percent of 
premiums, some stated that 0.8 percent would be appropriate, while 
others contended that 0.8 percent would be excessive. One commenter 
requested that HHS clarify whether issuers must make an election to use 
the optional QIA reporting method prior to the plan year; whether it 
must be elected for a minimum fixed period of years; and the issuer, 
State, and market aggregation level(s) to which the election applies. 
One commenter recommended that issuers be allowed to retroactively 
change the QIA reporting method with respect to the 2 prior years 
included in the MLR calculation, while another commenter recommended 
that issuers be allowed to elect the standardized QIA option for only 
some of their markets. In contrast, another commenter expressed concern 
that such approach could lead to inadvertent or intentional double-
counting, particularly for those issuers that incur QIA expenses at the 
holding group level, and recommended that HHS require a consistent 
reporting methodology across all markets at the holding group level and 
for a minimum of 3 consecutive years. Several commenters requested 
inclusion of certain other activities in QIA, which we note is beyond 
the scope of the amendments proposed in the proposed rule.
    Response: We reviewed each of the comments and recommendations and 
are finalizing the amendments as proposed with the following 
modification. In response to commenters' request for clarification 
regarding the application of the new QIA reporting option, and in order 
to address commenters' concerns regarding the impact of the new QIA 
reporting option on the integrity of the MLR program, we are specifying 
that issuers and their affiliates that elect the standardized QIA 
reporting option must apply it consistently across all of their States 
and markets that are subject to the MLR requirements in section 2718 of 
the Public Health Service Act. Further, similarly to some other 
optional MLR reporting provisions,\98\ issuers and their affiliates 
that elect the standardized QIA reporting option must apply this 
reporting method for a minimum of 3 consecutive reporting years. In 
addition, we will require all affiliated issuers to elect the same QIA 
reporting method. These provisions will ensure that the new QIA 
reporting option is appropriately utilized by issuers to simplify 
reporting, rather than to inflate the MLR based on the experience of a 
particular year. Further, in the course of conducting the MLR audits, 
HHS observed that QIA initiatives are often developed and administered 
at the parent company level and the costs are then prorated down to 
each issuer, State, and market segment using complex allocation 
methods. Therefore, the requirement that the new QIA reporting option 
be applied in a consistent manner across all States, relevant markets, 
and affiliates will additionally eliminate gaming incentives for 
companies to use the standardized 0.8 percent of premium QIA amount for 
some of their issuers, States, or markets and simultaneously maximize 
the allocation of the actual QIA costs to their other issuers, States, 
or markets. This approach is also consistent with the fact that the 0.8 
percent of premium threshold was identified based on the average across 
all issuers, States, and markets. We note that the new QIA reporting 
method is optional, and does not prevent issuers from continuing to 
allocate and benefit from reporting the actual QIA expenses for each 
State and market. While we acknowledge commenters' concerns that the 
standardized QIA reporting option may in some cases give issuers credit 
for activities that they do not perform, we note that issuers also have 
financial incentives to improve the health of their enrollees because 
healthier populations incur lower medical costs, and reducing the 
administrative burden associated with tracking QIA will free up funds 
that issuers can invest in QIA. Additionally, while we recognize that 
there is variation in QIA spending between different issuers, we 
continue to believe that 0.8 of earned premium is appropriate based on 
the average of MLR data over 2011-2015, and that a single nationwide 
percentage provides the benefit of simplicity and reduces burdens 
associated with tracking and reporting QIA expenses. As noted 
previously, issuers will continue to have the option to report the 
actual expenditures and therefore will retain the ability to take full 
credit if these expenditures exceed 0.8 percent of premium. With 
respect to commenters' concern that QIA expenditures may not grow 
proportionately to premium and that 0.8 percent may overstate issuers' 
average QIA expenditures in the future, as well as commenters' concern 
that they may lose access to the detailed QIA data, we also note that 
presently, issuers continue to report to States QIA data that in some 
respects are even more detailed than the data previously collected by 
HHS. Therefore, the public and States retain the ability to access this 
type of information. In addition, HHS will monitor QIA reporting and 
review available data, and may modify the QIA reporting policy in the 
future if HHS determines it to be necessary. Finally, we note this 
change will also help level the playing field among issuers, since many 
issuers likely do engage in QIA but currently forego reporting because 
the burden of analyzing, documenting, tracking, allocating, and 
reporting QIA expenses exceeds the benefits for MLR purposes.
---------------------------------------------------------------------------

    \98\ Such as the reporting of group health insurance coverage 
with dual contracts in Sec.  158.120(c).
---------------------------------------------------------------------------

4. Potential Adjustment to the MLR for a State's Individual Market 
(Subpart C)
    We proposed to amend 45 CFR part 158, subpart C to modify the 
process and criteria for the Secretary to determine whether to adjust 
the 80 percent MLR standard in the individual market in a State. 
Because the majority of comments focused on the broader merits of 
amending subpart C, rather than on the specific sections, we address 
all comments after summarizing the proposed amendments to each section.
    Section 2718(d) of the PHS Act provides that the Secretary may 
adjust the MLR standard in the individual market if the Secretary 
determines it appropriate on account of the volatility of the 
individual market due to the establishment of Exchanges. The MLR 
December 1, 2010, interim final rule (75 FR 74864) set forth the 
framework for a State to request such an adjustment and the process and 
criteria for the Secretary to determine whether to grant a State's 
request. Subpart C of 45 CFR part 158 specifies that the adjustment 
request

[[Page 17034]]

must be initiated by the State, the adjustment may be granted for up to 
3 years at a time, the information that the State must provide to 
support its request, and the criteria that HHS may consider in making a 
determination. It also requires the Secretary to invite public comments 
on the adjustment requests, allows States to hold optional public 
hearings, and enables States to request reconsideration of adverse 
determinations.
    Because in the current environment, it generally is not the MLR 
standard in isolation but rather factors that, taken together, can 
contribute to instability of the individual market in certain States, 
the current framework in subpart C restricts the States' ability to 
obtain adjustments to the MLR standard as part of innovative solutions 
for stabilizing their individual markets. Therefore, as outlined below, 
we proposed to make amendments throughout subpart C of part 158 to 
allow for adjustments to the individual market MLR standard in any 
State that demonstrates that a lower MLR standard could help stabilize 
its individual market, and to streamline the process for applying for 
such adjustments to reduce burdens for States and HHS.
a. Standard for Adjustment to the Medical Loss Ratio (Sec.  158.301)
    For the reasons described above, we proposed to amend Sec.  158.301 
to permit the Secretary to adjust the individual market MLR standard in 
any State if the Secretary determines that there is a reasonable 
likelihood that an adjustment to the 80 percent MLR standard will help 
stabilize the individual market in that State. We are finalizing the 
amendments as proposed.
b. Information Regarding the State's Individual Health Insurance Market 
(Sec.  158.321)
    We proposed to amend Sec.  158.321 to modify the information that a 
State must submit to the Secretary with its request for an adjustment 
to the 80 percent MLR standard in its individual market. Specifically, 
because we sought to make the MLR adjustment process less burdensome on 
States and make adjustments available to enable States to develop 
innovative solutions for stabilizing their individual markets, we 
proposed to remove the requirements that the State must describe the 
State MLR standard and formula for assessing compliance (Sec.  
158.321(a)), its market withdrawal requirements (Sec.  158.321(b)), and 
the mechanisms available to the State to provide consumers with options 
for alternate coverage (Sec.  158.321(c)). Additionally, we proposed to 
redesignate paragraph (d) as paragraph (a) and to revise the 
redesignated paragraph to describe the information the State must 
submit regarding the State's individual health insurance market, as 
outlined below.
    We also proposed to replace the requirement previously codified at 
Sec.  158.321(d)(1) that a State provide detailed product-level 
enrollment and premium data with a requirement at Sec.  158.321(a)(2) 
to submit information only on the total number of enrollees (life-years 
and covered lives) for each type of coverage sold or renewed in the 
State's individual market. Similarly, we proposed to eliminate the 
requirement previously codified in Sec.  158.321(d)(1) to submit 
product-level premium data in favor of the total earned premium data in 
the proposed Sec.  158.321(a)(1), and to eliminate the Sec.  
158.321(d)(1) requirement to submit the issuer's individual market 
share.
    We proposed to continue to require States to include information on 
total earned premium (proposed Sec.  158.321(a)(1)) and total agent and 
broker commission expenses (proposed Sec.  158.321(a)(3)) for each type 
of coverage sold or renewed in the State's individual market, as 
described in more detail below, as well as the risk-based capital (RBC) 
level (proposed Sec.  158.321(a)(5)), which, due to the manner in which 
RBC is calculated, would only be appropriate to report at the issuer 
level, rather than for each type of coverage. We also proposed to 
revise the accompanying regulation text for these data elements for 
readability. We further proposed that State requests should include 
information on total incurred claims (proposed Sec.  158.321(a)(1)) for 
each type of individual market coverage described below, in lieu of the 
previous more burdensome requirement to provide reported and estimated 
individual market MLRs (Sec.  158.321(d)(2)(ii) through (iii)).
    We proposed to modify these requirements to require States to only 
include the information for each issuer actively offering individual 
market coverage. We also proposed to add a new Sec.  158.321(b) to 
require that a State request include the individual market data 
required in the proposed new Sec.  158.321(a)(1) through (4) and (6) 
separately for each issuer actively offering individual market plans in 
that State group by the following categories, as applicable: On-
Exchange, off-Exchange, grandfathered health plans as defined in Sec.  
147.140, coverage that meets the criteria for transitional policies 
outlined in applicable guidance,\99\ and non-grandfathered single risk 
pool coverage, in order to enable the Secretary to assess the situation 
in the State's individual market and to appropriately evaluate the 
State's proposal. Proposed new Sec.  158.321(b) would also require the 
State to report the RBC information at the issuer level for each issuer 
actively offering coverage in the State's individual market. A State 
would not be required to provide information on student health 
insurance coverage as defined in Sec.  147.145 or individual market 
excepted benefits as defined in Sec.  148.220.
---------------------------------------------------------------------------

    \99\ See, for example, CMS ``Insurance Standards Bulletin 
Series--Information--Extension of Transitional Policy through 
Calendar Year 2018 (February 23, 2017) available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Extension-Transitional-Policy-CY2018.pdf.
---------------------------------------------------------------------------

    To further reduce the burden on States, we proposed to remove the 
requirements to provide net underwriting profit for each issuer's total 
business in the State and after-tax profit and profit margin for the 
individual market and total business in the State (Sec.  
158.321(d)(2)(vii)), as well as to rename the remaining requirement to 
provide the individual market ``net underwriting profit'' to ``net 
underwriting gain'' to more accurately reflect the accounting term 
(proposed Sec.  158.321(a)(4)). We also proposed to delete the 
requirement to provide information on estimated MLR rebates (Sec.  
158.321(d)(2)(v)). Additionally, we proposed to revise the language at 
current paragraph Sec.  158.321(d)(2)(ix), proposed to be redesignated 
at Sec.  158.321(a)(6), to require the State to provide information not 
only on notices by issuers covered in Sec.  158.321(a) of market exits, 
but also the equally or more pertinent issuer notices of beginning to 
offer coverage in the individual market, as well as ceasing or 
commencing offering individual market coverage on the Exchange or in 
specific geographic areas (for example, counties); and to add a new 
Sec.  158.321(c) to require similar information on issuers not actively 
offering coverage in the individual market that have indicated an 
intent to enter or exit the individual market, including ceasing or 
commencing offering individual market coverage on the Exchange or in 
specific geographic areas. Lastly, we recognize that in many situations 
the information proposed to be required in Sec.  158.321(a) will only 
be available for the preceding calendar year, but we proposed to 
provide States with an option to also include information for the 
current year (where available), which may be more

[[Page 17035]]

relevant if a State makes a request in a later part of the year.
    We are finalizing the amendments as proposed, with one correction 
to Sec.  158.321(b) to indicate that the information required in 
paragraph Sec.  158.321(a)(5) is the only information that must be 
provided at the issuer level.
c. Proposal for Adjusted Medical Loss Ratio (Sec.  158.322)
    To reduce the burden on States, we proposed to remove paragraphs 
(a), (c) and (d) of Sec.  158.322, which would remove the requirements 
for a State to justify how its proposed adjustment was determined, and 
to estimate rebates that would be paid with and without an adjustment 
because HHS can make these estimates instead of the State. Consistent 
with our proposed changes to Sec.  158.301, we proposed to revise Sec.  
158.322 to require the State to both provide its proposed, adjusted MLR 
standard and explain how this proposed standard would help stabilize 
its individual market. We also proposed to delete current paragraph 
(b), which requires an explanation of how an adjustment would permit 
issuers to adjust current business models and practices in order to 
meet an 80 percent MLR as soon as is practicable, to further reduce 
burden on States submitting adjustment requests.
    We are finalizing the amendments as proposed.
d. Criteria for Assessing Request for Adjustment to the Medical Loss 
Ratio (Sec.  158.330)
    Section 158.330 lists the criteria that the Secretary may consider 
in determining whether to approve a State request to adjust the 80 
percent MLR standard for the individual market. We proposed amendments 
throughout the section to reflect the proposal in Sec.  158.301 to 
allow adjustments if the Secretary determines the adjustment would help 
stabilize the individual market in that State, and the proposed changes 
to the information requirements in Sec.  158.321. Specifically, we 
proposed conforming amendments to the introductory text of Sec.  
158.330 to provide that the Secretary may consider the identified 
criteria when assessing whether an adjustment to the individual market 
MLR standard would be reasonably likely to help stabilize the 
individual market in a State that has requested such an adjustment. We 
proposed to replace the information currently outlined at Sec.  
158.330(a)(1)-(4) regarding individual market issuers reasonably likely 
to exit the State with information regarding the number and financial 
performance of issuers actively offering individual market coverage on-
Exchange, off-Exchange, grandfathered health plans as defined in Sec.  
147.140, coverage that meets the criteria for transitional policies 
outlined in applicable guidance, and non-grandfathered single risk pool 
coverage; the number of issuers reasonably likely to cease or begin 
offering such individual market coverage in the State; and the 
likelihood that an adjustment would increase competition in the State's 
individual market, including in underserved areas (proposed Sec.  
158.330(a)). We proposed to delete the existing criteria captured at 
Sec.  158.330(b) related to consideration of the number of individual 
market enrollees covered by issuers that are reasonably likely to exit 
the State's individual market absent the requested adjustment because 
the goal of a State request for adjustment may be to ensure that health 
insurance coverage is available to all, rather than a certain 
percentage of, consumers who want it, and that consumers not only have 
coverage, but also a choice of several issuers. We proposed conforming 
amendments to the criteria currently captured at Sec.  158.330(c), 
proposed to be redesignated at Sec.  158.330(b), regarding whether an 
adjustment might improve consumers' access to agents and brokers. 
Similar to the proposed amendments to Sec.  158.321 described above to 
remove the requirement for States to provide information on available 
mechanisms to provide alternate coverage, we proposed to replace the 
current criteria outlined at Sec.  158.330(d)(1)-(5) with consideration 
of information on the capacity of any new issuers or issuers remaining 
in the individual market to write additional business in the event one 
or more issuers were to cease or begin offering individual market 
coverage on Exchanges, in certain geographic areas, or in the entire 
individual market in the State (proposed Sec.  158.330(c)). We proposed 
to retain and modify the existing criteria at Sec.  158.330(e), 
proposed to be redesignated at Sec.  158.330(d), on the impact on 
premiums charged, and on benefits and cost sharing provided, to 
consumers by issuers remaining in or entering the individual market in 
the event one or more issuers were to cease offering individual market 
coverage on the Exchange, in certain geographic areas, or in the entire 
individual market in the State. Finally, we proposed to retain the 
existing criteria at Sec.  158.330(f), proposed to be redesignated at 
Sec.  158.330(e), for consideration of any other relevant information 
submitted by the State.
    We are finalizing the amendments as proposed.
e. Treatment as a Public Document (Sec.  158.341)
    Because the format in which States may submit requests for 
adjustments may not comply with Federal requirements for documents 
posted on Federal websites, some of these documents may not be able to 
be posted directly to the applicable Federal website. For example, a 
State may submit spreadsheets containing data or copies of issuer 
letters in a format that is not accessible for individuals with visual 
impairments. However, HHS is committed to transparency and making this 
information promptly available to the public. HHS is also committed to 
providing accessible information to members of the public, including 
individuals with disabilities, and will provide such individuals with 
accessible copies of documents submitted by States unless doing so 
would impose an undue burden on the agency. Therefore, we proposed to 
amend Sec.  158.341 to reflect that Federal requirements for documents 
posted on Federal websites may not permit these documents to be posted, 
and to specify that instructions for the public to access information 
on requests for adjustment to the MLR standard submitted by States will 
be provided on the Secretary's internet website. We are finalizing the 
amendments as proposed, with a non-substantive change to the regulatory 
text.
f. Subsequent Requests for Adjustment to the Medical Loss Ratio (Sec.  
158.350)
    We proposed to make conforming amendments to Sec.  158.350, which 
describes the information that a State must submit with a subsequent 
request for an adjustment to the MLR standard, to make this information 
consistent with our proposed changes to Sec.  158.301 and Sec.  
158.330. We are finalizing the amendments as proposed.
    The following is a summary of the public comments received on these 
proposals and our responses.
    Comment: We received comments from consumer and patient advocacy 
groups, health insurance issuers, States, and individuals regarding the 
proposal to modify the process for submission of State requests to 
adjust the individual market MLR standard and the accompanying criteria 
for the Secretary to determine whether to adjust the 80 percent MLR 
standard in the individual market in a State. The majority of comments 
focused on the merits of the

[[Page 17036]]

proposed amendments to subpart C as a whole, rather than offering 
comments on the specific sections of subpart C. Most commenters 
opposing the proposals stated that it is unlikely that the MLR standard 
is a primary driver of market instability and that most insurers 
already meet or exceed the MLR standard. These commenters stated that 
lowering the MLR standard would undermine one of the few consumer 
protections and lead to higher premiums with consumers receiving lower 
value for those premiums, without strengthening the market. Many 
commenters focused on the benefits the MLR rule has delivered to 
consumers and objected to weakening the rule. Several commenters 
expressed concern that the proposal could lead to discrepancies in 
standards and access to care. Several commenters disagreed with the 
proposed elimination or reduction of various requirements on States 
seeking adjustments due to concerns over the possibility of arbitrary 
and unjustified requests, inadequately rigorous review, and a decrease 
in transparency. Most commenters who supported the proposals expressed 
appreciation that the proposals would give greater flexibility to the 
States. Some of these commenters stated that a lower MLR standard may 
have competitive benefits that outweigh potential costs and that States 
are in the best position to assess that tradeoff. Several commenters 
stated that the proposals could incentivize issuer expansion and 
innovation. Additionally, several commenters recommended that States be 
allowed to only lower (not increase) the MLR standard, and that 
adjustments not be effective prior to 2020 in order to give issuers 
time to incorporate adjusted MLR standards into issuers' market 
participation and pricing decisions. Lastly, one commenter recommended 
allowing States to adjust the MLR standard for only specific issuers, 
such as new entrants, while another commenter urged HHS to disallow 
this in order to not disadvantage established issuers and to avoid 
encouraging such issuers to leave the market.
    Response: We are finalizing the proposed amendments to subpart C as 
proposed, with one technical correction to Sec.  158.321(b) to indicate 
that the information required in paragraph Sec.  158.321(a)(5) is the 
only section that must be provided at the issuer level. We appreciate 
both the comments highlighting the benefits of the current MLR rule, as 
well as the comments supporting our efforts to provide more flexibility 
to States to improve the stability of their markets. We acknowledge the 
concerns expressed by many commenters that the adjustments to the 
individual market MLR standard should not undermine consumer 
protections and that the integrity of the adjustment review process 
should not be compromised. However, we believe that if States can 
develop strategies involving an adjusted MLR standard that States can 
demonstrate would be reasonably likely to lead to a more robust and 
stable individual market, then this would benefit consumers and 
ultimately lead to higher quality and more affordable coverage. We note 
that the amendments to subpart C are not intended to reduce the overall 
burden of proof on States applying for adjustments, but rather require 
States to provide more pertinent information and remove duplicative, 
burdensome requirements, such as those that mandate States submit data 
that is otherwise publicly available to both HHS and consumers. Given 
that the goal of the amendments to subpart C is to provide States the 
flexibility to innovate and pursue the best solutions for their 
markets, we believe that it would be inconsistent to impose up-front 
restrictions on how much or what direction of an adjustment a State may 
seek. For the same reason, we will determine the effective date for 
each adjustment in consultation with the respective State and based on 
the timing of the request submitted by the State, but will, as 
appropriate, take commenters' recommendations on the proposed rule into 
consideration when making those determinations. We further clarify that 
a State should include an effective date and duration (for up to 3 MLR 
reporting years \100\) for the requested adjustment to the individual 
market MLR standard as part of its proposal. In addition, we note there 
will be opportunities for public comment on individual State adjustment 
requests. Sections 158.342 and 158.343 are being retained in their 
current form, which require the Secretary to invite public comment on 
State adjustment requests and provide for optional State public 
hearings, respectively. Lastly, because we interpret the statute as 
only permitting the Secretary to adjust the MLR standard for the entire 
individual market within a State, we are not able to allow issuer-
specific adjustments within a State. However, we note that there are 
several other provisions in the MLR regulations that are designed to 
recognize the special circumstances of smaller and newer plans, and 
provide incentives for issuers that contemplate entering a market. 
These include the credibility adjustment for smaller issuers in Sec.  
158.323 and the options to defer MLR and rebate calculation for newer 
business in Sec.  158.121 and to limit the total rebate payment in 
Sec.  158.240(d).
---------------------------------------------------------------------------

    \100\ See 45 CFR 158.311.
---------------------------------------------------------------------------

IV. 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 12. To fairly evaluate whether an information 
collection should be approved by OMB, section 3506(c)(2)(A) of the 
Paperwork Reduction Act of 1995 (PRA) requires that we solicited 
comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We solicited public comment on each of the required issues under 
section 3506(c)(2)(A) of the PRA for the following information 
collection requirements.

A. Wage Estimates

    To derive wage estimates, we generally used data from the Bureau of 
Labor Statistics to derive average labor costs (including a 100 percent 
increase for fringe benefits and overhead) for estimating the burden 
associated with the ICRs.\101\ Table 11 in this final rule presents the 
mean hourly wage (calculated at 100 percent of salary), the cost of 
fringe benefits and overhead, and the adjusted hourly wage.
---------------------------------------------------------------------------

    \101\ See May 2016 Bureau of Labor Statistics, Occupational 
Employment Statistics, National Occupational Employment and Wage 
Estimates at https://www.bls.gov/oes/current/oes_nat.htm. For State 
Government Employees see NAICS 999200--State Government, excluding 
schools and hospitals (OES Designation) https://www.bls.gov/oes/current/naics4_999200.htm.
---------------------------------------------------------------------------

    As indicated, employee hourly wage estimates have been adjusted by 
a factor

[[Page 17037]]

of 100 percent. This is necessarily a rough adjustment, both because 
fringe benefits and overhead costs vary significantly across employers, 
and because methods of estimating these costs vary widely across 
studies. Nonetheless, there is no practical alternative, and we believe 
that doubling the hourly wage to estimate total cost is a reasonably 
accurate estimation method.

                            Table 11--Adjusted Hourly Wages Used in Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                   Occupational     Mean hourly    benefits and      Adjusted
                Occupation title                       code        wage ($/hr.)    overhead ($/   hourly wage ($/
                                                                                       hr.)            hr.)
----------------------------------------------------------------------------------------------------------------
Business operation specialist *.................         13-1199          $31.59          $31.59          $63.18
Operations Manager..............................         11-1021           58.70           58.70          117.40
Software Developers, Systems Software...........         15-1133           53.17           53.17          106.34
Actuary.........................................         15-2011           54.87           54.87          109.74
Actuary *.......................................         15-2011           40.41           40.41           80.82
Financial Examiner *............................         13-2061           33.02           33.02           66.04
Financial Analyst *.............................         13-2051           34.39           34.39           68.78
Financial Manager *.............................         11-3031           45.83           45.83           91.66
Lawyer *........................................         23-1011           44.87           44.87           89.74
Secretaries and Administrative Assistants,               43-6014           17.38           17.38           34.76
 Except Legal, Medical, and Executive...........
Commissioner **.................................  ..............           58.45           58.45          116.90
Market Research Analyst.........................         13-1161           33.95           33.95           67.90
Medical Records Technician......................         29-2071           19.93           19.93           39.86
Psychiatrist....................................         29-1066           96.26           96.26          192.52
----------------------------------------------------------------------------------------------------------------
* Denotes occupations where wages were obtained for State Government employees (https://www.bls.gov/oes/current/naics4_999200.htm).
** Data on compensation of State Insurance Commissioners collected by the Council of State Governments and
  compiled by Ballotpedia (http://www.ballotpedia.org). The wage data used in the burden estimates include the
  cost of fringe benefits and the adjusted hourly wage.

B. ICRs Regarding State Flexibility for Risk Adjustment (Sec.  153.320)

    We are finalizing our proposal to allow State regulators to request 
a reduction, beginning for the 2020 benefit year, to risk adjustment 
transfers in the individual, small group or merged markets. We are 
finalizing the requirement for any State requesting this reduction to 
otherwise applicable transfers to submit its request with the 
supporting evidence and analysis to HHS identifying the State-specific 
factors that warrant the adjustment to more precisely account for the 
differences in actuarial risk in the State's individual, small group or 
merged market. Additionally, the State must submit supporting evidence 
and analysis demonstrating the reduction percentage requested is 
appropriate. This evidence and analysis justifying the percentage 
requested must either demonstrate the set of factors and the percentage 
by which those factors warrant an adjustment to more precisely account 
for the differences in actuarial risk in the State's individual, small 
group or merged market compared to the national norm, or it must 
demonstrate the requested reduction in risk adjustment payments would 
be so small for issuers who would receive risk adjustment payments, 
that the reduction would have a de minimis effect on the necessary 
premium increase to cover the affected issuer or issuers' reduced 
payments. States are required to submit the requests with the 
supporting evidence and analysis by August 1st, 2 calendar years prior 
to the beginning of the applicable benefit year (for example, August 1, 
2018, for the 2020 benefit year). The burden associated with this 
requirement is the time and effort for the State regulators to submit 
its request and supporting evidence and analysis to HHS. We are 
updating the burden estimates from those proposed based on the State 
request and supporting evidence and analysis requirements we are 
finalizing in this rule. We estimate submitting the request and 
supporting evidence and analysis will take a business operations 
specialist 40 hours (at a rate of $63.18 per hour) to prepare the 
request and 20 hours for a senior manager (at a rate of $117.40 per 
hour) to review the request and transmit it electronically to HHS. We 
estimate that each State seeking a reduction will incur a burden of 60 
hours at a cost of approximately $4,875 per State to comply with this 
reporting requirement (40 hours for the insurance operations analyst 
and 20 hours for the senior manager). Although we are unable to 
precisely estimate the number of States that will make this request, we 
expect that no more than 25 States will make these requests annually, 
resulting in a total annual burden of approximately 1,500 hours with an 
associated total cost of $121,880. We published a revised information 
collection approved under OMB control number 0938-1155: Standards 
Related to Reinsurance, Risk Corridors, Risk Adjustment, and Payment 
Appeals, for comment on December 28, 2017, and intend to update it to 
account for this change in burden.

C. ICRs Regarding Risk Adjustment Data Validation (Sec.  153.630)

    We finalize that, beginning with 2017 benefit year risk adjustment 
data validation, issuers with 500 billable member months or fewer 
Statewide that elect to establish and submit data to an EDGE server 
will not be subject to the requirement to hire an initial validation 
auditor or submit initial validation audit results. We note that, 
beginning with 2018 benefit year risk adjustment data validation, these 
issuers will not be subject to random sampling under the materiality 
threshold discussed below, and will continue to not be subject to the 
requirement to hire an initial validation auditor or submit initial 
validation audit results. As 2016 benefit year risk adjustment data 
validation will be another pilot year, we are also finalizing the 
postponement of the application of the materiality threshold to the 
2018 benefit year. Under this policy, all issuers of risk adjustment 
covered plans will be required to conduct an initial validation audit 
for the 2017 benefit year risk adjustment data validation, other than 
issuers with 500 billable member months or fewer Statewide as discussed 
above. Beginning with the 2018 benefit year, issuers below the $15 
million premium materiality threshold will not be

[[Page 17038]]

required to conduct an initial validation audit every year, but rather, 
HHS will conduct random and targeted sampling under which issuers below 
the materiality threshold would be subject to an initial validation 
audit approximately every 3 years.
    HHS estimates that not requiring issuers that have 500 or fewer 
billable member months Statewide to conduct an initial validation audit 
beginning in the 2017 benefit year will exempt 50 issuers from an 
initial validation audit and reduce administrative costs for each 
issuer by 828 hours with an estimated cost reduction on average of up 
to $100,000. The total burden reduction for all 50 issuers will be 
41,400 hours with an associated reduction in cost of $3,520,000. The 
postponement of the effectiveness of the materiality threshold to the 
2018 benefit year will not impact issuer burden relative to previous 
estimates for the risk adjustment data validation program included in 
the 2014 and 2015 Payment Notices, particularly given that the program 
has been converted to a pilot for the first 2 years of operation. We 
are revising the current information collection approved under OMB 
control number 0938-1155: Standards Related to Reinsurance, Risk 
Corridors, Risk Adjustment, and Payment Appeals, to account for this 
reduction in burden.
    For risk adjustment data validation, HHS requires issuers to 
document mental and behavioral health records included in audit 
sampling. Without the necessary mental and behavioral health 
information for each sample, the diagnosis code for an applicable 
enrollee cannot be validated and, therefore, it would be rejected 
during risk adjustment data validation.
    Because providers may be prevented by some State privacy laws from 
furnishing a full mental health or behavioral health record, we are 
amending Sec.  153.630(b)(6) to allow issuers an additional avenue to 
achieve compliance with data validation requirements by permitting the 
submission of mental or behavioral health assessments for risk 
adjustment data validation in the event that a provider is subject to 
State privacy laws that prohibit the provider from providing HHS with a 
complete mental or behavioral health record. For risk adjustment data 
validation purposes, to the extent permissible under applicable Federal 
and State privacy laws, an assessment should contain: (1) The 
enrollee's name; (2) sex; (3) date of birth; (4) current status of all 
mental or behavioral health diagnoses; and (5) dates of service. To 
submit a mental or behavioral health assessment, an issuer must ensure 
that it is accompanied by an attestation from the provider that 
applicable State privacy laws prevent him or her from providing the 
complete mental or behavioral health record.
    HHS expects that this provision may affect 10 percent of issuers or 
approximately 70 issuers in States with stricter privacy laws on 
medical records. Based on our experience with the first pilot year risk 
adjustment data validation audits, we estimate that approximately 40 
enrollees in any initial validation audit sample of 200 enrollees could 
be affected. Since providers routinely prepare mental or behavioral 
health assessments to validate diagnoses, we believe the slight 
additional burden is the time it would take to seek patient consent to 
provide the assessment, in States that require such permission, to 
review and edit the preexisting assessment for each medical record to 
include the data elements specified in Sec.  153.630(b)(6), and to 
attest that relevant State privacy laws prohibit him or her from 
providing the complete mental or behavioral health record.
    Comment: Several commenters stated that obtaining patient consent 
and provider attestations for mental or behavioral health assessments 
would impose a significant administrative, professional, and personal 
burden on issuers, providers, and patients, while one commenter stated 
that this flexibility could reduce administrative burden if issuers 
could develop a standard form for physicians to sign.
    Response: As noted above, HHS believes that the policy to permit 
the use of existing mental or behavioral health assessments may result 
in a slight increase in the burden on issuers and providers, primarily 
due to the new provider attestation requirement.
    We estimate it will take a medical records technician (at an hourly 
rate of $39.86) 15 minutes to obtain consent from each patient, or 
approximately 10 burden hours at an estimated cost of $399 per issuer. 
In addition, we estimate a qualified licensed provider (psychiatrist, 
at an hourly rate of $192.52) will need 45 minutes to prepare an 
abbreviated assessment and sign an attestation, for a total of $144 per 
enrollee, or $5,776 per issuer. Therefore, for 40 patients, the total 
burden per issuer for the provider to obtain consent from each patient 
and prepare an abbreviated assessment and signed attestation will be 40 
hours and approximately $6,174. The aggregated burden for the estimated 
70 affected issuers will be 2,800 hours and approximately $432,194. We 
are revising the current information collection approved under OMB 
Control Number 0938-1155: Standards Related to Reinsurance, Risk 
Corridors, Risk Adjustment, and Payment Appeals, to account for this 
additional burden.

D. ICRs Regarding Health Insurance Issuer Rate Increases: Disclosure 
and Review Requirements--Applicability (Sec.  154.103)

    We are finalizing the proposal to exempt student health insurance 
coverage as defined in Sec.  147.145 from the Federal rate review 
requirements. Because we will no longer be reviewing the reasonableness 
of rate increases for student health insurance coverage, we expect to 
collect less information for the 2019 plan or policy year than 
collected for previous years. This will reduce burden related to the 
submission and review for issuers and States. We estimate that 75 
student health insurance issuers will no longer be required to submit 
rate increases to HHS. We estimate that each rate review submission 
takes 11 hours for an actuary (at a rate of $109.74 per hour) to 
prepare, and that each issuer will submit an average of 2.5 plans, at 
an estimated annual cost of $3,018, resulting in a total reduction in 
the annual burden to issuers of approximately 2,063 hours and an 
associated reduction in cost of approximately $226,339. We estimate 
that States will no longer submit rate increases for 188 student health 
insurance plans to HHS. We estimate a reduction in burden to States of 
one hour per plan for an actuary (at a rate of $80.82 per hour) to 
prepare and electronically submit the appropriate materials, for a 
total reduction in burden of approximately 188 hours annually with an 
associated cost reduction of approximately $15,194. We will revise our 
current burden estimate approved under OMB control number 0938-1141: 
Rate Increase Disclosure and Review Reporting Requirements, to reflect 
the reduced burden on States and issuers.

E. ICRs Regarding Rate Increases Subject To Review (Sec.  154.200)

    We are finalizing our proposal to establish a 15 percent Federal 
default threshold for reasonableness review. We expect this to reduce 
burden for issuers because Part II of the Rate Filing Justification 
(Consumer Justification Narrative) is only required for increases that 
meet or exceed the threshold. In the 2019 plan year, we estimate that 
the number of written justifications that will be submitted will 
decrease by approximately 125 submissions. That estimate is based on 
data from the 2018 plan year. We reached this estimate by counting the 
number of submissions

[[Page 17039]]

with a product subject to review due to an increase between 10 percent 
and 15 percent. Specifically, CMS received 786 submissions for the 2018 
plan year; 579 of those included a rate increase at or above 10 
percent; while 454 of those included a rate increase at or above 15 
percent, resulting in 125 submissions falling between 10 percent and 15 
percent.
    We estimate that each written justification will require 1.5 hours 
for an actuary (at a cost of $109.74 per hour) to prepare and 
electronically transmit the documentation. Therefore, the annual burden 
for issuers will be reduced by 187.5 hours, with an estimated annual 
savings of $20,576.
    As stated above, we estimate 125 fewer submissions with rate 
increases subject to review. Assuming that States adopt the Federal 
default threshold, we expect the number of State reviews will decrease 
by 123 submissions.\102\ We estimate that each State review will 
require 38.5 hours of work by an actuary (at a cost of $80.82 per 
hour). Therefore, the State burden will decrease by approximately 
4,735.5 hours, with an estimated annual savings of $382,723.
---------------------------------------------------------------------------

    \102\ For the 2018 plan year, CMS reviewed two submissions 
proposing a rate increase between 10 percent and 15 percent.
---------------------------------------------------------------------------

    We will revise our current burden estimate approved under OMB 
control number 0938-1141: Rate Increase Disclosure and Review Reporting 
Requirements, to reflect the reduced burden on issuers.

F. ICRs Regarding the Small Business Health Options Program (SHOP)

    We are finalizing the proposals granting additional flexibilities, 
effective on the effective date of this rule and applicable for plan 
years beginning on or after January 1, 2018, to SHOPs, to qualified 
employers and employees enrolling in SHOP plans, and to participating 
QHP issuers and SHOP-registered agents and brokers in how they interact 
with a SHOP. Under the proposals being finalized throughout this 
document, SHOPs will no longer be required to provide enrollment, 
premium aggregation functions, and online enrollment functionality 
through a SHOP website, and the FF-SHOPs and SBE-FPs for SHOP, will no 
longer continue to perform these functions. Instead, small groups will 
enroll in a SHOP plan through a SHOP-registered agent or broker or 
through a participating QHP issuer participating in a SHOP. FF-SHOPs 
will follow the approach as outlined in this final rule. SBEs will have 
the flexibility to operate their SHOP in a way that meets the needs of 
their State and complies with the regulatory flexibilities outlined 
herein.
    Under the proposals being finalized in this rule several pieces of 
information currently being collected by a SHOP may no longer be 
collected by a SHOP, or, the way in which the information is collected 
may change. For example, employers, employees, and agents and brokers 
may be required to provide the information currently collected by a 
SHOP to an issuer for the purposes of enrollment in a SHOP plan. A 
SHOP, like the FF-SHOPs and SBE-FPs for SHOP, however, will not be the 
entity collecting the information and the Federal government thus will 
experience a reduction in burden. Under the new regulatory 
flexibilities being finalized and described throughout this rule, 
employers and employees will no longer be required to visit a SHOP 
website in order to enroll in a SHOP plan and a SHOP will no longer be 
required to have the capability or the need to collect enrollment 
information. Employers will however, be required to apply to the SHOP 
to obtain an eligibility determination, as described in Sec.  155.710, 
at which point the employer will be requested to provide: (1) Employer 
name and address of employer's locations; (2) Information sufficient to 
confirm the employer is a small employer; (3) Employer Identification 
Number (EIN); and (4) Information sufficient to confirm that the 
employer is offering, at a minimum, all full-time employees coverage in 
a QHP through a SHOP. Under current regulations, the employer provides, 
and a SHOP collects, this information as part of enrolling in a SHOP 
QHP through a SHOP. HHS previously estimated that an employer needed 
two hours to complete the eligibility determination when it was 
included as part of enrolling in a SHOP QHP and that 6,000 employers 
will complete an application annually to determine their eligibility 
through a SHOP website. Based on these criteria, HHS estimated that the 
total annual burden for 6,000 employers was 12,000 hours, with a total 
annual cost of $561,240 to complete the SHOP application and 
eligibility determination process. With the new regulatory 
flexibilities being granted to SHOPs, HHS estimates that for each 
employer, an administrative assistant will need less than 5 minutes (at 
rate of $34.76 per hour) to complete the required eligibility 
determination. Under the new flexibilities, employers will also no 
longer be required to create an account on an FF-SHOP website in order 
to complete the eligibility determination or enroll in a SHOP QHP. 
Therefore, HHS estimates that it will cost an employer approximately $3 
to complete an eligibility determination. Assuming that 6,000 employers 
will complete an eligibility determination, HHS estimates that the 
total annual burden will be approximately 500 hours, with an estimated 
total cost of $17,400. This will result in a net burden reduction of 
11,500 hours and a net cost reduction of approximately $543,840 
annually. Under Sec.  157.206(e)(1), employers will be responsible for 
submitting a new eligibility determination or, submitting a notice of 
withdrawal, in the event the group experienced a change that will 
impact the group's eligibility to participate in a SHOP. Under Sec.  
157.206(e)(2), employers will also be required to notify their QHP 
issuer(s) of a determination of ineligibility. Finally, employers will 
also, under Sec.  157.206(e)(3) be required to notify their issuers of 
their intent to no longer participate in a SHOP. While these proposals 
will require employers to communicate with issuers in ways they do not 
under current SHOP enrollment practices, HHS does not anticipate that 
these practices will increase the burden on employers as they, under 
current practice, must notify the SHOP of changes in eligibility and 
termination. Although the policy in Sec.  155.716 imposes an 
information collection requirement, the information that will be 
collected is no different from what is already approved under OMB 
control number 0938-1193: Data Collection to Support Eligibility 
Determinations and Enrollment for Small Businesses in the Small 
Business Health Options, and therefore we are not revising the 
information collection at this time.
    Employees, under Sec.  155.716 will not experience an increase in 
burden. Under the policies described throughout this final rule, 
employees will no longer be required to visit an FF-SHOP website to 
create an account, or, for any application or enrollment purpose, but 
they may need to provide similar information to an agent or broker or 
issuer as a condition of enrollment into a SHOP QHP. HHS previously 
estimated that 60,000 employees will complete an application annually, 
each spending approximately one hour to complete an online application 
through an FF-SHOP website. The estimated annual burden was 60,000 
hours with an annual cost of $1,025,400. With the finalized 
flexibilities to a SHOP as described in this rule, HHS predicts that 
the burden on employees to complete an online application will shift as 
no application

[[Page 17040]]

will be provided through a SHOP website, but the information may be 
required by an agent or broker or an issuer in order for the employee 
to complete an enrollment into a SHOP QHP. The proposals described 
throughout this final rule will allow agents and brokers and issuers to 
enroll consumers in SHOP plans using the channels they are most 
familiar with, potentially reducing the burden of enrolling SHOP 
groups. This information collection is currently approved under OMB 
control number 0938-1194: Data Collection to Support Eligibility 
Determinations and Enrollment for Employees in the Small Business 
Health Options Program. Therefore, we are not revising the information 
collection at this time.
    Sections 155.705, 155.715, 155.720, 155.725, require SHOPs to 
generate certain notices. These notices may include: (1) Notices of 
annual election periods; (2) notices to employers of employee coverage 
terminations; (3) notices of application inconsistencies; (4) notices 
of appeal rights and instructions; (5) notices of employee and employer 
eligibility; (6) notices of employer withdrawal; (7) (in FF-SHOPs only) 
notices to employees if a dependent turns 26 and is no longer eligible 
for dependent coverage; (8) billing invoices, successful and 
unsuccessful payment confirmation notices; and (9) past due payment 
notices. In prior guidance, HHS previously estimated costs for paper 
notices in an FF-SHOP. In that estimate, HHS assumed that 80 percent of 
enrollees requested electronic notices and 20 percent of enrollees 
requested paper notices. HHS estimated that mailing paper notices costs 
a SHOP Exchange $0.53 per notice. HHS determined that SHOPs sent 
approximately 48,000 notices to enrollees when--(1) A dependent became 
ineligible to remain on the plan; (2) successful payment was processed; 
and (3) a payment was unsuccessful in the last year. Assuming that 20 
percent of enrollees will opt to receive paper notices instead of 
electronic notifications, HHS estimated that approximately 9,600 
notices will be sent, costing FF-SHOPs approximately $5,088. Under the 
flexibilities being finalized, SHOPs will only be required to send 
notices of employer eligibility and appeals. This cost will not 
directly be transferred to issuers as issuers may already be required 
to send such notices per other applicable State and Federal law. This 
collection is currently approved under OMB control number 0938-1207: 
Essential Health Benefits in Alternative Benefit Plans, Eligibility 
Notices, Fair Hearing and Appeal Processes, and Premiums and Cost 
Sharing; Exchanges: Eligibility and Enrollment. Issuers will be 
required to collect premiums, as premium aggregation functions will no 
longer be provided by the SHOPs that take advantage of the new 
flexibilities. HHS does not anticipate a significant increase of 
issuers' burden in this scenario, as it is not significantly different 
from their current operating practices.

G. ICRs Regarding Essential Health Benefits (Sec.  156.111(e))

    In the rule, we are finalizing at Sec.  156.111(e) to revise the 
collection of data for selection of States' EHB-benchmark plans for 
plan years beginning on or after January 1, 2020. This proposal 
includes the documentation that States would be required to submit if 
the State chooses to change its EHB-benchmark plan. For this purpose, 
we are amending the currently approved information collection (OMB 
Control Number: 0938-1174) to reflect the finalized policy in this 
rule. Because Sec.  156.111(e) is replacing the current data collection 
requirements at Sec.  156.120, we are updating the current EHB-
benchmark plan selection to account for the new regulation and any 
associated burden with this requirement that falls on those States that 
choose to reselect their EHB-benchmark plan. Under the previous 
benchmark plan selection policy, 29 States selected one of the 10 base-
benchmark plan options and 22 States defaulted. The previous benchmark 
plan policy did not allow for States to make an annual selection. The 
regulation allows States the opportunity to modify their EHB-benchmark 
plans annually. The regulation also does not require the State to 
respond to this ICR for any year for which they did not change their 
EHB-benchmark plan. As such, for purposes of the new EHB-benchmark plan 
selection options finalized in this rule, we estimate that 10 States 
would choose to make a change to their EHB-benchmark plans in any given 
year (total of 30 States over 3 years within the authorization of this 
ICR) and respond to this ICR.
    To select a new EHB-benchmark plan, we require at Sec.  
156.111(e)(1) that the State provide confirmation that the State's EHB-
benchmark plan selection complies with certain requirements, including 
those under Sec.  156.111(a), (b), and (c). To complete this 
requirement, we estimate that a financial examiner will require 4 hours 
(at a rate of $66.04 per hour) to fill out, review, and transmit a 
complete and accurate document. We estimate that it costs each State 
$264 to meet this reporting requirement, with a total annual burden for 
all 10 States of 40 hours and an associated total cost of $2,642.
    Second, we require at Sec.  156.111(e)(2) that the State submit an 
actuarial certification and associated actuarial report of the methods 
and assumptions when selecting options under Sec.  156.111(a). 
Specifically, we are finalizing at Sec.  156.111(b)(2)(i) and (ii) that 
a State's EHB- benchmark plan must provide a scope of benefits equal 
to, or greater than, to the extent any supplementation is required to 
provide coverage within each EHB category at Sec.  156.110(a), the 
scope of benefits provided under a typical employer plan, and that the 
State's EHB-benchmark plan must not exceed the generosity of the most 
generous among a set of comparison plans. The actuarial certification 
that is being collected under this ICR is required to include an 
actuarial report that complies with generally accepted actuarial 
principles and methodologies. This estimate includes complying with all 
applicable ASOPs. For example, ASOP 41 on actuarial communications 
includes disclosure requirements, including those that apply to the 
disclosure of information on the methods and assumptions being used and 
ASOP 50 contains information on determining MV and AV. In accordance 
with ASOP 41, we would expect that the actuarial report is based on a 
data analysis that is reflective of an appropriate population. The 
actuarial certification for this requirement is provided in a template 
and includes an attestation that the standard actuarial practices have 
been followed or that exceptions have been noted. The signing actuary 
is required to be a Member of the American Academy of Actuaries.
    We estimate that an actuary, who is a member of the American 
Academy of Actuaries, requires 18 hours (at a rate of $80.82 per hour) 
on average for Sec.  156.111(e)(2). This includes the certification and 
associated actuarial report from an actuary to affirm, in accordance 
with generally accepted actuarial principles and methodologies, that 
the State's EHB-benchmark plan provides a scope of benefits that is 
equal to, or greater than, to the extent any supplementation is 
required to provide coverage within an EHB category at Sec.  
156.110(a), the scope of benefits provided under a typical employer 
plan, and that the State's EHB-benchmark plan definition does not 
exceed the generosity of the most generous among the set of comparison 
plans. We are also finalizing a document entitled Example

[[Page 17041]]

of an Acceptable Methodology for Comparing Benefits of a State's EHB-
benchmark Plan Selection in Accordance with 45 CFR 156.111(b)(2)(i) and 
(ii) \103\ that provides an example of a method an actuary could use to 
develop the actuarial certification and associated report at Sec.  
156.111(e)(2) for both the typical employer plan and comparison plan 
standards.
---------------------------------------------------------------------------

    \103\ Example of an Acceptable Methodology for Comparing 
Benefits of a State's EHB-benchmark Plan Selection in Accordance 
with 45 CFR 156.111(b)(2)(i) and (ii) is available at https://www.cms.gov/cciio/resources/regulations-and-guidance/index.html.
---------------------------------------------------------------------------

    For these calculations, the actuary needs to conduct the 
appropriate calculations to create and review an actuarial 
certification and associated actuarial report, including minimal time 
required for recordkeeping. The precise level of effort for the 
actuarial certification and associated actuarial report under Sec.  
156.111(e)(2) will likely vary depending on the State's approach to its 
EHB-benchmark plan and this certification requirement. For example, as 
described in the Example of an Acceptable Methodology for Comparing 
Benefits of a State's EHB-benchmark Plan Selection in Accordance with 
45 CFR 156.111(b)(2)(i) and (ii), to reduce the burden of these 
standards, the actuary may want to consider using the same plan for 
both the generosity and the typicality tests, provided that the plan 
meets the standards at both Sec.  156.111(b)(2)(i) and (ii). For 
example, the actuary may only need to do one plan comparison for the 
purposes of both of these certification requirements. Specifically, the 
actuary could use the same plan, such as the State's EHB-benchmark plan 
used for the 2017 plan year. That plan would, by definition, be a 
``Comparison Plan.'' Because the State's EHB-benchmark plan used for 
the 2017 plan year would simply be one of the State's base-benchmark 
plans, supplemented as necessary under Sec.  156.110, that plan also 
could be used for purposes of determining typicality, as a proposed 
State EHB-benchmark plan that was equal in scope of benefits to the 
State's EHB-benchmark plan used for the 2017 plan year within each EHB 
category at Sec.  156.110(a) would be equal to or greater in scope of 
benefits within each EHB category at Sec.  156.110(a) than the base-
benchmark plan underlying the EHB-benchmark plan used for the 2017 plan 
year, to the extent of the required supplementation. We estimate that a 
financial examiner will require 1 hour (at a rate of $66.04 per hour) 
to review, combine, and electronically transmit these documents to HHS, 
as part of a State's EHB-benchmark plan submission.
    We increased the estimated burden hours from 16 hours to 18 hours 
for the actuary to complete the actuarial certification and associated 
report in recognition of the extension of the generosity standard and 
in recognition that the definition of typical employer plan may require 
the actuary to determine whether the typical employer plan meets MV 
requirements. We are also increasing the estimated number of States 
that need to respond to this section of the ICR from 7 to 10 since the 
typical employer plan standard and the generosity standard applies to 
all State's EHB-benchmark plan options at Sec.  156.111(a). We estimate 
that each State incurs a burden of 19 hours with an associated cost of 
$1,520.80 with a total annual burden for 10 States of 190 hours at 
associated total cost of $15,208. We did not receive comments on this 
specific estimate.
    Third, we require at Sec.  156.111(e)(3) each State to submit its 
proposed EHB-benchmark plan documents. The level of effort associated 
with this requirement will depend on the State's selection of the EHB-
benchmark plan options under the regulation at Sec.  156.111(a). 
However, for the purposes of this estimate, we estimate that it 
requires a financial examiner (at a rate of $66.04 per hour) 12 hours 
on average to create, review, and electronically transmit the State's 
EHB-benchmark plan document that accurately reflects the benefits and 
limitations, including medical management requirements and a schedule 
of benefits, resulting in a burden of 12 hours and an associated cost 
of $792, with a total annual burden for all 10 States of 120 hours and 
an associated cost of $7,925. The burden for producing these documents 
is significantly higher than previous estimates because the previous 
data collection generally only required the State (or issuer) to 
transmit the selected benchmark plan document. In contrast, in some 
cases, the Sec.  156.111(a) may result in the State needing to create a 
completely new document or significantly modify the current document to 
represent the plan document. Additionally, this estimate of 12 hours 
also includes the burden necessary for a State selecting the option at 
Sec.  156.111(e)(3) where the State is required to submit a formulary 
drug list for the State's EHB-benchmark plan in a format and manner 
specified by HHS. Specifically, the burden for the State selecting this 
option is also likely to vary as the State could use an existing 
formulary drug list or create its own formulary drug list separately 
for this purpose. To collect the formulary drug list, the State is 
required to use the template provided by HHS and submit the formulary 
drug list as a list of RxNorm Concept Unique Identifiers (RxCUIs).
    Section 156.111(e)(4) requires the State to submit the 
documentation necessary to operationalize the State's EHB-benchmark 
plan. This reporting requirement includes the EHB summary file that is 
currently posted on CCIIO's website, used as part of the QHP 
certification process, and integrated into HHS's IT Build systems that 
feed into the data that is displayed on HealthCare.gov. While this 
document is not a new document, the burden associated with this 
document is new for States. We estimate that it requires a financial 
examiner 12 hours, on average, (at a rate of $66.04 per hour) to 
create, review, and electronically submit a complete and accurate 
document to HHS resulting in a burden of 12 hours and an associated 
cost of $792, with a total annual burden for all 10 States of 120 hours 
and an associated cost of $7,925.
    Under the previous policy, the burden estimates 226 respondents per 
year, for a total yearly burden total of 165 annual burden hours and a 
total annual associated cost of $8,094 to meet these reporting 
requirements. Under the new policy related to EHB, we estimate that the 
total number of respondents will be 10 per year, for a total yearly 
burden of 470 hours and an associated cost of $33,699 to meet these 
reporting requirements. The estimated burden associated with the 
changes represents an increase of 305 hours (increase from 165 hours to 
470 hours) and an annual costs increase of $25,605 (from $8,094 to 
$33,699) over the previously approved information collection (OMB 
Control Number: 0938-1174).
    As part of the update to this OMB control number: 0938-1174, we 
also sought comment on requirements for SADPs to submit voluntary 
reporting. This collection includes data on whether the issuer intends 
to offer SADP coverage, the anticipated Exchange market in which 
coverage will be offered, and the State and service area in which the 
issuer offers coverage. The burden associated with meeting this 
requirement includes the time and effort needed by the issuer to report 
on whether it intends to offer SADP coverage. We estimate that it will 
take one half hour for a health insurance issuer to meet this reporting 
requirement. We estimate that approximately 175 issuers will respond to 
this data collection. Therefore, we anticipate that the reporting

[[Page 17042]]

requirement will require a market research analyst one half-hour 
annually to identify and submit the responsive records to HHS (at a 
rate of $67.90 per hour), for a total cost of $34 a year per reporting 
entity. This will result in an annual burden of 87.5 hours for all 175 
issuers and a resulting estimated annual cost of $5,941. OMB approvals 
are issued for 3 years; therefore, the aggregate burden for 3 years 
will be approximately 263 hours with an associated cost of 
approximately $17,824. We did not receive comments on these estimates.
    Lastly, as part of the update to this OMB control number: 0938-
1174, we are adding an information collection request to this ICR to 
account for the finalized policy at Sec.  156.115(b)(2)(ii) that allows 
the State the option to notify HHS that the State will allow 
substitution between EHB categories of benefits, beginning with the 
2020 plan year. Specifically, Sec.  156.115(b)(2)(ii) will allow 
issuers to substitute benefits only when the State in which the plan 
will be offered permits such substitution and notifies HHS of its 
decision to allow substitution between categories. We anticipate that 
States will notify HHS through the same means the States will notify 
HHS of an updated EHB-benchmark plan selection under Sec.  156.111 and 
we intend to provide a preformatted response for States to use to 
provide the notification to HHS. To provide notification under Sec.  
156.115(b)(2)(ii), we estimate that it will require a financial 
examiner \1/2\ hour, on average, (at a rate of $66.04 per hour) to 
review and electronically submit a notification to HHS. Furthermore, we 
estimate that at most 5 States will want to allow the flexibility for 
their issuers to substitute between categories under Sec.  
156.115(b)(2)(ii). While this aspect of the ICR is not subject to the 
PRA because we estimate that no more than 5 States will be affected 
annually, we nonetheless provide a total annual burden estimate for 
Sec.  156.115(b)(2)(ii), which is 2.5 hours and a total associated cost 
of $165.

H. ICRs Regarding Medical Loss Ratio (Sec. Sec.  158.170, 158.221, 
158.320-323, 158.340, 158.346, and 158.350)

    We are amending Sec.  158.221 to allow issuers the option to report 
quality improvement activity expenses as a single fixed percentage of 
premium amount beginning with the 2017 MLR reporting year (that is, for 
reports filed by July 31, 2018), and making conforming amendments to 
Sec.  158.170. We do not anticipate that implementing this provision 
will require significant changes to the MLR annual reporting form and 
the associated burden. In addition, while we are not making changes to 
Sec.  158.162, pursuant to public comments, we intend to make a change 
to the MLR annual reporting form in order to collect the information on 
issuers' employment taxes separately from other taxes. We do not 
anticipate that implementing this provision will significantly change 
the reporting burden either, as issuers already include this 
information on the reporting form, and would simply have to include it 
on a different line on the form. The burden related to this collection 
is currently approved under OMB control number 0938-1164; Medical Loss 
Ratio Annual Reports, MLR Notices, and Recordkeeping Requirements.
    We are also amending subpart C to modify the data and narratives 
which a State must submit as part of the State's request for an 
adjustment to the MLR standard in the individual market for that State. 
There is no standardized application form associated with a State's 
request, but each request must contain certain data elements in order 
to receive consideration by the Secretary, which are described in 
Sec. Sec.  158.320-158.323, 158.340, 158.346, and 158.350. The burden 
related to the proposed requirements was previously approved under OMB 
control number 0938-1114, Medical Loss Ratio (IFR) Information 
Collection Requirements and Supporting Regulations; the approval 
expired in 2014. We intend to reinstate this information collection, 
with modifications to reflect our finalized revisions to subpart C of 
part 158. The proposed rule (82 FR 51052), published on November 2, 
2017, served as the 60-day notice to afford the public an opportunity 
to comment on this collection of information requirement.
    We are eliminating collection of the following information from a 
State requesting an adjustment: The State MLR standard and formula for 
assessing compliance (Sec.  158.321(a)), its market withdrawal 
requirements (Sec.  158.321(b)), and the mechanisms available to the 
State to provide consumers with options for alternate coverage (Sec.  
158.321(c)); as well as the net underwriting profit for the total 
business in the State and the after-tax profit and profit margin for 
the individual market and total business in the State (Sec.  
158.321(d)(2)(vii)), and the estimated rebate (Sec.  158.321(d)(2)(v)) 
of each issuer with at least 1,000 enrollees in the State. We expect 
these amendments to reduce the burden on States seeking an adjustment. 
We are also replacing the requirement that a State requesting an 
adjustment must submit enrollment and premium data for every individual 
market issuer at the product level (Sec.  158.321(d)(1)) and the 
reported and estimated MLRs (Sec.  158.321(d)(2)(ii) and (iii)) for 
issuers with at least 1,000 enrollees, with total enrollment (life-
years and covered lives), premium, and total incurred claims for only 
active individual market issuers, separately for five types of 
individual market coverage: On-Exchange plans, off-Exchange plans, 
grandfathered health plans as defined in Sec.  147.140, coverage that 
meets the criteria for transitional policies outlined in applicable 
guidance, and non-grandfathered single risk pool coverage. States will 
not be required to provide information on student health insurance 
coverage as defined in Sec.  147.145 or excepted benefits as defined in 
Sec.  148.220. We expect these amendments to result in a net reduction 
in burden on States seeking an adjustment. We will continue to collect 
data on total agents' and broker's commission expenses and net 
underwriting gain (proposed to be redesignated from Sec.  
158.321(d)(2)(iv) and (vi) to Sec.  158.321(a)(3) and (4), 
respectively) for only active individual market issuers, but separately 
for the five types of coverage described above. We will also continue 
to collect information on risk-based capital levels (proposed to be 
redesignated from Sec.  158.321(d)(2)(viii) to Sec.  158.321(a)(5)) at 
the issuer level. While the amendments will require more breakdown of 
the data than Sec.  158.321 previously required, in most States there 
are more issuers with at least 1,000 enrollees than there are active 
issuers in the individual market, and consequently we expect that these 
amendments will have no net impact on the burden. Additionally, we are 
updating Sec.  158.321(d)(2)(ix) to collect more specific information 
on issuer notices to the State of changes to participation in the 
State's individual market, rather than focusing exclusively on notices 
to exit the individual market. We do not expect this amendment to have 
an appreciable impact on the burden. We are further eliminating the 
requirement that a State requesting an adjustment provide information 
explaining and justifying how its proposed adjustment was determined 
and estimating rebates that would be paid with and without an 
adjustment (Sec.  158.322(a), (c), and (d)); as well as replacing what 
information a State must provide pursuant to Sec.  158.322(b) with a 
requirement to explain how the adjustment would help stabilize the 
State's individual market. We expect these amendments to reduce the 
burden. Lastly, we have updated what information a State must submit 
with a

[[Page 17043]]

subsequent request for adjustment pursuant to Sec.  158.350. We do not 
expect this amendment to change the burden.
    Based on preliminary data analysis and previous State requests for 
adjustments, we estimate that approximately 22 States will submit 
applications in the first year. We estimate that it will take 
approximately 140 hours on average for each State to complete the 
application, including gathering and analyzing data, synthesizing 
information, and developing a proposal for an adjusted MLR standard. 
Specifically, we assume that the application will take a financial 
analyst approximately 96 hours (at a rate of $68.78 per hour), an 
actuary 6 hours (at a rate of $80.82 per hour), a financial manager 10 
hours (at a rate of $91.66 per hour), a lawyer 24 hours (at a rate of 
$89.74 per hour), and the insurance commissioner 4 hours (at a rate of 
$116.90 per hour) to assemble and review the various components of the 
application, resulting in a total burden for each State of 140 hours 
with an associated cost of $10,626 per response, representing an 
estimated total burden reduction of 45 hours per response. The 
documents will be submitted electronically at minimal cost. We estimate 
that the total burden for 22 States to submit a request for an 
adjustment to the individual market MLR standard will be 3,080 hours 
with an associated cost of approximately $233,767, with an estimated 
net total reduction in burden of 620 hours. We recognize that this 
burden may vary between States, as some States may have better access 
to the required application information elements, while other States 
may have to seek some of the required information from health insurance 
issuers in their States, which could increase their burden. Some States 
may, if providing the requested information is an undue burden, ask the 
Secretary to consider their application without some of the information 
elements. We received a few comments that generally questioned whether 
the burden on States related to the information collection requirements 
prior to the finalized amendments may have been overstated, but that 
did not specify the basis for such concerns and did not relate to the 
estimates for the revised information collection requirements. We also 
received one comment that agreed with the estimates for the revised 
information collection.

I. Summary of Annual Burden Estimates for Final Requirements

                                             Table 12--Final Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Burden per
          Regulation section(s)             OMB control     Respondents      Responses       response      Total annual    Labor cost of  Total cost ($)
                                                No.                                           (hours)     burden (hours)   reporting ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   153.320..........................       0938-1155              25              25              60           1,500     $121,880.00     $121,880.00
Sec.   153.630(b)(6)....................       0938-1155              70           2,800               1           2,800      432,194.00      432,194.00
Sec.   156.111(e)(1)....................       0938-1174            * 10              10               4              40        2,641.60        2,641.60
Sec.   156.111(e)(2)....................       0938-1174            * 10              10              19             190       15,208.00       15,208.00
Sec.   156.111(e)(3)....................       0938-1174            * 10              10              12             120        7,924.80        7,924.80
Sec.   156.111(e)(4)....................       0938-1174            * 10              10              12             120        7,924.80        7,924.80
Sec.   156.115(b)(2)(ii)................       0938-1174             * 5               5             0.5             2.5          165.10          165.10
Sec.   156.150..........................       0938-1174             175             175             0.5            87.5        5,941.25        5,941.25
Sec.  Sec.   158.320-323, 158.340,             0938-1114              22              22             140           3,080      233,766.72      233,766.72
 158.346-350............................
                                         ---------------------------------------------------------------------------------------------------------------
    Total...............................  ..............             302           3,067  ..............           7,940      827,646.27      827,646.27
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Denote the same entities. For purposes of calculating the total, the value is used only once.
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 12.

J. Submission of PRA-Related Comments

    We have submitted a copy of this final rule to OMB for its review 
of the rule's information collection and recordkeeping requirements. 
These requirements are not effective until they have been approved by 
the OMB.
    To obtain copies of the supporting statement and any related forms 
for the final collections discussed above, please visit CMS's website 
at www.cms.hhs.gov/PaperworkReductionActof1995, or call the Reports 
Clearance Office at 410-786-1326.
    We invite public comments on these information collection 
requirements. If you wish to comment, please submit your comments 
electronically as specified in the ADDRESSES section of this final rule 
and identify the rule (CMS-9930-F), the ICR's CFR citation, CMS ID 
number, and OMB control number.
    ICR-related comments are due May 17, 2018.

V. Regulatory Impact Analysis

A. Statement of Need

    This rule finalizes standards related to the risk adjustment 
program for the 2019 benefit year, as well as certain modifications 
that will promote State flexibility and control over their insurance 
markets, reduce burden on stakeholders, and protect consumers from 
increases in premiums due to issuer uncertainty. The Premium 
Stabilization Rule and previous Payment Notices provided detail on the 
implementation of the risk adjustment program, including the specific 
parameters applicable for the 2014, 2015, 2016, 2017, and 2018 benefit 
years. This rule finalizes additional standards related to EHBs; cost-
sharing parameters; QHP certification; the Exchanges, including 
terminations, exemptions, eligibility and enrollment; AV for stand-
alone dental plans; MEC; the rate review program; the medical loss 
ratio program; the Small Business Health Options Program; and FFE and 
SBE-FP user fees.

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)), and Executive Order 13771 on Reducing Regulation and 
Controlling Regulatory Costs (January 30, 2017).
    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

[[Page 17044]]

(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 this final rule is ``economically 
significant'' within the meaning of section 3(f)(1) of Executive Order 
12866, because it is likely to have an annual effect of $100 million in 
any 1 year. Accordingly, we have prepared an RIA that presents the 
costs and benefits of this final rule.
    Section 3(f) of Executive Order 12866 defines a ``significant 
regulatory action'' as an action that is likely to result in a rule--
(1) Having an annual effect on the economy of $100 million or more in 
any 1 year, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating a 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. A 
regulatory impact analysis (RIA) must be prepared for major rules with 
economically significant effects ($100 million or more in any 1 year), 
and a ``significant'' regulatory action is subject to review by OMB. 
HHS has concluded that this rule is likely to have economic impacts of 
$100 million or more in at least 1 year, and therefore, meets the 
definition of ``significant rule'' under Executive Order 12866. 
Therefore, HHS has provided an assessment of the potential costs, 
benefits, and transfers associated with this rule.
    The provisions in this final rule aim to improve the health and 
stability of the Exchanges, and to provide States with additional 
flexibility and control over their insurance markets. They will reduce 
regulatory burden, and reduce administrative costs for issuers and 
States, and will lower net premiums for consumers. Through the 
reduction in financial uncertainty for issuers and increased 
affordability for consumers, these provisions are expected to increase 
access to affordable health coverage. Although there is some 
uncertainty regarding the net effect on enrollment and premiums, we 
anticipate 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; that markets are stable; and that Exchanges 
operate smoothly.
    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 PPACA is to make affordable health insurance available 
to individuals who do not have access to affordable employer-sponsored 
coverage or government-sponsored coverage. The provisions within this 
final rule are integral to the goal of expanding coverage. For example, 
the risk adjustment program helps prevent risk selection and decrease 
the risk of financial loss that health insurance issuers might 
otherwise expect in 2019.
    HHS anticipates that the provisions of this final rule will help 
further the Department's goal of ensuring that all consumers have 
access to quality and affordable health care and are able to make 
informed choices, that Exchanges operate smoothly, that the risk 
adjustment program works as intended, and that States have more control 
and flexibility over EHBs, QHP certification and the operation and 
establishment of Exchanges. Affected entities such as QHP issuers will 
incur costs to comply with the proposed provisions, for example, those 
related to the functions of a SHOP; including calculating the minimum 
participation rate at the employer level and processing SHOP 
enrollments for employers and employees; and States will incur costs if 
they select a new EHB-benchmark plan under the new regulations. 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 13 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 
numerous effects, including providing consumers with access to 
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 any reduction in burden 
related to changes in the timing related to State deadlines for 
submission of rate filings from issuers that only offer non-QHPs; 
increased flexibility for Exchanges related to the removal of certain 
requirements for Navigator programs and non-Navigator assistance 
personnel entities; increased access to the direct enrollment pathway 
stemming from permitting a third-party entity to conduct operational 
readiness reviews for agents, brokers, and issuers; benefits to 
Exchanges related to proposed simplifications of verification 
requirements; benefits to consumers, issuers or Exchanges related to 
the changes related to the special enrollment periods; increased 
flexibility for States relating to the proposals regarding the SHOP 
enrollment process; and potential decreases in premiums to consumers 
related to removing actuarial value standards for SADPs--and certain 
costs--such as the costs incurred by small employers, agents and 
brokers, and potential increases in out-of-pocket costs to consumers 
related to removing actuarial value standards for SADPs; and costs to 
issuers, brokers, agents, and employers related to changes in SHOP 
enrollment procedures. The effects in Table 13 reflect qualitative 
impacts and estimated direct monetary costs and transfers resulting 
from the provisions of this final rule for health insurance issuers. 
The annualized monetized costs described in Table 13 reflect direct 
administrative costs to health insurance issuers as a result of the 
finalized provisions, and include administrative costs associated with 
States requesting a reduction in risk adjustment transfers for the 
State's individual, small group or merged market, the reduction in 
costs relating to issuers and States having to no longer submit rate 
increases for student health insurance plans to HHS, and costs 
associated with States seeking an adjustment to the MLR standard in the 
State's individual market that are estimated in the Collection of 
Information section of this final rule. The annual monetized transfers 
described in Table 13 include costs associated with SBE-FP user fees, 
the risk adjustment user fee paid to HHS by issuers, and reductions in 
rebate payments from issuers to consumers related to QIA and MLR 
adjustments. We are finalizing a risk adjustment user fee to collect 
$1.80 per enrollee per year from risk adjustment issuers to operate the 
risk adjustment program on behalf of States, which we expect to cost

[[Page 17045]]

approximately $40 million, similar to the $40 million in contract costs 
expected for benefit year 2018 when we established a $1.68 per-
enrollee-per-year risk adjustment user fee rate. As in 2018, the risk 
adjustment user fee contract costs for 2019 include additional costs 
for risk adjustment data validation; however, we expect reduced costs 
related to issuer outreach and education as issuers gain familiarity 
with the risk adjustment program, and lower enrollment in risk 
adjustment covered QHPs, and additional costs to include administrative 
and personnel costs related to the risk adjustment program that were 
inadvertently excluded in prior years' cost estimation, which together 
results in a slightly higher risk adjustment user fee rate than the 
benefit year 2018 rate. As we generally expect similar risk adjustment 
user fee costs as the 2018 benefit year, there are no changes to the 
risk adjustment user fee transfers to include in Table 13. Also, we 
expect a decrease in FFE user fee collections necessary as we estimate 
lower contract costs due to streamlining of FFE operations and an 
increase in premiums but also lower enrollment, resulting in a proposed 
user fee rate of 3.5 percent for 2019, which is the same as the FFE 
user fee rate established for 2014 through 2018 benefit years. However, 
the decrease in user fee collections required to support FFE functions 
for the 2019 benefit year will be similar to the updated costs for the 
2018 benefit year, and the user fee rate will yield the same amount of 
transfers from FFE issuers to the Federal government as in the prior 
benefit year. Therefore, there are no changes to the FFE user fee 
transfers to include in Table 13. We also proposed an SBE-FP user fee 
rate to be set at 3.0 percent for benefit year 2019, which is higher 
than the 2.0 percent SBE-FP user fee rate we finalized for the 2018 
benefit year. In this rule, we also finalized a proposal to cease 
charging user fees on SHOP issuers offering plans through an FFE or 
SBE-FP starting for plan years beginning on and after January 1, 2018.

                       Table 13--Accounting Table
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
Benefits:
------------------------------------------------------------------------
Qualitative:
     Greater market stability resulting from improvements to the
     risk adjustment methodology.
     Potential increased enrollment in the individual market
     stemming from lower premiums, 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.\a\
     More informed Exchange QHP certification decisions.
     Increased coverage options for small businesses and
     employees with less adverse selection.
     Cost savings to consumers and issuers due to reduced
     administrative costs for issuers.
     Potential decreases in premiums associated with States
     opting to select a new EHB-benchmark plan.
     Reduced burden to Exchanges, due to the removal of the
     requirements that each Exchange must have at least two Navigator
     entities, and that one of these entities must be a community and
     consumer-focused nonprofit group, and the removal of the
     requirement that each Navigator (and each non-Navigator entity
     subject to Sec.   155.215) maintain a physical presence in the
     Exchange service area.
     Reduced costs and burden and increased flexibility to
     agents and brokers performing direct enrollment and their third-
     party auditors due to the removal of the requirement to obtain HHS
     approval to perform reviews.
     Reduction in administrative costs to issuers due to the
     removal of the meaningful difference standard, and final changes to
     the SHOPs.
------------------------------------------------------------------------


 
                                                     Estimate                      Discount rate
                     Costs:                          (million)      Year dollar      (percent)    Period covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................         -$26.71            2016               7       2018-2022
                                                 ---------------------------------------------------------------
                                                          -25.54            2016               3       2018-2022
----------------------------------------------------------------------------------------------------------------
Quantitative:
     Costs incurred by issuers and States to comply with provisions in the final rule as detailed in the
     Collection of Information Requirements section, taking into account the reduction in burden and costs for
     issuers and States due to the elimination of the requirement to submit rate reviews to HHS for student
     health insurance coverage \b\ and increase in the rate review threshold and the reduction in burden and
     costs to States related to the requests for adjustment to the MLR standard in their individual markets.....
     Reduction in costs to issuers due to changes to the requirements for risk adjustment data
     validation.................................................................................................
     Reduction in potential costs to Exchanges since they will no longer be required to conduct sampling
     as a verification process for eligibility for employer-based insurance starting plan year 2018, and can
     instead conduct an alternate process through plan year 2019................................................
     Costs incurred by Exchanges to implement new verification requirements for income inconsistencies..
     Regulatory familiarization costs...................................................................
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Costs due to increases in providing medical services (if health insurance enrollment increases)....
     Costs to issuers of redesigning SADPs to account for the removal of actuarial value standards for
     SADPs......................................................................................................
     Potential increases in out of pocket costs associated with States opting to select a new EHB-
     benchmark plan.............................................................................................
     Potential increases in out of pocket costs and loss of benefits and services associated with
     substitution between EHB categories.\c\....................................................................
     Potential increase in consumer burden related to plan comparisons in those States allowing
     substitution between EHB categories........................................................................
----------------------------------------------------------------------------------------------------------------
Transfers:                                           Estimate          Year        Discount rate      Period
                                                       (million)          dollar       (percent)         covered
----------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized ($/year)...........           $17.8            2017               7       2018-2022
                                                 ---------------------------------------------------------------
                                                            18.6            2017               3       2018-2022
----------------------------------------------------------------------------------------------------------------
Other Annualized Monetized ($/year).............              87            2017               7       2018-2022
                                                 ---------------------------------------------------------------
                                                              87            2017               3       2018-2022
----------------------------------------------------------------------------------------------------------------

[[Page 17046]]

 
Quantitative:
     Transfer from health insurance issuers to the Federal government of $40 million as risk adjustment
     user fees for 2022 (the same amount as previously estimated for 2018-2021).................................
     Increased transfers from SBE-FP issuers to the Federal government of $20 million due to increase in
     user fee rate from 2.0 set in 2018 to 3.0 percent final for 2019...........................................
     Decrease in user fee transfers from SHOP issuers offering plans through an FF-SHOP or SBE-FP for
     SHOP to the Federal government of approximately $6 million in 2019.........................................
     Reduced transfers to consumers from health insurance issuers in the form of rebates of $75 million
     to $87 million due to final amendments to the medical loss ratio requirements.\d\..........................
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Lower premium rates in the individual market due to the improved risk profile of the insured,
     competition, and pooling...................................................................................
     A decrease in the premiums and risk adjustment transfers in the individual, small group or merged
     markets as a result of potential State requests to reduce risk adjustment transfers for the State's
     individual, small group or merged market...................................................................
     Potential increases in premiums associated with adjustments to MLR.................................
     Potential decreases in premiums associated with removal of AV standards for SADPs..................
     Potential increases in out of pocket costs associated with removal of AV standards for SADPs.......
----------------------------------------------------------------------------------------------------------------
\a\ Removal of AV standards for SADPs may reduce enrollment due to reductions in coverage and potential higher
  out-of-pocket costs.
\b\ The reduction in burden and costs associated with student health insurance could result in lower premiums.
\c\ Some consumers may experience an increase in services and benefits. The net result is uncertain.
\d\ For the purpose of calculating total transfers, the upper bound was used.

    This RIA expands upon the impact analyses of previous rules and 
utilizes the Congressional Budget Office's (CBO) analysis of the 
PPACA's impact on Federal spending, revenue collection, and insurance 
enrollment. The PPACA transitional reinsurance program and temporary 
risk corridors program end after the benefit year 2016. Therefore, the 
costs associated with those programs are not included in Tables 14 or 
15 for fiscal years 2019-2022. Table 14 summarizes the effects of the 
risk adjustment program on the Federal budget from fiscal years 2018 
through 2022, 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 14. We note 
that transfers associated with the risk adjustment program 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 13).
    In addition to utilizing CBO projections, HHS conducted an internal 
analysis of the effects of its regulations on enrollment and premiums. 
Based on these internal analyses, we anticipate that the quantitative 
effects of the provisions proposed in this rule are consistent with our 
previous estimates in the 2018 Payment Notice for the impacts 
associated with the APTC, the premium stabilization programs, and FFE 
user fee requirements.

   Table 14--Estimated Federal Government Outlays and Receipts for the Risk Adjustment, Reinsurance, and Risk
                                  Corridors Programs From Fiscal Year 2018-2022
                                            [In billions of dollars]
----------------------------------------------------------------------------------------------------------------
                  Year                       2018        2019        2020        2021        2022      2018-2022
----------------------------------------------------------------------------------------------------------------
Risk Adjustment, Reinsurance, and Risk             5           5           5           6           6          27
 Corridors Program Payments.............
Risk Adjustment, Reinsurance, and Risk             5           5           6           6           6          28
 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 $1 million in payments in FY 2018 that are collected in prior
  fiscal years. CBO does not expect a shortfall in these programs.
Source: Congressional Budget Office. Federal Subsidies for Health Insurance Coverage for People Under Age 65:
  2017 to 2027 Table 2. September 2017. Available at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53091-fshic.pdf.

1. Risk Adjustment
    The risk adjustment program is a permanent program created by the 
PPACA 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. We established standards for 
the administration of the risk adjustment program, in subparts D and G 
of part 153 in Title 45 of the CFR.
    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 through 2018 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 2019 benefit year, we estimate that the total cost for HHS to 
operate the risk adjustment program on behalf of States for 2019 will 
be approximately $40 million, and that the risk adjustment user fee 
would be approximately $1.80 per enrollee per year. This user fee 
reflects costs to support the risk adjustment data validation process 
in 2019, lower costs related to risk adjustment issuer outreach and 
education and lower enrollment in risk adjustment covered QHPs, and 
includes administrative and personnel cost related to the risk 
adjustment program, resulting in a slightly higher user fee rate for 
2019 than the 2018 benefit year rate.
    We believe that the approach of blending the coefficients 
calculated from the 2016 benefit year enrollee-level EDGE data with 
2014 and 2015 MarketScan[supreg] data finalized in this rule will 
provide stability within the risk adjustment program and minimize 
volatility in changes to risk scores from the 2018 benefit year to the 
2019 benefit

[[Page 17047]]

year due to differences in the datasets' underlying populations.
    We are finalizing the provision for States to request a reduction 
in risk adjustment transfers in the individual, small group or merged 
market. We expect this policy will reduce transfers proportional to the 
percent by which the States seek to reduce the transfers to account for 
State-specific market rules or relevant factors without the necessity 
for States to undertake operation of their own risk adjustment program. 
However, because the risk adjustment program is budget neutral, any 
State decision to request a reduction in the risk adjustment transfers 
will have no net impact on risk adjustment transfers.
2. Risk Adjustment Data Validation
    We are finalizing several changes to the requirements for risk 
adjustment data validation that overall would reduce regulatory burden 
and costs for issuers of risk adjustment covered plans. HHS believes 
that adjusting issuers' risk adjustment risk scores only when an 
issuer's failure rate for a group of HCCs is statistically different 
from the weighted mean failure rate for that group of HCCs for all 
issuers that submitted initial validation audits will help market 
stability by increasing issuers' ability to predict risk adjustment 
transfers and liquidity needs. We anticipate that many issuers required 
to participate in risk adjustment data validation will not have their 
risk scores adjusted, based on our analysis of error rates in the 
Medicare risk adjustment data validation program.
    We anticipate that the post-transfer adjustment of risk adjustment 
transfers for issuers that exited a State market will result in 
transfer adjustments for a small subset of issuers that previously 
would not have had their transfers adjusted, but HHS does not expect 
this policy to increase burden for these issuers, especially in light 
of the revised payment adjustments for error rates policy finalized in 
this rule.
    HHS estimates that not requiring issuers that have 500 or fewer 
billable member months Statewide to conduct an initial validation audit 
beginning in the 2017 benefit year will reduce the administrative 
burden and costs on those issuers. The reduction in burden and costs 
related to this ICR has been discussed previously in the Collection of 
Information Requirements section.
    Under the change to the sampling methodology finalized in this 
rule, issuers that were the sole issuer in a risk pool will still need 
to provide a sample for data validation, but the sample will not 
include enrollees from the risk pool where they were the sole issuer. 
Therefore, this change will not have a significant impact on costs or 
burden for affected issuers.
    We are finalizing an amendment to Sec.  153.630(b)(6) to state that 
a qualified provider licensed to diagnose mental illness that is 
prohibited by State privacy laws from furnishing a complete medical 
record for data validation may furnish a signed mental or behavioral 
health assessment that providers routinely prepare along with the 
required attestation. For risk adjustment data validation purposes, a 
mental or behavioral health assessment should, to the extent 
permissible under applicable State and Federal privacy laws, contain: 
(i) The enrollee's name; (ii) sex; (iii) date of birth; (iv) current 
status of all mental or behavioral health diagnoses; and (v) dates of 
service. The burden associated with this requirement has been discussed 
previously in the Collection of Information Requirements section.
    We are finalizing an amendment to Sec.  153.630(b)(9) to state 
that, if an issuer of a risk adjustment covered plan (1) fails to 
engage an initial validation auditor; (2) fails to submit the results 
of an initial validation audit to HHS; (3) engages in misconduct or 
substantial non-compliance with the risk adjustment data validation 
standards and requirements applicable to issuers of risk adjustment 
covered plans; or (4) intentionally or recklessly misrepresents or 
falsifies information that it furnishes to HHS, HHS may impose CMPs in 
accordance with the procedures set forth in Sec.  156.805(b) through 
(e). Because risk adjustment data validation has thus far operated as a 
pilot program, we cannot estimate the number of issuers that will be 
subject to CMPs. However, we do not expect that a significant number of 
issuers will engage in the extreme misconduct required to warrant a CMP 
under this amended regulation.
3. Rate Review
    We are amending Sec.  154.103 to exclude student health insurance 
coverage effective on or after July 1, 2018 from the Federal rate 
review requirements. This will reduce burden related to rate review 
submission and review for issuers and States. In addition, providing 
States with more flexibility regarding timing of submission of rate 
filing justification from issuers that offer non-QHPs only, and 
reducing the advance notification requirement for rate increase 
announcements, will reduce regulatory burden for issuers and States. 
The reduction in burden and costs related to ICRs have been discussed 
previously in the Collection of Information Requirements section.
    Raising the Federal default review threshold from 10 percent to 15 
percent will reduce administrative burden for issuers and States while 
continuing to provide the Secretary and the States with the information 
necessary to effectively carry out their responsibilities to monitor 
rate increases inside and outside of Exchanges. As discussed previously 
in the Collection of Information Requirements section, issuer burden 
will decrease by an estimated $20,576 and the State burden will 
decrease by an estimated $519,674 annually. Given that only one rate 
filing subject to review over the last 4 years in the 10 to 15 percent 
rate increase range was determined to be unreasonable, we feel this is 
a reasonable tradeoff for the potential burden savings.
4. Additional Required Benefits (Sec.  155.170)
    We are extending the applicability of the policies governing State-
required benefits at Sec.  155.170 to the policies finalized at Sec.  
156.111, which provide States with new options for selecting their EHB-
benchmark plans beginning for the 2019 plan year. Specifically, under 
any of the three EHB-benchmark plan selection options, or if the State 
defaults to its current EHB-benchmark plan, the policies regarding 
State-required benefits will continue to apply. Because these policies 
continue to be in effect, we do not anticipate any additional burden on 
States or issuers.
5. Standards for Navigators and Certain Non-Navigator Assistance 
Personnel (Sec. Sec.  155.210 and 155.215)
    We amended Sec.  155.210(c)(2) to remove the requirements that each 
Exchange must have at least two Navigator entities and that one of 
these entities must be a community and consumer-focused nonprofit 
group. We also amended Sec. Sec.  155.210(e)(7) and 155.215(h) to 
remove the requirements that Navigators and non-Navigator assistance 
personnel entities subject to those regulations maintain a physical 
presence in the Exchange service area. These amendments to Sec.  
155.210(c)(2) will reduce the burden on Exchanges to have at least two 
separate Navigator entities, and as a result, Exchanges may be able to 
reduce funding amounts while still meeting program requirements. 
Removing these requirements will help promote flexibility and autonomy 
for each Exchange to structure its Navigator program, and to award 
grant funding to the number and type of entities that will be most 
effective and efficient for that specific Exchange service area. To the

[[Page 17048]]

extent that Exchanges take advantage of these flexibilities, consumers 
may have fewer options of Navigator grantees and may not have access to 
a Navigator grantee or a non-Navigator assistance personnel entity that 
maintains a physical presence in the Exchange service area. Exchanges 
continue to have the flexibility to fund more than one Navigator 
grantee and State Exchanges continue to have the flexibility to require 
that Navigators maintain a physical presence in the Exchange service 
area.
6. Standards for Third-Party Entities To Perform Audits of Agents, 
Brokers, and Issuers Participating in Direct Enrollment (Sec.  155.221)
    The final regulations replace the requirement that an HHS-approved 
third party perform audits of agents and brokers participating in 
direct enrollment and use their own internet website for QHP selection 
or to complete the Exchange eligibility application to instead permit 
an agent, broker or issuer to select a third-party entity that meets 
HHS requirements to conduct an annual operational readiness review 
prior to participating in direct enrollment. HHS anticipates this 
approach will reduce the regulatory burden on agents, brokers, and 
issuers participating in direct enrollment. HHS also anticipates these 
changes will reduce the burden on third-party auditors performing 
reviews under Sec.  155.221, as those entities will no longer be 
required to obtain HHS approval to perform the reviews. Furthermore, we 
believe this policy will expand the available number of qualified 
third-party auditors by removing any time and operational restrictions 
imposed by the HHS pre-approval requirement, which will provide more 
flexibility to agents, brokers, or issuers as they complete operational 
readiness reviews. Additionally, we believe this will enable more 
agents, brokers and issuers to demonstrate operational readiness by 
reducing the burden on HHS for conducting reviews, expediting the 
ability of these entities to demonstrate readiness, and increasing the 
feasibility of approval for use of innovative pathways, thereby 
creating more opportunities for enrollment in QHP coverage for 
consumers, potentially increasing enrollment. HHS anticipates that some 
of the burden will be lessened by the fact that many agents, brokers, 
or issuers already have the established privacy and security controls, 
and may have existing relationships with auditors that could be 
leveraged for these reviews. We intend to provide additional technical 
details regarding compliance with the specific requirements under these 
rules in guidance in the future.
7. Eligibility Standards (Sec.  155.305)
    The requirement in Sec.  155.305(f)(4)(ii) that the Exchange must 
send direct notification to the tax filer before denying eligibility 
for APTC to consumers who fail to file and reconcile went into effect 
in mid-January 2017; therefore, it did not impact operations for the 
2017 open enrollment period, which was nearly over then. At that point 
in time, for the FFE, the household contacts for non-filers had been 
notified of their tax filer's non-compliance, and APTC had been 
discontinued at auto re-enrollment for those who did not file a Federal 
income tax return according to IRS data or inform the FFE that they had 
filed a Federal tax return and reconciled past APTC. Requiring the 
Exchange to deny APTC for failure to file and reconcile even in the 
absence of ``direct notification . . . to the tax filer'' is unlikely 
to add new burden since Exchanges have not yet implemented Sec.  
155.305(f)(4)(ii). We do not believe that Exchanges have built an FTI-
compliant noticing infrastructure since the publication of the final 
rule establishing Sec.  155.305(f)(4)(ii) that they will need to 
dismantle. However, removing Sec.  155.305(f)(4)(ii) avoids significant 
costs for Exchanges that, as discussed above, no longer must build the 
infrastructure necessary to directly notify tax filers about their tax 
filing status while protecting FTI.
8. Verification Requirements (155.320)
    This rule amends Sec.  155.320(c)(3)(iii) to create annual income 
data matching issues when applicants attest to income above 100 percent 
FPL, but trusted data sources show income below 100 percent FPL. We 
estimate that each SBE will incur one-time costs of approximately 
$450,000 to complete the necessary system changes to implement this 
policy. For 12 SBEs, the estimated total cost will be $5.4 million. 
This estimate does not take into account the ongoing operational 
expenses of processing data matching issues from this new requirement. 
Ongoing operational costs will be dependent on the Exchange's number of 
applicants with income inconsistencies and the threshold for setting a 
data matching issue.
    This final rule will amend Sec.  155.320(d)(4) to allow an Exchange 
to conduct an HHS-approved alternative process instead of sampling, as 
provided under paragraph (d)(4)(ii) through benefit year 2019. We 
believe this will relieve Exchanges from the burden of investing 
resources to conduct sampling when the FFEs' study of a sampling-like 
process found that this method of verification may not be cost-
effective for some Exchanges at this time. We estimate the burden 
associated with sampling based in part on the alternative process used 
for the FFEs. HHS incurred approximately $750,000 in costs to design 
and operationalize this study and the study indicated that $353,581 of 
APTC was potentially incorrectly granted to individuals who 
inaccurately attested to their eligibility for or enrollment in a 
qualifying eligible employer-sponsored plan. We placed calls to 
employers to verify 15,125 cases but were only able to verify 1,948 
cases. A large number of employers either could not be reached or were 
unable to verify a consumer's information, resulting in a verification 
rate of approximately 13 percent. The sample-size involved in the 2016 
study did not represent a statistically significant sample of the 
target population and did not fulfill all regulatory requirements for 
sampling under paragraph (d)(4)(i) of Sec.  155.320.
    Taking additional costs into account--namely, the cost of sending 
notices to employees as required under paragraph (d)(4)(i)(A), the cost 
of building the infrastructure and implementing the first year of 
operationalizing this process, and the cost of expanding the number of 
cases to a statistically significant sample size of approximately 1 
million cases--we estimate that the overall cost of implementing 
sampling would be approximately $8 million for the FFE, and between $2 
million and $7 million for other Exchanges, depending on their 
enrollment volume and existing infrastructure. Therefore, we estimate 
that the average per-Exchange cost of implementing sampling that 
resembles the FFE's approach would be approximately $4.5 million for a 
total cost to SBEs of $54 million, when assuming 12 SBEs (operating in 
11 States and the District of Columbia). This cost estimate does not, 
however, take into account the cost of notifying consumers when the 
information provided by their employer changes their eligibility 
determination described under paragraph (d)(4)(i)(E), the cost of 
providing employees consumer support that may be needed to understand 
notices and any change in eligibility, or the cost of ending those 
consumers' APTCs, when necessary. This estimate also does not account 
for the unique operating costs of each Exchange, the change to 
paragraph (d)(4) to allow

[[Page 17049]]

Exchanges to continue to use an alternate process through benefit year 
2019, and the flexibility afforded Exchanges described at Sec.  
155.315(h) and referenced in Sec.  155.320(a)(2).
    We believe this finalized change will lessen the financial and 
technical burdens on Exchanges under current regulation and allow 
Exchanges to conduct an alternative process to sampling under paragraph 
(d)(4) as approaches to sampling are refined and data bases are 
compiled over time. We sought comment on the reduction in burden 
associated with extending the option to allow Exchanges to fulfill 
verification requirements by conducting an HHS-approved alternative 
process to sampling through plan year 2019. We did not receive any 
comments on the reduction of burden associated with our proposed 
change.
9. Special Enrollment Periods (Sec.  155.420)
    We do not anticipate that the revisions to Sec.  155.420 will 
create significant costs or burdens because several changes will 
simplify special enrollment period policy, and we also believe that 
they will generate some benefit in the form of added efficiency for 
Exchanges and improvements in some consumers' ability to maintain 
continuous coverage and understand their coverage options.
    For example, the amendment to paragraph (d)(1)(iii) allows 
Exchanges to provide similar treatment to all women losing non-MEC 
pregnancy-related coverage, which enables a more streamlined special 
enrollment period eligibility process.
    Additionally, the revisions in paragraph (b)(2)(i) align regulatory 
policy for special enrollment periods based on a court order with other 
similar special enrollment period types, and create operational 
efficiencies for Exchanges by streamlining effective date options 
across similar special enrollment periods with qualifying events 
related to gaining or becoming a dependent. For example, this revision 
to the regulation will enable the FFE to use a simpler online, 
automated application pathway for more special enrollment period-
eligible consumers, meaning that fewer consumers will need to use a 
manual and costly casework process to use their special enrollment 
period. For limited cases when casework support is required, operations 
would also be simplified.
    We acknowledge that this may not be the case for all Exchanges, and 
that an Exchange that has automated the option for consumers to elect 
that their coverage take effect on the first of the month after the 
date of their qualifying event may need to make updates so that 
consumers instead have the option to elect that their coverage take 
effect the first of the month after their date of plan selection. 
However, as discussed in the preamble, we believe that this burden will 
be limited, and mitigated due to the fact that offering a ``first of 
the month'' coverage effective date is optional for Exchanges, 
permitting a delayed rollout if necessary.
    Additionally, amending paragraph (a)(5) to exempt qualified 
individuals from the prior coverage requirement that applies to certain 
special enrollment periods if they lived in a service area where no 
qualified health plan was available through the Exchange for 1 or more 
days during the 60 days preceding the qualifying event or during their 
most recent preceding enrollment period, as specified in Sec. Sec.  
155.410 and 155.420, may provide a pathway to coverage for a small 
group of individuals, and is not anticipated to impact the Exchange 
risk pool. It may generate burden on Exchanges due to required 
technical and operational updates should it become necessary to 
implement, but we anticipate that this burden will be mitigated by the 
small size of the affected group and by practices that are already in 
place in many Exchanges to verify eligibility for special enrollment 
periods. Additionally, Exchanges already exempt qualified individuals 
from the prior coverage requirement who may not previously have had 
access to QHP coverage through an Exchange, including those who were 
previously living in a foreign country or United States territory and 
Indians as defined by section 4 of the Indian Health Care Improvement 
Act. Therefore, we do not believe that adding an additional small 
population to this exemption will create additional costs or burdens.
    Finally, because simplified special enrollment period eligibility 
policy provides improved pathways to continuous coverage for special 
enrollment period-eligible consumers, we anticipate that the provisions 
in this rule may result in less burden on call center representatives 
and caseworkers related to fewer questions about special enrollment 
periods due to gaining or becoming a dependent and loss of certain 
types of pregnancy-related coverage. We also anticipate that the 
revisions will reduce burden on consumers, have a positive effect on 
the risk pool, and not result in additional costs or burdens for 
issuers.
    In addition, some States that operate Exchanges expressed concern 
that amending the plan option restrictions available to dependents who 
are newly enrolling in a plan with a QHP enrollee through a special 
enrollment period will increase the burden on States, which will be 
required to do a system build to align their systems with this change. 
We appreciate these concerns raised by States, but do not anticipate 
that this change will add significant additional burden on top of the 
system builds States are already doing. The intent of this policy 
change is to streamline the plan option rules for dependents who are 
newly enrolling in coverage with enrollees through a special enrollment 
period and so we anticipate that any additional burden incurred to 
amend Exchange system functionality will be offset by the efficiencies 
gained in streamlining Exchange eligibility rules.
10. Effective Dates for Terminations (Sec.  155.430)
    Permitting all enrollee-initiated terminations to become effective 
on the date of enrollee request or a later date of their choosing, and 
removing the special termination effective date for newly eligible 
Medicaid/CHIP/BHP consumers streamlines termination effective dates for 
Exchanges and reduces complication and confusion among consumers and 
issuers. Exchanges and issuers were not expected to incur new costs by 
aligning these termination dates, as Exchanges and issuers are well 
acquainted with same-day termination transactions. However, we received 
comments from some SBEs that their systems would not allow for mid-
month terminations. Therefore, we are not requiring the alignment of 
termination effective dates as proposed, but rather are providing 
Exchanges flexibility to choose whether to implement the changes that 
were proposed. Operationalizing the aligned termination dates may 
reduce system errors and related casework, as well as confusion for 
consumers, issuers, and caseworker and call center staff based on 
contradictory rules for different scenarios.
11. Eligibility Standards for Exemptions (Sec.  155.605)
    We do not anticipate that the amendment to Sec.  155.605(d) will 
create additional costs or burdens. The amendment to Sec.  
155.605(d)(2)(iv) will enable the Exchanges to process the consumer's 
exemption from the individual shared responsibility provision due to 
lack of affordable coverage based on projected income, for those not 
eligible for employer-sponsored coverage, when there is no bronze plan 
available by allowing the Exchanges to process the consumer's

[[Page 17050]]

exemption based on the lowest cost Exchange metal level plan, excluding 
catastrophic coverage, available in the individual market through the 
Exchange in the State in the county in which the individual resides. 
This policy will not increase the burden on consumers or Exchanges. 
Without these revisions, individuals may lack access to qualifying or 
affordable health coverage, but be unable to qualify for an exemption 
from the individual shared responsibility provision to purchase 
qualifying health coverage and the associated financial penalty due to 
the lack of coverage in their area or the inability to calculate 
whether coverage is unaffordable. This policy will also not result in 
additional costs or burdens for issuers.
12. Small Business Health Options Program (Part 155, Subpart H, Sec.  
155.200, Sec. Sec.  156.285 and 156.286, Sec.  156.350, Sec. Sec.  
157.205 and 157.206)
    HHS is finalizing the proposal to grant additional flexibilities, 
for plan years beginning on or after January 1, 2018, to small 
employers enrolling in SHOP QHPs and to participating QHP issuers in 
how they interact with a SHOP. These changes will be effective as of 
the effective date of the final rule and the FF-SHOPs and SBE-FPs for 
SHOP will operate under the new enrollment approach. Under this final 
rule, several existing requirements on SHOPs will not apply for plan 
years beginning on or after January 1, 2018, allowing State Exchanges 
the flexibility to operate their SHOP in a way that makes sense for the 
small businesses in their State, with reduced limitations imposed by 
Federal regulation. The FF-SHOPs and SBE-FPs for SHOP will take 
advantage of the flexibility of the enrollment approach described 
through this final rule and operate in a leaner fashion. Under the 
approach being finalized, SHOPs are no longer required to enroll small 
groups in SHOP QHPs through a SHOP website. Instead, small employers 
will, in SHOPs that operate under this approach, enroll through a 
participating QHP issuer, or a SHOP-registered agent or broker.
    HHS believes that the changes will reduce burden on participating 
QHP issuers, small employers, and agents and brokers for several 
reasons. Under the approach being finalized, for plan years beginning 
on or after January 1, 2018, effective on the effective date of this 
rule, participating QHP issuers will, in SHOPs that operate under the 
new flexibilities like the FF-SHOPs and SBE-FPs for SHOP, enroll small 
groups through their existing enrollment channels--utilizing their 
existing technologies and processes. Small groups enrolled in SHOP QHPs 
for plan years before January 1, 2018 will not be affected by the 
proposed changes to enrollment through a SHOP until they are due to 
renew in a SHOP QHP for the 2018 plan year. While some additional 
requirements will be imposed onto issuers, HHS anticipates that any 
additional burden on issuers as a result of the changes in this rule 
will be negated in an ultimate net reduction in burden as many Federal 
regulations are being removed and any additional requirements onto 
issuers mainly consist of practices they currently perform in the 
private market.
    In the 2018 Payment Notice, HHS finalized the removal of a 
participation provision that had required certain QHP issuers to 
participate in an FF-SHOP in order to participate in an FFE. As a 
result, there has been a significant decrease in the number of issuers 
in the FF-SHOPs in the 2018 plan year and therefore, HHS also expects 
fewer enrollments in the FF-SHOPs for plan year 2018. As of January 1, 
2017, approximately 7,554 employer groups were enrolled in the FF-
SHOPs, covering 38,749 lives. With the anticipated significant 
decreases in QHP issuer participation for enrollment beginning in 2018, 
it is not cost effective for the Federal government to continue to 
maintain certain FF-SHOP functionalities, collect significantly reduced 
user fees on a monthly basis, maintain the technologies required to 
maintain an FF-SHOP website and payment platform, generate enrollment 
and payment transaction files, and perform enrollment reconciliation.
    Under the approach being finalized in this rule, issuers will still 
be subject to their State requirements, and HHS will minimize Federal 
requirements related to SHOP plans (that is, notice requirements, etc.) 
for plan years beginning on or after January 1, 2018. For example, 
issuers are often required by State law to generate enrollment and 
payment notices, and will continue to generate any State-required 
notices under the new SHOP enrollment approach. Under the proposed 
approach, the FF-SHOPs and SBE-FPs for SHOP will no longer generate 
enrollment notices, but the notice requirements for the FF-SHOPs and 
SBE-FPs for SHOP will not necessarily be transferred directly to 
participating QHP issuers. HHS can imagine a scenario where an issuer 
might generate an additional notice to a SHOP consumer that they are 
not required by Federal law to send, but may be required by State law, 
to send.
    Issuers will still be required to accept enrollment from employers 
that offer their employees a choice of plans. HHS can foresee a 
circumstance where an employer offers its employees a choice of plans, 
across plan categories, and where the employees choose to enroll in 
plans offered by multiple issuers. In this circumstance, it will also 
be possible that an issuer will receive one application for enrollment 
from a group. Under the approach to SHOP enrollment being finalized, 
the issuer will be required to accept that single enrollment so long as 
the employer's group has met the minimum participation rate for their 
State, or is enrolling between November 15 and December 15, when the 
minimum participation rate rules do not apply. With the decrease in 
issuer participation in the SHOPs beginning in plan year 2018, HHS 
believes that a circumstance, similar to the one discussed above may 
occur. In the absence of premium aggregation functions, issuers, under 
the approach being finalized will be working directly with an employer, 
or their appointed SHOP-registered agent or broker for matters of 
enrollment and premium billing and payment. Under the new regulations, 
effective as of the effective date of this rule, issuers will be 
required to enroll consumers into plans, even if only one employee of a 
group wants to enroll. Further, issuers will also be required to 
process enrollments into SHOP QHPs, and, handle appeals (other than 
appeals related to employer eligibility), administer special enrollment 
periods and terminations. Issuers will still be subject to the market 
wide effective dates outlined in Sec.  147.104(b)(1)(i)(C). While HHS 
believes that issuers currently perform the majority of these tasks, 
issuers may experience an increase in burden as it relates to the 
volume of consumers enrolling in their SHOP QHPs. Overall, HHS believes 
that under this approach, issuers will see a net cost savings, as their 
business processes for SHOP enrollments may be more closely aligned 
with their current business practices for enrollments outside the SHOP, 
and they will no longer be remitting user fees for FF-SHOP and SBE-FP 
SHOP enrollments.
    As noted, SHOPs will be given the flexibility to adopt an 
enrollment approach through which enrollments occur directly with 
issuers or SHOP-registered agents or brokers, to continue to operate 
with the same functionalities as they currently do or to develop new 
practices as permitted by the proposals in this rule. In any case, 
SHOPs will need to meet only the regulatory minimums outlined in this 
final rule, therefore minimizing the overall amount

[[Page 17051]]

of regulatory requirements that SHOPs will otherwise need to meet. HHS 
believes that the new flexibility for SHOPs will result in an overall 
reduction in burden and cost for States operating their own SHOPs 
because we are providing States with the flexibility to pursue the 
enrollment approach that best meets their needs, because we are 
reducing the overall regulatory requirements for the SHOP Exchanges, 
and for the same reasons described above regarding why the enrollment 
approach being finalized will reduce burdens on the FF-SHOP and its 
stakeholders.
    Under the new enrollment approach for SHOP plan years beginning on 
or after January 1, 2018, HHS believes that employers seeking to 
purchase coverage through an FF-SHOP or SBE-FP for SHOP will experience 
a reduction in regulatory burden related to enrollment, despite the 
fact that they may be required to visit at least two websites (the SHOP 
website and the issuer's website) prior to completing an enrollment in 
SHOP coverage as they will be able to enroll in coverage through a 
SHOP-registered agent or broker or through a participating QHP issuer--
using issuers' streamlined enrollment technologies. Employers will also 
be required, as described throughout this document to notify their QHP 
issuer of their eligibility to purchase a SHOP QHP and of their 
ineligibility, if their eligibility were to be revoked. Employers will 
also be required to inform the SHOP if they become ineligible to 
participate in a SHOP, or choose to withdraw their eligibility, unless 
the issuer is notified by the SHOP. We believe this is still less 
cumbersome than the existing eligibility and enrollment process.
    Under the flexibilities being finalized with this rule, some 
employers, specifically those who offer their employees a choice of 
plans, will experience an increase in administrative burden with the 
removal of a SHOP's premium aggregation functions. Without a SHOP's 
premium aggregation functions, employers will have to collect the 
enrollment and payment information needed from each of the issuers 
whose plans the employer intends to offer to its employees. In the 
event employees select plans from multiple insurance companies, the 
employer will be responsible for distributing the applications for 
enrollment to the individual issuers, collecting payments from the 
employees and sending the individual payments to each issuer. Due to 
the decrease in issuer participation in the FF-SHOPs, some SHOP 
employers only have one issuer offering FF-SHOP plans in their area and 
will not be able to offer their employees a choice of plans across 
issuers. In addition, historically, a majority of employers have not 
offered employee choice across different issuers. Therefore HHS does 
not believe the potential increased burden in this area due the removal 
of premium aggregation functions to be significant. Employers will 
still be able to view a listing of all of the SHOP QHPs available, by 
plan category and issuer on a SHOP website. HHS expects that the actual 
process of enrolling in SHOP QHPs under this approach will be less 
burdensome than the existing enrollment approach through a SHOP 
website. As previously mentioned, HHS anticipated significantly lower 
issuer participation for the SHOP in the 2018 plan year. A decrease in 
issuer participation unfortunately also results in less choice for 
consumers. While employers may experience an increase in burden, 
especially if offering employees a choice of plans, under the new 
flexibilities for SHOPs, HHS anticipates the benefits of the finalized 
approach will ultimately outweigh the minimal additional costs 
employers could face.
    Further, the Federal government will experience a dramatic 
reduction in the role it plays in operating an FF-SHOP and the contract 
support that it requires in order to support it. In 2016, the cost of 
running the FF-SHOP website (utilized by both FF-SHOPs and SBE-FPs for 
SHOP) was approximately $30 million, and HHS expects annual 
expenditures to drop significantly--by at least 90 percent--within a 
few years, as it responsibly wind-downs the integration of the FF-
SHOPs.
13. User Fees (Sec.  156.50)
    To support the operation of FFEs, we require in Sec.  156.50(c) 
that a participating issuer offering a plan through an FFE or SBE-FP 
must remit a user fee to HHS each month equal to the product of the 
monthly user fee rate specified in the annual HHS notice of benefit and 
payment parameters for the applicable benefit year and the monthly 
premium charged by the issuer for each policy under the plan where 
enrollment is through an FFE. In this final rule, for the 2019 benefit 
year, we set the monthly FFE user fee rate at 3.5 percent of the 
monthly premium, and the monthly SBE-FP user fee rate at 3.0 percent of 
the monthly premium. This increase in SBE-FP user fee rate from 2.0 
percent in 2018 to 3.0 percent in 2019 will increase transfers from 
SBE-FP issuers to the Federal government by $20 million. Additionally, 
we will cease charging monthly user fees to SHOP issuers offering plans 
through an FF-SHOP or SBE-FP SHOP for plan years beginning on and after 
January 1, 2018, effective on the effective date of the final rule. 
This will decrease user fee transfers from SHOP issuers offering plans 
through an FFE or SBE-FP by approximately $6 million.
14. Provision of EHB
    Under Sec.  156.111, we provide States with more flexibility by 
offering States three new methods for selecting their State EHB-
benchmark plans. Under this policy, if the State does not select one of 
the three methods for changing its EHB-benchmark plan, the State will 
default to its current EHB-benchmark plan. We recognize that, to the 
extent that States take advantage of the EHB-benchmark plan selection 
options at Sec.  156.111, States and issuers will experience an 
increase in burden to develop new policies and implement new plan 
designs. We anticipate that most States will need to invest resources 
to analyze the three new EHB-benchmark selection options to make an 
informed selection, even if the State ultimately defaults. Several 
States may select one of the new options, and will need additional 
resources to facilitate a public notice and comment period and develop 
and submit the necessary documents specified by HHS (including the 
requisite actuarial certification) to effectuate the State's selection. 
Additionally, in States that choose to select their EHB-benchmark plan 
under any of the three available options, issuers offering plans that 
provide EHB will incur additional administrative costs associated with 
designing plans compliant with the State's newly selected EHB-benchmark 
plan.
    Due to the many PPACA policies directly or indirectly tied to EHB, 
HHS recognizes the impact this policy will have on parties beyond 
issuers required to provide EHB-compliant plans. For example, the 
State's new EHB-benchmark selection can impact how issuers set their 
annual limitation on cost sharing and how issuers determine which 
benefits may not be subject to annual and lifetime dollar limits.\104\
---------------------------------------------------------------------------

    \104\ The definition of EHB also has an impact on the annual 
limitation on cost sharing at section 1302(c) of the PPACA (which is 
incorporated into section 2707(b) of the PHS Act) and the 
prohibition of annual and lifetime dollar limits at section 2711 of 
the PHS Act, as added by the PPACA.
---------------------------------------------------------------------------

    It is our aim that the flexibility under the policy will allow for 
States and issuers to be more innovative in designing benefit 
structures that will ultimately affect affordability for consumers. 
However, we realize that

[[Page 17052]]

this policy will have varying impact on consumers depending on how a 
State chooses to implement the policy. Consumers enrolled in individual 
and small group market plans will be affected by changes to EHB in that 
their benefits may change and in some cases premiums may increase or 
decrease depending upon State implementation of the policies. 
Additionally, in States that use one of the methods to select a new 
EHB-benchmark plan, the new EHB-benchmark plan selection may impact the 
amount of PTC and CSRs for enrollees in the State. For these consumers, 
subsidies will increase or decrease when compared to their State's 
current EHB-benchmark plan. PTC is available only for that portion of a 
plan's premium attributed to EHB. To the extent that a State's EHB-
benchmark plan, under the policy, leads to lower premiums for the 
second lowest cost silver plan, PTC will be reduced, but not the 
percent of income a consumer with PTC is expected to contribute to 
their premium. This effect will represent a transfer from consumers who 
receive PTC to the Federal government. Individual and small group 
market enrollees who do not receive PTC will experience lower premiums 
for less comprehensive coverage that can result in more affordable 
coverage options but possibly higher out-of-pocket costs for the 
consumer.
    We anticipate that States are more likely to select EHB-benchmark 
plans under this policy such that premiums have the potential to be 
reduced in the long-term to achieve affordability in benefit design. 
However, even with the generosity standard now being applied to all of 
the EHB-benchmark selection options, the policy may provide some 
ability for States, depending on the State, to select EHB-benchmark 
plans in a manner that will increase premiums. To the extent that a 
State's EHB-benchmark plan leads to higher premiums for the second 
lowest cost silver plan, PTC will be increased.
    Consumers who have specific health needs may also be affected by 
the policy. In the individual and small group markets, depending on the 
selection made by the State in which the consumer lives, consumers with 
less comprehensive plans may no longer have coverage for certain 
services. In other States, again depending on State choices, consumers 
may gain coverage for some services.
    As explained above, HHS anticipates that Sec.  156.111 will 
generate additional costs for States, issuers, and certain consumers in 
the short run. However, although we are uncertain as to how States will 
take advantage of this flexibility, and States are not required to make 
any changes under this policy, we also believe the additional 
flexibility in plan and benefit design may produce long-term premium 
savings. The policies offer issuers in States that use the flexibility 
to select a new EHB-benchmark plan the opportunity to lower plan 
premiums, which will increase affordability of health insurance for 
consumers in the individual and small group markets who do not receive 
PTC and do not require the benefits that are no longer considered EHB.
    When adjusting coverage of services under the options, we encourage 
States to consider the spillover effects in addition to the costs and 
utilization of these services. Spillover effects include increased use 
of other services, such as increased use of emergency services or 
increased use of public services provided by the State or other 
government entities, when a certain service is no longer covered by 
insurance. Depending on the State population's use of services and 
health care needs, States may arrive at different conclusions about the 
effects of adjusting a particular benefit. Because we do not know how 
States will choose to adjust their benchmark plans, we are not able to 
predict the effects these modifications may have on costs.
    Additionally, we also proposed at Sec.  156.115 to allow for 
benefit substitution to occur within the same EHB category or between 
EHB categories to offer additional issuer flexibility. Because issuers 
are already familiar with substituting benefits within benefit 
categories, we did not believe that broadening the policy to allow 
benefit substitution between benefit categories would create additional 
burden for issuers. We are finalizing Sec.  156.115 to allow issuers to 
substitute benefits between EHB categories to the extent allowed by the 
State, beginning in plan year 2020. As finalized, this rule will 
increase burden on consumers, when their State allows between-category 
substitution and issuers in their State utilize such substitution. 
Under such circumstances, consumers who choose between plans offered in 
the individual and small group markets may need to spend more time and 
effort comparing benefits offered by different plans in order to 
determine what, if any, benefits are substituted, and what plan would 
best suit their health care and financial needs. However, some 
consumers may benefit from expanded access to plans that better suit 
their needs. We also note that States are generally primarily 
responsible for enforcement of EHB and continue to have the option to 
set criteria for benefit substitution.
    We solicited comments on the impact of the proposed EHB policy and 
on whether other impacts should be considered.
    Comment: Many commenters were concerned about the impact of the 
proposed EHB-benchmark plan policies. Some commenters were concerned 
that reduced benefits might lead to consumers forgoing care, which 
could lead to a more serious condition that would increase or shift 
costs. Some commenters focused on the potential downstream effects, 
with most commenters agreeing with our assessment that there may be 
potential downstream effects that a State would want to take under 
consideration, with some noting that the spillover could also affect 
the productivity of the nation, leading to even higher government 
costs.
    Commenters on the premium impact and cost impact of the proposed 
policy typically were concerned that reducing benefits would only have 
a minor or no premium impact and would result in consumers having to 
pay more for services that are not covered, which some noted is not 
what consumers want. Some of these commenters noted that premiums are 
affected by other factors than benefits while some commenters were 
concerned about the risk pool impact and risk adjustment since 
enrollment could be affected by the scope of benefits being offered. 
Other commenters noted that Medicaid, the large group and self-insured 
plans, and PTC are also affected by the definition of EHB.
    Commenters also opposed allowing issuers to substitute benefits 
between EHB categories. Commenters cited a wide range of concerns, 
including those we acknowledged in the proposed rule, as well as 
several that we did not, and suggested that the proposal's negative 
impact would be significant. For example, commenters noted that this 
type of substitution would permit issuers to design plans so that they 
were unattractive to people with certain high-cost health conditions, 
or people with conditions not adequately reimbursed by risk adjustment. 
They voiced concerns that this new market dynamic could harm the 
individual market risk pool and State risk adjustment programs, as well 
as imposing burden on certain individuals with chronic or high cost 
conditions affected by the lack of coverage options that met their 
needs and the difficulty of comparing plans due to the increased 
complexity of plan design.

[[Page 17053]]

    Commenters also stated that substitution between EHB benefit 
categories is significantly different than substitution within 
categories and, therefore that current substitution practices do not 
provide helpful precedent for plan design, or for States' review of 
plans that include substitution within categories. One commenter stated 
that it would be particularly difficult to establish actuarial 
equivalence between benefits from different EHB-benefit categories, 
which could result in added burden for State regulators and for issuers 
required to comply with varying standards in different States. One 
commenter added that while this proposal would allow States to bar 
issuers from using benefit substitution between EHB categories, some 
States would need to take this step through legislative action, which 
would require time and resources simply to maintain their current 
policy. Finally, we did not receive any examples of how issuers could 
use substitution between EHB benefit categories to improve coverage 
options.
    Response: In response to commenters, we are finalizing the new EHB-
benchmark plan options at Sec.  156.111 with certain modifications. 
Because we do not know how States will choose to adjust their benchmark 
plans, we are not able to predict the effects these modifications may 
have on costs. Furthermore, we also recognize that the effects of a 
specific change will likely vary from State to State given market and 
demographic differences. Therefore, we emphasize that States may also 
wish to consider a variety of different factors when selecting an EHB-
benchmark plan. We encourage States to consider the impact of the EHB-
benchmark plan's scope of benefits on the availability of PTC and CSRs 
for enrollees in the State, as the PTC is based on the amount of 
premiums allocable to EHB, and CSRs provide reduced cost sharing for 
EHB only. Additionally, we encourage States to consider the impact on 
Medicaid, and on large group and self-insured group health plans. While 
we cannot predict the effects of the policy, we hope that this policy, 
as finalized, allows States the flexibility to innovate their EHB-
benchmark plans that balances access and costs. We hope to learn from 
those States that choose a new EHB-benchmark plan under this policy, as 
we consider creating a Federal default benchmark plan in the future.
    We appreciate commenters' concerns about the impact of allowing 
substitution between EHB categories. We assess the impact on States to 
be minimal, as under the final rule they have authority to withhold 
permission for substitution between categories. We also expect minimal 
impact on issuers, since they have experience in substituting benefits 
within EHB categories and may decline to substitute between categories 
even when their State allows it.
    We anticipate both additional burden and benefit for consumers, to 
the extent that their States permit and issuers utilize substitution 
between EHB categories. It may require greater time and effort for 
consumers to choose among plans in the individual and small group 
market if some of those plans substitute some benefits for those in 
separate EHB categories. However, we anticipate that this additional 
time and effort will be limited because issuers must meet the 
requirement at Sec.  156.115(b)(3)(i) to provide benefits that are 
substantially equal to their State's EHB-benchmark plan. The impact on 
consumers of the substituted benefits themselves will be mixed--some 
consumers stand to benefit by gaining access to benefits they desire 
that would not have been provided without this policy, while other 
consumers may find that a particular issuer no longer offers benefits 
they desire. Benefits no longer offered by one issuer, however, may be 
offered by another issuer. The net effect is uncertain.
15. Application to Stand-Alone Dental Plans Inside the Exchange (Sec.  
156.150)
    We are removing AV level of coverage requirements for SADP issuers 
for coverage of pediatric dental EHB, however we are maintaining the AV 
certification requirement at revised Sec.  156.150(b)(2) and codifying 
an operational requirement that such certification be reported to the 
Exchange, which issuers of SADPs have already been fulfilling, as part 
of the QHP certification process. We estimate that the change in AV 
could lead to a reduction in premiums for certain SADPs. Issuers may 
choose to offer more SADPs at varying premiums and levels of coverage. 
The offering of more SADPs and SADPs with lower premiums may lead to 
increased enrollment in SADPs. Because certain eligible taxpayers can 
use PTC to pay for the portion of SADP premiums attributable to EHB, a 
reduction in premiums will likely reduce the premium for purposes of 
the PTC, leading to a small transfer from credit recipients to the 
government. If enrollment increases due to potentially lower premiums 
there may be an overall increase in the total PTC payments by the 
government. The net effect is uncertain. While the requirement to 
report a SADP's AV is newly codified in regulation, issuers of SADPs 
previously reported level of coverage as part of the QHP certification 
process, so this change is not expected to have an impact on issuers' 
reporting burden.
16. Qualified Health Plan Certification
    For plan years 2019 and later, we proposed to further expand the 
role of States in the QHP certification process for FFEs, including 
FFEs where the State performs plan management functions. Specifically, 
we proposed to defer to States for additional review areas, including 
accreditation requirements at Sec.  156.275, compliance reviews at 
Sec.  156.715, minimum geographic area of the plan's service area at 
Sec.  155.1055, and quality improvement strategy reporting at Sec.  
156.1130, if feasible and appropriate. We received comments that this 
policy would impose burdens on States, particularly those States that 
are not performing these reviews, and we are not finalizing this 
proposal for these four review areas. Some States commented that they 
presently lack resources, including staffing resources, to conduct 
these reviews. We are finalizing a policy to extend for the 2019 
benefit year and beyond the QHP certification review standards related 
to network adequacy and ECPs that we finalized in the Market 
Stabilization rule. We do not anticipate this policy will increase 
burden on States because we believe these reviews are already being 
performed by States. We anticipated slight reduction in burden for 
issuers due to not needing to undergo duplicative reviews and a 
reduction in costs to the Federal government. We sought comment on 
whether there are burdens we are not considering. While commenters 
expressed concern that these policies could increase burden for 
consumers to obtain care from needed providers, we believe that State 
reviews related to network adequacy are capable of adequately 
preserving consumer access to care from such providers.
    We are removing the meaningful difference standard at Sec.  
156.298. Issuers will have a potential reduction in administrative 
costs since they will no longer have to implement their internal 
assessments as to whether their plan offerings meet this standard. We 
acknowledged and commenters noted that consumers may have more QHPs to 
select from which may increase the burden in selecting a QHP. However, 
we do not have evidence from any Exchange that removing the meaningful 
difference standard creates any new burden on consumers.

[[Page 17054]]

    We also anticipate that the removal of the meaningful difference 
standard will reduce the regulatory burden on SBE-FPs. Under Sec.  
155.200(f)(2)(iv), SBE-FPs are required to establish and oversee 
requirements for their issuers that are no less stringent than the 
meaningful difference standard as it applies to issuers participating 
in the FFEs. SBE-FPs will no longer need to establish such a standard 
or oversee it.
    We are removing the requirements for SBE-FPs to enforce FFE 
standards for network adequacy at Sec.  155.200(f)(2)(ii) and essential 
community providers at Sec.  155.200(f)(2)(iii). We anticipate that 
SBE-FPs will have a potential reduction in administrative costs since 
they will have the flexibility to determine how to implement the 
network adequacy and essential community provider standards with which 
issuers offering QHPs through the SBE-FP must comply. We believe SBE-
FPs are best positioned to determine these standards for the QHP 
certification process in their States, and that the removal of the 
requirement that SBE-FPs establish and oversee requirements for their 
issuers that are no less strict that the manner in which these 
regulatory requirements are applied to FFE issuers will streamline 
certain aspects of the QHP certification process, reduce issuer burden, 
and return traditional insurance market regulatory authority to the 
States.
17. Provisions Related to Cost Sharing (Sec.  156.130)
    The PPACA provides for the reduction or elimination of cost sharing 
for certain eligible individuals enrolled in QHPs offered through the 
Exchanges. This assistance helps many low- and moderate-income 
individuals and families obtain health insurance--for many people, cost 
sharing is a barrier to obtaining needed health care.\105\
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    \105\ 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 on their AVs of 
the reductions described in the PPACA to the estimated 2019 maximum 
annual limitation on cost sharing for self-only coverage. We do not 
believe these changes will result in a significant economic impact. 
Therefore, we do not believe the provisions related to cost-sharing 
reductions in this final rule will have an impact on the program 
established by and described in past Payment Notices.
    We also finalized the premium adjustment percentage for the 2019 
benefit year. Under Sec.  156.130(e), and 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 the percentage (if any) by which the average 
per enrollee premium for employer-sponsored health insurance coverage 
for the preceding calendar year exceeds such average per enrollee 
premium for employer-sponsored health insurance for 2013. The annual 
premium adjustment percentage sets the rate of increase for three 
parameters detailed in the PPACA: The annual limitation on cost sharing 
(defined at Sec.  156.130(a)), the required contribution percentage 
used to determine eligibility for certain exemptions under section 
5000A of the Code, and the assessable payments under sections 4980H(a) 
and 4980H(b) of the Code. We believe that the 2019 premium adjustment 
percentage is well within the parameters used in the modeling of the 
PPACA, and we do not expect that these provisions will alter CBO's 
March 2016 baseline estimates of the budget impact.
18. Minimum Essential Coverage (Sec.  156.602, Sec.  156.604)
    We proposed to designate CHIP buy-in programs that provide 
identical coverage to the CHIP program under title XXI of the Act in 
the applicable State as minimum essential coverage. This final rule 
does not provide categorical designation of CHIP buy-in programs as 
minimum essential coverage. States will have the option of 
electronically submitting to HHS information regarding their plans and, 
after review and comparison of the coverage, HHS will verify whether or 
not the CHIP buy-in programs provide at least the same coverage as the 
title XXI CHIP programs, such that they statutorily qualify as minimum 
essential coverage. Currently, very few States offer CHIP buy-in 
programs, and such plans in two States have applied for and been 
recognized as minimum essential coverage. Of the States that opt into 
the verification process, there will be a reduction in burden related 
to making changes to their plans to provide at least the same coverage 
as the title XXI CHIP program.
19. Medical Loss Ratio (Part 158)
    We are amending Sec.  158.221(b) to allow issuers the option to 
report a single quality improvement activity expense amount equal to 
0.8 percent of earned premium, in lieu of reporting the actual QIA 
amounts in five separate categories described in Sec.  
158.150(b)(2)(i)-(v). Based on MLR data for the 2015 MLR reporting 
year, HHS estimates that the amendment will decrease rebate payments 
from issuers to consumers by approximately $23 million.
    We are also amending several sections of 45 CFR part 158, subpart C 
(Sec. Sec.  158.301, 158.321-158.322, 158.330, 158.341, 158.350) to 
modify the process and criteria for the Secretary to determine whether 
to adjust the 80 percent MLR standard in the individual market in a 
State. While it is uncertain what specific adjustments States may 
request, most adjustments previously granted by the Secretary have 
ranged from 70 to 75 percent. Based on MLR data for the 2015 MLR 
reporting year, and assuming that 22 States will request an adjustment 
(including 17 States that previously requested adjustments prior to 
2014), HHS estimates that the amendments will decrease rebate payments 
from issuers to consumers or increase premiums paid by consumers to 
issuers by approximately $52 million (assuming a reduction of the 80 
percent MLR standard to 75 percent for all 22 States) to $64 million 
(assuming a reduction of the MLR standard to 70 percent for all 22 
States) annually, for up to 3 years at a time. This represents an 
estimated 74 percent to 91 percent reduction, respectively, in rebates 
payable in those 22 States, which together accounted for $70 million 
out of the nationwide total $107 million in rebates that issuers owed 
to individual market consumers for 2015. The actual reduction in 
rebates may be lower or higher depending on which States apply for an 
adjustment, and whether and how much the Secretary may adjust the 
individual market MLR standard in each State.
20. Regulatory Review Costs
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this final rule, we 
should estimate the cost associated with regulatory review. Due to the 
uncertainty involved with accurately quantifying the number of entities 
that will review the rule, we assume that the total number of unique 
commenters on the proposed rule will be the number of reviewers of this 
final rule. We acknowledge that this

[[Page 17055]]

assumption may understate or overstate the costs of reviewing this 
rule. It is possible that not all commenters reviewed the proposed rule 
in detail, and it is also possible that some reviewers chose not to 
comment on the proposed rule. For these reasons we thought that the 
number of past commenters would be a fair estimate of the number of 
reviewers of this rule.
    We are required to promulgate a substantial portion of this rule 
each year under our regulations and we estimate that approximately half 
of the remaining provisions will cause additional regulatory review 
burden that stakeholders do not already anticipate. We also recognize 
that different types of entities are in many cases affected by mutually 
exclusive sections of this proposed rule, and therefore for the 
purposes of our estimate we assume that each reviewer reads 
approximately 50 percent of the rule, excluding the portion of the rule 
that we are required to promulgate each year.
    Using the wage information from the BLS for medical and health 
service managers (Code 11-9111), we estimate that the cost of reviewing 
this rule is $105.16 per hour, including overhead and fringe 
benefits.\106\ Assuming an average reading speed, we estimate that it 
will take approximately 1 hour for the staff to review the relevant 
portions of this proposed rule that causes unanticipated burden. We 
received 416 comments, including 99 comments that were substantially 
similar to one of four different letters, resulting in 322 unique 
comments on the proposed rule. We assume that for form letters, only 
the staff at the organization that arranged for those letters will 
review the final rule. For each entity that reviews the rule, the 
estimated cost is $105.16. Therefore, we estimate that the total cost 
of reviewing this regulation is approximately $33,862 ($105.16 x 322 
reviewers). This may underestimate the review costs, since not all 
reviewers may have submitted comments. In addition, stakeholders that 
will need to do a detailed analysis in order to implement the 
unanticipated provisions of this rule will need additional time and 
personnel, which will vary depending on the extent to which they are 
affected. To estimate an upper bound, we assumed that on average 530 
issuers and 50 States will spend 10 hours each, 100 other organizations 
will spend 5 hours each and 100 individuals will spend 1 hour each to 
review the rule. Under these assumptions, total time spent reviewing 
the rule would be 6,400 hours with an estimated cost of approximately 
$673,024.
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    \106\ https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

D. Regulatory Alternatives Considered

    In developing the policies contained in the final rule, we 
considered numerous alternatives to the policies being finalized. 
Below, we discuss the key regulatory alternatives that we considered.
    For the 2019 benefit year, we considered using only the 2016 
benefit year enrollee-level EDGE data to recalibrate the risk 
adjustment model coefficients. However, this could lead to uncertainty 
in issuers' expectation of risk adjustment transfers due to the sole 
use of a new dataset for recalibrating the model coefficients. We 
believe that blending multiple years of data will promote stability for 
the risk adjustment coefficients year-to-year, particularly for rare 
conditions with small sample sizes. Therefore, we proposed to blend 
coefficients calculated from the 2016 benefit year enrollee-level EDGE 
data with 2014 and 2015 MarketScan[supreg] data. Additionally, given 
the timing of the proposed rule, we were unable to analyze the 2016 
enrollee-level EDGE data in time to publish the coefficients calibrated 
using the EDGE data in the proposed rule. Similar to the 2018 benefit 
year final risk adjustment coefficients, we considered publishing the 
2019 benefit year final risk adjustment coefficients in guidance after 
the publication of the final rule with more recent MarketScan[supreg] 
data that will become available at the end of this year. However, the 
2016 benefit year enrollee-level risk adjustment data was available in 
time to complete our analysis and publish the final coefficients in 
this rule. Additionally, we considered but did not propose to use the 
2016 MarketScan[supreg] data that will become available at the end of 
this year for the 2019 benefit year risk adjustment model 
recalibration. We also considered assigning higher weights to the 
coefficients solved from more recent data, however, to allow stability 
in the market have equally blended the 3 years of data. We are 
finalizing the 2019 benefit year model coefficients blended with 2016 
EDGE data, and 2014 and 2015 MarketScan[supreg] data published in this 
rule.
    For the State flexibility to request reductions of other applicable 
risk adjustment transfers, we considered alternate requirements for 
States requesting a reduction. We considered requiring actuarially 
certified standards, State's attestation noting consensus from all 
issuers of risk adjustment covered plans in the State's market, or 
simulation studies demonstrating the effect of the reduction on State's 
market risk pool. We determined that to ensure issuers are adequately 
compensated for the actuarial risk of their enrollees and do not have 
incentives to avoid higher risk enrollees, the State regulators need to 
submit evidence and analysis demonstrating the State-specific factors 
that warrant an adjustment to more precisely account for the 
differences in actuarial risk in the State's market. States must also 
justify the percentage reduction by providing evidence and analysis 
demonstrating the State-specific factors and the percentage by which 
those factors warrant an adjustment to more precisely account for the 
differences in actuarial risk in the State's market as compared to the 
national norm, or demonstrating the requested reduction in risk 
adjustment payments would be so small for issuers who would receive 
risk adjustment payments, that the reduction would have a de minimis 
effect on the necessary premium increase to cover the affected issuer's 
or issuers' reduced payments. We also considered only making the 
flexibility available to States in the small group market, but 
determined that just as with the States' small group markets, it is 
possible that the national methodology may not precisely account for 
unique State market dynamics in the individual or merged markets.
    For the risk adjustment data validation program, HHS considered 
alternate approaches for evaluating error rates and adjusting risk 
scores when an error rate deviates from a statistically significant 
value. We considered calculating a national central tendency of errors 
and then adjusting risk scores only when an error rate that falls 
outside of the confidence interval around the national central 
tendency; however, we determined that the evaluation of error rates 
relative to a national average would likely result in significantly 
less accurate risk score adjustments, primarily because it would not 
account for differences in error rates due to issuer size or the 
distribution of HCCs in the enrollee population.
    We considered maintaining the current applicability of the Federal 
rate review requirements, and continuing to review the reasonableness 
of student health insurance coverage rate increases subject to review. 
However, this rule will provide States with greater flexibility to meet 
the needs of their markets and reduce the burden associated with review 
of plans that are not part of the single risk pool. As a practical 
matter, student health insurance coverage has generally been given the 
same plan design flexibility as

[[Page 17056]]

plans in the large group market. Just like purchasers of large group 
plans, purchasers in the student market are viewed as more 
sophisticated, with greater leverage and ability to avoid the 
imposition of unreasonable rate increases. Single risk pool pricing, 
the primary focus of the rate review program, does not apply to student 
health insurance coverage.
    We considered maintaining the current 30-day notice requirement for 
States to notify HHS prior to posting the required information on 
proposed and final rate increases. However, such advanced notice may be 
impractical in some States so we have decreased the notice requirement 
to 5 business days. We considered permitting States to post the 
required information on rate increases on a rolling basis. However, we 
agree with the concerns shared by the majority of public comments 
opposing that proposal, so we are maintaining the uniform posting 
requirement.
    In adding standards for Sec.  155.221, HHS considered making no 
changes to the existing rule and retaining the existing standard for 
agents and brokers to contract with a third-party entity approved by 
HHS for conducting audits under the section. In finalizing the 
proposal, we continue to believe that it is necessary to include 
issuers and to provide the necessary flexibility in oversight that both 
protects consumers and encourages enrollment pathway innovation for 
agents, brokers, and issuers using direct enrollment.
    For the amendments to Sec.  155.320, we considered developing a 
comprehensive database using information from employers on the plans 
they offer to their employees and their family members that could 
satisfy verification requirements under paragraph (d)(2) for all 
Exchanges. This approach would be resource-intensive for Exchanges, and 
would produce a database with limited utility due to data limitations. 
Developing a database; recruiting and educating employers to 
participate in voluntarily submitting the data; and providing technical 
assistance to employers for the first year of implementation on how to 
input the data is estimated to cost at least $38 million. Building such 
a database would also rely on the voluntary participation of 
substantially all employers. This participation would be onerous for 
employers. Employers would need to provide individual employee level 
data regarding plans the employer will offer, information that may not 
be available in time to populate a comprehensive database prior to the 
Exchange's plan year. In addition, since the PPACA does not require 
employers to provide to the Exchange the relevant information on what 
coverage they offer, Exchanges and HHS would not receive data from all 
employers. After weighing our options, we decided that this approach 
would be overly costly and burdensome, and of limited value due to gaps 
in the data Exchanges and HHS would be able to collect. We also 
considered removing the requirement to connect to an HHS-approved data 
source, and the requirement to use an alternative method if the 
Exchange does not connect to the required data sources, but were 
concerned about the potential impact on program integrity.
    In finalizing the policy related to the SHOP enrollment process, we 
considered maintaining the status quo, but believe that the increase in 
flexibility, cost savings and reduction in burden resulting from the 
new enrollment approach, will have a positive impact on small 
businesses across the country and provide States with needed 
flexibility.
    In finalizing the policy for the new EHB-benchmark plan selection 
options described at Sec.  156.111, we considered a variety of 
alternatives, including maintaining the current EHB-benchmark policy 
without modification. Although maintaining the current policy would 
have promoted stability by preserving the current EHB-benchmarks across 
all States, we do not believe it would have offered the additional 
flexibility that States have requested in selecting an EHB-benchmark 
plan to best meet the needs of their consumer population. We also 
considered whether it was feasible to offer States increased 
flexibility by allowing them to set a range of acceptable EHB within 
their State, such that issuers could offer plans within that range with 
more limited EHB coverage or more robust EHB coverage. However, we 
determined that this option did not meet statutory requirements. To 
balance stability, flexibility, and statutory requirements, we instead 
finalized the proposal to offer States the expanded EHB-benchmark plan 
selection options at Sec.  156.111, as well as the option to default to 
the State's current EHB-benchmark plan. We believe this approach will 
provide States with the opportunity to take advantage of greater 
flexibility in selecting an EHB-benchmark plan while also providing 
those States that value stability with the option to retain their 
current benchmark plan.
    With respect to the provision regarding removing the AV requirement 
for SADPs, we considered making no change or proposing an expansion to 
the de minimis range to mirror the expanded de minimis range for QHPs 
(-4/+2 percentage points) or of +/-3 percentage points. We determined 
that these alternatives were less desirable because they do not provide 
issuers with as much flexibility to offer a range of SADPs as the 
proposed removal of the AV standards for SADPs. We finalized the policy 
to remove the level of coverage AV requirement for SADPs as proposed, 
but retained a requirement to certify AV and codified an operational 
requirement that such certification be reported to the Exchange, which 
SADP issuers already have been doing, as part of the QHP certification 
process. For the QHP certification standard regarding meaningful 
difference, we considered maintaining the requirement on issuers, but 
we believe that removing this provision will promote the offering of a 
variety of affordable QHPs that will meet consumers' needs, will 
provide issuers with more flexibility, and will remove an unnecessary 
regulatory requirement.
    For the amendments to Sec.  158.221(b), we considered retaining the 
current quality improvement activity reporting requirements, since 
giving issuers the option to report a standardized rate for QIA 
expenditures may inhibit HHS from being able to analyze trends in 
issuers' investment in improving the quality of health care in the 
future, and may also reduce rebates to consumers by allowing issuers to 
effectively increase their MLRs by 0.8 percent even if those issuers 
engaged in and spent only trivial amounts on QIA. However, this change 
will also potentially level the playing field among issuers to a 
certain extent and lead to more accurate rebate payments, since many 
issuers likely do engage in QIA but forego reporting that spending 
because the burden of analyzing, documenting, tracking, allocating, and 
reporting QIA expenses exceeds the benefits for MLR purposes. Because 
the finalized approach of giving issuers the option to report a 
minimal, standardized rate will reduce unwarranted regulatory and 
economic burdens for issuers that do not want to track and report the 
exact QIA amounts for their MLR calculation, we believe that the 
finalized approach will be more effective and represents a better 
balance than the current requirements.
    For the amendments to part 158, subpart C, we considered retaining 
the current requirements for States to request an adjustment to the 80 
percent MLR standard in the individual market in a State. However, HHS 
recognizes that many of the current State application requirements are 
burdensome and less relevant in the

[[Page 17057]]

post-2014 reformed environment, and may preclude or discourage States 
from proposing innovative solutions to help stabilize their individual 
markets. Therefore, we believe the finalized amendments will reduce 
regulatory burdens on States, and provide States with an additional 
tool to promote stability in their individual markets.

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act, (5 U.S.C. 601, et seq.), requires 
agencies to prepare an initial regulatory flexibility analysis to 
describe the impact of the proposed rule on small entities, unless the 
head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA), 
(2) a not-for-profit organization that is not dominant in its field, or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are 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.
    This final rule includes standards for the risk adjustment and risk 
adjustment data validation programs, which are intended to stabilize 
premiums as insurance market reforms are implemented and Exchanges 
facilitate increased enrollment. Because we believe that insurance 
firms offering comprehensive health insurance policies generally exceed 
the size thresholds for ``small entities'' established by the SBA, we 
do not believe that an initial regulatory flexibility analysis is 
required for such firms.
    For purposes of the RFA, we expect the following types of entities 
to be affected by this final rule:
     Health insurance issuers.
     Group health plans.
    We believe that health insurance issuers and group health plans 
will 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 may 
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.\107\ We 
believe that few, if any, insurance companies selling comprehensive 
health insurance policies (in contrast, for example, to travel 
insurance policies or dental discount policies) fall below these size 
thresholds.
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    \107\ ``Table of Small Business Size Standards Matched to North 
American Industry Classification System Codes'', effective February 
26, 2016, U.S. Small Business Administration, available at https://www.sba.gov/contracting/getting-started-contractor/make-sure-you-meet-sba-size-standards/table-smallbusiness-size-standards.
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    This final rule will allow enrollment in a SHOP QHP through a SHOP-
registered agent or broker, or through a participating QHP issuer. The 
SHOPs are generally limited by statute to employers with at least one 
but not more than 50 employees, unless a State opts to provide that 
employers with from 1 to 100 employees are ``small employers.'' For 
this reason, we expect that many employers who will be affected by the 
finalized policies will meet the SBA standard for small entities. We do 
not believe that the finalized policies impose requirements on 
employers offering health insurance through a SHOP that are more 
restrictive than the current requirements on small businesses offering 
employer sponsored insurance. We believe the processes that we have 
established constitute the minimum amount of requirements necessary to 
implement the SHOP program and accomplish our policy goals, and that no 
appropriate regulatory alternatives can be developed to further lessen 
the compliance burden.
    Based on data from MLR annual report submissions for the 2015 MLR 
reporting year, approximately 92 out of over 530 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 50 
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. We estimate that 57 of these 92 potentially small entities may 
experience a decrease in the rebate amount owed to consumers under the 
amendments to the quality improvement activity reporting provisions in 
part 158, and 27 of these 57 entities are part of larger holding 
groups. In addition, we estimate that no small entities will be 
impacted by the amendments to 45 CFR part 158, subpart C. Therefore, we 
believe that the provisions of this final rule regarding MLR will not 
affect a substantial number of small entities, and further, the impact 
of the proposed QIA provisions on small entities will be positive.

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 final rule that includes any 
Federal mandate that may result in expenditures in any 1 year by a 
State, local, or Tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. Currently, that threshold is approximately $148 million. 
Although we have not been able to quantify all costs, we expect the 
combined impact on State, local, or Tribal governments and the private 
sector to be below the threshold.

G. Federalism

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a final rule that imposes 
substantial direct costs on State and local governments, preempts State 
law, or otherwise has Federalism implications.
    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 rule, HHS attempted to balance the States' 
interests in regulating health insurance issuers with the need to 
ensure market stability. By doing so, it is HHS's view that we have 
complied with the requirements of Executive Order 13132.
    Because States have flexibility in designing their Exchange 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 previously to operate an Exchange, or risk 
adjustment program, much of the initial cost of creating these programs 
was funded by Exchange Planning and Establishment Grants. After 
establishment, Exchanges must be financially self-sustaining, with 
revenue sources at the discretion of the

[[Page 17058]]

State. Current State Exchanges charge user fees to issuers.
    In HHS's view, while this final rule will 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. 
For example, we are finalizing proposals to provide States with 
substantially more flexibility in selecting an EHB-benchmark plan, to 
explore ways to make it easier for States to establish and maintain a 
State Exchange, to provide States with substantially more flexibility 
in how they operate a SHOP, to provide States with the option to 
request a reduction to risk adjustment transfers in their small group 
market; and to make it easier for States to apply for and be granted an 
adjustment to the MLR standard in their State. We are also returning 
flexibility to States in their review of rate increases. We are also 
finalizing the proposal to give States the choice to review rate 
increases for student health insurance coverage. We are also reducing 
the advanced notification that States must give HHS about the posting 
of rate increases from 30 days to 5 business days. Finally, States will 
no longer be required to seek approval if the State-specific threshold 
for reasonableness review is lower than the Federal default rate review 
threshold.

H. Congressional Review Act

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

I. Reducing Regulation and Controlling Regulatory Costs

    Executive Order 13771, titled Reducing Regulation and Controlling 
Regulatory Costs, was issued on January 30, 2017. Section 2(a) of 
Executive Order 13771 requires an agency, unless prohibited by law, to 
identify at least two existing regulations to be repealed when the 
agency publicly proposes for notice and comment, or otherwise 
promulgates, a new regulation. In furtherance of this requirement, 
section 2(c) of Executive Order 13771 requires that the new incremental 
costs associated with new regulations shall, to the extent permitted by 
law, be offset by the elimination of existing costs associated with at 
least two prior regulations. This final rule is an E.O. 13771 
deregulatory action.\108\
---------------------------------------------------------------------------

    \108\ We estimate cost savings of approximately $52.74 million 
in 2018, $58.12 million in 2019, and annual cost savings of $4.12 
million thereafter. Thus the annualized value of cost savings, as of 
2016 and calculated over a perpetual time horizon with a 7 percent 
discount rate, is $9.26 million.
---------------------------------------------------------------------------

List of Subjects

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 153

    Administrative practice and procedure, Health care, Health 
insurance, Health records, Intergovernmental relations, 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 interests, Consumer protection, Grants 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, Advisory 
committees, Conflict of interests, Consumer protection, Grant 
programs--health, Grants administration, Health care, Health insurance, 
Health maintenance organization (HMO), Health records, Hospitals, 
Indians, Individuals with disabilities, Loan programs--health, 
Medicaid, Organization and functions (Government agencies), Public 
assistance programs, Reporting and recordkeeping requirements, State 
and local governments, Sunshine Act, Technical assistance, Women, 
Youth.

45 CFR Part 157

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

45 CFR Part 158

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

    For the reasons set forth in the preamble, the Department of Health 
and Human Services amends 45 CFR parts 147, 153, 154, 155, 156, 157 and 
158 as set forth below.

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

0
1. 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
2. Section 147.102 is amended by revising paragraph (c)(3)(iii)((D) to 
read as follows:


Sec.  147.102   Fair health insurance premiums.

* * * * *
    (c) * * *
    (3) * * *
    (iii) * * *
    (D) To the extent permitted by applicable State law and, in the 
case of coverage offered through a SHOP, as permitted by the SHOP, 
apply this paragraph (c)(3)(iii) uniformly among group health plans 
enrolling in that product, giving those group health plans the option 
to pay premiums based on average enrollee premium amounts.
* * * * *

0
3. Section 147.104 is amended by--
0
a. Revising paragraphs (b)(1)(i)(B), (b)(1)(i)(C) and (b)(1)(ii);
0
b. Removing paragraph (b)(1)(iii); and
0
c. Revising paragraphs (b)(2)(i) introductory text and (ii).
    The revisions read as follows:


Sec.  147.104   Guaranteed availability of coverage.

* * * * *
    (b) * * *
    (1) * * *
    (i) * * *

[[Page 17059]]

    (B) In the case of a group health plan in the small group market 
that cannot comply with employer contribution or group participation 
rules for the offering of health insurance coverage, as allowed under 
applicable State law, and in the case of a QHP offered in the SHOP, as 
permitted by Sec.  156.285(e) or Sec.  156.286(e) of this subchapter, a 
health insurance issuer may restrict the availability of coverage to an 
annual enrollment period that begins November 15 and extends through 
December 15 of each calendar year.
    (C) With respect to coverage in the small group market, and in the 
large group market if such coverage is offered through a SHOP in a 
State, for a group enrollment received on the first through the 
fifteenth day of any month, the coverage effective date must be no 
later than the first day of the following month. For a group enrollment 
received on the 16th through last day of any month, the coverage 
effective date must be no later than the first day of the second 
following month. In either such case, a small employer may instead opt 
for a later effective date within a quarter for which small group 
market rates are available.
    (ii) Individual market. A health insurance issuer in the individual 
market must allow an individual to purchase health insurance coverage 
during the initial and annual open enrollment periods described in 
Sec.  155.410(b) and (e) of this subchapter. Coverage must become 
effective consistent with the dates described in Sec.  155.410(c) and 
(f) of this subchapter.
    (2) * * *
    (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, with respect to 
coverage offered outside of an Exchange, the following:
* * * * *
    (ii) In applying this paragraph (b)(2), a reference in Sec.  
155.420 (other than in Sec.  155.420(a)(5)) 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.
* * * * *

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

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

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


0
5. Section 153.320 is amended by adding paragraph (d) to read as 
follows:


Sec.  153.320   Federally certified risk adjustment methodology.

* * * * *
    (d) State flexibility to request reductions to transfers. Beginning 
with the 2020 benefit year, States can request to reduce risk 
adjustment transfers in the State's individual, small group or merged 
markets by up to 50 percent in States where HHS operates the risk 
adjustment program.
    (1) State requests. State requests for a reduction to transfers 
must include:
    (i) Supporting evidence and analysis demonstrating the State-
specific factors that warrant an adjustment to more precisely account 
for the differences in actuarial risk in the State market;
    (ii) The adjustment percentage of up to 50 percent requested for 
the State individual, small group or merged market; and
    (iii) A justification for the reduction requested demonstrating the 
State-specific factors that warrant an adjustment to more precisely 
account for relative risk differences in the State individual, small 
group or merged market, or demonstrating the requested reduction would 
have de minimis impact on the necessary premium increase to cover the 
transfers for issuers that would receive reduced transfer payments.
    (2) Timeframe to Submit Reduction Requests. States must submit 
requests for a reduction to transfer in the individual, small group or 
merged market by August 1 of the year, 2 calendar years prior to the 
applicable benefit year in the form and manner specified by HHS.
    (3) Publication of Reduction Requests. HHS will publish State 
reduction requests in the applicable benefit year's HHS notice of 
benefit and payment parameters proposed rule and make the supporting 
evidence available to the public for comment. HHS will publish any 
approved State reduction requests or denied State reduction requests in 
the applicable benefit year's HHS notice of benefit and payment 
parameters final rule.
    (4) HHS approval. (i) Subject to paragraph (d)(4)(ii) of this 
section, HHS will approve State requests if HHS determines, based on 
the review of the information submitted as part of the State's request, 
along with other relevant factors, including the premium impact of the 
transfer reduction for the State market, and relevant public comments:
    (A) That State-specific rules or other relevant factors warrant an 
adjustment to more precisely account for relative risk differences in 
the State individual, small group or merged market and support the 
percentage reduction to risk adjustment transfers requested; or
    (B) That State-specific rules or other relevant factors warrant an 
adjustment to more precisely account for relative risk differences in 
the State's individual, small group or merged market and the requested 
reduction would have de minimis impact on the necessary premium 
increase to cover the transfers for issuers that would receive reduced 
transfer payments.
    (ii) HHS may approve a reduction amount that is lower than the 
amount requested by the State if the supporting evidence and analysis 
do not fully support the requested reduction amount. HHS will assess 
other relevant factors, including the premium impact of the transfer 
reduction for the State market.

0
6. Section 153.630 is amended by revising paragraphs (b)(6), (8), and 
(9) to read as follows:


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

* * * * *
    (b) * * *
    (6) An issuer must provide the initial validation auditor and the 
second validation auditor with all relevant source enrollment 
documentation, all claims and encounter data, and medical record 
documentation from providers of services to each enrollee in the 
applicable sample without unreasonable delay and in a manner that 
reasonably assures confidentiality and security in transmission. 
Notwithstanding any other provision of this section, a qualified 
provider that is licensed to diagnose mental illness by the State and 
that is prohibited from furnishing a complete medical record by 
applicable State privacy laws concerning any enrollee's treatment for 
one or more mental or behavioral health conditions may furnish a signed 
mental or behavioral health assessment that, to the extent permissible 
under applicable Federal and State privacy laws, should contain: The 
enrollee's name; sex; date of birth; current status of all mental or 
behavioral health diagnoses; and dates of service. The mental or 
behavioral health assessment should be signed by the provider and 
submitted with an attestation that the provider is prohibited from 
furnishing a complete medical record by applicable State privacy laws.
* * * * *

[[Page 17060]]

    (8) The initial validation auditor must measure and report to the 
issuer and HHS, in a manner and timeframe specified by HHS, its inter-
rater reliability rates among its reviewers. The initial validation 
auditor must achieve a consistency measure of at least 95 percent for 
his or her review outcomes, except that for validation of risk 
adjustment data for the 2015 and 2016 benefit years, the initial 
validation auditor may meet an inter-rater reliability standard of 85 
percent for review outcomes.
    (9) HHS may impose civil money penalties in accordance with the 
procedures set forth in Sec.  156.805(b) through (e) of this subchapter 
if an issuer of a risk adjustment covered plan--
    (i) Fails to engage an initial validation auditor;
    (ii) Fails to submit the results of an initial validation audit to 
HHS;
    (iii) Engages in misconduct or substantial non-compliance with the 
risk adjustment data validation standards and requirements applicable 
to issuers of risk adjustment covered plans; or
    (iv) Intentionally or recklessly misrepresents or falsifies 
information that it furnishes to HHS.
* * * * *

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

0
7. 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
8. Section 154.103 is amended by revising paragraph (b) to read as 
follows:


Sec.  154.103   Applicability.

* * * * *
    (b) Exceptions. The requirements of this part do not apply to--
    (1) Grandfathered health plan coverage as defined in Sec.  147.140 
of this subchapter;
    (2) Excepted benefits as described in section 2791(c) of the PHS 
Act; and
    (3) For coverage effective on or after July 1, 2018, student health 
insurance coverage as defined in Sec.  147.145 of this subchapter.

0
9. Section 154.200 is revised to read as follows:


Sec.  154.200   Rate increases subject to review.

    (a) A rate increase filed in a State, or effective in a State that 
does not require a rate increase to be filed, is subject to review if:
    (1) The rate increase is 15 percent or more applicable to a 12-
month period that begins on January 1, as calculated under paragraph 
(b) of this section; or
    (2) The rate increase meets or exceeds a State-specific threshold 
applicable to a 12-month period that begins on January 1, as calculated 
under paragraph (b) of this section, determined by the Secretary. A 
State-specific threshold shall be based on factors impacting rate 
increases in a State to the extent that the data relating to such 
State-specific factors are available by August 1 of the preceding year. 
States interested in proposing a State-specific threshold greater than 
the Federal default stated in paragraph (a)(1) of this section are 
required to submit a proposal for approval of such threshold to the 
Secretary by August 1 of the preceding year, in the form and manner 
specified by the Secretary.
    (b) A rate increase meets or exceeds the applicable threshold set 
forth in paragraph (a) of this section if the average increase, 
including premium rating factors described in Sec.  147.102 of this 
subchapter, for all enrollees weighted by premium volume for any plan 
within the product meets or exceeds the applicable threshold.
    (c) If a rate increase that does not otherwise meet or exceed the 
threshold under paragraph (b) of this section meets or exceeds the 
threshold when combined with a previous increase or increases during 
the 12-month period preceding the date on which the rate increase would 
become effective, then the rate increase must be considered to meet or 
exceed the threshold and is subject to review under Sec.  154.210, and 
such review shall include a review of the aggregate rate increases 
during the applicable 12-month period.

0
10. Section 154.215 is amended by revising paragraph (h)(2) to read as 
follows:


Sec.  154.215   Submission of rate filing justification.

* * * * *
    (h) * * *
    (2) CMS will make available to the public on its website the 
information contained in Parts I and III of each Rate Filing 
Justification that is not a trade secret or confidential commercial or 
financial information as defined in HHS's Freedom of Information Act 
regulations, 45 CFR 5.31(d).
* * * * *

0
11. Section 154.301 is amended by revising paragraph (b)(2) to read as 
follows:


Sec.  154.301   CMS's determinations of Effective Rate Review Programs.

* * * * *
    (b) * * *
    (2) If a State intends to make the information in paragraph 
(b)(1)(i) of this section available to the public prior to the date 
specified by the Secretary, or if it intends to make the information in 
paragraph (b)(1)(ii) of this section available to the public prior to 
the first day of the annual open enrollment period in the individual 
market for the applicable calendar year, the State must notify CMS in 
writing, no later than five (5) business days prior to the date it 
intends to make the information public, of its intent to do so and the 
date it intends to make the information public.
* * * * *

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

0
12. 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
13. Section 155.106 is amended by revising paragraph (c) introductory 
text to read as follows:


Sec.  155.106   Election to operate an Exchange after 2014.

* * * * *
    (c) Process for State Exchanges that seek to utilize the Federal 
platform for select functions. States may seek approval to operate a 
State Exchange utilizing the Federal platform for only the individual 
market. A State seeking approval to operate a State Exchange utilizing 
the Federal platform for the individual market to support select 
functions through a Federal platform agreement under Sec.  155.200(f) 
must:
* * * * *

0
14. Section 155.200 is amended by removing and reserving paragraphs 
(f)(2)(ii) through (iv); and revising paragraph (f)(4) introductory 
text to read as follows;


Sec.  155.200   Functions of an Exchange.

* * * * *
    (f) * * *
    (2) * * *
    (ii) [Reserved]
    (iii) [Reserved]
    (iv) [Reserved]
* * * * *
    (4) A State Exchange on the Federal platform that utilizes the 
Federal

[[Page 17061]]

platform for SHOP functions, for plan years beginning on or after 
January 1, 2018, must require its QHP issuers to make any changes to 
rates in accordance with the timeline applicable in a Federally-
facilitated SHOP under Sec.  155.706(b)(6)(i)(A). A State Exchange on 
the Federal platform that utilizes the Federal platform for SHOP 
functions, as set forth in paragraphs (f)(4)(i) through (vii) of this 
section, for plan years beginning prior to January 1, 2018, must--
* * * * *

0
15. Section 155.210 is amended by revising paragraphs (c)(2) 
introductory text and (e)(7) to read as follows:


Sec.  155.210   Navigator program standards.

* * * * *
    (c) * * *
    (2) The Exchange must include an entity from at least one of the 
following categories for receipt of a Navigator grant:
* * * * *
    (e) * * *
    (7) In a Federally-facilitated Exchange, no individual or entity 
shall be ineligible to operate as a Navigator solely because its 
principal place of business is outside of the Exchange service area;
* * * * *

0
16. Section 155.215 is amended by revising paragraph (h) to read as 
follows:


Sec.  155.215   Standards applicable to Navigators and Non-Navigator 
Assistance Personnel carrying out consumer assistance functions under 
Sec. Sec.  155.205(d) and (e) and 155.210 in a Federally-facilitated 
Exchange and to Non-Navigator Assistance Personnel funded through an 
Exchange Establishment Grant.

* * * * *
    (h) Physical presence. In a Federally-facilitated Exchange, no 
individual or entity shall be ineligible to operate as a non-Navigator 
entity or as non-Navigator assistance personnel solely because its 
principal place of business is outside of the Exchange service area.
* * * * *

0
17. Section 155.221 is revised to read as follows:


Sec.  155.221   Standards for third-parties to perform audits of 
agents, brokers, and issuers participating in direct enrollment.

    (a) An agent, broker, or issuer participating in direct enrollment 
must engage a third-party entity to conduct an annual review to 
demonstrate operational readiness in accordance with Sec.  
155.220(c)(3)(i)(K) and with Sec.  156.1230(b)(2) of this subchapter. 
The third-party entity will be a downstream or delegated entity of the 
agent, broker or issuer that participates or wishes to participate in 
direct enrollment.
    (b) An agent, broker, or issuer participating in direct enrollment 
must satisfy the requirement to demonstrate operational readiness under 
paragraph (a) of this section by engaging a third-party entity that 
meets each of the following standards:
    (1) Has experience conducting audits or similar services, including 
experience with relevant privacy and security standards;
    (2) Adheres to HHS specifications for content, format, privacy, and 
security in the conduct of an operational readiness review, which 
includes ensuring that agents, brokers, and issuers are in compliance 
with the applicable privacy and security standards and other applicable 
requirements;
    (3) Collects, stores, and shares with HHS all data related to the 
third-party entity's audit of agents, brokers, and issuers in a manner, 
format, and frequency specified by HHS until 10 years from the date of 
creation, and complies with the privacy and security standards HHS 
adopts for agents, brokers, and issuers as required in accordance with 
Sec.  155.260;
    (4) Discloses to HHS any financial relationships between the entity 
and individuals who own or are employed by an agent, broker, or issuer 
for which it is conducting an operational readiness review.
    (5) Complies with all applicable Federal and State requirements;
    (6) Ensures, on an annual basis, that appropriate staff 
successfully complete operational readiness review training as 
established by HHS prior to conducting audits under paragraph (a) of 
this section;
    (7) Permits access by the Secretary and the Office of the Inspector 
General or their designees in connection with their right to evaluate 
through audit, inspection, or other means, to the third-party entity's 
books, contracts, computers, or other electronic systems, relating to 
the third-party entity's audits of agent's, broker's, or issuer's 
obligations in accordance with Federal standards under paragraph (a) of 
this section until 10 years from the date of creation; and
    (8) Complies with other minimum business criteria as specified in 
guidance by HHS.
    (c) An agent, broker or issuer may engage multiple third-party 
entities to conduct the audit under paragraph (a) of this section and 
each third-party entity must satisfy the standards outlined under 
paragraph (b) of this section.

0
18. 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. The Exchange may not 
determine a tax filer eligible for APTC if HHS notifies the Exchange as 
part of the process described in Sec.  155.320(c)(3) that APTC 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.
* * * * *

0
19. Section 155.320 is amended by--
0
a. Revising paragraphs (c)(3)(iii) introductory text, and paragraph 
(c)(3)(iii)(A);
0
b. Adding paragraphs (c)(3)(iii)(D) through (F);
0
c. Revising paragraph (c)(3)(vi)(C), (D), (F) and (G); and
0
d. Revising paragraph (d)(4) introductory text.
    The revisions and additions read as follows:


Sec.  155.320   Verification process related to eligibility for 
insurance affordability programs.

* * * * *
    (c) * * *
    (3) * * *
    (iii) Verification process for changes in household income. (A) 
Except as specified in paragraph (c)(3)(iii)(B), (C), and (D) of this 
section, if an applicant's attestation, in accordance with paragraph 
(c)(3)(ii)(B) of this section, indicates that a tax filer's annual 
household income has increased or is reasonably expected to increase 
from the data described in paragraph (c)(3)(ii)(A) of this section for 
the benefit year for which the applicant(s) in the tax filer's family 
are requesting coverage and the Exchange has not verified the 
applicant's MAGI-based income through the process specified in 
paragraph (c)(2)(ii) of this section to be within the applicable 
Medicaid or CHIP MAGI-based income standard, the Exchange must accept 
the applicant's attestation regarding a tax filer's annual household 
income without further verification.
* * * * *

[[Page 17062]]

    (D) If an applicant's attestation to projected annual household 
income, as described in paragraph (c)(3)(ii)(B) of this section, is 
greater than or equal to 100 percent but not more than 400 percent of 
the FPL for the benefit year for which coverage is requested and is 
more than a reasonable threshold above the annual household income 
computed in accordance with paragraph (c)(3)(ii)(A) of this section, 
the data described in paragraph (c)(3)(ii)(A) of this section indicates 
that projected annual household income is under 100 percent FPL, and 
the Exchange has not verified the applicant's MAGI-based income through 
the process specified in paragraph (c)(2)(ii) of this section to be 
within the applicable Medicaid or CHIP MAGI-based income standard, the 
Exchange must proceed in accordance with Sec.  155.315(f)(1) through 
(4). However, this paragraph (c)(3)(iii)(D) does not apply if the 
applicant is a non-citizen who is lawfully present and ineligible for 
Medicaid by reason of immigration status. For the purposes of this 
paragraph, a reasonable threshold is established by the Exchange in 
guidance and approved by HHS, but must not be less than 10 percent, and 
can also include a threshold dollar amount.
    (E) If, at the conclusion of the period specified in Sec.  
155.315(f)(2)(ii), the Exchange remains unable to verify the 
applicant's attestation, the Exchange must determine the applicant's 
eligibility based on the information described in paragraph 
(c)(3)(ii)(A) of this section, notify the applicant of such 
determination in accordance with the notice requirements specified in 
Sec.  155.310(g), and implement such determination in accordance with 
the effective dates specified in Sec.  155.330(f).
    (F) If, at the conclusion of the period specified in Sec.  
155.315(f)(2)(ii), the Exchange remains unable to verify the 
applicant's attestation and the information described in paragraph 
(c)(3)(ii)(A) of this section is unavailable, the Exchange must 
determine the tax filer ineligible for advance payments of the premium 
tax credit and cost-sharing reductions, notify the applicant of such 
determination in accordance with the notice requirements specified in 
Sec.  155.310(g), and discontinue any advance payments of the premium 
tax credit and cost-sharing reductions in accordance with the effective 
dates specified in Sec.  155.330(f).
* * * * *
    (vi) * * *
    (C) Increases in annual household income. If an applicant's 
attestation, in accordance with paragraph (c)(3)(ii)(B) of this 
section, indicates that a tax filer's annual household income has 
increased or is reasonably expected to increase from the data described 
in paragraph (c)(3)(vi)(A) of this section to the benefit year for 
which the applicant(s) in the tax filer's family are requesting 
coverage and the Exchange has not verified the applicant's MAGI-based 
income through the process specified in paragraph (c)(2)(ii) of this 
section to be within the applicable Medicaid or CHIP MAGI-based income 
standard, the Exchange must accept the applicant's attestation for the 
tax filer's family without further verification, unless:
    (1) The Exchange finds that an applicant's attestation of a tax 
filer's annual household income is not reasonably compatible with other 
information provided by the application filer, or
    (2) The data described in paragraph (c)(3)(vi)(A) of this section 
indicates that projected annual household income is under 100 percent 
FPL and the applicant's attestation to projected household income, as 
described in paragraph (c)(3)(ii)(B) of this section, is greater than 
or equal to 100 percent but not more than 400 percent of the FPL for 
the benefit year for which coverage is requested and is more than a 
reasonable threshold above the annual household income as computed 
using data sources described in paragraph (c)(3)(vi)(A) of this 
section, in which case the Exchange must follow the procedures 
specified in Sec.  155.315(f)(1) through (4). The reasonable threshold 
used under this paragraph must be equal to the reasonable threshold 
established in accordance with paragraph (c)(3)(iii)(D) of this 
section.
    (D) Decreases in annual household income and situations in which 
electronic data is unavailable. If electronic data are unavailable or 
an applicant's attestation to projected annual household income, as 
described in paragraph (c)(3)(ii)(B) of this section, is more than a 
reasonable threshold below the annual household income as computed 
using data sources described in paragraphs (c)(3)(vi)(A) of this 
section, the Exchange must follow the procedures specified in Sec.  
155.315(f)(1) through (4). The reasonable threshold used under this 
paragraph must be equal to the reasonable threshold established in 
accordance with paragraph (c)(3)(vi) of this section.
* * * * *
    (F) If, at the conclusion of the period specified in Sec.  
155.315(f)(2)(ii), the Exchange remains unable to verify the 
applicant's attestation, the Exchange must determine the applicant's 
eligibility based on the information described in paragraph 
(c)(3)(ii)(A) of this section, notify the applicant of such 
determination in accordance with the notice requirements specified in 
Sec.  155.310(g), and implement such determination in accordance with 
the effective dates specified in Sec.  155.330(f).
    (G) If, at the conclusion of the period specified in Sec.  
155.315(f)(2)(ii), the Exchange remains unable to verify the 
applicant's attestation for the tax filer and the information described 
in paragraph (c)(3)(ii)(A) of this section is unavailable, the Exchange 
must determine the tax filer ineligible for advance payments of the 
premium tax credit and cost-sharing reductions, notify the applicant of 
such determination in accordance with the notice requirement specified 
in Sec.  155.310(g), and discontinue any advance payments of the 
premium tax credit and cost-sharing reductions in accordance with the 
effective dates specified in Sec.  155.330(f).
* * * * *
    (d) * * *
    (4) Alternate procedures. For any benefit year for which it does 
not reasonably expect to obtain sufficient verification data as 
described in paragraphs (d)(2)(i) through (iii) of this section, the 
Exchange must follow the procedures specified in paragraph (d)(4)(i) of 
this section or, for benefit years 2016 through 2019, the Exchange may 
follow the procedures specified in paragraph (d)(4)(ii) of this 
section. For purposes of this paragraph (d)(4), the Exchange reasonably 
expects to obtain sufficient verification data for any benefit year 
when, for the benefit year, the Exchange is able to obtain data about 
enrollment in and eligibility for qualifying coverage in an eligible 
employer-sponsored plan from at least one electronic data source that 
is available to the Exchange and that has been approved by HHS, based 
on evidence showing that the data source is sufficiently current, 
accurate, and minimizes administrative burden, as described under 
paragraph (d)(2)(i) of this section.
* * * * *

0
20. Section 155.420 is amended by:
0
a. Revising paragraphs (a)(4)(iii), (a)(5) and (b)(2)(i);
0
b. Removing paragraph (b)(2)(v);
0
c. Redesignating paragraph (b)(2)(vi) as paragraph (b)(2)(v);
0
d. Revising paragraph (d)(1)(iii); and
0
e. Revising paragraph (d)(10)(i).
    The revisions read as follows:


Sec.  155.420   Special enrollment periods.

    (a) * * *

[[Page 17063]]

    (4) * * *
    (iii) For the other triggering events specified in paragraph (d) of 
this section, except for paragraphs (d)(2)(i), (d)(4), (d)(6)(i) and 
(ii) of this section for becoming newly eligible for CSRs, (d)(8), (9), 
(10) and (12) of this section:
    (A) If an enrollee qualifies for a special enrollment period, the 
Exchange must allow the enrollee and his or her dependents to change to 
another QHP within the same level of coverage (or one metal level 
higher or lower, if no such QHP is available), as outlined in Sec.  
156.140(b) of this subchapter; or
    (B) If a dependent qualifies for a special enrollment period, and 
an enrollee is adding the dependent to his or her QHP, the Exchange 
must allow the enrollee to add the dependent to his or her current QHP; 
or, if the QHP's business rules do not allow the dependent to enroll, 
the Exchange must allow the enrollee and his or her dependents to 
change to another QHP within the same level of coverage (or one metal 
level higher or lower, if no such QHP is available), as outlined in 
Sec.  156.140(b) of this subchapter, or enroll the new qualified 
individual in a separate QHP.
    (5) Prior coverage requirement. Qualified individuals who are 
required to demonstrate coverage in the 60 days prior to a qualifying 
event can either demonstrate that they had minimum essential coverage 
as described in 26 CFR 1.5000A-1(b) for 1 or more days during the 60 
days preceding the date of the qualifying event; lived in a foreign 
country or in a United States territory for 1 or more days during the 
60 days preceding the date of the qualifying event; are an Indian as 
defined by section 4 of the Indian Health Care Improvement Act; or 
lived for 1 or more days during the 60 days preceding the qualifying 
event or during their most recent preceding enrollment period, as 
specified in Sec. Sec.  155.410 and 155.420, in a service area where no 
qualified health plan was available through the Exchange.
    (b) * * *
    (2) * * *
    (i) In the case of birth, adoption, placement for adoption, 
placement in foster care, or child support or other court order as 
described in paragraph (d)(2)(i) of this section, the Exchange must 
ensure that coverage is effective for a qualified individual or 
enrollee on the date of birth, adoption, placement for adoption, 
placement in foster care, or effective date of court order; or it may 
permit the qualified individual or enrollee to elect a coverage 
effective date of the first of the month following plan selection; or 
in accordance with paragraph (b)(1) of this section. If the Exchange 
permits the qualified individual or enrollee to elect a coverage 
effective date of either the first of the month following the date of 
plan selection or in accordance with paragraph (b)(1) of this section, 
the Exchange must ensure coverage is effective on the date duly 
selected by the qualified individual or enrollee.
* * * * *
    (d) * * *
    (1) * * *
    (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)) or loses access to health 
care services through coverage provided to a pregnant woman's unborn 
child, based on the definition of a child in 42 CFR 457.10. The date of 
the loss of coverage is the last day the qualified individual would 
have pregnancy-related coverage or access to health care services 
through the unborn child coverage; or
* * * * *
    (10) * * *
    (i) Is a victim of domestic abuse or spousal abandonment as defined 
by 26 CFR 1.36B-2 or a dependent or unmarried victim within a 
household, is enrolled in minimum essential coverage, and sought to 
enroll in coverage separate from the perpetrator of the abuse or 
abandonment; or
* * * * *

0
21. Section 155.430 is amended by:
0
a. Revising paragraph (d)(2)(ii);
0
b. Redesignating paragraphs (d)(2)(iii), (d)(2)(iv) and (d)(2)(v) as 
paragraphs (d)(2)(iv), (d)(2)(v), and (d)(2)(vi), respectively;
0
c. Adding new paragraph (d)(2)(iii); and
0
d. Revising newly redesignated paragraphs (d)(2)(iv), and (v).
    The revisions and additions read as follows:


Sec.  155.430   Termination of Exchange enrollment or coverage.

* * * * *
    (d) *