[Federal Register Volume 84, Number 16 (Thursday, January 24, 2019)]
[Proposed Rules]
[Pages 227-321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-00077]



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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 84, No. 16 / Thursday, January 24, 2019 / 
Proposed Rules  

[[Page 227]]



DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 146, 147, 148, 153, 155, and 156

[CMS-9926-P]
RIN 0938-AT37


Patient Protection and Affordable Care Act; HHS Notice of Benefit 
and Payment Parameters for 2020

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

ACTION: Proposed rule.

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SUMMARY: This proposed rule sets forth payment parameters and 
provisions related to the risk adjustment and risk adjustment data 
validation programs; cost-sharing parameters; and user fees for 
Federally-facilitated Exchanges (FFEs) and State-based Exchanges on the 
Federal Platform (SBE-FPs). It proposes changes that would allow 
greater flexibility related to the duties and training requirements for 
the Navigator program and proposes changes that would provide greater 
flexibility for direct enrollment entities, while strengthening program 
integrity oversight over those entities. It proposes policies that are 
intended to reduce the costs of prescription drugs. It includes 
proposed changes to Exchange standards related to eligibility and 
enrollment; exemptions; and other related topics.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on February 19, 
2019.

ADDRESSES: In commenting, please refer to file code CMS-9926-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    Comments, including mass comment submissions, must be submitted in 
one of the following three ways (please choose only one of the ways 
listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-9926-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-9926-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: 
    Jeff Wu, (301) 492-4305, Ken Buerger, (410) 786-1190, or Abigail 
Walker, (410) 786-1725, for general information.
    David Mlawsky, (410) 786-6851, for matters related to guaranteed 
renewability.
    Avareena Cropper, (410) 786-3794, for matters related to 
sequestration.
    Krutika Amin, (301) 492-5153, or Allison Yadsko, (410) 786-1740, 
for matters related to risk adjustment.
    Krutika Amin, (301) 492-5153, for matters related to Federally-
facilitated Exchange and State-based Exchange on the Federal Platform 
user fees.
    Abigail Walker, (410) 786-1725, Alper Ozinal, (301) 492-4178, 
Allison Yadsko, (410) 786-1740, or Adam Shaw, (410) 786-1091, for 
matters related to risk adjustment data validation.
    Ken Buerger, (410) 786-1190, or LeAnn Brodhead, (410) 786-3943, for 
matters related to the opioid crisis.
    Amir Al-Kourainy, (301) 492-5210, for matters related to 
Navigators.
    Carly Rhyne, (301) 492-4188, for matters related to special 
enrollment periods.
    Amanda Brander, (202) 690-7892, for matters related to exemptions.
    Daniel Brown, (434) 995-5886, for matters related to direct 
enrollment.
    Rebecca Zimmermann, (301) 492-4396, for matters related to health 
insurance issuer drug policy, essential health benefits, and qualified 
health plan certification requirements.
    Amy Spiridon, (301) 492-4417, for matters related to the required 
contribution percentage, cost-sharing parameters and the premium 
adjustment percentage.

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

Table of Contents

I. Executive Summary
II. Background
    A. Legislative and Regulatory Overview
    B. Stakeholder Consultation and Input
    C. Structure of Proposed Rule
III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2020
    A. Part 146--Requirements for the Group Health Insurance Market
    B. Part 147--Health Insurance Reform Requirements for the Group 
and Individual Health Insurance Markets
    C. Part 148--Requirements for the Individual Health Insurance 
Market
    D. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment Under the Affordable Care Act
    E. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
    F. Part 156--Health Insurance Issuer Standards Under the 
Affordable Care Act, Including Standards Related to Exchanges
IV. Collection of Information Requirements
    A. Wage Estimates
    B. ICRs Regarding Guaranteed Renewability of Coverage
    C. ICRs Regarding Varying the Risk Adjustment Initial Validation 
Audit Sample Size
    D. ICRs Regarding Risk Adjustment Data Validation Exemptions

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    E. ICRs Regarding Upload of Risk Adjustment Data
    F. ICRs Regarding Agent or Broker Termination and Web Broker 
Data Collection
    G. ICRs Regarding Direct Enrollment Entity Standardized 
Disclaimer
    H. ICRs Regarding Special Enrollment Periods
    I. ICRs Regarding Eligibility Standards for Exemptions
    J. Summary of Annual Burden Estimates for Proposed Requirements
    K. Submission of PRA-Related Comments
V. Response to Comments
VI. Regulatory Impact Analysis
    A. Statement of Need
    B. Overall Impact
    C. Impact Estimates of the Payment Notice Provisions and 
Accounting Table
    D. Regulatory Alternatives Considered
    E. Regulatory Flexibility Act
    F. Unfunded Mandates
    G. Federalism
    H. Congressional Review Act
    I. Reducing Regulation and Controlling Regulatory Costs
    J. Conclusion

I. Executive Summary

    American Health Benefit Exchanges, or ``Exchanges'' are entities 
established under the Patient Protection and Affordable Care Act \1\ 
(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 to reduce their costs for 
health insurance premiums and to 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 increase the workability of the PPACA regulatory changes 
in the individual and small group markets, both on and off Exchanges.
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    \1\ The PPACA (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 PPACA, 
was enacted on March 30, 2010. In this proposed rule, we refer to 
the two statutes collectively as the ``Patient Protection and 
Affordable Care Act'' or ``PPACA''.
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    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 proposed rule, we 
are proposing, within the limitations of the current statute, to reduce 
fiscal and regulatory burdens across different program areas, and to 
provide stakeholders with greater flexibility.
    Over time, issuer exits and increasing insurance rates have 
threatened the stability of the individual and small group market 
Exchanges in many geographic areas. Unfortunately, Exchange plans are 
now almost entirely unaffordable for people who do not qualify for 
PPACA's advance payments of premium tax credits at enrollment. In the 
first half of 2018, 87 percent of Exchange enrollees received advance 
payments of the premium tax credit, with the amount covering 87 percent 
of the premium, on average. Sixteen percent of enrollees were enrolled 
in plans with zero premium after the application of premium tax credit, 
and another 19 percent of enrollees received a tax credit that covered 
at least 95 percent of the premium.\2\
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    \2\ CMS Exchange enrollment and payment data.
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    In previous rulemaking, we established provisions and parameters to 
implement many PPACA requirements and programs. In this proposed rule, 
we propose to amend these provisions and parameters, with a focus on 
maintaining a stable regulatory environment to provide issuers with 
greater predictability for upcoming plan years, while simultaneously 
enhancing the role of states in these programs and providing states 
with additional flexibilities, reducing unnecessary regulatory burdens 
on stakeholders, empowering consumers, and improving affordability.
    Risk adjustment continues to be a core program in the individual 
and small group markets both on and off the Exchanges, and we propose 
recalibrated parameters for the HHS-operated risk adjustment 
methodology. We propose several changes related to the risk adjustment 
data validation program that are intended to ensure the integrity of 
the results of risk adjustment, and others intended to alleviate issuer 
burden associated with participating in risk adjustment data 
validation.
    As we do every year in the HHS notice of benefit and payment 
parameters, we propose updated parameters applicable in the individual 
and small group markets. We propose the user fee rate for issuers 
participating on Federally-facilitated Exchanges (FFEs) and State-based 
Exchanges on the Federal platform (SBE-FPs) for 2020 to be 3.0 and 2.5 
percent of premiums, respectively. These rates would be a decrease from 
past years, which would increase affordability for consumers. We 
propose to use a new premium measure to determine the rate of premium 
growth for purposes of calculating the premium adjustment percentage 
for 2020 and beyond, which is used to set the maximum annual limitation 
on cost sharing, the required contribution percentage used to determine 
eligibility for certain exemptions under section 5000A of the Internal 
Revenue Code (the Code), and the employer shared responsibility payment 
amounts under section 4980H(a) and (b) of the Code. We propose to 
update the maximum annual limitations on cost sharing for the 2020 
benefit year, including those for cost-sharing reduction plan 
variations.
    We also propose changes to the requirements regarding Navigators to 
reduce burden, increase flexibility, and enable Exchanges to more 
easily and cost-effectively operate their programs.
    We are committed to promoting a consumer-driven health care system 
in which consumers are empowered to select and maintain health care 
coverage of their choosing. To this end, we propose to expand the QHP 
options available to consumers on the Exchange by requiring QHP issuers 
that provide coverage of certain abortion services in QHPs to provide 
otherwise identical QHP benefit coverage that omits coverage of such 
abortion services in a separate QHP, to the extent permissible under 
applicable state law.
    We also propose a number of changes in this rule that are intended 
to reduce the burden for consumers by making it easier to enroll in 
affordable coverage through the Exchange. First, we propose to provide 
additional flexibility to those in need of a hardship exemption, which 
consumers apply for now through Exchanges, by expanding the types of 
hardship exemptions that consumers may claim for 2018 through the tax 
filing process. Second, we believe consumers should have greater 
flexibility in how they shop for coverage, including the avenues 
through which they enroll in QHPs. As such, we have been working to 
expand opportunities for individuals to directly enroll in Exchange 
coverage by enrolling through the websites of certain third parties, 
called direct enrollment entities, rather than having to visit 
HealthCare.gov. We propose several regulatory changes to streamline the 
regulatory requirements applicable to

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these direct enrollment entities. Third, we propose to create a special 
enrollment period for off-Exchange enrollees who experience a decrease 
in household income and are determined to be eligible for advance 
payments of the premium tax credit (APTC) by the Exchange. This would 
allow enrollees to enroll in a more affordable on-Exchange product when 
a consumer's household income decreases mid-year.
    Currently, enrollees in plans offered through a Federally-
facilitated Exchange or a State-based Exchange using the Federal 
platform can take action to re-enroll in their current plan, can take 
action to select a new plan, or can take no action and be re-enrolled 
in their current plan. Since the program's inception, these Exchanges 
have maintained an automatic re-enrollment process which generally 
continues enrollment for current enrollees who do not notify the 
Exchange of eligibility changes or take action to actively select the 
same or different plan. In the open enrollment period for 2019 
coverage, 1.8 million people in states using the Federal platform \3\ 
were automatically re-enrolled in coverage, including about 270,000 who 
were enrolled in a plan with zero premium after application of advance 
payments of the premium tax credit.\4\ Automatic re-enrollment 
significantly reduces issuer administrative expenses and makes 
enrolling in health insurance more convenient for the consumer. While 
allowing auto-re-enrollment was designed to be consistent with broader 
industry practices, this market is arguably different, since most 
current enrollees receive significant government subsidies, making them 
potentially less sensitive to premiums and premium changes. For the 
first half of 2018, for example, 16 percent of enrollees were enrolled 
in a plan with zero premiums after application of advance payments of 
the premium tax credit, another 19 percent of enrollees paid a premium 
of less than 5 percent of the total plan premium after application of 
advance payments of the premium tax credit, and the average subsidized 
enrollee received a premium tax credit covering 87 percent of the total 
premium cost.
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    \3\ Includes Federally-facilitated Exchanges and State Exchanges 
that use the federal eligibility and enrollment platform.
    \4\ CMS Multi-Dimensional Insurance Data Analytics System 
(MIDAS).
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    The practice of automatic re-enrollment in the Exchanges gives rise 
to several concerns. Some consumers who are automatically re-enrolled 
in their current plan may be shielded from changes to their coverage, 
which may result in consumers being less aware of their options from 
year to year. There is a concern that automatic re-enrollment 
eliminates an opportunity for consumers to update their coverage and 
premium tax credit eligibility as their personal circumstances change, 
potentially leading to eligibility errors, tax credit miscalculations, 
unrecoverable federal spending on the credits, and general consumer 
confusion.
    We seek comment on the automatic re-enrollment processes and 
capabilities as well as additional policies or program measures that 
would reduce eligibility errors and potential government misspending 
for potential action in future rulemaking applicable not sooner than 
plan year 2021.
    In addition, we believe increased transparency is a critical 
component of a consumer driven health care system, and are interested 
in ways to provide consumers with greater transparency with regards to 
their own health care data, QHP offerings on the FFEs, and the cost of 
health care services. In general, we encourage QHP issuers and 
Exchanges to undertake efforts to engage in consumer-friendly 
communication of their services to help consumers understand the value 
of services they would potentially obtain. We believe that when 
consumers have access to relevant, consumer-friendly information that 
is meaningful to them, they are empowered to make more informed 
decisions with regards to their care. This can have the effect of 
aligning with consumers' goals and preferences, promoting value and 
improving health outcomes.
    Specifically, we are exploring ways to increase the 
interoperability of patient-mediated health care data across health 
care programs, including in coverage purchased through the Exchanges. 
We believe that providing data in an easily accessible manner through 
common technologies in a convenient, timely, and portable way is in the 
best interest of consumers and the health care system as a whole. This 
can prevent duplicative medical services, assist in supporting health 
care value through the prevention of fraud, waste, and abuse, reduce 
health care spending, and drive down the costs of health care for 
consumers. We expect to provide further information on these 
interoperability efforts, and an opportunity for public input, in the 
near future.
    Additionally, in an effort to increase consumer transparency 
through access to information that may assist consumers in selecting a 
QHP offered through an Exchange and navigating their coverage, we are 
exploring opportunities to expand the transparency in coverage data 
collection.\5\ Under section 1311(e)(3) of the PPACA, as implemented by 
45 CFR 155.1040(a) and 156.220, QHP issuers must post and make 
available to the public, data related to transparency in coverage in 
plain language and submit this data to HHS, the Exchange, and the state 
insurance commissioner.\6\ These standards provide greater transparency 
for consumers and may assist in the decision-making process. This 
resubmission of the information collections approved under the 
Paperwork Reduction Act package was posted at the Federal Register for 
60-day public comment through December 24, 2018. Separate from the PRA 
submission, we seek comment on ways to further implement Sec.  
156.220(d), enrollee cost-sharing transparency, where a QHP issuer must 
make available the amount of enrollee cost sharing under the 
individual's plan or coverage for the furnishing of a specific item or 
service by a participating provider in a timely manner upon the request 
of the individual. We are particularly interested in input regarding 
what types of data would be most useful to improving consumers' 
abilities to make informed health care decisions, including decisions 
related to their coverage.
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    \5\ CMS-10572, Transparency in Coverage Reporting by Qualified 
Health Plan Issuers (approved June 16, 2016).
    \6\ Section 2715A of the PHS Act extends the transparency 
reporting provisions in section 1311(e)(3) of the PPACA to non-
grandfathered group health plans and health insurance issuers 
offering non-grandfathered group or individual health insurance 
coverage and the Departments of HHS, Labor and the Treasury (the 
Departments) have concurrent jurisdiction over that provision. The 
Departments have not provided final guidance implementing any 
transparency reporting requirements under PHS Act section 2715A and 
the PRA resubmission referred to above does not relate to PHS Act 
section 2715A. See FAQs about Affordable Care Act Implementation 
(Part XXVIII). Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/ACA-FAQ-Part-XXVIII-transparency-reporting-final-8-11-15.pdf.
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    Finally, we are interested in ways to improve consumers' access to 
information about health care costs. We believe that consumers would 
benefit from a greater understanding of what their potential out-of-
pocket costs would be for various services, based on which QHP they are 
enrolled in and which provider they see. We believe that such a policy 
would promote consumers' ability to shop for covered services, and to 
play a more active role in their health care. In particular, we are 
aware that it can be difficult for consumers to anticipate their 
financial

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responsibility when a QHP applies coinsurance, because consumers are 
largely unaware of the negotiated rate until they receive an 
explanation of benefits document after the provider renders the 
service. We are considering different options for disclosure of cost-
sharing information, recognizing that cost is a significant factor in 
creating greater value in health care delivery. For example, we are 
considering whether to require issuers to disclose a consumer's 
anticipated costs for particular services upon request within a certain 
timeframe, or whether to require issuers to disclose anticipated costs 
for a set number of common coverage scenarios, similar to what they 
must currently disclose in the Summary of Benefits and Coverage (SBC).
    To increase transparency for the individual and small group markets 
more generally, we are proposing to expand the collection of masked 
enrollee-level data from the External Data Gathering Environment (EDGE) 
servers, and to broaden the permissible uses of such data currently 
submitted for purposes of risk adjustment. We believe this proposal, if 
finalized, would increase understanding of these markets among HHS, 
researchers, and the general public, and therefore contribute to 
greater transparency.
    We seek comments on whether there are any existing regulatory 
barriers that stand in the way of privately led efforts at pricing 
transparency, and ways that we can facilitate or support increased 
private innovation in pricing transparency. As part of our ongoing 
efforts to empower consumers in their health care decisions, we also 
seek comment on how we can promote transparency for consumers and 
value-based insurance design. We seek comment on ways that we can 
promote the offering and take-up of High Deductible Health Plans 
(HDHPs) that can be paired with Health Savings Accounts (HSAs), which 
can serve as an effective and tax-advantageous method for certain 
consumers to manage their health care expenditures. We are particularly 
interested in comments that address ways to increase the visibility of 
HSA-eligible HDHPs on HealthCare.gov.
    In furtherance of the Administration's priority to reduce 
prescription drug costs and to align with the President's American 
Patients First blueprint, we propose a series of changes to the 
prescription drug benefits, to the extent permitted by applicable state 
law. These proposals include allowing issuers to adopt mid-year 
formulary changes to incentivize greater enrollee use of lower-cost 
generic drugs; allowing issuers to not count certain cost sharing 
toward the annual limitation on cost sharing if a consumer selects a 
brand drug when a medically appropriate generic drug is available; and 
allowing issuers to exclude drug manufacturer coupons from counting 
toward the annual limitation on cost sharing when a medically 
appropriate generic drug is available. We believe these proposals will 
support issuers' ability to lower the cost of coverage and generate 
cost savings while also ensuring efficient use of federal funds and 
sufficient coverage for people with diverse health needs.

II. Background

A. Legislative and Regulatory Overview

    Title I of the Health Insurance Portability and Accountability Act 
of 1996 (HIPAA) added a new title XXVII to the Public Health Service 
Act (PHS Act) to establish various reforms to the group and individual 
health insurance markets, including a guaranteed renewability 
requirement in the individual, small group, and large group markets.
    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 PHS Act) 
relating to group health plans and health insurance issuers in the 
group and individual markets.
    Section 1302 of the PPACA provides for the establishment of an 
essential health benefits (EHB) package that includes coverage of EHB 
(as defined by the Secretary), cost-sharing limits, and actuarial value 
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, adherence to the cost-sharing limits described in section 
1302(c) of the PPACA, and meeting the actuarial value (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 requirement to cover 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 1303 of the PPACA provides special rules for QHPs that 
offer abortion coverage in the individual market Exchanges. Under this 
section, QHP issuers may elect whether to provide coverage for abortion 
services through their QHPs offered on the Exchange. Section 1303 of 
the PPACA covers a variety of other requirements and provisions 
relating to QHP coverage of abortion services, including parameters for 
when federal funding is prohibited for abortion coverage, how QHPs 
shall ensure that no such federal funding is attributed to coverage of 
certain abortion services, provisions on non-preemption of certain 
state laws regarding abortion coverage, and provisions on non-
preemption of federal conscience, nondiscrimination, and emergency 
services laws.
    Since 1976, Congress has annually attached language, commonly known 
as the Hyde Amendment, to its annual Labor, Health and Human Services, 
Education, and Related Agencies appropriations legislation.\7\ The Hyde 
Amendment as currently in effect permits federal funds to be used for 
abortions only in the limited cases of rape, incest, or if a woman 
suffers from a life-threatening physical disorder, physical injury, or 
physical illness, including a life-endangering physical condition 
caused by or arising from the pregnancy itself, as certified by a 
physician (``Hyde abortion coverage''). The Hyde Amendment prohibits 
the use of federal funds for abortions or abortion coverage in 
instances beyond those limited circumstances (``non-Hyde abortion 
coverage'' or ``abortion coverage'').
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    \7\ The Hyde Amendment is not permanent federal law.
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    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. This section 
also 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.
    Section 1302(d) of the PPACA describes the various levels of 
coverage

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based on 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.\8\
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    \8\ 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) under section 2701(a)(5) of the PHS 
Act.
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    Section 1311(d)(4)(B) of the PPACA requires an Exchange to provide 
for the operation of a toll-free telephone hotline to respond to 
requests for assistance.
    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(c) of the Affordable Care Act generally requires a 
health insurance issuer to consider all enrollees in all health plans 
(except grandfathered health plans) offered by such issuer to be 
members of a single risk pool for each of its individual and small 
group markets. States have the option to merge the individual and small 
group market risk pools under section 1312(c)(3) of the Affordable Care 
Act.
    Section 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 premium tax credits 
and cost-sharing reductions 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 for, among other things, the 
establishment and operation of Exchanges.
    Section 1311(c) of the PPACA provides the Secretary the authority 
to issue regulations to establish criteria for the certification of 
QHPs. Section 1311(e)(1) of the PPACA grants the Exchange the authority 
to certify a health plan as a QHP if the health plan meets the 
Secretary's requirements for certification issued under section 1311(c) 
of the PPACA, and the Exchange determines that making the plan 
available through the Exchange is in the interests of individuals and 
employers in the state.
    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(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-than average risk populations, such as those with chronic 
conditions, funded by payments from those that attract lower- than 
average 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 individuals to have minimum essential coverage (MEC) for each 
month, qualify for an exemption, or make an individual shared 
responsibility payment. Under the Tax Cuts and Jobs Act, which was 
enacted on December 22, 2017, the individual shared responsibility 
payment is reduced to $0, effective for months beginning after December 
31, 2018.\9\ Notwithstanding that reduction, certain exemptions are 
still relevant to determine whether individuals above the age of 30 
qualify to enroll in catastrophic coverage under Sec.  155.305(h).
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    \9\ Public Law 115-97, 131 Stat. 2054 (2017).
---------------------------------------------------------------------------

    The Protecting Affordable Coverage for Employees Act (Pub. L. 114-
60, enacted on October 7, 2015) amended the definition of small 
employer in section 1304(b) of the PPACA and section 2791(e) of the PHS 
Act to mean, in connection with a group health plan for 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, for 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 \10\
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    \10\ The term premium stabilization programs refers to the risk 
adjustment, risk corridors, and reinsurance programs established by 
the PPACA. See 42 U.S.C. 18061, 18062, and 18063.
---------------------------------------------------------------------------

    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

[[Page 232]]

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 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 benefit and payment parameters 
for the 2015 benefit year to expand the provisions related to the 
premium stabilization programs, setting forth certain oversight 
provisions and establishing the payment parameters in those programs 
(proposed 2015 Payment Notice). We published the 2015 Payment Notice 
final rule in the March 11, 2014 Federal Register (79 FR 13743). In the 
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 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).
    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). On July 27, 2018, consistent with 45 
CFR 153.320(b)(1)(i), we updated the 2019 benefit year final risk 
adjustment model coefficients to reflect an additional recalibration 
related to an update to the 2016 enrollee-level EDGE dataset.\11\
---------------------------------------------------------------------------

    \11\ ``Updated 2019 Benefit Year Final HHS Risk Adjustment Model 
Coefficients.'' July 27, 2018. Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2019-Updtd-Final-HHS-RA-Model-Coefficients.pdf.
---------------------------------------------------------------------------

    In the July 30, 2018 Federal Register (83 FR 36456), we published a 
final rule that adopted the 2017 benefit year risk adjustment 
methodology as established in the final rules published in the March 
23, 2012 (77 FR 17220 through 17252) and in the March 8, 2016 editions 
of the Federal Register (81 FR 12204 through 12352). This final rule 
set forth additional explanation of the rationale supporting use of 
statewide average premium in the HHS-operated risk adjustment state 
payment transfer formula for the 2017 benefit year, including the 
reasons why the program is operated in a budget-neutral manner. This 
final rule permitted HHS to resume 2017 benefit year risk adjustment 
payments and charges. HHS also provided guidance as to the operation of 
the HHS-operated risk adjustment program for the 2017 benefit year in 
light of publication of this final rule.\12\
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    \12\ ``Update on the HHS-operated Risk Adjustment Program for 
the 2017 Benefit Year.'' July 27, 2018. Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/2017-RA-Final-Rule-Resumption-RAOps.pdf.
---------------------------------------------------------------------------

    In the August 10, 2018 Federal Register (83 FR 39644), we published 
a proposed rule seeking comment on adopting the 2018 benefit year risk 
adjustment methodology in the final rules published in the March 23, 
2012 (77 FR 17219) and in the December 22, 2016 editions of the Federal 
Register (81 FR 94058). The proposed rule set forth additional 
explanation of the rationale supporting use of statewide average 
premium in the HHS-operated risk adjustment state payment transfer 
formula for the 2018 benefit year, including the reasons why the 
program is operated in a budget-neutral manner. In the December 10, 
2018 Federal Register (83 FR 63419), we issued a final rule adopting 
the 2018 benefit year HHS-operated risk adjustment methodology as 
established in the final rules published in the March 23, 2012 (77 FR 
17219) and the December 22, 2016 (81 FR 94058) editions of the Federal 
Register. This final rule sets forth additional explanation of the 
rationale supporting use of statewide average premium in the HHS-
operated risk adjustment state payment transfer formula for the 2018 
benefit year, including the reasons why the program is operated in a 
budget-neutral manner.
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. Market Rules
    An interim final rule relating to the HIPAA health insurance 
reforms was published in the April 8, 1997 Federal Register (62 FR 
16894). 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

[[Page 233]]

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 guaranteed 
renewability. In the April 18, 2017 Market Stabilization final rule (82 
FR 18346), we released further guidance related to guaranteed 
availability.
4. 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 March 27, 2012 Federal Register 
(77 FR 18309), we established the original regulatory Navigator duties 
and training requirements. 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 
the 2017 Payment Notice final rule, published in the March 8, 2016 
Federal Register (81 FR 12204), we expanded Navigator duties and 
training requirements. In the 2019 Payment Notice final rule, published 
in the April 17, 2018 Federal Register (83 FR 16930), we removed the 
requirements that each Exchange must have at least two Navigator 
entities; that one of these entities must be a community and consumer-
focused nonprofit group; and that each Navigator entity must maintain a 
physical presence in the Exchange service area.
    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, published 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. 
In the 2019 Payment Notice final rule, published in the April 17, 2018 
Federal Register (83 FR 16930), we modified parameters around certain 
special enrollment periods.
    In a final rule published in the March 27, 2012 Federal Register 
(2012 Exchange Establishment Rule), we codified the statutory 
provisions of section 1303 of the PPACA at Sec.  156.280, including the 
accounting and notice requirements.\13\ In the February 20, 2015 
Federal Register, we published the HHS Notice of Benefit and Payment 
Parameters for 2016 (2016 Payment Notice). In that final rule, we 
clarified these requirements and established that states and state 
insurance commissioners are the entities primarily responsible for 
implementing and enforcing the provisions in section 1303 of the PPACA 
related to individual market QHP coverage of non-Hyde abortion 
services.\14\ In the 2016 Payment Notice, we also established 
acceptable methods that a QHP offering non-Hyde abortion coverage on 
the Exchange may use to comply with these accounting and notice 
requirements. On October 6, 2017, we released a bulletin that again 
outlined these requirements in greater detail and set forth how they 
are to be enforced beginning in plan year 2018.\15\ On November 9, 
2018, we published the Patient Protection and Affordable Care Act; 
Exchange Program Integrity proposed rule in the Federal Register (83 FR 
56015) that would require QHP issuers to issue separate bills for 
coverage of non-Hyde abortion, as well as noting the obligation of QHP 
issuers to maintain records of their compliance with the requirements 
of section 1303 of the PPACA and the related regulatory provisions and 
to make them available for audits, compliance reviews, and 
investigations of noncompliance.
---------------------------------------------------------------------------

    \13\ 77 FR 18309.
    \14\ 80 FR 10749.
    \15\ CMS Bulletin Addressing Enforcement of Section 1303 of the 
Patient Protection and Affordable Care Act (October 6, 2017). 
Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Section-1303-Bulletin-10-6-2017-FINAL-508.pdf.
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5. Essential Health Benefits
    On December 16, 2011, HHS released a bulletin \16\ that outlined an 
intended regulatory approach for defining EHB, including a benchmark-
based framework. A proposed rule relating to EHBs was published in the 
November 26, 2012 Federal Register (77 FR 70643). We established 
requirements relating to EHBs 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 2019 Payment Notice, published in the April 17, 2018 
Federal Register (83 FR 16930), we added Sec.  156.111 to provide 
states with additional options from which to select an EHB-benchmark 
plan for plan years 2020 and beyond.
---------------------------------------------------------------------------

    \16\ ``Essential Health Benefits Bulletin.'' December 16, 2011. 
Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf.
---------------------------------------------------------------------------

6. 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 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.

B. Stakeholder Consultation and Input

    HHS has consulted with stakeholders on policies related to the 
operation of Exchanges, including the SHOP, and the risk adjustment and 
risk adjustment data validation programs. We have held a number of 
listening sessions with

[[Page 234]]

consumers, providers, employers, health plans, and the actuarial 
community to gather public input. We have solicited input from state 
representatives on numerous topics, particularly essential health 
benefits, QHP certification, Exchange establishment, and risk 
adjustment. 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 proposed rule.

C. Structure of Proposed Rule

    The regulations outlined in this proposed rule would be codified in 
45 CFR parts 146, 147, 148, 153, 155, and 156.
    The proposed changes to 45 CFR parts 146, 147, and 148 would allow 
issuers, beginning with plan years on or after January 1, 2020, to 
update their prescription drug formularies by allowing certain mid-year 
formulary changes, subject to applicable state law, in an effort to 
optimize the use of new generic drugs as they become available.
    The proposed changes to 45 CFR part 153 would recalibrate the risk 
adjustment models consistent with the methodology finalized for the 
2019 benefit year and the incorporation of the blended most recent 
benefit years of MarketScan[supreg] and enrollee-level EDGE data that 
are available. The proposed regulations address high-cost risk pooling, 
where we are proposing to implement the same parameters that applied to 
the 2018 and 2019 benefit years to the 2020 benefit year and beyond. 
The proposals regarding part 153 also relate to the risk adjustment 
user fee for the 2020 benefit year and modifications to risk adjustment 
data validation requirements.
    The proposed regulations in 45 CFR part 155 would provide more 
flexibility related to the training requirements for Navigators by 
streamlining 20 existing specific training topics into 4 broad 
categories. We also propose to provide more flexibility to FFE 
Navigators by making the provision of certain types of assistance, 
including post-enrollment assistance, permissible for FFE Navigators, 
not required.\17\ We propose to amend and streamline our regulations 
related to direct enrollment. We propose to establish a new special 
enrollment period, at the option of the Exchange, for off-Exchange 
enrollees who experience a decrease in income and are newly determined 
to be eligible for APTC by the Exchange. We also propose to increase 
flexibility for individuals seeking the general hardship exemption by 
allowing them to alternatively claim the exemption on their federal 
income tax return for 2018 without obtaining an exemption certificate 
number from the Exchange. We propose several amendments to the 
definitions applicable to part 155.
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    \17\ This assistance includes: Understanding the process of 
filing Exchange eligibility appeals; understanding and applying for 
exemptions from the individual shared responsibility payment that 
are granted through the Exchange; understanding the availability of 
exemptions from the requirement to maintain MEC and from the 
individual shared responsibility payment that are claimed through 
the tax filing process and how to claim them; the Exchange-related 
components of the premium tax credit reconciliation process; 
understanding basic concepts and rights related to health coverage 
and how to use it; and referrals to licensed tax advisers, tax 
preparers, or other resources for assistance with tax preparation 
and tax advice on certain Exchange-related topics.
---------------------------------------------------------------------------

    The proposed regulations in 45 CFR part 156 set forth proposals 
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 
2020. We propose to use a different premium measure for calculating the 
premium adjustment percentage for the 2020 benefit year and subsequent 
benefit years. As we do every year in the HHS notice of benefit and 
payment parameters, we propose to update the required contribution 
percentage, the maximum annual limitation on cost sharing, and the 
reduced maximum annual limitation on cost sharing based on the premium 
adjustment percentage. We propose to update the FFE and SBE-FP user fee 
rates for the 2020 benefit year for all issuers participating on the 
FFEs or SBE-FPs. The proposed regulations in part 156 also include 
policies to incentivize the use of generic drugs to direct consumers to 
more cost effective treatment options. In addition, the proposed 
regulation regarding part 156 includes changes related to direct 
enrollment.

III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2020

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

    Section 147.106 implements the guaranteed renewability requirements 
under the PPACA (applicable to non-grandfathered plans), and Sec. Sec.  
146.152 and 148.122 implement the guaranteed renewability requirements 
enacted by HIPAA (applicable to both grandfathered and non-
grandfathered plans). We propose to make conforming amendments to 
Sec. Sec.  146.152 and 148.122, consistent with the proposals in Sec.  
147.106 that are discussed below, to ensure consistency in the uniform 
modification rules to both grandfathered and non-grandfathered 
coverage. We seek comment on this approach.

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

    Throughout this rule we propose a number of changes related to 
policy for prescription drugs that aim to reduce the increases of 
prescription drug expenditures. Taken together, the proposals and 
discussions at Sec. Sec.  146.152, 147.106, 148.122, 156.122, and 
156.130 within this proposed rule are meant to offer a suite of changes 
toward that goal.
    Section 147.106(e), implementing guaranteed renewability 
requirements, enacted by the PPACA, generally prohibits issuers from 
making modifications to health insurance coverage, other than at the 
time of yearly coverage renewal. In the 2016 Payment Notice, we 
expressed concerns about the impact on consumers of mid-year formulary 
changes. We noted that, under guaranteed renewability requirements and 
the definitions of ``product'' and ``plan,'' issuers generally may not 
make plan design changes, including changes to drug formularies, other 
than at the time of plan renewal. We also stated that certain mid-year 
changes to drug formularies related to the availability of drugs in the 
market may be necessary and appropriate.\18\
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    \18\ 80 FR at 10822.
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    At this time, we believe there are opportunities to increase the 
use of lower-cost prescription drugs, such as generics, especially as 
new generic-equivalent drugs become available on the market, by 
providing additional flexibility for issuers to make mid-year formulary 
changes, consistent with applicable state law. Therefore, we propose to 
add Sec.  147.106(e)(5) to allow issuers in the individual, small 
group, and large group markets, beginning with plan years on or after 
January 1, 2020, to update their prescription drug formularies by 
allowing certain mid-year formulary changes, if permitted by applicable 
state law.
    Specifically at Sec.  147.106(e)(5), we propose allowing issuers, 
for plan years beginning on or after January 1, 2020, to

[[Page 235]]

make formulary changes during the plan year when a generic equivalent 
of a prescription drug becomes available on the market, within a 
reasonable time after that drug becomes available. We propose that the 
issuer be permitted to modify its plans' formularies to add the generic 
equivalent drug. At that time, the issuer also would be permitted to 
remove the equivalent brand drug(s) from the formulary or move the 
equivalent brand drug(s) to a different cost-sharing tier on the 
formulary. Any mid-year formulary changes would have to be consistent 
with the standards applicable to uniform modifications in paragraph 
(e)(2) or (e)(3).
    Issuers, including issuers of grandfathered plans, also would be 
required to provide enrollees the option to request coverage for a 
brand drug that was removed from the formulary through the applicable 
coverage appeal process under Sec.  147.136 or the drug exception 
request process under Sec.  156.122(c).
    Before removing a brand drug from the formulary or moving it to a 
different cost-sharing tier, a health insurance issuer would be 
required to notify all plan enrollees of the change in writing a 
minimum of 60 days prior to initiating the change. This would allow 
enrollees to begin working with their health care provider on any 
exception request processes before the change occurs. This notice would 
identify the name of the brand drug that is the subject of the change, 
disclose whether the brand drug would be removed from the formulary or 
placed on a different cost-sharing tier, provide the name of the 
generic equivalent that will be made available, specify the date the 
changes will become effective, and state that under the appeals 
processes outlined in Sec.  147.136 or the exceptions processes 
outlined in Sec.  156.122(c), enrollees and dependents may request and 
gain access to the brand drug when clinically appropriate and not 
otherwise covered by the health plan. We solicit comments on whether a 
different advance notice period would be more appropriate, such as 90 
days or 120 days.
    Issuers are not required to use a form notice, but must include 
certain information in the written notice itself. The specifics of the 
written notice requirements will be addressed through the PRA process. 
We recognize that issuers have complex contracting arrangements, that 
whether a brand drug or its generic equivalent is less costly is a 
complex question, and that certain states have generic substitution 
laws.\19\ We also recognize that some consumers may have concerns about 
the impact this proposed change may have, given that consumers often 
purchase a plan based on the plans' prescription drug coverage. 
However, we believe these concerns may be alleviated given the addition 
made to the formulary of the generic equivalent, which would generally 
be more affordable.
---------------------------------------------------------------------------

    \19\ Generic substitution laws may, among other things, address 
when and how pharmacists or other health care professionals 
authorized to dispense medication under state law may substitute a 
generic drug for a brand drug.
---------------------------------------------------------------------------

    We also believe that it is appropriate to permit this flexibility 
(subject to the uniform modification provision) to make mid-year 
changes to prescription drug coverage because prescription drugs are a 
unique benefit category for which this type of mid-year change is 
warranted. Generic equivalents of brand drugs already approved by the 
Food and Drug Administration, which contain the same active ingredients 
as those brand drugs and generally can readily be substituted for the 
brand drug, are approved for sale throughout the year. New alternatives 
to covered items and services other than prescription drugs typically 
do not become available during a given year with the same frequency as 
in the prescription drug market. While the rationale for this proposed 
policy related to prescription drugs could arguably be applied to allow 
similar flexibility for durable medical equipment (DME), we believe 
that the frequency of changes and potential impact on overall 
expenditures is greater for prescription drugs and would result in 
positive cost impacts for both consumers and issuers.\20\ Nothing under 
this proposed policy would prevent states or federal agencies that 
establish standards for federal governmental plans, such as the U.S. 
Office of Personnel Management (OPM), including with respect to the 
Federal Employees Health Benefits Program from prohibiting or narrowing 
the circumstances under which issuers may make such mid-year formulary 
changes. We encourage issuers of multi-state plans to contact OPM for 
mid-year formulary change requirements. We also note that this proposal 
would not require health insurance issuers to avail themselves of this 
proposal.
---------------------------------------------------------------------------

    \20\ In 2017, spending for prescription drugs accounted for 10 
percent of health care spending, while DME costs accounted for 2 
percent. Centers for Medicare and Medicaid Services. (2018). 
National Health Expenditures 2017 Highlights. https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/highlights.pdf.
---------------------------------------------------------------------------

    We seek comment on all aspects of this proposal, including whether 
to limit it to individual and small group health insurance issuers. 
Large group issuers are generally not subject to the limitations on 
changes that can be made at the time of yearly coverage renewal under 
the uniform modification provisions, which provides them additional 
flexibility. If the rule is finalized as proposed, large group health 
insurance issuers, like issuers in the individual and small group 
markets, would only be permitted to make mid-year formulary changes 
that conform to the limitations on modifications under the uniform 
modification provisions, even though those limitations would continue 
not to apply to formulary or other changes made at the time of yearly 
coverage renewal. This would ensure that for any mid-year formulary 
changes, the product remains the same ``product,'' as defined in Sec.  
144.103 (which is based on the uniform modification standards) 
throughout the entire plan year.
    We also propose changes to Sec.  147.106(a) to reflect that 
paragraph (e) currently provides an exception to the general rule on 
guaranteed renewability. This is merely a technical correction, not a 
substantive change. We seek comment on these proposals related to 
prescription drug benefits and coverage.
    Section 147.106 implements the guaranteed renewability requirements 
under the PPACA (applicable to non-grandfathered plans), and Sec. Sec.  
146.152 and 148.122 implement the guaranteed renewability requirements 
enacted by HIPAA (applicable to both grandfathered and non-
grandfathered plans). We propose to make conforming amendments to 
Sec. Sec.  146.152 and 148.122 consistent with the proposals in Sec.  
147.106 to ensure consistency in the uniform modification rules to both 
grandfathered and non-grandfathered coverage.\21\ We seek comment on 
this approach.
---------------------------------------------------------------------------

    \21\ We note that whether an issuer's removal of a brand drug 
from its formulary, or its transfer of a brand drug to a different 
tier under this proposal falls within the parameters of the uniform-
modification-of coverage rules is unrelated to and does not 
determine whether or not the plan maintains its status as a 
grandfathered plan under 45 CFR 147.140.
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C. Part 148--Requirements for the Individual Health Insurance Market

    We propose to make conforming amendments to Sec. Sec.  146.152 and 
148.122, consistent with the proposals in Sec.  147.106 discussed 
above, to ensure consistency in the uniform modification rules to both 
grandfathered and non-grandfathered coverage. We seek comment on this 
approach.

[[Page 236]]

D. 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 2019,\22\ both the transitional 
reinsurance program and permanent risk adjustment program are subject 
to the fiscal year 2019 sequestration. The federal government's 2019 
fiscal year began October 1, 2018. Although the 2016 benefit year was 
the final year of the transitional reinsurance program, we will 
continue to make reinsurance payments in the 2019 fiscal year for 
close-out activities. Therefore, the risk adjustment and reinsurance 
programs will be sequestered at a rate of 6.2 percent for payments made 
from fiscal year 2019 resources (that is, funds collected during the 
2019 fiscal year).
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    \22\ ``OMB Report to Congress on the Joint Committee Reductions 
for Fiscal Year 2019'', p. 6. February 12, 2018. Available at 
https://www.whitehouse.gov/wp-content/uploads/2018/02/Sequestration_Report_February_2018.pdf.
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    HHS, in coordination with the OMB, has determined that, under 
section 256(k)(6) of the Balanced Budget and Emergency Deficit Control 
Act of 1985 (Pub. L. 99-177, enacted on December 12, 1985), as amended, 
and the underlying authority for the reinsurance and risk adjustment 
programs, the funds that are sequestered in fiscal year 2019 from the 
reinsurance and risk adjustment programs will become available for 
payment to issuers in fiscal year 2020 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 A, B, D, G, and H 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-than-average risk, risk 
adjustment covered plans to higher-than-average risk, risk adjustment 
covered plans in the individual and small group markets (including 
merged 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. HHS did not receive any 
requests from states to operate risk adjustment for the 2020 benefit 
year. Therefore, HHS will operate risk adjustment in every state and 
the District of Columbia for the 2020 benefit year.
a. HHS Risk Adjustment (Sec.  153.320)
    The HHS risk adjustment models predict plan liability for an 
average enrollee based on that person's age, sex, and diagnoses (also 
referred to as hierarchical condition categories (HCCs)), producing a 
risk score. The current structure of these models is described in the 
2019 Payment Notice.\23\ The HHS risk adjustment methodology utilizes 
separate models for adults, children, and infants to account for cost 
differences in each age group. In 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, to 
calculate enrollee risk scores in the adult models, we added enrollment 
duration factors beginning with the 2017 benefit year, and prescription 
drug categories (RXCs) beginning with the 2018 benefit year. 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 reduction adjustment that accounts for 
differences in induced demand at various levels of cost sharing.
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    \23\ See 83 FR 16930 at 16939.
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    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 state 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 models 
predict average group costs to account for risk across plans, in 
keeping with the Actuarial Standards Board's Actuarial Standards of 
Practice for risk classification.
i. Updates to the Risk Adjustment Model Recalibration
    We used the 3 most recent years of MarketScan[supreg] data 
available to recalibrate the 2016, 2017, and 2018 benefit year risk 
adjustment models. For the 2019 benefit year, we recalibrated the 
models using 2 years of MarketScan[supreg] data (2014 and 2015) with 
2016 enrollee-level EDGE data. The 2019 benefit year was the first 
recalibration year in which enrollee-level EDGE data was used for this 
purpose. This approach used blended, or averaged, coefficients from 3 
years of separately solved models to provide stability for the risk 
adjustment coefficients year-to-year, while reflecting the most recent 
years' claims experience available.
    Similarly, for the 2020 benefit year, we propose to blend the 2 
most recent years of enrollee-level EDGE data (2016 and 2017) with the 
most recent year of MarketScan[supreg] data (2017) that will be 
available. This approach would incorporate the most recent years' 
claims experience, and would reduce year-to-year changes to risk scores 
by keeping 1 year's data consistent for the 2019 and 2020 benefit 
years. It also would continue our efforts to recalibrate the risk 
adjustment models using actual data from issuers' individual and small 
group populations and transition from the MarketScan[supreg] commercial 
database that approximates individual and small group market 
populations. Beginning with the 2021 benefit year's recalibration, we 
expect to propose solely using enrollee-level EDGE data for model 
recalibration, and continuing to use the 3 most recent years' data 
available for the model recalibration to minimize volatility in risk 
scores, particularly for rare conditions with small sample sizes. We 
seek comment on our proposal to determine coefficients for the 2020 
benefit year based on a blend of separately solved coefficients from 
the 2016 and 2017 benefit year enrollee-level EDGE data and the 2017 
MarketScan[supreg] data.
    Due to the timing of this proposed rule, we are unable to 
incorporate the 2017 MarketScan[supreg] data in the calculation of the 
proposed coefficients in this rule. Therefore, the coefficients listed 
below are based on the 2016 MarketScan[supreg] data and 2016 and 2017 
benefit year enrollee-level EDGE data. We used the 2016 
MarketScan[supreg] data for purposes of illustrating draft coefficients 
in this rule because our experience with MarketScan[supreg] data 
suggests that solved coefficients generally remain stable from year to 
year. Further, we were able to blend the one older year of 
MarketScan[supreg] data with the 2016 and 2017 enrollee-level EDGE data 
that would be used as part of the proposed 2020 benefit year 
recalibration. We therefore believe that the draft coefficients listed 
below provide a relatively close approximation of what could be 
anticipated from blending the 2016 and 2017 enrollee-level EDGE data 
with the 2017 MarketScan[supreg] dataset, once the 2017 
MarketScan[supreg] dataset is available. If we

[[Page 237]]

finalize the recalibration proposal outlined herein and are unable to 
obtain the 2017 MarketScan[supreg] data in time for incorporation of 
coefficients in the final rule, consistent with 45 CFR 
153.320(b)(1)(i), and as we have done for certain prior benefit 
years,\24\ we would publish the final coefficients for the 2020 benefit 
year in guidance after the publication of the final rule.
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    \24\ For example, see 2018 Payment Notice final rule, 81 FR 
94058 (December 22, 2016).
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    We are not proposing to make changes to the categories included in 
the HHS risk adjustment models for the 2020 benefit year from those 
finalized in the 2019 benefit year models. That is, we propose to 
maintain the same age, sex, enrollment duration, HCC, RXC, and severity 
categories for the 2020 benefit year models as those used for the 2019 
benefit year models.\25\ However, we are proposing to make a pricing 
adjustment for one RXC coefficient for the 2020 benefit year adult 
models. We are cognizant that issuers might seek to influence provider 
prescribing patterns if a drug claim can trigger a large increase in an 
enrollee's risk score, and therefore, make the risk adjustment transfer 
results more favorable for the issuer. After reviewing the significant 
pricing changes in Hepatitis C drugs,\26\ and consistent with our 
treatment of other RXCs where we constrain the RXC coefficient to the 
average cost of the drugs in the category,\27\ we propose to make a 
pricing adjustment to the Hepatitis C RXC to mitigate overprescribing 
incentives in the 2020 benefit year adult models. For the RXC 
coefficients listed in Table 1 of this proposed rule, we constrained 
the Hepatitis C coefficient to the average expected costs of Hepatitis 
C drugs. This has the material effect of reducing the Hepatitis C RXC, 
and the RXC-HCC interaction coefficients. For the final 2020 benefit 
year Hepatitis C factors in the adult models, we propose to make an 
adjustment to the plan liability associated with Hepatitis C drugs to 
reflect future market pricing of Hepatitis C drugs before solving for 
the adult model coefficients; applying an adjustment to the plan 
liability would ensure that enrollees can continue to receive 
incremental credit for having both the RXC and HCC for Hepatitis C, and 
allow for differential plan liability across metal levels.
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    \25\ See 83 FR 16939.
    \26\ See http://www.gilead.com/news/press-releases/2018/9/gilead-subsidiary-to-launch-authorized-generics-of-epclusa-sofosbuvirvelpatasvir-and-harvoni-ledipasvirsofosbuvir-for-the-treatment-of-chronic-hepatitis-c.
    Also see https://news.abbvie.com/news/abbvie-receives-us-fda-approval-mavyret-glecaprevirpibrentasvir-for-treatment-chronic-hepatitis-c-in-all-major-genotypes-gt-1-6-in-as-short-as-8-weeks.htm.
    \27\ See Section 4.0, ``Constraints on RXC Coefficients to Limit 
Incentives for Inappropriate Prescribing'' of the Creation of the 
2018 Benefit Year HHS-Operated Risk Adjustment Adult Models Draft 
Prescription Drug (RXCUIs) to HHS Drug Classes (RXCs) Crosswalk 
Memo. Available at, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Draft-RxC-Crosswalk-Memo-9-18-17.pdf.
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    We seek comment on these proposals. We also seek comment on ways to 
better anticipate and more precisely adjust the drug categories in the 
HHS risk adjustment adult models for the rapidly changing drug prices, 
and the plan liability expenditures calculation in all of the HHS risk 
adjustment models for the rebates, discounts and price concessions that 
are passed through to the plans.
    We note that for HCCs that have corresponding RXCs and RXC-HCC 
interaction factors in the proposed 2020 benefit year HHS risk 
adjustment models, we are observing year-to-year fluctuations in the 
risk score weights between the HCC, RXC, and RXC-HCC interaction 
factors. This fluctuation is mainly due to the collinearity between 
these factors, making the statistical models, and therefore the 
coefficients solved for these factors, sensitive to small changes in 
the data. Although the HCC, RXC and RXC-HCC interaction factors may 
have changed between the 2019 benefit year final models and the factors 
displayed in this rule, the sum of the factors have remained relatively 
stable between recalibration updates, except for the deliberate changes 
we propose above to mitigate overprescribing incentives for certain 
drugs.
ii. High-Cost Risk Pooling (Sec.  153.320)
    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 HHS risk adjustment models. Specifically, we 
finalized adjusting the models for high-cost enrollees beginning with 
the 2018 benefit year by excluding a percentage of costs above a 
certain threshold in the calculation of enrollee-level plan liability 
risk scores so that risk adjustment factors are calculated without the 
high-cost risk, since 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 receive a percentage of costs above the threshold 
(coinsurance rate). We set the threshold and coinsurance rate at a 
level that would continue to incentivize issuers to control costs while 
improving the risk prediction of the HHS risk adjustment models. 
Issuers with high-cost enrollees receive a payment for the percentage 
of costs above the threshold in their respective transfers. Using 
claims data submitted to the EDGE servers by issuers of risk adjustment 
covered plans, we calculate the total amount of paid claims costs for 
high-cost enrollees based on the threshold and the coinsurance rate. We 
then calculate a charge as a percentage of the issuers' total premiums 
in the individual (including catastrophic and non-catastrophic plans 
and merged market plans) or small group markets, which is applied to 
the total transfer amount in each market, thus maintaining the balance 
of payments and charges within the HHS-operated risk adjustment 
program. 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 and 2019 benefit years.\28\ For the 
2020 benefit year and beyond, we propose to maintain the same 
parameters that apply to the 2018 and 2019 benefit years, unless 
amended through notice and comment rulemaking for future benefit years. 
We believe the $1 million threshold and 60 percent coinsurance rate 
would result in total high-cost risk pool payments or charges 
nationally that are very small as a percentage of premiums for issuers, 
and would prevent states and issuers with very high-cost enrollees from 
bearing a disproportionate amount of unpredictable risk. Further, as 
noted previously in this proposed rule, these parameters are set at a 
level intended to continue to incentivize issuers to control costs 
while improving the risk prediction of the HHS risk adjustment models. 
Maintaining the same threshold and coinsurance rate from year to year 
would also help promote stability and predictability for issuers in 
rate setting. We seek comment on this proposal.
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    \28\ See 81 FR 94058 at 94080 and 83 FR 16930 at 16943.
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iii. List of Factors To Be Employed in the Risk Adjustment Models 
(Sec.  153.320)
    The factors resulting from the equally weighted blended factors 
from the 2016 MarketScan[supreg] data and the 2016 and 2017 enrollee-
level EDGE data separately solved models, including the proposed 
constraints for the Hepatitis C RXC coefficient, are shown in Tables 1, 
3, and 4. As detailed above, we used 2016 MarketScan[supreg] data for 
purposes of illustrating coefficients in this proposed rule because our 
experience with

[[Page 238]]

MarketScan[supreg] data suggests that solved coefficients generally 
remain stable year to year. We therefore believe that the draft factors 
listed below provide a relatively close approximation of what could be 
anticipated from blending the 2016 and 2017 enrollee-level EDGE data 
with the 2017 MarketScan[supreg] dataset, once the 2017 
MarketScan[supreg] dataset becomes available. 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 proposed in this rule. Table 1 contains factors 
for each adult model, including the age-sex, HCCs, RXCs, RXC-HCC 
interactions, and enrollment duration coefficients.
    Table 2 contains the HHS HCCs in the severity illness indicator 
variable. Table 3 contains the factors for each child model. Table 4 
contains the factors for each infant model. Tables 5 and 6 contain the 
HCCs included in the infant model maturity and severity categories, 
respectively.

                   Table 1--Proposed Adult Risk Adjustment Model Factors for 2020 Benefit Year
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         HCC or RXC No.                  Factor          Platinum     Gold      Silver     Bronze   Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
                                  Age 21-24, Male.....      0.156      0.124      0.087      0.051         0.047
                                  Age 25-29, Male.....      0.154      0.121      0.083      0.046         0.041
                                  Age 30-34, Male.....      0.187      0.147      0.102      0.057         0.051
                                  Age 35-39, Male.....      0.221      0.174      0.120      0.066         0.060
                                  Age 40-44, Male.....      0.263      0.211      0.150      0.089         0.082
                                  Age 45-49, Male.....      0.307      0.247      0.180      0.111         0.103
                                  Age 50-54, Male.....      0.391      0.322      0.242      0.161         0.151
                                  Age 55-59, Male.....      0.438      0.360      0.273      0.183         0.172
                                  Age 60-64, Male.....      0.479      0.392      0.294      0.194         0.181
                                  Age 21-24, Female...      0.237      0.189      0.128      0.068         0.061
                                  Age 25-29, Female...      0.267      0.213      0.145      0.078         0.069
                                  Age 30-34, Female...      0.357      0.290      0.213      0.136         0.127
                                  Age 35-39, Female...      0.428      0.352      0.268      0.186         0.176
                                  Age 40-44, Female...      0.472      0.389      0.296      0.205         0.194
                                  Age 45-49, Female...      0.483      0.395      0.297      0.197         0.185
                                  Age 50-54, Female...      0.525      0.433      0.329      0.221         0.208
                                  Age 55-59, Female...      0.500      0.408      0.302      0.192         0.178
                                  Age 60-64, Female...      0.509      0.412      0.301      0.185         0.170
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                                                Diagnosis Factors
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HCC001..........................  HIV/AIDS............      4.173      3.838      3.606      3.544         3.538
HCC002..........................  Septicemia, Sepsis,       7.217      7.014      6.899      6.924         6.931
                                   Systemic
                                   Inflammatory
                                   Response Syndrome/
                                   Shock.
HCC003..........................  Central Nervous           5.816      5.737      5.683      5.696         5.698
                                   System Infections,
                                   Except Viral
                                   Meningitis.
HCC004..........................  Viral or Unspecified      4.789       4.58      4.455      4.377         4.369
                                   Meningitis.
HCC006..........................  Opportunistic             5.865      5.794      5.748      5.709         5.703
                                   Infections.
HCC008..........................  Metastatic Cancer...     21.512     21.036     20.714     20.742        20.746
HCC009..........................  Lung, Brain, and         11.444     11.106     10.878     10.843        10.838
                                   Other Severe
                                   Cancers, Including
                                   Pediatric Acute
                                   Lymphoid Leukemia.
HCC010..........................  Non-Hodgkin`s             5.259      5.028      4.864      4.787         4.777
                                   Lymphomas and Other
                                   Cancers and Tumors.
HCC011..........................  Colorectal, Breast         3.74      3.515      3.353      3.269         3.258
                                   (Age < 50), Kidney,
                                   and Other Cancers.
HCC012..........................  Breast (Age 50+) and      2.463      2.299      2.175      2.096         2.086
                                   Prostate Cancer,
                                   Benign/Uncertain
                                   Brain Tumors, and
                                   Other Cancers and
                                   Tumors.
HCC013..........................  Thyroid Cancer,           1.093      0.968      0.863      0.747         0.732
                                   Melanoma,
                                   Neurofibromatosis,
                                   and Other Cancers
                                   and Tumors.
HCC018..........................  Pancreas Transplant       3.808      3.608      3.489      3.484         3.485
                                   Status/
                                   Complications.
HCC019..........................  Diabetes with Acute        0.47      0.407      0.347      0.285         0.276
                                   Complications.
HCC020..........................  Diabetes with              0.47      0.407      0.347      0.285         0.276
                                   Chronic
                                   Complications.
HCC021..........................  Diabetes without           0.47      0.407      0.347      0.285         0.276
                                   Complication.
HCC023..........................  Protein-Calorie          10.841     10.828     10.818     10.902        10.912
                                   Malnutrition.
HCC026..........................  Mucopolysaccharidosi      2.438      2.341      2.265      2.206         2.199
                                   s.
HCC027..........................  Lipidoses and             2.438      2.341      2.265      2.206         2.199
                                   Glycogenosis.
HCC029..........................  Amyloidosis,              2.438      2.341      2.265      2.206         2.199
                                   Porphyria, and
                                   Other Metabolic
                                   Disorders.
HCC030..........................  Adrenal, Pituitary,       2.438      2.341      2.265      2.206         2.199
                                   and Other
                                   Significant
                                   Endocrine Disorders.
HCC034..........................  Liver Transplant          9.468      9.382      9.324      9.297         9.292
                                   Status/
                                   Complications.
HCC035..........................  End-Stage Liver           4.913      4.709      4.579       4.55         4.546
                                   Disease.
HCC036..........................  Cirrhosis of Liver..      1.267      1.147      1.066      1.003         0.995
HCC037_1........................  Chronic Viral               0.8      0.692      0.616      0.552         0.544
                                   Hepatitis C.
HCC037_2........................  Chronic Hepatitis,          0.8      0.692      0.616      0.552         0.544
                                   Other/Unspecified.
HCC038..........................  Acute Liver Failure/      4.575      4.413       4.31      4.278         4.275
                                   Disease, Including
                                   Neonatal Hepatitis.
HCC041..........................  Intestine Transplant     27.645     27.629     27.621     27.643         27.65
                                   Status/
                                   Complications.
HCC042..........................  Peritonitis/              8.876      8.644       8.49      8.491         8.492
                                   Gastrointestinal
                                   Perforation/
                                   Necrotizing
                                   Enterocolitis.
HCC045..........................  Intestinal                5.286      5.051      4.908      4.885         4.884
                                   Obstruction.
HCC046..........................  Chronic Pancreatitis      3.808      3.608      3.489      3.484         3.485
HCC047..........................  Acute Pancreatitis/       1.978      1.822      1.716      1.632         1.621
                                   Other Pancreatic
                                   Disorders and
                                   Intestinal
                                   Malabsorption.
HCC048..........................  Inflammatory Bowel        2.851      2.668      2.531       2.44         2.428
                                   Disease.
HCC054..........................  Necrotizing               5.225      5.043      4.919      4.918         4.919
                                   Fasciitis.
HCC055..........................  Bone/Joint/Muscle         5.225      5.043      4.919      4.918         4.919
                                   Infections/Necrosis.
HCC056..........................  Rheumatoid Arthritis      4.286       4.06      3.896      3.848         3.842
                                   and Specified
                                   Autoimmune
                                   Disorders.
HCC057..........................  Systemic Lupus            0.839      0.726       0.63      0.516           0.5
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders.
HCC061..........................  Osteogenesis              2.625      2.441      2.308      2.229         2.218
                                   Imperfecta and
                                   Other
                                   Osteodystrophies.
HCC062..........................  Congenital/               2.625      2.441      2.308      2.229         2.218
                                   Developmental
                                   Skeletal and
                                   Connective Tissue
                                   Disorders.
HCC063..........................  Cleft Lip/Cleft           1.863      1.716      1.608       1.52         1.511
                                   Palate.
HCC066..........................  Hemophilia..........     62.079     61.707     61.443     61.446        61.447
HCC067..........................  Myelodysplastic          11.971     11.848     11.764     11.754        11.752
                                   Syndromes and
                                   Myelofibrosis.

[[Page 239]]

 
HCC068..........................  Aplastic Anemia.....     11.971     11.848     11.764     11.754        11.752
HCC069..........................  Acquired Hemolytic        6.945      6.842      6.766      6.732         6.728
                                   Anemia, Including
                                   Hemolytic Disease
                                   of Newborn.
HCC070..........................  Sickle Cell Anemia        6.945      6.842      6.766      6.732         6.728
                                   (Hb-SS).
HCC071..........................  Thalassemia Major...      6.945      6.842      6.766      6.732         6.728
HCC073..........................  Combined and Other        4.768      4.642      4.557      4.547         4.545
                                   Severe
                                   Immunodeficiencies.
HCC074..........................  Disorders of the          4.768      4.642      4.557      4.547         4.545
                                   Immune Mechanism.
HCC075..........................  Coagulation Defects       2.804      2.716      2.651      2.614         2.609
                                   and Other Specified
                                   Hematological
                                   Disorders.
HCC081..........................  Drug Psychosis......      3.383      3.152      2.985      2.848         2.829
HCC082..........................  Drug Dependence.....      3.383      3.152      2.985      2.848         2.829
HCC087..........................  Schizophrenia.......      2.833      2.599      2.438      2.332         2.319
HCC088..........................  Major Depressive and      1.686      1.518      1.389      1.263         1.246
                                   Bipolar Disorders.
HCC089..........................  Reactive and              1.633      1.484      1.369      1.247          1.23
                                   Unspecified
                                   Psychosis,
                                   Delusional
                                   Disorders.
HCC090..........................  Personality               1.171      1.053      0.943      0.814         0.797
                                   Disorders.
HCC094..........................  Anorexia/Bulimia          2.484      2.323      2.199      2.115         2.103
                                   Nervosa.
HCC096..........................  Prader-Willi, Patau,      5.256       5.16      5.089      5.029          5.02
                                   Edwards, and
                                   Autosomal Deletion
                                   Syndromes.
HCC097..........................  Down Syndrome,            1.431      1.337       1.26      1.192         1.184
                                   Fragile X, Other
                                   Chromosomal
                                   Anomalies, and
                                   Congenital
                                   Malformation
                                   Syndromes.
HCC102..........................  Autistic Disorder...      1.171      1.053      0.943      0.814         0.797
HCC103..........................  Pervasive                 1.171      1.053      0.943      0.814         0.797
                                   Developmental
                                   Disorders, Except
                                   Autistic Disorder.
HCC106..........................  Traumatic Complete       10.509     10.376     10.285     10.261        10.258
                                   Lesion Cervical
                                   Spinal Cord.
HCC107..........................  Quadriplegia........     10.509     10.376     10.285     10.261        10.258
HCC108..........................  Traumatic Complete         7.28      7.122      7.013      6.977         6.971
                                   Lesion Dorsal
                                   Spinal Cord.
HCC109..........................  Paraplegia..........       7.28      7.122      7.013      6.977         6.971
HCC110..........................  Spinal Cord               5.144      4.923      4.775      4.733         4.727
                                   Disorders/Injuries.
HCC111..........................  Amyotrophic Lateral       1.157      0.987      0.899      0.821         0.811
                                   Sclerosis and Other
                                   Anterior Horn Cell
                                   Disease.
HCC112..........................  Quadriplegic              0.544      0.472      0.434      0.412          0.41
                                   Cerebral Palsy.
HCC113..........................  Cerebral Palsy,           0.014          0          0          0             0
                                   Except Quadriplegic.
HCC114..........................  Spina Bifida and          0.719      0.598      0.512      0.443         0.434
                                   Other Brain/Spinal/
                                   Nervous System
                                   Congenital
                                   Anomalies.
HCC115..........................  Myasthenia Gravis/        5.452      5.328      5.247      5.234         5.232
                                   Myoneural Disorders
                                   and Guillain-Barre
                                   Syndrome/
                                   Inflammatory and
                                   Toxic Neuropathy.
HCC117..........................  Muscular Dystrophy..      1.931      1.791      1.692      1.594         1.579
HCC118..........................  Multiple Sclerosis..      3.977      3.768      3.619      3.539         3.528
HCC119..........................  Parkinson's,              1.931      1.791      1.692      1.594         1.579
                                   Huntington's, and
                                   Spinocerebellar
                                   Disease, and Other
                                   Neurodegenerative
                                   Disorders.
HCC120..........................  Seizure Disorders         1.272      1.127       1.02      0.922         0.909
                                   and Convulsions.
HCC121..........................  Hydrocephalus.......      7.157      7.057      6.982      6.966         6.964
HCC122..........................  Non-Traumatic Coma,       7.845      7.701      7.598      7.581         7.578
                                   and Brain
                                   Compression/Anoxic
                                   Damage.
HCC125..........................  Respirator               24.729     24.677      24.64     24.727        24.736
                                   Dependence/
                                   Tracheostomy Status.
HCC126..........................  Respiratory Arrest..      7.301      7.135      7.037      7.105         7.117
HCC127..........................  Cardio-Respiratory        7.301      7.135      7.037      7.105         7.117
                                   Failure and Shock,
                                   Including
                                   Respiratory
                                   Distress Syndromes.
HCC128..........................  Heart Assistive          26.627     26.441     26.323     26.356        26.362
                                   Device/Artificial
                                   Heart.
HCC129..........................  Heart Transplant....     26.627     26.441     26.323     26.356        26.362
HCC130..........................  Congestive Heart          2.564      2.466        2.4      2.387         2.387
                                   Failure.
HCC131..........................  Acute Myocardial          6.677      6.408      6.236      6.283         6.292
                                   Infarction.
HCC132..........................  Unstable Angina and       4.921       4.63      4.463      4.448         4.449
                                   Other Acute
                                   Ischemic Heart
                                   Disease.
HCC135..........................  Heart Infection/          5.682      5.566      5.487      5.459         5.456
                                   Inflammation,
                                   Except Rheumatic.
HCC142..........................  Specified Heart           2.439      2.304      2.205      2.133         2.125
                                   Arrhythmias.
HCC145..........................  Intracranial              7.172      6.911      6.743      6.701         6.697
                                   Hemorrhage.
HCC146..........................  Ischemic or               1.917      1.769      1.684      1.641         1.637
                                   Unspecified Stroke.
HCC149..........................  Cerebral Aneurysm         2.665      2.491      2.375      2.295         2.285
                                   and Arteriovenous
                                   Malformation.
HCC150..........................  Hemiplegia/               4.306      4.195      4.129      4.172          4.18
                                   Hemiparesis.
HCC151..........................  Monoplegia, Other         3.069      2.941      2.854      2.806           2.8
                                   Paralytic Syndromes.
HCC153..........................  Atherosclerosis of        8.757      8.663      8.604       8.68         8.691
                                   the Extremities
                                   with Ulceration or
                                   Gangrene.
HCC154..........................  Vascular Disease          6.185      6.039      5.939      5.915         5.912
                                   with Complications.
HCC156..........................  Pulmonary Embolism        3.378      3.232      3.131       3.06         3.051
                                   and Deep Vein
                                   Thrombosis.
HCC158..........................  Lung Transplant          22.316     22.217     22.149     22.211        22.218
                                   Status/
                                   Complications.
HCC159..........................  Cystic Fibrosis.....      6.742      6.485      6.296      6.272         6.269
HCC160..........................  Chronic Obstructive       0.871      0.764      0.671      0.572         0.559
                                   Pulmonary Disease,
                                   Including
                                   Bronchiectasis.
HCC161..........................  Asthma..............      0.871      0.764      0.671      0.572         0.559
HCC162..........................  Fibrosis of Lung and      1.939      1.836      1.768      1.717         1.709
                                   Other Lung
                                   Disorders.
HCC163..........................  Aspiration and            6.337      6.305      6.282      6.282         6.281
                                   Specified Bacterial
                                   Pneumonias and
                                   Other Severe Lung
                                   Infections.
HCC183..........................  Kidney Transplant         6.199      6.014      5.894      5.835          5.84
                                   Status.
HCC184..........................  End Stage Renal          25.151     24.907     24.748     24.906            25
                                   Disease.
HCC187..........................  Chronic Kidney             0.89      0.843      0.815      0.826         0.834
                                   Disease, Stage 5.
HCC188..........................  Chronic Kidney             0.89      0.843      0.815      0.826         0.834
                                   Disease, Stage 4.
HCC203..........................  Ectopic and Molar         1.003      0.871      0.747      0.556         0.528
                                   Pregnancy, Except
                                   with Renal Failure,
                                   Shock, or Embolism.
HCC204..........................  Miscarriage with          1.003      0.871      0.747      0.556         0.528
                                   Complications.
HCC205..........................  Miscarriage with No       1.003      0.871      0.747      0.556         0.528
                                   or Minor
                                   Complications.
HCC207..........................  Completed Pregnancy       3.267      2.869      2.658      2.336         2.295
                                   With Major
                                   Complications.
HCC208..........................  Completed Pregnancy       3.267      2.869      2.658      2.336         2.295
                                   With Complications.
HCC209..........................  Completed Pregnancy       3.267      2.869      2.658      2.336         2.295
                                   with No or Minor
                                   Complications.
HCC217..........................  Chronic Ulcer of          1.925      1.819       1.75      1.725         1.722
                                   Skin, Except
                                   Pressure.
HCC226..........................  Hip Fractures and          8.32      8.091      7.941      7.959         7.961
                                   Pathological
                                   Vertebral or
                                   Humerus Fractures.
HCC227..........................  Pathological              6.002      5.848      5.746      5.709         5.704
                                   Fractures, Except
                                   of Vertebrae, Hip,
                                   or Humerus.
HCC251..........................  Stem Cell, Including     25.922     25.916     25.908     25.939        25.943
                                   Bone Marrow,
                                   Transplant Status/
                                   Complications.
HCC253..........................  Artificial Openings       7.612      7.528      7.472      7.499         7.503
                                   for Feeding or
                                   Elimination.
HCC254..........................  Amputation Status,        2.739      2.619      2.547      2.555         2.558
                                   Lower Limb/
                                   Amputation
                                   Complications.
----------------------------------------------------------------------------------------------------------------

[[Page 240]]

 
                                               Interaction Factors
----------------------------------------------------------------------------------------------------------------
SEVERE x HCC006.................  Severe illness x          6.689      6.895      7.031      7.192         7.212
                                   Opportunistic
                                   Infections.
SEVERE x HCC008.................  Severe illness x          6.689      6.895      7.031      7.192         7.212
                                   Metastatic Cancer.
SEVERE x HCC009.................  Severe illness x          6.689      6.895      7.031      7.192         7.212
                                   Lung, Brain, and
                                   Other Severe
                                   Cancers, Including
                                   Pediatric Acute
                                   Lymphoid Leukemia.
SEVERE x HCC010.................  Severe illness x Non-     6.689      6.895      7.031      7.192         7.212
                                   Hodgkin's Lymphomas
                                   and Other Cancers
                                   and Tumors.
SEVERE x HCC115.................  Severe illness x          6.689      6.895      7.031      7.192         7.212
                                   Myasthenia Gravis/
                                   Myoneural Disorders
                                   and Guillain-Barre
                                   Syndrome/
                                   Inflammatory and
                                   Toxic Neuropathy.
SEVERE x HCC135.................  Severe illness x          6.689      6.895      7.031      7.192         7.212
                                   Heart Infection/
                                   Inflammation,
                                   Except Rheumatic.
SEVERE x HCC145.................  Severe illness x          6.689      6.895      7.031      7.192         7.212
                                   Intracranial
                                   Hemorrhage.
SEVERE x G06....................  Severe illness x HCC      6.689      6.895      7.031      7.192         7.212
                                   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      6.689      6.895      7.031      7.192         7.212
                                   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-     0.752      0.815      0.857      0.997         1.014
                                   Stage Liver Disease.
SEVERE x HCC038.................  Severe illness x          0.752      0.815      0.857      0.997         1.014
                                   Acute Liver Failure/
                                   Disease, Including
                                   Neonatal Hepatitis.
SEVERE x HCC153.................  Severe illness x          0.752      0.815      0.857      0.997         1.014
                                   Atherosclerosis of
                                   the Extremities
                                   with Ulceration or
                                   Gangrene.
SEVERE x HCC154.................  Severe illness x          0.752      0.815      0.857      0.997         1.014
                                   Vascular Disease
                                   with Complications.
SEVERE x HCC163.................  Severe illness x          0.752      0.815      0.857      0.997         1.014
                                   Aspiration and
                                   Specified Bacterial
                                   Pneumonias and
                                   Other Severe Lung
                                   Infections.
SEVERE x HCC253.................  Severe illness x          0.752      0.815      0.857      0.997         1.014
                                   Artificial Openings
                                   for Feeding or
                                   Elimination.
SEVERE x G03....................  Severe illness x HCC      0.752      0.815      0.857      0.997         1.014
                                   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                0.320      0.282      0.254      0.239         0.237
                                   enrollment.
                                  2 months of               0.284      0.247      0.221      0.207         0.206
                                   enrollment.
                                  3 months of               0.270      0.235      0.208      0.194         0.192
                                   enrollment.
                                  4 months of               0.235      0.204      0.177      0.164         0.163
                                   enrollment.
                                  5 months of               0.206      0.178      0.152      0.138         0.137
                                   enrollment.
                                  6 months of               0.182      0.158      0.136      0.123         0.121
                                   enrollment.
                                  7 months of               0.139      0.120      0.101      0.090         0.089
                                   enrollment.
                                  8 months of               0.100      0.086      0.072      0.063         0.062
                                   enrollment.
                                  9 months of               0.059      0.051      0.042      0.037         0.036
                                   enrollment.
                                  10 months of              0.024      0.021      0.019      0.017         0.016
                                   enrollment.
                                  11 months of              0.024      0.021      0.019      0.017         0.016
                                   enrollment.
----------------------------------------------------------------------------------------------------------------
                                            Prescription Drug Factors
----------------------------------------------------------------------------------------------------------------
RXC 01..........................  Anti-HIV Agents.....      7.550      6.937      6.500      6.183         6.145
RXC 02..........................  Anti-Hepatitis C          8.134      8.134      8.134      8.134         8.134
                                   (HCV) Agents.
RXC 03..........................  Antiarrhythmics.....      0.128      0.117      0.109      0.074         0.057
RXC 04..........................  Phosphate Binders...      1.989      1.977      1.956      1.911         1.766
RXC 05..........................  Inflammatory Bowel        1.699      1.542      1.421      1.246         1.221
                                   Disease Agents.
RXC 06..........................  Insulin.............      1.754      1.586      1.411      1.217         1.191
RXC 07..........................  Anti-Diabetic             0.696      0.595      0.500      0.362         0.342
                                   Agents, Except
                                   Insulin and
                                   Metformin Only.
RXC 08..........................  Multiple Sclerosis       20.745     19.805     19.185     19.063        19.046
                                   Agents.
RXC 09..........................  Immune Suppressants      13.889     13.300     12.918     13.002        13.015
                                   and
                                   Immunomodulators.
RXC 10..........................  Cystic Fibrosis          12.787     12.411     12.191     12.224        12.231
                                   Agents.
RXC 01 x HCC001.................  Additional effect        -0.897     -0.571     -0.320      0.104         0.155
                                   for enrollees with
                                   RXC 01 (Anti-HIV
                                   Agents) and HCC 001
                                   (HIV/AIDS).
RXC 02 x HCC037_1, 036, 035, 034  Additional effect         0.263      0.484      0.641      0.712         0.720
                                   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        -0.889     -0.828     -0.759     -0.700        -0.692
                                   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         0.373      0.332      0.391      0.440         0.445
                                   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        -0.322     -0.278     -0.229     -0.187        -0.182
                                   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        -1.470     -0.952     -0.608     -0.303        -0.259
                                   for enrollees with
                                   RxC 08 (Multiple
                                   Sclerosis Agents)
                                   and HCC 118
                                   (Multiple
                                   Sclerosis).

[[Page 241]]

 
RXC 09 x HCC056 or 057 and 048    Additional effect         0.620      0.735      0.828      0.916         0.928
 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        -4.286     -4.060     -3.896     -3.848        -3.842
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and HCC 056
                                   (Rheumatoid
                                   Arthritis and
                                   Specified
                                   Autoimmune
                                   Disorders).
RXC 09 x HCC057.................  Additional effect        -0.839     -0.726     -0.630     -0.516        -0.500
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and HCC 057
                                   (Systemic Lupus
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders).
RXC 09 x HCC048, 041............  Additional effect        -1.853     -1.676     -1.573     -1.500        -1.491
                                   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        48.353     48.538     48.622     48.768        48.783
                                   for enrollees with
                                   RxC 10 (Cystic
                                   Fibrosis Agents)
                                   and (HCC 159
                                   (Cystic Fibrosis)
                                   or 158 (Lung
                                   Transplant Status/
                                   Complications)).
----------------------------------------------------------------------------------------------------------------


      Table 2--HHS HCCs in the Severity Illness Indicator Variable
------------------------------------------------------------------------
                             HCC/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 3--Proposed Child Risk Adjustment Model Factors for 2020 Benefit Year
----------------------------------------------------------------------------------------------------------------
             Factor                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 2-4, Male...................           0.202           0.159           0.111           0.067           0.062
Age 5-9, Male...................           0.142           0.107           0.067           0.035           0.031
Age 10-14, Male.................           0.182           0.147           0.103           0.068           0.065
Age 15-20, Male.................           0.239           0.195           0.142           0.096           0.091
Age 2-4, Female.................           0.153           0.118           0.080           0.048           0.044
Age 5-9, Female.................           0.094           0.065           0.033           0.009           0.007
Age 10-14, Female...............           0.172           0.137           0.097           0.066           0.063
Age 15-20, Female...............           0.259           0.205           0.140           0.080           0.073
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS........................           4.611           4.183           3.893           3.780           3.768
Septicemia, Sepsis, Systemic              12.287          12.089          11.976          11.970          11.972
 Inflammatory Response Syndrome/
 Shock..........................
Central Nervous System                     7.545           7.385           7.283           7.288           7.289
 Infections, Except Viral
 Meningitis.....................
Viral or Unspecified Meningitis.           2.963           2.733           2.588           2.429           2.408
Opportunistic Infections........          13.893          13.845          13.807          13.777          13.772
Metastatic Cancer...............          33.270          33.040          32.867          32.878          32.878
Lung, Brain, and Other Severe              8.930           8.681           8.496           8.406           8.394
 Cancers, Including Pediatric
 Acute Lymphoid Leukemia........
Non-Hodgkin`s Lymphomas and                7.078           6.840           6.663           6.554           6.539
 Other Cancers and Tumors.......
Colorectal, Breast (Age < 50),             3.504           3.333           3.200           3.084           3.067
 Kidney, and Other Cancers......
Breast (Age 50+) and Prostate              3.504           3.333           3.200           3.084           3.067
 Cancer, Benign/Uncertain Brain
 Tumors, and Other Cancers and
 Tumors.........................
Thyroid Cancer, Melanoma,                  0.980           0.860           0.756           0.641           0.625
 Neurofibromatosis, and Other
 Cancers and Tumors.............
Pancreas Transplant Status/               25.040          24.763          24.576          24.596          24.599
 Complications..................
Diabetes with Acute                        2.657           2.318           2.114           1.837           1.803
 Complications..................
Diabetes with Chronic                      2.657           2.318           2.114           1.837           1.803
 Complications..................
Diabetes without Complication...           2.657           2.318           2.114           1.837           1.803
Protein-Calorie Malnutrition....          14.512          14.408          14.335          14.372          14.376
Mucopolysaccharidosis...........           6.393           6.178           6.015           5.966           5.960
Lipidoses and Glycogenosis......           6.393           6.178           6.015           5.966           5.960
Congenital Metabolic Disorders,            6.393           6.178           6.015           5.966           5.960
 Not Elsewhere Classified.......

[[Page 242]]

 
Amyloidosis, Porphyria, and                6.393           6.178           6.015           5.966           5.960
 Other Metabolic Disorders......
Adrenal, Pituitary, and Other              6.393           6.178           6.015           5.966           5.960
 Significant Endocrine Disorders
Liver Transplant Status/                  25.040          24.763          24.576          24.596          24.599
 Complications..................
End-Stage Liver Disease.........          16.435          16.242          16.115          16.121          16.122
Cirrhosis of Liver..............           5.140           5.020           4.929           4.917           4.916
Chronic Viral Hepatitis C.......           5.140           5.020           4.929           4.917           4.916
Chronic Hepatitis, Other/                  0.351           0.272           0.207           0.174           0.171
 Unspecified....................
Acute Liver Failure/Disease,              10.604          10.503          10.440          10.464          10.467
 Including Neonatal Hepatitis...
Intestine Transplant Status/              25.040          24.763          24.576          24.596          24.599
 Complications..................
Peritonitis/Gastrointestinal              11.608          11.319          11.124          11.105          11.105
 Perforation/Necrotizing
 Enterocolitis..................
Intestinal Obstruction..........           4.466           4.269           4.121           4.015           4.002
Chronic Pancreatitis............          11.424          11.182          11.022          11.002          10.998
Acute Pancreatitis/Other                   2.537           2.423           2.328           2.237           2.224
 Pancreatic Disorders and
 Intestinal Malabsorption.......
Inflammatory Bowel Disease......           8.035           7.623           7.338           7.231           7.216
Necrotizing Fasciitis...........           3.791           3.578           3.421           3.339           3.329
Bone/Joint/Muscle Infections/              3.791           3.578           3.421           3.339           3.329
 Necrosis.......................
Rheumatoid Arthritis and                   4.536           4.289           4.098           4.012           4.003
 Specified Autoimmune Disorders.
Systemic Lupus Erythematosus and           0.625           0.508           0.403           0.297           0.287
 Other Autoimmune Disorders.....
Osteogenesis Imperfecta and                1.254           1.144           1.050           0.970           0.959
 Other Osteodystrophies.........
Congenital/Developmental                   1.254           1.144           1.050           0.970           0.959
 Skeletal and Connective Tissue
 Disorders......................
Cleft Lip/Cleft Palate..........           1.308           1.132           1.003           0.875           0.859
Hemophilia......................          63.950          63.414          63.032          62.993          62.988
Myelodysplastic Syndromes and             15.020          14.898          14.815          14.791          14.788
 Myelofibrosis..................
Aplastic Anemia.................          15.020          14.898          14.815          14.791          14.788
Acquired Hemolytic Anemia,                 6.294           6.099           5.957           5.876           5.866
 Including Hemolytic Disease of
 Newborn........................
Sickle Cell Anemia (Hb-SS)......           6.294           6.099           5.957           5.876           5.866
Thalassemia Major...............           6.294           6.099           5.957           5.876           5.866
Combined and Other Severe                  5.190           5.046           4.940           4.889           4.881
 Immunodeficiencies.............
Disorders of the Immune                    5.190           5.046           4.940           4.889           4.881
 Mechanism......................
Coagulation Defects and Other              4.235           4.117           4.023           3.948           3.938
 Specified Hematological
 Disorders......................
Drug Psychosis..................           5.458           5.181           5.004           4.916           4.907
Drug Dependence.................           5.458           5.181           5.004           4.916           4.907
Schizophrenia...................           4.740           4.391           4.152           4.003           3.982
Major Depressive and Bipolar               2.636           2.401           2.219           2.044           2.021
 Disorders......................
Reactive and Unspecified                   2.409           2.199           2.026           1.860           1.838
 Psychosis, Delusional Disorders
Personality Disorders...........           0.495           0.398           0.294           0.162           0.144
Anorexia/Bulimia Nervosa........           2.145           1.951           1.799           1.696           1.682
Prader-Willi, Patau, Edwards,              1.587           1.444           1.343           1.261           1.250
 and Autosomal Deletion
 Syndromes......................
Down Syndrome, Fragile X, Other            1.587           1.444           1.343           1.261           1.250
 Chromosomal Anomalies, and
 Congenital Malformation
 Syndromes......................
Autistic Disorder...............           2.409           2.199           2.026           1.860           1.838
Pervasive Developmental                    0.517           0.433           0.337           0.221           0.206
 Disorders, Except Autistic
 Disorder.......................
Traumatic Complete Lesion                  8.958           8.915           8.889           8.959           8.970
 Cervical Spinal Cord...........
Quadriplegia....................           8.958           8.915           8.889           8.959           8.970
Traumatic Complete Lesion Dorsal           6.394           6.185           6.048           6.010           6.003
 Spinal Cord....................
Paraplegia......................           6.394           6.185           6.048           6.010           6.003
Spinal Cord Disorders/Injuries..           3.906           3.725           3.590           3.500           3.486
Amyotrophic Lateral Sclerosis             14.768          14.524          14.336          14.254          14.245
 and Other Anterior Horn Cell
 Disease........................
Quadriplegic Cerebral Palsy.....           2.129           1.935           1.833           1.835           1.837
Cerebral Palsy, Except                     0.075           0.023           0.000           0.000           0.000
 Quadriplegic...................
Spina Bifida and Other Brain/              1.530           1.401           1.310           1.242           1.234
 Spinal/Nervous System
 Congenital Anomalies...........
Myasthenia Gravis/Myoneural               10.932          10.765          10.651          10.665          10.666
 Disorders and Guillain-Barre
 Syndrome/Inflammatory and Toxic
 Neuropathy.....................
Muscular Dystrophy..............           2.931           2.750           2.624           2.513           2.500
Multiple Sclerosis..............          10.587          10.201           9.935           9.905           9.901
Parkinson`s, Huntington`s, and             2.931           2.750           2.624           2.513           2.500
 Spinocerebellar Disease, and
 Other Neurodegenerative
 Disorders......................
Seizure Disorders and                      2.059           1.902           1.765           1.624           1.605
 Convulsions....................
Hydrocephalus...................           4.187           4.075           3.994           3.966           3.963
Non-Traumatic Coma, and Brain              5.415           5.281           5.178           5.128           5.122
 Compression/Anoxic Damage......

[[Page 243]]

 
Respirator Dependence/                    31.093          30.989          30.935          31.080          31.098
 Tracheostomy Status............
Respiratory Arrest..............           9.405           9.149           8.993           8.948           8.944
Cardio-Respiratory Failure and             9.405           9.149           8.993           8.948           8.944
 Shock, Including Respiratory
 Distress Syndromes.............
Heart Assistive Device/                   25.040          24.763          24.576          24.596          24.599
 Artificial Heart...............
Heart Transplant................          25.040          24.763          24.576          24.596          24.599
Congestive Heart Failure........           6.029           5.921           5.840           5.798           5.791
Acute Myocardial Infarction.....           7.344           7.228           7.177           7.172           7.172
Unstable Angina and Other Acute            3.504           3.402           3.332           3.315           3.316
 Ischemic Heart Disease.........
Heart Infection/Inflammation,             11.511          11.410          11.340          11.333          11.332
 Except Rheumatic...............
Hypoplastic Left Heart Syndrome            3.677           3.535           3.395           3.291           3.277
 and Other Severe Congenital
 Heart Disorders................
Major Congenital Heart/                    1.134           1.035           0.919           0.811           0.798
 Circulatory Disorders..........
Atrial and Ventricular Septal              0.881           0.792           0.696           0.609           0.598
 Defects, Patent Ductus
 Arteriosus, and Other
 Congenital Heart/Circulatory
 Disorders......................
Specified Heart Arrhythmias.....           3.476           3.315           3.184           3.105           3.094
Intracranial Hemorrhage.........          12.102          11.890          11.755          11.749          11.750
Ischemic or Unspecified Stroke..           3.871           3.785           3.733           3.727           3.729
Cerebral Aneurysm and                      3.267           3.093           2.973           2.888           2.878
 Arteriovenous Malformation.....
Hemiplegia/Hemiparesis..........           4.268           4.144           4.058           3.991           3.981
Monoplegia, Other Paralytic                3.081           2.919           2.807           2.735           2.723
 Syndromes......................
Atherosclerosis of the                    12.857          12.610          12.435          12.371          12.360
 Extremities with Ulceration or
 Gangrene.......................
Vascular Disease with                      9.797           9.675           9.591           9.613           9.616
 Complications..................
Pulmonary Embolism and Deep Vein          15.445          15.336          15.272          15.286          15.289
 Thrombosis.....................
Lung Transplant Status/                   25.040          24.763          24.576          24.596          24.599
 Complications..................
Cystic Fibrosis.................          25.040          24.763          24.576          24.596          24.599
Chronic Obstructive Pulmonary              0.374           0.308           0.224           0.138           0.128
 Disease, Including
 Bronchiectasis.................
Asthma..........................           0.374           0.308           0.224           0.138           0.128
Fibrosis of Lung and Other Lung            2.370           2.276           2.185           2.110           2.100
 Disorders......................
Aspiration and Specified                   6.769           6.708           6.661           6.681           6.683
 Bacterial Pneumonias and Other
 Severe Lung Infections.........
Kidney Transplant Status........          10.730          10.468          10.302          10.253          10.248
End Stage Renal Disease.........          30.597          30.449          30.350          30.434          30.447
Chronic Kidney Disease, Stage 5.           4.660           4.547           4.456           4.378           4.368
Chronic Kidney Disease, Severe             4.660           4.547           4.456           4.378           4.368
 (Stage 4)......................
Ectopic and Molar Pregnancy,               0.871           0.728           0.586           0.372           0.341
 Except with Renal Failure,
 Shock, or Embolism.............
Miscarriage with Complications..           0.871           0.728           0.586           0.372           0.341
Miscarriage with No or Minor               0.871           0.728           0.586           0.372           0.341
 Complications..................
Completed Pregnancy With Major             2.793           2.422           2.207           1.846           1.794
 Complications..................
Completed Pregnancy With                   2.793           2.422           2.207           1.846           1.794
 Complications..................
Completed Pregnancy with No or             2.793           2.422           2.207           1.846           1.794
 Minor Complications............
Chronic Ulcer of Skin, Except              2.682           2.590           2.504           2.434           2.427
 Pressure.......................
Hip Fractures and Pathological             6.615           6.304           6.079           5.971           5.961
 Vertebral or Humerus Fractures.
Pathological Fractures, Except             2.459           2.300           2.161           2.013           1.994
 of Vertebrae, Hip, or Humerus..
Stem Cell, Including Bone                 25.040          24.763          24.576          24.596          24.599
 Marrow, Transplant Status/
 Complications..................
Artificial Openings for Feeding           10.982          10.855          10.790          10.886          10.900
 or Elimination.................
Amputation Status, Lower Limb/             5.801           5.550           5.379           5.260           5.242
 Amputation Complications.......
----------------------------------------------------------------------------------------------------------------


                  Table 4--Proposed Infant Risk Adjustment Model Factors for 2020 Benefit Year
----------------------------------------------------------------------------------------------------------------
              Group                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
Extremely Immature * Severity            235.032         233.488         232.362         232.346         232.348
 Level 5 (Highest)..............
Extremely Immature * Severity            151.475         149.762         148.512         148.339         148.323
 Level 4........................
Extremely Immature * Severity             32.324          31.070          30.143          29.908          29.888
 Level 3........................
Extremely Immature * Severity             32.324          31.070          30.143          29.908          29.888
 Level 2........................
Extremely Immature * Severity             32.324          31.070          30.143          29.908          29.888
 Level 1 (Lowest)...............
Immature *Severity Level 5               147.235         145.696         144.571         144.525         144.518
 (Highest)......................
Immature *Severity Level 4......          71.633          70.103          68.980          68.867          68.853
Immature *Severity Level 3......          32.324          31.070          30.143          29.908          29.888
Immature *Severity Level 2......          24.191          22.948          22.048          21.783          21.752
Immature *Severity Level 1                23.385          22.183          21.291          20.988          20.950
 (Lowest).......................
Premature/Multiples * Severity           103.160         101.773         100.762         100.642         100.628
 Level 5 (Highest)..............
Premature/Multiples * Severity            26.232          24.897          23.942          23.684          23.658
 Level 4........................

[[Page 244]]

 
Premature/Multiples * Severity            13.556          12.549          11.807          11.337          11.281
 Level 3........................
Premature/Multiples * Severity             8.366           7.612           6.984           6.350           6.260
 Level 2........................
Premature/Multiples * Severity             5.323           4.803           4.276           3.736           3.670
 Level 1 (Lowest)...............
Term *Severity Level 5 (Highest)          78.324          77.140          76.266          76.059          76.035
Term *Severity Level 4..........          13.891          13.024          12.388          11.954          11.904
Term *Severity Level 3..........           5.671           5.137           4.631           4.060           3.982
Term *Severity Level 2..........           3.599           3.195           2.719           2.122           2.049
Term *Severity Level 1 (Lowest).           1.619           1.412           1.037           0.702           0.672
Age1 *Severity Level 5 (Highest)          56.287          55.575          55.039          54.927          54.915
Age1 *Severity Level 4..........          10.505           9.976           9.550           9.263           9.230
Age1 *Severity Level 3..........           3.079           2.821           2.586           2.384           2.360
Age1 *Severity Level 2..........           1.932           1.734           1.531           1.322           1.296
Age1 *Severity Level 1 (Lowest).           0.527           0.480           0.424           0.376           0.370
Age 0 Male......................           0.623           0.574           0.537           0.467           0.456
Age 1 Male......................           0.120           0.106           0.092           0.073           0.070
----------------------------------------------------------------------------------------------------------------


     Table 5--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 1000-1499 Grams.
Immature.....................  Premature Newborns, Including Birth
                                weight 1500-1999 Grams.
Premature/Multiples..........  Premature Newborns, Including Birth
                                weight 2000-2499 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 6--HHS HCCs Included in Infant Model Severity Categories
------------------------------------------------------------------------
      Severity category                     HCC/description
------------------------------------------------------------------------
Severity Level 5 (Highest)...  Metastatic Cancer.
Severity Level 5.............  Pancreas Transplant Status/Complications.
Severity Level 5.............  Liver Transplant Status/Complications.
Severity Level 5.............  End-Stage Liver Disease.
Severity Level 5.............  Intestine Transplant Status/
                                Complications.
Severity Level 5.............  Peritonitis/Gastrointestinal Perforation/
                                Necrotizing Enterocolitis.
Severity Level 5.............  Respirator Dependence/Tracheostomy
                                Status.
Severity Level 5.............  Heart Assistive Device/Artificial Heart.
Severity Level 5.............  Heart Transplant.
Severity Level 5.............  Congestive Heart Failure.
Severity Level 5.............  Hypoplastic Left Heart Syndrome and Other
                                Severe Congenital Heart Disorders.
Severity Level 5.............  Lung Transplant Status/Complications.
Severity Level 5.............  Kidney Transplant Status.
Severity Level 5.............  End Stage Renal Disease.
Severity Level 5.............  Stem Cell, Including Bone Marrow,
                                Transplant Status/Complications.
Severity Level 4.............  Septicemia, Sepsis, Systemic Inflammatory
                                Response Syndrome/Shock.
Severity Level 4.............  Lung, Brain, and Other Severe Cancers,
                                Including Pediatric Acute Lymphoid
                                Leukemia.
Severity Level 4.............  Mucopolysaccharidosis.
Severity Level 4.............  Major Congenital Anomalies of Diaphragm,
                                Abdominal Wall, and Esophagus, Age < 2.
Severity Level 4.............  Myelodysplastic Syndromes and
                                Myelofibrosis.
Severity Level 4.............  Aplastic Anemia.
Severity Level 4.............  Combined and Other Severe
                                Immunodeficiencies.
Severity Level 4.............  Traumatic Complete Lesion Cervical Spinal
                                Cord.
Severity Level 4.............  Quadriplegia.
Severity Level 4.............  Amyotrophic Lateral Sclerosis and Other
                                Anterior Horn Cell Disease.
Severity Level 4.............  Quadriplegic Cerebral Palsy.
Severity Level 4.............  Myasthenia Gravis/Myoneural Disorders and
                                Guillain-Barre Syndrome/Inflammatory and
                                Toxic Neuropathy.
Severity Level 4.............  Non-Traumatic Coma, Brain Compression/
                                Anoxic Damage.
Severity Level 4.............  Respiratory Arrest.
Severity Level 4.............  Cardio-Respiratory Failure and Shock,
                                Including Respiratory Distress
                                Syndromes.
Severity Level 4.............  Acute Myocardial Infarction.
Severity Level 4.............  Heart Infection/Inflammation, Except
                                Rheumatic.
Severity Level 4.............  Major Congenital Heart/Circulatory
                                Disorders.
Severity Level 4.............  Intracranial Hemorrhage.
Severity Level 4.............  Ischemic or Unspecified Stroke.

[[Page 245]]

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

[[Page 246]]

 
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.
------------------------------------------------------------------------

iv. Cost-Sharing Reduction Adjustments
    We propose to continue including an adjustment for the receipt of 
cost-sharing reductions in the risk adjustment models to account for 
increased plan liability due to increased utilization of health care 
services by enrollees receiving cost-sharing reductions in all 50 
states and the District of Columbia. For the 2020 benefit year, to 
maintain stability and certainty for issuers, we are proposing to 
maintain the cost-sharing reduction factors finalized in the 2019 
Payment Notice.\29\ See Table 7. We seek comment on this proposal.
---------------------------------------------------------------------------

    \29\ See 83 FR 16930 at 16953.
---------------------------------------------------------------------------

    Consistent with the approach finalized in the 2017 Payment 
Notice,\30\ we will continue to use cost-sharing reduction adjustment 
factors of 1.12 for all Massachusetts wrap-around plans in the risk 
adjustment plan liability risk score calculation, as all of 
Massachusetts' cost-sharing plan variations have actuarial values above 
94 percent.
---------------------------------------------------------------------------

    \30\ See 81 FR 12203 at 12228.

               Table 7--Cost-Sharing Reduction 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
------------------------------------------------------------------------

v. Model Performance Statistics
    To evaluate risk adjustment 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.\31\ Because we blended 
the coefficients from separately solved models based on 2016 
MarketScan[supreg] data and 2016 and 2017 enrollee-level EDGE data in 
this proposed rule, we are publishing the R-squared statistic for each 
model separately to verify their statistical validity. The R-squared 
statistic for each model is shown in Table 8. We intend to publish 
updated R-squared statistics to reflect results from the blending of 
the 2017 MarketScan[supreg] and 2016 and 2017 benefit year enrollee-
level EDGE datasets used to recalibrate the models for the 2020 benefit 
year if the proposal is finalized in the final rule.
---------------------------------------------------------------------------

    \31\ Winkleman, Ross and Syed Mehmud. ``A Comparative Analysis 
of Claims-Based Tools for Health Risk Assessment.'' Society of 
Actuaries. April 2007.

[[Page 247]]



                      Table 8--R-Squared Statistic for Proposed HHS Risk Adjustment Models
----------------------------------------------------------------------------------------------------------------
                                               R-squared statistic
-----------------------------------------------------------------------------------------------------------------
                                                                              2017 Enrollee-
                                                               2016 Enrollee    level EDGE           2016
                           Models                               level EDGE       data  R-     MarketScan[supreg]
                                                                   data           squared       data  R-squared
----------------------------------------------------------------------------------------------------------------
Platinum Adult..............................................          0.4336          0.4192            0.4139
Gold Adult..................................................          0.4283          0.4127            0.4090
Silver Adult................................................          0.4241          0.4075            0.4052
Bronze Adult................................................          0.4214          0.4040            0.4026
Catastrophic Adult..........................................          0.4209          0.4033            0.4021
Platinum Child..............................................          0.3074          0.3214            0.3345
Gold Child..................................................          0.3028          0.3164            0.3297
Silver Child................................................          0.2990          0.3121            0.3259
Bronze Child................................................          0.2957          0.3083            0.3223
Catastrophic Child..........................................          0.2952          0.3077            0.3217
Platinum Infant.............................................          0.3263          0.3166            0.3579
Gold Infant.................................................          0.3225          0.3126            0.3559
Silver Infant...............................................          0.3196          0.3094            0.3545
Bronze Infant...............................................          0.3181          0.3078            0.3541
Catastrophic Infant.........................................          0.3179          0.3075            0.3540
----------------------------------------------------------------------------------------------------------------

b. Overview of the Payment Transfer Formula (Sec.  153.320)
    We previously defined the calculation of plan average actuarial 
risk and the calculation of payments and charges in the Premium 
Stabilization Rule. In the 2014 Payment Notice, we combined those 
concepts into a risk adjustment state payment transfer formula.\32\ 
Risk adjustment transfers (total payments and charges including high-
cost risk pool payments and charges) are calculated after issuers have 
completed their risk adjustment EDGE data submissions for the 
applicable benefit year. The state 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, we calculate 
separate transfer amounts for each rating area in which a risk 
adjustment covered plan operates).
---------------------------------------------------------------------------

    \32\ The state payment transfer formula refers to the part of 
the HHS risk adjustment methodology that calculates payments and 
charges prior to the calculation of the high-cost risk pool payment 
and charge terms that apply beginning with the 2018 benefit year.
---------------------------------------------------------------------------

    The risk adjustment state payment 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 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 state 
payment transfer formula to reflect state average factors so that each 
plan's enrollment characteristics are compared to the state average and 
the calculated payment amounts equal 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 goals of the risk adjustment program, which are to 
encourage issuers to rate for the average risk in the applicable state 
market risk pool, to stabilize premiums, and to avoid 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 we used each issuer's 
plan's own premium in the risk adjustment state payment transfer 
formula, instead of statewide average premium.
    In the absence of additional funding, we established, through 
notice and comment rulemaking,\33\ the HHS-operated risk adjustment 
program as a budget-neutral program to provide certainty to issuers 
regarding risk adjustment payments and charges, which allows issuers 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. Additionally, in establishing 
the HHS-operated risk adjustment program, we could not have relied on 
the potential availability of general appropriation funds without 
creating the same 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 process also would 
have required us 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 could not have relied on any 
potential state budget appropriations in 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 to avoid prorating risk adjustment payments. The 
resulting uncertainty would have also conflicted 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.
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    \33\ For example, see 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 the 2014 
Payment Notice, Final Rule, 78 FR 15441 (March 11, 2013). Also see, 
the 2018 Payment Notice, Final Rule, 81 FR 94058 (December 22, 
2016); and the 2019 Payment Notice, Final Rule, 83 FR 16930 (April 
17, 2018). Also see the 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, Final 
Rule, 83 FR 36456 (July 30, 2018) and the Patient Protection and 
Affordable Care Act; and Adoption of the Methodology for the HHS-
Operated Permanent Risk Adjustment Program for the 2018 Benefit Year 
Final Rule, 83 FR 63419 (December 10, 2018).
---------------------------------------------------------------------------

    In light of the budget-neutral framework, HHS uses statewide 
average premium as the cost-scaling factor in the state payment 
transfer formula under

[[Page 248]]

the HHS-operated risk adjustment methodology, rather than a different 
parameter, such as each plan's own premium, which would not have 
automatically achieved equality between risk adjustment payments and 
charges in each benefit year. As set forth in prior discussions,\34\ 
use of a plan's own premium or a similar parameter would have required 
a balancing adjustment in light of the program's need for budget 
neutrality--either reducing payments to issuers owed a payment, 
increasing charges on issuers assessed 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, as discussed previously in this proposed 
rule, of encouraging issuers to rate for the average risk in the 
applicable state market risk pool, stabilizing premiums, 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 
is established in advance of a benefit year. Stakeholders who support 
use of a plan's own premium state that use of statewide average premium 
penalizes issuers with efficient care management. While effective care 
management may make a plan more likely to have lower costs,\35\ we do 
not believe that the care management strategies make the plan more 
likely to enroll lower-than-average risk enrollees; effective care 
management strategies might even make the plan more likely to attract 
higher-than-average risk enrollees, in which case the plan would 
benefit from the use of statewide average premium in the state payment 
transfer formula in the HHS risk adjustment methodology. As noted by 
commenters to the 2014 Payment Notice proposed rule, transfers may also 
be more volatile from year to year and sensitive to anomalous premiums 
if scaled to a plan's own premium instead of the statewide average 
premium. In all, the advantages of using statewide average premium 
outweigh the pricing instability and other challenges associated with 
calculating transfers based on a plan's own premium.
---------------------------------------------------------------------------

    \34\ For example, see September 12, 2011, Risk Adjustment 
Implementation Issues White Paper, available at: https://www.cms.gov/CCIIO/Resources/Files/Downloads/riskadjustment_whitepaper_web.pdf. Also see the 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, Final Rule, 83 FR 36456 (July 30, 2018) and the 
Patient Protection and Affordable Care Act; Adoption of the 
Methodology for the HHS-Operated Permanent Risk Adjustment Program 
for the 2018 Benefit Year, Final Rule, 83 FR 63419 (December 10, 
2018).
    \35\ There are many reasons why an issuer could have lower-than-
average premiums. For example, the low premium could be the result 
of efficiency, mispricing, a strategy to gain market share or some 
combination thereof.
---------------------------------------------------------------------------

    In the HHS risk adjustment methodology, the state payment transfer 
formula is designed to provide a per member per month (PMPM) transfer 
amount. The PMPM transfer amount derived from the state payment 
transfer formula is multiplied by each plan's total billable member 
months for the benefit year to determine the payment due to or charge 
owed by the issuer for that plan in a rating area. The payment or 
charge under the state payment transfer formula is thus calculated to 
balance the state market risk pool in question.
i. Accounting for High-Cost Risk Pool in the Transfer Formula
    In addition to the charge or payment assessed under the state 
payment transfer formula for an issuer in a state market risk pool 
based on plan liability risk scores, in the 2018 Payment Notice, we 
added to the HHS-operated risk adjustment methodology additional 
transfers that would reflect the payments and charges assessed for the 
high-cost risk pool discussed above. 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 payment transfer formula in the HHS-operated risk 
adjustment methodology. For the 2019 benefit year, we finalized the 
addition of a 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 percentage of premium adjustment to fund 
the high-cost risk pool and maintain the balance of payments and 
charges within the HHS-operated risk adjustment program for a given 
benefit year. We described in detail how these terms will be calculated 
in conjunction with the calculations under the state payment transfer 
formula for the 2019 benefit year in the 2019 Payment Notice.\36\ We 
believe it is helpful to republish how these terms will be applied. 
Therefore, these adjustments are described in detail below along with 
the calculations under the state payment transfer formula.
---------------------------------------------------------------------------

    \36\ See 83 FR 16930 at 16954.
---------------------------------------------------------------------------

    As discussed in detail above, for the 2020 benefit year, we are 
proposing to maintain the high-cost risk pool with the threshold of $1 
million and a coinsurance rate of 60 percent, and the same parameters 
would apply for the 2021 benefit year and beyond, unless otherwise 
amended through notice-and-comment rulemaking. Similar to the 2019 
benefit year, we propose to add a 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 percentage of premium 
adjustment to fund the high-cost risk pool and maintain the balance of 
payment and charges within the HHS-operated risk adjustment program for 
a given benefit year. For the 2020 benefit year, we propose to use a 
percentage of premium adjustment factor that would be applied to each 
plan's total premium amount, rather than the percentage of PMPM premium 
adjustment factor, consistent with the approach finalized in the 2019 
Payment Notice. The percentage of premium adjustment factor applied to 
a plan's total premium amount results in the same adjustment as a 
percentage of the PMPM premium adjustment factor applied to a plan's 
PMPM premium amount and multiplied by the plan's number of billable 
member months. We propose to apply these same terms for future benefit 
years that maintain the same underlying parameters for the high-cost 
risk pool adjustment (that is, $1 million threshold and 60 percent 
coinsurance rate). We seek comment on these proposals.
ii. State Flexibility Requests (Sec.  153.320(d))
    In the 2019 Payment Notice, we provided states the flexibility to 
request a reduction to the otherwise applicable risk adjustment 
transfers calculated under the HHS-operated risk adjustment 
methodology, which is calibrated on a national dataset, for the state's 
individual, small group, or merged markets by up to 50 percent to more 
precisely account for differences in actuarial risk in the applicable 
state's market(s). We finalized that any requests received would be 
published in the respective benefit year's proposed notice of benefit 
and payment parameters, and the supporting evidence would be made 
available for public comment.\37\
---------------------------------------------------------------------------

    \37\ 2019 Payment Notice Final Rule, 83 FR 16930 (April 17, 
2018) and 45 CFR 153.320(d)(3).
---------------------------------------------------------------------------

    In accordance with Sec.  153.320(d)(2), beginning with the 2020 
benefit year, states must submit such requests with the supporting 
evidence and analysis

[[Page 249]]

outlined under Sec.  153.320(d)(1) by August 1st of the calendar year 
that is 2 calendar years prior to the beginning of the applicable 
benefit year.
    In this rule, we propose to amend Sec.  153.320(d)(3) to add 
language to provide that if the state requests that HHS not make 
publicly available certain supporting evidence and analysis because it 
contains trade secrets or confidential commercial or financial 
information within the meaning of the HHS Freedom of Information Act 
(FOIA) regulations at 45 CFR 5.31(d), HHS will do so, making available 
on the CMS website only the supporting evidence submitted by the state 
that is not a trade secret or confidential commercial or financial 
information. Similar to the rate review program established under 
section 2794 of the PHS Act, under this proposal, HHS would release 
only information that is not a trade secret or confidential commercial 
or financial information as defined under the HHS FOIA regulations.\38\ 
In these circumstances, similar to the federal rate review 
requirements, we propose that the states requesting a reduction would 
need to provide a version for public release that redacts the trade 
secret and confidential commercial or financial information as defined 
under the HHS FOIA regulations, while also providing an unredacted 
version to HHS for its review of the state's reduction request. We also 
propose that state requests for individual market risk adjustment 
transfers reduction would be applied to both the catastrophic and non-
catastrophic individual market risk pools, unless state regulators 
request otherwise.
---------------------------------------------------------------------------

    \38\ See 45 CFR 154.215(h)(2).
---------------------------------------------------------------------------

    We seek comment on these proposals.
    For the 2020 benefit year, HHS received a request to reduce risk 
adjustment transfers for the Alabama small group market by 50 percent. 
Alabama's request states that the presence of a dominant carrier in the 
small group market precludes the HHS-operated risk adjustment program 
from working as precisely as it would with a more balanced distribution 
of market share. The state regulators stated that their review of the 
risk adjustment payment issuers' financial data suggested that any 
premium increase resulting from a reduction to risk adjustment payments 
of 50 percent in the small group market for the 2020 benefit year would 
not exceed 1 percent, the de minimis premium increase threshold set 
forth in the 2019 Payment Notice. We seek comment on this request to 
reduce risk adjustment transfers in the Alabama small group market by 
50 percent for the 2020 benefit year. The request and additional 
documentation submitted by Alabama are posted under the ``State 
Flexibility Requests'' heading at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Premium-Stabilization-Programs/index.html.
iii. The Payment Transfer Formula
    Although the proposed HHS payment transfer formula for the 2020 
benefit year is unchanged from what was finalized in the 2019 Payment 
Notice (83 FR 16954 through 16961), we believe it is useful to 
republish the formula in its entirety in this proposed rule. 
Additionally, we are republishing the description of the administrative 
cost reduction to the statewide average premium and high-cost risk pool 
factors that we previously described in the 2019 Payment Notice 
although these factors remain unchanged in this proposed rule.\39\ 
Transfers (payments and charges) under the state payment transfer 
formula would 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:
---------------------------------------------------------------------------

    \39\ See 83 FR 16930 at 16960.
    [GRAPHIC] [TIFF OMITTED] TP24JA19.000
    
---------------------------------------------------------------------------
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 would be summed across all risk adjustment covered 
plans in the risk pool in the market in the state.
    The difference between the two premium estimates in the state 
payment transfer formula 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 under the state payment transfer formula are 
calculated at the risk pool level, and catastrophic plans are treated 
as a separate risk pool for purposes of the risk adjustment state 
payment transfer calculations.\40\ This resulting PMPM plan payment or 
charge would be 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.
---------------------------------------------------------------------------

    \40\ As detailed elsewhere in this proposed rule, catastrophic 
plans are considered part of the individual market for purposes of 
the national high-cost risk pool payment and charge calculations.
---------------------------------------------------------------------------

    We previously defined the cost scaling factor, or the statewide 
average premium term, as the sum of the average premium per member 
month of plan i (Pi) multiplied by plan i's share of 
statewide enrollment in the market risk pool (si). The 
statewide average premium would be adjusted to remove a portion of the 
administrative costs that do not vary with claims (14 percent) as 
follows:

PS = (Si(si [middot] Pi)) * (1-0.14) = (Si(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.

    The high-cost risk pool adjustment amount would be added to the 
state payment transfer formula 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 percentage 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

[[Page 250]]

and merged market plans, and another for the small group market), and 
the plan's total premiums (TPi). For this calculation, we would use a 
percent of premium adjustment factor that is applied to each plan's 
total premium amount.
    The total plan transfers for a given benefit year would be 
calculated as the product of the plan PMPM's 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] TPi)


Where:

Total Transferi = Plan i's total HHS risk adjustment program 
transfer amount;
Ti = Plan i's PMPM transfer amount based on the state transfer 
calculation;
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;
TPi = Plan i's total premium amounts.

    As we noted above, we received a request to reduce transfers in the 
Alabama small group market by 50 percent for the 2020 benefit year. If 
the request is approved and finalized by HHS for the 2020 benefit year, 
the approved reduction percentage would be applied to the plan PMPM 
payment or charge transfer amount (Ti) under the state 
payment transfer calculation for the Alabama small group market risk 
pool. This potential reduction to the PMPM transfer amounts is not 
shown in the HHS risk adjustment state payment transfer formula above.
c. Risk Adjustment Issuer Data Requirements (Sec. Sec.  153.610, 
153.710)
    In the 2018 Payment Notice,\41\ we finalized the collection of 
masked enrollee-level data from issuers' EDGE servers (referred to as 
``enrollee-level EDGE data'') beginning with the 2016 benefit year to 
recalibrate the risk adjustment models and inform development of the AV 
Calculator and methodology.
---------------------------------------------------------------------------

    \41\ See 81 FR 94058 at 94101.
---------------------------------------------------------------------------

    In the 2018 Payment Notice, we also stated that we would consider 
using this enrollee-level EDGE data in the future for calibrating other 
HHS programs in the individual and small group markets, and to produce 
a public use file to help governmental entities and independent 
researchers better understand these markets. We noted that a public use 
file derived from these data would be de-identified in accordance with 
the Health Insurance Portability and Accountability Act of 1996 (HIPAA) 
requirements, would not include proprietary issuer or plan identifying 
data, and would adhere to HHS rules and policies regarding protected 
health information (PHI) and personally identifiable information (PII). 
We also described in guidance the data elements in the enrollee-level 
EDGE dataset and the data elements proposed to be made available for 
research requests.\42\
---------------------------------------------------------------------------

    \42\ Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Enrollee-level-EDGE-Dataset-for-Research-Requests-05-18-18.pdf.
---------------------------------------------------------------------------

    Under the HIPAA safe harbor for de-identification of data at 45 CFR 
164.514(b)(2), public use files are considered de-identified if they 
exclude 18 specific identifiers that could be used alone or in 
combination with other information to identify an individual who is a 
subject of the information. To make the enrollee-level EDGE data 
available as a public use file that comports with the requirements of 
Sec.  164.514(b)(2), we would have to remove dates (other than the 
year) and ages for enrollees ages 90 or older.\43\ Commenters have 
stated that the public use file would be limited in its usefulness 
because it excludes dates that would be useful to conduct health 
services research. A limited data set, as defined at Sec.  
164.514(e)(2), may include dates, which could enable requestors to do 
analyses they would not be able to with a public use file. We believe 
entities seeking to use the enrollee-level EDGE data would be able to 
better understand the individual and small group markets with a limited 
data set.
---------------------------------------------------------------------------

    \43\ HHS does not currently collect any of the other 18 
identifiers under 45 CFR 164.514(b)(2) that would require de-
identification.
---------------------------------------------------------------------------

    Thus, we propose to create and make available by request a limited 
data set file rather than a public use file, as we believe a limited 
data set file would be more useful to requestors for research, public 
health, or health care operations purposes. Under this proposal, if 
finalized, we would make enrollee-level EDGE data, beginning with the 
2016 benefit year EDGE data, available as a ``Limited Data Set'' file 
under Sec.  164.514(e). This limited data set file would not include 
the direct identifiers of the individual or of relatives, employers, or 
household members of the individual, which are required to be removed 
under the limited data set definition at Sec.  164.514(e)(2), as 
issuers do not submit these identifiers to their EDGE servers. We also 
propose to limit disclosures of the limited data set to requestors who 
seek the data for research, public health, or health care operations 
purposes, as those terms are defined under Sec.  164.501, as is done 
with other limited data sets made available by HHS. We would require 
qualified requestors to sign a data use agreement to ensure the data 
will be maintained, used, and disclosed only as permitted under the 
HIPAA Privacy Rule, and to ensure that any inappropriate uses or 
disclosures are reported to HHS. HHS components would also be able to 
request the limited data set file for research, public health, or 
health care operations purposes, as those terms are defined under Sec.  
164.501. We also clarify that, if this proposal is finalized, we would 
make a limited data set file available on an annual basis, reflecting 
enrollee-level data from the most recent benefit year available on EDGE 
servers. If this proposal is finalized, we would not offer a public use 
file based on the enrollee-level EDGE data. We seek comment on this 
proposal.
    In addition, we received comments in response to the guidance 
describing the data elements to be made available as part of the public 
use file for research requests \44\ noting that researchers would 
benefit from additional data elements on enrollees' geographic 
identifiers, enrollees' income level, provider identifier, provider's 
geographic location, internal claim identifier, enrollees' plan benefit 
design details, and enrollees' out-of-pocket costs by cost-sharing type 
(deductible, coinsurance, and copayment). We began collecting a claim 
identifier to associate all services rendered under the same claim 
beginning with the 2017 benefit year enrollee-level EDGE data. 
Therefore, if the proposal to make a limited data set is finalized, we 
would be able to include this grouped claims identifier beginning for 
the 2017 benefit year enrollee-level EDGE limited data set file. 
However, regarding the other data elements commenters requested, either 
issuers do not submit them to their EDGE servers, or we currently do 
not extract them from issuers' EDGE servers due to concerns about the 
ability to use the data element(s) to identify issuers or plans. For 
example, issuers do not currently submit data to their EDGE servers on 
enrollees' plan benefit design, specific cost-sharing elements 
(deductibles, copayments), provider identifiers or providers' 
geographic location, enrollees' income level or enrollees' geographic 
location more

[[Page 251]]

specific than the rating area, and therefore, we are unable to extract 
such information as part of the enrollee-level EDGE data. However, 
issuers do submit enrollees' state and rating areas as part of the EDGE 
server submissions, making it possible to extract these elements from 
the issuers' EDGE servers as part of the enrollee-level EDGE data. If 
we were to extract state and rating areas, we could also make such 
details available as part of the proposed enrollee-level EDGE limited 
data set file. We continue to believe the enrollee-level EDGE data can 
increase cost transparency for consumers and stakeholders for the 
individual and small group markets and can be a useful resource for 
government entities and independent researchers to better understand 
these markets. We also recognize access and use of enrollee-level EDGE 
data should continue to safeguard enrollee privacy and security and 
issuers' proprietary information. Based on the comments received, we 
are seeking comment on whether to extract state and rating area 
information for enrollees as part of the enrollee-level EDGE data. As 
noted previously, we use the enrollee-level EDGE data to recalibrate 
the risk adjustment models and inform development of the AV Calculator 
and methodology. Extracting additional state and rating area 
information could enable HHS to assess the impact of differences in 
geographic factors in the HHS risk adjustment methodology. In addition, 
stakeholders have noted that adding geographic elements to the AV 
Calculator would better estimate the AV of plans based on the cost 
differences across regions. Extraction of these geographic details 
(state and rating area) from issuers' EDGE servers could also help 
support other HHS programs and policy priorities, as well as provide 
additional data elements for researchers. We note that although these 
geographic data elements are not currently extracted from the enrollee-
level EDGE dataset, extracting them will not increase burden for 
issuers, as issuers already submit these data elements as part of the 
EDGE server data submission process. We seek comment on how these data 
elements could be used in the HHS-operated risk adjustment program, AV 
Calculator and methodology, and other HHS programs in the individual 
and small group (including merged) markets, as well as on how these 
data elements could benefit researchers and public health. If we were 
to extract state and rating area information, we would do so as part of 
the enrollee-level EDGE data extraction and would use this information 
to support the recalibration and policy development related to the HHS-
operated risk adjustment program, the AV Calculator and methodology, as 
well as other HHS programs in the individual and small group (including 
merged) markets. We also seek comment on if we were to extract these 
data elements, whether to make state and rating area information 
available as part of the proposed limited data set that would be made 
available to qualified requestors. We seek comment on the advantages 
and disadvantages of using state and rating area information for 
recalibration of the HHS-operated risk adjustment program, the AV 
Calculator and methodology, and other HHS individual and small group 
(including merged) market programs. We seek specific comments on 
possible research purposes for these data elements, whether the 
benefits of extracting these additional data elements outweigh the 
potential risk to issuers' proprietary information, and whether 
extraction of this data is consistent with the goals of a distributed 
data environment. We reiterate that these data would not include direct 
identifiers of an individual or of relatives, employers, or household 
members of the individual, as issuers do not submit these elements to 
their EDGE servers, and qualified requestors would be required to sign 
a data use agreement to ensure the data would be maintained, used, and 
disclosed only as permitted under the HIPAA Privacy Rule. We also seek 
specific comment on the other data elements outlined above that 
commenters requested be part of the enrollee-level EDGE dataset, but 
that issuers do not currently submit to their EDGE servers, and other 
enrollment and claims data elements not otherwise described above, and 
whether collection of such data elements could benefit the calibration 
of the HHS risk adjustment program, the AV calculator and methodology, 
and other HHS individual and small group (including merged) markets 
programs. We also seek specific comment with examples on whether other 
data elements that issuers do not currently submit to their EDGE 
servers could benefit further research, public health or health care 
operations as part of a limited data set file made available to 
qualified requestors.
---------------------------------------------------------------------------

    \44\ Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Enrollee-level-EDGE-Dataset-for-Research-Requests-05-18-18.pdf.
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    In addition, we propose to extend the use of enrollee-level EDGE 
data and reports extracted from issuers' EDGE servers (including data 
reports and ad hoc querying tool reports) to calibrate and 
operationalize our individual and small group (including merged) market 
programs (for example, the HHS-operated risk adjustment program, the AV 
calculator and methodology, and the out-of-pocket calculator), as well 
as to conduct policy analysis for the individual and small group 
(including merged) markets (for example, to assess the market impacts 
of policy options being deliberated). We believe these additional uses 
of the enrollee-level EDGE data will enhance our ability to develop and 
set policy for the individual and small group (including merged) 
markets and avoid burdensome data collections from issuers.
d. Risk Adjustment User Fee for 2020 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 a 
risk adjustment program on its behalf. For the 2020 benefit year, HHS 
will operate a risk adjustment program in every state and the District 
of Columbia. As described in the 2014 Payment Notice,\45\ 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 PMPM risk adjustment user fee rate specified in the annual HHS 
notice of benefit and payment parameters for the applicable benefit 
year.
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    \45\ See 78 FR 15409 at 15416.
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    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, merged, and small 
group markets.
    In the 2019 Payment Notice,\46\ we calculated the federal 
administrative expenses of operating the risk adjustment program for 
the 2019 benefit year to result in a risk adjustment user fee rate of 
$1.80 per billable member per year or $0.15 PMPM, based on our 
estimated contract costs for risk adjustment operations, estimates of 
billable member months for individuals

[[Page 252]]

enrolled in a risk adjustment covered plan, and eligible administrative 
and personnel costs related to the administration of the HHS-operated 
risk adjustment program. For the 2020 benefit year, we propose to 
generally use the same methodology to estimate our administrative 
expenses to operate the program, with the modifications described 
below. These costs cover development of the risk adjustment models and 
methodology, collections, payments, account management, data 
collection, data validation, program integrity and audit functions, 
operational and fraud analytics, stakeholder training, operational 
support, and administrative and personnel costs dedicated to risk 
adjustment activities related to the HHS-operated program. To calculate 
the user fee, we divided HHS's projected total costs for administering 
the risk adjustment program by the expected number of billable member 
months in risk adjustment covered plans in the 50 states and the 
District of Columbia where HHS will operate risk adjustment for the 
2020 benefit year.
---------------------------------------------------------------------------

    \46\ 83 FR 16930 at 16972.
---------------------------------------------------------------------------

    We estimate that the total cost for HHS to operate the risk 
adjustment program for the 2020 benefit year would be approximately $50 
million, and the risk adjustment user fee would be $2.16 per billable 
member per year, or $0.18 PMPM. The updated cost estimates attribute 
all costs related to the EDGE server data collection and data 
evaluation (quantity and quality evaluations) activities to the risk 
adjustment program rather than sharing them with the reinsurance 
program, which is no longer operational.\47\ In addition, we previously 
collected amounts under the reinsurance program for administrative 
expenses related to that program, which partially funded contracts that 
were used for both the risk adjustment and reinsurance programs. We no 
longer allocate indirect costs for personnel or administrative costs to 
the reinsurance program, and are reflecting the full value of those 
costs as part of risk adjustment operations for the 2020 benefit year. 
The risk adjustment user fee costs are also estimated to be slightly 
higher due to increased contract costs based on additional activities 
for the risk adjustment data validation program development and 
execution, including updated cost estimates associated with the non-
pilot years of the risk adjustment data validation program, including 
estimates for error rate adjustments, development of the new risk 
adjustment data validation audit tool, and additional contractor 
support for risk adjustment data validation discrepancies and appeals. 
The estimated costs also incorporate the full personnel and 
administrative costs associated with risk adjustment program 
development and operations in the risk adjustment user fee for the 2020 
benefit year. The personnel and administrative costs included in the 
calculation of the 2019 benefit year risk adjustment user fee for the 
2019 Payment Notice final rule incorporated only a portion of the 
personnel costs, and excluded indirect costs. The proposed 2020 benefit 
year risk adjustment user fee includes the full amount for eligible 
personnel costs, as well as eligible indirect costs. Finally, we 
estimate individual and small group market billable member months for 
the 2020 benefit year to remain roughly the same, as observed in the 
most recent risk adjustment data available for the 2017 benefit year. 
We seek comment on the proposed risk adjustment user fee for the 2020 
benefit year.
---------------------------------------------------------------------------

    \47\ Although the 2016 benefit year was the final benefit year 
for the reinsurance program, close-out activities continued in the 
2018 fiscal year, including the collection of the second part of the 
2016 benefit year contributions for contributing entities that 
elected the bifurcated schedule, which were due by November 15, 
2017, and are expected to continue in the 2019 fiscal year.
---------------------------------------------------------------------------

3. Risk Adjustment Data Validation Requirements When HHS Operates Risk 
Adjustment (Sec.  153.630)
    We conduct risk adjustment data validation under Sec. Sec.  153.630 
and 153.350 in any state where HHS is operating risk adjustment on a 
state's behalf, which for the 2020 benefit year is all 50 states and 
the District of Columbia. The purpose of risk adjustment data 
validation is to ensure issuers are providing accurate and complete 
risk adjustment data to HHS, which is crucial to the purpose and proper 
functioning of the HHS-operated 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 
auditor. 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. Each issuer's initial 
validation audit is followed by a second validation audit, which is 
conducted by an entity HHS retains to verify the accuracy of the 
findings of the initial validation audit. Set forth below are proposed 
amendments and clarifications to the risk adjustment data validation 
program in light of experience and feedback from issuers during the 
first 2 pilot years of the program.
a. Varying Initial Validation Audit Sample Size (Sec.  153.630(b))
    In the 2014 Payment Notice, we established the risk adjustment data 
validation program that HHS uses when operating risk adjustment on 
behalf of a state. Consistent with Sec.  153.350(a), HHS is required to 
ensure proper validation of a statistically valid sample of risk 
adjustment data from each issuer that offers at least one risk 
adjustment covered plan in that state. The current enrollee sample size 
selected for the initial validation audit is 200 enrollees statewide 
(that is, combining an issuer's individual, small group, and merged 
market enrollees (as applicable) in risk adjustment covered plans in 
the state) for each issuer's Health Insurance Oversight System (HIOS) 
ID, based on sample size precision analyses we conducted using proxy 
data from the Medicare Advantage program. Those analyses calculated a 
range of sample sizes to target a 10 percent precision at a 95 percent 
confidence level. The resulting range of sample sizes were between 100 
and 300, and we selected 200 as a midpoint.\48\ In the 2015 Payment 
Notice, we stated that, after the initial years of risk adjustment data 
validation, we would evaluate our sampling assumptions using actual 
enrollee data and consider using larger sample sizes for issuers that 
are larger or have higher variability in their enrollee risk score 
error rates, and smaller sample sizes for issuers that are smaller or 
have lower variability in their enrollee risk score error rates. We 
also stated that we would use our sampling experience in the initial 
years of risk adjustment data validation to evaluate using issuer-
specific sample sizes.
---------------------------------------------------------------------------

    \48\ See 79 FR 13743 at 13756.
---------------------------------------------------------------------------

    Additionally, in the initial years of risk adjustment data 
validation, we constrained the ``10th stratum'' of the initial 
validation audit sample--that is, enrollees without HCCs selected for 
the initial validation audit sample--to be one-third of the sampled 
initial validation audit enrollees. Under the current approach, the 
remaining 9 age-risk strata are selected using a Neyman allocation \49\ 
which optimizes the number of enrollees per stratum for the remaining 
two-thirds of sampled

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enrollees. Because we expected enrollees without HCCs to make up the 
majority of issuers' enrollees, in the absence of data from the 
individual and small group markets, we constrained stratum 10 to ensure 
that healthy enrollees were sampled in the initial years of risk 
adjustment data validation to establish adequate sampling assumptions.
---------------------------------------------------------------------------

    \49\ Neyman allocation is a method to allocate samples to strata 
based on the strata's variances and similar sampling costs in the 
strata. A Neyman allocation scheme provides the most precision for 
estimating a population mean given a fixed total sample size. See 
http://methods.sagepub.com/reference/encyclopedia-of-survey-research-methods/n324.xml.
---------------------------------------------------------------------------

    In this proposed rule, we propose to extend the Neyman allocation 
sampling methodology to also include the 10th stratum of enrollees 
without HCCs, such that samples would be assigned to all 10 strata 
using a Neyman allocation. Since a Neyman allocation approach is 
expected to provide a more optimal sample size allocation, we believe 
that using the Neyman allocation for all strata would optimize issuers' 
initial validation samples and yield better precision than the one-
third/two-thirds approach currently used in the enrollee initial 
validation audit sample. Further, an approach that permits for a larger 
portion of the sample to be allocated to the HCC strata as compared to 
the two-thirds allocation used in the current approach would result in 
a more robust HCC sample in support of the measurement of HCC failure 
rates under the HCC failure rate methodology finalized in the 2019 
Payment Notice. Finally, it would increase the probability of achieving 
our original target of 10 percent precision based on our historical 
observations of greater error rate variances among the HCC strata. We 
seek comment on this proposal to extend the Neyman allocation sampling 
methodology to the 10th stratum of enrollees without HCCs.
    As previously discussed, the current initial validation audit 
sample size of 200 was selected to achieve an estimated 10 percent 
precision, assuming a distribution of risk score errors similar to that 
found in the Medicare Advantage risk adjustment data validation 
program. However, since the HCC group failure rate approach to error 
estimation (referred to as the HCC failure rate methodology) will be 
implemented beginning with the 2017 benefit year of risk adjustment 
data validation, we anticipate that the calculated precision will 
differ from the estimate we used, which was based on the Medicare 
Advantage error rate data. Therefore, beginning with the 2019 benefit 
year of risk adjustment data validation,\50\ we propose to vary the 
initial validation audit sample size based on issuer characteristics, 
such as issuer size and prior year HCC failure rates. We are 
considering, and seek comment on, several different approaches for 
varying the initial validation audit sample size. We note that HHS will 
not increase the sample above 200 enrollees when it performs the second 
validation audit pairwise means test because a 200 enrollee sample will 
be sufficient to achieve statistical significance in that test. If we 
finalize an approach that incorporates the use of prior year HCC 
failure rates, we propose to use the 2017 benefit year risk adjustment 
data validation results--the only year of risk adjustment data 
validation results used for transfer adjustments that will be available 
at that time--as an initial basis for determining the 2019 benefit year 
initial validation audit samples. The 2017 risk adjustment data 
validation program year will also be the first year in which the audit 
results will impact risk adjustment risk scores and subsequently, risk 
adjustment transfers. Thus, we recognize there is considerable 
uncertainty in adopting a proposal to adjust sample sizes based on HCC 
failure rates where we do not yet have experience with risk adjustment 
data validation transfer data (that is, using HCC failure rate results 
to adjust risk scores that affect risk adjustment transfers). To 
account for the possibility of large variation in HCC failure rates in 
2017 risk adjustment data validation results, we propose to increase 
the precision of initial validation audit samples above 200 enrollees 
for issuers with lower or higher-than-average failure rates that are 
not precisely measured, as described further below. We also propose to 
require a minimum sample size of 400 enrollees for each larger issuer 
(defined as an issuer with 50,000 or more enrollees calculated 
statewide based on the benefit year being validated) with lower or 
higher-than-average failure rates that are not precisely measured, as 
we believe that larger issuers have the capability to absorb the 
increased burden and validate larger samples and represent a greater 
part of the risk pool, such that having any risk score adjustments 
resulting from risk adjustment data validation would have a greater 
impact on overall risk adjustment transfers. We solicit comment on this 
proposed approach, particularly with regard to the benefit year that we 
should use to calculate issuers' enrollment for the applicable risk 
adjustment data validation benefit year.
---------------------------------------------------------------------------

    \50\ Activities related to the 2019 benefit year risk adjustment 
data validation generally begin in the second quarter of 2020 
calendar year.
---------------------------------------------------------------------------

    We also seek comment on whether we should finalize an approach that 
uses HCC failure rates to determine sample size, and whether HHS should 
use the latest available benefit year HCC failure rate results alone, 
or use multiple prior years' HCC failure rates when determining an 
issuer's sample size. Under this proposed approach, we would also vary 
sample size based on issuers' sample precision for issuers with HCC 
failure rates close to the threshold that determines whether an issuer 
will have a transfer adjustment. Of the issuers outside of a confidence 
interval threshold around the mean HCC failure rates by HCC group, we 
would maintain the current minimum sample size of 200 enrollees for 
smaller issuers (defined as issuers with between 3,000 and 49,999 
enrollees calculated statewide based on the benefit year being 
validated), with sample sizes increasing for issuers in this cohort 
with poor precision. For larger issuers (that is, those with 50,000 or 
more enrollees calculated statewide based on the benefit year being 
validated), we propose to establish a minimum sample size of 400 
enrollees, with sample sizes increasing for issuers with poor 
precision. For very small issuers (defined as issuers with below 3,000 
enrollees calculated statewide based on the benefit year being 
validated), we propose to maintain a sample size of 200 enrollees 
regardless of the issuer's measured precision.
    We are also considering an alternative approach to adjusting sample 
size that would increase sample sizes based on issuer size alone, and 
would continue to use the proxy Medicare Advantage risk score error 
rate data for the accompanying precision analyses. Additionally, we 
solicit comment on whether the issuers' enrollment should be calculated 
based on the year that is being validated or based on the benefit year 
in which the HCC failure occurred.
    Additionally, in response to a comment we received on the 2019 
Payment Notice that larger sample sizes could improve the accuracy of 
issuers' risk adjustment data validation samples, we solicit comment on 
whether to permit issuers of any size and HCC failure rate to request a 
larger sample size before the applicable benefit year's initial 
validation audit commences. Regardless of an issuer's sample size, all 
issuers would be required to adhere to the same risk adjustment data 
validation timelines such that data validation activities related to 
the same benefit year occur at the same time, regardless of the 
issuer's sample size. We also request comment on whether this potential 
flexibility for issuers to determine their initial validation audit 
sample size necessitates any changes to the second validation audit 
pairwise

[[Page 254]]

means test, as well as on safeguards that can help ensure that the 
collection of larger amounts of enrollee data does not increase privacy 
risks for consumers.
    A discussion of the options we are considering to vary the initial 
validation audit sample size, including certain advantages and 
disadvantages for each, follows below. We solicit comment on all of 
these proposals.
i. Varying Sample Size Based on HCC Failure Rates, Sample Precision, 
and Issuer Size
    One approach we are considering would vary sample size based on a 
combination of the following issuer characteristics: HCC failure rates, 
sample precision, and issuer size. As stated above, we would use the 
2017 risk adjustment data validation results as an initial basis for 
determining 2019 initial validation audit sample sizes. We would 
increase the precision of initial validation audit samples above 200 
enrollees for issuers with lower or higher than average HCC failure 
rates that are not precisely measured, as described further below. For 
issuers with average HCC failure rates, the initial validation audit 
sample size would remain at 200 enrollees.
    Under this approach, we would adjust sample sizes above the 
applicable baseline sample size of 200 only for issuers who are more 
than 1.644 standard deviations away from the mean for any HCC failure 
rate group. This targeted sampling adjustment would ensure that all 
issuers outside or just inside of the HCC failure rate outlier 
threshold (1.96 standard deviations) receive sample sizes that better 
meet our targeted precision, that issuers receiving error rates are in 
fact outliers, and that issuers that did not receive an error rate, but 
had higher-than-average HCC failure rates, were not false negatives due 
to low precision in their sample. Issuers in this cohort whose sample 
size does not meet the targeted precision would have their initial 
validation audit sample size adjusted above 200 enrollees to more 
closely achieve the targeted precision level.
    Issuers with HCC failure rates within 1.644 standard deviations of 
the mean for all HCC failure rate groups would have initial validation 
audit sample sizes of 200 enrollees, as we do not believe a larger 
sample size would result in a meaningful impact on the error rates for 
these issuers. By including issuers with HCC failure rates above 1.644 
standard deviations from the mean, but who were not outliers (above 
1.96 standard deviations from the mean), the sampling approach would 
take into account issuers that were not identified as outliers under 
the HCC failure rate methodology, but may have been outliers with a 
larger sample size. By expanding these issuers' sample sizes and 
outlier issuers' sample sizes where issuers' initial sample precision 
did not meet the targeted value, we can evaluate a more accurate 
representation of those issuers' populations by capturing more 
enrollees to better reflect the variation in an issuer's population in 
the next year of risk adjustment data validation. The proposed use of 
1.644 standard deviations (a 90 percent confidence interval) would 
ensure that we are evaluating the sampling precision of approximately 
10 percent of issuers, to assess the potential for false positives or 
false negatives around the approximate 5 percent of issuers identified 
as outliers by HCC failure rate group using 1.96 standard deviations (a 
95 percent confidence interval).
    This proposal is consistent with the approach used for error 
estimation under the HCC failure rate methodology that will be used 
beginning with the 2017 benefit year risk adjustment data validation, 
and would reduce the aggregate issuer burden associated with an 
increased sample size by only affecting outlier issuers and those 
issuers that are slightly inside of the 1.96 standard deviations from 
the mean outlier threshold--that is, issuers with HCC failure rates 
results that affect or potentially affect transfer adjustments. This 
approach considers issuers that are closer to the mean to have samples 
that are of an appropriate precision level, and thus would have the 
effect of most issuers' (approximately 90 percent) samples remaining 
unchanged from the current baseline sample size of 200.
    For smaller issuers (those with between 3,000 and 49,999 enrollees 
calculated statewide based on the benefit year being validated) outside 
of 1.644 standard deviations from the mean of any HCC failure rate 
group, we propose starting with a minimum sample size of 200 enrollees 
equivalent to the initial validation audit sample size that will be 
used for 2018 risk adjustment data validation, which will increase 
based on the issuer's measured precision. For larger issuers (those 
with 50,000 or more enrollees calculated statewide based on the benefit 
year being validated) that are outside of 1.644 standard deviations 
from the mean of any HCC failure rate group, we propose starting with 
an initial validation audit sample size of 400 enrollees, which would 
similarly increase based on the issuer's measured precision. For very 
small issuers (defined for this purpose as issuers with below 3,000 
enrollees calculated statewide based on the benefit year being 
validated) outside of 1.644 standard deviations from the mean of any 
HCC failure rate group, we propose to maintain the sample size at 200 
enrollees. We are not proposing to increase the sample size for very 
small issuers because the current 200 enrollee sample size is already 
statistically significant for issuers with fewer than 3,000 enrollees 
(calculated statewide based on the benefit year being validated), and 
any further sample size increase would be especially burdensome for 
these issuers. We propose to use the Neyman allocation for the 
allocation of enrollees to all 10 strata,\51\ if the above accompanying 
proposal to extend the Neyman allocation sampling methodology to also 
include the 10th stratum of enrollees without HCCs is finalized.
---------------------------------------------------------------------------

    \51\ As noted previously in this proposed rule, Neyman 
allocation is a method to allocate samples to strata based on the 
strata's variances and similar sampling costs in the strata. A 
Neyman allocation scheme provides the most precision for estimating 
a population mean given a fixed total sample size. See http://methods.sagepub.com/reference/encyclopedia-of-survey-research-methods/n324.xml.
---------------------------------------------------------------------------

    To determine the precision of the sample of group failure rates, we 
would estimate the absolute precision at a 95 percent confidence level 
using the formula below.

[[Page 255]]

[GRAPHIC] [TIFF OMITTED] TP24JA19.001

    The standard error, and thus, precision, is inversely proportional 
to the square root of the sample size (n). Therefore, as the sample 
size increases, the standard error which is the metric to measure 
precision would decrease (better precision would be achieved, as lower 
values of the precision measurement indicate a better precision). The 
proposed approach to calculate the new sample size reflects the inverse 
relationship between the precision and the sample size, as illustrated 
in the formula below:
[GRAPHIC] [TIFF OMITTED] TP24JA19.002

    Substituting the values for the original sample size and the 
precision target yields:
[GRAPHIC] [TIFF OMITTED] TP24JA19.003

    In the summer of 2019, once we have 2017 benefit year risk 
adjustment data validation HCC failure rates, we will be able to 
develop the relative precision of the sample; however, at this time, we 
cannot definitively determine the sample sizes that would result from 
this proposed approach. Because we propose using 1.644 standard 
deviations (a 90 percent confidence interval) to identify issuers for 
sampling adjustments, we estimate that approximately 55 issuers would 
have their sample size increased under this approach out of the 
approximately 500 issuers expected to participate in risk adjustment 
data validation for the 2019 benefit year. Using the results of 2016 
risk adjustment data validation, we expect that approximately 40 larger 
issuers would have their sample sizes increased to at least 400 
enrollees, and approximately 5 of these larger issuers would have their 
sample sizes increased above 400 enrollees as a result of poor sample 
precision. For the remaining 30 smaller issuers, we expect that 
approximately 50 percent would have sample precision that meets or is 
better than the target 10 percent precision and therefore would 
maintain a sample size of 200 enrollees, with the majority of the other 
15 smaller issuers facing moderate sample size increases to improve the 
precision of their samples. Based on our analysis of 2016 risk 
adjustment data validation, we believe that under this proposed 
approach, only a very small number of the subset of issuers outside 
1.644 standard deviations from the mean HCC failure rate with poor 
precision (for example, precision greater than 20 percent) could have 
sample sizes up to 500 enrollees for smaller issuers and up to 800 for 
larger issuers.
    For smaller issuers with HCC failure rates above 1.644 standard 
deviations of the mean HCC group failure rates, and an assumed 
precision above the 10 percent target, we estimate approximate sample 
size ranges for issuer precision groups below:
     Issuers with 10 percent precision or lower.

++ 2019 approximate sample size: 200

     Issuers with precision between 10 percent and 20 percent.

++ 2019 approximate sample size range: 250 to 350

     Issuers with precision above 20 percent.

++ 2019 approximate sample size range: 400 to 500

    As stated above, we believe that larger samples for larger issuers 
allows for increased samples for issuers that have the capability to 
undertake the increased burden and whose errors will have a greater 
impact on the state market risk pool, which may also help to inform our 
future sampling methodology. As a result, we are proposing baseline 
minimum sample sizes of 400 enrollees for larger issuers with HCC 
failure rates above 1.644 standard deviations of the mean HCC group 
failure rates. For larger issuers with HCC failure rates above 1.644 
standard deviations of the mean HCC group failure rates, and an assumed 
precision above the 10 percent target, we estimate approximate sample 
size ranges for issuer precision groups below:
     Issuers with 10 percent precision or lower.

++ 2019 approximate sample size: 400

     Issuers with precision between 10 percent and 20 percent.

++ 2019 approximate sample size range: 450 to 650


[[Page 256]]


     Issuers with precision above 20 percent.

++ 2019 approximate sample size range: 700 to 800

    We believe that increasing issuer sample sizes would provide more 
data that HHS could use to further refine risk adjustment data 
validation error rate assumptions and precision rate targets for future 
risk adjustment data validation. Additionally, we believe that any 
increase in burden would be outweighed by the increased accuracy and 
precision of the risk adjustment data validation results which are used 
to adjust risk adjustment transfers.
    We request comment on the approach for determining sample sizes for 
very small issuers, smaller issuers, and larger issuers based on HCC 
failure rates and sample precision described above, and any alternative 
approaches that could limit burden for smaller and medium size issuers 
while achieving our target precision. We also request comment on 
whether larger issuers with over 50,000 enrollees (calculated statewide 
based on the benefit year being validated) should have larger initial 
sample sizes, as well as alternative approaches that would provide HHS 
with data it could use to further refine risk adjustment data 
validation error rate assumptions while also limiting unnecessary 
burdens for these issuers.
ii. Varying Initial Validation Audit Sample Size Based Only on Issuer 
Size
    An alternative approach we are considering would increase the 
sample sizes based on issuer size only and continue to use the proxy 
Medicare Advantage risk score error rate data for conducting precision 
analyses. Larger sample sizes provide more opportunity to test variance 
in an issuer's population as compared to the current sampling method, 
which samples 200 enrollees regardless of the size of the issuer. The 
use of larger sample sizes based on issuer size could allow HHS to 
better ensure confidence in the risk adjustment data validation process 
while increasing the financial and administrative burden on issuers 
proportionally to their size. As noted above, larger issuers have the 
capability to undertake the increased burden, and their errors will 
have a greater proportional impact on the state market risk pool. If we 
were to modify sample size based on issuer size alone, we propose to 
develop sample sizes based on issuer size for four groups using the 
total number of unique enrollees in risk pools across all states where 
the issuer is subject to risk adjustment transfers (that is, combining 
enrollment for all risk pools where the issuer offers risk adjustment 
covered plans, except for states where there is only one issuer in the 
risk pool). Under this proposed approach, HHS would use an issuer's 
population size for an applicable benefit year of risk adjustment to 
determine the issuer size group for the same benefit year of risk 
adjustment data validation sampling. The sample sizes would apply to 
all issuers in the applicable size category, without regard to their 
HCC failure rates or sample precision. Under this option, we would use 
the following groupings calculated based on the issuer's total number 
of enrollees in all risk pools receiving risk adjustment transfers in 
the applicable benefit year of risk adjustment:
     Issuers with 51-3,000 enrollees.\52\
---------------------------------------------------------------------------

    \52\ Our assumption is that most issuers with fewer than 50 
enrollees are likely exempt from participating in risk adjustment 
data validation for the benefit year because the issuer has less 
than 500 billable member months, but if an issuer has more than 500 
billable member months and less than 50 enrollees, the issuer would 
still be required to participate in risk adjustment data validation 
in a given benefit year. For those issuers, the sample size would 
remain the same as prior years.

---------------------------------------------------------------------------
++ 2019 approximate sample size for small issuers: 90

 Issuers with 3,001-20,000 enrollees.

++ 2019 approximate sample size for medium issuers: 250

 Issuers with 20,001-100,000 enrollees.

++ 2019 approximate sample size for large issuers: 400

     Issuers with 100,001 and above.

++ 2019 approximate sample size for extra-large issuers: 500

    Enrollment in risk pools where there are no risk adjustment 
transfers (that is, where there is only a single issuer) would be 
excluded from this calculation. We note that, under this approach, 
larger samples would be required for most issuers. However, we believe 
that any increase in burden would be outweighed by the increased 
precision of the risk adjustment data validation results which are used 
to adjust risk adjustment risk scores and subsequently risk adjustment 
transfers.
    While this approach is the most predictable for issuers, based on 
HHS's analysis of increasing the sample size based on issuer size, we 
do not believe this is the best approach, as it would increase burden 
while not meaningfully improving precision for issuers with large 
variances in HCC failure rates or error rates. This approach also would 
unnecessarily increase sample sizes for issuers with good precision 
using a sample of 200 due to low variability in HCC failure rates or 
risk score errors. Notwithstanding these disadvantages, we acknowledge 
that varying the sample size using issuer size is the only way to 
incorporate the most current issuers' characteristics in the sample 
size determination, as the use of issuers' risk score errors or HCC 
failure rates would be based on prior years for a future initial 
validation sample.
    We seek comment on this alternative approach. Additionally, if we 
finalize an approach that adjusts initial validation audit samples 
using issuers' size only, we request comment on whether to further 
subdivide each of the issuer size groups outlined above, and seek 
comment on what the characteristics and number of subgroups should be, 
and why.
    We seek comment on all aspects of these potential approaches to 
varying the initial validation audit sample size and whether HHS should 
consider any other sampling approaches to determine sample sizes. We 
solicit comment on whether, beginning with 2019 benefit year risk 
adjustment data validation, we should vary sample size based on HCC 
failure rate outliers and issuers with lower and higher-than-average 
HCC failure rates' precision, incorporating minimum sample sizes for 
larger and smaller issuers with lower- or higher-than-average HCC 
failure rates, or varying sample size by issuer size only. 
Specifically, we seek comment on whether HHS should use the 2017 
benefit year HCC failure rates to develop sample sizes for the 2019 
benefit year, as HHS can only estimate an expected range in issuers' 
precisions to estimate the potential impact on sample size at this 
point in time. Finally, we request comment on whether HHS should 
maintain the current initial validation audit sampling approach of 200 
enrollees for all issuers for 2019 benefit year risk adjustment data 
validation, while continuing to evaluate our sampling assumptions using 
actual enrollee data.
b. Second Validation Audit and Error Rate Discrepancy Reporting (Sec.  
153.630(d)(2))
    Under Sec.  153.630(d)(2), issuers have 30 calendar days to confirm 
the findings of the second validation audit or the calculation of the 
risk score error rate, or file a discrepancy report, in the manner set 
forth by HHS, to dispute the foregoing. We propose to amend paragraph 
(d)(2) to shorten the window to confirm the findings of the second 
validation audit (if applicable) or the calculation of the risk score 
error rate, or file a discrepancy, to within 15 calendar days of the 
notification by HHS, beginning with the 2018 benefit

[[Page 257]]

year risk adjustment data validation. We also clarify that there are 
two discrepancy reporting windows under Sec.  153.630(d)(2). First, at 
the conclusion of the second validation audit, we will distribute to 
issuers their results for the given benefit year. These results would 
only include second validation audit findings in the event there is 
insufficient agreement between the initial validation audit and second 
validation audit results during the pairwise means analysis, and the 
second validation audit findings are used for the risk score error rate 
calculation. For issuers who receive second validation audit findings, 
the 15 calendar day window to confirm the findings or file a 
discrepancy, in the manner set forth by HHS, would begin when the 
second validation audit findings reports are issued. At the conclusion 
of the risk score error rate calculation process, we will distribute 
the risk score error rate calculation results to all issuers for the 
given benefit year. Once the risk score error rate calculation results 
are distributed, the 15 calendar day window to confirm the error rate 
calculation results or file a discrepancy, in the manner set forth by 
HHS, would begin. The proposed shorter discrepancy reporting timeframes 
are intended to ensure that we can resolve as many issues as possible 
in advance of publication of calculated risk adjustment transfer 
amounts under Sec.  153.310(e), since any adjusted risk scores would 
result in an adjustment to risk adjustment transfers. Based on the 
first 2 pilot years of risk adjustment data validation, HHS believes 
that this shortened window would not be overly burdensome on issuers, 
and that any disadvantages of this shortened window would be outweighed 
by the benefits of timely resolution of as many discrepancies as 
possible prior to the release of the summary report on risk adjustment 
results by the end of June. We further note that a 15-day discrepancy 
reporting window is consistent with the initial validation audit sample 
and EDGE discrepancy reporting windows at Sec. Sec.  153.630(d)(1) and 
153.710(d), respectively.
    We also propose to amend Sec.  153.630(d)(2) to clarify the 
reference to the ``audit and error rate'' for which an issuer must 
confirm or file a discrepancy by replacing that phrase at the end of 
the provision with ``the findings of the second validation audit (if 
applicable) or the calculation of a risk score error rate as a result 
of risk adjustment data validation.'' We reiterate, as stated in the 
2018 Payment Notice, that issuers are not permitted to appeal the 
resolution of any interim discrepancy disputing the initial validation 
audit sample, or to file a discrepancy or appeal the results of the 
initial validation audit.\53\ As detailed in the 2015 Payment Notice 
\54\ and discussed later in this proposed rule, if sufficient pairwise 
means agreement is achieved, the initial validation audit findings will 
be used for purposes of the risk score error rate calculation, and 
therefore, those issuers will only be permitted to file a discrepancy 
or appeal the risk score error rate calculation. We seek comment on the 
proposed amendments to Sec.  153.630(d)(2).
---------------------------------------------------------------------------

    \53\ 81 FR 94106.
    \54\ See 78 FR at 72334 through 72337 and 79 FR at 13761 through 
13768.
---------------------------------------------------------------------------

c. Default Data Validation Charge
    Under Sec.  153.630(b)(10), if an issuer of a risk adjustment 
covered plan fails to engage an initial validation auditor or submit 
initial validation audit results, we impose a ``default data validation 
charge,'' which the regulation currently refers to in paragraph (b)(10) 
as a ``default risk adjustment charge.'' As explained in the 2015 
Payment Notice, the default data validation charge is calculated in the 
same manner as the default risk adjustment charge under Sec.  
153.740(b).\55\ With the 2017 benefit year being the first non-pilot 
year of risk adjustment data validation, and the first year for which 
HHS may impose the default data validation charge for noncompliance 
with applicable data validation requirements, we are proposing several 
amendments to clarify and further distinguish the default data 
validation charge assessed under Sec.  153.630(b)(10) from the default 
risk adjustment charge assessed under Sec.  153.740(b). First, we 
propose to amend Sec.  153.630(b)(10) to replace the phrase ``HHS will 
impose a default risk adjustment charge'' with ``HHS will impose a 
default data validation charge.'' This change is intended to more 
clearly distinguish between the two separate risk adjustment-related 
default charges. Second, we propose to modify how the default data 
validation charge under Sec.  153.630(b)(10) would be calculated. While 
we would generally continue to calculate the default data validation 
charge in the same manner as the risk adjustment default charge under 
Sec.  153.740(b), we propose to calculate the default data validation 
charge based on the enrollment for the benefit year being audited in 
risk adjustment data validation, rather than the benefit year during 
which transfers would be adjusted as a result of risk adjustment data 
validation. By way of example, if an issuer is subject to the default 
data validation charge for 2021 benefit year risk adjustment data 
validation and it offers risk adjustment covered plans in the same 
state risk pool in the 2022 benefit year, its default data validation 
charge would be calculated based on 2021 benefit year enrollment data 
(rather than 2022 benefit year enrollment data). Under this example, 
the default data validation charge this issuer would receive for 
failing to comply with the 2021 benefit year risk adjustment data 
validation requirements would equal a per member per month (PMPM) 
amount for the 2021 benefit year multiplied by the plan's enrollment 
for the 2021 benefit year as follows:
---------------------------------------------------------------------------

    \55\ 79 FR at 13769.

---------------------------------------------------------------------------
Tn = Cn * En

Where:

Tn = total default data validation charge for a plan n;
Cn = the PMPM amount for plan n; \56\ and
---------------------------------------------------------------------------

    \56\ As established in the 2015 Payment Notice at 79 FR 13790, a 
PMPM default charge is equal to the product of the statewide average 
premium (expressed as a PMPM amount) for a risk pool and the 75th 
percentile plan risk transfer amount expressed as a percentage of 
the respective statewide average PMPM premiums for the risk pool. 
This rule does not propose any changes to this aspect of the 
calculation of the default data validation charge.
---------------------------------------------------------------------------

En = the total enrollment (total billable member months) for plan 
n.\57\
---------------------------------------------------------------------------

    \57\ In the 2015 Payment Notice at 79 FR 13790, we provided that 
En could be calculated using an enrollment count provided by the 
issuer, enrollment data from the issuer's MLR and risk corridors 
filings for the applicable benefit year, or other reliable data 
sources. This rule does not propose any changes to the sources that 
could be used.

    Third, we propose to amend the allocation approach for distribution 
of default data validation charges among issuers. We propose to 
allocate a default data validation charge to the risk adjustment data 
validation issuers that were part of the same benefit year risk pool(s) 
as the noncompliant issuer. However, we would not allocate default data 
validation charges to any other noncompliant issuers in the same 
benefit year risk pool(s). This approach is consistent with the 
methodology for allocating the default risk adjustment charges under 
Sec.  153.740(b), and includes all issuers in the same benefit year 
risk pool(s) that would be subject to a risk score adjustment as the 
result of other issuers' risk adjustment data validation results. 
Issuers in the same benefit year risk pool(s) that are exempt from the 
risk adjustment data validation requirements would also be included in 
the allocation of any default data validation charges. Therefore, we 
propose to allocate any default data

[[Page 258]]

validation charges collected from noncompliant issuers among the 
compliant and exempt issuers in the same benefit year risk pool(s) in 
proportion to their respective market shares and risk adjustment 
transfer amounts for the benefit year being audited for risk adjustment 
data validation.
    As an illustrative example, there are 4 issuers (A, B, C, and D) in 
the individual non-catastrophic risk pool in state X for the 2017 
benefit year, and an additional issuer, E, in the 2018 benefit year 
individual non-catastrophic risk pool in state X. For the 2017 benefit 
year:
     Issuer A does not comply with risk adjustment data 
validation and is assessed a default data validation charge.
     Issuer B was exempt from risk adjustment data validation 
for the 2017 benefit year because it was a small issuer (that is, it 
had 500 or fewer billable member months statewide in state X).
     Issuers C and D complied with applicable 2017 benefit year 
risk adjustment data validation requirements.
     Issuer E was not in the individual non-catastrophic risk 
pool in state X for 2017.
    Issuer A's default data validation charge would be allocated to 
issuers B, C, and D in proportion to their 2017 transfer amounts and 
market shares. As detailed further below, this allocation would occur 
in the 2019 calendar year alongside the collection and payment of 2018 
benefit year risk adjustment transfers. While Issuer B was not subject 
to risk adjustment data validation for the 2017 benefit year, it was 
still part of the same state market risk pool and would be subject to 
possible risk score adjustments due to the risk adjustment data 
validation results of issuers C and D. Since issuers C and D also 
participated in the individual non-catastrophic risk pool in state X 
for 2017 and complied with applicable data validation requirements, 
they would also receive part of Issuer A's default data validation 
charge. However, Issuer E was not part of the individual non-
catastrophic risk pool in state X until 2018, and therefore would not 
receive any part of Issuer A's 2017 benefit year default data 
validation charge.
    We intend to publish the default data validation charge information 
in the benefit year's report(s) released under Sec.  153.310(e) in 
which transfers are adjusted based on risk adjustment data validation 
results, similar to how information on the risk adjustment default 
charge under Sec.  153.740(b) is currently provided.\58\ Information on 
default data validation charges would be included as part of the 
summary risk adjustment report made publicly available beginning with 
the 2018 benefit year reports released under Sec.  153.310(e). For 
example, for the 2017 benefit year risk adjustment data validation, we 
would publish information on default data validation charges and 
allocation of those charges to eligible 2017 benefit year issuers in 
the affected risk pools as part of the 2018 benefit year summary risk 
adjustment report. Following release of this report, these amounts 
would then be included as part of the monthly payment and collection 
processes described in 45 CFR 156.1215 alongside the collection of risk 
adjustment charges and payments calculated under the HHS-operated risk 
adjustment methodology.
---------------------------------------------------------------------------

    \58\ For example, see Section VII, Default Risk Adjustment 
Charge, in the Summary Report on Permanent Risk Adjustment Transfers 
for the 2017 Benefit Year (July 9, 2018), available at https://downloads.cms.gov/cciio/Summary-Report-Risk-Adjustment-2017.pdf.
---------------------------------------------------------------------------

    Fourth, we clarify that a default data validation charge under 
Sec.  153.630(b)(10) is separate from risk adjustment transfers for a 
given benefit year, unlike a default risk adjustment charge under Sec.  
153.740(b), which replaces the issuer's transfer amount for that 
benefit year. For example, if an issuer fails to submit initial 
validation audit results for the 2017 benefit year, it would receive a 
default data validation charge based on 2017 benefit year data 
calculated in accordance with the formula outlined above, if finalized 
as proposed. This default data validation charge for the 2017 benefit 
year would be in addition to, and separate from, the issuer's 2018 
benefit year risk adjustment payment or charge amount as calculated 
under the HHS-operated risk adjustment methodology. This means that an 
issuer may owe both a default risk adjustment charge and a default data 
validation charge in the same calendar year (for example, in the 2019 
calendar year, an issuer could owe a risk adjustment default charge for 
the 2018 benefit year and a default data validation charge for the 2017 
benefit year risk adjustment data validation). Similarly, an issuer may 
owe in the same benefit year a risk adjustment charge for a given 
benefit year, alongside a default data validation charge for the 
benefit year being audited (for example, in the 2019 calendar year, an 
issuer could owe a risk adjustment charge for the 2018 benefit year as 
well as a default data validation charge for the 2017 benefit year).
    We offer these proposals and clarifications about how HHS will 
assess and allocate the default data validation charge at this time to 
allow issuers to better understand the implications of noncompliance 
with initial validation audit requirements as risk adjustment data 
validation operations transition away from the pilot years of the 
program. The proposed amendments would apply beginning with the 2017 
benefit year risk adjustment data validation.
    We seek comment on these proposals.
d. Second Validation Audit Pairwise Means Test
    In the 2014 Payment Notice, we provided that a second validation 
audit, will be conducted by an entity retained by HHS to verify the 
accuracy of the findings of the initial validation audit.\59\ 
Consistent with Sec.  153.630(c), HHS must select a subsample of the 
risk adjustment data validated by the initial validation audit for the 
second validation audit. In the 2015 Payment Notice, we indicated that 
to select the subsample, the second validation auditor will use a 
sampling methodology that allows for pairwise means testing to 
establish a statistical difference between the initial and second 
validation audit results.\60\ This pairwise means test uses a 95 
percent confidence interval (and a standard deviation of 1.96). To do 
pairwise means testing under the current approach, the second 
validation auditor tests a subsample of enrollees from an issuer's 
initial validation audit sample of 200 enrollees. If the pairwise means 
test results for a subsample indicate that the difference in enrollee 
results between the initial and second validation audits is not 
statistically significant, the initial validation audit results are 
used for calculation of HCC failure rates and risk score error rates. 
If the pairwise means test results for the subsample yields a 
statistically significant difference, the second validation auditor 
performs another validation audit on a larger subsample of enrollees 
from the initial validation audit. The results from the second 
validation audit of the larger subsample are again compared to the 
results of the initial validation audit using the pairwise means test 
with a subsample size of up to 100 enrollees. If there is no 
statistically significant difference between the initial and second 
validation audits of the larger subsample, HHS will apply the initial 
validation audit error results to

[[Page 259]]

calculate the HCC failure rates and risk score error rates. However, if 
a statistically significant difference is found based on the second 
validation audit of the larger subsample up to 100 enrollees, HHS will 
apply the second validation audit results to the larger subsample to 
calculate the HCC failure rates and risk score error rates.
---------------------------------------------------------------------------

    \59\ 78 FR 15437.
    \60\ 79 FR 13761.
---------------------------------------------------------------------------

    Based on the results of the second validation audit for the 2016 
risk adjustment data validation pilot year, we propose to modify the 
statistical subsampling methodology to further expand the comparison of 
results between the initial and second validation audits beginning with 
the 2017 benefit year risk adjustment data validation. Specifically, 
when the larger subsample (of 100 enrollees) results indicate a 
statistically significant difference, we believe that further sampling 
by the second validation auditor is necessary and appropriate to 
determine whether the second validation audit results from the full 
sample should be used in place of the initial validation audit results. 
Therefore, we propose that, if a statistically significant difference 
is found based on the second validation audit of the larger subsample 
(of 100 enrollees), HHS would expand its sample to the full initial 
validation audit sample to consider whether the second validation audit 
results of the full sample or the subsample (of 100 enrollees) results 
should be used in place of initial validation audit results. Allowing 
the further testing of the sample provides assurance and confidence in 
the second validation audit results and the associated error estimation 
rate that would ultimately be used to adjust risk scores and transfers.
    To determine whether to expand the second validation audit to the 
full initial validation audit sample, we propose to use a precision 
analysis. We would use precision metrics, including the standard error 
and confidence intervals, to determine if the second validation audit 
review of the larger subsample (of 100 enrollees) is of high or low 
precision. If the results of the second validation audit precision 
analysis determine that the precision level is good, HHS would use the 
second validation audit results for the larger subsample (of 100 
enrollees) in place of the initial validation audit results for the 
error estimation and calculation of adjustments for plan average risk 
score, as applicable. However, if the second validation audit precision 
analysis for a larger subsample (of 100 enrollees) determines that the 
precision level is poor, the second validation audit would expand and 
use the full initial validation audit sample of 200 enrollees for error 
estimation and calculation of adjustments for plan average risk score.
    If any of the proposals to vary the initial validation audit sample 
size described above are finalized beginning with the 2019 benefit year 
risk adjustment data validation, we propose to maintain the maximum 
expansion of the sample for the pairwise comparison at 200 enrollees, 
and if the sample is smaller than 200 enrollees for an issuer's initial 
validation audit, the maximum expansion for pairwise means testing 
would be the full sample size.
    We seek comments on these proposals.
e. Error Estimation for Prescription Drugs
    Under Sec.  153.350(c), we may adjust risk adjustment transfers to 
all issuers of risk adjustment covered plans in a state market risk 
pool based on adjustments to the average actuarial risk of a risk 
adjustment covered plan due to errors discovered during risk adjustment 
data validation. In the 2019 Payment Notice, we recognized 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.\61\ To avoid adjusting all 
issuers' risk scores, and by extension their risk adjustment transfers 
for expected variation and error, we finalized an approach in the 2019 
Payment Notice that uses failure rates specific to HCC groups and 
subsequently adjusts each issuer's risk score when the 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 submit 
initial validation audit results. We believe that determining outlier 
failure rates based on HCC groups 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. 
Further, this approach is intended to streamline the risk adjustment 
data validation process and improve issuers' ability to predict risk 
score adjustments that would impact risk adjustment transfers 
(including adjustments made as a result of risk adjustment data 
validation results) while ensuring the integrity and quality of data 
provided by issuers.
---------------------------------------------------------------------------

    \61\ 83 FR 16961.
---------------------------------------------------------------------------

    Additionally, in the 2018 Payment Notice,\62\ we finalized that, 
starting with the 2018 benefit year, prescription drug utilization 
indicators would be incorporated into the HHS risk adjustment models to 
create ``hybrid'' drug-diagnosis risk adjustment models for adults. To 
develop the hybrid drug-diagnosis risk adjustment models for adults, we 
finalized a set of clinically and empirically cohesive drug classes and 
created several Prescription Drug Categories (RXCs) to select and to 
group drugs. Based on a set of principles to guide our decision-
making,\63\ we selected RXCs to impute diagnoses and to indicate the 
severity of diagnoses otherwise indicated through medical coding. 
Specifically, we created ``payment'' RXCs and interactions between RXCs 
and HCCs, referred to as ``RXC-HCCs,'' that serve as indicators of 
incremental risk. The RXCs incorporated in the risk adjustment models 
for adults are closely associated to a specific HCC or group of HCCs 
that are potentially suitable for inclusion in the HHS risk adjustment 
models. When these RXCs are present, they can be used to impute a 
missing HCC, or to indicate the severity of a condition when coupled 
with a particular HCC. We also created ``severity-only RXCs'' that only 
indicate incremental risk when an HCC is also present for an enrollee. 
These severity-only RXCs are not included in the adult models to impute 
the associated diagnosis when an HCC is not present.\64\ The 
incorporation of prescription drug data helps reduce incentives for 
issuers to avoid making available treatments for high-cost conditions 
in their formularies, and can effectively indicate health risk in cases 
where diagnoses may be missing. Because of the incorporation of payment 
RXCs into the risk adjustment models for adults beginning with the 2018 
benefit year, we believe further modification may be appropriate to the 
error estimation methodology to take into account these RXCs' failure 
rates as part of the HHS risk adjustment data validation process.
---------------------------------------------------------------------------

    \62\ 81 FR 94058 at 94074-94080.
    \63\ These principles are outlined in the 2018 Payment Notice at 
81 FR 94058 at 94075.
    \64\ The severity-only RXCs are included in the 2018 benefit 
year risk adjustment adult models, but are removed beginning with 
the 2019 benefit year risk adjustment models, as they did not 
meaningfully predict risk after being constrained. See 83 FR 16930 
at 16941.
---------------------------------------------------------------------------

    HCCs are used in the 2017 risk adjustment data validation error 
estimation methodology finalized in the 2019 Payment Notice \65\ in two 
key components of the methodology. First, the HCCs are grouped into 
low, medium, and high HCC groups based on the national failure rates 
for each HCC. Specifically, using data from the benefit year's risk 
adjustment data validation,

[[Page 260]]

HHS first calculates the failure rate for each HCC in issuers' initial 
validation audit samples as:
---------------------------------------------------------------------------

    \65\ 83 FR 16961-16967.

    [GRAPHIC] [TIFF OMITTED] TP24JA19.004
    

---------------------------------------------------------------------------
Where:

Freq_EDGE h 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 initial 
validation audit results, which is the number of sampled enrollees 
with HCC code h in initial validation audit results.
FRh is the failure rate of HCC code h.
h is the set of codes including all HCCs.\66\
---------------------------------------------------------------------------

    \66\ To clarify the formula finalized in the 2019 Payment 
Notice, we added the definition of h, which was included in the 2019 
Payment Notice, but was not explicitly defined.

    Based on the above calculation, HHS then creates three HCC groups 
(low, medium, and high) from the derived HCC failure rates. These HCC 
groups are 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. Those three 
HCC groupings are used to calculate each issuer's HCC group failure 
rate to set the national means and confidence intervals for each HCC 
group. These national confidence intervals determine the thresholds for 
being an outlier for each of the three HCC groups, and the individual 
issuer's HCC group failure rates are compared to these national 
confidence intervals to determine if the issuer is an outlier.
    Second, HCCs are used in the calculation of the issuer's error 
rate, which we use to adjust the issuer's risk score, if applicable. To 
calculate this adjustment, we first calculate the adjustment to an 
enrollee's total risk score, as the ratio of the total adjusted risk 
score for individual HCCs to the total risk score components for 
individual HCCs. Then, we calculate the total adjustment to an issuer's 
risk score amount across all HCCs per enrollee as:

[GRAPHIC] [TIFF OMITTED] TP24JA19.005


Adjustmenti,e is the calculated adjustment amount to adjust Enrollee 
e of Issuer i's EDGE risk score.

    In this rule, we propose to incorporate RXCs into the error 
estimation methodology beginning with the 2018 benefit year risk 
adjustment data validation error estimation, and are considering 
several alternatives for adding RXCs into these two parts of the risk 
adjustment data validation error estimation methodology, as outlined 
further below. We seek comments on all of the proposals and 
alternatives, including an alternative method described later in this 
section that would not require changes to the error estimation 
methodology to incorporate RXCs into HHS risk adjustment data 
validation.
    In considering how to incorporate prescription drugs in the error 
estimation methodology, we recognize that differences between HCCs and 
RXCs need to be considered. Specifically, RXCs and HCCs are inter-
dependent in the enrollee's risk score calculation and the risk score 
impact of RXCs can reflect interaction terms of the RXC between more 
than one HCC.
    Additionally, the method for validating an enrollee's RXC would be 
different than the method for validating an enrollee's HCC. 
Specifically, our assumption is that it may be more straightforward for 
initial validation auditors to validate an RXC than an HCC because in 
many cases, only a validated prescription would need to be obtained to 
validate the RXC, whereas HCC validation requires recoding a medical 
record, which likely has the potential for greater variation.
    With these considerations in mind, the first proposal we are 
considering would incorporate RXCs into the HCC failure rate 
methodology by adding each RXC as a separate factor, similar to an 
``HCC'', for classification into the low, medium, and high HCC groups 
determined by the national failure rates for each RXC. For example, 
because there are 12 RXCs and 128 single component HCCs in the 2018 
benefit year,\67\ incorporating RXCs in this manner would mean that the 
number of factors for groupings for risk adjustment data validation 
would increase from 128 HCCs to 140 HCCs/RXCs. To apply this change to 
the error estimation methodology finalized in the 2019 Payment Notice, 
we propose the definition of superscript h would expand to a list of 
codes including both the 128 HCCs and 12 RXCs whereby HHS would first 
calculate the failure rate for each HCC and RXC in issuers' samples as:
---------------------------------------------------------------------------

    \67\ The proposed RXC methodologies in this section are intended 
to start applying with the 2018 benefit year risk adjustment data 
validation where there was 12 RXCs being used in the risk adjustment 
models for adults; however, starting with the 2019 benefit year, the 
two severity-only RXCs are removed from the adult risk adjustment 
models. See 83 FR at 16941. Therefore, only 10 RXCs exist for the 
2019 benefit year and adoption of this proposal would mean that the 
number of factors for groupings for risk adjustment data validation 
would increase for 2019 benefit year risk adjustment data validation 
from 128 HCCs to 138 HCCs/RXCs.

[GRAPHIC] [TIFF OMITTED] TP24JA19.006


---------------------------------------------------------------------------
Where:

h_r is the set of codes including 128 HHS_HCCs and 12 RXCs.
Freq_EDGEh\r is the frequency of HCC code h or RXC code r occurring 
on EDGE, which is the number of sampled enrollees recording HCC code 
h or RXC code r on EDGE.

[[Page 261]]

Freq_IVAh\r is the frequency of HCC code h or RXC code r occurring 
in initial validation audit results, which is the number of sampled 
enrollees with HCC code h or RXC code r in initial validation audit 
results.
FRh\r is the failure rate of HCC code h or RXC code r.

    HHS would then create three ``HCC/RXC'' groups based on the HCC 
failure rates and RXC failure rates derived in the calculation above. 
These ``HCC/RXC'' failure rate groups would rank all HCC failure rates 
and RXC failure rates to assign each unique HCC and RXC in the initial 
validation audit samples to a high, medium, or low failure rate group. 
To assign each HCC and RXC to a ``HCC/RXC'' failure rate group, we 
propose to use the current HCC failure rate ranking methodology that 
ranks each HCC/RXC failure rate divided into three groupings based on 
weighted total observations or frequencies of that HCC/RXC across all 
issuers' initial validation sample, or assigning HCCs and RXCs failure 
rates by taking into consideration the ranking of related HCCs and RXCs 
in the grouping. Under this proposed approach, we would maintain a 
single classification for HCC and RXC high, medium, or low groups, 
instead of creating two separate classifications of RXCs and single 
component HCCs. We believe this proposed approach would be the most 
simplified manner to incorporate RXCs and builds upon the current HCC 
group failure rate methodology.
    Alternatively, we could incorporate the RXCs as a separate ``HCC'' 
grouping in the error estimation methodology. Under this proposed 
approach, we would keep the 128 HCCs in the three groups, but combine 
all RXCs into an additional, fourth separate group. Therefore, a 
separate RXC and the HCCs groups would be created, and their failure 
rates would be computed within those four groupings. This proposed 
approach to group RXCs would be the same as for HCC groupings, which is 
based on the failure rates FRr of the 12 RXCs:

[GRAPHIC] [TIFF OMITTED] TP24JA19.007


Where:
r is the set of 12 RXCs.
Freq_EDGEr is the frequency of RXC code r occurring on EDGE, which 
is the number of sampled enrollees recording RXC code r on EDGE.
Freq_IVAr is the frequency of RXC code r occurring in initial 
validation audit results, which is the number of sampled enrollees 
with RXC code r in initial validation audit results.
FRr is the failure rate of RXC code r.

    While we assume that RXCs may be easier to validate, this type of 
approach could take into consideration the potential differing failure 
rates within the RXC groupings as opposed to the single component HCC 
groupings, or isolate the RXC failure rates to a separate grouping from 
HCCs before applying those failure rates to the error rate calculation. 
This alternative approach would also result in an additional grouping 
in the error estimation methodology, and having more groupings means 
that the number of groupings where it is possible for an issuer to be 
an outlier would increase. Further, in the event that all RXCs do not 
have similar, low failure rates, the confidence interval for an RXC-
only group could be quite large, resulting in a significant difference 
between the outliers' failure rates to the group's failure rate mean, 
and by extension, could result in a larger failure rate adjustment 
factor for the RXC-only group.
    In addition to adopting one of the above approaches to group RXCs 
as part of the error estimation methodology, we would also need to 
incorporate RXCs into the error rate calculation under the error 
estimation methodology. To do so, we propose three alternative 
approaches to incorporate and adjust for RXCs and RXC-HCC interaction 
factors in the error rate calculation. The error rate calculation 
represents the issuer's risk score error rate as a result of risk 
adjustment data validation and constitutes the percentage of the 
issuer's risk score that is incorrect due to the issuer's outlier group 
failure rate(s). As an example, an issuer could have a 50 percent 
failure rate for a group of HCCs, in that twenty of forty instances of 
the HCC could not be validated. The impact of that HCC failure rate on 
an issuer's error rate calculation will then depend on the mean group 
failure rate where the issuer was identified as an outlier, the 
magnitude of the HCCs' coefficients in that group, and the incidence of 
those HCCs in the audit sample.
    One option to incorporate the RXCs in the error rate calculation 
that we propose would be to add RXCs to the current methodology of 
calculating error rates, without accounting for any HCC-RXC interaction 
factors. To incorporate RXCs in the current error rate calculation, we 
propose to modify the formula to calculate an enrollee's adjustment 
Adjustmenti,e as follows:

    \68\ 83 FR 16930 at 16963.

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

[[Page 262]]

[GRAPHIC] [TIFF OMITTED] TP24JA19.008

    However, this proposed approach would mean that the interaction of 
the risk score coefficients between the single component HCC and the 
RXC are not considered in the error rate calculation, which may be an 
oversimplification of this calculation.

[[Page 263]]

[GRAPHIC] [TIFF OMITTED] TP24JA19.009

[GRAPHIC] [TIFF OMITTED] TP24JA19.010


[[Page 264]]


    In short, this alternative proposed approach for incorporating RXCs 
in the error rate calculation would capture the sampled enrollee's 
characteristics and interaction between the single component HCC and 
RXC that may provide a more accurate calculation than not accounting 
for any interaction between the single component HCC and RXC. However, 
this proposed approach would add an additional step to the error rate 
calculation, whereby the risk score coefficient for a condition would 
be adjusted by the interaction coefficients between the single 
component HCC and the RXC and would take into account the full 
interaction coefficient separately for the HCC and RXC, which may 
result in an over-adjustment for the interaction terms.
    A third alternative to incorporating RXCs as part of the error rate 
calculation would be to adjust the risk score coefficient for a single 
component HCC and RXC by a modified interaction coefficient between the 
single component HCC and RXC indicator, if the coefficient exists. If 
there is no coefficient, the single component HCC and the RXC would not 
be adjusted by an interaction coefficient. This alternative approach 
would capture a sampled enrollee's specific characteristics and 
interaction between HCC and RXC and modify the interaction such that 
the total adjustments are equal to the total interaction term value. 
That is, if an interaction would be applied to two codes, each of the 
codes receives a fraction of the interaction adjustment that equals the 
full value of the interaction factor. Specifically, this approach would 
add two steps to the risk score error rate calculation, first, to 
include interaction terms and second, to modify the interaction to 
ensure that it does not exceed the interaction term, which would be 
more complex to implement. However, this proposed approach would have 
the benefit of limiting the potential for over- or under-adjusting an 
issuer's risk score error rate to account for interaction terms because 
the total adjustment would not exceed the interaction term. Thus, this 
alternative could provide a balanced approach between the two previous 
proposed options for incorporating RXCs as part of the error rate 
calculation where no HCC and RXC interactions were being considered or 
the impact of HCC and RXC interaction terms was not being limited.
    We also generally solicit comment on how to weight risk score 
coefficients and account for the interaction terms between the single 
component HCC and the RXCs in calculating the error rate under these 
alternative proposed approaches. Additionally, in the error estimation 
methodology finalized in the 2019 Payment Notice, we did not include 
the severity illness indicator interactions for HCCs as they can be 
triggered by multiple combinations of HCCs, which would be overly 
complex to implement. As part of our current evaluation of the impact 
of adjusting for the RXC-HCC interactions in the error estimation 
methodology, we also seek comment on whether we should similarly not 
adjust for the RXC-HCC interactions.
    We solicit comment on all of these proposed approaches for 
incorporating RXCs into the error estimation methodology and error rate 
calculation, including whether we should consider alternative options. 
For example, for the 2018 benefit year, we could finalize one method 
for incorporating RXCs into the error estimation process with the 
intention of reconsidering that method for future benefit years once we 
have data and experience from the 2018 benefit year risk adjustment 
data validation.
    As an alternative to the aforementioned proposed policies, we are 
also considering other methods for incorporating RXCs (or all drugs) 
into the risk adjustment data validation process rather than as part of 
the error estimation methodology and error rate calculation. Since it 
may be significantly easier to validate RXCs than HCCs, we could treat 
RXC errors as a data submission issue. Specifically, we could 
incorporate RXCs or all drugs into risk adjustment data validation as a 
method of discovering materially incorrect EDGE server data submissions 
in the same or similar manner to how we address demographic and 
enrollment errors discovered during risk adjustment data 
validation.\69\ Under this alternative proposed approach, instead of 
incorporating RXCs into the error estimation methodology and error rate 
calculation, we would treat RXC or general drug errors discovered 
during risk adjustment data validation in a manner similar to an EDGE 
data discrepancy, which is addressed in the current benefit year under 
Sec.  153.710(d). As such, these RXC or general drug errors would be 
the basis for an adjustment to the applicable benefit year risk score 
and original transfer amount, rather than the subsequent benefit year 
risk score. Any material errors identified through this process would 
result in a decrease to the issuer's original risk score, thereby 
resulting in a reduced risk adjustment payment or an increased risk 
adjustment charge for that issuer. If this alternative approach is 
adopted, the identification of RXC or general drug errors could also 
have the effect of reducing charges or increasing payments to other 
issuers in the state market risk pool, holding constant the other 
elements of the state payment transfer formula. We solicit comment on 
this alternative approach, especially in comparison to the proposals 
for incorporating RXCs into the error estimation methodology and/or 
error rate calculation, and on whether other specific requirements 
would be needed to verify materiality of risk score impacts if we were 
to treat RXC or general drug errors discovered during risk adjustment 
data validation as a data submission issue through the EDGE data 
discrepancy process under Sec.  153.710(d).
---------------------------------------------------------------------------

    \69\ See 83 FR 16930 at 16970 through 16971.
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f. Risk Adjustment Data Validation Adjustments in Exiting and Single 
Issuer Markets and Negative Error Rate Outlier Markets
    Under the risk adjustment data validation program, adjustments to 
transfers are generally made in the benefit year following the benefit 
year that was audited. For issuers that exit the market following the 
benefit year being audited, and therefore do not have transfers to 
adjust during the following benefit year, we have previously finalized 
an exception to this general rule such that we will adjust the exiting 
issuer's prior year risk scores and associated transfers where it has 
been identified as an outlier through the HCC failure rate methodology 
during risk adjustment data validation.\70\ We propose to amend our 
policy to provide that, if an exiting issuer is found to be a negative 
error rate outlier, HHS will not make adjustments to that issuer's risk 
score and its associated risk adjustment transfers as a result of this 
negative error rate outlier finding. A negative error rate would have 
the effect of increasing an issuer's risk score and thereby increasing 
their calculated risk adjustment payment or reducing their calculated 
risk adjustment charge. To avoid retroactively re-opening a risk pool 
to make adjustments to other issuers' transfers based on an exiting 
issuer's negative error rate, we propose to re-open the issuer's risk 
score and its associated risk adjustment transfers in a prior benefit 
year only if the exiting issuer was found to have had a positive error 
rate, and was therefore, overpaid or undercharged based on its risk 
adjustment data validation results. When the exiting issuer is a 
positive

[[Page 265]]

error rate outlier, HHS would collect funds (either increasing the 
charge amount or reducing the payment amount) from the exiting issuer 
and redistribute the amounts to other issuers who participated in the 
same state market risk pool in the prior benefit year. This proposed 
approach is intended to help ensure that issuers are made whole even if 
an issuer with a positive error rate exits the state, without the 
additional burdens associated with having transfers adjusted (including 
the potential for additional charges being assessed) for a prior 
benefit year for a negative error rate outlier when an issuer decides 
to exit a state.
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    \70\ 83 FR at 16965.
---------------------------------------------------------------------------

    Further, we also propose that to be considered an exiting issuer 
under this proposed policy, that issuer would have to exit all of the 
markets and all of the risk pools in the state (that is, not selling or 
offering any new plans in the state). If an issuer only exits some of 
the markets or risk pools in the state, but continues to sell or offer 
new plans in others, it would not be considered an exiting issuer under 
this proposed policy. Finally, we clarify that under this proposal, 
small group market issuers with off-calendar year coverage who exit the 
market but only have carry-over coverage that ends in the next benefit 
year (that is, carry-over of run out claims for individuals enrolled in 
the previous benefit year, with no new coverage being offered or sold) 
would be considered an exiting issuer and would be exempt from risk 
adjustment data validation for the benefit year with the carry-over 
coverage. Individual market issuers offering or selling any new 
individual market coverage in the subsequent benefit year would be 
subject to risk adjustment data validation, unless another exemption 
applies. These proposed policies, if finalized, would be effective for 
2017 benefit year risk adjustment data validation and beyond. We 
solicit comment on these proposals and on the potential impact of any 
carry-over coverage by individual market plans and how HHS would be 
able to confirm that any individual market plan has carry-over 
coverage.
    We also propose to clarify how we would approach applying risk 
adjustment data validation results in circumstances where an issuer is 
entering what was previously a sole issuer risk pool. For issuers that 
are the sole issuer in a state market risk pool in a benefit year, 
there are no risk adjustment transfers under the state payment transfer 
formula and thus, no payment or financial accountability to other 
issuers for that risk pool.\71\ We do not calculate risk adjustment 
transfers for a benefit year in a state market risk pool in which there 
is only one issuer, and that issuer is not required to conduct risk 
adjustment data validation for that state market risk pool.\72\ 
However, if the sole issuer was participating in multiple risk pools in 
the state during the year that is being audited, that issuer would be 
subject to risk adjustment data validation for those risk pools with 
other issuers that had risk adjustment transfers calculated. In 
addition, the sole issuer may have been identified as an outlier for 
risk adjustment data validation, and its error rate would be applied to 
all of the issuer's risk adjustment covered plans in the state's market 
risk pools where it was not the sole issuer. Its error rate would also 
be applied to adjust the subsequent benefit year's transfers for other 
issuers in the same state market risk pool(s). If that sole issuer 
participated in risk adjustment data validation for the benefit year, 
and in the following benefit year, a new issuer entered the formerly 
sole issuer risk pool, we propose that the formerly sole issuer's error 
rate would also apply to the risk scores for its risk adjustment 
covered plans in the subsequent benefit year in the risk pool(s) in 
which it was formerly the sole issuer--that is, the formerly sole 
issuer's risk scores and transfer amounts calculated for the benefit 
year in which a new issuer entered the state market risk pool which did 
not have risk adjustment transfers calculated in the prior year would 
be subject to adjustment based on the formerly sole issuer's error 
rate. In addition, the new issuer may also have its risk adjustment 
transfer adjusted in the subsequent benefit year if the formerly sole 
issuer was an outlier with risk score error rates in the prior benefit 
year's risk adjustment data validation. This is consistent with the 
policy established in the 2015 Payment Notice, specifying that each 
issuer's risk score adjustment (from risk adjustment data validation 
results) will be applied to adjust the plan's average risk score for 
each of the issuer's risk adjustment covered plans.\73\ This proposed 
policy also aligns with how error rates would be applied if a new 
issuer entered a state market risk pool with more than one issuer. This 
proposed policy, if finalized, would be effective for 2017 benefit year 
risk adjustment data validation and beyond. We solicit comment on this 
proposal.
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    \71\ See 83 FR at 16967.
    \72\ Id.
    \73\ 79 FR 13743 at 13768-13769.
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    Lastly, as discussed in this section earlier, if an issuer is a 
negative error rate outlier, its risk score would be adjusted upwards. 
Assuming no changes to risk scores for the other issuers in the risk 
pool, this upward adjustment would reduce the issuer's risk adjustment 
charge or increase its risk adjustment payment for the applicable 
benefit year, leading to an increase in risk adjustment charges or a 
decrease in risk adjustment payments for the other non-outlier issuers 
in the state market risk pool. The intent of this two-sided outlier 
identification, and the resulting adjustments for outlier issuers that 
have significantly better than average (negative error rate) and poorer 
than average (positive error rate) data validation results is to ensure 
that risk adjustment data validation adjusts risk adjustment transfers 
for identified, material risk differences between what issuers 
submitted to their EDGE servers and what was validated in medical 
records. The increase to risk score(s) for negative error rate outliers 
is consistent with the upward and downward risk score adjustments that 
were finalized as part of the original risk adjustment data validation 
methodology in the 2015 Payment Notice \74\ and the HCC failure rate 
approach to error estimation finalized in the 2019 Payment Notice. That 
is, the long-standing intent of HHS-operated risk adjustment data 
validation has been to account for identified risk differences, 
regardless of the direction of those differences. Except as proposed 
above for negative error rate outliers from exiting issuers, we believe 
that adjusting for both negative and positive error rate outliers 
ensures that issuers' actuarial risk is reflected in transfers and 
incentivizes issuers to achieve the most accurate EDGE data submissions 
for initial risk adjustment transfer calculations; therefore, we do not 
believe that further changes are needed to the error estimation 
methodology or the outlier adjustment policy to account for the impact 
of negative error rate outliers on non-outlier issuers in the state 
market risk pool at this time.
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    \74\ For example, we stated in the 2015 Payment Notice that 
``the effect of an issuer's risk score error adjustment will depend 
upon its magnitude and direction compared to the average risk score 
error adjustment and direction for the entire market''. See 79 FR 
13743 at 13769.
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    The 2016 benefit year risk adjustment data validation pilot year 
results suggested that there could be a large number of negative error 
rate outlier issuers affecting numerous state market risk pools, but 
this result was largely due to the modifications made to the

[[Page 266]]

2016 benefit year national benchmarks, which dropped a large number of 
high HCC failure rate outliers from the calculations, artificially 
increasing the number of negative error rate outliers. We do not yet 
have 2017 risk adjustment data validation results and therefore do not 
know whether the number of negative error rate outlier issuers and the 
size of the negative error rates would be significant in a risk 
adjustment data validation year that results in risk score adjustments. 
Therefore, we are seeking comment on the impact of the current approach 
under the error estimation methodology and the outlier adjustment 
policy for negative error rate outlier issuers, or issuers with 
significantly lower-than-average HCC failure rates, on other issuers in 
a state market risk pool, the incentives that negative error rate 
adjustments may create, and potential modifications to the error rate 
estimation methodology or the outlier adjustment policy, such as to 
utilize the state mean failure rate instead of the national mean 
failure rate, to modify the error rate calculation to the confidence 
interval instead of the mean, to exclude negative error rate outliers 
or to use other methods of lessening the impact of negative error rate 
issuers on affected risk pools, beginning with the 2018 benefit year of 
risk adjustment data validation or later.
g. Exemptions From Risk Adjustment Data Validation
    In previous rules,\75\ we established exemptions from the HHS-
operated risk adjustment data validation requirements for issuers with 
500 or fewer billable member months statewide and issuers at or below a 
materiality threshold for the benefit year being audited. Additionally, 
on April 9, 2018, we released guidance indicating that we intended to 
propose a similar exemption from risk adjustment data validation 
requirements for certain issuers in or entering liquidation.\76\ The 
purpose of these policies is to address numerous concerns, particularly 
from smaller issuers, regarding the regulatory burden and costs 
associated with complying with the HHS-operated risk adjustment data 
validation program. HHS has previously considered these concerns and 
provided relief where possible, and under this proposed rule, we 
propose to codify these exceptions in regulation at Sec.  153.630(g), 
as described below.
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    \75\ See 81 FR 94058 at 94104 and 83 FR 16930 at 16966.
    \76\ Exemption from HHS-Operated Risk Adjustment Data Validation 
(HHS-RADV) for Issuers in Liquidation or Entering Liquidation (April 
9, 2018). https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/RADV-Exemption-for-Liquidation-Guidance.pdf.
---------------------------------------------------------------------------

    In the 2019 Payment Notice, we finalized that beginning with 2017 
benefit year HHS-operated risk adjustment data validation, issuers with 
500 billable member months or fewer statewide in the benefit year being 
audited 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.\77\ We explained that 
exempting these issuers from the requirement to hire an initial 
validation auditor is appropriate because they 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 (and targeted) sampling under the materiality 
threshold discussed below, and they would continue to not be subject to 
the requirement to hire an initial validation auditor or submit initial 
validation audit results. Issuers who qualify for this exemption would 
not be subject to enforcement action for non-compliance with risk 
adjustment data validation requirements, or be assessed the default 
data validation charge under Sec.  153.630(b)(10). We stated that the 
determination of whether an issuer has 500 or fewer billable member 
months would be made on a statewide basis (that is, by combining an 
issuer's enrollment in a state's individual, small group, and merged 
markets, as applicable, in a benefit year). In this proposed rule, we 
propose to codify this exemption at Sec.  153.630(g)(1) beginning with 
the 2017 benefit year of risk adjustment data validation.
---------------------------------------------------------------------------

    \77\ 83 FR 16930 at 16966.
---------------------------------------------------------------------------

    Second, in the 2018 Payment Notice, HHS finalized a materiality 
threshold for risk adjustment data validation to ease the burden of 
annual audit requirements for smaller issuers of risk adjustment 
covered plans.\78\ We evaluated the burden associated with risk 
adjustment data validation, particularly, the fixed costs associated 
with hiring an initial validation auditor and submitting results to 
HHS. We established a materiality threshold for risk adjustment data 
validation that considered the burden of such a process on smaller 
plans. Specifically, we stated that issuers with total annual premiums 
at or below $15 million for risk adjustment covered plans (calculated 
statewide based on the premiums of the benefit year being validated) 
will not be subject to the annual initial validation audit 
requirements, but will still be subject to an initial validation audit 
approximately every 3 years (barring any risk-based triggers due to 
experience that would warrant more frequent audits). Under the 
established process, we will conduct random and targeted sampling for 
issuers at or below the materiality threshold, beginning with the 2018 
benefit year of risk adjustment data validation. We noted that, even if 
an issuer is exempt from initial validation audit requirements under 
the materiality threshold, HHS may require these issuers to make 
records available for review or to comply with an audit by the federal 
government under Sec.  153.620.
---------------------------------------------------------------------------

    \78\ 81 FR 94058 at 94104-94105.
---------------------------------------------------------------------------

    In this rule, we propose to codify the materiality threshold policy 
at Sec.  153.630(g)(2), providing that an issuer of a risk adjustment 
covered plan will be exempt from the data validation requirements in 
Sec.  153.630(b) if the issuer is at or below the materiality threshold 
defined by HHS and is not selected by HHS to participate in the data 
validation requirements in an applicable benefit year under a random 
and targeted sampling conducted approximately every 3 years (barring 
any risk-based triggers due to experience that would warrant more 
frequent participation in risk adjustment data validation), beginning 
with the 2018 benefit year of risk adjustment data validation.\79\
---------------------------------------------------------------------------

    \79\ When selecting issuers at or below the materiality 
threshold for more frequent initial validation audits, we would 
consider the issuer's prior risk adjustment data validation results 
and any material changes in risk adjustment data submissions, as 
measured by our quality metrics. See 81 FR 94105.
---------------------------------------------------------------------------

    Consistent with the materiality threshold finalized in the 2019 
Payment Notice,\80\ we propose to define the materiality threshold as 
total annual premiums at or below $15 million, based on the premiums of 
the benefit year being validated for all of the issuer's risk 
adjustment covered plans in the individual, small group, and merged 
markets (as applicable) in the state. We solicit comments on the 
definition of materiality and whether the materiality threshold should 
be adjusted in future benefit years, given the potential for increased 
premiums and decreased enrollment in certain state market risk pools. 
We are not proposing such an adjustment to the materiality threshold at 
this time, but if we were to modify the definition of materiality to 
trend the $15 million threshold in future benefit years, we

[[Page 267]]

would propose that change through notice and comment rulemaking.
---------------------------------------------------------------------------

    \80\ See 83 FR 16966.
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    We note that if an issuer of a risk adjustment covered plan within 
the materiality threshold is not exempt from the data validation 
requirements for a given benefit year (that is, the issuer is selected 
for a random and targeted sampling), and fails to engage an initial 
validation auditor or to submit the results of an initial validation 
audit to HHS, the issuer would be subject to a default data validation 
charge in accordance with Sec.  153.630(b)(10) and may be subject to 
other enforcement action.
    Lastly, as noted above, HHS released guidance on April 9, 2018 
indicating our intention to propose in future rulemaking an exemption 
from risk adjustment data validation requirements for certain issuers 
in liquidation or that will enter liquidation. The purpose of exempting 
these issuers is similar to the reasons outlined above for smaller 
issuers and those below the materiality threshold--to recognize the 
burdens and costs associated with the risk adjustment data validation 
requirements on these issuers given their reduced financial and staff 
resources. Under this proposal, certain issuers in liquidation or that 
will enter liquidation would be exempt from the requirement to hire an 
initial validation auditor and submit initial validation audit results, 
as well as the second validation audit requirements, and would not be 
subject to enforcement actions for non-compliance with risk adjustment 
data validation requirements or be assessed the default data validation 
charge under Sec.  153.630(b)(10).
    In this proposed rule, we propose to codify at Sec.  153.630(g)(3) 
that an issuer would be exempt from the applicable benefit year of risk 
adjustment data validation if the issuer is in liquidation as of April 
30th of the year when transfer adjustments based on data validation 
results are made (that is, 2 benefit years after the benefit year being 
audited). We propose to apply this exemption starting with the 2017 
benefit year risk adjustment data validation. For example, a 2017 
benefit year risk adjustment data validation issuer would need to be in 
liquidation on or before April 30, 2019 to be eligible for the proposed 
exemption. For the 2018 benefit year and beyond, we propose that to 
qualify for the exemption, the issuer must also not be a positive error 
rate outlier in the prior benefit year of risk adjustment data 
validation (that is, the issuer is not a positive error rate outlier 
under the error estimation methodology in the prior year's risk 
adjustment data validation) as outlined in proposed paragraph 
(g)(3)(ii). If an issuer in liquidation or that would enter liquidation 
by the applicable date was a positive error rate outlier in the 
previous year's risk adjustment data validation, we propose not to 
exempt the issuer from the subsequent benefit year's risk adjustment 
data validation, and the issuer would be required to participate in 
risk adjustment data validation or receive the default data validation 
charge in accordance with Sec.  153.630(b)(10) unless another exemption 
applies.
    To qualify for this exemption in any year, we propose under 
paragraph (g)(3)(i) that the issuer must provide to HHS, in a manner 
and timeframe to be specified by HHS, an attestation that the issuer is 
in or will enter liquidation no later than April 30th 2 years after the 
benefit year being audited that is signed by an individual with the 
authority to legally and financially bind the issuer. In paragraph 
(g)(3)(iii), we propose to define liquidation as meaning that a state 
court has issued an order of liquidation for the issuer that fixes the 
rights and liabilities of the issuer and its creditors, policyholders, 
shareholders, members, and all other persons of interest.
    Our intention with this proposed policy is to align the definition 
of liquidation with state law on liquidation of health insurance 
issuers and the National Association of Insurance Commissioners' Model 
Act on receivership where possible.\81\ Thus, we solicit general 
comments on this proposed definition, and on whether modifications are 
needed to this definition to better align with state law. Additionally, 
we specifically solicit comments on the proposed April 30th date by 
which the issuer must be in liquidation and the advantages and 
disadvantages of potentially using a later date as the deadline by 
which the issuer must be in liquidation to be eligible for this 
proposed exemption. We also seek comment on whether the proposed April 
30th date by which the issuer must be in liquidation should be later 
for the 2017 benefit year only.
---------------------------------------------------------------------------

    \81\ National Association of Insurance Commissioners Model Act, 
Issuer Receivership Act. 2007. http://www.naic.org/store/free/MDL-555.pdf.
---------------------------------------------------------------------------

    While we understand that the exact date of a liquidation order may 
be uncertain in specific circumstances, we propose that the individual 
signing the attestation must be reasonably certain that the issuer 
would enter liquidation by April 30th 2 benefit years after the benefit 
year being audited.
    Under our proposal, we would accept an attestation from a 
representative of the state's department of insurance, an appointed 
liquidator, or other appropriate individual who can legally and 
financially bind the issuer. HHS would verify the issuers' liquidation 
status with the applicable state regulators for issuers who submitted 
an attestation under Sec.  153.630(g)(3). We also propose that, because 
the April 30th two benefit years after the benefit year being audited 
is after the deadline for completing the initial validation audit for a 
given benefit year, an issuer who submits an attestation for this 
exemption but is determined by HHS to not meet the criteria for the 
exemption would receive a default data validation charge in accordance 
with Sec.  153.630(b)(10) if the issuer fails to complete or comply 
with the risk adjustment data validation process within the established 
timeframes for the given benefit year, unless another exemption 
applies.
    Additionally, we also note that any issuer that qualifies for any 
of the three exemptions in proposed Sec.  153.630(g) would not have its 
risk score and its associated risk adjustment transfers adjusted due to 
its own risk score error rate, but that issuer's risk score and its 
associated risk adjustment transfers could be adjusted if other issuers 
in that state market risk pool were outliers and received risk score 
error rates for that benefit year's risk adjustment data validation. We 
solicit comments on the proposed codification of the exemptions for 
issuers with 500 or fewer billable member months statewide and issuers 
at or below a materiality threshold, as well as the new proposed 
exemption for certain issuers who are in, or would be entering 
liquidation.
    We solicit comments on these proposals.

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

1. Definitions (Sec.  155.20)
    We propose to amend Sec.  155.20 to add definitions of ``direct 
enrollment technology provider,'' ``direct enrollment entity,'' 
``direct enrollment entity application assister,'' and ``web-broker''. 
For a discussion of these proposed changes, please see the preamble to 
Sec. Sec.  155.220, 155.221, and 155.415.
    We seek comment on these proposals.
2. General Functions of an Exchange
a. Consumer Assistance Tools and Programs of an Exchange (Sec.  
155.205)
    Section 1311(d)(4)(B) of the PPACA requires an Exchange to provide 
for the operation of a toll-free telephone hotline

[[Page 268]]

to respond to requests for assistance. In the 2017 Payment Notice, we 
explained the distinction between a toll-free call center and a toll-
free hotline, for purposes of specifying the different requirements for 
SBE-FPs and other Exchanges.\82\ In the 2019 Payment Notice, we 
finalized regulations providing for a leaner FF-SHOP implementation, 
and have adopted that approach. In that rulemaking, we explained that 
the FF-SHOPs would continue to provide call centers to answer questions 
related to the SHOP.\83\ Currently, employers purchase and enroll their 
employees in new FF-SHOP coverage through issuers and through agents 
and brokers registered with the FFE, and no longer enroll in SHOP 
coverage using an online FF-SHOP platform.
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    \82\ 81 FR at 12246.
    \83\ 83 FR at 16997.
---------------------------------------------------------------------------

    Under this approach, FF-SHOP call center volume has been extremely 
low. Given this experience, we propose to amend Sec.  155.205(a) to 
allow SHOPs operating in the leaner fashion described in the 2019 
Payment Notice to operate a toll-free telephone hotline, as required by 
section 1311(d)(4)(B) of the PPACA, and to eliminate the requirement to 
operate a more robust call center. We propose to amend the 
interpretation provided in the 2017 Payment Notice of what is required 
to establish a toll-free hotline, as required by section 1311(d)(4)(B) 
of the PPACA. There, we stated that a toll-free hotline includes the 
capability to provide information to consumers and appropriately direct 
consumers to the federally operated call center or HealthCare.gov to 
apply for, and enroll in, coverage through the Exchange. Given that 
SHOPs that operate in the leaner fashion no longer offer online 
enrollment and to reflect the option for such SHOPs to provide a toll-
free hotline, rather than a more robust call center, we propose that a 
toll-free hotline include the capability to provide information to 
consumers about eligibility and enrollment processes, and to 
appropriately direct consumers to the applicable Exchange website and 
other applicable resources.
    The toll-free hotline provided by such SHOPs would consist of a 
toll-free number linked to interactive voice response capability, with 
prompts to pre-recorded responses to frequently asked questions, 
information about locating an agent and broker in the caller's area, 
and the ability for the caller to leave a message regarding any 
additional information needed. We believe this hotline would adequately 
address the needs of potential FF-SHOP consumers requesting assistance, 
and appropriately direct consumers to services to apply for, and enroll 
in, FF-SHOP coverage.
b. Navigator Program Standards (Sec.  155.210)
    Section 1311(d)(4)(K) and 1311(i) of the PPACA require each 
Exchange to establish a Navigator program under which it awards grants 
to entities to conduct public education activities to raise awareness 
of the availability of QHPs, distribute fair and impartial information 
concerning enrollment in QHPs, the availability of premium tax credits, 
and cost-sharing reductions; facilitate enrollment in QHPs; provide 
referrals to any applicable office of health insurance consumer 
assistance or health insurance ombudsman established under section 2793 
of the PHS Act, or any other appropriate state agency or agencies for 
any enrollee with a grievance, complaint, or question regarding their 
health plan, coverage, or a determination under such plan or coverage; 
and provide information in a manner that is culturally and 
linguistically appropriate to the needs of the population being served 
by the Exchange. The statute also requires the Secretary to develop 
standards to ensure that information made available by Navigators is 
fair, accurate, and impartial. We have implemented the statutorily 
required Navigator duties through regulations at Sec.  155.210 (for all 
Exchanges) and Sec.  155.215 (for Navigators in FFEs).
    Further, section 1311(i)(4) of the PPACA requires the Secretary to 
establish standards for Navigators to ensure that Navigators are 
qualified, and licensed, if appropriate, to engage in the Navigator 
activities described in the statute. This provision has been 
implemented at Sec.  155.210(b) (for all Exchanges) and at Sec.  
155.215(b) (for Navigators in FFEs).
    Section 155.210(e)(9) specifies that an Exchange may require or 
authorize Navigators to provide assistance with a number of topics not 
specifically mentioned in the statute, including certain post-
enrollment activities. This section specifies that Navigators operating 
in FFEs are authorized to provide assistance on these topics and are 
required to do so under Navigator grants awarded in 2018 or later.\84\ 
To provide more flexibility related to the required duties for 
Navigators operating in FFEs, we propose to amend Sec.  155.210(e)(9) 
to make assistance with these topics permissible for FFE Navigators, 
not required, effective upon the awarding of the FEE navigator grants 
in 2019. We believe making assistance with these topics optional for 
FFE Navigators would reduce regulatory burden on FFE Navigator entities 
and better meet consumers' needs by allowing FFE Navigators to 
prioritize work according to consumer demand, community needs, and 
organizational resources.
---------------------------------------------------------------------------

    \84\ These topics are: Understanding the process of filing 
Exchange eligibility appeals; understanding and applying for 
exemptions from the individual shared responsibility payment that 
are granted through the Exchange; the Exchange-related components of 
the premium tax credit reconciliation process; understanding basic 
concepts and rights related to health coverage and how to use it; 
and, referrals to licensed tax advisers, tax preparers, or other 
resources for assistance with tax preparation and tax advice on 
certain Exchange-related topics.
---------------------------------------------------------------------------

    We acknowledge that HHS added these duties 2 years ago to ensure 
the availability of more robust consumer assistance; however, since 
that time, there have been programmatic and health care coverage policy 
changes that have caused us to reflect further. We now believe that 
consumers will be better served by allowing more flexibility for 
Navigators to tailor their services to make the most of their resources 
and to fit the needs of their communities. For example, this change 
would allow FFE Navigators working with fewer resources to continue 
prioritizing providing help to consumers who are seeking to apply for 
and enroll in coverage over other permissible duties, such as the types 
of assistance listed at Sec.  155.210(e)(9).
    With this proposal, we want to emphasize that FFE Navigators would 
be authorized to continue to provide assistance with any of the topics 
listed under Sec.  155.210(e)(9). Under the proposed approach, if FFE 
Navigator grantees choose to provide any of the assistance specified in 
Sec.  155.210(e)(9), we would continue to expect them to assess their 
communities' needs and build competency in the assistance activities in 
which they are engaging. It is important to note that the current FFE 
Navigator training for annual certification or recertification might 
continue to include training on some of the Sec.  155.210(e)(9) topics. 
To supplement the required FFE Navigator training, we also plan to 
continue providing FFE Navigators with additional information related 
to these assistance activities through informal webinars, newsletters, 
and technical assistance resources such as fact sheets and slide 
presentations. FFE Navigator grantees that opt to carry out any of the 
assistance activities in Sec.  155.210(e)(9) will be expected to draw 
upon these

[[Page 269]]

materials to ensure their staff and volunteers are adequately prepared 
to provide that assistance. Our proposal would also retain SBE autonomy 
to determine whether requiring or authorizing the SBE's Navigators to 
perform the activities listed in Sec.  155.210(e)(9) best meets the 
state's needs and resources.
    We recognize that the time FFE Navigators currently spend providing 
assistance with the Sec.  155.210(e)(9) topics varies.
    To better understand the future impact of removing this 
requirement, we request comment on how many hours per month FFE 
Navigator grantees and individual Navigators currently spend providing 
the assistance activities described at Sec.  155.210(e)(9), what 
percentage of their current work involves providing these types of 
assistance, and how that amount of work would be impacted if providing 
these types of assistance would no longer be required. We also request 
comment on how FFE Navigator grantees and individual Navigators might 
reprioritize work and spend time fulfilling their other duties, if not 
required to provide the types of assistance described under Sec.  
155.210(e)(9). Examples of how Navigators might elect to reprioritize 
work and fulfill other duties may include activities like helping 
consumers enroll in health coverage or conducting outreach and 
education in the community. We anticipate this may include many other 
activities.
    In addition to proposing to increase FFE Navigator flexibility with 
regard to the types of assistance they provide, we also propose to 
provide more flexibility related to the training requirements that 
Exchanges establish for Navigators. Sections 155.210(b)(2) and 
155.215(b)(2) establish Navigator training standards consistent with 
section 1311(i)(4) of the PPACA. Section 155.210(b)(2) specifies that 
Exchanges must develop and publicly disseminate a set of training 
standards to be met by all entities and individuals carrying out 
Navigator functions under the terms of a Navigator grant, to ensure 
expertise in several specific topic areas.\85\ Currently, under Sec.  
155.210(b)(2), Exchanges (including SBEs) that opt to require their 
Navigators to perform the assistance described in Sec.  155.210(e)(9) 
must also develop and disseminate training standards related to the 
specific assistance areas they require under Sec.  155.210(e)(9). 
Additionally Navigators in FFEs currently must be trained in fifteen 
additional topic areas identified at Sec.  155.215(b)(2).\86\
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    \85\ These areas include: The needs of underserved and 
vulnerable populations; eligibility and enrollment rules and 
procedures; the range of QHP options and insurance affordability 
programs; and, the privacy and security standards applicable under 
Sec.  155.260.
    \86\ These areas include: Information on QHPs, including 
benefits covered, differences among plans, payment process, rights 
and processes for appeals and grievances, and contacting individual 
plans; the tax implication of enrollment decisions; information on 
affordability programs; Exchange eligibility and enrollment rules 
and procedures; privacy and security standards, customer service 
standards; outreach and education methods and strategies; 
appropriate contact information for other agencies for consumers 
seeking information about coverage options not offered through the 
Exchange; basic concepts about health insurance and the Exchange; 
working effectively with individuals with limited English 
proficiency, and disabled, rural, underserved or vulnerable 
individuals; providing linguistically and culturally appropriate 
services; ensuring physical and other accessibility for people with 
a full range of disabilities; and applicable administrative rules, 
processes and systems related to Exchanges and QHPs.
---------------------------------------------------------------------------

    To provide more flexibility related to the training requirements 
for Navigators, we propose to streamline both the requirement in Sec.  
155.210(b)(2) for all Exchanges to develop and disseminate Navigator 
training standards on specific topics, and the list of required 
training topics for FFE Navigators in Sec.  155.215(b)(2). We propose 
to amend the requirement at Sec.  155.210(b)(2) to require Exchanges to 
develop and publicly disseminate training standards to ensure that the 
entities and individuals are qualified to engage in Navigator 
activities, including in the four major areas currently specified at 
Sec.  155.210(b)(2)(i) through (iv). This proposal would eliminate the 
training requirements at current Sec.  155.210(b)(2)(v)-(ix) that 
correspond to the activities outlines in Sec.  155.210(e)(9), since 
under our proposal those activities would no longer be required. We 
also propose to replace the current list of fifteen additional FFE 
Navigator training topics at Sec.  155.215(b)(2) with a cross-reference 
to the amended Sec.  155.210(b)(2) topics.\87\ We believe the revised 
regulations under this proposal would be broad enough to ensure that 
each Navigator program fulfills the requirements described in section 
1311(i) of the PPACA.
---------------------------------------------------------------------------

    \87\ We note that Sec.  155.215 also applies to non-Navigator 
assistance personnel, also referred to as enrollment assistance 
personnel. However, at this time, this program is no longer in 
operation in the FFEs.
---------------------------------------------------------------------------

    We believe the revised regulations under this proposal would be 
broad enough to ensure that each Navigator program fulfills the 
requirements described in section 1311(i) of the PPACA
    This approach would provide Exchanges greater flexibility in 
designing their Navigator training programs to ensure coverage of the 
most instructive and timely topics and to align the training with 
future changes in the Navigator program or the operation of the 
Exchanges, while still ensuring that Navigators are qualified to carry 
out their required duties. This additional flexibility would also allow 
Exchanges to focus on training areas they determine to be most relevant 
to the populations they serve and on the policy and operations of the 
Exchange in which they operate.
    Furthermore, Exchanges could opt to provide more training than 
would be required under these proposed amendments. For example, in 
addition to the FFE annual Navigator training, required for Navigator 
certification under Sec.  155.215(b), Navigators in FFEs are provided 
with training throughout the year that serves as a supplement to the 
annual FFE Navigator training by covering timely and appropriate 
training topics that might not be included in the annual FFE Navigator 
training. This additional training provided by FFEs, is consistent with 
the requirement that FFE Navigators obtain continuing education, as 
specified at Sec.  155.215(b)(1)(iv), and we intend to continue this 
practice.
    Currently, HHS provides SBEs, including SBE-FPs, the flexibility to 
decide whether they will require or authorize their Navigators to 
provide assistance on any or all of the areas described at Sec.  
155.210(e)(9). Nothing in our proposals would change that flexibility. 
If SBEs choose to authorize or require their Navigators to provide 
assistance in any of the areas listed at Sec.  155.210(e)(9), they 
would still be required to ensure that their Navigators are qualified 
to provide this assistance.
    However, under our proposed amendments, any SBEs opting to 
authorize or require their Navigators to provide any or all of the 
types of assistance listed at Sec.  155.210(e)(9) would have the 
flexibility to determine effective approaches to training their 
Navigators on performing these types of assistance based on local 
experience. We believe each Exchange is best positioned to determine 
the training that is most appropriate for the activities of their 
Navigators.
    These proposals are intended to increase program flexibility within 
Exchanges and decrease regulatory burden related to Navigator training 
while maintaining standards that will ensure that Navigators are 
sufficiently prepared to carry out all required or authorized 
activities. We solicit comments on these proposals.

[[Page 270]]

    Finally, we also propose allowing, but not requiring, Navigators to 
assist consumers with applying for eligibility for insurance 
affordability programs and QHP enrollment through web-broker websites 
under certain circumstances. For a discussion of the provisions of this 
proposed rule related to that proposal, please see the preamble to 
Sec.  155.220.
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 proposed rule related to 
standards applicable to Navigators subject to Sec.  155.215, please see 
the preamble to Sec.  155.210.
d. Ability of States To Permit Agents and Brokers To Assist Qualified 
Individuals, Qualified Employers, or Qualified Employees Enrolling in 
QHPs (Sec.  155.220).
    Throughout the preamble for Sec. Sec.  155.220 and 155.221, we 
propose to use the term ``web-broker'' to refer to an individual agent 
or broker, a group of agents or brokers, or an agent or broker business 
entity, registered with an Exchange under Sec.  155.220(d)(1) that 
develops and hosts a non-Exchange website that interfaces with an 
Exchange to assist consumers with the selection and enrollment in QHPs 
offered through the Exchange, a process referred to as direct 
enrollment. We have used the term web-broker in the preamble of prior 
rules, as well as in guidance, and are proposing to generally replace 
that informal definition with the one proposed in this rulemaking.\88\ 
In this proposed rule, as described further below, we propose to define 
web-broker in Sec.  155.20 and to use that term in Sec. Sec.  155.220 
and 155.221, where applicable, to avoid confusion. We clarify that 
general references to agents or brokers would also be applicable to 
web-brokers when a web-broker is a licensed agent or broker. We are 
also proposing to define ``direct enrollment technology providers'' as 
a type of web-broker that is not a licensed agent, broker, or producer 
under state law and has been engaged or created by, or is owned by, an 
agent or broker to provide technology services to facilitate 
participation in direct enrollment as a web-broker under Sec. Sec.  
155.220(c)(3) and 155.221. The proposed definition of web-broker 
reflects the inclusion of direct enrollment technology providers. 
Therefore, references to web-brokers are intended to include direct 
enrollment technology providers, as well as licensed agents or brokers 
that develop and host non-Exchange websites to facilitate QHP selection 
and enrollment, unless indicated otherwise. Please see the below 
preamble discussion related to Sec.  155.221 for further details.
---------------------------------------------------------------------------

    \88\ HHS currently defines the term ``web-broker'' as including 
an individual agent or broker, a group of agents and brokers, or a 
company that is interested in providing a non-Federally-facilitated 
Exchange website to assist consumers in the QHP selection and 
enrollment process as described in 45 CFR 155.220(c)(3).
---------------------------------------------------------------------------

    As described in the preamble to Sec.  155.221, we are proposing 
significant changes to Sec.  155.221 to streamline and consolidate the 
requirements applicable to all direct enrollment entities--both issuers 
and web-brokers--in one regulation. To reflect these changes, we also 
propose several amendments to Sec.  155.220. First, we propose to move 
certain requirements that apply to all direct enrollment entities from 
Sec.  155.220 to Sec.  155.221. Specifically, we propose to move the 
requirements currently captured in Sec.  155.220(c)(3)(i)(K) and (L), 
and to amend the requirement currently in (L), which as described 
further below, are proposed at Sec.  155.221(b)(4) and (d), 
respectively.
    We propose conforming edits throughout Sec.  155.220 to incorporate 
the use of the term ``web-broker,'' as proposed to be defined in this 
rule, in applicable paragraphs to more clearly identify which FFE 
requirements extend to web-brokers. In the introductory text to 
paragraphs (a), (c), and (d), and in paragraphs (c)(1), (c)(5), (e), 
(f)(1), (f)(2), (f)(3), (f)(3)(i), (f)(4), (g)(1), (g)(2), (g)(2)(iii), 
(g)(2)(iv), (g)(4), (g)(5)(i)(A), (g)(5)(i)(B), (g)(5)(ii), 
(g)(5)(iii),\89\ (h)(1), (h)(2), (h)(3), (i), (j)(1), (j)(3), (k)(1), 
(k)(2), and (l), we propose to add a reference to web-broker each time 
agents or brokers are referenced, in order to clarify that these 
paragraphs also apply to all web-brokers, including direct enrollment 
technology providers. In paragraphs (c)(3)(i), (c)(3)(i)(A), 
(c)(3)(ii), (c)(4), (c)(4)(i), (c)(4)(i)(E), (c)(4)(i)(F), and 
(c)(4)(ii), we propose to replace some references to ``agent or 
broker'' with a reference to ``web-broker'' to clarify when these 
paragraphs apply to only web-brokers, and not to other types of agents 
or brokers who do not host or develop a non-Exchange website to assist 
consumers with direct enrollment in QHPs offered through the FFEs or 
SBE-FPs. We also propose to revise the section heading for Sec.  
155.220 to ``Ability of States to permit agents, brokers, and web-
brokers to assist qualified individuals, qualified employers, or 
qualified employees enrolling in QHPs'', as well as the section heading 
for paragraph (i) to similarly add a reference to web-broker. Please 
see the preamble discussion related to Sec.  155.221 for further 
details on other proposed changes related to streamlining these 
regulations and clarifying the requirements applicable to web-brokers 
and other direct enrollment entities.
---------------------------------------------------------------------------

    \89\ We also propose minor technical edits to the last sentence 
of paragraph (g)(5)(iii) to more closely align this provision with 
the language at paragraph (g)(4), which establishes similar 
parameters following the termination of an agent's, broker's, or 
web-broker's agreements and registration with the Federally-
facilitated Exchanges.
---------------------------------------------------------------------------

    We also propose to amend Sec.  155.220(c)(3)(i) to add a new 
paragraph (c)(3)(i)(K) that requires web-broker websites to comply with 
the applicable requirements in Sec.  155.221 when an internet website 
of a web-broker is used to complete the QHP selection. We note that 
this new proposed requirement would also apply when an internet website 
of a web-broker is used to complete the Exchange eligibility 
application, through the existing cross reference to paragraph 
(c)(3)(i) in paragraph (c)(3)(ii)(A), but the applicable requirements 
under Sec.  155.221 may differ depending on whether the non-FFE website 
is used to complete the Exchange eligibility application or is used to 
complete the QHP selection. Please see the below preamble discussion 
related to Sec.  155.221 for further details.
    We also propose to amend Sec.  155.220(c)(3)(i) to add a new 
requirement at new paragraph (c)(3)(i)(L) that prohibits web-broker 
websites from displaying recommendations for QHPs based on compensation 
the web-broker, agent, or broker receives from QHP issuers. The term 
``compensation'' includes commissions, fees, or other incentives as 
established in the relevant contract between an issuer and the web-
broker. Web-broker websites often ask for certain information from 
consumers to assist with the display and sorting of QHP options on 
their non-Exchange websites. This may include estimated annual income, 
preferences regarding health care providers, prescription drugs the 
consumer takes, expected frequency of doctors' visits, or other 
information. Web-brokers sometimes display QHP recommendations or 
assign scores to QHPs using the information they collect. We support 
the development and use of innovative consumer-assistance tools to help 
consumers shop for and select QHPs

[[Page 271]]

that best fit their needs, consistent with applicable requirements. 
However, we believe such recommendations should not be based on 
compensation web-brokers, agents, or brokers may receive from QHP 
issuers when consumers enroll in QHPs offered through Exchanges using 
web-broker non-Exchange websites.
    We also propose to amend Sec.  155.220(c)(4)(i)(A) to require a 
web-broker to provide HHS with a list of the agents or brokers who, 
through a contract or other arrangement, use the web-broker's non-
Exchange website to assist consumers with completion of QHP selection 
and/or for the Exchange eligibility application, in a form or manner to 
be specified by HHS. The authority currently exists for HHS to request 
this information for agents or brokers who, through a contract or other 
arrangement, use the non-Exchange website to complete the QHP selection 
process.\90\ However, due to the trend of increased use and expansion 
of direct enrollment pathways for QHP enrollment, we believe it is 
appropriate to collect this information proactively and to also extend 
its collection to include the use of web-broker non-Exchange websites 
for completion of the Exchange eligibility application, so that we may 
investigate and respond more efficiently and effectively to any 
potential instances of noncompliance that may involve agents or brokers 
using a web-broker's direct enrollment pathway. Having this information 
will, for example, enable us to identify more quickly whether 
noncompliance is attributable to a specific individual or individuals, 
instead of the web-broker entity. We anticipate issuing further 
guidance on the form and manner for these submissions and are 
considering requiring the list must include, at minimum, each agent's 
or broker's name, state(s) of licensure, and National Producer Number. 
We are considering adopting quarterly or monthly submission 
requirements, except for the month before the individual market open 
enrollment period and during the individual market open enrollment 
period, during which we are considering adopting weekly or daily 
submission requirements. We are considering requiring the submission of 
this data via email using an encrypted file format, such as a password-
protected Excel spreadsheet, or alternatively requiring submission 
through a secure portal. We invite comments on the frequency and manner 
for these submissions, as well as other data elements that we should 
consider for inclusion as part of this required reporting. We also 
propose to remove the final clause in Sec.  155.220(c)(4) that limits 
the scope of that section to agents or brokers using web-broker 
websites who are listed as the agent of record on the enrollments. 
Several years of experience observing web-broker operations has 
informed us that web-brokers often submit an entity-level National 
Producer Number for all QHP enrollments completed through their 
websites. Therefore the web-broker business entity is the agent of 
record. However, the requirements stated in Sec.  155.220(c)(4) are 
intended to apply broadly to agents or brokers using web-broker non-
Exchange websites to assist with QHP selections and enrollments. We 
believe the existing requirements for web-brokers that provide access 
to their non-Exchange websites to other agents and brokers, such as 
verifying agents or brokers are licensed in the states in which they 
are assisting consumers and have completed the FFE registration process 
(see Sec.  155.220(c)(4)(i)(B)), as well as reporting to HHS and 
applicable state departments of insurance any potential material 
breaches of applicable Sec.  155.220 standards (see Sec.  
155.220(c)(4)(i)(E)), should apply broadly to agents and brokers using 
web-broker non-Exchange websites, and not only to those listed as the 
agents of record.
---------------------------------------------------------------------------

    \90\ See 45 CFR 155.220(c)(4)(i)(A).
---------------------------------------------------------------------------

    Currently, Sec.  155.20 defines an ``agent or broker'' as a person 
or entity licensed by the state as an agent, broker, or insurance 
producer. Under Sec.  155.220(d), an agent or broker that enrolls 
individuals in QHPs in a manner that constitutes enrollment through the 
Exchange or assists individuals with applying for APTCs or cost-sharing 
reductions must execute an agreement with the Exchange, register with 
the Exchange, receive training, and comply with the Exchange's privacy 
and security standards. When these regulatory provisions were 
originally drafted, it was anticipated that agents and brokers were 
predominantly individuals. However, with the expansion of direct 
enrollment, there are more FFE agents and brokers, including web-
brokers, that have obtained FFE registration in their capacities as 
licensed business entities, and not in their individual capacities as 
licensed agents or brokers (non-individual entities). Certain 
regulatory requirements, such as those regarding training are less 
suited for these non-individual types of licensed agents or brokers. 
For example, to comply with the requirement to complete training at 
Sec.  155.220(d)(2), we currently require agents or brokers that are 
registered with the FFEs as non-individual entities to designate an 
individual to take training on the entity's behalf, even though all 
individual agents or brokers assisting FFE consumers through the entity 
have to complete the training as individual agents and brokers. Because 
the training is not designed for representatives of a non-individual 
entity who are not providing direct assistance to FFE consumers, we 
believe it would be appropriate to remove this requirement for licensed 
agent or broker non-individual entities. Therefore, we propose to amend 
Sec.  155.220(d)(2) to exempt from the training requirement a licensed 
agent or broker entity that registers with the FFE in its capacity as a 
business organized under the laws of a state, and not as an individual 
person. HHS does not intend for this change to alter the requirement 
that individual agents or brokers must complete training, as 
applicable, as part of the annual FFE registration process. Therefore, 
all individual agents and brokers interacting with individual market 
FFE or SBE-FP consumers, whether working independently or with a non-
individual agent or broker entity, including web-brokers, would 
continue to be required to complete annual training. Individual agents 
or brokers interacting with FFE-SHOP or SBE-FP-SHOP consumers would 
continue to be encouraged to take FFE training on an annual basis. We 
also propose to include language in Sec.  155.220(d)(2) to clarify that 
direct enrollment technology providers would not be required to 
complete FFE annual training because these non-individual entities 
would not be interacting with individual market FFE or SBE-FP consumers 
without the assistance of an individual agent or broker; they are 
another example of a non-individual entity for which this training 
requirement is less suited.
    To improve program integrity, we also propose to delete the 
existing Sec.  155.220(g)(3) and add new paragraphs (g)(3)(i) and (ii) 
to allow HHS to immediately terminate an agent's or broker's agreement 
with the FFEs for cause with notice to the agent or broker if an agent 
or broker fails to comply with the requirement to maintain the 
appropriate license under state law in every state in which the agent 
or broker actively assists consumers with selecting or enrolling in 
QHPs offered through the FFEs or SBE-FPs. The FFE agreements required 
under Sec. Sec.  155.220(d) and Sec.  155.260(b) that agents and 
brokers execute with the FFEs as part of the annual FFE registration 
process includes the

[[Page 272]]

requirement to maintain valid licensure in every state that the agent 
or broker assists Exchange consumers. State licensure as an agent, 
broker, or insurance producer is a critical consumer protection to 
ensure that when assisting Exchange consumers these individuals and 
entities are familiar with rules and regulations applicable in all 
states in which they provide assistance to FFE or SBE-FP consumers. 
Licensure in every state where the agent or broker is actively 
assisting FFE or SBE-FP consumers is a predicate requirement to 
registering with the FFEs to provide such assistance. Allowing for 
immediate termination of an agent's or broker's agreements with the 
FFEs for failure to adhere to the applicable state licensure 
requirements ensures that an unlicensed individual may not continue to 
possess the agent/broker role that enables access to the FFEs or SBE-
FPs to provide assistance to Exchange consumers as an agent or broker 
during the advance 30-day notice period that would otherwise apply 
under the current Sec.  155.220(g)(3). We believe that allowing for 
immediate termination in these circumstances is appropriate to protect 
consumers, as well as Exchange operations and systems. Under this 
proposal, we would confirm information about licensure (or the lack 
thereof) with the applicable state regulators prior to taking action 
under the new proposed paragraph (g)(3)(ii). In addition, we propose 
that an agent or, broker whose agreement(s) with the FFEs are 
immediately terminated for cause under the new proposed paragraph 
(g)(3)(ii) would be able to request reconsideration under Sec.  
155.220(h). We further propose amendments to paragraph (g)(4), such 
that, consistent with other terminations for cause under paragraph 
(g)(3), immediate terminations under the new proposed paragraph 
(g)(3)(ii) would result in the agent or broker not being registered 
with the FFEs or permitted to assist with or facilitate enrollment of 
qualified individuals, qualified employers or qualified employees in 
QHPs through the FFEs or SBE-FPs or assist individuals in applying for 
APTC and cost-sharing reductions (CSRs) for QHPs after the applicable 
period has elapsed. However, the agent or broker would be required to 
continue to protect any personally identifiable information accessed 
during the term of his or her or its agreements with the FFEs. We also 
propose to create a new paragraph (g)(3)(i) to retain the existing 
language describing the current notification process and timelines for 
termination for cause under paragraph (g) with advance 30-days' notice, 
except that we propose a clarifying edit to reflect that the proposed 
paragraph (g)(3)(ii) would constitute an exception to the current 
process described in existing paragraph (g)(3). As detailed earlier in 
this preamble, we also propose to add a reference to web-broker to the 
existing paragraph (g)(3) (proposed as new paragraph (g)(3)(i)) to 
clarify this paragraph also applies to web-brokers.
    To promote information technology system security in the FFEs and 
SBE-FPs, including the protection of consumer data, we are proposing to 
amend Sec.  155.220(k) by adding a new paragraph (k)(3) that would 
continue to allow HHS to immediately suspend an agent's or broker's 
ability to transact information with the Exchange if HHS discovers 
circumstances that pose unacceptable risk to Exchange operations or 
Exchange information technology systems until the incident or breach is 
remedied or sufficiently mitigated to HHS's satisfaction. This proposed 
language is identical to an existing provision that applies when an 
internet website of an agent or broker is used to complete QHP 
selection at current Sec.  155.220(c)(3)(i)(L) \91\ and a similar 
provision applicable to QHP issuers participating in direct enrollment 
at current Sec.  156.1230(b)(1).\92\ In proposed Sec.  155.220(k)(3), 
we intend for this provision to apply to agents and brokers who, once 
registered under Sec.  155.220(d)(1), obtain credentials that provide 
access to FFE systems that may be misused in a manner that threatens 
the security of the Exchange's operations or information technology 
systems. We believe this proposed change is necessary to ensure that 
HHS can continue to take immediate action to stop unacceptable risks to 
Exchange operations or systems posed by agents and brokers. Because the 
potential risks posed by agents and brokers with access to FFE systems 
are similar to those posed by web-brokers or QHP issuers participating 
in direct enrollment, we believe this change is necessary and 
appropriate to provide a uniform process and ability to protect 
Exchange systems and operations from unacceptable risks, as well as to 
protect sensitive consumer data. We note that agents and brokers whose 
ability to transact information with the Exchange is suspended under 
this proposed authority would remain registered with the FFEs and 
authorized to assist consumers using the Marketplace (or side-by-side) 
pathway,\93\ unless and until their agreements were suspended or 
terminated under Sec.  155.220(f) or (g).
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    \91\ This provision also currently applies when an internet 
website of an agent or broker is used to complete the Exchange 
eligibility application through the existing cross reference to 
paragraph (c)(3)(i) in Sec.  155.220(c)(3)(ii)(A).
    \92\ As described elsewhere in this rule, we propose to delete 
Sec. Sec.  155.220(c)(3)(i)(L) and 156.1230(b)(1) and replace them 
with similar authority in proposed Sec.  155.221(d) that would be 
applicable to all direct enrollment entities.
    \93\ For more information on the Marketplace pathway, please see 
the Health Insurance Marketplace Guidance: Role of Agents, Brokers, 
and Web-brokers in Health Insurance Marketplace (November 8, 2016) 
Available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/Role-of-ABs-in-Marketplace_Nov-2016_Final.pdf.
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    To further improve program integrity, we are proposing in a new 
Sec.  155.220(m) several additional areas in which we would propose to 
regulate web-brokers differently from agents or brokers. HHS believes 
these additional proposed changes in new paragraph (m) are important to 
further protect against potential fraudulent enrollment activities, 
including the improper payment of APTC and CSRs, to safeguard consumer 
data and Exchange operations and systems, and to ensure direct 
enrollment remains a safe and consumer-friendly enrollment pathway.
    At Sec.  155.220(m)(1), we propose to allow a web-broker's 
agreement(s) to be suspended or terminated for cause under Sec.  
155.220(g), or a web-broker to be denied the right to enter into 
agreements with the FFEs under Sec.  155.220(k)(1)(i), based on the 
actions of its officers, employees, contractors, or agents. For 
example, if the actions of such individuals or entities are in 
violation of any standard specified in Sec.  155.220, any terms or 
conditions of the web-broker's agreements with the FFEs, or any 
applicable federal or state statutory or regulatory requirements, 
whether or not the officer, employee, contractor, or agent is 
registered with the FFEs as an agent or broker, the web-broker's 
agreement(s) may be terminated under paragraph (g)(3) if HHS determines 
the specific finding of noncompliance or pattern of noncompliance is 
sufficiently severe. Similarly, if HHS reasonably suspects that an 
officer, employee, contractor, or agent of a web-broker may have 
engaged in fraud, whether or not such individual or entity is 
registered with the FFEs as an agent or broker, HHS may temporarily 
suspend the web-broker's agreement(s) for up to 90 days consistent with 
Sec.  155.220(g)(5)(i)(A).
    At Sec.  155.220(m)(2), we propose to allow a web-broker's 
agreement to be suspended or terminated under Sec.  155.220(g) or to 
deny it the right to enter into agreements with the FFEs under Sec.  
155.220(k)(1)(i), if it is under

[[Page 273]]

the common ownership or control, or is an affiliated business, of 
another web-broker that had its agreement suspended or terminated under 
Sec.  155.220(g). In general, for purposes of this provision, we 
propose to define ``common ownership or control'' based on whether 
there is significant overlap in the leadership or governance of the 
entities. We also propose to collect data during the web-broker 
onboarding process to assist with the analysis of whether the web-
broker is under the common ownership or control, or is an affiliated 
business, of another web-broker that had its agreement suspended or 
terminated under Sec.  155.220(g). At Sec.  155.220(m)(3), we propose 
allowing the Exchange to collect information from a web-broker during 
its registration with the Exchange, or at another time on an annual 
basis, in a form and manner to be specified by HHS, sufficient to 
establish the identities of the individuals who comprise its corporate 
leadership and to ascertain any corporate or business relationships it 
has with other entities that may seek to register with the Federally-
facilitated Exchange as web-brokers. These provisions are important to 
maintain program integrity, because they would provide authority to 
collect information that would be used to minimize the risk that an 
individual or entity can circumvent an Exchange suspension or 
termination or other enforcement action related to noncompliance.
    As noted previously in this proposed rule, the use of direct 
enrollment through websites other than HealthCare.gov has expanded, as 
have the requirements on web-brokers seeking to participate in FFEs and 
SBE-FPs. For those reasons, we are also proposing to modify prior 
policy that prohibited Navigators and certified application counselors 
(CACs) (together referred to here as ``assisters'') from using web-
broker websites to assist with QHP selection and enrollment. Our 
proposal would permit, but not require, assisters in FFEs and SBE-FPs, 
to the extent permitted by state law, to use web-broker websites to 
assist consumers with QHP selection and enrollment, if the website 
meets certain conditions designed to ensure that assisters are able to 
use it while still meeting their statutory and regulatory obligations 
to provide fair, accurate, and impartial information and assistance to 
consumers. To promote state flexibility and autonomy under this 
proposal, SBEs other than SBE-FPs would have discretion to permit their 
assisters to use web-broker websites, so long as the web-broker 
websites that assisters are permitted to use in SBEs, at a minimum, 
adhere to the standards outlined in this proposal. SBEs may-instead 
choose to preserve the prohibition on assister use of web-broker 
websites.
    Direct enrollment is a mechanism for third parties to directly 
enroll QHP applicants through a non-Exchange website in a manner 
considered to be through the Exchange, and web-brokers are a type of 
direct enrollment entity. Web-brokers have developed innovative tools 
to support consumers shopping for QHP coverage through their websites 
that assisters and the consumers they assist may find helpful when 
shopping for and enrolling in QHPs offered through Exchanges. 
Additionally, recently an enhanced form of direct enrollment has been 
implemented that provides new options for consumers to receive 
comprehensive services related to Exchange application and QHP 
enrollment, as well as year round support services through a non-
Exchange website. Please see the preamble discussion related to Sec.  
155.221 for further details about direct enrollment and enhanced direct 
enrollment.
    With the expansion of direct enrollment and the implementation of 
enhanced direct enrollment, both web-brokers and assisters have 
expressed interest in allowing assisters to use web-broker websites to 
assist consumers with selection and enrollment in QHPs offered through 
Exchanges. Because of the unique role assisters serve in many 
communities, some web-brokers have supported the idea of allowing 
assisters to facilitate selection and enrollment in QHPs offered 
through Exchanges using their non-Exchange websites to broaden the 
range of consumers these websites serve. Some web-brokers would also 
like to use assisters' expertise in navigating more complex enrollment 
cases to provide additional support to the consumers they serve. 
Assisters have also expressed a desire to use web-broker websites to 
provide an improved consumer experience by leveraging innovative and 
unique consumer assistance tools and display features many web-brokers 
have developed. Additionally, some assisters have expressed a desire to 
have access to real-time information on the status of submitted 
applications and enrollments to more effectively assist consumers. 
Although we are not proposing to require web-brokers to develop 
assister portals at this time, so long as their sites meet the other 
proposed requirements described further below, some web-brokers may 
consider developing portals that would enable assisters to gain access 
to real-time information for each of the consumers they assist using a 
web-broker's website, similar to portals web-brokers may have already 
developed for affiliated agents and brokers.
    The implementation of enhanced direct enrollment by some web-
brokers also presents consumers with an additional method of applying 
for insurance affordability programs, selecting and enrolling in QHPs 
offered through Exchanges, and receiving post-enrollment support 
services. We believe this new option should be available to all FFE and 
SBE-FP assisters who provide application and enrollment assistance, 
provided that the information and assistance the assister provides 
would still remain fair, accurate, and impartial. And as previously 
stated, even when web-brokers have not yet implemented enhanced direct 
enrollment, we would like to provide assisters with the option to use 
the innovative and unique consumer-assistance tools and display 
features many web-brokers have developed to facilitate selection of 
QHPs offered through FFEs and SBE-FPs.
    We also hope that allowing FFE and SBE-FP assisters to use web-
broker websites to enroll consumers will encourage collaboration 
between assisters and web-brokers to the benefit of consumers by 
providing consumers the most appropriate support at each stage of the 
Exchange application and QHP selection and enrollment processes. We 
also believe that, moving forward, it is essential for assisters to 
evolve by collaborating with new partners to better accomplish the 
shared goals of educating consumers and helping them to enroll in QHPs 
offered through Exchanges that best fit their needs. We would also like 
to empower assisters to use tools that may be available outside of the 
HealthCare.gov platform that can best help assisters to serve their 
consumers and expand their reach and impact.
    While we believe consumers working with assisters should have 
access to new options for selection and enrollment in QHPs offered 
through Exchanges that may be available through web-broker websites, we 
also want to ensure assisters working with consumers using these sites 
continue to comply with the statutory and regulatory standards 
governing their role and duties. Section 1311(i)(3)(B) and 1311(i)(5) 
of the PPACA and its implementing regulation at Sec.  155.210(e)(2) 
require Navigators to provide fair, accurate, and impartial information 
to consumers in connection with their role as assisters. A similar 
requirement applies to CACs under Sec.  155.225(c)(1). Under Sec.  
155.210(d),

[[Page 274]]

Navigators are also prohibited from being a health insurance issuer or 
receiving any consideration directly or indirectly from any health 
insurance issuer in connection with the enrollment of any qualified 
individuals in a QHP. Finally, under Sec.  155.210(b)(1) and (c)(1)(iv) 
(for all Navigators) and Sec.  155.215(a) (for Navigators in FFEs) 
Navigators must be free from any prohibited conflicts of interest, 
including being a health insurance issuer or issuer of stop loss 
insurance; a subsidiary of a health insurance issuer or issuer of stop 
loss insurance; or an association that includes members of, or lobbies 
on behalf of, the insurance industry. Similarly, CACs are prohibited 
under Sec.  155.225(g)(2) from receiving any consideration directly or 
indirectly from any health insurance issuer. These regulations ensure 
that assisters remain free from any influence that might interfere with 
their duty to provide consumers with the fair, accurate, and impartial 
information they need to make informed plan choices, while not 
influencing a consumer's ultimate QHP selection. We have previously 
interpreted the requirement to provide fair, accurate, and impartial 
information to mean that assisters are prohibited from using a web-
broker's website to perform QHP application and enrollment assistance, 
unless the assister is using it as a reference tool to supplement the 
information available on HealthCare.gov.\94\ This guidance was issued 
due to concerns that web-brokers are not required to provide fair, 
accurate, and impartial information, and are not prohibited from 
recommending specific products, including QHPs, to their clients. 
Therefore, we believed that assisters would be unable to use a web-
broker website consistent with their duty to provide fair, accurate, 
and impartial information. Since then, we have required at Sec.  
155.220(j)(2)(i) that all agents and brokers (including web-brokers) 
enrolling consumers in QHPs offered through an Exchange in a manner 
considered to be enrollment through the FFEs provide consumers correct 
information, without omission of material fact, about QHPs and 
insurance affordability programs, and refrain from marketing or conduct 
that is misleading, coercive, or discriminatory. In addition, when a 
web-broker's non-Exchange website is used to facilitate QHP enrollment, 
it must provide consumers the ability to view all QHPs offered through 
the Exchange.\95\
---------------------------------------------------------------------------

    \94\ Information and Tips for Assisters: How and when to provide 
information about agent and broker services to consumers, and other 
information about engaging with agents and brokers. Available at 
https://marketplace.cms.gov/technical-assistance-resources/agents-and-brokers-guidance-for-assisters.pdf.
    \95\ See 45 CFR 155.220(c)(3)(i)(B). Also see 45 CFR 
155.220(c)(3)(ii)(A).
---------------------------------------------------------------------------

    To ensure that assisters are meeting their statutory and regulatory 
obligations to provide fair, accurate, and impartial information and 
assistance to consumers when assisting them with selection and 
enrollment in QHPs offered through Exchanges using a web-broker 
website, we propose a number of additional standards in this rule that 
would have to be met by a web-broker's website for an assister to be 
able to use the site when assisting a consumer with an Exchange 
application or QHP selection and enrollment, to the extent permitted by 
state law. A web-broker interested in making its non-Exchange website 
available to assisters may obtain certification from the Exchange that 
its website meets these standards, but would not be required to obtain 
certification, so long as the standards are met.
    First, we propose to replace Sec.  155.220(c)(3)(i)(D) with a 
requirement at new paragraph (c)(3)(i)(D)(1) for web-broker websites to 
display all QHP data provided by the Exchange, consistent with the 
requirements of Sec.  155.205(b)(1) and (c), for such websites to be 
eligible for use by assisters when otherwise permitted under state 
law.\96\ We note that web-brokers may obtain all QHP information they 
would be required to display in FFEs and SBE-FPs for assisters to be 
permitted to use their websites by integrating with the FFEs' 
Marketplace application programming interface (API). For FFEs and SBE-
FPs, we are considering an optional annual certification process for 
web-brokers that would be integrated into the existing annual web-
broker registration process, or could occur during another time of 
year, during which a web-broker could be certified by the Exchange by 
attesting to its compliance with the requirements proposed in new Sec.  
155.220(c)(3)(i)(D)(I). We propose to capture this optional annual 
certification process at new paragraph (c)(3)(i)(D)(2). We are also 
considering maintaining a public list of certified web-brokers in FFEs 
or SBE-FPs, so that assisters may more easily identify web-broker 
websites they may use in FFEs and SBE-FPs, when such arrangements are 
permitted under state law. The proposed amendments to Sec.  
155.220(c)(3)(i)(D)(1) also provide that if a web-broker website does 
not facilitate enrollment in all QHPs, it would be required to identify 
to consumers the QHPs, if any, for which the web-broker website does 
not facilitate enrollment by prominently displaying a standardized 
disclaimer provided by the Exchange, in a form and manner specified by 
the Exchange, stating that the consumer can enroll in such QHPs through 
the Exchange website, and display a link to the Exchange website. We 
anticipate issuing further guidance on the form and manner for how the 
disclaimer should be displayed so that it is clearly associated with 
any QHPs for which the web-broker does not facilitate enrollment. We 
are considering whether the disclaimer or a link to the disclaimer 
should replace the link or other mechanism the web-broker would 
otherwise display to allow a consumer to proceed with selecting and 
enrolling in a QHP, or whether the disclaimer should be displayed in 
some other fashion. We invite comments on what requirements should be 
adopted in reference to how this disclaimer should be displayed on a 
web-broker's website.
---------------------------------------------------------------------------

    \96\ Under this proposal, web-brokers that do not make their 
websites available for assister use would remain subject to Sec.  
155.220(c)(3)(i)(A), which requires display of all QHP information 
provided by the Exchange and/or directly by QHP issuers consistent 
with the requirements of Sec.  155.205(b)(1) and the prominent 
display of a standardized disclaimer provided by HHS to the extent 
that all of the required information is not displayed on the web-
broker's website.
---------------------------------------------------------------------------

    We note assisters, as part of providing information that is fair, 
accurate, and impartial, are prohibited from steering consumers to 
choose particular plans or recommend enrollment in any plan. However, 
we also want to encourage web-brokers to provide innovative consumer 
assistance tools that could be used by assisters and the consumers they 
serve, including those related to displaying QHP recommendations that 
are based on consumer preferences or based on algorithms that take into 
account unique consumer characteristics, but that are not based on 
compensation that the web-broker, or an agent or broker that is 
assisting the consumer, may receive from QHP issuers. Therefore, in 
addition to requiring web-broker websites to display all QHP 
information provided by the Exchange and a standardized disclaimer if 
the non-Exchange website does not facilitate enrollment in all QHPs 
offered through the Exchange, we are considering the extent to which 
web-broker websites, when used by assisters, should be prohibited from 
making plan recommendations or otherwise reflecting a preference for 
certain plans over others. We also note that we are proposing at new 
Sec.  155.220(c)(3)(i)(L) to prohibit web-broker websites from 
displaying QHP recommendations based on

[[Page 275]]

compensation received from QHP issuers. For more information about the 
proposal to prohibit web-broker websites from displaying QHP 
recommendations based on compensation received from QHP issuers, please 
refer to the earlier preamble in Sec.  155.220.
    We acknowledge that the proposal at Sec.  155.220(c)(3)(i)(L) does 
not prohibit web-brokers from otherwise implicitly making 
recommendations based on how they display QHPs. For example, web-
brokers may implicitly recommend QHPs based on compensation they 
receive by listing those that are not offered by issuers with whom they 
have contractual agreements at the bottom of the listings of all QHPs 
offered through the Exchange. We have also considered if web-brokers 
wanting to make their websites available for assister use should be 
able to maintain existing pathways for agents and brokers or unassisted 
consumers that may include non-prohibited QHP recommendations by 
creating a separate assister pathway through which either no or limited 
QHP recommendations are made (whether implicitly or directly). We seek 
comment on this approach regarding display of QHP recommendations as it 
relates to the proposal to allow assisters to use web-broker websites 
subject to certain conditions and when otherwise permitted under state 
law.
    We also believe that, for assisters to be permitted to use a web-
broker website, there would need to be a mechanism to capture 
information about assisters assisting consumers with Exchange 
applications or QHP enrollment on the non-Exchange website and would 
need to transmit that data to the Exchange. However, in FFEs and SBE-
FPs, web-brokers not participating in enhanced direct enrollment 
currently redirect consumers to HealthCare.gov to complete the 
eligibility application, and the eligibility application on 
HealthCare.gov includes fields to capture information about assisters 
and would therefore comply with such a requirement. For web-brokers in 
FFEs and SBE-FPs that offer an enhanced direct enrollment pathway, as 
indicated in operational guidance, specifically the Enhanced Direct 
Enrollment User Interface Question Companion Guide, the eligibility 
application must contain the same fields to capture information about 
assisters that are included in the application on HealthCare.gov. 
Therefore, we do not believe a regulatory change is required to 
accomplish this at this time, but clarify that, under our proposals 
related to use of web-broker websites by assisters, there would need to 
be a mechanism to capture information about assisters assisting 
consumers with Exchange applications or QHP enrollment.
    Nothing we are proposing is intended to change the prohibition at 
Sec.  155.210(d)(4) on Navigators receiving any consideration, in cash, 
or in kind, directly or indirectly, from any health insurance issuer or 
issuer of stop loss insurance in connection with enrollment of any 
individuals or employees in a QHP or non-QHP, or on the parallel 
prohibition on CACs receiving any consideration directly or indirectly 
from any health insurance issuer or issuers of stop-loss insurance at 
Sec.  155.225(g)(2). Therefore, if the proposed changes outlined above 
are implemented, all assisters using web-broker websites would continue 
to be prohibited from receiving compensation related to the assistance 
they provide with enrollments of consumers.
    We seek comments on all of these proposals.
e. Standards for Third-Party Entities To Perform Audits of Agents, 
Brokers, and Issuers Participating in Direct Enrollment (Sec.  155.221)
    Direct enrollment is a mechanism for third parties to directly 
enroll consumers seeking QHPs through a non-Exchange website in a 
manner considered to be through the Exchange. Direct enrollment was 
created to provide consumers different options to shop for and enroll 
in QHPs offered through the Exchange. The entities that are authorized 
to offer direct enrollment pathways to date are QHP issuers, as well as 
agents and brokers who develop and host non-Exchange websites to 
facilitate consumer selection of and enrollment in QHPs, referred to as 
web-brokers. As described in the preamble for Sec.  155.220, we propose 
to use the term web-broker throughout this proposed rule when we are 
referring to agents and brokers who develop and host non-Exchange 
websites to facilitate consumer selection of and enrollment in QHPs 
offered through an Exchange, otherwise known as direct enrollment, as 
well as direct enrollment technology providers. The original version of 
direct enrollment, or classic direct enrollment, is still in operation. 
It utilizes a double redirect from a direct enrollment entity's website 
where QHP shopping occurs, to HealthCare.gov where the eligibility 
application is completed, and back to the entity's website to finalize 
the selection of the QHP. Classic direct enrollment allows QHP issuers 
and web-brokers who meet applicable requirements to design and host a 
plan shopping experience, and assist consumers with the QHP selection 
process using relatively simple and limited application programming 
interfaces (APIs). The FFE direct enrollment program has expanded 
beyond the classic (that is, double-redirect) direct enrollment pathway 
as the FFEs' technical capabilities have significantly increased, 
beginning with proxy direct enrollment for plan year 2018 \97\ and 
continuing with the implementation of enhanced direct enrollment for 
plan year 2019 and beyond.\98\ The requirements and technical expertise 
needed to participate in each new iteration of direct enrollment have 
similarly increased as participants have greater access to and 
responsibility for sensitive consumer data and Exchange systems. With 
enhanced direct enrollment, HHS allows participants to create and host 
a dynamic eligibility application and integrate several new APIs that 
facilitate eligibility determinations, as well as the consumer's 
enrollment in a QHP, and data sharing with the applicable Exchange. 
Enhanced direct enrollment provides new options for consumers to 
receive more comprehensive services through a non-Exchange website, 
without the need to redirect to HealthCare.gov, for application and 
enrollment and ongoing support throughout the plan year. We believe 
this will promote innovation and competition, and ultimately lead to 
better experiences for more consumers. We also believe streamlining and 
consolidating regulatory requirements, when possible, will simplify the 
otherwise complex requirements to participate in direct enrollment and 
make it easier for direct enrollment entities and organizations 
interested in participating in direct enrollment to understand and 
comply with applicable requirements. We also believe the complex and 
evolving nature of direct enrollment requires updates to accommodate 
innovation, ensure program integrity, and protect sensitive consumer 
data.
---------------------------------------------------------------------------

    \97\ Proxy direct enrollment was implemented on a temporary 
basis for plan year 2018. More information is available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Guidance-for-the-Proxy-Direct-Enrollment-Pathway-for-2018-Individual-Market-Open-Enrollment-Period.pdf.
    \98\ 81 FR at 94118.
---------------------------------------------------------------------------

    As mentioned previously, the entities that have been permitted to 
offer direct enrollment pathways to date have been QHP issuers and web-
brokers that develop and host non-Exchange websites to facilitate 
selection and enrollment in QHPs offered through an FFE or SBE-FP. 
Direct enrollment regulatory provisions have likewise

[[Page 276]]

been divided into sections that are separately applicable to QHP 
issuers participating in direct enrollment and web-brokers. As direct 
enrollment has evolved with the implementation of enhanced direct 
enrollment, many of the requirements applicable to QHP issuers 
performing direct enrollment and web-brokers have become increasingly 
similar. Therefore, we propose to revise Sec.  155.221 to apply to all 
types of direct enrollment entities and to expand the requirements 
captured in this regulation beyond audits of direct enrollment 
entities. Further details are provided below. To reflect this change we 
propose to revise the section heading of Sec.  155.221 to ``Standards 
for direct enrollment entities and for third-parties to perform audits 
of direct enrollment entities.'' We believe this approach would enhance 
clarity, reduce burdens, and better reflect an approach to direct 
enrollment that standardizes requirements across all entities 
participating in direct enrollment, where appropriate.
    We propose to amend Sec.  155.20 to include definitions of several 
terms we propose to use in Sec.  155.221 including: ``direct enrollment 
entity'' and ``web-broker.'' Specifically, we propose to define 
``direct enrollment entity'' as an entity that an Exchange permits to 
assist consumers with direct enrollment in QHPs offered through the 
Exchange in a manner considered to be through the Exchange as 
authorized by Sec. Sec.  155.220(c)(3), 155.221, or 156.1230. We 
propose to define ``web-broker'' as an individual agent or broker, 
group of agents or brokers, or business entity registered with an 
Exchange under Sec.  155.220(d)(1) that develops and hosts a non-
Exchange website that interfaces with an Exchange to assist consumers 
with direct enrollment in QHPs offered through the Exchange as 
described in Sec. Sec.  155.220(c)(3) and 155.221. As explained 
elsewhere in this preamble, we also propose to define the term ``web-
broker'' to include direct enrollment technology providers. If this 
definition is finalized as proposed it would replace HHS's current web-
broker definition. We believe it is important to distinguish ``web-
brokers'' from other agents and brokers utilizing a non-Exchange 
website to assist consumers with direct enrollment in QHPs offered 
through the Exchanges when they did not develop and do not host the 
non-Exchange website. Stated differently, agents and brokers using a 
non-Exchange website developed and hosted by a web-broker are not 
themselves necessarily web-brokers. For the reasons outlined in the 
preamble to Sec.  155.220, we are of the view that it is appropriate to 
impose different requirements on web-brokers and agents and brokers who 
are not web-brokers. We believe this proposed definition and the 
proposed changes to Sec. Sec.  155.220 and 155.221 outlined in this 
rulemaking reflect this approach and will enable web-brokers, agents, 
and brokers to more clearly identify when requirements are applicable 
to only web-brokers.
    We also propose to amend Sec.  155.20 to define ``direct enrollment 
technology provider'' as a type of web-broker business entity that is 
not a licensed agent, broker, or producer under state law and has been 
engaged or created by, or is owned by, an agent or broker to provide 
technology services to facilitate participation in direct enrollment as 
a web-broker in accordance with Sec. Sec.  155.220(c)(3) and 155.221. 
This definition is intended to capture instances when an individual 
agent or broker, a group of agents or brokers, or an agent or broker 
business entity, engages the services of or creates a technology 
company that is not licensed as an agent or broker, in order to assist 
with the development and maintenance of a non-Exchange website that 
interfaces with an Exchange to assist consumers with direct enrollment 
in QHPs offered through the Exchanges as described in Sec. Sec.  
155.220(c)(3) and 155.221. When the technology company is not itself 
licensed as an insurance agency or brokerage, but otherwise is 
functioning as a web-broker would, we propose that these technology 
companies would be considered a type of web-broker that must comply 
with applicable web-broker requirements under Sec. Sec.  155.220 and 
155.221, unless indicated otherwise.\99\ The proposed definition of 
``web-broker'' reflects the inclusion of direct enrollment technology 
providers.
---------------------------------------------------------------------------

    \99\ For example, proposed amendments to Sec.  155.220(d)(2) 
would exempt direct enrollment technology providers from the 
training requirement that is part of the annual FFE registration 
process.
---------------------------------------------------------------------------

    We propose to generally maintain the current requirements in Sec.  
155.221 that describe the standards for third-parties to perform audits 
of direct enrollment entities. However, to accommodate new content we 
are proposing to add to this regulation, we propose to redesignate the 
existing paragraphs (a) through (c) as paragraphs (e) through (g), 
respectively. We also propose some amendments to existing requirements 
currently captured in paragraphs (a) through (c), as described more 
fully below. In addition, throughout the redesignated paragraphs (e), 
(f), (f)(2), (f)(3), (f)(4), (f)(6), (f)(7), and (g), we propose 
conforming edits to change references to agents, brokers, and issuers 
to direct enrollment entities. We also propose to update the regulatory 
cross-references in the redesignated paragraph (f)(6) and (f)(7) from 
Sec.  155.221(a) to Sec.  155.221(e) to align with the streamlining 
changes proposed in this rulemaking. We also propose to add paragraph 
headings throughout this revised regulation for further clarity. In 
paragraph (e), we also propose to add language to require that the 
third-party entities that conduct annual reviews of direct enrollment 
entities to demonstrate operational readiness consistent with new 
proposed Sec.  155.221(b)(4) \100\ be independent of the entities they 
are auditing. We are proposing this change because we believe an 
independent audit is less likely to be influenced by a direct 
enrollment entity's business considerations and therefore is more 
reliable. We note that current Sec.  155.221(b)(4) requires third-party 
auditors to disclose to HHS any financial relationships they have with 
the entities they are auditing. We believe this disclosure requirement 
remains relevant even with the proposed addition to proposed paragraph 
(e) that would require auditors to be independent, because an auditor 
may be independent while also contracting with the entity it is 
auditing (and therefore having a financial relationship with the 
entity) to perform audits or other activities unrelated to those 
described in Sec.  155.221. We therefore propose to retain this 
disclosure requirement at new Sec.  155.221(f)(4). We also propose to 
clarify in paragraph (e) that an initial audit is required, in addition 
to subsequent annual audits, and that these audits must include review 
of the entity's compliance with applicable direct enrollment 
requirements. These clarifications do not represent a change from the 
current approach, as direct enrollment entities are currently required 
to demonstrate operational readiness before their websites may be used 
to complete QHP selections,\101\ and these audits must confirm 
compliance with applicable requirements.\102\ In paragraph (e), we 
propose to add language to clarify that operational readiness must be 
demonstrated prior to

[[Page 277]]

the direct enrollment entity's website being used to complete an 
Exchange eligibility application or make a QHP selection. This language 
is consistent with the operational readiness review requirements 
currently captured at Sec.  155.220(c)(3)(i)(K) for web-brokers and 
Sec.  156.1230(b)(2) for QHP issuers, which are proposed in this 
rulemaking to be moved to Sec.  155.221(b)(4), and accounts for the 
fact that direct enrollment entities participating in enhanced direct 
enrollment will host the eligibility application in addition to QHP 
selection. Lastly, we propose to maintain the last sentence that 
currently appears in Sec.  155.221(a) as the last sentence of the new 
paragraph (e) that states the third-party entity will be the downstream 
or delegated entity of the agent, broker, or issuer that participates 
or wishes to participate in direct enrollment, replacing the references 
to agent, broker, and issuer with direct enrollment entity. In 
paragraph (f), we propose to generally maintain the current requirement 
captured in Sec.  155.221(b) that a direct enrollment entity must 
satisfy the requirement to demonstrate operational readiness by 
engaging a third-party entity that complies with the specified 
requirements. We also propose to require under new paragraph (f) that a 
written agreement must be executed between the direct enrollment entity 
and its auditor stating that the auditor will comply with the standards 
outlined in paragraph (f). We are proposing this new requirement 
because we believe the most effective way to ensure a direct enrollment 
entity has the necessary control and oversight over its auditor to 
ensure compliance with the applicable standards in Sec.  155.221 is for 
those standards to be memorialized in a written agreement between the 
parties. We propose to delete the provision in current paragraph (c) 
that refers to each third-party entity having to satisfy the standards 
outlined in current paragraph (b), to avoid duplication with a nearly 
identical provision in proposed paragraph (f). The nearly identical 
provision in proposed paragraph (f), which, if finalized, would be the 
redesignated version of current paragraph (b), states that a third-
party entity must execute an agreement with a direct enrollment entity 
under which the third-party entity agrees to comply with each of the 
standards in proposed paragraph (f). We otherwise propose to maintain, 
in the redesignated new paragraph (g), the provision that clarifies 
that direct enrollment entities may engage multiple third-party 
entities to conduct the operational readiness audits under proposed 
Sec.  155.221(e).
---------------------------------------------------------------------------

    \100\ Direct enrollment operational readiness review 
requirements are currently captured at 45 CFR 155.220(c)(3)(i)(K) 
for web-brokers and 45 CFR 156.1230(b)(2) for QHP issuers.
    \101\ See 45 CFR 156.1230(b)(2) for issuers participating in 
direct enrollment and 45 CFR 155.220(c)(3)(i)(K) for web-brokers.
    \102\ See 45 CFR 155.221(b)(5). Also see 45 CFR 156.1230(b)(2).
---------------------------------------------------------------------------

    We propose a new paragraph (a) in Sec.  155.221 that would 
establish the types of entities the FFEs will permit to assist 
consumers with direct enrollment in QHPs offered through an Exchange in 
a manner that is considered to be through the Exchange, to the extent 
permitted by state law. We propose to capture in Sec.  155.221(a) the 
two types of entities that are already permitted by the FFEs to use and 
offer a non-Exchange website to facilitate direct enrollment: QHP 
issuers who meet the requirements in Sec.  156.1230 and web-brokers who 
meet the requirements in Sec.  155.220. New paragraph (a) also reflects 
that these entities would also be required to comply with the 
applicable requirements outlined in the new proposed Sec.  155.221, 
which as described more fully above and below, we propose to capture 
the direct enrollment requirements that would apply to both web-brokers 
and QHP issuers participating in direct enrollment. For the remaining 
requirements that only apply to web-brokers or only apply to QHP 
issuers participating in direct enrollment, we propose to retain those 
requirements in Sec. Sec.  155.220 and 156.1230, respectively.
    We have issued guidance describing several existing display 
standards applicable to issuers or web-brokers participating in direct 
enrollment. Section 4.3 of the Federally-facilitated Marketplace and 
Federally-facilitated Small Business Health Options Program Enrollment 
Manual \103\ states a QHP issuer's direct enrollment website should not 
include the offering of non-QHP health plans or non-QHP ancillary 
products (for example, vision or accident) alongside QHPs. It also 
states that QHP issuers should provide applicants the ability to search 
for off-Exchange products in a separate section of the website other 
than the QHP web pages, and that such plans may be marketed and 
displayed after the QHP selection process has been completed.
---------------------------------------------------------------------------

    \103\ Federally-facilitated Exchange and Federally-facilitated 
Small Business Health Options Program Enrollment Manual. Available 
at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Enrollment-Manual-062618.pdf.
---------------------------------------------------------------------------

    Guidance for Web-brokers Registered with the Federally-facilitated 
Marketplaces, released October 17, 2016,\104\ established similar 
expectations for web-brokers. Section II.B states that web-brokers are 
expected to display QHPs and stand-alone dental plans offered through 
the applicable Exchange separately or in a manner that clearly 
distinguishes them from other available coverage options (for example, 
off-Exchange plans). It also provides that web-brokers should offer a 
QHP selection experience that is free from advertisements or 
information for other health insurance-related products and sponsored 
links promoting health insurance-related products.
---------------------------------------------------------------------------

    \104\ Guidance for Web-brokers Registered with the Federally-
Facilitated Marketplaces (2016). Available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/Guidance-Web-brokers-FFMs.pdf.
---------------------------------------------------------------------------

    We have received feedback from issuers and web-brokers that 
suggests there is some confusion about the current standards and 
guidance related to the display of QHPs and non-QHPs on non-Exchange 
websites used to facilitate direct enrollment. In an effort to clarify 
expectations, achieve greater uniformity in standards for all direct 
enrollment entities, and provide flexibility for innovation, we are 
proposing to establish requirements under Sec.  155.221(b) for the 
FFEs, which would apply to all FFE direct enrollment entities. As noted 
elsewhere in preamble, some of the proposed requirements in Sec.  
155.221(b) are intended to streamline existing web-broker and QHP 
issuer direct enrollment requirements that are currently separately 
imposed under Sec. Sec.  155.220 and 156.1230 by capturing these 
similar requirements in one regulation. Other proposed standards in 
Sec.  155.221(b) are new regulatory requirements and are proposed to 
clarify or otherwise address compliance questions that have arisen 
under the existing regulations and guidance.
    At new Sec.  155.221(b)(1), we propose to require direct enrollment 
entities to display and market QHPs and non-QHPs on separate website 
pages on their respective non-Exchange websites. We believe this 
proposal balances the goals of minimizing consumer confusion about 
distinct products with substantially different characteristics, and 
allowing marketing flexibility and opportunities for innovation. At 
Sec.  155.221(b)(2), we propose to require direct enrollment entities 
to prominently display a standardized disclaimer in the form and manner 
provided by HHS.\105\ Consistent with current practice for the other 
standardized disclaimers provided by HHS under Sec. Sec.  155.220 and 
156.1230, we would provide further details on the text and other 
display details for the standardized disclaimer in guidance, but note 
its purpose would be to assist

[[Page 278]]

consumers in distinguishing between direct enrollment entity website 
pages that display QHPs and those that display non-QHPs, and for which 
products APTCs and CSRs are available, during a single shopping 
experience. In new Sec.  155.221(b)(3), HHS proposes that direct 
enrollment entities must limit the marketing of non-QHPs during the 
Exchange eligibility application and QHP plan selection process in a 
manner that would minimize the likelihood that consumers would be 
confused as to what products are available through the Exchange and 
what products are not. For example, under the proposed display 
standards captured at Sec.  155.220(b)(1)-(3), direct enrollment 
entities would be required to offer an Exchange eligibility application 
and QHP selection process that is free from advertisements or 
information for non-QHPs and sponsored links promoting health 
insurance-related products. However, it would be permissible for a 
direct enrollment entity to market or display non-QHP health plans and 
other off-Exchange products in a section of the entity's website that 
is separate from the QHP web pages if the entity otherwise complied 
with the proposed standardized disclaimer requirements. In this 
example, the direct enrollment entity could begin marketing and 
displaying the non-QHP health plans and/or off-Exchange products after 
the consumer completes the Exchange eligibility application and QHP 
selection process, but before he or she has completed the shopping 
experience. The proposed requirements captured at Sec.  155.221(b)(1)-
(3) are intended to provide flexibility for direct enrollment entities 
to market valuable additional coverage that complements QHP coverage, 
while also allowing HHS to establish important parameters around the 
manner and type of non-QHPs that direct enrollment entities may market 
as part of a single shopping experience with QHPs. We believe marketing 
some products in conjunction with QHPs may cause consumer confusion, 
especially as it relates to the availability of financial assistance 
for QHPs purchased through the Exchanges. But we also appreciate that 
having flexibility to update these standards would allow us to adapt 
the display guidance as new products come to market and as technologies 
evolve that can assist with differentiating between QHPs offered 
through the Exchange and other products consumers may be interested in. 
We also believe that the convenience in being able to purchase 
additional products as part of a single shopping experience outweighs 
potential consumer confusion, if proper safeguards can be put in place. 
We believe that the proposal at Sec.  155.221(b)(3) would not 
unnecessarily constrain marketing by direct enrollment entities that 
takes place outside of the QHP application, selection, and enrollment 
experience as the proposal is specifically tailored to prohibit display 
and marketing of non-QHPs during the Exchange eligibility application 
and QHP selection process, but not during subsequent parts (if any) of 
the consumer shopping experience on the direct enrollment entity's 
website. In Sec.  155.221(b)(4), we propose to move and consolidate the 
parallel requirements currently captured in Sec. Sec.  
155.220(c)(3)(i)(K) and 156.1230(b)(2) that web-brokers and QHP 
issuers, respectively, demonstrate operational readiness and compliance 
with applicable requirements prior to their internet websites being 
used to complete a QHP selection. We also include language in proposed 
Sec.  155.221(b)(4) that would to clarify that operational readiness 
and compliance with applicable requirements must also be demonstrated 
prior to their internet websites being used to complete an Exchange 
eligibility application. This clarification is important as enhanced 
direct enrollment is implemented and approved direct enrollment 
entities are hosting the Exchange eligibility application on their non-
Exchange websites. We propose accompanying amendments to remove the 
operational readiness requirements from Sec. Sec.  155.220 and 156.1230 
as part of our efforts to streamline the regulatory requirements 
applicable to direct enrollment entities. Lastly, in Sec.  
155.221(b)(5), we propose to capture the requirement for direct 
enrollment entities to comply with all applicable federal and state 
requirements. This would include, but not be limited to, the additional 
Exchange requirements in Sec. Sec.  155.220 and 156.1230 that apply to 
web-brokers and QHP issuers that participate in direct enrollment, 
respectively.
---------------------------------------------------------------------------

    \105\ This new proposed standardized disclaimer would be in 
addition to the existing requirements at 45 CFR 155.220(c)(3)(i)(A) 
and (G) for web-brokers and at 45 CFR 156.1230(a)(1)(iv) for QHP 
issuers participating in direct enrollment.
---------------------------------------------------------------------------

    In Sec.  155.221(c), we propose FFE requirements related to direct 
enrollment entity application assisters. Please see the preamble to 
Sec.  155.415 for a discussion of these proposed requirements.
    In Sec.  155.221(d), we propose to consolidate and amend the 
existing parallel provisions in Sec. Sec.  155.220(c)(3)(i)(L) and 
156.1230(b)(1) to authorize HHS to immediately suspend the direct 
enrollment entity's ability to transact information with the Exchange 
if HHS discovers circumstances that pose unacceptable risk to the 
accuracy of the Exchange's eligibility determinations, Exchange 
operations or Exchange information technology systems until such 
circumstances are resolved, remedied or sufficiently mitigated to HHS's 
satisfaction. We propose to remove the provisions from Sec. Sec.  
155.220(c)(3)(i)(L) and 156.1230(b)(1) as part of our efforts to 
streamline and consolidate the requirements applicable to direct 
enrollment entities in one regulation. The proposal captured in Sec.  
155.221(d) includes language that would extend the authority to suspend 
the ability to transact information with the Exchange to also include 
discovery of circumstances by HHS that pose unacceptable risk to the 
accuracy of the Exchange's eligibility determinations. We believe this 
addition is necessary and appropriate as enhanced direct enrollment 
allows direct enrollment entities to collect and transmit the 
application data that the Exchanges use to complete eligibility 
determinations.
    Lastly, to account for direct enrollment entities that may be 
assisting consumers in SBE-FP states, we are proposing a new Sec.  
155.221(h) to clarify that such entities are also required to comply 
with applicable standards in Sec.  155.221.
    We seek comment on all of these proposals.
f. Certified Application Counselors (Sec.  155.225)
    We propose allowing, but not requiring, certified application 
counselors to assist consumers with applying for eligibility for 
insurance affordability programs and QHP enrollment through web-broker 
websites under certain circumstances. For a discussion of the 
provisions of this proposed rule related to that proposal, please see 
the preamble to Sec.  155.220.
3. Exchange Functions in the Individual Market: Enrollment in Qualified 
Health Plans
a. Allowing Issuer Application Assisters To Assist With Eligibility 
Applications (Sec.  155.415)
    In the first Program Integrity Rule,\106\ we finalized Sec.  
155.415, which allows an Exchange, to the extent permitted by state 
law, to permit issuer application assisters to assist consumers in the 
individual market with an Exchange eligibility application if they met 
certain requirements. At Sec.  155.20, we define issuer application 
assister as an employee, contractor, or agent of a QHP issuer who is 
not licensed as an agent,

[[Page 279]]

broker, or producer under state law and who assists individuals in the 
individual market with applying for a determination or redetermination 
of eligibility for coverage through the Exchange or for insurance 
affordability programs. At Sec.  156.1230(a)(2), when permitted by an 
Exchange under Sec.  155.415, and to the extent permitted by state law, 
we require QHP issuers that elect to use application assisters to 
ensure that each of their application assisters at least: (1) Receives 
training on QHP options and insurance affordability programs, 
eligibility, and benefits rules; (2) complies with the Exchange privacy 
and security standards consistent with Sec.  155.260; and (3) complies 
with applicable state law related to the sale, solicitation, and 
negotiation of health insurance products, including laws related to 
agent, broker, and producer licensure, confidentiality, and conflicts 
of interest.
---------------------------------------------------------------------------

    \106\ Patient Protection and Affordable Care Act; Program 
Integrity: Exchange, SHOP, and Eligibility Appeals; Final Rule, 78 
FR 54070 (August 30, 2013).
---------------------------------------------------------------------------

    In adopting this approach, we recognized that, in some states, a 
license may be required to assist an applicant applying for an 
eligibility determination or redetermination. We deferred to existing 
state laws related to enrollment assistance when deciding which 
individuals may assist applicants and enrollees as authorized under 
Sec.  156.1230(a)(2), and whether licensure would be required to 
provide such assistance. We stated that if state law requires a license 
to enroll applicants in coverage, then issuers and their application 
assisters would need to follow state law for licensure requirements. We 
also recognized that there were certain functions that issuers 
generally had their staff perform prior to the issuance of the first 
Program Integrity Rule, such as answering general information about 
plans, and we wanted to allow those individuals to continue to perform 
those functions, without meeting additional standards, if permitted by 
state law. We indicated that, if an issuer wants those individuals to 
perform additional functions, such as helping consumers as they apply 
for an eligibility determination or redetermination for coverage 
through the Exchange, or as they apply for insurance affordability 
programs, or as they report changes to an Exchange, those individuals 
could assist consumers with applications subject to the standards in 
Sec.  156.1230(a)(2), so long as providing such assistance did not 
otherwise conflict with state law. Additionally, we stated that 
facilitating selection of a QHP may be a typical function of issuer 
staff and issuer staff would be able to perform post-eligibility 
functions such as plan compare and selection, if permitted by state 
law, without being subject to the standards of Sec.  156.1230(a)(2). As 
currently codified, the application assister definition and 
accompanying requirements only apply to issuer application assisters.
    As described elsewhere in this rulemaking, we believe providing 
parity for direct enrollment entities, when possible, promotes fair 
competition and maximizes consumer choice. In addition, there is no 
apparent reason why issuer staff are more qualified to assist consumers 
with the Exchange eligibility application than the staff of other 
direct enrollment entities, assuming all receive appropriate training 
and when otherwise permitted under applicable state law. Therefore, we 
propose to expand the flexibility to employ or contract with 
application assisters to all direct enrollment entities, to create 
parity between issuers and other types of direct enrollment entities. 
Accordingly, we propose changes to several regulatory sections. 
Specifically, we propose to amend Sec.  155.20 by adding the term 
``direct enrollment entity application assister,'' which we propose to 
define as an employee, contractor, or agent of a direct enrollment 
entity who is not licensed as an agent, broker, or producer under state 
law and who assists individuals in the individual market with applying 
for a determination or redetermination of eligibility for coverage 
through the Exchange or for insurance affordability programs. We 
propose to adopt the same approach for direct enrollment entity 
application assisters as the existing one for issuer application 
assisters. In other words, under our proposal, these application 
assisters would need to comply with applicable state law, including any 
licensure requirements, and we would continue to defer to existing 
state laws related to enrollment assistance when deciding which 
individuals may assist applicants and enrollees and whether licensure 
is required to provide such assistance.
    We also propose to revise Sec.  155.415(a) to authorize an 
Exchange, to the extent permitted by state law, to permit issuer and 
direct enrollment entity application assisters, as defined at Sec.  
155.20, to assist individuals in the individual market with applying 
for a determination or redetermination of eligibility for coverage 
through the Exchange and insurance affordability programs. 
Additionally, we propose to maintain language in Sec.  155.415(a) to 
mandate that all direct enrollment entities who seek to use application 
assisters, and not just QHP issuers, must ensure that their application 
assisters meet the standards currently captured in Sec.  
156.1230(a)(2), which we propose to move to new paragraphs (b)(1) 
through (3) of Sec.  155.415, with two proposed amendments. Currently, 
Sec.  156.1230(a)(2)(i) requires all QHP issuer application assisters 
to receive training on QHP options and insurance affordability 
programs, eligibility, and benefits rules and regulations. Licensed 
agents and brokers currently assisting consumers with QHP enrollment 
through the FFEs and SBE-FPs must have credentials to access FFE 
systems to offer that assistance. Those credentials are obtained during 
the FFE registration and training processes for agents and brokers. For 
application assisters to have similar access to FFE systems, so that 
they are also able to assist consumers as described above, they would 
need credentials similar to those obtained by agents and brokers during 
the FFE registration and training processes. Therefore, we propose to 
require that application assisters providing assistance in the FFEs and 
SBE-FPs complete a similar annual registration and training process as 
to what is required for agents and brokers under Sec.  155.220(d)(1) 
and (2), in a form and manner to be specified by HHS, so that they 
would have the necessary training before being provided credentials to 
assist consumers. This proposed new training and registration 
requirement for application assisters is captured in the new proposed 
Sec.  155.415(b)(1). Currently, Sec.  156.1230(a)(2)(iii) requires all 
QHP issuer application assisters to comply with applicable agent, 
broker, and producer licensure laws, which may not be applicable in a 
given circumstance. For example, another state licensure law may exist 
for professionals whose functions are more similar to application 
assisters than licensed agents, brokers, and producers. We, therefore, 
propose to amend this standard (proposed to be redesignated at Sec.  
155.415(b)(3)) to require all application assisters to comply with 
applicable state law related to the sale, solicitation and negotiation 
of health insurance products, including any state licensure laws 
applicable to the functions to be performed by the application 
assister; confidentiality; and conflicts of interest. We are not 
proposing any changes to the other standard for application assisters 
that requires compliance with the Exchange's privacy and security 
standards adopted consistent with Sec.  155.260 (proposed to be 
redesignated from Sec.  156.1230(a)(2)(ii) to new Sec.  155.415(b)(2)). 
We also propose to delete and reserve Sec.  156.1230(a)(2) to

[[Page 280]]

reduce redundancies, as QHP issuers subject to the current standards 
captured at Sec.  156.1230(a)(2) would be subject to the requirements 
in proposed Sec.  155.415(b). We note that any QHP issuers that are not 
direct enrollment entities, but use application assisters, would also 
be subject to these proposed requirements and able to use application 
assisters, to the extent permitted by the applicable Exchange and state 
law. Finally, consistent with the proposed new paragraphs at Sec.  
155.221(c) and (h), we clarify that direct enrollment entities 
participating in FFEs and/or SBE-FPs would be permitted to use 
application assisters, to the extent permitted by state law.
    We seek comment on these proposed changes.
b. Special Enrollment Periods (Sec.  155.420)
    Under our current rules, individuals who are enrolled in employer-
sponsored coverage or coverage purchased through an Exchange are 
eligible for a special enrollment period if they become newly eligible 
for APTC. However, no comparable special enrollment period exists for 
individuals who are enrolled in off-Exchange individual market 
coverage. We believe this may present a significant barrier for some 
individuals to remain in continuous coverage for the full plan year. 
Therefore, we propose to amend Sec.  155.420(d) to add new paragraph 
(d)(6)(v) to authorize Exchanges, at their option, to provide a special 
enrollment period to enroll in Exchange coverage for off-Exchange 
individual market enrollees who experience a decrease in household 
income and receive a new determination of eligibility for APTC by an 
Exchange. We propose to make this special enrollment period available 
to qualified individuals and their dependents who experience 
circumstances that result in a decrease in household income if the 
qualified individual or his or her dependent are both (1) newly 
determined eligible for APTC by an Exchange, and (2) had MEC in which 
they were enrolled in and entitled to receive benefits under as 
described in 26 CFR 1.5000A-1(b) for one or more days during the 60 
days preceding the change in circumstances. We cite 26 CFR 1.5000A-1(b) 
because it sets forth criteria for what it means to ``have MEC,'' 
including general requirements to be enrolled in and entitled to 
receive benefits under a program or plan identified as MEC in 26 CFR 
1.5000A-2 and certain situations under which an individual is not 
enrolled in MEC but is treated as ``having MEC.'' Under this special 
enrollment period, qualified individuals and dependents would be 
eligible for Exchange coverage following the regular prospective 
coverage effective date rules described in paragraph (b)(1) of this 
section, and must enroll within 60 days from the date of the financial 
change, in accordance with paragraph (c)(1) of this section.
    We seek to provide individuals with more health coverage options 
and to empower them to enroll in the health coverage that best meets 
their needs and the needs of their families. For individuals and 
families with household incomes greater than 400 percent of the federal 
poverty level (FPL) who are not eligible for APTC, this may mean that 
they choose to purchase health insurance coverage outside of the 
Exchange during the annual open enrollment period or another eligible 
enrollment period, especially if the market outside of the Exchange 
offers additional plan options at more affordable prices. However, 
these individuals or families may experience a change in household 
income during the benefit year that makes their current health coverage 
no longer affordable. While paragraphs (d)(6)(iii) and (d)(6)(iv) 
currently provide special enrollment periods for individuals whose 
employer-sponsored coverage becomes unaffordable or does not meet 
minimum value, resulting in the employee becoming newly eligible for 
APTC, and for individuals previously in the coverage gap who become 
newly eligible for APTC as a result of a change in household income or 
move, respectively, there is no current pathway to Exchange coverage 
for enrollees in off-Exchange individual market plans who are newly 
eligible for APTC. Since no pathway to Exchange coverage currently 
exists, we believe that unsubsidized individual market enrollees whose 
household income has decreased may no longer be able to afford their 
unsubsidized health plans and may decide to terminate coverage mid-
year. Therefore, the proposed special enrollment period in paragraph 
(d)(6)(v) would address this issue by establishing a pathway to 
Exchange coverage for qualified individuals enrolled in off-Exchange 
coverage who experience a decrease in household income and are newly 
determined eligible for APTC. We believe that this proposed policy 
would help promote continuous enrollment in health coverage and bring 
additional stability to the individual market risk pool, which would 
likely have a positive impact on health insurance premiums.
    Individuals seeking to access the proposed special enrollment 
period would not be current Exchange enrollees and would receive a new 
determination of eligibility for APTC through the Exchange's consumer 
application. For the FFEs, an individual's current household income and 
eligibility for APTC would be verified through the FFE's eligibility 
system and data matching issue resolution process, in accordance with 
the requirements in Sec.  155.320(c). To ensure that the proposed 
special enrollment period is available to the intended population while 
mitigating risks of adverse selection and inappropriate use, we propose 
to require the individual seeking access to the proposed special 
enrollment period to provide evidence of both a change in household 
income and of prior health coverage. Verifying that a decrease in 
household income occurred would prevent individuals who enrolled in 
health coverage off-Exchange, but have not experienced a financial 
change, from attempting to use this special enrollment period for the 
sole purpose of purchasing a more or less comprehensive level of 
coverage mid-year. To protect the individual market risk pool from 
adverse selection, as mentioned above, we propose to include a prior 
coverage requirement, which would protect against individuals who opted 
not to enroll in health coverage during the annual open enrollment 
period from using this special enrollment period to enroll in Exchange 
coverage mid-year. Additionally, this prior coverage requirement would 
promote continuous coverage. The proposed prior-coverage requirement 
aligns with existing prior-coverage requirements for special enrollment 
periods at Sec.  155.420(d)(2)(i) and (d)(7). We envision leveraging 
existing pre-enrollment verification procedures \107\ to confirm 
eligibility for the proposed special enrollment period, either through 
review of an individual's submitted documentation or through use of 
electronic data sources, when available, prior to sending the 
individual's plan selection to the issuer for enrollment. Consistent 
with current practices, in cases where eligibility is not verified 
electronically, individuals would be required to submit documentation 
within 30 days of plan selection to verify their prior coverage and 
their decrease in income. Consumer-submitted documents currently 
accepted by the FFE for

[[Page 281]]

purposes of demonstrating prior coverage and verifying attested income 
are currently available on HealthCare.gov,\108\ and we anticipate 
developing additional consumer instructions around submitting documents 
to verify a decrease in income.
---------------------------------------------------------------------------

    \107\ Instructions for consumers to verify their eligibility for 
a special enrollment period are available at https://www.healthcare.gov/coverage-outside-open-enrollment/confirm-special-enrollment-period/.
    \108\ Available at https://www.healthcare.gov/help/prove-coverage-loss/ and https://www.healthcare.gov/verify-information/documents-and-deadlines/.
---------------------------------------------------------------------------

    We recognize that State Exchanges maintain flexibility to determine 
whether and how to implement pre-enrollment verification of eligibility 
for special enrollment periods and may not have the operational 
capacity to immediately implement and verify eligibility for this 
special enrollment period. Some State Exchanges may also determine 
there is insufficient need among off-Exchange consumers for this 
special enrollment period because of the rating and pricing practices 
specific to their state markets. Therefore, we are proposing to make 
this special enrollment period available at the option of the Exchange.
    This proposed special enrollment period is intended only for 
individuals not currently enrolled in Exchange coverage, since current 
Exchange enrollees who experience a decrease in household income mid-
year may already qualify for a special enrollment period under 
paragraphs (d)(6)(i) and (ii), or may enroll in off-Exchange plans if 
they become newly ineligible for APTC under Sec.  147.104(b)(2)(i)(B).
    Paragraph (a)(4)(iii) of Sec.  155.420 generally limits the plans 
into which an enrollee who qualifies for a special enrollment period or 
is adding a dependent through a special enrollment period may enroll. 
Several special enrollment periods are excluded from this limitation. 
However, we propose that the proposed new special enrollment period 
would be subject to the rule in paragraph (a)(4)(iii). Therefore, 
should a qualified individual who qualifies for the proposed special 
enrollment period in paragraph (d)(6)(v) already have members of his or 
her household enrolled in Exchange coverage and those enrollees do not 
qualify for another special enrollment period at the same time that 
provides them with additional plan enrollment flexibilities, the 
Exchange must allow the qualified individual to be added to the same 
QHP as the Exchange enrollees in his or her household, if the plan 
business rules allow. If the plan's business rules do not allow the 
qualified individual to enroll, the Exchange must allow the current 
enrollees to change to another QHP within the same level of coverage 
(or one metal level higher or lower if no such QHP is available), and 
to add the qualified individual to the same plan as outlined under 
Sec.  156.140(b). As always, and at the option of the qualified 
individual, he or she may enroll in a separate QHP at any metal level, 
in accordance with Sec.  155.420(a)(4)(iii)(B). We anticipate that this 
situation will arise relatively infrequently due to the availability of 
the special enrollment periods at (d)(6)(i) and (d)(6)(ii) of Sec.  
155.420 for enrollees who become newly eligible for APTC or experience 
a change in eligibility for cost-sharing reductions.
    We also propose to modify the types of coverage that may satisfy 
the prior coverage requirement by amending Sec.  155.420(a)(5) to 
include the coverage types described in paragraphs (d)(1)(iii) and (iv) 
of this section, such as pregnancy Medicaid, CHIP unborn child, and 
Medically Needy Medicaid, in addition to MEC described in 26 CFR 
1.5000A-1(b). We believe that this clarification is necessary to ensure 
consistency across our special enrollment period regulations for the 
types of coverage that qualify an individual for a special enrollment 
period. We already treat certain types of coverage, including pregnancy 
Medicaid, CHIP unborn child, and Medically Needy Medicaid, although not 
independently designated as MEC under 26 CFR 1.5000A-1(b), as MEC for 
purposes of qualifying for the loss of MEC special enrollment period 
described in Sec.  155.420(d)(1). However, individuals currently 
enrolled in these types of coverage would not qualify for special 
enrollment periods that require prior coverage. To avoid treating the 
same types of coverage differently for purposes of eligibility for 
different special enrollment periods, we propose an aligning edit to 
paragraph (a)(5).
    Lastly, we propose to clarify certain terms in Sec.  
155.420(b)(2)(iv), which addresses the coverage effective dates that 
apply to the special enrollment periods in Sec.  155.420(d)(1), (d)(3), 
(d)(6)(iii), (d)(6)(iv), and (d)(7). Specifically, we propose to 
replace the word ``consumer'' with the phrase ``qualified individual, 
enrollee, or dependent, as applicable,'' to align with the terminology 
used at Sec.  155.420(d) to describe special enrollment period 
triggering events. We do not anticipate that this proposed wording 
change will create additional cost or burden for Exchanges or for any 
other stakeholders.
    We seek comment on these proposals.
4. Eligibility Standards for Exemptions (Sec.  155.605)
a. Eligibility for an Exemption Through the IRS (Sec.  155.605(e))
    Individuals can currently claim hardship exemptions through the tax 
filing process for hardships described in Sec.  155.605(e)(1) through 
(4) which include most hardship exemptions, but not the general 
hardship types described in paragraph (d)(1) of this section. Allowing 
the general hardship exemption types to be claimed through the Internal 
Revenue Service (IRS) would increase flexibility and decrease burdens 
for individuals seeking hardship exemptions. Therefore, we propose to 
amend Sec.  155.605(e), which describes the exemptions that can be 
claimed through the IRS tax filing process without an individual having 
to obtain an exemption certificate number from an Exchange, to add a 
new paragraph (e)(5) that will allow consumers to claim through the tax 
filing process hardship exemptions within all of the categories 
described in paragraph (d)(1) of this section on a federal income tax 
return for tax year 2018 only.
    This proposal aligns with HHS guidance published September 12, 
2018, entitled, ``Guidance on Claiming a Hardship Exemption through the 
Internal Revenue Service (IRS)'' \109\ and with IRS Notice 2019-
05.\110\ We anticipate that the guidance and this proposal would 
provide individuals with additional flexibility for claiming a hardship 
exemption by providing individuals the additional option of claiming 
this exemption on their federal income tax return for 2018 only.
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    \109\ https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Authority-to-Grant-HS-Exemptions-2018-Final-91218.pdf.
    \110\ https://www.irs.gov/pub/irs-drop/n-19-05.pdf.
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    We seek comments on this proposal.
b. Required Contribution Percentage (Sec.  155.605(d)(2))
    Under section 5000A of the Code, an individual must have MEC for 
each month, qualify for an exemption, or make an individual shared 
responsibility payment. Under Sec.  155.605(d)(2), an individual is 
exempt from the requirement to have MEC if the amount that he or she 
would be required to pay for MEC (the required contribution) exceeds a 
particular percentage (the required contribution percentage) of his or 
her projected household income for a year. Although the Tax Cuts and 
Jobs Act reduces the individual shared responsibility payment to $0 for 
months beginning after December 31, 2018, the required

[[Page 282]]

contribution percentage is still used to determine whether individuals 
above the age of 30 qualify for an affordability exemption that would 
enable them to enroll in catastrophic coverage under Sec.  155.305(h).
    The initial 2014 required contribution percentage under section 
5000A of the Code was 8 percent. For plan years after 2014, section 
5000A(e)(1)(D) of the Code and Treasury regulations at 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. The excess of the 
rate of premium growth over the rate of income growth is also 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 discussed elsewhere in this preamble, we are proposing as the 
measure for premium growth a 2020 premium adjustment percentage of 
1.2969721275 (or an increase of about 29.7 percent over the period from 
2013 to 2019). This reflects an increase of about 3.6 percent over the 
2019 premium adjustment percentage (1.2969721275/1.2516634051). 
However, we note that this percentage increase does not reflect a 
comparison of identical premium measures, as it has in previous years, 
since we are proposing to incorporate individual market insurance 
premium growth in our calculation of the 2020 benefit year premium 
adjustment percentage.
    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, using 
the National Health Expenditure Account (NHEA) data, the rate of income 
growth for 2020 is the percentage (if any) by which the most recent 
projection of per capita PI for the preceding calendar year ($55,136 
for 2019) exceeds per capita PI for 2013 ($44,586), carried out to ten 
significant digits. The ratio of per capita PI for 2019 over the per 
capita PI for 2013 is estimated to be 1.2366213610 (that is, per capita 
income growth of about 24 percent). This reflects an increase of 
approximately 2.5 percent relative to the increase for 2013 to 2018 
(1.2366213610/1.2059028167) used in the 2019 Payment Notice. Per capita 
PI includes government transfers, which refers to benefits individuals 
receive from federal, state, and local governments (for example, Social 
Security, Medicare, unemployment insurance, workers' compensation, 
etc.).\111\
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    \111\ U.S Department of Commerce Bureau of Economic Analysis 
(BEA) Table 3.12 Government Social Benefits. Available at https://apps.bea.gov/iTable/iTable.cfm?reqid=19&step=3&isuri=1&categories=survey&nipa_table_list=110.
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    Thus, using the 2020 premium adjustment percentage proposed in this 
rule, the excess of the rate of premium growth over the rate of income 
growth for 2013 to 2019 is 1.2969721275/1.2366213610, or 1.0488029468. 
This results in a proposed required contribution percentage for 2020 of 
8.00 * 1.0488029468 or 8.39 percent, when rounded to the nearest one- 
hundredth of one percent, an increase of 0.09 percentage point from 
2019 (8.39042-8.30358). We seek comment on this proposal.

F. 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 2020 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 annual 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 where 
enrollment is through an FFE or SBE-FP.
    OMB Circular No. A-25R established federal policy regarding user 
fees; it specifies that a user fee charge will be assessed against each 
identifiable recipient of special benefits derived from federal 
activities beyond those received by the general public. 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. As in benefit years 2014 through 2019, issuers seeking to 
participate in an FFE in the 2020 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. For the 2020 benefit year, issuers participating 
in an FFE will receive special benefits from the following federal 
activities:
     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).
    Based on estimated costs, enrollment, and premiums for the 2020 
benefit year, we propose a 2020 benefit year user fee rate for all 
participating FFE issuers of 3.0 percent of total monthly premiums. 
This proposed rate is lower than the 3.5 percent FFE user fee rate that 
we had established for benefit years 2014 through 2019. The lower 
proposed user fee rate for the 2020 benefit year reflects our estimates 
of premium increases and enrollment decreases for the 2020 benefit 
year. We seek comment on this proposal.
    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. SBE-FPs enter into a Federal platform 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 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 SBE-FP issuers. The benefits provided to issuers in SBE-FPs by the 
federal government include use of the federal Exchange information 
technology and call center infrastructure used in connection with 
eligibility determinations for enrollment in QHPs

[[Page 283]]

and other applicable state health subsidy programs, as defined at 
section 1413(e) of the PPACA, and QHP enrollment functions under Sec.  
155.400. 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 services, and allocating a share of those 
costs to issuers in the relevant SBE-FPs. Based on this methodology, we 
propose to charge issuers offering QHPs through an SBE-FP a user fee 
rate of 2.5 percent of the monthly premium charged by the issuer for 
each policy under plans offered through an SBE-FP. This proposed rate 
is lower than the 3.0 percent user fee rate that we had established for 
benefit year 2019. The lower proposed user fee rate for SBE-FP issuers 
for the 2020 benefit year reflects our estimates of premium increases 
and enrollment decreases for the 2020 benefit year. We seek comment on 
this proposal.
    We will continue to examine contract cost estimates for the special 
benefits provided to issuers offering QHPs on the FFEs and SBE-FPs for 
the 2020 benefit year as we finalize the FFE and SBE-FP user fee rates, 
which will be reflected in the final rule.
2. Silver Loading
    Section 1402 of the PPACA requires issuers to provide CSRs to help 
make coverage affordable for certain low- and moderate-income consumers 
who enroll in silver level QHPs, as well as Indians who enroll in QHPs 
at any metal level. Section 1402 of the PPACA further states that HHS 
will reimburse issuers for the cost of providing CSRs. Until October 
2017, the federal government relied on the permanent appropriation at 
31 U.S.C. 1324 as the source of funds for federal CSR payments to 
issuers. However, on October 11, 2017, the Attorney General of the 
United States provided HHS and the Department of the Treasury with a 
legal opinion indicating that the permanent appropriation at 31 U.S.C. 
1324 cannot be used to fund CSR payments to insurers. In light of this 
opinion--and in the absence of any other appropriation that could be 
used to fund CSR payments--HHS directed CMS to discontinue CSR payments 
to issuers until Congress provides a valid appropriation. In response 
to the termination of CSR payments to issuers, many issuers increased 
premiums in 2018 and 2019 only on silver level QHPs to compensate for 
the cost of CSRs--a practice sometimes referred to as ``silver 
loading'' or ``actuarial loading.'' Because premium tax credits are 
generally calculated based on the second-lowest cost silver plan 
offered through the Exchange, this practice has led to consumers 
receiving higher premium tax credits. These higher premium tax credits 
are being borne by taxpayers.
    Silver loading is the result of Congress not appropriating funds to 
pay CSRs, with the result being an increase to the premiums of 
benchmark plans used to calculate premium tax credits, and the federal 
deficit.\112\ The Administration supports a legislative solution that 
would appropriate CSR payments and end silver loading. In the absence 
of Congressional action, we seek comment on ways in which HHS might 
address silver loading, for potential action in future rulemaking 
applicable not sooner than plan year 2021.
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    \112\ CBO estimates that, under current law, outlays for health 
insurance subsidies and related spending would rise by about 60 
percent over the projection period, increasing from $58 billion in 
2018 to $91 billion by 2028. See CBO report The Budget and Economic 
Outlook: 2018 to 2028, April 2018, page 51. Available at https://www.cbo.gov/system/files/115th-congress-2017-2018/reports/53651-outlook.pdf.
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3. Essential Health Benefits Package
a. State Selection of EHB-Benchmark Plan for Plan Years Beginning on or 
After January 1, 2020 (Sec.  156.111)
    In the 2019 Payment Notice, we finalized options for states to 
select new EHB-benchmark plans starting with the 2020 benefit year. 
Under 45 CFR 156.111, a state may modify its EHB-benchmark plan by:
    (1) Selecting the EHB-benchmark plan that another state used for 
the 2017 plan year;
    (2) Replacing one or more EHB categories of benefits 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; or
    (3) Otherwise selecting a set of benefits that would become the 
state's EHB-benchmark plan.
    Under any of these three options, the EHB-benchmark plan would also 
have to meet additional standards, including scope of benefits 
requirements. These options were intended to provide states with more 
flexibility in the selection of their EHB-benchmark plan than had 
previously existed. In the 2019 Payment Notice, we encouraged states to 
consider the potential impact on vulnerable populations as they select 
their new EHB-benchmark plans, and the need to educate consumers on 
benefit design changes. We also remind states to inform issuers of such 
changes should they select a new EHB-benchmark plan.
    We believe that the three new options--the third in particular--may 
provide states with additional flexibility to address the opioid 
epidemic. For example, Illinois made changes to its EHB-benchmark plan 
for plan year 2020 that aim to reduce opioid addiction and overdose by 
including in its EHB-benchmark plan alternative therapies for chronic 
pain, restricting access to prescription opioids, and expanded coverage 
of mental health and substance use disorder treatment and 
services.\113\ We encourage other states to explore whether 
modifications to their EHB-benchmark plan would be helpful in fighting 
the opioid epidemic.
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    \113\ IL DOI Press Release, ``Illinois becomes first and only 
state to change Essential Health Benefit-benchmark plan,'' Aug. 27, 
2018. Available at https://www2.illinois.gov/IISNews/18098-DOI_Essential_Health_Benefit-benchmark_plan_Release.pdf.
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    Additionally, the 2019 Payment Notice stated that we would propose 
subsequent EHB-benchmark plan submission deadlines in the HHS annual 
Notice of Benefit and Payment Parameters. Accordingly, we propose May 
6, 2019, as the deadline for states to submit the required documents 
for the state's EHB-benchmark plan selection for the 2021 plan 
year.\114\ To give advance notice to states and issuers, we are 
simultaneously proposing May 8, 2020, as the deadline for states to 
submit the required documents for the state's EHB-benchmark plan 
selection for the 2022 plan year. We recognize that these deadlines are 
earlier in the year than the July 2, 2018 deadline for the state's EHB-
benchmark plan selection for the 2020 plan year. These deadlines would 
allow for an earlier finalization of a state's EHB-benchmark plan and a 
longer time period for issuers to develop plans that adhere to their 
state's new EHB-benchmark plan. We emphasize that these deadlines would 
be firm, and that states should optimally have one of their points of 
contact who have been predesignated to use the EHB Plan Management 
Community reach out to us using the EHB Plan Management Community well 
in advance of the deadlines with any questions. Although not a 
requirement, we recommend states submit applications at least 30 days 
prior to the submission deadlines to ensure completion of their 
documents by the proposed deadlines. We also remind states that they 
must have completed the required public comment

[[Page 284]]

period and submit a complete application by the deadlines. We seek 
comment on these proposed deadlines.
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    \114\ This would be delayed, if necessary, to be on or after the 
effective date of the 2020 Payment Notice Final Rule.
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b. Provision of EHB (Sec.  156.115)
    In the 2019 Payment Notice, we also finalized a policy through 
which states may opt to permit issuers to substitute benefits between 
EHB categories. In the preamble to that rule, we stated that the 
deadlines applicable to state selection of a new benchmark plan would 
also apply to this state opt-in process. We therefore propose May 6, 
2019 as the deadline for states to notify us that they wish to permit 
between-category substitution for the 2021 plan year and May 8, 2020 as 
the deadline for states to notify us that they wish to permit between-
category substitution for the 2022 plan year. States wishing to make 
such an election must do so via the EHB Plan Management Community. We 
seek comment on these proposed deadlines.
c. Prescription Drug Benefits (Sec.  156.122)
    At new Sec.  156.122(d)(3), we propose that for plan years 
beginning on or after January 1, 2020, QHP issuers in the FFEs would be 
required to notify HHS annually in an HHS-specified format of any mid-
year formulary changes made in the prior plan year consistent with the 
proposed changes to Sec.  147.106(e). Under this proposal, QHP issuers 
in the FFEs would be required to report the name of the drug being 
removed from the formulary, dosage, name of the generic equivalent, the 
Rx Norm Concept Unique Identifier (RxCUI) associated with the brand and 
generic drug, if the brand drug was moved to a higher cost sharing tier 
or removed from the formulary, in a manner specified in the forthcoming 
PRA associated with this rule. We intend to use this information to 
understand how the proposed change would affect QHP enrollees. We seek 
comment on this proposal.
    In addition to policies proposed above and at Sec. Sec.  147.106 
and 156.130, we are soliciting comments on two additional drug policies 
that would be intended to consider the potential of therapeutic 
substitution. First, the prescription drug market became more efficient 
after several states passed laws that allowed for generic substitution. 
Similarly, therapeutic substitution, which consists of substituting 
chemically different compounds within the same class for one 
another,\115\ could be employed to improve the efficiency of the 
pharmaceutical market. We acknowledge that many stakeholders are 
opposed to therapeutic substitution and that there are concerns 
regarding efficacy, adverse effects, drug interactions, and different 
indications for drugs within a class. If therapeutic substitution were 
to become commonplace, efficient systems that allow for seamless 
communication among prescribers, pharmacies, and insurance companies 
would need to be in place. Therapeutic substitution may help decrease 
drug costs if it can be implemented in a way that does not negatively 
affect quality and access to care. We solicit comment on whether 
therapeutic substitution and generic substitution policies should both 
be pursued since each of the two options might offset any potential 
premium impact of the other, as well as whether certain drug categories 
and classes are better suited to therapeutic substitution than others. 
We are also interested in comments on any existing standards of 
practice for therapeutic substitution and whether those standards are 
nationally recognized and readily available for providers to use.
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    \115\ Pengxiang, L., Sanford Shwartz, J., & Doshi, J.A. (2016). 
Impact of Cost Sharing on Therapeutic Substitution: The Story of 
Statins in 2006. Journal of the American Heart Association.
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    Second, the majority of issuers, employers, and pharmaceutical 
benefit managers negotiate price discounts and rebates from 
pharmaceutical manufacturers by implementing tiered formularies, which 
link patients' cost-sharing obligation to the price of each drug. 
Tiered formularies have been successful in attenuating the growth in 
pharmaceutical spending and overall drug spending. However, in recent 
years, drug spending has again increased. Reference-based pricing is 
one strategy for attenuating increases in pharmaceutical spending. 
Reference-based drug pricing occurs when an issuer in a commercial 
market covers a group of similar drugs, such as within the same 
therapeutic class, up to a set price, with the enrollee paying the 
difference in cost if the enrollee desires a drug that exceeds the set 
(reference) price.\116\ Implementation of reference-based pricing for 
drugs could bring down overall health plan costs, and perhaps premium 
increases, while increasing consumer out-of-pocket costs in some 
instances. Durable medical equipment benefits like eyeglasses and 
contacts are sometimes covered in a similar manner. Although reference-
based pricing is often discussed in the context of network adequacy and 
using certain providers within a particular network who are willing to 
accept a reference price, we do not intend for this drug policy to have 
network implications, and issuers are currently free to impose lower 
cost sharing for drugs obtained via mail order. We seek comment on the 
opportunities and risks of implementing or incentivizing reference-
based pricing for prescription drugs.
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    \116\ Robinson, J.C, Whaley, C.M., & Brown, T.T. (2017). 
Association of Reference Pricing with Drug Selection and Spending. 
New England Journal of Medicine, 377:658665. Doi:10.1065/
NEJMsa1700087.
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d. Prohibition on Discrimination (Sec.  156.125)
    Opioid misuse and addiction is a serious national crisis that 
affects public health, as well as social and economic welfare. More 
than 115 people in the United States die each day from opioid 
overdoses.\117\ The Centers for Disease Control and Prevention 
estimates that the total costs of prescription opioid misuse alone in 
the United States is $78.5 billion per year, including the costs of 
health care, lost productivity, addiction treatment, and criminal 
justice involvement.\118\ It has been an active Public Health 
Emergency, as determined by the Secretary under 42 U.S.C. 247d, since 
October 26, 2017.\119\
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    \117\ CDC/NCHS, National Vital Statistics System, Mortality. CDC 
Wonder, Atlanta, GA: US Department of Health and Human Services, 
CDC; 2017. https://wonder.cdc.gov.
    \118\ Florence CS, Zhou C, Luo F, Xu L. The Economic Burden of 
Prescription Opioid Overdose, Abuse, and Dependence in the United 
States, 2013. Med Care. 2016; 54(10):901-906. doi:10.1097/
MLR.0000000000000625. Available at https://www.ncbi.nlm.nih.gov/pubmed/27623005.
    \119\ As determined by Acting Secretary Eric D. Hargan. 
``Determination that a Public Health Emergency Exists''. October 26, 
2017. Available at https://www.phe.gov/emergency/news/healthactions/phe/Pages/opioids.aspx. Renewed by Acting Secretary Hargan. 
``Renewal of Determination that a Public Health Emergency Exists''. 
January 19, 2018. Available at https://www.phe.gov/emergency/news/healthactions/phe/Pages/opioid-24Jan2018.aspx. Renewed by Secretary 
Alex M. Azar II. ``Renewal of Determination that a Public Health 
Emergency Exists''. April 20, 2018. Available at https://www.phe.gov/emergency/news/healthactions/phe/Pages/opioid-20Apr2018.aspx. Renewed by Secretary Azar. ``Renewal of 
Determination that a Public Health Emergency Exists''. July 19, 
2018. Available at https://www.phe.gov/emergency/news/healthactions/phe/Pages/opioid-19July2018.aspx. Renewed by Secretary Azar. 
``Renewal of Determination that a Public Health Emergency Exists''. 
October 18, 2018. Available at https://www.phe.gov/emergency/news/healthactions/phe/Pages/opioid-18Oct2018-aspx.aspx.
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    Several factors have influenced the opioid crisis, including: The 
opioid pharmaceutical manufacturing and supply chain industry; 
deficient patient and provider pain management education; rogue 
pharmacies and unethical physician prescribing; and the insufficient 
availability of treatment services, including Medication-Assisted 
Treatment (MAT).\120\
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    \120\ ``The President's Commission on Combating Drug Addiction 
and the Opioid Crisis''. Pages 19-23. November 1, 2017. Available at 
https://www.whitehouse.gov/sites/whitehouse.gov/files/images/Final_Report_Draft_11-1-2017.pdf.

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[[Page 285]]

    MAT is any treatment for opioid use disorder that includes a 
medication approved by the Food and Drug Administration for opioid 
addiction detoxification or maintenance treatment.\121\ MAT has proven 
to be clinically effective in treating opioid use disorder and to 
significantly reduce the need for inpatient detoxification services for 
individuals with opioid use disorder.\122\
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    \121\ There are four drugs currently used in MAT: Buprenorphine; 
naltrexone; buprenorphine in combination with naloxone; and 
methadone.
    \122\ ``Medication and Counseling Treatment''. September 28, 
2015. Available at https://www.samhsa.gov/medication-assisted-treatment/treatment.
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    Despite this evidence, and despite the attention paid to the 
nationwide opioid Public Health Emergency, there is not comprehensive, 
nationwide coverage of the drugs used in MAT, at least among QHP 
issuers. A review of QHP issuer formularies in the 39 FFE and SBE-FP 
states for which we have data reveals that, while many QHPs cover all 
four MAT drugs, not all do. Specifically, for plan year 2018, 2,553 
QHPs (95 percent) in these 39 FFE and SBE-FP states cover all four of 
these drugs; 105 QHPs (4 percent) cover three; and 25 QHPs (<1 percent) 
cover two. Given the effectiveness of MAT and the severity of the 
nationwide opioid Public Health Emergency, we encourage every health 
insurance plan to provide comprehensive coverage of MAT, even if the 
applicable EHB-benchmark plan does not require the inclusion of all 
four MAT drugs on a formulary. We encourage issuers to take every 
opportunity to address opioid use disorder, including increasing access 
to MAT and normalizing its use.\123\
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    \123\ ``For many people struggling with addiction, failing to 
offer MAT is like trying to treat an infection without antibiotics . 
. . We know that there is sometimes stigma associated with MAT--
especially with long term therapy. But someone on MAT, even one who 
requires long-term treatment, is not an addict. They need medicine 
to return to work; re-engage with their families; and regain the 
dignity that comes with being in control of their lives. These 
outcomes are literally the opposite of how we define addiction. Our 
fellow citizens who commit to treatment should not be treated as 
pariahs--they are role models.'' Azar, Alex. Plenary Address to 
National Governors Association, February 24, 2018. Available at 
https://www.hhs.gov/about/leadership/secretary/speeches/2018-speeches/plenary-addres-to-national-governors-association.html.
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    In addition, we have become aware that a MAT drug's inclusion on a 
formulary does not necessarily ensure coverage of that drug when 
administered for MAT. We are aware that some issuers utilize plan 
designs which exclude coverage of certain drugs when used for MAT while 
the same drugs are covered for other medically necessary purposes, such 
as analgesia or alcohol use disorder. Under Sec.  156.125, which 
implements the provision prohibiting discrimination, an issuer does not 
provide EHB if its benefit design, or the implementation of its benefit 
design, discriminates based on an individual's age, expected length of 
life, present or predicted disability, degree of medical dependency, 
quality of life, or other health conditions.
    We remind issuers that any indication of a reduction in the 
generosity of a benefit in some manner for subsets of individuals that 
is not based on clinically indicated, reasonable medical management 
practices is potentially discriminatory. As is the case for any EHB, 
issuers are expected to impose limitations and exclusions on the 
coverage of benefits to treat opioid use disorder, including the drugs 
used for MAT or any associated benefit such as counseling or drug 
screenings, based on clinical guidelines and medical evidence, and are 
expected to use reasonable medical management. If a plan excludes 
certain treatment of opioid use disorder, but covers the same treatment 
for other medically necessary purposes, the issuer must be able to 
justify such an exclusion with supporting documentation explaining how 
such a plan design is not discriminatory.
    We note that a similar standard is imposed under the Paul Wellstone 
and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008 
(MHPAEA) (section 2726 of the PHS Act).\124\ Under regulations 
implementing the EHB requirements,\125\ the requirements of MHPAEA are 
extended to issuers of non-grandfathered health insurance coverage in 
the individual and small group markets, both on and off the Exchange. 
Under HHS regulations at Sec.  146.136 implementing MHPAEA, if a drug 
is offered under a plan for treatment of a medical condition but is 
excluded for MAT purposes, that is considered to be a nonquantitative 
treatment limitation.\126\ A nonquantitative treatment limitation 
cannot be imposed on mental health or substance use disorder benefits 
in any classification \127\ unless, under the terms of the plan (or 
health insurance coverage) as written and in operation, any processes, 
strategies, evidentiary standards or other factors used in applying the 
limitation to the mental health or substance use disorder benefits in 
the classification are comparable to, and are applied no more 
stringently than the processes, strategies, evidentiary standards and 
other factors used in applying the limitation to medical surgical 
benefits in the same classification. In other words, the issuer must 
demonstrate that, as written and in operation, the processes, 
strategies, evidentiary standards, and other factors it applied in 
deciding that the drug is covered for medical/surgical purposes, are 
comparable to those it used in deciding that the drug is not covered 
for MAT purposes, and that there are no limitations that apply only for 
mental health or substance use disorder benefits.\128\
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    \124\ MHPAEA originally applied to large group health plans and 
large group health insurance coverage, and PPACA extended it to 
apply to individual health insurance coverage.
    \125\ 45 CFR 156.115(a)(3).
    \126\ For examples of nonquantitative treatment limitations, see 
45 CFR 146.136(c)(4)(ii).
    \127\ Classifications under MHPAEA are as follows: Inpatient, 
in-network; inpatient, out-of-network; outpatient, in-network; 
outpatient, out-of-network; emergency care; and prescription drugs. 
45 CFR 146.136(c)(2)(ii).
    \128\ See 45 CFR 146.136(c)(4)(iii), Ex. 10.
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    We also note that federal civil rights laws, such as title II of 
the Americans with Disabilities Act and section 504 of the 
Rehabilitation Act, prohibit discrimination against individuals who 
participate in or have completed substance use disorder treatment, 
including MAT.
e. Premium Adjustment Percentage (Sec.  156.130)
    Section 1302(c)(4) of the PPACA directs the Secretary to determine 
an annual premium adjustment percentage, a measure of premium growth 
that is used to set the rate of increase for three parameters detailed 
in the PPACA: (1) The maximum annual limitation on cost sharing 
(defined at Sec.  156.130(a)); (2) the required contribution percentage 
used to determine eligibility for certain exemptions under section 
5000A of the Code (defined at Sec.  155.605(d)(2)); and (3) the 
employer shared responsibility payment amounts under section 4980H(a) 
and (b) of the Code (see section 4980H(c)(5) of the Code). Section 
1302(c)(4) of the PPACA and Sec.  156.130(e) provide 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 the regulations provide that this percentage 
will be published in the annual HHS notice of benefit and payment 
parameters.
    The 2015 Payment Notice (79 FR 13743) and 2015 Market Standards 
Rule

[[Page 286]]

(79 FR 30240) established a methodology for estimating the average per 
capita premium for purposes of calculating the premium adjustment 
percentage for the 2015 benefit year and beyond. Beginning with the 
2015 benefit year, the premium adjustment percentage was 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. In the proposed 2015 
Payment Notice, we proposed that the premium adjustment percentage be 
calculated based on the projections of average per enrollee private 
health insurance premiums. Based on comments received, we finalized the 
2015 Payment Notice to instead use per enrollee employer-sponsored 
insurance premiums in the methodology for calculating the premium 
adjustment percentage. We chose employer-sponsored insurance premiums 
because they reflected trends in health care costs without being skewed 
by individual market premium fluctuations resulting from the early 
years of implementation of the PPACA market reforms. We adopted this 
methodology in subsequent Payment Notices for 2016 through 2019, but 
noted in the 2015 Payment Notice that we may propose to change our 
methodology after the initial years of implementation of the market 
reforms, once the premium trend is more stable.
    We are proposing to use an alternative premium measure that 
captures increases in individual market premiums in addition to 
increases in employer-sponsored insurance premiums for purposes of 
calculating the premium adjustment percentage for the 2020 benefit year 
and beyond. The premium measure we propose to use to calculate the 
premium adjustment percentage for the 2020 benefit year and beyond is 
an adjusted private individual and group market health insurance 
premium measure, which is similar to NHEA's private health insurance 
premium measure. NHEA's private health insurance premium measure 
includes premiums for employer-sponsored insurance, ``direct purchase 
insurance,'' which includes individual market health insurance 
purchased directly by consumers from health insurance issuers, both on 
and off the Exchanges, and Medigap insurance, and the medical portion 
of accident insurance (``property and casualty'' insurance). The 
measure we propose to use is published by NHEA and includes NHEA 
estimates and projections of employer-sponsored insurance and direct 
purchase insurance premiums, but would exclude premiums for Medigap and 
property and casualty insurance (we refer to the proposed measure as 
``private health insurance (excluding Medigap and property and casualty 
insurance)''). We are proposing to exclude Medigap and property and 
casualty insurance from the premium measure since these types of 
coverage are not considered primary medical coverage for individuals 
who elect to enroll. For example, Medigap coverage supplements the 
primary coverage obtained through Medicare by offering protection 
against certain out-of-pocket costs not covered by that program such as 
its associated co-payments and deductibles. We are proposing to use per 
enrollee premiums for private health insurance (excluding Medigap and 
property and casualty insurance) so that the premium growth measure 
more closely reflects premium trends for all individuals primarily 
covered in the private health insurance market since 2013. Between 2014 
and 2018, private individual health insurance market per enrollee 
premiums, specifically, premiums for coverage through the Exchanges, 
have grown faster than employer-sponsored insurance premiums. The 
majority of Exchange enrollees qualify to receive the premium tax 
credit, and federal premium tax credit expenditures have increased as 
Exchange premiums have increased. We anticipate that the proposed 
change to use per enrollee premiums for private health insurance 
(excluding Medigap and property and casualty insurance) would make the 
premium index more closely reflect premium trends for individuals 
covered in the private health insurance market, and would additionally 
reduce federal premium tax credit expenditures, if the Department of 
the Treasury and the IRS adopt the proposed change, as explained later 
in this section. Specifically, to calculate the premium adjustment 
percentage for the 2020 benefit year, the measures for 2013 and 2019 
would be calculated as private health insurance premiums minus premiums 
paid for Medigap insurance and property and casualty insurance, divided 
by the unrounded number of unique private health insurance enrollees, 
excluding all Medigap enrollees. These results would then be rounded to 
the nearest $1 followed by a division of the 2019 figure by the 2013 
figure rounded to 10 significant digits. The proposed premium measure 
would reflect cumulative, historic growth in premiums for private 
health insurance markets (excluding Medigap and property and casualty 
insurance) from 2013 onwards.
    As discussed in the 2015 Payment Notice, we considered four 
criteria when finalizing the premium adjustment percentage methodology 
for the 2015 benefit year: (1) Comprehensiveness--the premium 
adjustment percentage should be calculated based on the average per 
capita premium for health insurance coverage for the entire market, 
including the individual and group markets, and both fully insured and 
self-insured group health plans; (2) Availability--the data underlying 
the calculation should be available by the summer of the year that is 
prior to the calendar year so that the premium adjustment percentage 
can be published in the annual HHS notice of benefit and payment 
parameters in time for issuers to develop their plan designs; (3) 
Transparency--the methodology for estimating the average premium should 
be easily understandable and predictable; and (4) Accuracy--the 
methodology should have a record of accurately estimating average 
premiums. We continue to consider these criteria as we evaluate other 
sources of premium data that could be used in calculating the premium 
adjustment percentage.
    Using the private health insurance premium measure data (excluding 
Medigap and property and casualty insurance) proposed above, we propose 
that the premium adjustment percentage for 2020 be the percentage (if 
any) by which the most recent NHEA projection of per enrollee premiums 
for private health insurance (excluding Medigap and property and 
casualty insurance) for 2019 ($6,468) exceeds the most recent NHEA 
estimate of per enrollee premiums for private health insurance 
(excluding Medigap and property and casualty insurance) for 2013 
($4,987).\129\ Using this formula, the proposed premium adjustment 
percentage for 2020 is 1.2969721275 ($6,468/$4,987), which is an 
increase in private health insurance (excluding Medigap and property 
and casualty insurance) premiums of approximately 29.7

[[Page 287]]

percent over the period from 2013 to 2019.
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    \129\ The 2013 and 2019 premiums used for this calculation 
reflect the latest NHEA data. The series used in the determinations 
of the adjustment percentages can be found in Tables 1 and 17 on the 
CMS website, which can be accessed by clicking the ``NHE Projections 
2017-2026--Tables'' link located in the Downloads section at the 
following address: http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html. 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.
---------------------------------------------------------------------------

    We believe that our proposal to use per enrollee private health 
insurance premiums (excluding Medigap and property and casualty 
insurance) in the premium adjustment percentage calculation could 
result in a faster premium growth rate for the foreseeable future than 
if we continued to use only employer-sponsored insurance premiums as in 
prior benefit years. We anticipate that this proposed change could have 
several impacts on the health insurance market. As explained above, the 
premium adjustment percentage is used to set the rate of increase for 
the maximum annual limitation on cost sharing, the required 
contribution percentage used to determine eligibility for certain 
exemptions under section 5000A of the Code, and the employer shared 
responsibility payment amounts under section 4980H(a) and (b) of the 
Code. Accordingly, a premium adjustment percentage that reflects a 
faster premium growth rate would result in a higher maximum annual 
limitation on cost sharing, a higher required contribution percentage, 
and higher employer shared responsibility payment amounts than if the 
current premium adjustment percentage premium measure (employer-
sponsored insurance only) were adopted for the 2020 benefit year.
    Furthermore, to date the NHEA projections of per enrollee employer-
sponsored insurance premiums have also been used by the Department of 
the Treasury and the IRS 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.\130\ The applicable 
percentage in section 36B(b)(3)(A) of the Code is used to determine the 
amount an individual must contribute to the cost of an Exchange QHP and 
thus, relates to the amount of the individual's premium tax credit. 
This is because, in general, an individual's premium tax credit is the 
lesser of (1) the premiums paid for the Exchange QHP, and (2) the 
excess of the premium for the benchmark plan over the contribution 
amount. The contribution amount is the product of the individual's 
household income and the applicable percentage.
---------------------------------------------------------------------------

    \130\ IRS Rev. Proc. 14-37.
---------------------------------------------------------------------------

    The required contribution percentage in section 36B(c)(2)(C) of the 
Code is used to determine whether an offer of employer-sponsored 
insurance is considered affordable for an individual, which relates to 
eligibility for the premium tax credit because an individual with an 
offer of affordable employer-sponsored insurance that provides minimum 
value is ineligible for the premium tax credit. Specifically, an offer 
of employer-sponsored insurance is considered affordable for an 
individual if the employee's required contribution for employer-
sponsored insurance is less than or equal to the required contribution 
percentage (set at 9.5 percent in 2014) of the individual's household 
income.\131\
---------------------------------------------------------------------------

    \131\ See also IRS Notice 2015-87, Q&A 12 for discussion of the 
adjustment of the required contribution percentage as applied for 
certain purposes under sections 4980H and 6056 of the Code.
---------------------------------------------------------------------------

    Section 36B(b)(3)(A)(ii) of the Code generally provides that the 
applicable percentages are to be adjusted after 2014 to reflect the 
excess of the rate of premium growth over the rate of income growth for 
the preceding year. Section 36B(c)(2)(C) of the Code provides that the 
required contribution percentage is to be adjusted after 2014 in the 
same manner as the applicable percentages are adjusted in section 
36B(b)(3)(A)(ii) of the Code. As noted above, the Department of the 
Treasury and the IRS have issued guidance providing that the rate of 
premium growth for purposes of these section 36B provisions is based on 
per enrollee spending for employer-sponsored insurance as published in 
the NHEA.\132\ If we finalize a change to the premium measure used in 
the premium adjustment percentage for the 2020 benefit year, we expect 
the Department of the Treasury and the IRS to issue additional guidance 
to adopt the same premium measure for purposes of future indexing of 
the applicable percentage and required contribution percentage under 
section 36B of the Code.
---------------------------------------------------------------------------

    \132\ See IRS Rev. Proc. 2014-37.
---------------------------------------------------------------------------

    We anticipate that a measure of premium growth that reflects a 
faster premium growth rate would increase the portion of the premium 
the consumer is responsible for paying and therefore would decrease the 
amount of premium tax credit for which consumers qualify under section 
36B(b)(3)(A) of the Code. It also would increase the required 
contribution percentage under section 36B(c)(2)(C) of the Code, such 
that individuals with an offer of employer-sponsored insurance would be 
more likely to be ineligible for the premium tax credit. We recognize 
that federal outlays for the premium tax credit increased significantly 
in the 2018 benefit year, as many issuers increased silver plan 
premiums to offset the cost of providing cost-sharing reductions to 
eligible enrollees. The proposed change to the measure of premium 
growth, if also adopted by the Department of the Treasury and the IRS 
for purposes of indexing the parameters under section 36B of the Code, 
would help to slow the increase in premium tax credit expenditures that 
results from this practice, thereby reducing taxpayer burden associated 
with premium tax credit expenditures. However, the proposed change 
could also contribute to a decline in Exchange enrollment among premium 
tax credit eligible consumers, and could ultimately result in net 
premium increases for enrollees that remain in the individual market, 
both on and off the Exchanges, as healthier enrollees elect not to 
purchase Exchange coverage.
    Additionally, the Health Insurance Providers Fee established under 
section 9010 of the PPACA also takes the measure of premium growth used 
for the applicable percentage in section 36B(b)(3)(A)(ii) into 
consideration for purposes of calculating the fee for 2019 and 
beyond.\133\ If the Department of the Treasury and the IRS adopt a 
faster premium growth rate, that would result in higher Health 
Insurance Providers Fees imposed on health insurance issuers that are 
required to pay the fee, over the long term. We anticipate that health 
insurance issuers subject to the Health Insurance Providers Fee may 
pass the fee on to consumers, thereby increasing premiums in the 
individual, small, and large group markets, although we anticipate the 
increases in premiums due to the increase in the Health Insurance 
Providers Fee will be marginal.
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    \133\ See PPACA section 9010(e)(2). However, pursuant to section 
4003 of Public Law 115-120, Division D--Suspension of Certain 
Health-Related Taxes, enacted on January 22, 2018, the collection of 
the Health Insurance Providers Fee is suspended for the 2019 
calendar year.
---------------------------------------------------------------------------

    We considered using Exchange premiums as the measure for premium 
growth instead of the proposed private health insurance (excluding 
Medigap and property and casualty insurance) premium measure. Using 
Exchange premiums would result in a faster premium growth rate than the 
proposed measure and the employer-sponsored insurance measure used in 
the premium adjustment percentage calculation for the 2015 through 2019 
benefit years. As such, we anticipate that a premium growth measure 
based on Exchange premiums would result in even larger increases in the 
maximum annual limitation on cost sharing, required contribution 
percentage, and employer shared responsibility payment amounts, and, if 
adopted by the Department of the Treasury and the IRS, would result in 
even larger reductions in premium tax credit expenditures. However, a

[[Page 288]]

significant drawback with using Exchange premiums is that the Exchanges 
did not exist in 2013, and therefore Exchange premiums are not 
available for 2013. NHEA does not currently publish projections of 
Exchange premiums separate from the estimates and projections that they 
include within the direct purchase premium measure (a projection would 
be needed for the 2019 premium amount).
    Based on the proposed 2020 premium adjustment percentage, we 
propose the following cost-sharing parameters for benefit year 2020.
Maximum Annual Limitation on Cost Sharing for Plan Year 2020
    Under Sec.  156.130(a)(2), for the 2020 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 2020. 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 1.2969721275 for 2020 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,\134\ we 
propose that the 2020 maximum annual limitation on cost sharing would 
be $8,200 for self-only coverage and $16,400 for other than self-only 
coverage. This represents an approximately 3.8 percent increase above 
the 2019 parameters of $7,900 for self-only coverage and $15,800 for 
other than self-only coverage. We seek comment on this proposal.
---------------------------------------------------------------------------

    \134\ See http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

f. 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 that change how 
the cost sharing required under the QHP is to be shared between the 
enrollee and the federal government. At Sec.  156.420(a), we detailed 
the structure of these plan variations and specified that QHP issuers 
must ensure that each silver-plan variation has an annual limitation on 
cost sharing no greater than the applicable reduced maximum annual 
limitation on cost sharing specified in the annual HHS notice of 
benefit and payment parameters. Although the amount of the reduction in 
the maximum annual limitation on cost sharing is specified in section 
1402(c)(1)(A) of the PPACA, section 1402(c)(1)(B)(ii) states that the 
Secretary may adjust the cost-sharing limits to ensure that the 
resulting limits do not cause the AV of the health plans to exceed the 
levels specified in section 1402(c)(1)(B)(i) (that is, 73 percent, 87 
percent, or 94 percent, depending on the income of the enrollee). 
Accordingly, we propose to continue to use the method we established in 
the 2014 Payment Notice for determining the appropriate reductions in 
the maximum annual limitation on cost sharing for cost-sharing plan 
variations.
    As we proposed above, the 2020 maximum annual limitation on cost 
sharing would be $8,200 for self-only coverage and $16,400 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 2020 plan year and our 
proposed results.
    Consistent with our analysis in the Payment Notices for 2014 
through 2019, we developed three test silver level QHPs, and analyzed 
the impact on AV of the reductions described in the PPACA to the 
proposed estimated 2020 maximum annual limitation on cost sharing for 
self-only coverage ($8,200). The test plan designs are based on data 
collected for 2019 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 2020, the test 
silver level QHPs included a PPO with typical cost-sharing structure 
($8,200 annual limitation on cost sharing, $2,575 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, 
$3,500 deductible, and 20 percent in-network coinsurance rate); and an 
HMO ($8,200 annual limitation on cost sharing, $4,300 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 2020 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 of FPL (\2/3\ reduction in the 
maximum annual limitation on cost sharing), and 150 and 200 percent of 
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 propose that the maximum annual 
limitation on cost sharing for enrollees with a household income 
between 200 and 250 percent of FPL be reduced by approximately \1/5\, 
rather than \1/2\, consistent with the approach taken for benefit years 
2017 through 2019. We further propose that the maximum annual 
limitation on cost sharing for enrollees with a household income 
between 100 and 200 percent of FPL be reduced by approximately \2/3\, 
as specified in the statute, and as shown in Table 9. 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 the 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.
    In prior years we found, and we continue to find, that for 
individuals with household incomes of 250 to 400 percent of FPL, 
without any change in other forms of cost sharing, any reduction in the 
maximum annual limitation on cost sharing will cause an

[[Page 289]]

increase in AV that exceeds the maximum 70 percent level in the 
statute. As a result, we do not propose to reduce the maximum annual 
limitation on cost sharing for individuals with household incomes 
between 250 and 400 percent of FPL.
    We seek comment on this analysis and the proposed reductions in the 
maximum annual limitation on cost sharing for 2020.
    We note that for 2020, 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. No state submitted a 
dataset by the September 1, 2018 deadline.

  Table 9--Reductions in Maximum Annual Limitation on Cost Sharing for
                                  2020
------------------------------------------------------------------------
                                                        Reduced maximum
                                     Reduced maximum         annual
                                          annual         limitation on
       Eligibility category           limitation on    cost  sharing for
                                    cost  sharing for   other than self-
                                        self-only      only coverage for
                                    coverage for 2020         2020
------------------------------------------------------------------------
Individuals eligible for cost-                 $2,700             $5,400
 sharing reductions under Sec.
 155.305(g)(2)(i) (100-150 percent
 of FPL)..........................
Individuals eligible for cost-                  2,700              5,400
 sharing reductions under Sec.
 155.305(g)(2)(ii) (151-200
 percent of FPL)..................
Individuals eligible for cost-                  6,550             13,100
 sharing reductions under Sec.
 155.305(g)(2)(iii) (201-250
 percent of FPL)..................
------------------------------------------------------------------------

g. Application to Cost-Sharing Requirements and Annual and Lifetime 
Dollar Limitations (Sec.  156.130)
    We are proposing several policy changes to cost-sharing 
requirements, including a policy change as to what is included as EHB, 
which affects the annual out-of-pocket limitation under PHS Act section 
2707(b) and the annual and lifetime dollar limit prohibition under PHS 
Act section 2711. Although large group market coverage and self-insured 
group health plans are not required to cover all EHB, non-grandfathered 
group health plans and health insurance issuers are subject to PHS Act 
section 2707(b), and all group health plans and group health insurance 
issuers are subject to PHS Act section 2711, which are incorporated by 
reference in the Employee Retirement Income Security Act of 1974 
(ERISA) and the Code.\135\ To comply with those sections, such plans 
and issuers must choose a definition of EHB to determine which benefits 
are subject to the annual out-of-pocket limitation and the prohibition 
on lifetime and annual dollar limits.\136\ Therefore, these proposals 
are relevant to, and would apply to, all health coverage and plans.
---------------------------------------------------------------------------

    \135\ Sections 2707(b) and 2711 of the PHS Act apply the annual 
cost-sharing limitation on EHBs and the prohibition on annual dollar 
limits on EHBs to non-grandfathered non-federal governmental group 
health plans of all sizes, and by implication, to large group health 
insurance issuers through which such plan provide coverage. 
Additionally, section 715 of ERISA and section 9815 of the Code 
incorporates those provisions by reference, applying them to non-
grandfathered privately sponsored group health plans and their 
health insurance issuers in the small and large group markets.
    \136\ Generally, for this purpose, a group health plan or health 
insurance issuer that is not required to provide EHB must define 
such benefits in a manner that is consistent with--(1) one of the 
EHB-benchmark plans applicable in a state under 45 CFR 156.110, or 
(2) one of the three Federal Employees Health Benefits Program plan 
options. 45 CFR 147.126(c).
---------------------------------------------------------------------------

i. Cost-Sharing Requirements for Generic Drugs
    In 2014, the Departments of Labor, HHS, and the Treasury \137\ (the 
tri-departments) released an FAQ on the treatment by large group market 
health insurance issuers and self-insured group health plans, with 
regard to the annual out-of-pocket limitation, of an individual's out-
of-pocket costs for a brand drug when a generic equivalent is available 
and medically appropriate. Because large group market health insurance 
issuers and self-insured group health plans are not required to offer 
EHB, the FAQ states that such plans may include only generic drugs, if 
medically appropriate (as determined by the individual's personal 
physician) and available as EHB, while providing a separate option (not 
as part of EHB) of selecting a brand drug at a higher cost-sharing 
amount, as non-EHB. Thus, such plans could choose not to count toward 
the annual limit on cost sharing some or all of the amounts paid toward 
the brand drugs that are not EHB, if the participant or beneficiary 
selects a brand name prescription drug in circumstances in which a 
generic was available and medically appropriate (as determined by the 
individual's personal physician).\138\
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    \137\ FAQs About Affordable Care Act Implementation (Part XIX). 
May 2, 2014. Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/aca_implementation_faqs19.html. This FAQ remains in 
effect for large group market and self-insured group health plans.
    \138\ In determining whether a generic is medically appropriate, 
the FAQ provides that a plan may use a reasonable exception process. 
For example, the plan may defer to the recommendation of an 
individual's personal physician, or it may offer an exceptions 
process meeting the requirements of 45 CFR 156.122(c).
---------------------------------------------------------------------------

    The FAQ also states that for non-grandfathered health plans in the 
individual and small group markets that must provide coverage of EHB, 
additional requirements apply.\139\ This reflects the implementation of 
the EHB requirements as implemented in the Patient Protection and 
Affordable Care Act (PPACA); Standards Related to Essential Health 
Benefits, Actuarial Value and Accreditation; Final Rule (EHB Final 
Rule),\140\ in which we stated that plans are permitted to go beyond 
the number of drugs offered by the EHB-benchmark plan without exceeding 
EHB. We further clarified in the 2016 Payment Notice that, if the plan 
is covering drugs beyond the number of drugs covered by the EHB-
benchmark plan, all of these drugs are EHB and cost sharing paid for 
the drugs must count toward the annual limitation on cost sharing.\141\
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    \139\ For example, these plans have to meet the EHB drug count 
standard at Sec.  156.122(a) that sets a minimum threshold for drug 
coverage and while the drug count standard is based on chemically 
distinct drugs, these plans have to consider other factors in 
establishing their prescription drug benefit.
    \140\ 78 FR 12834, 12845 (February 25, 2013).
    \141\ 80 FR 10817.
---------------------------------------------------------------------------

    Given the increase in the cost of prescription drugs, and 
particularly brand drugs, HHS believes additional flexibility is needed 
for health plans in the individual and small group markets that must 
provide coverage of the EHB to encourage consumers to use more cost 
effective generic drugs. Therefore, we propose, subject to applicable 
state law, to allow a plan that covers both a brand prescription drug 
and its generic equivalent, for plan years beginning on or after 
January 1, 2020, to consider the brand drug to not be EHB, if the 
generic drug is available and medically appropriate for the enrollee, 
unless

[[Page 290]]

coverage of the brand drug is determined to be required under an 
exception process at Sec.  156.122(c).
    Under such circumstances, if an enrollee purchases the brand drug 
when the generic equivalent was available and medically appropriate, we 
propose that the issuer would be permitted to not count the difference 
in cost sharing between that which is paid for the brand drug and that 
which would be paid for the generic equivalent drug toward the annual 
limitation on cost sharing under Sec.  156.130, but would still be 
required to attribute the cost sharing that would have been paid for 
the generic equivalent toward the annual limitation on cost sharing 
under Sec.  156.130. This would maintain a balance between 
incentivizing the use of lower-cost drugs and the consumer protection 
provided by the annual limitation on cost sharing.
    We further propose that for a plan to do so, the plan must have an 
exception process in place in accordance with Sec.  156.122(c) for the 
enrollee to request coverage of the brand drug.
    If finalized, this interpretation would permit all group health 
plans and group health insurance issuers to impose lifetime and annual 
dollar limits on such brand drugs because they would no longer be 
considered EHB subject to the prohibition on such limits.
    HHS is also considering an alternate proposal, under which an 
issuer would be permitted to except the entire amount paid by a patient 
for a brand drug for which there is a medically appropriate generic 
alternative from the annual limitation on cost sharing at Sec.  
156.130. Because this alternate proposal also relies on an 
interpretation of what is considered EHB, the alternate proposal would 
also apply to non-grandfathered group health plans and health insurance 
issuers subject to the annual limit on cost-sharing provision under PHS 
Act 2707(b), and in ERISA section 715 and Code section 9815.
    Under the alternate proposal, for example, if an enrollee with a 10 
percent coinsurance obligation is selecting between a brand drug for 
which the allowable charge is $100 and an available and medically 
appropriate generic equivalent for which the allowable charge is $60, 
if the enrollee selects the generic equivalent, the enrollee would pay 
$6 in coinsurance (10 percent of the $60 allowable charge) and the 
issuer would attribute that $6 to the annual limitation on cost 
sharing. If the enrollee selects the brand drug, the enrollee would pay 
$10 in coinsurance (10 percent of $100), but the issuer could attribute 
$6 to the annual limitation on cost sharing under the first proposal 
(due to the enrollee selecting a brand name drug when a generic 
equivalent is available and medically appropriate) or $0 under the 
alternate proposal to the annual limitation on cost sharing.
    We propose that these changes to the annual limitations on cost 
sharing would be effective starting with the 2020 plan year. We solicit 
comments on these alternatives, both of which we propose to apply to 
group health plans, group health insurance coverage, and individual 
market coverage, regardless of whether they are required to cover EHBs.
    An issuer taking advantage of this proposed flexibility would be 
excluding the brand drug from coverage as EHB. Therefore, the issuer 
also could impose annual or lifetime dollar limits on coverage of the 
brand drug under those circumstances. Additionally, PTC (and APTC) 
could not be applied to any portion of the premium attributable to 
coverage of brand name drugs not covered as EHB, so issuers of QHPs 
would be required to calculate that portion of QHPs' premiums and 
report it to the applicable Exchange.
    We also solicit comments on any limitation on group health plans' 
and health insurance issuers' information technology systems being able 
to accumulate the cost sharing consistent with this policy, whether 
this proposed policy should be subject to or preempt any state law 
regarding the application of cost sharing between the generic and 
branded version of a drug that would prevent the application of this 
proposed policy, and whether an issuer not attributing cost-sharing to 
the annual limitation on cost sharing under this approach should be 
considered an adverse coverage determination and subject to the 
coverage appeals processes under Sec.  147.136.
    Finally, we seek comment regarding whether we should require, 
instead of permit, issuers to exclude brand drugs from being EHB if the 
generic drug is available and medically appropriate for the enrollee, 
unless coverage of the brand drug is determined to be required under 
the exception process under 156.122(c), and to exclude the cost sharing 
for the brand name drug from accumulating toward the annual limitation 
on cost sharing according to one of the alternatives proposed above.
ii. Cost-Sharing Requirements and Drug Manufacturers' Coupons
    Drug manufacturers often offer coupons to patients to reduce 
patient out-of-pocket costs. Drug manufacturers may offer these coupons 
for various reasons: To compete with another brand name drug in the 
same therapeutic class, to compete with a generic equivalent when 
released, or to assist consumers whose drug costs would otherwise be 
extremely high due to a rare or costly condition.\142\ Some states 
prohibit the use of such coupons if a generic alternative is 
available.\143\
---------------------------------------------------------------------------

    \142\ Van Nuys, K., Joyce, G., Ribero, R., & Goldman, D.P. 
(2018). A Perspective on Prescription Drug Copayment Coupons. Los 
Angeles, CA: Leonard D. Schaeffer Center for Health Policy & 
Economics.
    \143\ For example, see, https://malegislature.gov/Laws/GeneralLaws/PartI/TitleXXII/Chapter175H/Section3.
---------------------------------------------------------------------------

    We recognize that copayment support may help beneficiaries by 
encouraging adherence to existing medication regimens, particularly 
when copayments may be unaffordable to many patients. However, the 
availability of a coupon may cause physicians and beneficiaries to 
choose an expensive brand-name drug when a less expensive and equally 
effective generic or other alternative is available. When consumers are 
relieved of copayment obligations, manufacturers are relieved of a 
market constraint on drug prices which can distort the market and the 
true costs of drugs. Such coupons can add significant long-term costs 
to the health care system that may outweigh the short-term benefits of 
allowing the coupons, and counter-balance issuers' efforts to point 
enrollees to more cost effective drugs.
    The Administration has identified high and rising out-of-pocket 
costs for prescription drugs, among other issues, as a challenge to 
consumers. In some cases, manufacturer coupons may be increasing 
overall drug costs and can lead to unnecessary spending by issuers, 
which is passed on to all patients in the form of increased premiums 
and reduced coverage of other potentially useful health care 
interventions. While the PPACA does not speak directly to the 
accounting and use of drug manufacturer coupons to the annual 
limitation on cost sharing, we believe that the overall intent of the 
law was to establish annual limitations on cost sharing that reflect 
the actual costs that are paid by the enrollee. The proliferation of 
drug coupons supports higher cost brand drugs when generic alternatives 
are available which in turn supports higher drug prices and increased 
costs to all Americans and for other federal health programs.
    For these reasons, at new Sec.  156.130(h)(2), we propose, for plan 
years beginning on or after January 1, 2020, notwithstanding any other 
provision of the annual limitation on cost sharing regulation, that 
amounts paid toward cost sharing using any form

[[Page 291]]

of direct support offered by drug manufacturers to insured patients to 
reduce or eliminate immediate out-of-pocket costs for specific 
prescription brand drugs that have a generic equivalent are not 
required to be counted toward the annual limitation on cost sharing. 
Not counting such amounts toward the annual limitation on cost sharing 
would promote: (1) Prudent prescribing and purchasing choices by 
physicians and patients based on the true costs of drugs and (2) price 
competition in the pharmaceutical market.
    We seek comment on this proposal and whether states should be able 
to decide how coupons are treated. Additionally, we seek comment on 
whether it would be difficult for issuers to carve out direct support 
offered by drug manufacturers from their calculation of enrollees' 
payments toward their annual limitation on cost sharing, and to carve 
out exceptions (for when a generic equivalent is not available, for 
example), when cost sharing paid by direct support offered by drug 
manufacturers would be counted toward the annual limitation on cost 
sharing, including whether information technology systems could be 
easily updated for this purpose. We also seek comment on issuers' 
ability to differentiate between drug manufacturer coupons and other 
drug coupons, whether their information technology systems would need 
modifications to make such differentiation, what a reasonable 
implementation date would be if implementation barriers exist, and how 
drug discount programs (as opposed to coupons) should be treated under 
this proposal. Finally, we seek comment regarding whether this policy 
should be limited to QHPs only.
4. Segregation of Funds for Abortion Services (Sec.  156.280)
    We believe that consumers are best served by the Exchanges when 
they have a choice of QHPs, understand the benefits their coverage 
provides, and can select a QHP that best meets their needs. To that 
end, the Exchanges were established such that issuers may offer 
consumers coverage at different metal levels, and with different 
benefits, cost sharing, and networks, among other things. In the FFEs, 
we have taken steps to improve transparency regarding QHP offerings and 
make it easier for consumers to select plans that they believe are best 
suited to their needs and preferences, such as providing information to 
identify QHPs that offer non-Hyde abortion services. State Exchanges 
have taken similar steps. For example, Exchanges display different plan 
attributes to consumers to foster the decision-making process, and 
allow consumers to view plan offerings by selecting filters that show 
plans with their desired plan characteristics. In addition, SBC 
requirements help ensure that consumers have access to easy-to-
understand information about coverage. However, in spite of these 
steps, there may be instances where a consumer prefers to enroll in a 
QHP that does not offer coverage for non-Hyde abortion services, but is 
unable to do so if such a plan is not offered in his or her service 
area.
    In particular, we are concerned that there are consumers who wish 
to enroll in a QHP but who may object to having non-Hyde abortion 
benefits included in their health insurance coverage based on religious 
or moral (collectively, conscience) objections. To the extent that 
potential enrollees will not enroll in, or are discouraged from 
enrolling in QHPs because all plans available in their service area 
cover non-Hyde abortion, we want to ensure that they are offered plan 
options that do not cover such services, to encourage QHP enrollment. 
Therefore, we propose at Sec.  156.280(c)(3) that, beginning with plan 
year 2020, if a QHP issuer provides coverage of non-Hyde abortion 
services in one or more QHPs, the QHP issuer must also offer at least 
one ``mirror QHP'' that omits coverage of non-Hyde abortion services 
throughout each service area in which it offers QHP coverage through 
the Exchange, to the extent permissible under state law. We propose 
that a ``mirror QHP'' provide identical benefit coverage to one of the 
QHPs with non-Hyde abortion coverage, with the exception of the 
inclusion of the coverage of non-Hyde abortion services. Under this 
proposal, the QHP issuer would only be required to offer at least one 
``mirror QHP'' throughout each service area that the QHP issuer offers 
plans covering non-Hyde abortion coverage, even if the issuer has 
multiple plans that offer non-Hyde abortion services in a single 
service area. Under this proposal, the QHP issuer would determine at 
which metal level the mirror plan is offered. We seek comment on the 
extent to which allowing QHP issuers to determine at which metal level 
the mirror plan is offered may inhibit access to these plans.
    This proposal implements our authority in section 1321 of the PPACA 
to impose, through rulemaking, such ``requirements'' pertaining to 
PPACA provisions not codified in the Public Health Service Act ``as the 
Secretary determines appropriate'' to establish standards for 
certification of QHPs, consistent with section 1311(c)(1) of the PPACA. 
The proposed requirement at Sec.  156.280(c)(3) to offer a mirror QHP 
would help ensure that individuals who would otherwise purchase a QHP, 
but could not avail themselves of such plans because of the policy's 
coverage of non-Hyde abortion services, could get the same plan 
benefits through the Exchange under a policy that does not include the 
coverage to which they object.
    We recognize the argument that the requirement to offer a mirror 
QHP that we are proposing at Sec.  156.280(c)(3) may be inconsistent 
with a QHP issuer's right under section 1303(b)(1)(A)(ii) of the PPACA 
to decide whether or not to provide coverage of non-Hyde abortions 
services as part of its essential health benefits, if not prohibited 
from doing so under state law.\144\ However, we do not believe that 
such a requirement is inconsistent with section 1303(b)(1)(A)(ii) of 
the PPACA. We interpret that provision as giving issuers offering QHPs 
in states that do not prohibit coverage of non-Hyde abortion services 
the right to decide whether or not to provide coverage of such abortion 
services. Specifically, we interpret section 1303(b)(1)(A)(ii) of the 
PPACA as intended to ensure, where applicable, that the decision on 
whether or not to provide coverage of non-Hyde abortion services is up 
to the issuer.\145\ That is, section 1303(b)(1)(A)(ii) of the PPACA 
would preclude the federal government from prohibiting QHP issuers from 
offering QHPs that offer abortion coverage, including non-Hyde abortion 
coverage; it does not preclude requiring a QHP issuer that offers non-
Hyde abortion services in its QHPs to also offer at least one mirror 
QHP in each service area that does not cover non-Hyde abortion 
services.
---------------------------------------------------------------------------

    \144\ Section 1303(b)(1)(A)(ii) of the PPACA provides 
(``[n]otwithstanding any other provision of [title I of the PPACA] 
(or any amendment made by this title)''), that if a state has not 
prohibited abortion coverage on the Exchange, ``the issuer of a 
qualified health plan shall determine whether or not the plan 
provides coverage'' of abortion services as part of the EHB covered 
under the QHP.
    \145\ Based on the Dictionary Act at 1 U.S. Code 1, which 
enables the use of plural in place of singular and vice versa unless 
context indicates otherwise, the common usage of issuer in section 
1303(b)(1)(A)(ii) of PPACA may be read to refer to the issuer's 
right to decide whether or not to offer abortion coverage at all for 
that plan year rather than the right to make such a decision for 
each of the issuer's plans for that plan year.
---------------------------------------------------------------------------

    This issuer's right to decide whether or not to offer coverage of 
non-Hyde abortion services in a QHP need not necessarily be read to 
give issuers a right under federal law to provide such coverage under 
every single QHP they offer, where not prohibited by the state

[[Page 292]]

from doing so. Under our proposed interpretation at Sec.  
156.280(c)(3), as long as the state permits the QHP issuer to decide 
whether or not to provide coverage of non-Hyde abortion services under 
a QHP and does not affirmatively require the QHP issuers in the state 
to cover such services in all plans, section 1303(b)(1)(A)(ii) of the 
PPACA is satisfied, and the issuer's rights under section 
1303(b)(1)(A)(ii) of the PPACA would not be undermined by the proposed 
requirement that issuers providing coverage of non-Hyde abortion 
services under a QHP also offer a QHP with identical coverage, with the 
exception of the inclusion of the coverage of non-Hyde abortion 
services.
    We also seek comment on ways that Exchanges, and HealthCare.gov in 
particular, can differentiate between the QHP that covers non-Hyde 
abortions and the QHP that does not cover non-Hyde abortions. We 
realize that but for the premium and benefit description, the QHPs 
would otherwise appear identical, and are concerned that consumers who 
do not carefully study their plan options may be confused by the 
premium differential. Similarly, we seek comment on the extent to which 
QHP issuers participating in direct enrollment under Sec.  156.1230 and 
agents and brokers utilizing an internet website in accordance with 
Sec.  155.220(c)(3)(i) should be required to adhere to any standards 
established for Exchanges in terms of differential display of these two 
types of QHPs.
    Given the proposed changes to this section, we are further 
proposing to rename this section ``Rules relating to coverage of 
abortion services and segregation of premiums for such services.'' to 
better reflect its contents.
    We seek comment on this proposal.
5. Quality Standards (Sec. Sec.  156.1120, 156.1125, 156.1130)
    Regulatory reform and reducing regulatory burden are high 
priorities for us. To lower health care costs, enhance patient care, 
and reduce the regulatory burden on the health care industry, including 
for health plan issuers and the providers who deliver services through 
their plans, in October 2017, we launched the Meaningful Measures 
Initiative.\146\ This initiative is one component of our agency-wide 
Patients Over Paperwork Initiative.\147\
---------------------------------------------------------------------------

    \146\ ``Meaningful Measures Hub.'' May 5, 2018. Available at 
https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/MMF/General-info-Sub-Page.html.
    \147\ Remarks by Administrator Seema Verma at the Health Care 
Payment Learning and Action Network (LAN) Fall Summit, as prepared 
for delivery on October 30, 2017. Available at https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2017-Fact-Sheet-items/2017-10-30.html.
---------------------------------------------------------------------------

    The Meaningful Measures Framework is a strategic tool for putting 
patients over paperwork by reducing measure reporting burden, aligning 
with the national health care priorities, and fostering operational 
efficiencies that include decreasing data collection and reporting 
burden while focusing on quality measurement aligned with meaningful 
outcomes.
    By including Meaningful Measures in our quality reporting and 
quality improvement programs such as the Quality Rating System, QHP 
Enrollee Experience Survey and the Quality Improvement Strategy, we 
believe that we can also address the following cross-cutting measure 
criteria:
     Eliminating disparities;
     Tracking measurable outcomes and impact;
     Safeguarding public health;
     Achieving cost savings;
     Improving access for rural communities; and
     Reducing burden.
    We encourage QHP issuers to use performance measures aligned with 
the Meaningful Measures Initiative in fulfilling their certification 
requirement to implement a Quality Improvement Strategy that provides 
increased reimbursement or other market-based incentives for improving 
health outcomes of plan enrollees.
    In addition, we will continue to assess quality measures in our 
programs including the Quality Rating System and the QHP Enrollee 
Experience Survey, to ensure that we are using a parsimonious set of 
the most meaningful measures for patients, clinicians, and health plans 
in those quality programs. If we propose any changes or removal of 
measures, we will include those for public comment in the Annual Call 
Letter for the QRS and QHP Enrollee Survey,\148\ as well as address 
potential changes to information collection requirements to comply with 
the Paperwork Reduction Act.
---------------------------------------------------------------------------

    \148\ Final 2018 Call Letter for the QRS and QHP Enrollee 
Survey. Available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/2018-QRS-Call-Letter_July2018.pdf.
---------------------------------------------------------------------------

6. Direct Enrollment With the QHP Issuer in a Manner Considered To Be 
Through the Exchange (Sec.  156.1230)
    As previously described in the preamble to Sec. Sec.  155.220, 
155.221, and 155.415 we are proposing significant changes to Sec. Sec.  
155.221 and 155.415 to streamline and consolidate the requirements 
applicable to all direct enrollment entities--both QHP issuers and web-
brokers. To reflect these changes, we propose conforming changes in 
Sec.  156.1230(a)(2) and (b). We propose to amend Sec.  156.1230(b) to 
add a new paragraph (b)(1) that would require issuers participating in 
direct enrollment to comply with the applicable requirements in Sec.  
155.221. We also propose to delete and reserve paragraph (a)(2) of 
Sec.  156.1230 to reduce redundancies in light of the proposed changes 
to Sec.  155.415 that are described earlier in this rulemaking. For a 
more thorough discussion of these proposed changes, please see the 
preamble to Sec. Sec.  155.220, 155.221, and 155.415.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995 (PRA), we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
OMB for review and approval. To fairly evaluate whether an information 
collection should be approved by OMB, section 3506(c)(2)(A) of the PRA 
requires that we solicit comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.

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.\149\ Table 10 in this proposed rule presents 
the mean hourly wage, the cost of fringe benefits and overhead, and the 
adjusted hourly wage.
---------------------------------------------------------------------------

    \149\ See May 2017 Bureau of Labor Statistics, Occupational 
Employment Statistics, National Occupational Employment and Wage 
Estimates. Available at https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

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

[[Page 293]]

alternative, and we believe that doubling the hourly wage to estimate 
total cost is a reasonably accurate estimation method.

                            Table 10--Adjusted Hourly Wages Used in Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                   Occupational     Mean hourly    benefits and      Adjusted
                Occupation title                       code        wage ($/hr.)    overhead ($/   hourly wage ($/
                                                                                       hr.)            hr.)
----------------------------------------------------------------------------------------------------------------
Information and Record Clerks...................         43-4199          $19.56          $19.56          $39.12
Computer Programmer.............................         15-1131           42.08           42.08           84.16
Medical Records and Health Information                   29-2071           26.76           26.76           53.52
 Technician.....................................
Compliance officer..............................         13-1041           34.39           34.39           68.78
Operations manager..............................         11-1021           59.35           59.35          118.70
All Occupations.................................         00-0000           24.34           24.34           48.68
----------------------------------------------------------------------------------------------------------------

B. ICRs Regarding Guaranteed Renewability of Coverage (Sec. Sec.  
146.152, 147.106, 148.122, 156.122)

    In an effort to optimize the use of new generic drugs as they 
become available, we proposed to allow issuers, beginning with plan 
years on or after January 1, 2020, to update their prescription drug 
formularies by allowing certain mid-year formulary changes, subject to 
applicable state law.
    We propose that a health insurance issuer that makes one of the 
following mid-year drug formulary changes would be required to send a 
written notice to enrollees 60 days prior to implementing any of the 
following drug formulary changes:
     Adding a generic equivalent drug to the formulary, while 
removing the brand name drug from the formulary; or
     Adding a generic equivalent to a formulary and moving the 
equivalent brand name drug to a different cost-sharing tier.
    Such changes would not be permitted to exceed the scope of what 
would otherwise be a uniform modification, and enrollees would retain 
the option to request coverage for a brand name drug that was removed 
from the formulary through the applicable coverage appeal process under 
Sec.  147.136 or the drug exception request process under Sec.  
156.122(c).
    Based on the 2016 Medical Loss Ratio (MLR) totals, there are 520 
health insurance issuers with estimated 75.6 million enrollees. Given 
the approval trends from 2016 through 2018, we also estimate that the 
Food and Drug Administration approves an average of 76 first time 
generic drug applications per calendar year, allowing a first time 
generic equivalent of a brand drug to be manufactured.\150\ However, 
not all of these drugs are suitable for a drug formulary; some are only 
administered in a clinical setting, and others may be approved for 
over-the counter (OTC) use. We also considered that not all issuers 
will opt to make mid-year formulary changes. In reviewing the recent 
first time FDA generic equivalent approvals for 2018, 60 percent, or 37 
generic equivalent drugs are available by prescription and could 
potentially be found on an issuers' formulary, resulting in a mid-year 
formulary change. If finalized as proposed, all enrollees would receive 
a notice regarding the mid-year formulary change. Finally, we estimate 
that 62 percent of notices will be sent by mail and the remaining 
electronically. The cost to print and send the notice would include 
$0.05 per 1-page and $0.50 per notice to mail. The total cost of 
sending notices by mail would be approximately $15,481,400.
---------------------------------------------------------------------------

    \150\ See ANDA (Generic) Drug Approval Reports-2018. Available 
at https://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/DrugandBiologicApprovalReports/ANDAGenericDrugApprovals/default.htm. See also ANDA (Generic Drug 
Approval Reports Previous Years--2016-17. Available at https://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/DrugandBiologicApprovalReports/ANDAGenericDrugApprovals/ucm050527.htm.
---------------------------------------------------------------------------

    Issuers would have two options to make formulary changes, therefore 
we have provided two notice cost estimates for removing a brand drug 
from the formulary and for changing the cost-sharing tier for a brand 
drug.
Notice of Change: Removal of a Brand Drug From the Formulary
    A health insurance issuer would be required to provide a written 
notice 60 days in advance. This notice would be required to identify 
the name of the brand drug that is the subject of the change, disclose 
whether the brand drug will be removed from the formulary or placed on 
a different cost-sharing tier, provide the name of the generic 
equivalent that will be made available, specify the date the changes 
will become effective, and state that under the appeals processes 
outlined in Sec.  147.136 or the exceptions processes outlined in Sec.  
156.122(c), enrollees and dependents may request and gain access to the 
brand drug when clinically appropriate and not otherwise covered by the 
health plan. Issuers also would be required to provide enrollees the 
option to request coverage for a brand drug that was removed from the 
formulary through the applicable coverage appeal process under Sec.  
147.136 or the drug exception request process under Sec.  156.122(c). 
Therefore, we estimate that a ``Notice of Change: Removal of a brand 
drug from the formulary,'' would require issuers 10 hours of clerical 
labor (at a cost of $39.12 per hour) to prepare the custom notice using 
an existing standard notice or a standard notice provided by the 
issuer's state. The cost to print and send the notice would include 
$0.05 per page and $0.50 to mail. It would take an estimated 2 hour for 
a senior manager (at a cost of $118.70 per hour) to review the notice 
template. We also estimate that it would take a computer programmer 10 
hours (at a cost $84.16 per hour) to write and test a program to 
automate the electronic notices. The total annual burden for each 
issuer to prepare the template would be 22 hours with an equivalent 
cost of approximately $1,470. For all 520 health insurance issuers, the 
total annual burden would be 11,440 hours with an equivalent cost of 
approximately $764,504. We assume that approximately half of the 
notices sent would be of this type, with a mailing cost of 
approximately $7,740,700. The total annual cost for all issuers would 
be approximately $8,505,204.
Notice of Change: Change to Cost-Sharing Tier for a Brand Drug
    A health insurance issuer would provide the notice 60-days prior to 
adding a generic equivalent to a formulary, and moving the equivalent 
brand name drug to a different cost-sharing tier. Therefore, we 
estimate that a ``Notice of Change: Change to cost-sharing tier for a 
brand drug,'' would require 6 hours of clerical labor (at a

[[Page 294]]

cost of $39.12 per hour) to prepare the custom notice using an existing 
standard notice or a standard notice provided by the issuer's state. 
The cost to print and send the notice would include $0.05 per 1-page 
and $0.50 per notice to mail. It would take an estimated 2 hours for a 
senior manager (at a cost of $118.70 per hour) to review the notice 
template. We also estimate that it would take a computer programmer 10 
hours (at a cost $84.16 per hour) to write and test a program to 
automate the electronic notices. The total annual burden for each 
issuer to prepare the template would be 18 hours with an equivalent 
cost of approximately $1,314. For all 520 health insurance issuers, the 
total annual burden would be 9,360 hours with an equivalent cost of 
approximately $683,134. We assume that approximately half of the 
notices sent would be of this type, with a mailing cost of 
approximately $7,740,700. The total annual cost for all issuers would 
be approximately $8,423,834.
    As a subset of this notice requirement, at Sec.  156.122(d)(3) we 
propose that QHP issuers in the FFEs would be required to notify HHS 
annually in an HHS-specified format of any mid-year formulary changes 
made in the prior plan year consistent with the policy proposed at 
Sec.  147.106(e) that would allow an issuer to make mid-year drug 
formulary changes. QHP issuers in the FFEs would be required to report 
the name of the drug being removed from the formulary, dosage, name of 
the generic equivalent, the Rx Norm Concept Unique Identifier (RxCUI) 
associated with the brand and generic drug, if the brand drug was moved 
to a higher cost sharing tier or removed from the formulary. Issuers 
would be required to submit the formulary changes in a template as 
specified by HHS. We estimate 66 QHP issuers (not including SADPs, but 
encompassing both individual and SHOP markets) will offer QHPs in an 
FFE and thus be subject to this requirement. The estimate of 66 is 
based on the number of issuers whose QHP issuers in an FFE, that 
appeared on HealthCare.gov in the 2019 plan year.
    We estimate that it will take 42 hours per year for a QHP issuer in 
an FFE to meet this reporting requirement, which will occur annually. 
On average, we estimate that it will take an Information and Records 
Clerk 36 hours (at $39.12 an hour), and a Senior Manager 6 hours (at 
$118.70 an hour) to fulfill these requirements. The total estimated 
annual burden is 42 hours with an equivalent cost of approximately 
$2,121 per reporting entity. The aggregate annual burden for all 
issuers would be 2,772 hours with an equivalent cost of approximately 
$139,954.

                                                        Table 11--Estimated Annualized Burden for Notices of Change for All Health Plans
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                                                                    Total cost
                                                                                                     Number of                                     Total burden     Total labor     (including
                  Respondent                             Type of notice              Number of      notices per     Burden per       Cost per         for all      cost for all   mailing costs)
                                                                                    respondents     respondent    notice (hours)      notice        respondents     respondents       for all
                                                                                                                                                                                    respondents
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Health Insurance Issuer.......................  Notice of Change: Removal of a               520               1              22        $1470.20          11,444     $764,504.00      $8,505,204
                                                 brand drug from the formulary.
Health Insurance Issuer.......................  Notice of Change: Change to Cost-            520               1              18         1313.72           9,360      683,134.40       8,423,834
                                                 sharing tier for a brand drug.
                                                                                 ---------------------------------------------------------------------------------------------------------------
 Total........................................  ................................             520  ..............  ..............  ..............          20,804    1,447,638.40  ..............
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


        Table 12--Estimated Annualized Burden for Mid-Year Formulary Change Reporting to QHP FFE Issuers
----------------------------------------------------------------------------------------------------------------
                                                   Hourly labor
                                                  costs  (hourly                                   Total burden
         Labor category              Number of      rate  + 35%    Burden hours    Total burden      cost (per
                                     employees        fringe                           costs           year)
                                                     benefits)
----------------------------------------------------------------------------------------------------------------
Information and Records Clerk...               1          $39.12              36       $1,408.32  ..............
Senior Manager..................               1          118.70               6          712.20  ..............
Total per Issuer................  ..............  ..............              42        2,120.52  ..............
Total for the 66 QHP FFE Issuers  ..............  ..............  ..............  ..............     $139,954.32
----------------------------------------------------------------------------------------------------------------

C. ICRs Regarding Varying the Risk Adjustment Initial Validation Audit 
Sample Size (Sec.  153.630(b))

    The current enrollee sample size selected for the risk adjustment 
initial validation audit is 200 enrollees for each issuer's HIOS ID 
based on sample size precision analyses using data from the Medicare 
Advantage risk adjustment program.
    Beginning with the 2019 benefit year of risk adjustment data 
validation,\151\ we propose to vary the initial validation audit sample 
size, and one proposed approach would vary sample size based on issuer 
characteristics, such as issuer size, HCC failure rates, and sample 
precision. Larger initial validation audit samples could be required 
under our proposed approach; however, we believe that any increased 
burden would be outweighed by the increased precision of the risk 
adjustment data validation results which are used to adjust risk scores 
and associated risk adjustment transfers.
---------------------------------------------------------------------------

    \151\ Activities related to the 2019 benefit year risk 
adjustment data validation generally begin in the second quarter of 
the 2020 calendar year.
---------------------------------------------------------------------------

    The first proposed approach we are considering would recalculate 
adjusted sample sizes above the current baseline sample size of 200 
only for larger and smaller issuers who are more than 1.644 standard 
deviations away from the mean for any HCC failure rate group.\152\ This 
targeted sampling adjustment would ensure that all issuers outside or 
just inside of the HCC failure rate outlier threshold (1.96 standard 
deviations)

[[Page 295]]

receive sample sizes that better meet our targeted precision, that 
issuers receiving error rates are in fact outliers, and that issuers 
that did not receive an error rate, but had higher than average HCC 
failure rates were not false negatives due to low precision in their 
sample. Issuers in this subset whose sample size does not meet the 
targeted precision would have their initial validation audit sample 
size adjusted to more closely achieve the targeted precision level.
---------------------------------------------------------------------------

    \152\ As detailed in the above preamble, under this proposed 
approach, the sample size for very small issuers (those with below 
3,000 enrollees calculated statewide based on the benefit year being 
validated) outside of 1.644 standard deviations from the mean of any 
HCC failure rate group, as well for issuers with HCC failure rates 
within 1.644 standard deviations of the mean for all HCC failure 
rate groups, would remain at 200 enrollees.
---------------------------------------------------------------------------

    For smaller issuers (those with between 3,000 and 49,999 enrollees 
calculated statewide based on the benefit year being validated) with 
HCC failure rates above 1.644 standard deviations from the mean of any 
HCC failure rate group, and an assumed precision above the 10 percent 
target, we estimate approximate sample size ranges for issuer precision 
groups below:

     Issuers with 10 percent precision or lower.

++ 2019 approximate sample size: 200

     Issuers with precision between 10 percent and 20 percent.

++ 2019 approximate sample size range: 250 to 350

     Issuers with precision at 20 percent and above.

++ 2019 approximate sample size range: 400 to 500

    For larger issuers (those with 50,000 or more enrollees calculated 
statewide based on the benefit year being validated) with HCC failure 
rates above 1.644 standard deviations of any mean HCC group failure 
rate, and an assumed precision above the 10 percent target, we estimate 
approximate sample size ranges for issuer precision groups below:

     Issuers with 10 percent precision or lower.

++ 2019 approximate sample size: 400

     Issuers with precision between 10 percent and 20 percent.

++ 2019 approximate sample size range: 450 to 650

     Issuers with precision at 20 percent and above.

++ 2019 approximate sample size range: 700 to 800

    We estimate that approximately 70 of the 500 issuers expected to 
participate in risk adjustment data validation for the 2019 benefit 
year would be outside 1.644 standard deviations from the mean HCC 
failure rate. Of those issuers, we estimate that approximately 30 
issuers would be smaller issuers, and approximately 40 issuers would 
have 50,000 or more enrollees calculated statewide based on the benefit 
year being validated. Of the 30 smaller issuers, we estimate that 
approximately 50 percent, or 15 issuers, would have sample precision 
that meets or is better than the target precision of 10 percent, and 
therefore would not have their sample sizes increased above the current 
200 enrollee sample size.
    For our monetary and hourly burden estimates, we are incorporating 
labor and wage costs from the most recent premium stabilization 
programs PRA, ``Standards Related to Reinsurance, Risk Corridors, Risk 
Adjustment, and Payment Appeals'' (CMS-1041/OMB control number 0938-
1155). We are continuing to use the previously estimated annual hourly 
burden of approximately 740 hours and cost of $45,430 for each issuer 
with a 200 enrollee sample. We estimate it will take 1 Medical Records 
and Health Information Technician (at an hourly rate of $53.52) 
approximately 620 hours, 1 compliance officer (at an hourly rate of 
$68.78) working 40 hours, and 2 operations managers working 40 hours 
each for a total of 80 hours (at an hourly rate of $118.70), resulting 
in a combined total annual burden of 740 hours per issuer. We are using 
the same assumptions from the supporting statement to develop the below 
estimates, and are not changing burden estimates but are estimating the 
effect of changing sample sizes for affected issuers. Given that the 
total cost when the sample size is 200 enrollees is $45,430 per issuer, 
we estimate that 150 additional enrollees per issuer over the 200 
baseline number, or a sample size of 350 enrollees per issuer, would 
result in an annual increased burden of 555 hours, with an associated 
increase in cost of approximately $34,072, and therefore, the estimated 
total annual burden per issuer with a sample of 350 enrollees would be 
1,295 hours with an associated cost of approximately $79,502 under this 
proposed approach.
    We estimate that for the 15 smaller issuers with HCC failure rates 
above 1.644 standard deviations of any mean HCC group failure rate we 
believe will face a sample size increase as a result of poor precision, 
an average sample size of approximately 350 enrollees would result in 
an estimated overall annual burden increase of 8,325 hours, with an 
approximate increase in cost of $511,083.
    We are proposing to increase minimum sample sizes from 200 to 400 
enrollees for all larger issuers (those with 50,000 or more enrollees 
calculated statewide based on the benefit year being validated) that 
are outside 1.644 standard deviations of the mean HCC failure rate. As 
noted above, we estimate that approximately 40 larger issuers would 
have their sample sizes increased under this proposed approach. Of 
these 40 larger issuers, we estimate that approximately 35 would have 
good sample precision of 10 percent or lower and samples of 400 
enrollees. Based on the assumptions above we estimate that a sample 
increase to 400 enrollees represents an annual increase of 740 hours 
and $45,430 for each issuer, resulting in a total annual burden of 
1,480 hours and associated cost of $90,860 per issuer, and an aggregate 
burden increase of 25,900 hours and a cost of $1,590,036 for those 35 
issuers. We further estimate that 5 of the 40 larger issuers would have 
poor sample precision under this proposed approach, with at least one 
of those issuers having a precision above 20 percent, resulting in an 
average increased sample size for these issuers of approximately 500 
enrollees. We estimate that the additional 300 enrollees (added to the 
current 200 enrollee sample size) would result in an additional annual 
burden of 1,110 hours and an associated cost of $68,144 for each 
issuer. Therefore, for 5 issuers, we estimate an overall annual 
increase in burden of 5,550 hours with an associated cost of $340,722. 
Therefore, for the approximately 55 issuers that would be impacted by 
the first proposed approach to modify the initial validation audit 
sample sizes, we estimate a total annual burden increase of 
approximately 39,775 hours, with an associated increase in cost of 
$2,441,841 as a result of the proposed provision.
    Alternatively, we are also considering an approach that would 
adjust an issuer's sample size based on issuer size only. Therefore, we 
are also estimating the burden associated with developing the sample 
size based on issuer size only in the following groupings calculated 
based on the issuer's total number of enrollees in all risk pools 
receiving risk adjustment transfers (calculated statewide based on the 
benefit year being validated). Below, we estimate hours and costs per 
issuer based on the labor and wage costs from the most recent premium 
stabilization programs' PRA, which estimated hourly burden of 
approximately 740 hours and cost of $45,430 per issuer with a 200 
enrollee sample:

     Issuers with fewer than 51 enrollees (Note: These issuers 
would have no additional burden):

++ 2019 sample size for issuers with 50 enrollees or fewer: All 
enrollees
(No more than 185 hours and $11,357.50 per issuer)


[[Page 296]]


     Issuers with 51-3,000 enrollees (Note: These issuers would 
have no additional burden):

++ 2019 approximate sample size for small issuers: 90
(333 hours and $20,443.32 per issuer)

    An estimated annual burden decrease per issuer of: 407 hours and 
$24,986.28.
     Issuers with 3,001-20,000 enrollees:

++ 2019 approximate sample size for medium issuers: 250
(925 hours and $56,787.00 per issuer)

    An estimated annual burden increase per issuer of: 185 hours and 
$11,357.40.
     Issuers with 20,001-100,000 enrollees:

++ 2019 approximate sample size for large issuers: 400
(1,480 hours and $90,860.00 per issuer)

    An estimated annual burden increase per issuer of 740 hours and 
$45,430.
     Issuers with 100,001 enrollees and above:

++ 2019 approximate sample size for extra-large issuers: 500
(1,850 hours and $113,575.00 per issuer)

    An estimated annual burden increase per issuer of 1,110 hours and 
$68,145.
    If HHS were to finalize the proposal where any issuer can request 
larger sample sizes, the burden associated with that larger sample 
would align with the estimates set forth above, but would vary 
depending on the specific size that the issuer selects. For example, we 
estimate that a sample size of approximately 500 enrollees would 
require approximately 1,850 hours and cost approximately $113,574.00, 
including an annual additional burden of 1,110 hours and an associated 
cost increase of $68,144 per issuer. We assume that only larger issuers 
with more than 50,000 enrollees would choose to incur the additional 
burden required to elect to increase their sample size, and that 50 
percent of the 40 larger issuers (20 issuers) that are outside 1.644 
standard deviations would voluntarily choose to increase their sample 
size. As stated above, the burden associated with this option would 
vary depending on the specific size that the issuer selects. For 
example, we estimate that a sample size of 500 enrollees would require 
each issuer 1,850 hours with an associated cost of $113,574, including 
an annual additional burden of 1,110 hours and associated cost increase 
of $68,144 per issuer. If we assume 20 issuers would choose this 
proposed method, we estimate a total burden of 22,200 hours and an 
associated cost of $1,362,888. We seek comment on this proposal and the 
estimated burdens discussed above.
    If we finalize any of the proposed approaches to varying initial 
validation audit sample sizes, we intend to amend the information 
collection currently approved under OMB control number 0938-1155 (CMS-
10401--Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment) to account for this additional burden.

D. ICRs Regarding Risk Adjustment Data Validation Exemptions (Sec.  
153.630(g))

    In proposed Sec.  153.630(g)(3), we propose an exemption from risk 
adjustment data validation, beginning with the 2017 benefit year of 
risk adjustment data validation, if an issuer is in liquidation, or 
will enter liquidation no later than April 30th of the benefit year 
that is 2 benefit years after the benefit year being audited, provided 
that the issuer meets certain requirements. To qualify for this 
exemption, we propose that the issuer must provide to HHS, in a manner 
and timeframe to be specified by HHS, an attestation that the issuer 
will enter liquidation no later than April 30th of the benefit year 
that is 2 benefit years after the benefit year being audited that is 
signed by an individual who can legally and financially bind the 
issuer. Beginning with the 2018 benefit year data validation, we 
propose that, to qualify for an exemption, an issuer also could not 
have been a positive error rate outlier in the prior benefit year's 
risk adjustment data validation. We anticipate that fewer than 10 
issuers will submit this information to HHS annually. Under 5 CFR 
1320.3(c)(4), this ICR would not be subject to the PRA, as it will 
affect fewer than 10 entities in a 12-month period.
    We are also proposing to codify at Sec.  153.630(g)(1) and (2) two 
exemptions for certain issuers from risk adjustment data validation 
that were finalized in the 2018 and 2019 Payment Notices. The reduction 
in burden for issuers who meet the criteria to be exempted under 
proposed Sec.  153.630(g)(1) and (2) was estimated in those rules and 
have been incorporated into OMB Control Number 0938-1155 (CMS-10401--
Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment). 
Codifying these policies as part of HHS regulations as proposed in this 
rulemaking would not affect current burden estimates.

E. ICRs Regarding Upload of Risk Adjustment Data (Sec. Sec.  153.610, 
153.710)

    We seek comment on extracting state and rating area data elements 
that issuers already submit to their EDGE servers beginning with the 
2018 benefit year enrollee-level EDGE data. To extract these additional 
elements as part of the enrollee-level EDGE data, HHS would send a 
command to all issuers' EDGE servers that issuers must execute. Because 
the additional data elements we solicit comment on extracting would not 
require issuers to collect or upload any additional data elements to 
their EDGE servers and would be added to the command execution for the 
enrollee-level EDGE data finalized in the 2018 Payment Notice, we do 
not believe it would impose any additional burden on issuers of risk 
adjustment covered plans described under the information collection 
currently approved under OMB Control Number 0938-1155 (CMS-10401--
Standards Related to Reinsurance, Risk Corridors, and Risk Adjustment).

F. ICRs Regarding Agent or Broker Termination and Web Broker Data 
Collection (Sec.  155.220)

    At Sec.  155.220(c)(3)(i)(D)(1), we are proposing to require web-
brokers that would like assisters to be permitted to use their 
respective websites to display all QHP data provided by the Exchange, 
consistent with the requirements of Sec.  155.205(b)(1) and (c), 
including a standardized disclaimer provided by the Exchange if the 
web-broker website does not facilitate enrollment in all QHPs offered 
through the Exchange. The Exchange would provide the exact text for 
this disclaimer and the language would not need to be customized. The 
burden associated with this disclaimer is not subject to the Paperwork 
Reduction Act of 1995 in accordance with 5 CFR 1320.3(c)(2) because it 
does not contain a ``collection of information'' as defined in 44 
U.S.C. 3502(3).
    At Sec.  155.220(c)(4)(i)(A), we propose to require web-brokers to 
provide HHS a list of agents or brokers that by contract or other 
arrangement use the web-broker's website to assist consumers with QHP 
selection or completion of the Exchange eligibility application, in a 
form and manner to be specified by HHS. Currently, Sec.  
155.220(c)(4)(i)(A) requires the provision of this information if 
requested by HHS. The burden on a web-broker to comply with this 
requirement is covered by the information collection currently approved 
under OMB control number 0938-1349 (CMS-10650--State Permissions for 
Enrollment in Qualified Health Plans in the Federally Facilitated 
Exchange & Non-Exchange Entities).
    At Sec.  155.220(g)(3)(ii), we are proposing to allow HHS to 
immediately terminate an agent's or broker's agreement(s) with the FFEs 
for cause with notice if an agent or broker fails to comply with the 
requirement to maintain the appropriate licensure in every state in 
which the agent or broker

[[Page 297]]

actively assists consumers with enrolling in QHPs on the Exchange. An 
agent or broker whose agreement(s) with the FFEs are immediately 
terminated for cause under the new proposed paragraph (g)(3)(ii) would 
be able to request reconsideration under Sec.  155.220(h). Although the 
process to request reconsideration imposes a small burden on agents or 
brokers subjected to terminations, we anticipate fewer than 10 
terminations annually under this new authority. Under 5 CFR 
1320.3(c)(4), this ICR would not be subject to the PRA as we anticipate 
it would affect fewer than 10 entities in a 12-month period.
    At Sec.  155.220(m)(3), we are proposing that the Exchange may 
collect from a web-broker during its registration with the Exchange 
under Sec.  155.220(d)(1) or at another time on an annual basis, in a 
form and manner specified by HHS, information sufficient to identify 
the individuals who comprise the entity's corporate leadership or 
ownership, as well as any corporate or business relationships with 
other entities that may seek to register with the FFE as a web-broker. 
We believe the burden on a web-broker to comply with these requirements 
is covered by the information collection currently approved under OMB 
control number 0938-1349 (CMS-10650--State Permissions for Enrollment 
in Qualified Health Plans in the Federally Facilitated Exchange & Non-
Exchange Entities). In the supporting statement for that information 
collection, we stated web-brokers will also be required to provide 
other documentation as requested in response to emerging compliance 
issues, for HHS to monitor compliance. The information we are proposing 
to collect based on proposed Sec.  155.220(m)(3) is the type of 
information we anticipated when we referenced other documentation in 
response to emerging compliance issues.

G. ICRs Regarding Direct Enrollment Entity Standardized Disclaimer 
(Sec.  155.221)

    At Sec.  155.221(b)(2), we are proposing to require direct 
enrollment entities (both QHP issuers and web-brokers) to prominently 
display a standardized disclaimer, in the form and manner provided by 
HHS, to assist consumers in distinguishing between direct enrollment 
entity website pages that display QHPs and those that display non-QHPs 
during a single shopping experience. HHS would provide the exact text 
for this disclaimer and the language would not need to be customized. 
The burden associated with this disclaimer is not subject to the 
Paperwork Reduction Act of 1995 in accordance with 5 CFR 1320.3(c)(2) 
because it does not contain a ``collection of information'' as defined 
in 44 U.S.C. 3502(3).

H. ICRs Regarding Special Enrollment Periods (Sec.  155.420)

    The proposed special enrollment period at Sec.  155.420(d)(6)(v) 
would be subject to pre-enrollment verification of eligibility for the 
FFEs. Where possible, the FFE makes every effort to verify an 
individual's eligibility for the applicable special enrollment period 
through automated electronic means instead of through an applicant's 
submission of documentation. Consistent with other special enrollment 
periods subject to pre-enrollment verification, individuals would be 
required to provide supporting documentation \153\ within 30 days of 
plan selection.
---------------------------------------------------------------------------

    \153\ Consumer submitted documents currently accepted by the FFE 
for purposes of demonstrating prior coverage and verifying attested 
income are available at https://www.healthcare.gov/help/prove-coverage-loss/ and https://www.healthcare.gov/verify-information/documents-and-deadlines/, respectively.
---------------------------------------------------------------------------

    We estimate an additional 4,700 consumers would submit documents 
annually to verify their eligibility to enroll through the proposed 
special enrollment period in the FFE, and that a consumer would, on 
average, spend approximately 1 hour gathering and submitting required 
documentation. Using the average hourly wage for all occupations (at an 
hourly rate of $48.68), we estimate the opportunity cost to a consumer 
completing this task to be approximately $48.68. We estimate the total 
annual burden on those consumers submitting documentation would be 
approximately 4,700 hours with an equivalent cost of approximately 
$228,796.
    We are revising the information collection currently approved under 
OMB control number 0938-1207 (CMS-10468--Medicaid and Children's Health 
Insurance Programs: Essential Health Benefits in Alternative Benefit 
Plans, Eligibility Notices, Fair Hearing and Appeal Processes, and 
Premiums and Cost Sharing; Exchanges: Eligibility and Enrollment) to 
account for this additional burden. SBEs that choose to operationalize 
the proposed special enrollment period are encouraged to follow the 
same approach for pre-enrollment verification of special enrollment 
period eligibility. We invite comments regarding the number of State 
Exchanges that anticipate adopting this approach.

I. ICRs Regarding Eligibility Standards for Exemptions (Sec.  155.605)

    We do not anticipate that the proposed amendment to Sec.  
155.605(e) would create additional costs on, or burdens to, the 
Exchanges. We anticipate it would decrease burden on those consumers 
who, when applying for a hardship exemption, choose to apply for the 
exemption through the IRS, saving them approximately 16 minutes since 
they would not be required to complete the exemption application or 
submit supporting documentation. HHS will continue to process 
exemptions under current regulations for all SBEs that elect this 
option, and anticipate a decrease in volume.
    Based on historical data of the exemptions program and anticipating 
a decrease in individuals applying for exemptions as a result of the 
Tax Cuts and Jobs Act that reduced to $0 the individual shared 
responsibility payment for months beginning after December 31, 2018, we 
estimate that approximately 50,000 individuals would apply for a 
hardship exemption annually through the FFE.\154\ We expect 60 percent 
of those individuals would apply for a hardship exemption through IRS 
for 2018, totaling 30,000 requests.
---------------------------------------------------------------------------

    \154\ Although the Tax Cuts and Jobs Act 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.
---------------------------------------------------------------------------

    We estimate that the annual reduction in burden for the expected 
30,000 hardship exemptions through the IRS for 2018 would be 
approximately 8,100 hours. Using the average hourly wage for all 
occupations (at an hourly rate of $48.68 per hour) we estimate that the 
annual reduction in cost for each consumer would be approximately $13, 
and the annual cost reduction for all consumers applying for hardship 
exemptions through the IRS for 2018 would be approximately $394,308.
    We anticipate the burden would also be reduced for those consumers 
who currently apply through Connecticut.\155\ Based on the population 
of Connecticut, we expect 330 consumers from that state will apply for 
a hardship exemption through the IRS for 2018, as opposed to through 
the state. We estimate that the annual reduction in burden for the 330 
hardship exemptions through the IRS would be approximately 89 hours. 
Using the average hourly wage for all occupations (at an hourly rate of 
$48.68 per hour) we estimate the annual reduction in cost for each 
consumer

[[Page 298]]

would be approximately $13, and the annual cost reduction for all 
consumers in Connecticut applying for a hardship exemption through IRS 
for 2018 would be approximately $4,337.
---------------------------------------------------------------------------

    \155\ HHS processes exemptions for all SBEs except Connecticut.
---------------------------------------------------------------------------

J. Summary of Annual Burden Estimates for Proposed Requirements

                                           Table 13--Proposed Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Burden per                     Hourly labor
      Regulation section(s)         OMB control number      Respondents      Responses       response      Total annual       cost of     Total cost ($)
                                                                                              (hours)     burden (hours)   reporting ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
147.106(e)(5)(i)(A).............  0938-NEW..............           * 520      22,700,000              22          11,444          $66.83      $8,505,204
147.106(e)(5)(i)(B).............  0938-NEW..............           * 520      22,700,000              18           9,360           72.98       8,423,834
156.122(d)(3)...................  0938-NEW..............              66              66              42           2,772           50.49         139,954
153.630(b)......................  0938-1155.............              55              55             723          39,775           68.78       2,441,841
155.420.........................  0938-1207.............           4,700           4,700               1           4,700           48.68         228,796
                                                         -----------------------------------------------------------------------------------------------
    Total.......................  ......................           5,341      45,404,821  ..............          68,051  ..............      19,739,629
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Denotes the same entities. For purposes of calculating the total, this value is used only once.
** 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 13.

K. Submission of PRA-Related Comments

    We have submitted a copy of this proposed 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 proposed 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 potential information collection 
requirements. If you wish to comment, please submit your comments 
electronically as specified in the ADDRESSES section of this proposed 
rule and identify the rule (CMS-9926-P), the ICR's CFR citation, CMS ID 
number, and OMB control number.
    ICR-related comments are due March 25, 2019.

V. Response to Comments

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

VI. Regulatory Impact Analysis

A. Statement of Need

    This rule proposes standards related to the risk adjustment program 
for the 2020 benefit year, clarifications and improvements to the risk 
adjustment data validation program, as well as certain modifications 
that will promote transparency, innovation in the private sector, 
reduce burden on stakeholders, and improve program integrity. The 
Premium Stabilization Rule, previous Payment Notices, and recently 
released final \156\ rules provided details on the implementation of 
the risk adjustment program, including the specific parameters 
applicable for the 2014, 2015, 2016, 2017, 2018, and 2019 benefit 
years. This rule proposes additional standards related to mid-year 
formulary changes, essential health benefits; cost-sharing parameters; 
the Exchanges, including exemptions, eligibility and enrollment; 
calculation of the premium adjustment percentage; and FFE and SBE-FP 
user fees. The rule also proposes that QHP issuers that elect to offer 
coverage for non-Hyde abortion services in QHPs offered on the 
Exchanges must also offer at least one otherwise identical QHP that 
does not offer non-Hyde abortion coverage throughout each service area 
that the QHP issuer offers plans covering non-Hyde abortion services, 
to the extent permissible under state law.
---------------------------------------------------------------------------

    \156\ 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, Final Rule, 83 FR 36456 (July 
30, 2018) and Patient Protection and Affordable Care Act; Adoption 
of the Methodology for the HHS-Operated Permanent Risk Adjustment 
Program for the 2018 Benefit Year, Final Rule, 83 FR 63419 (Dec. 10, 
2018).
---------------------------------------------------------------------------

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), 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 (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).
    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)

[[Page 299]]

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 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. In accordance with the provisions of 
Executive Order 12866, this regulation was reviewed by the Office of 
Management and Budget.
    The provisions in this proposed rule aim to ensure taxpayer money 
is more appropriately spent and that states have additional flexibility 
and control over their insurance markets. They would reduce regulatory 
burden, reduce administrative costs for issuers and states, and would 
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 
proposed rule would 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.
    We believe the proposal at Sec.  156.280(c)(3) requiring issuers of 
QHPs that provide coverage of certain abortions to provide at least one 
otherwise identical QHP that omits coverage of such abortion services 
in a separate QHP throughout each service area in the Exchange in which 
the QHP issuer offers plans covering non-Hyde abortion services, to the 
extent permissible under state law, would increase consumer choice by 
requiring certain QHP issuers to offer additional QHPs. This proposal 
would especially benefit those consumers who have religious or 
conscience objections to abortion by providing them the option to 
choose a compatible plan without non-Hyde abortion coverage. However, 
we understand that this proposal may also potentially reduce the 
availability of non-Hyde abortion coverage in insurance, thereby 
increasing out-of-pocket costs for some women seeking those services. 
The proposal may also increase costs and regulatory and administrative 
burdens for certain QHP issuers and states, and could result in 
increased costs for some consumers. However, we believe that the need 
to promote consumer choice and enrollment offsets such burdens.
    HHS anticipates that the provisions of this proposed rule will help 
further the HHS's goal of ensuring that all consumers have access to 
quality and affordable health care and are able to make informed 
choices, that the insurance market offers choices, and that states have 
more control and flexibility over the operation and establishment of 
Exchanges. Affected entities such as direct enrollment entities, and 
QHP issuers would incur costs to comply with the proposed new 
provisions, for example, those related to direct enrollment; and states 
would incur costs if they choose to implement the proposed special 
enrollment period. 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 14 depicts an accounting 
statement summarizing HHS's assessment of the benefits, costs, and 
transfers associated with this regulatory action.
    This proposed rule implements standards for programs that will have 
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 
all benefits and costs of this proposed rule. The effects in Table 14 
reflect qualitative impacts and estimated direct monetary costs and 
transfers resulting from the provisions of this proposed rule for 
health insurance issuers and consumers. The annualized monetized costs 
described in Table 14 reflect direct administrative costs and savings 
to health insurance issuers and consumers as a result of the proposed 
provisions regarding special enrollment periods, use of direct 
enrollment entity application assisters to carry out responsibilities 
currently performed by agents or brokers, and applying for hardships 
exemptions. The annual monetized transfers described in Table 14 
include changes to costs associated with the risk adjustment user fee 
paid to HHS by issuers and the potential increase in PTC for those 
qualifying individuals that use the new SEP. We are proposing the risk 
adjustment user fee of $2.16 per billable member per year for the 2020 
benefit year to operate the risk adjustment program on behalf of 
states,\157\ which we estimate to cost approximately $50 million in 
benefit year 2020. We expect risk adjustment user fee transfers from 
issuers to the federal government to increase by $10 million, compared 
to the $40 million estimated for the 2019 benefit year; this increase 
is included in Table 14. Additionally, we are proposing a lower FFE 
user fee rate of 3.0 percent for the 2020 benefit year, which is lower 
than the 3.5 percent FFE user fee rate finalized for 2014 to 2019 
benefit years. We also propose to lower SBE-FP user fee rate to 2.5 
percent for the 2020 benefit year from the 3.0 percent SBE-FP user fee 
rate we finalized for the 2019 benefit year. We do not expect this 
change in the SBE-FP user fee rate to alter transfers previously 
estimated from the FFE and SBE-FP issuers. We are estimating FFE and 
SBE-FP user fee transfers similar to those estimated for prior benefit 
years, and therefore, there would be no changes to transfers from 
issuers to the federal government due to the proposed lower FFE and 
SBE-FP user fee rates. Also, we propose a change to the premium measure 
we use to calculate the premium adjustment percentage, which would 
result in a proposed premium adjustment percentage of 1.2969721275 
percent for the 2020 benefit year.
---------------------------------------------------------------------------

    \157\ As noted earlier in this proposed rule, no state has 
elected to operate the risk adjustment program for the 2020 benefit 
year; therefore, HHS will operate the program for all 50 states and 
the District of Columbia.

                                           Table 14--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Greater market stability resulting from updates to the risk adjustment methodology.................

[[Page 300]]

 
     Potential increased enrollment in the individual market stemming from lower premiums due to
     proposed expansion of direct enrollment opportunities, 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..........................................
     Greater continuity of coverage for consumers related to the proposed special enrollment period.....
     Reduced Navigator training compliance burden and increased flexibility in training design for
     Exchanges by streamlining the existing training topics into four broad categories..........................
     Reduced burden to FFE Navigators by making the duties listed at Sec.   155.210(e)(9) permissible
     for FFE Navigators, not required...........................................................................
     Strengthened program integrity related to the proposals regarding agents and brokers and direct
     enrollment entities, as well as from the proposed sampling changes for the risk adjustment data validation
     program....................................................................................................
     Reduction in burden associated with risk adjustment data validation for issuers eligible for the
     proposed liquidation exemption.............................................................................
     Potential reduction in economic distortions, and improvement in economic efficiency as a result of
     the reduction in Exchange enrollment due to the change in the method of calculating the premium adjustment
     percentage.................................................................................................
----------------------------------------------------------------------------------------------------------------
                      Costs                          Estimate          Year        Discount rate      Period
                                                       (million)          dollar       (percent)         covered
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................           $1.57            2018               7       2019-2023
                                                            1.84            2018               3       2019-2023
----------------------------------------------------------------------------------------------------------------
Quantitative:
     Costs incurred by issuers and consumers to comply with provisions in the proposed rule related to
     mid-year formulary changes, varying the risk adjustment initial validation audit sample size, and special
     enrollment periods.........................................................................................
     Reduction in burden and costs for consumers applying for hardship exemptions through IRS...........
     Reduction in burden and cost for direct enrollment entities that choose to use direct enrollment
     entity application assisters to carry out responsibilities currently performed by agents or brokers........
     Regulatory familiarization costs...................................................................
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Costs to issuers due to increases in providing medical services if health insurance enrollment
     increases..................................................................................................
     Potential costs to Exchanges that opt to implement special enrollment period for qualified
     individuals who experience a decrease in household income and are newly determined eligible for APTC, and
     to issuers for processing related enrollments and terminations.............................................
     Costs to health insurance issuers for implementing risk adjustment data validation to ensure the
     integrity of the risk adjustment transfers.................................................................
----------------------------------------------------------------------------------------------------------------
                    Transfers                        Estimate          Year        Discount rate      Period
                                                       (million)          dollar       (percent)         covered
----------------------------------------------------------------------------------------------------------------
Federal Annualized Monetized ($/year)...........          $828.3            2018               7       2019-2023
                                                           848.4            2018               3       2019-2023
----------------------------------------------------------------------------------------------------------------
Quantitative:
     Transfer from health insurance issuers to the federal government of $50 million as risk adjustment
     user fees for 2023 (the amount will increase by $10 million from that previously estimated for 2020-2022)..
     Transfer from federal government of $15.3 million in premium tax credits to consumers enrolling
     through proposed special enrollment period.................................................................
     Health Insurance Providers Fees of approximately $100 million in 2023, which is a transfer from
     issuers to the federal government, and Employer Shared Responsibility Payments of $100 million per year
     between 2020 and 2023, which is a transfer from employers to the federal government........................
     Reductions in federal premium tax credit spending of approximately $900 million in 2020 and 2021,
     and $1 billion in 2022 and 2023, which is a transfer from consumers to the federal government..............
     Between 2020 and 2023, net premium increases of approximately 1 percent or $181 million in
     additional net premiums per year, which is a transfer from consumers and the federal government to issuers.
----------------------------------------------------------------------------------------------------------------
Qualitative:
     The net effects on premiums based on proposed changes at Sec.   156.130(h) is uncertain............
     Potential increase in federal and state uncompensated care costs as a result of lower Exchange
     enrollment due to the change in the method of calculating the premium adjustment percentage................
----------------------------------------------------------------------------------------------------------------

    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 and temporary risk 
corridors programs ended after the 2016 benefit year. Therefore, the 
costs associated with those programs are not included in Tables 14 or 
15 for fiscal years 2020-2023. Table 15 summarizes the effects of the 
risk adjustment program on the federal budget from fiscal years 2019 
through 2023, with the additional, societal effects of this proposed 
rule discussed in this RIA. We do not expect the provisions of this 
proposed rule to significantly alter CBO's estimates of the budget 
impact of the risk adjustment program that is described in Table 15. 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 proposed rule (Table 14).
    In addition to utilizing CBO projections, HHS conducted an internal 
analysis of the effects of its regulations on enrollment and premiums. 
Based on this internal analysis, we anticipate that the quantitative 
effects of the provisions proposed in this rule are consistent with our 
previous estimates in the 2019 Payment Notice for the impacts 
associated with the APTC, the premium stabilization programs, and FFE 
user fee requirements.

[[Page 301]]



  Table 15--Estimated Federal Government Outlays and Receipts for the Risk Adjustment Programs From Fiscal Year
                                        2019-2023, in Billions of Dollars
----------------------------------------------------------------------------------------------------------------
               Year                     2019         2020         2021         2022         2023      2019-2023
----------------------------------------------------------------------------------------------------------------
Risk Adjustment Program Payments..            5            6            6            6            7           30
Risk Adjustment Program                       5            6            6            7            7           31
 Collections *....................
----------------------------------------------------------------------------------------------------------------
Note 1: Risk adjustment program payments and receipts lag by one quarter. Receipts 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:
  2018 to 2028 Table 2. May 2018. Available at https://www.cbo.gov/system/files?file=2018-06/51298-2018-05-healthinsurance.pdf.

1. Guaranteed Renewability of Coverage (Parts 146, 147, and 148)
    In Sec. Sec.  146.152, 147.106, and 148.122, we propose to allow 
issuers to make certain mid-year formulary changes in an effort to 
optimize the use of new generic drugs as they become available. At 
Sec. Sec.  146.152(f)(5), 147.106(e)(5), and 148.122(g)(5), we propose 
to allow issuers, subject to applicable state law, to remove the brand 
name drug from the formulary or move it to a higher cost-sharing tier 
when a generic equivalent becomes available and is added to the 
formulary. In the Collection of Information section of this proposed 
rule, we estimate the cost to issuers to provide the related notices. 
We believe that allowing issuers to make mid-year formulary changes 
will result in curbing the cost of prescription drug coverage.
2. Risk Adjustment
    The risk adjustment program is a permanent program created by 
section 1343 of the PPACA that transfers funds from issuers with lower-
than-average risk populations to issuers with higher-than-average risk 
populations in the individual, small group and merged markets, (as 
applicable) inside and outside the Exchanges. We established standards 
for the administration of the risk adjustment program in subparts A, B, 
D, G, and H of 45 CFR part 153.
    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. Consistent with 45 CFR 153.610(f), 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 2020 benefit year, 
we estimate that the total cost for HHS to operate the risk adjustment 
program on behalf of all states would be approximately $50 million, and 
that the risk adjustment user fee would be approximately $2.16 per 
billable member per year. The updated cost estimates attribute all 
costs related to the EDGE server data collection and data evaluation 
(quantity and quality evaluations) activities to risk adjustment alone 
rather than sharing them with the reinsurance program, which is no 
longer operational. Previously, we had collected amounts for 
reinsurance administrative expenses which would partially fund 
contracts that were used for both the risk adjustment and reinsurance 
programs. Now, those costs are borne by the risk adjustment program 
alone. Additionally, based on experience with the risk adjustment data 
validation program development and execution, including development of 
the new risk adjustment data validation audit tool and additional 
contractor support for processing risk adjustment data validation 
discrepancies and appeals, we estimate higher costs associated with the 
risk adjustment data validation program. Finally, we are incorporating 
the full amount of eligible personnel and administrative costs 
associated with risk adjustment program development and operations, 
including indirect costs, in the risk adjustment user fee for the 2020 
benefit year. The personnel and administrative costs included in the 
calculation of the 2019 benefit year risk adjustment user fees in the 
2019 Payment Notice final rule incorporated only a portion of the 
eligible personnel costs, and excluded indirect costs. Finally, we 
estimated similar billable member month enrollment for the 2020 benefit 
year as the most recent 2017 benefit year individual and small group 
market enrollment.
    We believe that the proposed approach of blending the coefficients 
calculated from the 2016 and 2017 benefit year enrollee-level EDGE data 
with the 2017 MarketScan[supreg] data would provide stability within 
the risk adjustment program and minimize volatility in changes to risk 
scores from the 2019 benefit year to the 2020 benefit year due to 
differences in the datasets' underlying populations. We solicit comment 
on extracting state and rating area information that issuers already 
collect and upload to the EDGE servers. We believe these geographic 
data elements could better inform recalibration of the HHS-operated 
risk adjustment program, the AV Calculator and methodology, and other 
HHS programs for the individual and small group markets, as well as 
provide more useful information to researchers or other qualified 
requestors as to the state of the individual, small group and merged 
markets if included as part of the proposed EDGE enrollee-level limited 
data set. Furthermore, we propose to use the enrollee-level EDGE 
dataset and reports extracted from issuer EDGE servers to calibrate and 
operationalize HHS programs for the individual and small group 
(including merged) market programs, as well as to more broadly conduct 
policy analysis for the individual and small group (including merged) 
markets.
3. Risk Adjustment Data Validation (Sec.  153.630)
    Under Sec.  153.630, we are proposing several changes to the 
requirements for risk adjustment data validation. Beginning with the 
2019 benefit year of risk adjustment data validation,\158\ we propose 
to vary the initial validation audit sample size based on HCC failure 
rates, sampled precision, and issuer size. We also outline an 
alternative proposal that would vary sample size by issuer size only, 
and we are considering permitting issuers of any size and with any HCC 
failure rate to request a larger sample size.
---------------------------------------------------------------------------

    \158\ Activities related to the 2019 benefit year risk 
adjustment data validation will generally begin in the second 
quarter of the 2020 calendar year.
---------------------------------------------------------------------------

    In the Collection of Information section of this proposed rule, we 
estimate the increase in administrative burden that could result from 
all of the approaches under consideration to vary the initial 
validation audit sample size. We note that, in certain cases, while the 
administrative burden would increase as an issuer's sample size 
increases, we believe that any increase in sample sizes would produce 
more precise risk adjustment data validation results which are used to 
adjust risk scores and

[[Page 302]]

associated risk adjustment transfers. While this could affect the data 
validation adjustments to risk adjustment transfers for an individual 
issuer, we do not expect an impact on aggregate risk adjustment 
transfer adjustments based on HCC failure rates as a result of the 
proposed modifications to the initial validation audit sample size 
methodology.
    Because issuers are already required to provide the initial and 
second validation audit entities with all documentation necessary to 
complete the audits, the proposed changes to the pairwise means test 
that would increase the second validation audit sample to the full 200 
enrollee sample size in certain cases would not increase burden on 
issuers, as the second validation audit is conducted by HHS, not 
issuers. Instead, we believe that increasing the second validation 
audit sample size to the full initial validation sample of 200 
enrollees, in certain cases, may increase the costs to the federal 
government of conducting the second validation audit, but we also 
believe that the benefits from improving the process for validating the 
second validation audit results and the accompanying precision it would 
bring to risk score error rate adjustments would outweigh the increased 
costs to the federal government and better ensure the integrity of the 
risk adjustment program.
    We believe that incorporating prescription drug categories in the 
error estimation methodology for risk adjustment data validation would 
add complexity, but revising this calculation would align risk 
adjustment data validation with the accompanying risk adjustment 
program requirements, as the HHS-operated risk adjustment methodology 
started incorporating prescription drug factors beginning with the 2018 
benefit year. The purpose of this proposed alignment would be to ensure 
that prescription drugs are being validated as part of risk adjustment 
data validation process. Because HHS calculates issuers' error rates, 
issuers will not incur additional expenses as a result of revisions to 
the error estimation calculation,\159\ but HHS and its second 
validation auditor will incur expenses to update its methodology and 
its calculation and make the necessary adjustments to systems to modify 
the procedures for calculating the error estimation.
---------------------------------------------------------------------------

    \159\ 45 CFR 153.630(b)(7)(iii) states that the risk score of 
each enrollee in the sample must be validated by, beginning with the 
2018 benefit year, validating enrollee health status through review 
of all relevant paid pharmacy claims. Under the 2018 Payment Notice 
(81 FR 94058 to 94105), we previously revised the estimated burden 
for reviewing and validating pharmacy claims for risk adjustment 
data validation.
---------------------------------------------------------------------------

    The exemptions in this proposed rule for risk adjustment data 
validation codify two policies finalized in the 2018 and 2019 Payment 
Notices and also include one new proposed exemption policy for issuers 
in or entering liquidation. The impact of the previously finalized 
exemptions was addressed in the 2018 and 2019 Payment Notices. We 
believe that the number of issuers that will qualify for the proposed 
exemption for issuers in liquidation will be very small each year, and 
therefore, we believe that the overall reduction in burden will be 
limited. However, those issuers that are exempted from risk adjustment 
data validation would have less burden and administrative costs than an 
issuer that is not exempt from these requirements.
4. Ability of States To Permit Agents and Brokers To Assist Qualified 
Individuals, Qualified Employers, or Qualified Employees Enrolling in 
QHPs (Sec.  155.220)
    In Sec.  155.220(c)(3)(i)(D)(1), we are proposing to require web-
brokers that would like assisters to be permitted to use their non-
Exchange websites when assisting with Exchange applications or QHP 
enrollments to display all QHP data provided by the Exchange consistent 
with the requirements of Sec.  155.205(b)(1) and (c). We are not 
proposing to require web-broker websites that assisters would be 
permitted to use to facilitate enrollment in all QHPs offered through 
the Exchange. However, web-broker websites that do not facilitate 
enrollment in all QHPs would be required to identify to consumers the 
QHPs, if any, for which the web-broker website does not facilitate 
enrollment by prominently displaying a standardized disclaimer, in the 
form and manner provided by the Exchange, stating that enrollment in 
such QHPs can be completed through the Exchange and providing a link to 
the Exchange. Consistent with the existing requirement at Sec.  
155.220(c)(i)(F), all web-brokers, including those that would like 
assisters to be permitted to use their non-Exchange websites, must 
provide consumers with the ability to withdraw from the entity's non-
Exchange website and use the Exchange at any time. We note that web-
brokers may obtain all QHP information they would be required to 
display for assisters to be permitted to use their non-Exchange 
websites in FFEs and SBE-FPs by integrating with the FFEs' Marketplace 
application programming interface (API). In combination with this 
proposal, we have proposed to reverse our prior policy prohibiting 
assisters from using web-broker websites to assist consumers in most 
circumstances. It is difficult to quantify the number of web-brokers 
that would modify their websites to permit assisters to use them or the 
number of assisters that would use web-broker websites. However, since 
both avenues are optional, we do not anticipate any negative impact on 
either community. Instead, we see this as increasing flexibility for 
both web-brokers and assisters, as well as creating the potential for 
new mechanisms for consumers to receive assistance with Exchange 
eligibility applications and QHP enrollments.
    In Sec.  155.220(c)(3)(i), we propose at new paragraph (c)(3)(i)(L) 
to prohibit web-brokers from displaying QHP recommendations on their 
websites based on compensation received from QHP issuers. Web-brokers 
often collect certain information from consumers and on the basis of 
that information display or sort QHPs, or apply a score to all 
available QHPs, indicating which QHP they believe is the best option 
for those consumers. We support the development and use of innovative 
consumer-assistance tools that may help consumers select QHPs that best 
fit their needs. However, we believe such recommendations should be 
based on information consumers have provided to web-brokers and not 
based on compensation received from QHP issuers when consumers enroll 
in their plans. We are not aware of any web-brokers currently 
recommending QHPs based on compensation received from QHP issuers, so 
we expect the impact of this proposal to be very limited. This proposal 
also helps support the use of web-broker websites by FFE and SBE-FP 
assisters to ensure assisters can continue to meet their statutory and 
regulatory obligations.
    In Sec.  155.220(c)(4)(i)(A), we propose to require web-brokers to 
provide HHS with a list of agents or brokers who, through a contract or 
other arrangement, use the web-brokers' websites to assist consumers 
with QHP selection or completion of the Exchange eligibility 
application, in a form or manner to be specified by HHS. The authority 
currently exists for HHS to obtain this information by request. 
However, due to the trend of increased use and expansion of direct 
enrollment pathways, we believe it is appropriate to collect this 
information proactively, so that we may respond more efficiently and 
effectively to any potential instances of noncompliance that may 
involve agents or brokers using a web-broker's direct enrollment 
pathway.

[[Page 303]]

Having this information will, for example, enable us to identify more 
quickly whether noncompliance is attributable to a specific individual 
or individuals, instead of the web-broker entity. We anticipate 
releasing guidance that would require the list to include, at minimum, 
each agent's or broker's name, state(s) of licensure, and National 
Producer Number. We believe the burden associated with this data 
collection will be relatively limited, as we understand that web-
brokers collect and store this information as part of their normal 
business operations to identify individual agents or brokers utilizing 
their systems. The burden related to this provision is discussed 
previously in the Collection of Information Requirements section.
    In Sec.  155.220(g)(3)(ii), we propose to allow HHS to immediately 
terminate an agent's or broker's agreement if the agent or broker fails 
to maintain applicable state licensure as an agent, broker, or 
insurance producer in every state in which the agent or broker actively 
assists consumers with applying for APTC or CSRs or with enrolling in 
QHPs through the FFEs or SBE-FPs. State licensure for agents and 
brokers in every state in which they are assisting consumers is a 
fundamental consumer protection and critical for program integrity. It 
has been a requirement in the FFE agreements with agents and brokers 
since the inception of the FFEs, and is adhered to by the overwhelming 
majority of agents and brokers. Therefore, we believe the impact of 
this provision on agents and brokers would be minimal, but the proposal 
would benefit consumers who might otherwise interact with unlicensed 
individuals and would improve Exchange program integrity.
    In Sec.  155.220(k), we are proposing to add a new paragraph (k)(3) 
that would allow HHS to immediately suspend an agent's or broker's 
ability to transact information with the Exchange if HHS discovers 
circumstances that pose unacceptable risk to Exchange operations or 
Exchange information technology systems until the incident or breach is 
remedied or sufficiently mitigated to HHS's satisfaction. This proposed 
language is identical to an existing provision intended to apply to 
web-brokers at Sec.  155.220(c)(3)(i)(L) and a similar provision 
applicable to QHP issuers participating in direct enrollment at Sec.  
156.1230(b)(1). Those provisions are proposed to be replaced with a 
very similar new requirement that would apply to both types of direct 
enrollment entities in proposed Sec.  155.221(d). Because the potential 
risks posed by agents and brokers with access to FFE systems are 
similar to those posed by web-brokers and QHP issuers participating in 
direct enrollment, we believe this change is necessary to provide a 
uniform process and ability to protect Exchange systems and operations 
from unacceptable risks, as well as to protect sensitive consumer data. 
We note that agents and brokers whose ability to transact information 
with the Exchange is suspended under this proposed authority would 
remain registered and authorized to assist consumers using the 
Marketplace (or side-by-side) pathway, unless and until their 
agreements were suspended or terminated under Sec.  155.220(f) or (g). 
We believe this proposed authority would be used infrequently and only 
in cases where there would likely be the reasonable basis to suspend 
their agreements under Sec.  155.220(g)(5)(i) but there is a need to 
take immediate action to protect sensitive consumer data or Exchange 
systems and operations. Therefore its effect on agents and brokers is 
expected to be relatively limited.
    In Sec.  155.220(m)(1), we propose to allow a web-broker's 
agreement to be suspended or terminated for cause under Sec.  
155.220(g), and a web-broker to be denied the right to enter into 
agreements with the FFEs under paragraph (k)(1)(i) of this section 
based on the actions of its officers, employees, contractors, or 
agents, even if those persons are not agents or brokers registered with 
the FFE. In Sec.  155.220(m)(2), we propose to allow a web-broker's 
agreement to be suspended or terminated under Sec.  155.220(g), and for 
the entity to be denied the right to enter into agreements with the 
FFEs under Sec.  155.220(k)(1)(i), if it is under the common ownership 
or control, or is an affiliated business, of another web-broker that 
has had its agreement suspended or terminated for cause. We expect 
these provisions to have limited impact, as they are designed to 
protect program integrity and will only be utilized in limited cases 
when there is evidence of significant misconduct or non-compliance. In 
those cases, we anticipate benefits to consumers stemming from our 
enhanced ability to address program integrity concerns and non-
compliance issues. In Sec.  155.220(m)(3), we propose to require the 
Exchange to collect information from a web-broker sufficient to 
establish the identities of individuals who comprise its corporate 
leadership and to determine any business relationships with other 
entities that may seek to register with the Exchange as web-brokers. 
These provisions are also intended to protect program integrity by 
enabling the Exchange to have information necessary to determine if any 
individuals seeking to be web-brokers are attempting to circumvent a 
previous termination or suspension for cause of an FFE agreement(s). 
The burden related to this provision is discussed previously in the 
Collection of Information Requirements section.
5. Direct Enrollment (Sec. Sec.  155.20, 155.220, 155.221, 155.415, 
156.1230)
    The proposed changes to Sec.  155.220 are discussed above. In Sec.  
155.221, we propose to amend and redesignate the existing paragraphs 
(a), (b) and (c) to new proposed paragraphs (e), (f), and (g). In 
proposed new Sec.  155.220(e), we propose to add language to require 
that the third-party entities that conduct annual reviews of direct 
enrollment entities to demonstrate operational readiness consistent 
with newly proposed Sec.  155.221(b)(4) \160\ be independent of the 
entities they are auditing. We are proposing this change because we 
believe an independent audit is less likely to be influenced by a 
direct enrollment entity's business considerations and therefore is 
more reliable. We expect no impact from this provision as it was 
included as a requirement in the agreements we executed with direct 
enrollment entities subject to these audits for plan year 2019. We also 
propose to clarify in proposed Sec.  155.221(e) that an initial audit 
is required, in addition to subsequent annual audits. This 
clarification does not represent a change from the current approach, as 
direct enrollment entities are currently required to demonstrate 
operational readiness before their websites may be used to complete QHP 
selections.\161\ Therefore we anticipate no impact of this proposed 
change. In proposed Sec.  155.221(f), we propose to require that a 
written agreement must be executed between a direct enrollment entity 
and its auditor stating that the auditor will comply with the 
requirements of paragraph (f). We are proposing this new requirement 
because we believe the most effective way to ensure a direct enrollment 
entity has the necessary control and oversight over its auditor to 
ensure compliance with the applicable standards in Sec.  155.221 is for 
those standards to be memorialized in a written agreement. We expect 
most, if

[[Page 304]]

not all, direct enrollment entities already execute written agreements 
with their contractors that would incorporate any regulatory 
requirements that fall within the scope of the work the contractor is 
performing for the entity, so we expect little to no impact from this 
proposed change.
---------------------------------------------------------------------------

    \160\ Direct enrollment operational readiness review 
requirements are currently captured at 45 CFR 155.220(c)(3)(i)(K) 
for web-brokers and 156.1230(b)(2) for QHP issuers.
    \161\ See 45 CFR 156.1230(b)(2) for issuers participating in 
direct enrollment and 45 CFR 155.220(c)(3)(i)(K) for web-brokers.
---------------------------------------------------------------------------

    In the new Sec.  155.221(a), we propose to codify in regulation the 
types of entities the FFEs will permit to offer non-Exchange websites 
to facilitate direct enrollment in coverage offered through the 
Exchange in a manner that is considered to be through the Exchange. 
There are two types of entities that are authorized by the FFEs to 
offer direct enrollment pathways: QHP issuers and web-brokers. We 
expect this provision to have little or no impact as QHP issuers and 
web-brokers are already authorized by the FFEs to participate in direct 
enrollment.
    In the new Sec.  155.221(b), we propose to establish and 
consolidate certain requirements that apply to all direct enrollment 
entities. Specifically, we propose to add in Sec.  155.221(b)(1) that 
QHPs and non-QHPs must be displayed and marketed on separate website 
pages on the direct enrollment entity's non-Exchange website. We 
consider this a clarification of existing standards that would have 
minimal impact on direct enrollment entities, and would minimize the 
chance that consumers are confused by the display or marketing of QHPs 
and non-QHPs on a single website page. In the new Sec.  155.221(b)(2) 
we propose to require the prominent display of a standardized 
disclaimer in a form and manner provided by HHS. Similar uniform 
disclaimer requirements already exist for all direct enrollment 
entities. As a result, and because we will provide the disclaimer text, 
we expect the overall impact of this provision to be minimal. In the 
new Sec.  155.221(b)(3), we propose to limit the marketing of non-QHPs 
during the Exchange eligibility application and QHP selection process 
on direct enrollment entities' websites in a manner that minimizes the 
likelihood that consumers will be confused as to what products are 
available through the Exchange and what products are not. This will 
also assist consumers in understanding the applicability of APTC and 
CSRs that they may be eligible for. Most direct enrollment entities 
have refrained from marketing non-QHPs in conjunction with QHPs citing 
a lack of clear guidance. Therefore we expect the impact of this 
provision to be minimal, and to be perceived as allowing increased 
flexibility. In the new Sec.  155.221(b)(4), we propose to consolidate 
a provision requiring direct enrollment entities demonstrate 
operational readiness and compliance with applicable requirements prior 
to the entities' websites being used to complete an Exchange 
eligibility application or a QHP selection. Because this is an existing 
requirement, we expect no impact.
    In the new Sec.  155.221(c), we propose that the authority to use 
application assisters and the corresponding requirements when doing so 
apply for all issuers and direct enrollment entities and not solely QHP 
issuers. We have proposed a new definition of ``direct enrollment 
entity application assister'' in Sec.  155.20 that mirrors the existing 
definition of ``issuer application assister'', as well as amendments to 
Sec.  155.415 to capture the requirements for entities using 
application assisters that align with the existing requirements 
currently in Sec.  156.1230(a)(2) for QHP issuer application assisters. 
We do propose one significant deviation from the existing requirements 
for application assisters. Currently, Sec.  156.1230(a)(2)(i) requires 
all application assisters to receive training on QHP options and 
insurance affordability programs, eligibility, and benefits rules and 
regulations. Licensed agents and brokers currently assisting consumers 
with QHP enrollment through the FFEs or SBE-FPs must have credentials 
to access FFE systems to offer that assistance. Those credentials are 
obtained during the FFE registration and training processes for agents 
and brokers. For application assisters to have similar access to FFE 
systems, so that they are also able to assist consumers as described 
here and in the preamble above, they would need credentials similar to 
those obtained by agents and brokers during FFE registration and 
training. Therefore, we propose to require that application assisters 
providing assistance in the FFEs and SBE-FPs comply with this training 
requirement by completing a similar registration and training process, 
in a form and manner to be specified by HHS, so that they would have 
the necessary credentials to provide consumer assistance. This proposed 
new training and registration requirement for application assisters is 
captured in the new proposed Sec.  155.415(b)(1). The burden placed on 
application assisters to complete the FFE training may exceed what may 
have otherwise existed if direct enrollment entities were developing 
and managing their own training programs. However, by requiring the FFE 
training to be completed by application assisters assisting consumers 
in the FFEs and SBE-FPs, it would relieve direct enrollment entities 
from the burdens associated with having to develop and manage their own 
training programs. Importantly, FFE systems would require this approach 
to comply with system security requirements and to enable application 
assisters to meaningfully be able to assist consumers in the FFEs and 
SBE-FPs. Therefore, taken together, we believe the net burden 
associated with this proposal would be minimal and would be acceptable 
to participating direct enrollment entities that elect to use 
application assisters, when permitted under state law. The reason we 
believe the net burden would be minimal is because the bulk of time 
associated with application assisters completing the training 
requirement would likely be comparable whether the training is 
developed and administered by direct enrollment entities or by HHS. 
However, there would likely be a small increase in the amount of time 
application assisters would have to devote to the registration process 
apart from training, specifically to creating an FFE account and 
completing identity proofing. In contrast, there would likely be a 
substantial reduction in burden on direct enrollment entities, because 
they would not have to develop and manage their own training programs. 
Instead they would be able to simply confirm their application 
assisters have completed the FFE registration and training process.
    We estimate allowing QHP issuers to use application assisters in 
the FFEs and SBE-FPs, and expanding that option to other issuers and 
web-brokers will provide cost savings to these entities. It is 
difficult to precisely estimate the number of applications for which a 
direct enrollment entity application assister provided help may be 
submitted. However, based on available data, we estimate that 
approximately 980,000 agent or broker-assisted direct enrollment 
applications will be submitted in plan year 2019. We estimate that it 
would take an insurance sales agent \162\ (at an hourly rate of $64.42) 
one hour to complete an application. We do not have information related 
to the number of states that would allow for unlicensed application 
assisters, as well as how many direct enrollment entities would hire 
application assisters or train existing staff as application assisters. 
Therefore, we estimate that half of assisted direct enrollment 
applications would be completed with the assistance of an

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application assister instead of an agent or broker. Based on these 
assumptions, we estimate that it would take an insurance claims and 
policy processing clerk \163\ (at an hourly rate of $39.52) one hour to 
complete each application. Thus, we estimate that the applications for 
490,000 applicants would result in an estimated total burden of 
approximately 490,000 hours with an associated cost of approximately 
$19,364,800. If the applications are completed by an agent or broker 
instead, the total cost would be approximately $31,565,800. Based on 
these assumptions, we estimate an overall annual savings of 
approximately $12.2 million for direct enrollment entities using 
application assisters instead of only agents or brokers. In addition, 
we expect that the time that agents or brokers may otherwise have spent 
assisting consumers with their eligibility applications would often 
instead be devoted to assisting more consumers with plan selection and 
finalizing their enrollments. As a result, we expect this policy may 
also result in an overall increase in enrollment through the FFEs and 
SBE-FPs. Lastly, these proposals provide increased flexibility and a 
level playing field to all direct enrollment entities and issuers.
---------------------------------------------------------------------------

    \162\ Bureau of Labor Statistics mean hourly wage for an 
Insurance Sales Agent (Occupational Code 41-3021) at $32.21 an hour, 
plus 100 percent fringe.
    \163\ Bureau of Labor Statistics mean hourly wage for an 
Insurance Claims and Policy Processing Clerk (Occupational Code 43-
9041) at $19.76 an hour, plus 100 percent fringe.
---------------------------------------------------------------------------

    In the new Sec.  155.221(d), we propose to consolidate existing 
authority to immediately suspend a direct enrollment entity's ability 
to transact information with the Exchange if HHS discovers 
circumstances that pose unacceptable risk to the Exchange's ability to 
make accurate eligibility determinations, or Exchange operations or 
systems until such circumstances are remedied or sufficiently mitigated 
to HHS's satisfaction. We expect little or no impact from this 
proposal, since this is largely based on an existing authority.
    We also propose to codify new definitions for the following terms 
in Sec.  155.20: Direct enrollment entity, direct enrollment technology 
provider, and web-broker. We propose to define ``direct enrollment 
entity'' as an entity that an Exchange permits to assist consumers with 
direct enrollment in QHPs offered through an Exchange in a manner 
considered to be through the Exchange as authorized by Sec. Sec.  
155.220(c)(3), 155.221, or 156.1230. We expect no impact from this 
proposal as it merely codifies a definition for the term in such a way 
that the entities that are currently authorized by the FFE to host a 
direct enrollment pathway are direct enrollment entities. We also 
propose to amend Sec.  155.20 to define ``direct enrollment technology 
provider'' as a type of web-broker business entity that is not a 
licensed agent, broker, or producer under state law and has been 
engaged or created by, or is owned by, an agent or broker, to provide 
technology services to facilitate participation in direct enrollment as 
a web-broker in accordance with Sec. Sec.  155.220(c)(3) and 155.221. 
There may be instances when an individual agent or broker, a group of 
agents or brokers, or an agent or broker business entity engages the 
services of or creates a technology company that is not licensed as an 
agent or broker to assist with the development and maintenance of a 
non-Exchange website that interfaces with an Exchange to assist 
consumers with direct enrollment in QHPs offered through the Exchanges 
as described in Sec. Sec.  155.220(c)(3) and 155.221. In such cases, 
when the technology company is not itself licensed as an insurance 
agency or brokerage, we propose that these technology companies will be 
considered a type of web-broker that must comply with applicable web-
broker requirements under Sec. Sec.  155.220 and 155.221, unless noted 
otherwise. We expect no new burden associated with this requirement as 
it merely allows some flexibility in terms of how licensed agents or 
brokers may organize their businesses or pursue business relationships 
when seeking to become web-brokers. We also propose to codify a 
definition of ``web-broker'' as an individual agent or broker, group of 
agents or brokers, or business entity registered with an Exchange under 
Sec.  155.220(d)(1) that develops and hosts a non-Exchange website that 
interfaces with an Exchange to assist consumers with direct enrollment 
in QHPs offered through the Exchanges as described in Sec. Sec.  
155.220(c)(3) and 155.221. As explained in the preamble, we also 
propose to define the term ``web-broker'' to generally include direct 
enrollment technology providers. Importantly, if this definition is 
finalized as proposed it would replace HHS's current web-broker 
definition, which is slightly different. However, we expect no impact, 
because all existing web-brokers would fall within the new proposed 
definition of web-broker.
    Conforming edits are also proposed to Sec.  156.1230 as part of the 
effort to streamline and consolidate similar requirements that apply to 
all direct enrollment entities in one regulation. We propose to amend 
Sec.  156.1230(b) to add a new paragraph (b)(1) that requires issuers 
participating in direct enrollment to comply with the applicable 
requirements in Sec.  155.221. There were minimal substantive changes 
to the underlying requirements applicable to issuers participating in 
direct enrollment. We therefore expect no new impact to issuers except 
to the extent previously discussed. We also propose to delete and 
reserve Sec.  156.1230(a)(2) to align with the changes, described 
above, to Sec.  155.415 regarding application assisters.
6. Consumer Assistance Tools and Programs of an Exchange (Sec.  
155.205)
    Since implementing the direct-to-issuer enrollment system in plan 
year 2018, we have seen a marked decrease (greater than fifty percent 
(50 percent) in SHOP Call Center volume of calls. We anticipate that 
the SHOP Call Center volume would continue to decrease in plan year 
2020, as employers would be in the third year of enrolling with 
issuers, often with the assistance of agents and brokers. In addition, 
agents and brokers and small employers can now resolve most issues 
directly with impacted issuers using well-established issuer call 
centers and small group processes unique to each market. We would 
anticipate minimal number of new appeals of SHOP eligibility and SEPs 
given anticipated employer participation and our observation that very 
few employers ever appeal SHOP determinations.
    In short, we would maintain a toll-free telephone hotline that the 
statute requires (at present 12 full-time equivalent employees are 
devoted to SHOP Call Center operations). We envision minimal contractor 
and staff support to maintain the hotline content and to respond to 
very few voicemail messages. Although we would maintain language 
translation service and incur the associated costs, we anticipate that 
such costs would be minimal given call volume and historical 
information. Moving to an interactive voice response system would 
eliminate staffing for 12 full-time equivalent employees required at 
the call center under the SHOP Plan Aggregate and Call Center contract 
and would provide a net savings to the government of approximately $2 
million annually.
7. Navigator Program Standards (Sec. Sec.  155.210 and 155.215)
    We propose to provide more flexibility to FFE Navigators by making 
the provision of certain types of assistance, including post-enrollment 
assistance, permissible for FFE Navigators, not required. The proposal 
to amend Sec.  155.210 to remove the requirement that Navigators in 
FFEs

[[Page 306]]

provide the assistance specified at Sec.  155.210(e)(9) would reduce 
regulatory burden and allow FFE Navigators to better prioritize work 
according to consumer demand, community needs, and organizational 
resources. Under the proposal, Navigators in FFEs may continue to 
provide the types of assistance listed at Sec.  155.210(e)(9), but 
would not be required to do so.
    The time FFE Navigators currently spend providing assistance with 
the Sec.  155.210(e)(9) topics varies. To help quantify this burden 
reduction, we request comment on how many hours per month FFE Navigator 
grantees and individual Navigators currently spend providing the 
assistance activities in Sec.  155.210(e)(9), what percentage of their 
current work involves providing these types of assistance, and how that 
amount of work would be impacted if providing these types of assistance 
would no longer be required. We also request comment on how Navigator 
grantees and individual Navigators might reprioritize work and spend 
time fulfilling their other duties, if not required to provide the 
types of assistance described under Sec.  155.210(e)(9). In particular, 
we seek comment on what tasks Navigators might prioritize and complete 
during the time they otherwise might have provided these types of 
assistance. Examples of how Navigators might elect to reprioritize work 
and fulfill duties, may include activities such as assisting consumers 
enroll in health coverage or conducting outreach and education in the 
community. We anticipate this may include many other activities.
    Our proposal to amend Navigator training requirements at Sec.  
155.210(b)(2) and Sec.  155.215(b)(2) would provide greater flexibility 
to Exchanges in designing their Navigator training programs to ensure 
coverage of the most instructive and timely topics in a streamlined 
fashion and to align the training with future changes in the Navigator 
program or the operation of the Exchanges, while still ensuring that 
Navigators are qualified to carry out their activities as required by 
the Navigator statute and regulations. This additional flexibility 
would allow Exchanges to focus on training areas they determine to be 
most relevant to the populations in the Exchange service area, while 
still addressing all required or authorized Navigator functions. 
Because it would provide greater flexibility to tailor the training to 
current, local conditions in each Exchange, the revised approach might 
also help to ensure cost-effective use of Exchange Navigator funding.
    Moreover, we believe these changes would also grant greater 
flexibility to SBEs, including SBE-FPs, in designing their respective 
Navigator training, since under our proposal, SBEs that decide to 
authorize or require their Navigators to provide the assistance 
specified under Sec.  155.210(e)(9) would not have corresponding 
training topics prescribed, but would have the flexibility to decide 
how best to prepare their Navigators to provide such assistance. This 
is similar to the flexibility SBEs have for creating training for other 
required Navigator duties. We believe granting SBEs the flexibility to 
focus on the topics they find best suited to prepare their Navigators 
for assisting consumers would allow for a more effective training 
program, and would reduce the regulatory compliance burden on these 
Exchanges.
    However, the burden reduction that this proposal would achieve 
cannot be estimated since these changes are not intended to reduce the 
total number of hours of Navigator training annually and we are 
uncertain how each Exchange would choose to structure its respective 
Navigator training given this increase in flexibility. We continue to 
believe that each Exchange is in the best position to determine the 
training that is appropriate for the activities of its Navigators.
8. Special Enrollment Periods (Sec.  155.420)
    We anticipate the proposals to amend Sec.  155.420 would impose 
moderate costs on Exchanges that opt to implement the proposed special 
enrollment period to update their user interfaces and make changes to 
their eligibility systems, but also acknowledge that Exchanges may 
choose to offer the special enrollment period through their call center 
or other existing enrollment avenues that could greatly reduce 
implementation costs to an Exchange. Additionally, we anticipate that 
verification requirements would impose costs relating to special 
enrollment period pre-enrollment verification systems, caseloads, and 
consumer messaging for Exchanges that perform pre-enrollment 
verification of special enrollment period eligibility. We expect 
utilization of the special enrollment period may vary among Exchanges 
depending on total Exchange enrollment and Exchange plan rates and 
pricing practices. Given these variable factors, we are not providing a 
quantitative cost estimate at this time and request comments regarding 
anticipated costs, benefits and implementation approaches among 
Exchanges to assist in forming a future estimate.
    We do not anticipate this proposal would significantly increase 
regulatory burden on issuers, but acknowledge issuers may encounter 
marginal costs associated with processing new enrollments and 
terminations related to the special enrollment period, and direct 
enrollment entities may also face minor implementation costs associated 
with updating their applications and systems to include the new special 
enrollment period. We estimate that it would take a mid-level software 
developer \164\ (at an hourly rate of $107.48) approximately 10 hours 
to make the required modifications to the direct enrollment entity's 
applications and system logic. We estimate a one-time cost burden of 
approximately $1,075 per direct enrollment entity. We further estimate 
a total one-time burden for 35 direct enrollment entities would be 
approximately 350 hours with an equivalent cost of approximately 
$37,618.
---------------------------------------------------------------------------

    \164\ Bureau of Labor Statistics mean hourly wage for a Software 
Developer, Systems Software (Occupational Code 15-1133) at $53.74 an 
hour, plus 100 percent fringe.
---------------------------------------------------------------------------

    Because this policy provides improved pathways to continuous 
coverage for special enrollment period-eligible consumers, we 
anticipate that the proposal would promote continuous coverage for 
consumers and thereby have a positive effect on the individual market 
risk pool. Additionally, we anticipate that eligible consumers may 
experience reduced out-of-pocket costs related to health care expenses 
resulting from access to more affordable health plans and a new pathway 
to maintaining continuous health care coverage, compared to if they had 
to drop out of off-Exchange coverage and pay out-of-pocket for all 
health care expenses incurred for the remainder of the year. We 
estimate that approximately 4,700 new consumers would use this special 
enrollment period on an annual basis to enroll in Exchange coverage, 
and that these consumers would be enrolled in an average of six months 
of Exchange coverage during the benefit year. Using the plan year 2019 
average monthly APTC amount of $544, we estimate total APTC transferred 
to consumers as a result of the proposed special enrollment period 
would be approximately $15,340,800 annually.\165\
---------------------------------------------------------------------------

    \165\ ASPE ``2019 Health Plan Choice and Premiums in 
HealthCare.gov states.'' https://aspe.hhs.gov/system/files/pdf/260041/2019LandscapeBrief.pdf.
---------------------------------------------------------------------------

    We invite comments on the potential costs and savings to Exchanges, 
issuers,

[[Page 307]]

direct enrollment entities, and consumers associated with the proposed 
special enrollment period.
9. Eligibility Standards for Exemptions (Sec.  155.605)
    We do not anticipate that the proposed amendment to Sec.  
155.605(e) would create additional costs or burdens on Exchanges, and 
we anticipate it would decrease burden on consumers. The addition of 
Sec.  155.605(e)(5) would enable individuals to claim a general 
hardship exemption on their federal income taxes for 2018 without an 
exemption certificate number from an Exchange. This policy would allow 
for more flexibility and would not result in any additional costs or 
burdens for issuers. The reduction in burden to consumers is discussed 
previously in the Collection of Information Requirements section.
10. FFE and SBE-FP 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 or SBE-FP. In this proposed rule, for the 
2020 benefit year, we propose an FFE user fee rate of 3.0 percent of 
the monthly premium, and SBE-FP user fee rate of 2.5 percent of the 
monthly premium. We estimate similar FFE and SBE-FP user fee transfers 
as those estimated for prior benefit years, and therefore, we are 
proposing no changes to transfers from issuers to the federal 
government due to the proposed lower FFE and SBE-FP user fee rates.
11. Prescription Drug Benefit (Sec.  156.122)
    At new Sec.  156.122(d)(3), we propose that for plan years 
beginning on or after January 1, 2020, QHP issuers in the FFEs would be 
required to notify HHS annually in an HHS-specified format of any mid-
year formulary changes made in the prior plan year consistent with the 
proposed changes to Sec.  147.106(e). If finalized, we recognize that 
this proposal would increase issuers' burden due to an additional 
reporting requirement. However, we believe that the additional burden 
would be minimal. Issuers would only be required to submit changes to 
their formulary, and some issuers may not make changes or may have 
minimal changes to report. Finally, issuers would only be required to 
submit formulary changes yearly, and the submission process would be 
aligned with other submission processes.
12. Prohibition on Discrimination (Sec.  156.125)
    In the preamble to Sec.  156.125, we discuss a potentially 
discriminatory benefit design under Sec.  156.125: The exclusion of MAT 
drugs for the treatment of opioid use disorder while covering the same 
drugs for other medically necessary purposes, such as analgesia or 
alcohol use disorder. Because we are not proposing a change to policy, 
we do not anticipate any additional burden on states or issuers. 
However, to the extent this clarification causes issuers to cease 
prohibited discriminatory practices, the clarification could help 
consumers obtain needed MAT, lead to better health outcomes, and reduce 
the burden and out-of-pocket costs individuals may have otherwise 
incurred in attempts to obtain MAT.
13. Provisions Related to Cost-Sharing (Sec.  156.130)
    We propose a premium adjustment percentage of 1.2969721275 for the 
2020 benefit year, including a proposed change to the premium measure 
for calculating the premium adjustment percentage. Under Sec.  
156.130(e), we propose to use average per enrollee private health 
insurance premiums (excluding Medigap and property and casualty 
insurance), instead of employer-sponsored insurance premiums, which 
were used in the calculation for previous benefit years, for purposes 
of calculating the premium adjustment percentage for the 2020 benefit 
year. The annual premium adjustment percentage sets the rate of 
increase for several parameters detailed in the PPACA, including: 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 (defined at Sec.  
155.605(d)(2)), and the employer shared responsibility payments under 
sections 4980H(a) and 4980H(b) of the Code.
    As explained earlier in the preamble, our proposal to use private 
health insurance premiums (excluding Medigap and property and casualty 
insurance) in the premium adjustment percentage calculation would 
result in a faster premium growth rate measure than if we continued to 
use employer-sponsored insurance premiums as was used for prior benefit 
years.
    To further elaborate on the potential impacts of this proposed 
policy change, in Sec.  155.605(d)(2), we propose a required 
contribution of 8.39 percent using the proposed premium adjustment 
percentage in Sec.  156.130, whereas we would have proposed a required 
contribution of 8.18 percent if employer-sponsored insurance premiums 
continued to be used in the premium adjustment percentage calculation 
for the 2020 benefit year.\166\ In Sec.  156.130(a)(2), we propose a 
maximum annual limitation on cost sharing of $8,200 for self-only 
coverage, whereas we would have proposed a maximum annual limitation on 
cost sharing of $8,000 for self-only coverage if employer-sponsored 
insurance premiums continued to be used in the premium adjustment 
percentage calculation for the 2020 benefit year. The CMS Office of the 
Actuary estimates that the proposed change in methodology for the 
calculation of the premium adjustment percentage may have the following 
impacts between 2019 and 2023: \167\
---------------------------------------------------------------------------

    \166\ As explained in Sec.  155.605(d)(2), for plan years after 
2014, section 5000A(e)(1)(D) of the Code and Treasury regulations at 
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. Refer to Sec.  155.605(d)(2) for the calculations for 
the proposed required contribution of 8.39 percent for 2020. To 
calculate the required contribution we would have proposed of 8.18 
percent if employer-sponsored insurance premiums continued to be 
used in the premium adjustment percentage calculation for the 2020 
benefit year, we used employer-sponsored insurance premiums in the 
calculation: 8.00 * 1.0230638688 (1.2651426338/1.2366213610), or 
8.18 percent.
    \167\ CMS Office of the Actuary's estimates are based on their 
health reform model, which is an amalgam of various estimation 
approaches involving federal programs, employer-sponsored insurance, 
and individual insurance choice models that ensure consistent 
estimates of coverage and spending in considering legislative 
changes to current law.

[[Page 308]]



       Table 16--Impacts of Proposed Modifications to the 2020 Benefit Year Premium Adjustment Percentage
----------------------------------------------------------------------------------------------------------------
          Calendar year                2019            2020            2021            2022            2023
----------------------------------------------------------------------------------------------------------------
Exchange Enrollment Impact                   N/A            -100            -100            -100            -100
 (enrollees, thousands).........
Premium Impacts:
    Gross Premium Impact (change             N/A              0%              0%              0%              0%
     from 2018, %)..............
    Net Premium Impact (change               N/A              1%              1%              1%              1%
     from 2018, %)..............
Federal Impacts (dollars,
 millions):
    Premium Tax Credits                      N/A            -900            -900          -1,000          -1,000
     (million, $)...............
    Health Insurance Providers               N/A               0               0               0             100
     Fee Impact (million, $)....
    Employer Shared                          N/A             100             100             100             100
     Responsibility Payment
     Impact (million, $)........
                                 -------------------------------------------------------------------------------
        Total Federal Impact      ..............            -800            -800            -900            -800
         (million, $)...........
----------------------------------------------------------------------------------------------------------------

    As noted in Table 16, we expect that the proposed change in measure 
of premium growth used to calculate the premium adjustment percentage 
for the 2020 benefit year may result in:
     Net premium increases of approximately $181 million per 
year, which is approximately one percent of 2018 benefit year net 
premiums, for the 2020 through 2023 benefit years. Net premiums are 
calculated for Exchange enrollees as premium charged by issuers minus 
APTC.
     A decrease in federal PTC spending of $900 million in 2020 
and 2021, and $1 billion in 2022 and 2023, due to an increase in the 
PTC applicable percentage and a decline in Exchange enrollment of 
approximately 100,000 individuals in benefit year 2020, based on an 
assumption that the Department of the Treasury and the IRS will adopt 
the use of the same premium measure proposed for the calculation of the 
premium adjustment percentage in this rule for purposes of calculating 
the indexing of the PTC applicable percentage and the required 
contribution percentage under section 36B of the Code. We anticipate 
that enrollment may decline by 100,000 individuals in benefit year 
2020, and enrollment would remain lower by 100,000 individuals in each 
year between 2020 and 2023 than it would if there were no proposed 
change in premium measure for the premium adjustment percentage for the 
2020 benefit year.
     Increased Health Insurance Providers Fees on health 
insurance issuers of approximately $100 million in 2023, based on an 
assumption that the Department of the Treasury and the IRS would adopt 
the use of the same premium measure proposed for the calculation of the 
premium adjustment percentage in this rule for purposes of calculating 
the indexing of the Health Insurance Providers Fee. We anticipate that 
the Health Insurance Providers Fee would initially not be noticeably 
affected, but would increase in 2023 and beyond due to the cumulative 
indexing effect.
     Increased Employer Shared Responsibility Payments of $100 
million each year between 2020 and 2023.
    Some of the 100,000 individuals estimated to not enroll in Exchange 
coverage as a result of the proposed change in the measure of premium 
growth used to calculate the premium adjustment percentage may purchase 
short-term, limited-duration insurance, though a majority is likely to 
become uninsured. Either transition may result in greater exposure to 
health care costs, which previous research suggests reduces utilization 
of health care services.\168\ Economic distortions may be reduced, and 
economic efficiency and social benefits improved, because these 
individuals will be bearing a larger share of the costs of their own 
health care consumption, potentially reducing spending on health care 
services that are personally only marginally valued but that imposes 
costs on the federal government through subsidies. In addition, to the 
extent that this proposed rule reduces federal outlays and thereby 
reduces the need to collect taxes in the future, the distortionary 
effects of taxation on the economy may be reduced. However, the 
increased number of uninsured may increase federal and state 
uncompensated care costs. We seek feedback from stakeholders about 
these impacts and the magnitude of these changes.
---------------------------------------------------------------------------

    \168\ Manning, W. G., Newhouse, J. P., Duan, N., Keeler, E. B., 
& Leibowitz, A. (1987). Health insurance and the demand for medical 
care: evidence from a randomized experiment. The American economic 
review, 251-277; Keeler, E. B., & Rolph, J. E. (1988). The demand 
for episodes of treatment in the health insurance experiment. 
Journal of health economics, 7(4), 337-367; Finkelstein, A., et al. 
(2012). The Oregon health insurance experiment: evidence from the 
first year. The Quarterly journal of economics, 127(3), 1057-1106.
---------------------------------------------------------------------------

    As noted above, the premium adjustment percentage is the measure of 
premium growth that is used to set the rate of increase for the maximum 
annual limitation on cost sharing, defined at Sec.  156.130(a). In 
Sec.  156.130(a)(2), we propose a maximum annual limitation on cost 
sharing of $8,200 for self-only coverage. Additionally, we propose 
reductions in the maximum annual limitation on cost sharing for silver 
plan variations. Consistent with our analyses in previous Payment 
Notices, we developed three test silver level QHPs and analyzed the 
impact on their AVs of the reductions described in the PPACA to the 
estimated 2020 maximum annual limitation on cost sharing for self-only 
coverage. We do not believe the proposed changes to the reductions in 
the maximum annual limitation on cost sharing for silver plan 
variations would result in a significant economic impact.
    We propose two new policies at Sec.  156.130(h) which aim to reduce 
costs associated with coverage of in prescription drugs by giving 
health insurance issuers more flexibility in changing how drugs costs 
are counted toward the annual limitation on cost sharing. According to 
our research, we believe these new flexibilities will allow health 
insurance issuers to reduce premiums between 1.5 percent and 3 percent 
of drug spending with moderate variation by plan type, geography, or 
metal level. These estimates reflect an impact separate from the 
quantitative estimates above.
14. Provisions Related to Abortion Services (Sec.  156.280)
    In Sec.  156.280(c)(3), we propose that, beginning with plan year 
2020, QHP issuers that provide coverage of non-Hyde abortion services 
in one or more QHPs at any metal level in a particular service area 
must also provide at least one ``mirror QHP'' throughout that service 
area that provides otherwise identical benefits as one of the QHPs with 
non-Hyde abortion coverage, but that omits coverage of such services. 
This requirement would apply to the

[[Page 309]]

extent permitted by state law. To date, QHP issuers have not been 
required to offer such a plan.
    Based on 2018 QHP certification data in FFEs and SBE-FPs, we 
estimate that 15 issuers offered a total of 111 plans with coverage of 
non-Hyde abortion services in 7 states. In SBEs we estimate that 60 QHP 
issuers offered a total of approximately 1,000 plans offering non-Hyde 
abortion coverage across 10 SBEs. In total, this leads to an estimate 
of 75 QHP issuers offering a total of 1,111 plans covering non-Hyde 
abortion services across 17 states. Requiring issuers to offer mirror 
QHPs would require issuers offering coverage for non-Hyde abortion 
services to create at least one additional QHP that does not offer 
coverage for such services throughout each of their service areas in 
the Exchange where they offer QHPs covering non-Hyde abortion services. 
We believe that the proposal would attract potential customers who may 
find the benefits offered under the QHP attractive, but would not, on 
conscience grounds, purchase a QHP that includes coverage of non-Hyde 
abortion services.
    However, we recognize that issuers may find this proposal 
unfavorable because of the increase in burden to develop and review 
additional plans, including additional resources to create additional 
plan designs and administer additional plans.\169\ Due to the increased 
burden this proposed policy change may place on issuers, some issuers 
may choose to not offer non-Hyde abortion coverage at all as part of 
their benefit package (rather than offer mirror QHPs). If, issuers 
choose to not offer non-Hyde abortion coverage, this may lead to an 
increase in women who lack options for enrolling in plans that offer 
coverage for non-Hyde abortion, thus requiring more women to pay out-
of-pocket for these services, if they become pregnant and choose to 
have an abortion. The cost of abortion services without insurance 
coverage is dependent on a variety of factors, such as location, type 
of medical facility, timing of the procedure, and type of procedure.
---------------------------------------------------------------------------

    \169\ We note, however, that the proposal is to require at least 
one mirror QHP throughout each service area in which the QHP issuer 
offers plans covering non-Hyde abortion, that provides otherwise 
identical benefits as one of the QHPs with non-Hyde abortion 
coverage, but that omits coverage of such services. As such, issuers 
with QHPs that cover non-Hyde abortion would already have developed 
the basic plan design and structure of the mirror QHP, and we 
believe this will significantly aid issuers in filling out and 
reviewing the additional rate and policy forms for the mirror plan.
---------------------------------------------------------------------------

    If finalized, this proposal would also increase the burden on 
states operating their own Exchange by requiring that they conduct 
additional QHP reviews, approve additional products, and review 
additional rate and policy forms.\170\ This proposal would increase the 
number of benefit reviews states would have to conduct for these plans 
as a part of the QHP certification process, depending on the number of 
mirror QHPs without non-Hyde abortion coverage the QHP issuers opt to 
offer. However, state law on abortion coverage significantly shapes and 
limits the availability of abortion coverage on the Exchanges. Although 
many states have enacted laws more restrictive than the federal 
requirements in section 1303 of the PPACA,\171\ other states have laws 
requiring QHPs to offer abortion coverage on the Exchange. For example, 
California and New York currently require QHPs to offer abortion 
coverage on the Exchange.\172\ Oregon recently signed into law a 
requirement for QHPs to include coverage for abortion, effective for 
2019.\173\ Therefore, the impact would depend on the applicable state 
law.\174\
---------------------------------------------------------------------------

    \170\ See also n. 158, supra.
    \171\ Some state laws prohibit QHPs from offering any abortion 
coverage on the Exchange, even in cases where the Hyde Amendment 
would permit federal funding to be used for such coverage; others 
prohibit all private insurers in the state from offering abortion 
coverage, regardless of whether the plan is offered on the Exchange; 
and many limit on-Exchange QHPs to only offering Hyde-abortion 
coverage.
    \172\ California requires all insurance carriers (except for 
multi-state plans) to cover non-Hyde abortion. See Michelle 
Rouillard, Director of Department of Managed Health Care letter to 
Mark Morgan, California President of Anthem Blue Cross, RE: 
Limitations or Exclusions of Abortion Services (August 22, 2014). 
Available at https://www.dmhc.ca.gov/Portals/0/082214letters/abc082214.pdf. Also see Cal. Health & Safety Code Sec.  1340 et seq. 
New York requires all insurance policies that provide hospital, 
surgical, or medical expense coverage to also include coverage for 
abortions that are medically necessary. See N.Y. Ins Law Sec.  3217 
(2015); N.Y. Comp. Codes R. & Regs. tit. 11, Sec.  52.2 (2016).
    \173\ The Oregon law requires all health insurance plans in the 
state to cover non-Hyde abortions with no out-of-pocket costs. See 
https://olis.leg.state.or.us/liz/2017R1/Downloads/MeasureDocument/HB3391/Enrolled.
    \174\ As of 2014, there were 23 states with laws restricting the 
circumstances under which QHPs could offer non-Hyde abortion 
services as a covered benefit. Twenty-eight states had no laws 
restricting the circumstances under which QHPs could offer non-Hyde 
abortion services. In 5 states (Connecticut, Hawaii, New Jersey, 
Rhode Island, and Vermont) all QHPs covered non-Hyde abortion 
services. https://www.gao.gov/assets/670/665800.pdf.
---------------------------------------------------------------------------

    Finally, we believe that the proposed requirement would increase 
consumer choice by offering additional plan options to potential 
enrollees who may refuse to enroll in, or may be discouraged from 
enrolling in QHPs because the plans in their service area cover non-
Hyde abortion services. We realize that but for the premium and benefit 
description, the QHPs would otherwise appear identical, and are 
concerned that consumers who do not carefully study their plan options 
may be confused by the premium differential; accordingly, we request 
comment on appropriate measures or requirements to limit the 
possibility of such confusion. Research has shown that offering 
consumers additional health plan options may result in consumers opting 
to not purchase a plan at all.
    We seek comment on the overall impact of the proposal.
15. Regulatory Review Costs
    If regulations impose administrative costs on private entities, 
such as the time needed to read and interpret this proposed 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 last year's proposed rule will be the number of reviewers 
of this proposed rule. We acknowledge that this assumption may 
understate or overstate the costs of reviewing this rule. It is 
possible that not all commenters reviewed last year's 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 welcome any comments on the approach in estimating the number 
of entities which will review this proposed rule.
    We are required to issue a substantial portion of this rule each 
year under our regulations and we estimate that approximately half of 
the remaining provisions would 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 issue 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 $107.38 per hour, including overhead

[[Page 310]]

and fringe benefits.\175\ Assuming an average reading speed, we 
estimate that it would take approximately 1 hour for the staff to 
review the relevant portions of this proposed rule that causes 
unanticipated burden. We assume that 321 entities will review this 
proposed rule. For each entity that reviews the rule, the estimated a 
cost of approximately $107.38. Therefore, we estimate that the total 
cost of reviewing this regulation is approximately $34,469 ($107.38 x 
321 reviewers).
---------------------------------------------------------------------------

    \175\ https://www.bls.gov/oes/current/oes_nat.htm.
---------------------------------------------------------------------------

D. Regulatory Alternatives Considered

    In developing the policies contained in this proposed rule, we 
considered numerous alternatives to the presented proposals. Below we 
discuss the key regulatory alternatives that we considered.
    At Sec.  147.106 we propose to allow issuers to make certain mid-
year formulary changes in an effort to optimize the use of new generic 
drugs as they become available. We recognize that the question of 
whether incentivizing the use of generic drugs will result in lowered 
costs is a complex question given certain dynamics in the drug market, 
such as rebates, and we, therefore, considered not proposing these 
changes. However, we believe that allowing issuers to make mid-year 
formulary changes or the option to direct consumers to generic drugs 
over the branded drug will result in a reduction in prescription drug 
costs.
    In proposing the risk adjustment model recalibration in part 153, 
we considered multiple alternatives such as maintaining the prior 
year's recalibration methodology of recalibrating the models using 2 
years of MarketScan[supreg] data and the most recent year of EDGE data. 
However, while we are maintaining our approach of recalibrating the 
models using 3 years of blended data, we are proposing to use to the 2 
most recent years of enrollee-level EDGE data (2016 and 2017) and the 
most recent year for MarketScan[supreg] data (2017) available. We 
believe that this approach will better reflect the experience of 
issuers in the individual and small group markets by using the most 
recent claims data available.
    We considered updating the induced demand factors (IDFs) in the 
risk adjustment state payment transfer formula and the cost-sharing 
reduction adjustment factors using results from 2016 enrollee-level 
EDGE data to evaluate the differences in enrollee spending patterns. 
However, although we have begun our analysis of 2016 enrollee-level 
EDGE data to evaluate differences in induced demand, we are not 
proposing any changes to the existing IDFs for the 2020 benefit year 
with the intention of evaluating additional data before proposing to 
make any changes. We intend to consider amending IDFs for the 2021 
benefit year when we can also evaluate 2017 enrollee-level EDGE data to 
examine differences in induced demand by market.
    Beginning with the 2019 benefit year of risk adjustment data 
validation,\176\ we propose to vary the initial validation audit sample 
size, and outline several different approaches we are considering for 
doing so. For example, we could vary sample size based on HCC failure 
rates, sample precision, and issuer size. An alternative approach would 
vary the initial validation audit sample size based only on issuer 
size. We also solicit comment on whether to permit issuers of any size 
and with any HCC failure rate the flexibility to request a larger 
sample size. Larger initial validation audit sample sizes could be 
required for some issuers under these approaches; however, we believe 
any increased burden would be outweighed by the increased precision of 
the risk adjustment data validation results which are used to adjust 
issuers risk scores and associated risk adjustment transfers.
---------------------------------------------------------------------------

    \176\ Activities related to the 2019 benefit year risk 
adjustment data validation generally begin in the second quarter of 
the 2020 calendar year.
---------------------------------------------------------------------------

    Regarding proposed changes to Sec. Sec.  155.210 and 155.215, we 
considered taking no action to amend certain Navigator training 
requirements and duties, but determined that the proposed changes 
regarding training requirements would provide Exchanges with needed 
flexibility, and the proposed changes regarding duties of FFE 
Navigators would help reduce burden on FFE Navigators.
    After several years of agent, broker and web-broker participation 
in the FFEs, we have identified key differences between individual 
agents or brokers and agent or broker entities, and believe these 
differences warrant a more tailored approach to regulating agents, 
brokers and web-brokers. For example, we believe the requirement for an 
agent, broker or web-broker entity to complete FFE training imposes a 
regulatory burden with little benefit, because entities are businesses 
employing or contracting with many individuals, many of whom are 
licensed agents or brokers who have to take the FFE training as part of 
their respective FFE registration as individuals. Instead of continuing 
to require these entities to identify an individual agent or broker to 
complete training on their behalf, we propose to eliminate a separate 
training requirement for agent, broker or web-broker entities. All 
individual agents and brokers assisting Exchange consumers in the 
individual market, whether or not they are assisting consumers in 
partnership with an agent, broker or web-broker entity, would continue 
to be required to receive training as part of the annual FFE 
registration process. Similarly, because of the different 
characteristics of individual agents or brokers and web-brokers, we 
propose to include provisions specifically related to suspension and 
termination of a web-broker's agreement that are inapplicable to 
individual agents or brokers but that generally mirror the standards 
and existing procedures for suspension or termination of an individual 
agent's or broker's agreement(s).
    In proposing revisions to Sec.  155.221, we considered maintaining 
the existing regulatory framework that established standards for 
issuers and web-brokers participating in direct enrollment in separate 
sections, but we believe streamlining and consolidating the 
requirements applicable to all direct enrollment entities, when 
possible, improves clarity and promotes fair competition. In proposing 
the display requirements at Sec.  155.221(b), we contemplated 
maintaining the current standards in regulations and guidance, but 
based on feedback received from direct enrollment entities, we believe 
the current framework has caused confusion and limited innovation. 
Therefore, we determined that the establishment of clarified standards 
for the marketing and display of QHPs and non-QHPs is the best way to 
provide greater clarity for direct enrollment entities about what is 
required to minimize the potential for consumer confusion while 
allowing direct enrollment entities more flexibility to be innovative 
in the marketing of non-QHPs to consumers who are interested in those 
products. In proposing the addition of a new Sec.  155.221(c), we 
considered continuing to limit the authority to use application 
assisters to QHP issuers. However, to promote fair competition for all 
direct enrollment entities and issuers, we believe a better approach is 
to expand this authority to include all direct enrollment entities and 
all issuers.
    We considered broader eligibility requirements for the special 
enrollment period proposed at Sec.  155.420(d)(6)(v). We considered if 
a special enrollment period could be offered without a decrease in 
household income to all

[[Page 311]]

Exchange applicants who were enrolled in MEC and determined eligible 
for APTC by the Exchange, or if changes in the applicant's household 
size could be considered in the eligibility criteria for this special 
enrollment period. We determined that eliminating the criteria for a 
decrease in household income would be problematic because it eliminates 
a triggering event for the special enrollment period and could allow 
for consumers who are potentially APTC-eligible to avoid the metal 
level restrictions in paragraph (a)(4) of this section by initially 
enrolling in off-Exchange coverage and then later choosing to buy a 
higher or lower level of coverage mid-year. We also determined that 
verification of household size changes would be operationally 
problematic, as electronic data sources would not reflect recent 
changes to household size. Further, the special enrollment periods at 
Sec.  155.420(d)(2)(i) are currently available to qualified individuals 
whose household size changes due to gaining or becoming a dependent and 
already provides a pathway to Exchange coverage for individuals in this 
situation. We also considered if the special enrollment period could be 
offered without a prior coverage requirement and determined that this 
requirement is necessary to ensure the special enrollment period is 
only available to the intended population, to promote continuous 
coverage among individual market enrollees, and to protect the 
Exchanges against adverse selection. Finally we considered the impact 
of not proposing this special enrollment period. Without the proposed 
special enrollment period at Sec.  155.420(d)(6)(v), unsubsidized 
consumers who experience a decrease in household income midyear and are 
APTC eligible would remain without a pathway to Exchange coverage. 
These consumers would remain at risk of terminating their unsubsidized 
coverage midyear because it is unaffordable, rather than maintaining 
continuous enrollment in health coverage by transitioning to an 
Exchange plan.
    Without the recommended revisions to Sec.  155.605(e), individuals 
may experience a general hardship that prevents them from obtaining 
qualifying health coverage, and may experience undue burden to apply 
and qualify for an exemption from the individual shared responsibility 
provision to purchase qualifying health coverage. This change allows 
for more flexibility for individuals to claim these exemptions through 
the IRS tax filing process for 2018.
    In proposing the change to the premium measure used in the premium 
adjustment percentage calculation under Sec.  156.130, we considered 
continuing to use the current premium measure, as well as other premium 
measures for purposes of calculating the premium adjustment percentage 
for the 2020 benefit year. We considered continuing to use the current 
premium measure, NHEA's estimates and projections of average per 
enrollee employer-sponsored insurance premiums. We are proposing a 
change to this measure to instead use a private health insurance 
premium measure (excluding Medigap and property and casualty 
insurance), so that the premium growth measure more closely reflects 
premium trends in the private health insurance market since 2013. 
Alternatively, we considered using NHEA estimates and projections of 
average per enrollee private health insurance premiums. NHEA's private 
health insurance premium measure includes premiums for employer-
sponsored insurance, direct purchase insurance (which includes Medigap 
insurance), and property and casualty insurance. However, we propose to 
include only those premiums for expenditures associated with the 
acquisition of one's primary health insurance coverage purchased 
through their employer or purchased directly from a health insurance 
issuer. We believe it is inappropriate to include Medigap premiums in 
the measure as this type of coverage is not considered primary coverage 
for those enrollees who supplement their Medicare coverage with these 
plans. Moreover, although total spending for private health insurance 
in the NHEAs includes the medical portion of accident insurance 
(property and casualty insurance), we do not believe it would be 
appropriate to include those expenditures for this purpose as they are 
associated with policies that do not serve as a primary source of 
health insurance coverage.
    Accordingly, in Sec.  156.130 we propose using a measure that 
includes only premiums for employer-sponsored insurance and direct 
purchase insurance, but not premiums for property and casualty, or 
Medigap insurance. In addition to considering NHEA's private health 
insurance premiums as an alternative for measuring premium growth in 
the premium adjustment percentage calculation, we considered using 
Exchange premiums as the measure for premium growth. However, a 
significant drawback with using Exchange premiums is that the Exchanges 
did not exist in 2013 and therefore Exchange premiums are not available 
for 2013. NHEA does not currently publish projections of Exchange 
premiums separate from the estimates and projections that they include 
within the direct purchase premium measure, and a projection would be 
needed for the 2019 premium amount given the timing of this proposed 
rule and the estimated timing of the final HHS Notice of Benefit and 
Payment Parameters for 2020 rule. We seek comment on the source of 
premium data we use in the premium adjustment percentage calculation, 
and specifically the proposal to use average per enrollee private 
health insurance premiums (excluding Medigap and property and casualty 
insurance) or whether we continue to use employer-sponsored insurance 
premiums for purposes of calculating the premium adjustment percentage 
for the 2020 benefit year.
    At Sec.  156.130 we also propose that plans are not required to 
count drug manufacturer coupons toward the annual limitation on cost 
sharing, starting with plan years beginning on or after January 1, 
2020. We considered not proposing this flexibility, as these coupons 
may result in lower costs to individual consumers. However, 
manufacturer coupons may incentivize selection of higher-cost drugs 
when a less costly therapeutic equivalent is available which can 
distort the market and the true costs of drugs, adding significant 
long-term costs to the health care system.
    In proposing Sec.  156.280(c)(3), we considered whether regulatory 
action was necessary at all. However, without regulatory action, some 
people may not be able to enroll in what would otherwise be their 
desired QHP, but for the QHP covering non-Hyde abortion, due to 
religious or conscience objections. This proposal would allow people 
who do not desire coverage of non-Hyde abortion to have coverage 
alternatives. We also considered requiring issuers to offer QHPs that 
do not cover non-Hyde abortion services on a one-to-one basis with QHPs 
that do cover non-Hyde abortion services. However, we were concerned 
that this would be too burdensome to QHP issuers and that a 
proliferation of so many more QHPs could be confusing to consumers.

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

[[Page 312]]

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.
    In this proposed rule, we propose 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.
    We believe that health insurance issuers and group health plans 
would be classified under the North American Industry Classification 
System code 524114 (Direct Health and Medical Insurance Carriers). 
According to SBA size standards, entities with average annual receipts 
of $38.5 million or less would be considered small entities for these 
North American Industry Classification System codes. Issuers could 
possibly be classified in 621491 (HMO Medical Centers) and, if this is 
the case, the SBA size standard would be $32.5 million or less.\177\ We 
believe that few, if any, insurance companies underwriting 
comprehensive health insurance policies (in contrast, for example, to 
travel insurance policies or dental discount policies) fall below these 
size thresholds. Based on data from MLR annual report \178\ submissions 
for the 2016 MLR reporting year, approximately 85 out of over 520 
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 79 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 will result in their revenues 
exceeding $38.5 million.
---------------------------------------------------------------------------

    \177\ https://www.sba.gov/document/support--table-size-standards.
    \178\ Available at https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html.
---------------------------------------------------------------------------

    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has fewer than 100 beds. This proposed rule would 
not affect small rural hospitals. Therefore, the Secretary has 
determined that this will not have a significant impact on the 
operations of a substantial number of small rural hospitals.

F. Unfunded Mandates

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) 
requires that agencies assess anticipated costs and benefits and take 
certain other actions before issuing a proposed rule that includes any 
federal mandate that may result in expenditures in any 1 year by a 
state, local, or Tribal governments, in the aggregate, or by the 
private sector, of $100 million in 1995 dollars, updated annually for 
inflation. In 2018, that threshold is approximately $150 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 issues a proposed 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, we 
have 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, we attempted to balance the states' 
interests in regulating health insurance issuers with the need to 
ensure market stability. By doing so, it is our 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 state. Current State Exchanges 
charge user fees to issuers.
    In our view, while this proposed rule would not impose substantial 
direct requirement costs on state and local governments, this 
regulation has Federalism implications due to direct effects on the 
distribution of power and responsibilities among the state and federal 
governments relating to determining standards relating to health 
insurance that is offered in the individual and small group markets. 
For example, for risk adjustment, we are proposing more flexibility for 
states that want to use something other than statewide average premium 
in the calculation of transfers. We are also proposing to make the 
proposed special enrollment period at Sec.  155.420(d)(6)(v) at the 
option of Exchanges, to give states flexibility in whether they choose 
to implement it.

H. Congressional Review Act

    This proposed rule is subject to the Congressional Review Act 
provisions of the Small Business Regulatory Enforcement Fairness Act of 
1996 (5 U.S.C. 801, et seq.), which specifies that before a rule can 
take effect, the federal agency promulgating the rule shall submit to 
each House of the Congress and to the Comptroller General a report 
containing a copy of the rule along with other specified information, 
and has been transmitted to the 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 issues, a 
new regulation. In furtherance of this requirement, section 2(c) of

[[Page 313]]

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.
    The designation of this rule, if finalized, will be informed by 
public comments received.

J. Conclusion

    The analysis above, together with the remainder of this preamble, 
provides a Regulatory Impact Analysis.
    In accordance with the provisions of Executive Order 12866, this 
regulation was reviewed by the Office of Management and Budget.

List of Subjects

45 CFR Part 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 147

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 148

    Administrative practice and procedure, Health care, Health 
insurance, Insurance companies, Penalties, 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 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, Brokers, 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.

    For the reasons set forth in the preamble, under the authority at 5 
U.S.C. 301, the Department of Health and Human Services proposes to 
amend 45 CFR as set forth below.

PART 146--REQUIREMENTS FOR THE GROUP HEALTH INSURANCE MARKET

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

    Authority: 42 U.S.C. 300gg-1 through 300gg-5, 300gg-11 through 
300gg-23, 300gg-91, and 300gg-92.

0
2. Section 146.152 is amended by revising paragraphs (a) and (f)(1) 
introductory text and adding paragraph (f)(5) to read as follows:


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

    (a) General rule. Subject to paragraphs (b) through (f) of this 
section, a health insurance issuer offering health insurance coverage 
in the small or large group market is required to renew or continue in 
force the coverage at the option of the plan sponsor or the individual, 
as applicable.
* * * * *
    (f) * * *
    (1) Subject to paragraph (f)(5) of this section, only at the time 
of coverage renewal may issuers modify the health insurance coverage 
for a product offered to a group health plan, in the following:
* * * * *
    (5) For plan years beginning on or after January 1, 2020, a group 
health insurance issuer may make the following mid-year formulary 
changes, to the extent permitted by applicable State law: It may add a 
generic equivalent to a formulary within a reasonable time after the 
generic equivalent becomes available, and, if it does so, it may remove 
the equivalent brand drug or drugs from the formulary or move the 
equivalent brand drug or drugs to a higher formulary drug tier. If the 
issuer makes any such changes:
    (i) The issuer must notify plan enrollees in writing a minimum of 
60 days prior to making the changes. This notice must identify the name 
of the brand drug that is the subject of the change, disclose whether 
the brand drug will be removed from the formulary or placed on a 
different cost-sharing tier, provide the name of the generic equivalent 
that will be made available, specify the date the changes will become 
effective, and state that under the appeals processes outlined in Sec.  
147.136 of this subchapter or the exceptions processes outlined in 
Sec.  156.122(c) of this subchapter, enrollees and dependents may 
request and gain access to the brand drug when clinically appropriate 
and not otherwise covered by the health plan.
    (ii) The mid-year formulary changes must not exceed the scope of a 
uniform modification as defined in this paragraph (f).
    (iii) All plan enrollees must have access to the applicable 
coverage appeal process under Sec.  147.136 of this subchapter or the 
drug exception request process under Sec.  156.122(c) of this 
subchapter to request access to the equivalent brand drug or drugs.
* * * * *

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

0
3. The authority citation for part 147 is revised to read as follows:

     Authority:  42 U.S.C. 300gg through 300gg-63, 300gg-91, and 
300gg-92.

0
4. Section 147.106 is amended by revising paragraphs (a) and (e)(1) 
introductory text and adding paragraph (e)(5) to read as follows:


Sec.  147.106   Guaranteed renewability of coverage.

    (a) General rule. Subject to paragraphs (b) through (e) of this 
section, a health insurance issuer offering health insurance coverage 
in the individual, small group, or large group market is required to 
renew or continue in force the coverage at the option of the plan 
sponsor or the individual, as applicable.
* * * * *
    (e) * * *
    (1) Subject to paragraph (e)(5) of this section, only at the time 
of coverage renewal may issuers modify the health insurance coverage 
for a product offered to a group health plan or an individual, as 
applicable, in the following:
* * * * *
    (5) For plan years beginning on or after January 1, 2020, a health 
insurance issuer may make the following mid-year formulary changes, to 
the extent permitted by applicable State law: It may add a generic 
equivalent to a

[[Page 314]]

formulary within a reasonable time after the generic equivalent becomes 
available, and, if it does so, it may remove the equivalent brand drug 
or drugs from the formulary or move the equivalent brand drug or drugs 
to a higher formulary drug tier. If the issuer makes any such changes:
    (i) The issuer must notify plan enrollees in writing a minimum of 
60 days prior to making the changes. This notice must identify the name 
of the brand drug that is the subject of the change, disclose whether 
the brand drug will be removed from the formulary or placed on a 
different cost-sharing tier, provide the name of the generic equivalent 
that will be made available, specify the date the changes will become 
effective, and state that under the appeals processes outlined in Sec.  
147.136 of this subchapter or the exceptions processes outlined in 
Sec.  156.122(c) of this subchapter, enrollees and dependents may 
request and gain access to the brand drug when clinically appropriate 
and not otherwise covered by the health plan.
    (ii) The mid-year formulary changes must not exceed the scope of a 
uniform modification as defined in this paragraph (e).
    (iii) All plan enrollees must have access to the applicable 
coverage appeal process under Sec.  147.136 of this subchapter or the 
drug exception request process under Sec.  156.122(c) of this 
subchapter to request access to the equivalent brand drug or drugs.
* * * * *

PART 148--REQUIREMENTS FOR THE INDIVIDUAL HEALTH INSURANCE MARKET

0
5. The authority citation for part 148 is revised to read as follows:

    Authority:  42 U.S.C. 300gg through 300gg-63, 300gg-11 300gg-91, 
and 300gg-92, as amended.

0
6. Section 148.122 is amended by revising paragraphs (b)(1) and (g)(1) 
and adding paragraph (g)(5) to read as follows:


Sec.  148.122   Guaranteed renewability of individual health insurance 
coverage.

* * * * *
    (b) * * *
    (1) Except as provided in paragraphs (c) through (g) of this 
section, an issuer must renew or continue in force the coverage at the 
option of the individual.
* * * * *
    (g) * * *
    (1) Subject to paragraph (g)(5) of this section, an issuer may, 
only at the time of coverage renewal, modify the health insurance 
coverage for a product offered in the individual market if the 
modification is consistent with State law and is effective uniformly 
for all individuals with that product.
* * * * *
    (5) For plan years beginning on or after January 1, 2020, an 
individual market health insurance issuer may make the following mid-
year formulary changes, to the extent permitted by applicable State 
law: It may add a generic equivalent to a formulary within a reasonable 
time after the generic equivalent becomes available, and, if it does 
so, it may remove the equivalent brand drug or drugs from the formulary 
or move the equivalent brand drug or drugs to a higher formulary drug 
tier. If the issuer makes any such changes:
    (i) The issuer must notify plan enrollees in writing a minimum of 
60 days prior to making the changes. This notice must identify the name 
of the brand drug that is the subject of the change, disclose whether 
the brand drug will be removed from the formulary or placed on a 
different cost-sharing tier, provide the name of the generic equivalent 
that will be made available, specify the date the changes will become 
effective, and state that under the appeals processes outlined in Sec.  
147.136 of this subchapter or the exceptions processes outlined in 
Sec.  156.122(c) of this subchapter, enrollees and dependents may 
request and gain access to the brand drug when clinically appropriate 
and not otherwise covered by the health plan.
    (ii) The mid-year formulary changes must not exceed the scope of a 
uniform modification as defined in this paragraph (g).
    (iii) All plan enrollees must have access to the applicable 
coverage appeal process under Sec.  147.136 of this subchapter or the 
drug exception request process under Sec.  156.122(c) of this 
subchapter to request access to the equivalent brand drug or drugs.
* * * * *

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

0
7. The authority citation for part 153 is revised to read as follows:

    Authority:  42 U.S.C. 18031, 18041, and 18061 through 18063.

0
8. Section 153.320 is amended by revising paragraph (d)(3) to read as 
follows:


Sec.  153.320   Federally certified risk adjustment methodology.

* * * * *
    (d) * * *
    (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, except to the extent the 
State requests HHS not publish certain supporting evidence because it 
contains trade secrets or confidential commercial or financial 
information as defined in HHS's Freedom of Information regulations 
under 45 CFR 5.31(d). 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.
* * * * *
0
9. Section 153.630 is amended by revising paragraphs (b)(10) and (d)(2) 
and adding paragraph (g) to read as follows:


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

* * * * *
    (b) * * *
    (10) If an issuer of a risk adjustment covered plan fails to engage 
an initial validation auditor or to submit the results of an initial 
validation audit to HHS, HHS will impose a default data validation 
charge.
* * * * *
    (d) * * *
    (2) Within 15 calendar days of the notification by HHS of the 
findings of a second validation audit (if applicable) or the 
calculation of a risk score error rate, in the manner set forth by HHS, 
an issuer must confirm the findings of the second validation audit (if 
applicable) or the calculation of the risk score error rate as a result 
of risk adjustment data validation, or file a discrepancy report to 
dispute the findings of a second validation audit (if applicable) or 
the calculation of a risk score error rate as a result of risk 
adjustment data validation.
* * * * *
    (g) Exemptions. An issuer of a risk adjustment covered plan will be 
exempted by HHS from the data validation requirement set forth in 
paragraph (b) of this section for a given benefit year if:
    (1) The issuer has 500 or fewer billable member months of 
enrollment in the individual, small group and merged markets (as 
applicable) for the applicable benefit year, calculated on a Statewide 
basis beginning with the 2017 benefit year of risk adjustment data 
validation;
    (2) The issuer is at or below the materiality threshold as defined 
by HHS

[[Page 315]]

and is not selected by HHS to participate in the data validation 
requirements in an applicable benefit year under random and targeted 
sampling conducted approximately every 3 years (barring any risk-based 
triggers based on experience that would warrant more frequent audits) 
beginning with the 2018 benefit year of risk adjustment data 
validation; or
    (3) The issuer is in liquidation, or will enter liquidation no 
later than April 30th of the benefit year that is 2 benefit years after 
the benefit year being audited, provided that:
    (i) Beginning with the 2017 benefit year and beyond, the issuer 
provides to HHS, in the manner and timeframe specified by HHS, an 
attestation that the issuer is in liquidation or will enter liquidation 
no later than April 30th of the benefit year that is 2 benefit years 
after the benefit year being audited that is signed by an individual 
with the authority to legally and financially bind the issuer; and
    (ii) Beginning with the 2018 benefit year and beyond, the issuer is 
not a positive error rate outlier under the error estimation 
methodology in risk adjustment data validation for the prior benefit 
year of risk adjustment data validation.
    (iii) For purposes of this paragraph (g)(3), liquidation means that 
a State court has issued an order of liquidation for the issuer that 
fixes the rights and liabilities of the issuer and its creditors, 
policyholders, shareholders, members, and all other persons of 
interest.

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

0
10. The authority citation for part 155 is revised to read as follows:

    Authority: 42 U.S.C. 18021-18024, 18031-18033, 18041-18042, 
18051, 18054, 18071, and 18081-18083.

0
11. Section 155.20 is amended by adding in alphabetical order 
definitions for ``Direct enrollment entity,'' ``Direct enrollment 
entity application assister,'' ``Direct enrollment technology 
provider,'' and ``Web-broker'' to read as follows:


Sec.  155.20   Definitions.

* * * * *
    Direct enrollment entity means an entity that an Exchange permits 
to assist consumers with direct enrollment in qualified health plans 
offered through the Exchange in a manner considered to be through the 
Exchange as authorized by Sec.  155.220(c)(3), Sec.  155.221, or Sec.  
156.1230 of this subchapter.
    Direct enrollment entity application assister means an employee, 
contractor, or agent of a direct enrollment entity who is not licensed 
as an agent, broker, or producer under State law and who assists 
individuals in the individual market with applying for a determination 
or redetermination of eligibility for coverage through the Exchange or 
for insurance affordability programs.
    Direct enrollment technology provider means a type of web-broker 
business entity that is not a licensed agent, broker, or producer under 
State law and has been engaged or created by, or is owned by an agent 
or broker, to provide technology services to facilitate participation 
in direct enrollment under Sec. Sec.  155.220(c)(3) and 155.221.
* * * * *
    Web-broker means an individual agent or broker, group of agents or 
brokers, or business entity registered with an Exchange under Sec.  
155.220(d)(1) that develops and hosts a non-Exchange website that 
interfaces with an Exchange to assist consumers with direct enrollment 
in qualified health plans offered through the Exchange as described in 
Sec. Sec.  155.220(c)(3) and 155.221. The term also includes a direct 
enrollment technology provider.
0
12. Section 155.205 is amended by revising paragraph (a) to read as 
follows:


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

    (a) Call center. The Exchange must provide for operation of a toll-
free call center that addresses the needs of consumers requesting 
assistance and meets the requirements outlined in paragraphs (c)(1), 
(c)(2)(i), and (c)(3) of this section, unless it is an Exchange 
described in paragraphs (a)(1) or (2) of this section, in which case, 
the Exchange must provide at a minimum a toll-free telephone hotline 
that includes the capability to provide information to consumers about 
eligibility and enrollment processes, and to appropriately direct 
consumers to the applicable Exchange website and other applicable 
resources.
    (1) An Exchange described in this paragraph is one that enters into 
a Federal platform agreement through which it relies on HHS to operate 
its eligibility and enrollment functions, as applicable.
    (2) An Exchange described in this paragraph is a SHOP that does not 
provide for enrollment in SHOP coverage through an online SHOP 
enrollment platform, but rather provides for enrollment through SHOP 
issuers or agents and brokers registered with the Exchange.
* * * * *
0
13. Section 155.210 is amended by:
0
a. Revising paragraph (b)(2) introductory text and paragraphs 
(b)(2)(iii) and (iv);
0
b. Removing paragraphs (b)(2)(v) through (ix); and
0
c. Revising the paragraph (e)(9) introductory text.
    The revisions read as follows:


Sec.  155.210   Navigator program standards.

* * * * *
    (b) * * *
    (2) A set of training standards, to be met by all entities and 
individuals carrying out Navigator functions under the terms of a 
Navigator grant, to ensure the entities and individuals are qualified 
to engage in Navigator activities, including training standards on the 
following topics:
* * * * *
    (iii) The range of QHP options and insurance affordability 
programs; and
    (iv) The privacy and security standards applicable under Sec.  
155.260.
* * * * *
    (e) * * *
    (9) The Exchange may require or authorize Navigators to provide 
information and assistance with any of the following topics. In 
Federally-facilitated Exchanges, Navigators are required to provide 
information and assistance with all of the following topics under 
Navigator grants awarded in 2018, and will be authorized to provide 
information and assistance with all of the following topics under 
Navigator grants awarded in 2019 or any later year.
* * * * *
0
14. Section 155.215 is amended by revising paragraph (b)(2) 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.

* * * * *
    (b) * * *
    (2) Training module content standards. All individuals who carry 
out the consumer assistance functions under Sec. Sec.  155.205(d) and 
(e) and 155.210 of this subpart must receive training consistent with 
standards established by the Exchange consistent with Sec.  
155.210(b)(2) of this subpart.
* * * * *
0
15. Section 155.220 is amended by:

[[Page 316]]

0
a. Revising the section heading;
0
b. Revising paragraphs (a) introductory text, (c) introductory text, 
(c)(1), (c)(3)(i) introductory text and (c)(3)(i)(A), (D), (K) and (L), 
(c)(3)(ii) introductory text, (c)(4) introductory text, (c)(4)(i) 
introductory text, (c)(4)(i)(A), (E) and (F), (c)(4)(ii), (c)(5), (d) 
introductory text, (d)(2), (e), (f)(1) and (2), (f)(3) introductory 
text, (f)(3)(i), (f)(4), (g)(1), (g)(2) introductory text, (g)(3) and 
(4), (g)(5)(i) through (iii), (h), (i), (j)(1) introductory text, 
(j)(3), (k)(1) introductory text, and (k)(2);
0
 c. Adding paragraph (k)(3);
0
 d. Revising paragraph (l); and
0
 e. Adding paragraph (m).
    The additions and revisions read as follows:


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

    (a) General rule. A State may permit agents, brokers, and web-
brokers to--
* * * * *
    (c) Enrollment through the Exchange. A qualified individual may be 
enrolled in a QHP through the Exchange with the assistance of an agent, 
broker, or web-broker if--
    (1) The agent, broker, or web-broker ensures the applicant's 
completion of an eligibility verification and enrollment application 
through the Exchange internet website as described in Sec.  155.405, or 
ensures that the eligibility application information is submitted for 
an eligibility determination through the Exchange-approved web service 
subject to meeting the requirements in paragraphs (c)(3)(ii) and 
(c)(4)(i)(F) of this section;
* * * * *
    (3)(i) When an internet website of a web-broker is used to complete 
the QHP selection, at a minimum the internet website must:
    (A) Disclose and display all QHP information provided by the 
Exchange or directly by QHP issuers consistent with the requirements of 
Sec.  155.205(b)(1) and (c), and to the extent that not all information 
required under Sec.  155.205(b)(1) is displayed on the web-broker's 
internet website for a QHP, prominently display a standardized 
disclaimer provided by HHS stating that information required under 
Sec.  155.205(b)(1) for the QHP is available on the Exchange website, 
and provide a Web link to the Exchange website;
* * * * *
    (D) When permitted under state law, Navigators and certified 
application counselors may use the website of a web-broker while 
assisting an applicant to enroll in a QHP offered through the Exchange 
if:
    (1) The website displays all QHP data provided by the Exchange 
consistent with the requirements of Sec.  155.205(b)(1) and (c), and to 
the extent the web-broker website does not facilitate enrollment in all 
QHPs offered through the Exchange, identifies such QHPs (if any) to 
consumers by prominently displaying a standardized disclaimer provided 
by the Exchange, in a manner and form specified by the Exchange, 
stating that enrollment in such QHPs can be completed through the 
Exchange website and providing a link to the Exchange website; and
    (2) The web-broker who makes its website available may complete an 
annual certification process with the Exchange, in the manner and form 
specified by the Exchange, by attesting to its compliance with the 
requirements in paragraph (c)(3)(i)(D)(1) of this section;
* * * * *
    (K) Comply with the applicable requirements in Sec.  155.221; and
    (L) Not display QHP recommendations based on compensation the 
agent, broker, or web-broker receives from QHP issuers.
    (ii) When an internet website of a web-broker is used to complete 
the Exchange eligibility application, at a minimum the internet website 
must:
* * * * *
    (4) When an agent or broker, through a contract or other 
arrangement, uses the internet website of a web-broker to help an 
applicant or enrollee complete a QHP selection or complete the Exchange 
eligibility application in the Federally-facilitated Exchange:
    (i) The web-broker who makes the website available must:
    (A) Provide HHS with a list of agents and brokers who enter into 
such a contract or other arrangement to use the web-broker's website, 
in a form and manner to be specified by HHS;
* * * * *
    (E) Report to HHS and applicable State departments of insurance any 
potential material breach of the standards in paragraphs (c) and (d) of 
this section, or the agreement entered into under Sec.  155.260(b), by 
the agent or broker accessing the internet website, should it become 
aware of any such potential breach. A web-broker that provides access 
to its website to complete the QHP selection or the Exchange 
eligibility application or ability to transact information with HHS to 
another web-broker website is responsible for ensuring compliance with 
applicable requirements in paragraph (c)(3) of this section for any web 
pages of the other web-broker's website that assist consumers, 
applicants, qualified individuals, and enrollees in applying for APTC 
and CSRs for QHPs, or in completing enrollment in QHPs, offered in the 
Exchanges.
    (F) When an internet website of a web-broker is used to complete 
the Exchange eligibility application, obtain HHS approval verifying 
that all requirements in this section are met.
    (ii) HHS retains the right to temporarily suspend the ability of 
the web-broker making its website available to transact information 
with HHS, if HHS discovers a security and privacy incident or breach, 
for the period in which HHS begins to conduct an investigation and 
until the incident or breach is remedied to HHS's satisfaction.
    (5) HHS or its designee may periodically monitor and audit an 
agent, broker, or web-broker under this subpart to assess its 
compliance with the applicable requirements of this section.
    (d) Agreement. An agent, broker, or web-broker that enrolls 
qualified individuals in a QHP in a manner that constitutes enrollment 
through the Exchange or assists individuals in applying for advance 
payments of the premium tax credit and cost-sharing reductions for QHPs 
must comply with the terms of an agreement between the agent, broker, 
or web-broker and the Exchange under which the agent, broker, or web-
broker at least:
* * * * *
    (2) Receives training in the range of QHP options and insurance 
affordability programs, except that a licensed agent or broker entity 
that registers with the Federally-facilitated Exchange in its capacity 
as a business organized under the laws of a State, and not as an 
individual person, and direct enrollment technology providers are 
exempt from this requirement; and
* * * * *
    (e) Compliance with State law. An agent, broker, or web-broker that 
enrolls qualified individuals in a QHP in a manner that constitutes 
enrollment through the Exchange or assists individuals in applying for 
advance payments of the premium tax credit and cost-sharing reductions 
for QHPs must comply with applicable State law related to agents, 
brokers, or web-brokers including applicable State law related to 
confidentiality and conflicts of interest.
    (f) * * *
    (1) An agent, broker, or web-broker may terminate its agreement 
with HHS

[[Page 317]]

by sending to HHS a written notice at least 30 days in advance of the 
date of intended termination.
    (2) The notice must include the intended date of termination, but 
if it does not specify a date of termination, or the date provided is 
not acceptable to HHS, HHS may set a different termination date that 
will be no less than 30 days from the date on the agent's, broker's, or 
web-broker's notice of termination.
    (3) Prior to the date of termination, an agent, broker, or web-
broker should--
    (i) Notify applicants, qualified individuals, or enrollees that the 
agent, broker, or web-broker is assisting, of the agent's, broker's, or 
web-broker's intended date of termination;
* * * * *
    (4) When the agreement between the agent, broker, or web-broker and 
the Exchange under paragraph (d) of this section is terminated under 
paragraph (f) of this section, the agent, broker, or web-broker will no 
longer be registered with the Federally-facilitated Exchanges, or be 
permitted to assist with or facilitate enrollment of qualified 
individuals, qualified employers or qualified employees in coverage in 
a manner that constitutes enrollment through a Federally-facilitated 
Exchange, or be permitted to assist individuals in applying for advance 
payments of the premium tax credit and cost-sharing reductions for 
QHPs. The agent's, broker's, or web-broker's agreement with the 
Exchange under Sec.  155.260(b) will also be terminated through the 
termination without cause process set forth in that agreement. The 
agent, broker, or web-broker must continue to protect any personally 
identifiable information accessed during the term of either of these 
agreements with the Federally-facilitated Exchanges.
    (g) * * *
    (1) If, in HHS's determination, a specific finding of noncompliance 
or pattern of noncompliance is sufficiently severe, HHS may terminate 
an agent's, broker's, or web-broker's agreement with the Federally-
facilitated Exchange for cause.
    (2) An agent, broker, or web-broker may be determined noncompliant 
if HHS finds that the agent, broker, or web-broker violated--
* * * * *
    (iii) Any State law applicable to agents, brokers, or web-brokers, 
as required under paragraph (e) of this section, including but not 
limited to State laws related to confidentiality and conflicts of 
interest; or
    (iv) Any Federal law applicable to agents, brokers, or web-brokers.
* * * * *
    (3)(i) Except as provided in paragraph (g)(3)(ii) of this section, 
HHS will notify the agent, broker, or web-broker of the specific 
finding of noncompliance or pattern of noncompliance made under 
paragraph (g)(1) of this section, and after 30 days from the date of 
the notice, may terminate the agreement for cause if the matter is not 
resolved to the satisfaction of HHS.
    (ii) HHS may immediately terminate the agreement for cause upon 
notice to the agent or broker without any further opportunity to 
resolve the matter if an agent or broker fails to maintain the 
appropriate license under State law as an agent, broker, or insurance 
producer in every State in which the agent or broker actively assists 
consumers with applying for advance payments of the premium tax credit 
or cost-sharing reductions or with enrolling in QHPs through the 
Federally-facilitated Exchanges.
    (4) After the applicable period in paragraph (g)(3) of this section 
has elapsed and the agreement under paragraph (d) of this section is 
terminated, the agent, broker, or web-broker will no longer be 
registered with the Federally-facilitated Exchanges, or be permitted to 
assist with or facilitate enrollment of a qualified individual, 
qualified employer, or qualified employee in coverage in a manner that 
constitutes enrollment through a Federally-facilitated Exchange, or be 
permitted to assist individuals in applying for advance payments of the 
premium tax credit and cost-sharing reductions for QHPs. The agent's, 
broker's, or web-broker's agreement with the Exchange under Sec.  
155.260(b)(2) will also be terminated through the process set forth in 
that agreement. The agent, broker, or web-broker must continue to 
protect any personally identifiable information accessed during the 
term of either of these agreements with the Federally-facilitated 
Exchanges.
    (5) * * *
    (i)(A) If HHS reasonably suspects that an agent, broker, or web-
broker may have may have engaged in fraud, or in abusive conduct that 
may cause imminent or ongoing consumer harm using personally 
identifiable information of an Exchange enrollee or applicant or in 
connection with an Exchange enrollment or application, HHS may 
temporarily suspend the agent's, broker's, or web-broker's agreements 
required under paragraph (d) of this section and under Sec.  155.260(b) 
for up to 90 calendar days. Suspension will be effective on the date of 
the notice that HHS sends to the agent, broker, or web-broker advising 
of the suspension of the agreements.
    (B) The agent, broker, or web-broker may submit evidence in a form 
and manner to be specified by HHS, to rebut the allegation during this 
90-day period. If the agent, broker, or web-broker submits such 
evidence during the suspension period, HHS will review the evidence and 
make a determination whether to lift the suspension within 30 days of 
receipt of such evidence. If the rebuttal evidence does not persuade 
HHS to lift the suspension, or if the agent, broker, or web-broker 
fails to submit rebuttal evidence during the suspension period, HHS may 
terminate the agent's, broker's, or web-broker's agreements required 
under paragraph (d) of this section and under Sec.  155.260(b) for 
cause under paragraph (g)(5)(ii) of this section.
    (ii) If there is a finding or determination by a Federal or State 
entity that an agent, broker, or web-broker engaged in fraud, or 
abusive conduct that may result in imminent or ongoing consumer harm, 
using personally identifiable information of Exchange enrollees or 
applicants or in connection with an Exchange enrollment or application, 
HHS will terminate the agent's, broker's, or web-broker's agreements 
required under paragraph (d) of this section and under Sec.  155.260(b) 
for cause. The termination will be effective starting on the date of 
the notice that HHS sends to the agent, broker, or web-broker advising 
of the termination of the agreements.
    (iii) During the suspension period under paragraph (g)(5)(i) of 
this section and following termination of the agreements under 
paragraph (g)(5)(i)(B) or (g)(5)(ii) of this section, the agent, 
broker, or web-broker will not be registered with the Federally-
facilitated Exchanges, or be permitted to assist with or facilitate 
enrollment of qualified individuals, qualified employers, or qualified 
employees in coverage in a manner that constitutes enrollment through a 
Federally-facilitated Exchange, or be permitted to assist individuals 
in applying for advance payments of the premium tax credit and cost-
sharing reductions for QHPs. The agent, broker, or web-broker must 
continue to protect any personally identifiable information accessed 
during the term of either of these agreements with the Federally-
facilitated Exchanges.
* * * * *

[[Page 318]]

    (h) Request for reconsideration of termination for cause from the 
Federally-facilitated Exchange--(1) Request for reconsideration. An 
agent, broker, or web-broker whose agreement with the Federally-
facilitated Exchange has been terminated may request reconsideration of 
such action in the manner and form established by HHS.
    (2) Timeframe for request. The agent, broker, or web-broker must 
submit a request for reconsideration to the HHS reconsideration entity 
within 30 calendar days of the date of the written notice from HHS.
    (3) Notice of reconsideration decision. The HHS reconsideration 
entity will provide the agent, broker, or web-broker with a written 
notice of the reconsideration decision within 30 calendar days of the 
date it receives the request for reconsideration. This decision will 
constitute HHS's final determination.
* * * * *
    (i) Use of agents' and brokers' and web-brokers' internet websites 
for SHOP. For plan years beginning on or after January 1, 2015, in 
States that permit this activity under State law, a SHOP may permit 
agents, brokers, and web-brokers to use an internet website to assist 
qualified employers and facilitate enrollment of enrollees in a QHP 
through the Exchange, under paragraph (c)(3) of this section.
    (j) * * *
    (1) An agent, broker, or web-broker that assists with or 
facilitates enrollment of qualified individuals, qualified employers, 
or qualified employees, in coverage in a manner that constitutes 
enrollment through a Federally-facilitated Exchange, or assists 
individuals in applying for advance payments of the premium tax credit 
and cost-sharing reductions for QHPs sold through a Federally-
facilitated Exchange, must--
* * * * *
    (3) If an agent, broker, or web-broker fails to provide correct 
information, he, she, or it will nonetheless be deemed in compliance 
with paragraphs (j)(2)(i) and (ii) of this section if HHS determines 
that there was a reasonable cause for the failure to provide correct 
information and that the agent, broker, or web-broker acted in good 
faith.
    (k) * * *
    (1) If HHS determines that an agent, broker, or web-broker has 
failed to comply with the requirements of this section, in addition to 
any other available remedies, that agent, broker, or web-broker--
* * * * *
    (2) HHS will notify the agent, broker, or web-broker of the 
proposed imposition of penalties under paragraph (k)(1)(i) of this 
section as part of the termination notice issued under paragraph (g) 
and, after 30 calendar days from the date of the notice, may impose the 
penalty if the agent, broker, or web-broker has not requested a 
reconsideration under paragraph (h) of this section. The proposed 
imposition of penalties under paragraph (k)(1)(ii) of this section will 
follow the process outlined under Sec.  155.285.
    (3) HHS may immediately suspend the agent's or broker's ability to 
transact information with the Exchange if HHS discovers circumstances 
that pose unacceptable risk to Exchange operations or Exchange 
information technology systems until the incident or breach is remedied 
or sufficiently mitigated to HHS's satisfaction.
    (l) Application to State Exchanges using a Federal platform. An 
agent, broker, or web-broker who enrolls qualified individuals, 
qualified employers, or qualified employees in coverage in a manner 
that constitutes enrollment through an State Exchange using a Federal 
platform, or assists individual market consumers with submission of 
applications for advance payments of the premium tax credit and cost-
sharing reductions through an State Exchange using a Federal platform 
must comply with all applicable Federally-facilitated Exchange 
standards in this section.
    (m) Web-broker agreement suspension, termination, and denial and 
information collection. (1) A web-broker's agreement executed under 
paragraph (d) of this section, may be suspended or terminated under 
paragraph (g) of this section, and a web-broker may be denied the right 
to enter into agreements with the Federally-facilitated Exchanges under 
paragraph (k)(1)(i) of this section, based on the actions of its 
officers, employees, contractors, or agents, whether or not the 
officer, employee, contractor, or agent is registered with the Exchange 
as an agent or broker.
    (2) A web-broker's agreement executed under paragraph (d) of this 
section may be suspended or terminated under paragraph (g) of this 
section, and a web-broker may be denied the right to enter into 
agreements with the Federally-facilitated Exchanges under paragraph 
(k)(1)(i) of this section, if it is under the common ownership or 
control or is an affiliated business of another web-broker that had its 
agreement suspended or terminated under paragraph (g) of this section.
    (3) The Exchange may collect information from a web-broker during 
its registration with the Exchange under paragraph (d)(1) of this 
section, or at another time on an annual basis, in a form and manner to 
be specified by HHS, sufficient to establish the identities of the 
individuals who comprise its corporate ownership and leadership and to 
ascertain any corporate or business relationships it has with other 
entities that may seek to register with the Federally-facilitated 
Exchange as web-brokers.
0
16. Section 155.221 is amended by:
0
a. Revising the section heading;
0
b. Redesignating paragraphs (a), (b), and (c) as paragraphs (e), (f), 
and (g), respectively;
0
c. Adding new paragraphs (a), (b), and (c) and adding paragraph (d);
0
d. Revising newly redesignated paragraphs (e), (f) introductory text, 
(f)(2) through (4) and (6) and (7), and (g); and
0
e. Adding paragraph (h).
    The revisions and additions read as follows:


Sec.  155.221   Standards for direct enrollment entities and for third-
parties to perform audits of direct enrollment entities.

    (a) Direct enrollment entities. The Federally-facilitated Exchanges 
will permit the following entities to assist consumers with direct 
enrollment in QHPs offered through the Exchange in a manner that is 
considered to be through the Exchange, to the extent permitted by 
applicable State law:
    (1) QHP issuers that meet the applicable requirements in this 
section and Sec.  156.1230 of this subchapter; and
    (2) Web-brokers that meet the applicable requirements in this 
section and Sec.  155.220.
    (b) Direct enrollment entity requirements. For the Federally-
facilitated Exchanges, a direct enrollment entity must:
    (1) Display and market QHPs and non-QHPs on separate website pages 
on its non-Exchange website;
    (2) Prominently display a standardized disclaimer in the form and 
manner provided by HHS;
    (3) Limit marketing of non-QHPs during the Exchange eligibility 
application and QHP plan selection process in a manner that minimizes 
the likelihood that consumers will be confused as to what products are 
available through the Exchange and what products are not;
    (4) Demonstrate operational readiness and compliance with 
applicable requirements prior to the direct enrollment entity's 
internet website being used to complete an Exchange

[[Page 319]]

eligibility application or a QHP selection; and
    (5) Comply with applicable Federal and State requirements.
    (c) Direct enrollment entity application assister requirements. For 
the Federally-facilitated Exchanges, to the extent permitted under 
state law, a direct enrollment entity may permit its direct enrollment 
entity application assisters, as defined at Sec.  155.20, to assist 
individuals in the individual market with applying for a determination 
or redetermination of eligibility for coverage through the Exchange and 
for insurance affordability programs, provided that such direct 
enrollment entity ensures that each of its direct enrollment entity 
application assisters meets the requirements in Sec.  155.415(b).
    (d) Federally-facilitated Exchange direct enrollment entity 
suspension. HHS may immediately suspend the direct enrollment entity's 
ability to transact information with the Exchange if HHS discovers 
circumstances that pose unacceptable risk to the accuracy of the 
Exchange's eligibility determinations, Exchange operations, or Exchange 
information technology systems until the incident or breach is remedied 
or sufficiently mitigated to HHS's satisfaction.
    (e) Third parties to perform audits of direct enrollment entities. 
A direct enrollment entity must engage an independent, third-party 
entity to conduct an initial and annual review to demonstrate the 
direct enrollment entity's operational readiness and compliance with 
applicable direct enrollment entity requirements in accordance with 
paragraph (b)(4) of this section prior to the direct enrollment 
entity's internet website being used to complete an Exchange 
eligibility application or a QHP selection. The third-party entity will 
be a downstream or delegated entity of the direct enrollment entity 
that participates or wishes to participate in direct enrollment.
    (f) Third-party auditor standards. A direct enrollment entity must 
satisfy the requirement to demonstrate operational readiness under 
paragraph (e) of this section by engaging a third-party entity that 
executes a written agreement with the direct enrollment entity under 
which the third-party entity agrees to comply with each of the 
following standards:
* * * * *
    (2) Adheres to HHS specifications for content, format, privacy, and 
security in the conduct of an operational readiness review, which 
includes ensuring that direct enrollment entities 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 direct enrollment entities 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 direct enrollment entities 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 a direct enrollment entity 
for which it is conducting an operational readiness review;
* * * * *
    (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 (e) 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 a direct enrollment entity's 
obligations in accordance with standards under paragraph (e) of this 
section until 10 years from the date of creation of a specific audit; 
and
* * * * *
    (g) Multiple auditors. A direct enrollment entity may engage 
multiple third-party entities to conduct the audit under paragraph (e) 
of this section.
    (h) Application to State Exchanges using a Federal platform. A 
direct enrollment entity that enrolls qualified individuals in coverage 
in a manner that constitutes enrollment through a State Exchange using 
a Federal platform, or assists individual market consumers with 
submission of applications for advance payments of the premium tax 
credit and cost-sharing reductions through a State Exchange using a 
Federal platform must comply with all applicable federally-facilitated 
Exchange standards in this section.
0
17. Section 155.415 is revised to read as follows:


Sec.  155.415   Allowing issuer or direct enrollment entity application 
assisters to assist with eligibility applications.

    (a) Exchange option. An Exchange, to the extent permitted by State 
law, may permit issuer application assisters and direct enrollment 
entity application assisters, as defined at Sec.  155.20, to assist 
individuals in the individual market with applying for a determination 
or redetermination of eligibility for coverage through the Exchange and 
insurance affordability programs, provided that such issuer application 
assisters or direct enrollment entity application assisters meet the 
requirements set forth in paragraph (b) of this section.
    (b) Application assister requirements. If permitted by an Exchange 
under paragraph (a) of this section, and to the extent permitted by 
State law, an issuer may permit its issuer application assisters and a 
direct enrollment entity may permit its direct enrollment entity 
application assisters to assist individuals in the individual market 
with applying for a determination or redetermination of eligibility for 
coverage through the Exchange and for insurance affordability programs, 
provided that such issuer or direct enrollment entity ensures that each 
of its issuer application assisters or direct enrollment entity 
application assisters at least--
    (1) Receives training on QHP options and insurance affordability 
programs, eligibility, and benefits rules and regulations, and for 
application assisters providing assistance in the Federally-facilitated 
Exchanges or a State Exchange using a Federal platform, the assisters 
must fulfill this requirement by completing registration and training 
in a form and manner to be specified by HHS;
    (2) Complies with the Exchange's privacy and security standards 
adopted consistent with Sec.  155.260; and
    (3) Complies with applicable State law related to the sale, 
solicitation, and negotiation of health insurance products, including 
any State licensure laws applicable to the functions to be performed by 
the issuer application assister or direct enrollment entity application 
assister; confidentiality; and conflicts of interest.
0
18. Section 155.420 is amended--
0
a. By revising paragraphs (a)(5) and (b)(2)(iv);
0
b. In paragraph (d)(6)(ii) by removing ``; or'' and adding in its place 
``;'';
0
c. In paragraph (d)(6)(iii) by removing ``.'' and adding in its place 
``;'';
0
d. In paragraph (d)(6)(iv) by removing ``;'' and adding in its place 
``; or''; and
0
e. By adding paragraph (d)(6)(v).
    The revisions and addition reads as follows:


Sec.  155.420   Special enrollment periods.

    (a) * * *
    (5) Prior coverage requirement. Qualified individuals who are 
required to demonstrate coverage in the 60 days

[[Page 320]]

prior to a qualifying event can either demonstrate that they had 
minimum essential coverage as described in 26 CFR 1.5000A-1(b) or 
demonstrate that they had coverage as described in paragraphs 
(d)(1)(iii) through (iv) of this section 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) * * *
    (iv) If a qualified individual, enrollee, or dependent, as 
applicable, loses coverage as described in paragraph (d)(1) or 
(d)(6)(iii) of this section, gains access to a new QHP as described in 
paragraph (d)(7) of this section, becomes newly eligible for enrollment 
in a QHP through the Exchange in accordance with Sec.  155.305(a)(2) as 
described in paragraph (d)(3) of this section, or becomes newly 
eligible for advance payments of the premium tax credit in conjunction 
with a permanent move as described in paragraph (d)(6)(iv) of this 
section, and if the plan selection is made on or before the day of the 
triggering event, the Exchange must ensure that the coverage effective 
date is the first day of the month following the date of the triggering 
event. If the plan selection is made after the date of the triggering 
event, the Exchange must ensure that coverage is effective in 
accordance with paragraph (b)(1) of this section or on the first day of 
the following month, at the option of the Exchange.
* * * * *
    (d) * * *
    (6) * * *
    (v) At the option of the Exchange, the qualified individual, or his 
or her dependent--
    (A) Experiences a decrease in household income;
    (B) Is newly determined eligible by the Exchange for advanced 
payments of the premium tax credit; and
    (C) Had minimum essential coverage as described in 26 CFR 1.5000A-
1(b) for one or more days during the 60 days preceding the date of the 
financial change.
* * * * *
0
19. Section 155.605 is amended by adding paragraph (e)(5) to read as 
follows:


Sec.  155.605   Eligibility standards for exemptions.

* * * * *
    (e) * * *
    (5) General Hardship. The IRS may allow an applicant to claim the 
exemption specified in HHS Guidance published September 12, 2018, 
entitled, ``Guidance on Claiming a Hardship Exemption through the 
Internal Revenue Service (IRS)'' (see https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Authority-to-Grant-HS-Exemptions-2018-Final-91218.pdf) and in IRS Notice 2019-05 (see https://www.irs.gov/pub/irs-drop/n-19-05.pdf), for the 2018 tax year.

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

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

    Authority:  42 U.S.C. 18021-18024, 18031-18032, 18041-18042, 
18044, 18054, 18061, 18063, 18071, 18082, 26 U.S.C. 36B, and 31 
U.S.C. 9701.

0
21. Section 156.122 is amended by adding paragraph (d)(3) to read as 
follows:


Sec.  156.122   Prescription drug benefits.

* * * * *
    (d) * * *
    (3) For plan years beginning on or after January 1, 2020, QHP 
issuers in a Federally-facilitated Exchange must notify HHS annually in 
an HHS-specified format of any mid-year formulary changes made in the 
prior plan year consistent with 45 CFR 147.106(e).
* * * * *
0
22. Section 156.130 is amended by adding paragraph (h) to read as 
follows:


Sec.  156.130   Cost-sharing requirements.

* * * * *
    (h) Use of generic drugs and coupons. For plan years beginning on 
or after January 1, 2020:
    (1) Notwithstanding any other provision of this section, for plans 
that cover both a brand drug that is a prescription drug and its 
generic equivalent, only the amount of cost sharing that would have 
been paid for the generic equivalent is required to count toward the 
annual limitation on cost sharing as defined in paragraph (a) of this 
section when:
    (i) An enrollee purchases a brand drug, if a generic alternative is 
available and medically appropriate for the enrollee;
    (ii) The plan has an exceptions process under section 156.122(c) of 
this subpart, and coverage of the brand drug has not been required 
under that process; and
    (iii) Notwithstanding the general rule that all prescription drugs 
covered by such a plan are considered EHB, the plan treats the covered 
brand drug as being in addition to EHB under the circumstances 
described in this paragraphs (h)(1)(i) and (ii) of this section.
    (2) Notwithstanding any other provision of this section, amounts 
paid toward cost sharing using any form of direct support offered by 
drug manufacturers to insured patients to reduce or eliminate immediate 
out-of-pocket costs for specific prescription brand drugs that have a 
generic equivalent is not required to be counted toward the annual 
limitation on cost sharing (as defined in paragraph (a) of this 
section).
0
23. Section 156.280 is amended by revising the section heading and 
adding paragraph (c)(3) to read as follows:


Sec.  156.280   Rules relating to coverage of abortion services and 
segregation of premiums for such services.

* * * * *
    (c) * * *
    (3) Subject to paragraphs (a) and (b) of this section, for plan 
years 2020 and beyond, if a QHP issuer provides coverage of services 
described in paragraph (d)(1) of this section in one or more QHPs at 
any actuarial value level of coverage specified at Sec.  156.140 of 
this part, the QHP issuer must also offer throughout each service area 
in the Exchange in which it offers such coverage at least one QHP at 
any metal level that provides otherwise identical benefits to one of 
the QHPs providing coverage of services described in paragraph (d)(1) 
of this section, but that omits coverage of such services to the extent 
permissible under applicable state law.
* * * * *
0
24. Section 156.1230 is amended by--
0
a. Removing and reserving paragraph (a)(2);
0
b. Revising paragraph (b)(1);
0
c. Removing paragraph (b)(2); and
0
d. Redesignating paragraph (b)(3) as (b)(2).
    The revisions read as follows:


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

* * * * *

[[Page 321]]

    (b) * * *
    (1)The QHP issuer must comply with applicable requirements in Sec.  
155.221 of this subchapter.
* * * * *

    Dated: December 14, 2018.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: December 18, 2018.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2019-00077 Filed 1-17-19; 4:15 pm]
 BILLING CODE 4120-01-P