[Federal Register Volume 83, Number 146 (Monday, July 30, 2018)]
[Rules and Regulations]
[Pages 36456-36460]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-16190]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Part 153

[CMS-9920-F]
RIN 0938-AT65


Adoption of the Methodology for the HHS-Operated Permanent Risk 
Adjustment Program Under the Patient Protection and Affordable Care Act 
for the 2017 Benefit Year

AGENCY: Centers for Medicare & Medicaid Services (CMS), Department of 
Health and Human Services (HHS).

ACTION: Final rule.

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SUMMARY: This final rule adopts the risk adjustment methodology that 
HHS previously established for the 2017 benefit year. In February 2018, 
a district court vacated the use of statewide average premium as a 
basis for the HHS-operated risk adjustment methodology for the 2014, 
2015, 2016, 2017, and 2018 benefit years. Accordingly, HHS is issuing 
this final rule to allow charges to be collected and payments to be 
made for the 2017 benefit year. We hereby adopt the final rules set out 
in the publication in the Federal Register on March 23, 2012 and the 
publication in the Federal Register on March 8, 2016.

DATES: These provisions of this final rule are effective on July 30, 
2018.

FOR FURTHER INFORMATION CONTACT: Abigail Walker, (410) 786-1725; Adam 
Shaw, (410) 786-1091; Jaya Ghildiyal, (301) 492-5149; or Adrianne 
Patterson, (410) 786-0686.

SUPPLEMENTARY INFORMATION: 

I. 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) was enacted on March 30, 
2010. These statutes are collectively referred to as ``PPACA'' in this 
final rule. Section 1343 of the PPACA established an annual permanent 
risk adjustment program under which payments are collected from health 
insurance issuers that enroll relatively low-risk populations, and 
payments are made to health insurance issuers that enroll relatively 
higher-risk populations. Consistent with section 1321(c)(1) of the 
PPACA, the Secretary is responsible for operating the risk adjustment 
program on behalf of any state that elected not to do so. For the 2017 
benefit year, HHS is responsible for operation of the risk adjustment 
program in all 50 states and the District of Columbia.
    HHS sets the risk adjustment methodology that it uses in states 
that elect not to operate the program in advance of each benefit year 
through a notice-and-comment rulemaking process with the intention that 
issuers will be able to rely on the methodology to price their plans 
appropriately (45 CFR 153.320; 76 FR 41930, 41932 through 41933; 81 FR 
94058, 94702 (explaining the importance of setting rules ahead of time 
and describing comments supporting that practice)).
    In the July 15, 2011 Federal Register (76 FR 41929), we published a 
proposed rule outlining the framework for the risk adjustment program. 
We implemented the risk adjustment program 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 proposed Federally 
certified risk adjustment methodologies for the 2014 benefit year and 
other parameters related to the risk adjustment program (proposed 2014 
Payment Notice). We published the 2014 Payment Notice final rule in the 
March 11, 2013 Federal Register (78 FR 15409). In the June 19, 2013 
Federal Register (78 FR 37032), we proposed a modification to the HHS-
operated methodology related to community rating states. In the October 
30, 2013, Federal Register (78 FR 65046), we finalized the proposed 
modification to the HHS-operated methodology related to community 
rating states. We published a correcting amendment to the 2014 Payment 
Notice final rule in the November 6, 2013 Federal Register (78 FR 
66653) to address how an enrollee's age for the risk score calculation 
would be determined under the HHS-operated risk adjustment methodology.
    In the December 2, 2013 Federal Register (78 FR 72321), we 
published a proposed rule outlining the Federally certified risk 
adjustment methodologies for the 2015 benefit year and other parameters 
related to the risk adjustment program (proposed 2015 Payment Notice). 
We published the 2015 Payment Notice final rule in the March 11, 2014 
Federal Register (79 FR 13743). In the May 27, 2014 Federal Register 
(79 FR 30240), the 2015 fiscal year sequestration rate for the risk 
adjustment program was announced.
    In the November 26, 2014 Federal Register (79 FR 70673), we 
published a proposed rule outlining the proposed Federally certified 
risk adjustment methodologies for the 2016 benefit year and other 
parameters related to the risk adjustment program (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 Federally certified risk 
adjustment methodology for the 2017 benefit year and other parameters 
related to the risk adjustment program (proposed 2017 Payment Notice). 
We published the 2017 Payment Notice final rule in the March 8, 2016 
Federal Register (81 FR 12204).
    In the September 6, 2016 Federal Register (81 FR 61455), we 
published a proposed rule outlining the Federally certified risk 
adjustment methodology for the 2018 benefit year and other parameters 
related to the risk adjustment program (proposed 2018 Payment Notice). 
We published the 2018 Payment Notice final rule in the December 22, 
2016 Federal Register (81 FR 94058).

[[Page 36457]]

    In the November 2, 2017 Federal Register (82 FR 51042), we 
published a proposed rule outlining the benefit and payment parameters 
for the 2019 benefit year, and to further promote stable premiums in 
the individual and small group markets. We proposed updates to the risk 
adjustment methodology and amendments to the risk adjustment data 
validation process (proposed 2019 Payment Notice). We published the 
2019 Payment Notice final rule in the April 17, 2018 Federal Register 
(83 FR 16930). We published a correction to the 2019 risk adjustment 
coefficients in the 2019 Payment Notice final rule in the May 11, 2018 
Federal Register (83 FR 21925).

B. The New Mexico Health Connections Court's Order

    On February 28, 2018, in a suit brought by the health insurance 
issuer New Mexico Health Connections, the United States District Court 
for the District of New Mexico (the district court) vacated the use of 
statewide average premium in the HHS-operated risk adjustment 
methodology for the 2014, 2015, 2016, 2017, and 2018 benefit years. The 
district court reasoned that HHS had not adequately explained its 
decision to adopt a methodology that used the statewide average premium 
as the cost-scaling factor to ensure that amounts collected from 
issuers equal payments made to issuers for the applicable benefit year, 
that is, a methodology that maintains the budget neutrality of the 
program for the applicable benefit year.\1\ The district court 
otherwise rejected New Mexico Health Connections' arguments. HHS's 
reconsideration motion remains pending with the district court.
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    \1\ New Mexico Health Connections v. United States Department of 
Health and Human Services et al., No. CIV 16-0878 JB/JHR (D.N.M. 
2018).
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    HHS recently announced the collection and payment amounts for the 
2017 benefit year as calculated under the HHS-operated risk adjustment 
methodology that uses the statewide average premium.\2\ However, 
without this administrative action (that is, issuing this final rule), 
HHS would be unable to make those collections or distribute the 
payments for the 2017 benefit year, which total billions of dollars.\3\ 
Uncertainty and delay in the distribution of those payments, which 
issuers anticipated when they set premiums for the 2017 benefit year, 
could add uncertainty to the market, as issuers are now in the process 
of determining the extent of their market participation and the rates 
and terms of plans they will offer for the 2019 benefit year.
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    \2\ See, Summary Report on Permanent Risk Adjustment Transfers 
for the 2017 Benefit Year, available at https://downloads.cms.gov/cciio/Summary-Report-Risk-Adjustment-2017.pdf.
    \3\ See, July 7, 2018 United States District Court Ruling Puts 
Risk Adjustment On Hold, available at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2018-Press-releases-items/2018-07-07.html and the July 9, 2018, Summary Report on Permanent Risk 
Adjustment Transfers for the 2017 Benefit Year https://downloads.cms.gov/cciio/Summary-Report-Risk-Adjustment-2017.pdf. 
Also see the CMS Memo: Implications of the Decision by United States 
District Court for the District of New Mexico on the Risk Adjustment 
and Related Programs (July 12, 2018), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Implications-of-the-Decision-by-United-States-District-Court-for-the-District-of-New-Mexico-on-the-Risk-Adjustment-and-Related-Programs.pdf.
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II. Provisions of the Final Rule

    This final rule adopts the HHS-operated risk adjustment methodology 
previously published at 81 FR 12204 for the 2017 benefit year with an 
additional explanation regarding the use of statewide average premium 
and the budget neutral nature of the program. This rule does not make 
any changes to the previously published HHS-operated risk adjustment 
methodology for the 2017 benefit year.
    The risk adjustment program provides payments to health insurance 
issuers that enroll higher risk populations, such as those with chronic 
conditions, thereby reducing incentives for issuers to structure their 
plan benefit designs or marketing strategies in order to avoid these 
enrollees and lessening the potential influence of risk selection on 
the premiums that issuers charge. Instead, issuers are expected to set 
rates based on average risk and compete based on plan features rather 
than selection of healthier enrollees. The program applies to any 
health insurance issuer offering plans in the individual or small group 
markets, 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.\4\ In 45 CFR part 153, subparts 
A, B, D, G, and H, HHS established standards for the administration of 
the permanent risk adjustment program. In accordance with Sec.  
153.320, any risk adjustment methodology used by a state, or by HHS on 
behalf of the state, must be a Federally certified risk adjustment 
methodology.
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    \4\ See the definition for ``risk adjustment covered plan'' at 
45 CFR 153.20.
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    As stated in the 2014 Payment Notice final rule, the Federally 
certified risk adjustment methodology developed and used by HHS in 
states that elect not to operate the program is based on the premise 
that premiums for this market should reflect the differences in plan 
benefits, quality, and efficiency--not the health status of the 
enrolled population.\5\ HHS developed the risk adjustment payment 
transfer formula that calculates the difference between the revenues 
required by a plan based on the projected health risk of the plan's 
enrollees and the revenues that a plan can generate for those 
enrollees. These differences are then compared across plans in the 
state market risk pool and converted to a dollar amount based on the 
statewide average premium. HHS chose to use statewide average premium 
and normalize the risk adjustment transfer formula to reflect state 
average factors so that each plan's enrollment characteristics are 
compared to the state average and the total calculated payment amounts 
equal total calculated charges in each state market risk pool. Thus, 
each plan in the risk pool receives a risk adjustment payment or charge 
designed to compensate for risk for a plan with average risk in a 
budget neutral manner. This approach supports the overall goal of the 
risk adjustment program to encourage issuers to rate for the average 
risk in the applicable state market risk pool, and avoids the creation 
of incentives for issuers to operate less efficiently, set higher 
prices, develop benefit designs or create marketing strategies to avoid 
high risk enrollees. Such incentives could arise if HHS used each 
issuer's plan's own premium in the risk adjustment payment transfer 
formula, instead of statewide average premium.
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    \5\ See 78 FR 15409 at 15417.
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    As explained above, the district court vacated the use of statewide 
average premium in the HHS-operated risk adjustment methodology for the 
2014 through 2018 benefit years on the ground that HHS did not 
adequately explain its decision to adopt that aspect of the risk 
adjustment methodology. The district court recognized that use of 
statewide average premium maintained the budget neutrality of the 
program, but concluded that HHS had not adequately explained the 
underlying decision to adopt a methodology that kept the program budget 
neutral, that is, that ensured that amounts collected from issuers 
would equal payments made to issuers for the applicable benefit year. 
Accordingly, HHS is providing additional explanation herein.

[[Page 36458]]

    First, Congress designed the risk adjustment program to be 
implemented and operated by states if they choose to do so. Nothing in 
section 1343 of the PPACA requires a state to spend its own funds on 
risk adjustment payments or allows HHS to impose such a requirement. 
Thus, while section 1343 may have provided leeway for states to spend 
additional funding on the program if they voluntarily chose to do so, 
HHS could not have required additional funding within the HHS-operated 
risk adjustment methodology.
    Second, while the PPACA did not include an explicit requirement 
that the risk adjustment program be operated in a budget-neutral 
manner, it also does not proscribe designing the program in a budget-
neutral manner. In fact, although the statutory provisions for many 
other PPACA programs appropriated or authorized amounts to be 
appropriated from the U.S. Treasury, or provided budget authority in 
advance of appropriations,\6\ the PPACA neither authorized nor 
appropriated additional funding for risk adjustment payments beyond the 
amount of charges paid in, nor authorized HHS to obligate itself for 
risk adjustment payments in excess of charges collected.\7\ Indeed, 
unlike the Medicare Part D statute, which expressly authorizes the 
appropriation of funds and provides budget authority in advance of 
appropriations to make Part D risk-adjusted payments, the PPACA's risk 
adjustment statute makes no reference to additional appropriations 
whatsoever.\8\ Because Congress omitted from the PPACA any provision 
appropriating independent funding or creating budget authority in 
advance of an appropriation for the risk adjustment program, HHS could 
not--absent another source of appropriations--have designed the risk 
adjustment program in a way that required payments in excess of 
collections consistent with binding appropriations law. Thus, as a 
practical matter, Congress did not give HHS discretion to implement a 
program that was not budget neutral.
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    \6\ For examples of PPACA provisions appropriating funds, see 
PPACA secs. 1101(g)(1), 1311(a)(1), 1322(g), 1323(c). For examples 
of PPACA provisions authorizing the appropriation of funds, see 
PPACA secs. 1002, 2705(f), 2706(e), 3013(c), 3015, 3504(b), 
3505(a)(5), 3505(b), 3506, 3509(a)(1), 3509(b), 3509(e), 3509(f), 
3509(g), 3511, 4003(a), 4003(b), 4004(j), 4101(b), 4102(a), 4102(c), 
4102(d)(1)(C), 4102(d)(4), 4201(f), 4202(a)(5), 4204(b), 4206, 
4302(a), 4304, 4305(a), 4305(c), 5101(h), 5102(e), 5103(a)(3), 5203, 
5204, 5206(b), 5207, 5208(b), 5210, 5301, 5302, 5303, 5304, 5305(a), 
5306(a), 5307(a), 5309(b).
    \7\ See 42 U.S.C. 18063.
    \8\ Compare 42 U.S.C. 18063 (failing to specify source of 
funding other than risk adjustment charges), with 42 U.S.C. 1395w-
116(c)(3) (authorizing appropriations for Medicare Part D risk 
adjusted payments); 42 U.S.C. 1395w-115(a) (establishing ``budget 
authority in advance of appropriations Acts'' for risk adjusted 
payments under Medicare Part D).
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    Furthermore, if HHS had elected to adopt a HHS-operated risk 
adjustment methodology that was contingent on appropriations from 
Congress in the annual appropriations process that would have created 
uncertainty for issuers in the amount of risk adjustment payments they 
could expect. That uncertainty would undermine one of the central 
objectives of the risk adjustment program, which is to assure issuers 
in advance that they will receive risk adjustment payments if, for the 
applicable benefit year, they enroll a high risk population compared to 
other issuers in the state market risk pool. The budget-neutral 
framework spreads the costs of covering higher-risk enrollees across 
issuers throughout a given state market risk pool, thereby reducing 
incentives for issuers to engage in risk-avoidance techniques such as 
designing or marketing their plans in ways that tend to attract 
healthier individuals, who cost less to insure. Moreover, relying on 
the possibility in each year's budget process for appropriation of 
additional funds to HHS that could be used to supplement risk 
adjustment transfers would have required HHS to delay setting the 
parameters for any risk adjustment payment proration rates until well 
after the plans were in effect for the applicable benefit year.\9\ 
Without the adoption of a budget-neutral framework, HHS would have 
needed to assess a charge or otherwise collect additional funds, or 
prorate risk adjustment payments to balance the calculated risk 
adjustment transfer amounts. The resulting uncertainty would have 
conflicted with one of the overall goals of the risk adjustment 
program--to reduce incentives for issuers to avoid enrolling 
individuals with higher than average actuarial risk.
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    \9\ It has been suggested that the annual lump sum appropriation 
to CMS for program management was potentially available for risk 
adjustment payments. The lump sum appropriation for each year was 
not enacted until after the applicable rule announcing the 
methodology to calculate payments for the applicable benefit year. 
Moreover, HHS does not believe that the lump sum is legally 
available for risk adjustment payments. As the underlying budget 
requests reflect, the lump sum is for program management expenses, 
such as administrative costs for various CMS programs such as 
Medicaid, Medicare, the Children's Health Insurance Program, and the 
PPACA's insurance market reforms--not for the program payments 
themselves. CMS would have elected to use the lump sum for these 
important program management expenses even if CMS had discretion to 
use all or part of the lump sum for risk adjustment payments.
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    In light of the budget-neutral framework discussed above, HHS also 
chose not to use a different parameter for the payment transfer formula 
under the HHS-operated methodology, such as each plan's own premium, 
that would not have automatically achieved equality between risk 
adjustment payments and charges in each benefit year. As set forth in 
prior discussions,\10\ use of the plan's own premium or some similar 
parameter would have required the application of a balancing adjustment 
in light of the program's budget neutrality--either reducing payments 
to issuers owed a payment, increasing charges on issuers due a charge, 
or splitting the difference in some fashion between issuers owed 
payments and issuers assessed charges. Such adjustments would have 
impaired the risk adjustment program's goals, discussed above, of 
encouraging issuers to rate for the average risk in the applicable risk 
pool and avoiding the creation of incentives for issuers to operate 
less efficiently, set higher prices, develop benefit designs or create 
marketing strategies to avoid higher-risk enrollees. Use of an after-
the-fact balancing adjustment is also less predictable for issuers than 
a methodology that can be calculated in advance of a benefit year. Such 
predictability is important to serving the risk adjustment program's 
goals of premium stabilization and reducing issuer incentives to avoid 
enrolling higher-risk populations. Additionally, using a plan's own 
premium to scale transfers may provide additional incentive for plans 
with high-risk enrollees to increase premiums in order to receive 
additional risk adjustment payments. As noted by commenters to the 2014 
Payment Notice proposed rule, transfers may be more volatile from year 
to year and sensitive to anomalous premiums if they were scaled to a 
plan's own premium instead of the statewide average premium. Scaling 
the risk adjustment transfers by the statewide average premium promotes 
premium stabilization by encouraging pricing to average risk in a risk 
pool, and results in a calculation of equal payments and charges.
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    \10\ See, e.g., September 12, 2011, Risk Adjustment 
Implementation Issues White Paper, available at: https://www.cms.gov/CCIIO/Resources/Files/Downloads/riskadjustment_whitepaper_web.pdf.
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    In the risk adjustment methodologies applicable to the 2018 and 
2019 benefit years, HHS has adjusted statewide average premium by 
reducing it by 14 percent to account for an estimated proportion of 
administrative costs that do not vary with claims. HHS is not applying 
this adjustment retroactively to the 2017 benefit year, but is instead

[[Page 36459]]

maintaining the definition of statewide average premium previously 
established for the 2017 benefit year. As discussed above, HHS has 
repeatedly stressed the importance of providing a risk adjustment 
methodology in advance of the benefit year to which it applies to 
provide issuers the opportunity to price their plans accordingly.\11\ 
To protect the settled expectations of issuers that have structured 
their pricing and offering decisions in reliance on the previously 
promulgated 2017 benefit year methodology, this rule maintains for the 
2017 benefit year the description of statewide average premium set 
forth in the 2017 Payment Notice.
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    \11\ See 76 FR 41930, 41932-33. Also see 81 FR 94058, 94702.
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    Therefore, for the 2017 benefit year, we are issuing this final 
rule that adopts the HHS-operated risk adjustment methodology 
previously established for the 2017 benefit year in the Federal 
Register publications cited above, including use of statewide average 
premium. As set forth in reports previously issued, HHS has completed 
final risk adjustment calculations for the 2017 benefit year, but has 
not yet collected or paid risk adjustment amounts to issuers of risk 
adjustment covered plans. The provisions of this final rule adopt the 
methodology that applies to collection and payment of risk adjustment 
amounts for the 2017 benefit year. Because this final rule does not 
alter any previously announced risk adjustment methodology, the amounts 
previously calculated by HHS have not changed by virtue of this rule's 
issuance.
    HHS will begin collection of the 2017 benefit year risk adjustment 
charge amounts announced in the Summary Report on Permanent Risk 
Adjustment Transfers for the 2017 Benefit Year \12\ through netting 
pursuant to 45 CFR 156.1215(b) and subsequently issuing invoices if an 
amount remains outstanding in the September 2018 monthly payment cycle. 
HHS will begin making the 2017 benefit year risk adjustment payments 
outlined in the Summary Report on Permanent Risk Adjustment Transfers 
for the 2017 Benefit Year as part of the October 2018 monthly payment 
cycle, continuing on a monthly basis as collections are received. Under 
this timeline, issuers would receive invoices on or about September 11-
13, 2018 and payments would begin to be made around October 22, 2018.
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    \12\ https://downloads.cms.gov/cciio/Summary-Report-Risk-Adjustment-2017.pdf.
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III. Adoption of the Methodology for the HHS-Operated Permanent Risk 
Adjustment Program Under the Patient Protection and Affordable Care Act

    This rule adopts the final rules set out in the publication in the 
March 23, 2012 Federal Register (77 FR 17220 through 17252) and 
publication in the March 8, 2016 Federal Register (81 FR 12204 through 
12352). For the 2017 benefit year, in states where HHS is operating the 
risk adjustment program under section 1343 of the PPACA, HHS will use 
the criteria and methods as specified in the publication in the March 
23, 2012 Federal Register (77 FR 17220 through 17252) and publication 
in the March 8, 2016 Federal Register (81 FR 12204 through 12352).

IV. Waiver of Proposed Rulemaking and Delay in Effective Date

    Under the Administrative Procedure Act (APA) (5 U.S.C. 553), a 
notice of proposed rulemaking and an opportunity for public comment are 
generally required before issuing a regulation. We also ordinarily 
provide a 30-day delay in the effective date of the provisions of a 
rule in accordance with the APA (5 U.S.C. 553(d)), unless the rule is a 
major rule and subject to the 60-day delayed effective date required by 
the Congressional Review Act (5 U.S.C. 801(a)(3)). However, these 
procedures can be waived if the agency, for good cause, finds that 
notice and public comment and delay in effective date are 
impracticable, unnecessary, or contrary to public interest and 
incorporates a statement of the finding and its reasons in the rule 
issued. See 5 U.S.C. 553(d)(3); 5 U.S.C. 808(2).
    HHS has determined that issuing this rule in proposed form, such 
that it would not become effective until after public comments are 
submitted, considered, and responded to in a final rule, would be 
impracticable, unnecessary, and contrary to the public interest. As 
discussed above, immediate administrative action is imperative to 
maintain the stability and predictability in the individual and small 
group insurance markets. It is also consistent with settled 
expectations in that this rule adopts the risk adjustment methodology 
previously established for the 2017 benefit year.\13\ Under normal 
operations, risk adjustment invoices for the 2017 benefit year would be 
issued beginning in August 2018 and risk adjustment payments for the 
2017 benefit year would be made beginning in the September 2018 monthly 
payment cycle. Accordingly, it is now less than 2 months until risk 
adjustment payments for the 2017 benefit year, expected to total $5.2 
billion, are due to begin. Immediate action is also necessary to 
maintain issuer confidence in the HHS-operated risk adjustment program. 
Issuers have already accounted for expected risk adjustment transfers 
in their rates for the 2017 benefit year and uncompensated payments for 
the 2017 benefit year could lead to higher premiums in future benefit 
years as issuers incorporate a risk premium into their rates. Issuers 
file rates for the 2019 benefit year in the summer of 2018, and if a 
projected $5.2 billion in risk adjustment payments is unavailable or 
there is uncertainty as to whether payments for the 2018 benefit year 
will be made, there is a serious risk issuers will substantially 
increase 2019 premiums to account for the uncompensated risk associated 
with high-risk enrollees. Consumers enrolled in certain plans could see 
a significant premium increase, which could make coverage in those 
plans particularly unaffordable for unsubsidized enrollees. 
Furthermore, issuers are currently making decisions on whether to offer 
qualified health plans (QHPs) through the Exchanges for the 2019 
benefit year, and, for the Federally-facilitated Exchange (FFE), this 
decision must be made before the August 2018 deadline to finalize QHP 
agreements. In states with limited Exchange options, a QHP issuer exit 
would restrict consumer choice, and put additional upward pressure on 
Exchange premiums, thereby increasing the cost of coverage for 
unsubsidized individuals and federal spending for premium tax credits. 
The combination of these effects could lead to significant, involuntary 
coverage losses in certain state market risk pools.
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    \13\ The risk adjustment methodology for those benefit years was 
published at the February 27, 2015 Federal Register (80 FR 10749) 
and the March 8, 2016 Federal Register (81 FR 12203).
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    Additionally, HHS's failure to make timely risk adjustment payments 
could impact the solvency of plans providing coverage to sicker (and 
costlier) than average enrollees that require the influx of risk 
adjustment payments to continue operations. When state regulators 
determine issuer solvency, any uncertainty surrounding risk adjustment 
transfers jeopardizes regulators' ability to make decisions that 
protect consumers and support the long-term health of insurance 
markets. Therefore, HHS has determined that delaying the effective date 
of the use of statewide average premium in the payment transfer 
calculation under the HHS-operated risk adjustment methodology for the 
2017 benefit year to allow for

[[Page 36460]]

proposed rulemaking and comment is impracticable and contrary to the 
public interest because consumers would be negatively impacted by 
premium changes should risk adjustment payments be interrupted or 
confidence in the program undermined.
    There is also good cause to proceed without notice and comment for 
the additional reason that such procedures are unnecessary here. HHS 
has received and considered comments in issuing the 2014 through 2017 
Payment Notices. In each of these rulemaking processes, parties had the 
opportunity to comment on HHS's use of statewide average premium in the 
payment transfer formula under the HHS-operated risk adjustment 
methodology. Because this final rule adopts the same HHS-operated risk 
adjustment methodology issued in the 2017 Payment Notice final rule, 
the comments received in those rulemakings are sufficiently current to 
indicate a lack of necessity to engage in further notice and comment. 
In the 2014 Payment Notice final rule, we received a number of comments 
in support of our proposal to use the statewide average premium as the 
basis for risk adjustment transfers. In subsequent benefit year 
rulemakings, some commenters expressed a desire for HHS to use a plan's 
own premium. HHS addressed those comments by reiterating that we had 
considered the use of a plan's own premium instead of the statewide 
average premium and chose to use statewide average premium. As this 
approach supports the overall goal of the risk adjustment program to 
encourage issuers to rate for the average risk in the applicable state 
market risk pool, and avoids the creation of incentives for issuers to 
operate less efficiently, set higher prices, develop benefit designs or 
create marketing strategies to avoid high risk enrollees.

V. Collection of Information Requirements

    This document does not impose information collection requirements, 
that is, reporting, recordkeeping, or third-party disclosure 
requirements. Consequently, there is no need for review by the Office 
of Management and Budget under the authority of the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501, et seq.).

VI. Regulatory Impact Analysis

A. Statement of Need

    This final rule adopts the HHS-operated risk adjustment methodology 
for the 2017 benefit year set forth in the 2017 Payment Notice final 
rule to ensure that the risk adjustment program works as intended to 
protect consumers from the effects of adverse selection and premium 
increases due to issuer uncertainty. The Premium Stabilization Rule and 
previous Payment Notices noted above provided detail on the 
implementation of the risk adjustment program, including the specific 
parameters applicable for the 2017 benefit year.

B. Overall Impact

    We have examined the impact 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 1102(b) of the Social Security Act, 
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), the Congressional Review Act (5 U.S.C. 804(2), and Executive 
Order 13771 on Reducing Regulation and Controlling Regulatory Costs. 
Executive Orders 12866 and 13563 direct agencies to assess all costs 
and benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any one 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. In addition, for the reasons noted above, OMB has 
determined that this is a major rule under the Congressional Review 
Act.
    This final rule offers a further explanation on budget neutrality 
and the use of statewide average premium in the risk adjustment payment 
transfer formula when HHS is operating the permanent risk adjustment 
program established in section 1343 of the PPACA on behalf of a state 
for the 2017 benefit year. We note that we previously estimated 
transfers associated with the risk adjustment program in the Premium 
Stabilization Rule and the 2017 Payment Notice, and that the provisions 
of this final rule do not change the risk adjustment transfers 
previously estimated under the HHS-operated risk adjustment methodology 
established in those final rules. The approximate risk adjustment 
transfers for the 2017 benefit year are $5.179 billion. As such, we 
also adopt the RIA in the 2017 Payment Notice proposed and final rules.

    Dated: July 23, 2018.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: July 24, 2018.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2018-16190 Filed 7-25-18; 4:15 pm]
 BILLING CODE 4120-01-P