[Federal Register Volume 85, Number 25 (Thursday, February 6, 2020)]
[Proposed Rules]
[Pages 7088-7159]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02021]



[[Page 7087]]

Vol. 85

Thursday,

No. 25

February 6, 2020

Part III





Department of Health and Human Services





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45 CFR Parts 146, 149, 155, et al.





Patient Protection and Affordable Care Act; HHS Notice of Benefit and 
Payment Parameters for 2021; Notice Requirement for Non-Federal 
Governmental Plans; Proposed Rule

  Federal Register / Vol. 85, No. 25 / Thursday, February 6, 2020 / 
Proposed Rules  

[[Page 7088]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

45 CFR Parts 146, 149, 155, 156, and 158

[CMS-9916-P]
RIN 0938-AT98


Patient Protection and Affordable Care Act; HHS Notice of Benefit 
and Payment Parameters for 2021; Notice Requirement for Non-Federal 
Governmental Plans

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 cost-sharing 
reductions; and user fees for federally-facilitated Exchanges and 
State-based Exchanges on the Federal platform. It also proposes changes 
related to essential health benefits and would provide states with 
additional flexibility in the operation and establishment of Exchanges. 
It includes proposed changes related to cost-sharing for prescription 
drugs; excepted benefit health reimbursement arrangements offered by 
non-Federal governmental plan sponsors; the medical loss ratio program; 
Exchange eligibility and enrollment; exemptions from the requirement to 
maintain coverage; quality rating information display standards for 
Exchanges; and other related topics. It also proposes to repeal 
regulations relating to the Early Retiree Reinsurance Program.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on March 2, 2020.

ADDRESSES: In commenting, please refer to file code CMS-9916-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of 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-9916-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-9916-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: Usree Bandyopadhyay, (410) 786-6650, 
Kiahana Brooks, (301) 492-5229, or Evonne Muoneke (301) 492-4402, for 
general information.
    David Mlawsky, (410) 786-6851, for matters related to excepted 
benefit health reimbursement arrangements (HRAs).
    Allison Yadsko, (410) 786-1740, Joshua Paul, (301) 492-4347, or 
Krutika Amin, (301) 492-5153, for matters related to risk adjustment.
    Aaron Franz, (410) 786-8027, for matters related to federally-
facilitated Exchange (FFE) and State-based Exchange on the Federal 
platform (SBE-FP) user fees and sequestration.
    Joshua Paul, (301) 492-4347, or Allison Yadsko, (410) 786-1740, for 
matters related to risk adjustment data validation (RADV).
    Joshua Paul, (301) 492-4347, for matters related to the premium 
adjustment percentage.
    Rebecca Zimmermann, (301) 492-4396, for matters related to value-
based insurance plan design.
    Becca Bucchieri, (301) 492-4341, for matters related to essential 
health benefit (EHB)-benchmark plans and defrayal of state-required 
benefits.
    Jill Gotts, (202) 603-0480, for matters related to eligibility 
appeals.
    Emily Ames, (301) 492-4246, for matters related to coverage 
effective dates and termination notices.
    Marisa Beatley, (301) 492-4307, for matters related to employer-
sponsored coverage verification and periodic data matching (PDM).
    Carolyn Kraemer, (301) 492-4197, for matters related to special 
enrollment periods under part 155.
    Kendra May, (301) 492-4477, for matters related to terminations.
    Ken Buerger, (410) 786-1190, for matters related to cost-sharing 
requirements.
    Christina Whitefield, (301) 492-4172, for matters related to the 
medical loss ratio (MLR) program.
    Kevin Kendrick, (301) 492-4127, for matters related to the Early 
Retiree Reinsurance Program (ERRP).
    Jenny Chen, (301) 492-5156, Shilpa Gogna, (301) 492-4257 or Nidhi 
Singh Shah, (301) 492-5110), for matters related to quality rating 
information display standards for Exchanges.

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 2021
    A. Part 146--Requirements for the Group Health Insurance Market: 
Excepted Benefit HRAs Offered by Non-Federal Governmental Plan 
Sponsors
    B. Part 149--Requirements for the Early Retiree Reinsurance 
Program
    C. Part 153--Standards Related to Reinsurance, Risk Corridors, 
and Risk Adjustment
    D. Part 155--Exchange Establishment Standards and Other Related 
Standards Under the Affordable Care Act
    E. Part 156--Health Insurance Issuer Standards Under the 
Affordable Care Act, Including Standards Related to Exchanges
    F. Part 158--Issuer Use of Premium Revenue: Reporting and Rebate 
Requirements
IV. Collection of Information Requirements
    A. Wage Estimates
    B. ICRs Regarding Notice Requirement for Excepted Benefit HRAs
    C. ICRs Regarding Special Enrollment Periods
    D. ICRs Regarding Quality Rating Information Display Standards 
for Plan Years Beginning On or After January 1, 2021
    E. ICRs Regarding State Selection of EHB-Benchmark Plan for Plan 
Years Beginning On or After January 1, 2020

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    F. ICRs Regarding Termination of Coverage for Enrollment for 
Qualified Individuals
    G. ICRs Regarding Medical Loss Ratio (MLR)
    H. Summary of Annual Burden Estimate for Proposed Requirements
    I. 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

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 in qualified health plans (QHPs). 
Many individuals who enroll in QHPs through individual market Exchanges 
are eligible to receive a premium tax credit (PTC) 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 
propose, within the limitations of current law, to reduce fiscal and 
regulatory burdens across different program areas and to provide 
stakeholders with greater flexibility.
    In previous rulemakings, we established provisions and parameters 
to implement many PPACA requirements and programs. In this proposed 
rule, we propose to amend some of these provisions and parameters, with 
a focus on maintaining a stable regulatory environment. These proposed 
changes are intended to provide issuers with greater predictability for 
upcoming plan years, while simultaneously enhancing the role of states 
in these programs. The proposals would also provide states with 
additional flexibilities, reduce unnecessary regulatory burdens on 
stakeholders, empower consumers, ensure program integrity, and improve 
affordability. In addition, we solicit comment on modifying the 
automatic re-enrollment process for enrollees who would be 
automatically re-enrolled with advance payments of the premium tax 
credit (APTC) that would cover the enrollee's entire premium. Finally, 
we discuss an alternative to the current requirement that Exchanges use 
random sampling as part of their methods for verifying eligibility for 
or enrollment in an eligible employer-sponsored plan that we are 
considering for future rulemaking. We also announce that, pending such 
future rulemaking, HHS will not take enforcement action against 
Exchanges that do not implement a random sampling methodology during 
plan years 2020 and 2021.
    Risk adjustment continues to be a core program in the individual 
and small group markets both on and off Exchanges, and we propose 
recalibrated parameters for the HHS-operated risk adjustment 
methodology. To reduce issuer burden in participating in the risk 
adjustment program, we also propose changes intended to alleviate 
burden for small issuers associated with participating in risk 
adjustment data validation (RADV).
    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 2021 plan year user fee rates 
for issuers offering plans through the Exchanges using the Federal 
platform. We propose maintaining the Federal-facilitated Exchange (FFE) 
and State-based Exchange on the Federal platform (SBE-FP) user fees at 
the current 2020 plan year rates, 3.0 and 2.5 percent of total monthly 
premiums, respectively, in order to preserve and ensure that the FFE 
has sufficient funding to cover the cost of all special benefits 
provided to FFE issuers during the 2021 plan year. Alternatively, we 
are considering and seek comment on reducing the FFE and SBE-FP user 
fee rates below 2020 plan year levels. We are also seeking information 
on trends in usage of Federal platform functions and services, 
potential efficiencies in Federal platform operations, and premium and 
enrollment projections, all of which might inform a change in the user 
fee level in the final rule.
    As we do every year, we also propose to update the maximum annual 
limitations on cost sharing for the 2021 benefit year, including those 
for CSR plan variations. These updates, which are required by law, will 
raise the annual limit on cost sharing, thereby increasing cost sharing 
and out-of-pocket spending for consumers who are close to the annual 
cost-sharing limit.
    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 provide detailed options to 
QHP issuers on ways in which they can implement value-based insurance 
plan designs that would empower consumers to receive high value 
services at lower costs. These value-based insurance plan designs will 
empower consumers and their providers to make evidence-based health 
decisions.
    We also propose new rules related to special enrollment periods. We 
propose to allow Exchange enrollees and their dependents who are 
enrolled in silver plans and become newly ineligible for CSRs to change 
to a QHP one metal level higher or lower, if they choose. We propose to 
require Exchanges to apply plan category limitations to dependents who 
are currently enrolled in Exchange coverage and whose non-dependent 
household member qualifies for a special enrollment period to newly 
enroll in coverage. We also propose to shorten the time between the 
date a consumer enrolls in a plan through certain special enrollment 
periods and the effective date of that plan. We further propose to 
allow all enrollees granted retroactive coverage through a special 
enrollment period the option to select a later effective date and pay 
for only prospective coverage. We propose to allow individuals and 
their dependents who are provided a qualified small employer health 
reimbursement arrangement (QSEHRA) on a non-calendar year basis to 
qualify for the existing special enrollment period for individuals 
enrolled in any

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non-calendar year group health plan or individual health insurance 
coverage. We also propose to allow enrollees whose requests for 
termination of their coverage were not implemented due to an Exchange 
technical error to terminate their coverage retroactive to the date 
they attempted the termination, at the option of the Exchange.
    We also propose new notice requirements. To increase transparency 
in terminations of Exchange coverage or enrollment, we propose to 
require termination notices be provided in all scenarios where Exchange 
coverage or enrollment is terminated. We also propose to require 
excepted benefit health reimbursement arrangements (HRAs) sponsored by 
non-Federal governmental plan entities to provide a notice to 
participants that contains specified information about the benefits 
available under the excepted benefit HRA.
    We also propose changes to the quality rating information display 
requirements for Exchanges. To continue providing flexibility for State 
Exchanges, we propose to codify in regulation the option for State 
Exchanges that operate their own eligibility and enrollment platforms 
to display the quality rating information provided by HHS or to display 
quality rating information based upon certain permissible state-
specific customizations of the quality rating information provided by 
HHS.
    Stable and affordable Exchanges with healthy risk pools are 
necessary for ensuring consumers maintain stable access to health 
insurance options. In order to minimize the potential for adverse 
selection in the Exchanges, we are sharing our future plans for 
rulemaking to allow Exchanges to conduct risk-based employer sponsored 
coverage verification and to remove the requirement that Exchanges 
select a statistically random sample of applicants when no electronic 
data sources are available. In order to make it easier for issuers to 
offer wellness incentives to enrollees and promote a healthier risk 
pool, we propose to allow issuers to include wellness incentives as 
quality improvement activities (QIA) in the individual market for MLR 
reporting and calculation purposes.
    We propose annual state reporting of state-required benefits that 
are in addition to essential health benefits (EHB) for which states are 
required to defray the costs. This will help to ensure that Federal 
APTC dollars are protected and states are appropriately compensating 
enrollees or issuers for services that are in addition to EHB.
    We propose changes to the policy regarding how drug manufacturer 
coupons accrue towards the annual limitation on cost sharing. 
Specifically, we propose to revise Sec.  156.130(h) to state that, to 
the extent consistent with applicable state law, amounts paid toward 
reducing the cost sharing incurred by an enrollee using any form of 
direct support offered by drug manufacturers for specific prescription 
drugs may be, but are not required to be, counted toward the annual 
limitation on cost sharing. We propose to interpret the definition of 
cost sharing not to include expenditures covered by drug manufacturer 
coupons.
    We propose additional steps to ensure the proper execution of 
Federal requirements and to safeguard and conserve Federal funds. To 
protect against unnecessary overpayments of APTC funds, we propose to 
streamline the process for terminating coverage of enrollees who die 
while enrolled in Exchange coverage. In order to ensure that MLR 
reporting and rebate calculations are accurate, we propose that issuers 
must report expenses for functions outsourced to or services provided 
by other entities consistently with issuers' non-outsourced expenses, 
and require issuers to deduct prescription drug rebates from MLR 
incurred claims not only when such rebates are received by the issuer, 
but also when they are received and retained by an entity that provides 
pharmacy benefit management services to the issuer. We further propose 
that where enrollees provide consent for the Exchange to end their QHP 
coverage if they are found to be dually enrolled in other qualifying 
coverage during the Exchange's periodic data matching (PDM) process, 
the Exchange will not be required to redetermine the enrollee's 
eligibility for financial assistance and may discontinue coverage 
consistent with the consent given by the enrollee.
    Finally, we propose to repeal regulations currently set forth at 45 
CFR part 149, governing the Early Retiree Reinsurance Program (ERRP) 
program and its implementation. The program sunset by law as of January 
1, 2014.

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.
    These provisions of the PHS Act were later augmented by other laws, 
including the PPACA. Subtitles A and C of title I of the PPACA 
reorganized, amended, and added to the provisions of part A of title 
XXVII of the PHS Act relating to group health plans and health 
insurance issuers in the group and individual markets. The term ``group 
health plan'' includes both insured and self-insured group health 
plans.\2\
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    \2\ The term ``group health plan'' is used in title XXVII of the 
PHS Act and is distinct from the term ``health plan'' as used in 
other provisions of title I of PPACA. The term ``health plan'' does 
not include self-insured group health plans.
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    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 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 1302 of the PPACA provides for the establishment of an EHB 
package that includes coverage of EHBs (as defined by the Secretary), 
cost-sharing limits, and AV 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 1302(d) of the PPACA describes the various levels of coverage 
based on their 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

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allow for de minimis variation in AV calculations.
    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 qualified 
individuals and qualified employers in the state. 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.\3\
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    \3\ The Indian Health Care Improvement Act (IHCIA), the 
cornerstone legal authority for the provision of health care to 
American Indians and Alaska Natives, was made permanent when 
President Obama signed the bill on March 23, 2010, as part of the 
Patient Protection and Affordable Care Act.
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    Section 1311(c)(3) of the PPACA provides the Secretary with 
authority to develop a system to rate QHPs offered through an Exchange, 
based on relative quality and price. Section 1311(c)(4) of the PPACA 
authorizes the Secretary to establish an enrollee satisfaction survey 
that evaluates the level of enrollee satisfaction of members with QHPs 
offered through an Exchange, for each QHP with more than 500 enrollees 
in the prior year. Further, sections 1311(c)(3) and 1311(c)(4) of the 
PPACA require an Exchange to provide this quality rating information 
\4\ to individuals and employers on the Exchange's website.
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    \4\ The term ``quality rating information'' includes the QRS 
scores and ratings and the results of the enrollee satisfaction 
survey (which is also known as the ``Qualified Health Plan (QHP) 
Enrollee Experience Survey'').
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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 1312(c) of the PPACA 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 PPACA.
    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.
    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. 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. 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 must 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 1411(c) of the PPACA requires the Secretary to submit 
certain information provided by applicants under section 1411(b) of the 
PPACA to other Federal officials for verification, including income and 
family size information to the Secretary of the Treasury.
    Section 1411(d) of the PPACA provides that the Secretary must 
verify the accuracy of information provided by applicants under section 
1411(b) of the PPACA for which section 1411(c) does not prescribe a 
specific verification procedure, in such manner as the Secretary 
determines appropriate.
    Section 1411(f) of the PPACA requires the Secretary, in 
consultation with the Treasury and Homeland Security Department 
Secretaries and the Commissioner of Social Security, to establish 
procedures for hearing and making decisions governing appeals of 
Exchange eligibility determinations.
    Section 1411(f)(1)(B) of the PPACA requires the Secretary to 
establish procedures to redetermine eligibility on a periodic basis, in 
appropriate circumstances, including eligibility to purchase a QHP 
through the Exchange and for APTC and CSRs.
    Section 1411(g) of the PPACA allows the exchange of applicant 
information only for the limited purposes of, and to the extent 
necessary to, ensure the efficient operation of the Exchange, including 
by verifying eligibility to enroll through the Exchange and for APTC 
and CSRs.
    Sections 2722 and 2763 of the PHS Act provide that the requirements 
of title XXVII of the PHS Act generally do not apply to excepted 
benefits. Excepted benefits are described in section 2791 of the PHS 
Act. This provision establishes four categories of excepted benefits. 
One such category is limited excepted benefits, which may include 
limited scope vision or dental benefits, and benefits for long-term 
care, nursing home care, home health care, or community based care. 
Section 2791(c)(2)(C) of the PHS Act, section 733(c)(2)(C) of the 
Employee Retirement Income Security Act (ERISA), and section 
9832(c)(2)(C) of the Internal Revenue Code (the Code) authorize the 
Secretary of Health and Human Services, with the Secretaries of Labor 
and the Treasury (collectively, the Secretaries), to issue regulations 
establishing other, similar limited benefits as excepted benefits. To 
be excepted under the category of limited excepted benefits, section 
2722(c)(1) of the PHS Act provides that limited benefits must either: 
(1) Be provided under a separate policy, certificate, or contract of 
insurance; or (2) otherwise not be an integral part of the plan.
    Section 2718 of the PHS Act, as added by the PPACA, generally 
requires health

[[Page 7092]]

insurance issuers to submit an annual MLR report to HHS, and provide 
rebates to enrollees if the issuers do not achieve specified MLR 
thresholds.
    Section 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.\5\ Notwithstanding that reduction, certain exemptions are 
still relevant to determine whether individuals age 30 and above 
qualify to enroll in catastrophic coverage under Sec.  155.305(h).
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    \5\ Public Law 115-97, 131 Stat. 2054 (2017).
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1. Premium Stabilization Programs 6
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    \6\ 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.
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    In the July 15, 2011 Federal Register (76 FR 41929), we published a 
proposed rule outlining the framework for the premium stabilization 
programs. We implemented the premium stabilization programs in a final 
rule, published in the March 23, 2012 Federal Register (77 FR 17219) 
(Premium Stabilization Rule). In the December 7, 2012 Federal Register 
(77 FR 73117), we published a proposed rule outlining the benefit and 
payment parameters for the 2014 benefit year to expand the provisions 
related to the premium stabilization programs and set forth payment 
parameters in those programs (proposed 2014 Payment Notice). We 
published the 2014 Payment Notice final rule in the March 11, 2013 
Federal Register (78 FR 15409). In the 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 
RADV 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 RADV 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 External Data Gathering Environment (EDGE) dataset.\7\
---------------------------------------------------------------------------

    \7\ ``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.\8\
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    \8\ ``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

[[Page 7093]]

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 January 24, 2019, Federal Register (84 FR 227), we published 
a proposed rule outlining updates to the calibration of the risk 
adjustment methodology, the use of EDGE data for research purposes, and 
updates to RADV audits. We published the 2020 Payment Notice final rule 
in the April 25, 2019, Federal Register (84 FR 17454)
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 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 Market Stabilization final rule that was published 
in the April 18, 2017 Federal Register (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 Small Business Health Options Program (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).
    In the 2014 Payment Notice and in the Amendments to the HHS Notice 
of Benefit and Payment Parameters for 2014 interim final rule, 
published in the March 11, 2013 Federal Register (78 FR 15541), we set 
forth standards related to Exchange user fees. 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 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 the April 25, 2019 Federal Register (84 
FR 17454), the final 2020 Payment Notice established a new special 
enrollment period.
5. Essential Health Benefits
    On December 16, 2011, HHS released a bulletin \9\ 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.
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    \9\ ``Essential Health Benefits Bulletin.'' December 16, 2011. 
Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/essential_health_benefits_bulletin.pdf.
---------------------------------------------------------------------------

6. Cost-Sharing Requirements
    In the 2020 Payment Notice, published on April 25, 2019 (84 FR 
17454), we added Sec.  156.130(h)(1) to clarify that issuers are not 
required to count toward the annual limitation on cost sharing any 
forms of direct support offered by drug manufacturers to reduce out-of-
pocket costs for brand drugs when a generic drug is available and 
medically appropriate.
7. Excepted Benefit Health Reimbursement Arrangements
    In the October 29, 2018 Federal Register (83 FR 54420), the 
Departments of Health and Human Services, Labor, and the Treasury (the 
Departments) published proposed regulations on HRAs and other account-
based group health plans, including a new excepted benefit referred to 
as an excepted benefit HRA. In the June 20, 2019 Federal Register (84 
FR 28888), the Departments published final regulations on HRAs and 
other account-based group health plans, including excepted benefit HRAs 
(the HRA rule).
8. Medical Loss Ratio (MLR)
    We published a request for comment on section 2718 of the PHS Act 
in the April 14, 2010 Federal Register (75 FR 19297), and published an 
interim final rule with a 60-day comment period relating to the MLR 
program on December 1, 2010 (75 FR 74863). A final rule with a 30-day 
comment period was published in the December 7, 2011 Federal Register 
(76 FR 76573). An interim final rule with a 60-day comment period was 
published in the December 7, 2011 Federal Register (76 FR 76595). A 
final rule was published in the Federal Register on May 16, 2012 (77 FR 
28790). The MLR program requirements were amended in final rules 
published in the March 11, 2014 Federal Register (79 FR 13743), the May 
27, 2014 Federal Register (79 FR 30339), the February 27, 2015 Federal 
Register (80 FR 10749), the March 8, 2016 Federal Register (81 FR 
12203), the December 22, 2016 Federal Register (81 FR 94183), and the 
April 17, 2018 Federal Register (83 FR 16930).

[[Page 7094]]

9. Early Retiree Reinsurance Program (ERRP)
    In the May 5, 2010 Federal Register (75 FR 24450), we published an 
interim final rule with comment period governing the ERRP. In the April 
5, 2011 Federal Register (76 FR 18766), we published a notice informing 
the public that as of May 5, 2011, the ERRP would stop accepting 
applications for new participants in the program due to the 
availability of funds. In the December 13, 2011 Federal Register (76 FR 
77537), we published a notice informing the public that, due to the 
availability of funds, the ERRP would deny reimbursement requests that 
include claims incurred after December 31, 2011. In the March 21, 2012 
Federal Register (77 FR 16551), we published a notice establishing a 
timeframe within which plan sponsors participating in the program were 
expected to use ERRP reimbursement funds. Specifically, the notice 
informed participating plan sponsors that reimbursement funds should be 
used as early as possible, but not later than January 1, 2014.
10. Quality Rating System (QRS) and Enrollee Satisfaction Survey
    Sections 1311(c)(3) of the PPACA directs the Secretary of HHS to 
develop a quality rating for each QHP offered through an Exchange, 
based on relative quality and price. Further, section 1311(c)(4) of the 
PPACA requires the Secretary to establish an enrollee satisfaction 
survey that evaluates the level of enrollee satisfaction of members 
with QHPs offered through the Exchanges for each QHP with more than 500 
enrollees in the prior year. Exchanges are also required to make 
quality rating and enrollee satisfaction information available to 
individuals and employers on their respective websites. Consistent with 
these statutory provisions, in May 2014, HHS issued regulation at 
Sec. Sec.  155.1400 and 155.1405 to establish the Quality Rating System 
(QRS) and the QHP Enrollee Experience Survey display requirements for 
Exchanges and has worked towards requiring nationwide the prominent 
display of quality rating information on Exchange websites.\10\ As a 
condition of certification and participation in the Exchanges, HHS 
requires that QHP issuers submit QRS clinical measure data and QHP 
Enrollee Survey response data for their respective QHPs offered through 
an Exchange in accordance with HHS guidance, which has been issued 
annually for each forthcoming plan year.\11\
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    \10\ Patient Protection and Affordable Care Act; Exchange and 
Insurance Market Standards for 2015 and Beyond, Final Rule, 79 FR 
30240 at 30352 (May 27, 2014). Also see the CMS Bulletin on display 
of QRS star ratings and Qualified Health Plan (QHP) Enrollee Survey 
results for QHPs offered through Exchanges (August 15, 2019), 
available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/QualityRatingInformationBulletinforPlanYear2020.pdf.
    \11\ See, for example, Center for Clinical Standards & Quality, 
CMS, The Quality Rating System and Qualified Health Plan Enrollee 
Experience Survey: Technical Guidance for 2020 (October 2019), 
available at https://www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/QualityInitiativesGenInfo/Downloads/QRS-and-QHP-Enrollee-Survey-Technical-Guidance-for-2020-508.pdf.
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B. Stakeholder Consultation and Input

    HHS has consulted with stakeholders on policies related to the 
operation of Exchanges and the risk adjustment and RADV programs. We 
have held a number of listening sessions with consumers, providers, 
employers, health plans, advocacy groups and the actuarial community to 
gather public input. We have solicited input from state representatives 
on numerous topics, particularly EHBs, state mandates 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, 149, 153, 155, 156 and 158.
    The proposed changes to 45 CFR part 146 would establish a notice 
requirement for non-Federal governmental plan sponsors that offer an 
excepted benefit HRA.
    The proposed changes to part 149 would delete the regulations 
related to the ERRP, which ended on January 1, 2014.
    The proposed changes to 45 CFR part 153 would recalibrate the risk 
adjustment models consistent with the approach outlined in the 2020 
Payment Notice to transition away from the use of MarketScan[supreg] 
data and incorporate the most recent benefit years of enrollee-level 
EDGE data that are available for 2021 and beyond. The proposals 
regarding part 153 also relate to the risk adjustment user fee for the 
2020 benefit year and modifications to RADV requirements for the states 
where HHS operates the risk adjustment program.
    We propose several amendments to the definitions applicable to part 
155. We discuss future changes to 45 CFR part 155 that would allow 
Exchanges to implement a verification process for enrollment in or 
eligibility for an eligible employer-sponsored plan based on the 
Exchange's assessment of risk for inappropriate payments of APTC/CSR. 
We also clarify that an Exchange will not redetermine eligibility for 
APTC/CSRs for Medicare dual enrollees who direct the Exchange to end 
their QHP coverage; clarify that when an Exchange identifies deceased 
enrollees via PDM, the Exchange will terminate coverage retroactively 
to the date of death; allow enrollees and their dependents who are 
eligible for a special enrollment period due to becoming newly 
ineligible for CSRs, and are enrolled in a silver-level QHP, to change 
to a QHP one metal level higher or lower if they elect to change their 
QHP enrollment through an Exchange; establish that an Exchange must 
apply plan category limitations to currently enrolled dependents whose 
non-dependent household member qualifies for a special enrollment 
period to newly enroll the non-dependent household member in Exchange 
coverage; provide that in the FFE, special enrollment periods currently 
following regular effective date rules would instead be effective on 
the first of the month following plan selection; align retroactive 
effective date and binder payment rules; establish that qualified 
individuals and dependents who are provided a QSEHRA with a non-
calendar year plan year would qualify for the existing special 
enrollment period for individuals enrolled in any non-calendar year 
group health plan or individual health insurance coverage; and allow 
enrollees blocked from termination due to an Exchange technical error 
to terminate their coverage retroactive to the date they attempted the 
termination.
    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 user fee rates for the 2021 
benefit year for all issuers participating on the Exchanges using the 
Federal platform. Further, a proposed change to 45 CFR part 156 would 
require QHP issuers to send to enrollees a termination notice for all 
termination events. We also propose to amend the

[[Page 7095]]

regulation addressing state selection of EHB-benchmark plans to require 
the reporting of state-required benefits. We also propose to offer QHP 
issuers the option to design value-based insurance plans that would 
empower consumers to receive high value services at lower cost. We 
propose to revise Sec.  156.130(h) in its entirety to address how any 
direct support offered by drug manufacturers to enrollees for specific 
prescription drugs are treated with regard to accrual towards the 
annual limitation on cost sharing.
    The proposed changes to 45 CFR part 158 would require issuers, for 
MLR purposes, to report expenses for functions outsourced to or 
services provided by other entities consistently with issuers' non-
outsourced expenses, and to deduct from incurred claims prescription 
drug rebates and other price concessions received and retained by the 
issuer or other entities providing pharmacy benefit management services 
to the issuers. The proposed changes to the MLR regulations would also 
explicitly allow issuers to report certain wellness incentives as QIA 
in the individual market.

III. Provisions of the Proposed HHS Notice of Benefit and Payment 
Parameters for 2021

A. Part 146--Requirements for the Group Health Insurance Market: 
Excepted Benefit HRAs Offered by Non-Federal Governmental Plan Sponsors

    HHS proposes to add a new paragraph (b)(3)(viii)(E) to Sec.  
146.145 to establish notice requirements for excepted benefit HRAs 
offered by non-Federal governmental plan sponsors. Excepted benefit 
HRAs are a new type of excepted benefit the Departments recently 
established in the HRA rule.\12\ The proposed new paragraph would 
require sponsors of non-Federal governmental plans that offer excepted 
benefit HRAs to provide a notice to eligible participants that contains 
specified information about the benefits available under the excepted 
benefit HRA.
---------------------------------------------------------------------------

    \12\ 84 FR 28888 (June 20, 2019).
---------------------------------------------------------------------------

    In the HRA rule, the Departments authorized a new form of HRA (the 
individual coverage HRA), and recognized certain HRAs as limited 
excepted benefits (the excepted benefit HRA), for plan years beginning 
on or after January 1, 2020. The individual coverage HRA and the 
excepted benefit HRA were designed to provide Americans with additional 
options to obtain quality, affordable health care by expanding the 
flexibility and use of HRAs. An entity may offer an individual coverage 
HRA subject to the HRA meeting the applicable conditions for individual 
coverage HRAs set forth in the HRA rule, including satisfying certain 
notice requirements. The notice must include a description of the terms 
of the individual coverage HRA, information regarding the PTC 
consequences of enrollment in the individual coverage HRA, and a 
statement about the ability to opt out of and waive future 
reimbursement from the individual coverage HRA, among other 
information.\13\ The individual coverage HRA can be used to reimburse, 
among other medical care expenses, premiums for individual health 
insurance coverage.
---------------------------------------------------------------------------

    \13\ Ibid at 28920-28924.
---------------------------------------------------------------------------

    Separately, under the HRA rule, benefits provided under an HRA or 
other account-based group health plan (other than a health flexible 
spending arrangement) will qualify as limited excepted benefits not 
subject to requirements under title XXVII of the PHS Act if they: (1) 
Are offered by a plan sponsor that also offers traditional group health 
plan coverage for the plan year to the participant; (2) are funded with 
amounts newly made available for each plan year that do not exceed 
$1,800, adjusted annually in a manner set forth in the HRA rule; (3) do 
not reimburse premiums for individual health insurance coverage, group 
health plan coverage (other than COBRA continuation coverage or other 
continuation coverage), or Medicare, except for coverage that consists 
solely of excepted benefits; and (4) are made available under the same 
terms to all similarly situated individuals, regardless of any health 
factor.
    Commenters on the proposed HRA rule \14\ suggested that the 
Departments provide certain notice requirements for excepted benefit 
HRAs. The commenters suggested that the required notice should be 
similar to the notice required for individual coverage HRAs as 
described above, or should, at a minimum, inform participants and 
beneficiaries of the annual dollar limit for benefits under the 
excepted benefit HRA, and participants' and beneficiaries' rights under 
the excepted benefit HRA.\15\
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    \14\ 83 FR 54420 (October 29, 2018). This proposed rule was 
subsequently finalized, with some revisions in response to comments, 
by the final rule referenced in this preamble as the HRA rule.
    \15\ 84 FR 28888 at 28941.
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    In the preamble to the HRA rule, the Departments noted that long-
standing notice requirements under Part 1 of the ERISA already apply to 
private-sector, employment-based plans. The Departments explained that 
under those notice requirements, excepted benefit HRAs that are subject 
to ERISA generally should provide information on eligibility to receive 
benefits, annual or lifetime caps or other limits on benefits under the 
plan, and a description or summary of the benefits. Accordingly, the 
HRA rule included a cross-reference to existing ERISA notice provisions 
for excepted benefit HRAs that are subject to ERISA, to help ensure 
that excepted benefit HRA plan sponsors are aware of their obligations 
under those provisions. However, the HRA rule did not finalize any 
notice requirements in addition to those ERISA already imposes on 
ERISA-covered plans. It also did not subject plans that are not subject 
to ERISA, such as excepted benefit HRAs sponsored by non-Federal 
governmental employers, to similar notice requirements.
    HHS believes individuals offered excepted benefit HRAs by non-
Federal governmental plan sponsors should also have access to clear 
information about their excepted benefit HRAs. Therefore, in the HRA 
rule, HHS announced its intent to propose notice requirements with 
respect to excepted benefit HRAs offered by non-Federal governmental 
plan sponsors in future notice and comment rulemaking. HHS indicated 
that it anticipated proposing that a non-Federal governmental plan 
excepted benefit HRA would be required to provide a notice that 
describes conditions pertaining to eligibility to receive benefits, 
annual or lifetime caps or other limits on benefits under the plan, and 
a description or summary of the benefits consistent with the 
requirements of Department of Labor (DOL) summary plan description 
regulations at 29 CFR 2520.102-3(j)(2) and (3). Further, HHS indicated 
that, under its anticipated proposal, this notice would be required to 
be provided in a time and manner consistent with the requirements of 
DOL regulations at 29 CFR 2520.104b-2(a).\16\
---------------------------------------------------------------------------

    \16\ 84 FR 28888 at 28941.
---------------------------------------------------------------------------

    In this proposed rule, HHS proposes to add a new paragraph 
(b)(3)(viii)(E) to Sec.  146.145 that would require excepted benefit 
HRAs sponsored by non-Federal governmental entities to provide notice 
consistent with the discussion in the preamble to the HRA rule.\17\ 
Specifically, under this proposal, an excepted benefit HRA offered by a 
non-Federal governmental plan sponsor would be required to provide a 
notice that describes conditions pertaining to eligibility to receive 
benefits, annual or lifetime caps or other limits on benefits under the 
excepted benefit HRA, and a description or summary of the benefits

[[Page 7096]]

available under the excepted benefit HRA. This is generally consistent 
with the content requirements of DOL summary plan description 
regulations at 29 CFR 2520.102-3(j)(2) and (3), although the excepted 
benefit HRA notice provided by a non-Federal governmental plan sponsor 
would be required to be provided annually and would not necessarily 
have to include every data element specified in those DOL regulations. 
We also propose that the notice must be provided in a manner reasonably 
calculated to ensure actual receipt by participants eligible for the 
excepted benefit HRA, such as by providing the notice in the same 
manner in which the plan sponsor provides other notices or plan 
documents to plan participants.
---------------------------------------------------------------------------

    \17\ Ibid.
---------------------------------------------------------------------------

    We propose that this notice must be provided no later than 90 days 
after the employee becomes a participant in the excepted benefit HRA 
and annually thereafter. Under applicable rules at 45 CFR 144.103, 
``participant'' is defined as having the meaning given the term under 
section 3(7) of the ERISA, which states, any employee or former 
employee of an employer, or any member or former member of an employee 
organization, who is or may become eligible to receive a benefit of any 
type from an employee benefit plan which covers employees of such 
employer or members of such organization, or whose beneficiaries may be 
eligible to receive any such benefit. Furthermore, under existing DOL 
regulations at 29 CFR 2520.104b-2(a), ERISA-covered plans, including 
ERISA-covered excepted benefit HRAs, generally are required to furnish 
a copy of the notice to each participant no later than 90 days after 
the employee becomes a participant in the plan. Given that ERISA-
covered plans and non-Federal governmental plans often contract with 
the same service providers to administer their health plans, to 
increase efficiencies, and minimize costs and confusion, we propose 
that the notice provided by non-Federal governmental plans must be 
provided on an annual basis no later than 90 days after the first day 
of the excepted benefit HRA plan year, or in the case of an employee 
who becomes a participant after the start of the plan year, no later 
than 90 days after the employee becomes a participant in the plan.
    We propose this notice requirement would be applicable to excepted 
benefit HRA plan years beginning on or after 30 days following the 
effective date of the final rule.
    We seek comment on all aspects of this proposal, including whether 
to apply a different timing standard than the one proposed for the 
notices for non-Federal governmental excepted benefit HRAs, and any 
logistical, cost, and other challenges that would ensue from applying a 
different timing standard for the notice for such excepted benefit HRAs 
than for those regulated by ERISA. We also solicit comments on the 
proposed applicability date and on ways to mitigate the potential costs 
and burdens this notice requirement may impose on non-Federal 
governmental plan sponsors interested in offering excepted benefit 
HRAs. For example, if, after the first year, this notice would be 
required only for plan years for which the terms of the excepted 
benefit HRA change from the previous plan year, sponsors of non-Federal 
governmental excepted benefit HRAs would incur lower costs to provide 
this notice to eligible participants. Therefore, we also seek comment 
on whether sponsors of non-Federal governmental excepted benefit HRAs 
should be required to provide the notice annually after the initial 
notice, or whether, after providing the initial notice, they should 
only be required to provide the notice with respect to plan years for 
which the terms of the excepted benefit HRA change from the previous 
plan year, and if so, what type or magnitude of change should trigger 
such a subsequent notice. For example, should a change in the dollar 
amount of the excepted benefit HRA trigger such a notice, and if so, 
what magnitude of increase or decrease? Should a change in just one 
type of medical care expense that may or may not be reimbursed by the 
excepted benefit HRA trigger such a subsequent notice, or would a 
subsequent notice be required only if more than one type of 
reimbursable medical care expense is added or eliminated?

B. Part 149--Requirements for the Early Retiree Reinsurance Program 
(ERRP)

    We propose to delete part 149 of title 45 of the CFR, which sets 
forth requirements for participating in the ERRP, established by 
section 1102 of the PPACA. The ERRP provided financial assistance in 
the form of reinsurance to employment-based health plan sponsors--
including for-profit companies, schools and educational institutions, 
unions, state and local governments, religious organizations, and other 
nonprofit plan sponsors--that made coverage available to early 
retirees, their spouses or surviving spouses, and dependents, for 
specified claims incurred prior to January 1, 2014, or until funding 
was depleted, whichever were to occur sooner. The goal of the program 
was to encourage and support comprehensive, quality health care for 
early retirees at least 55 years of age, and their spouses and 
dependents, not otherwise eligible for Medicare during the period 
preceding the effective date of the Exchanges and many of the market-
wide rules created by the PPACA.
    Under section 1102(a)(1) of the PPACA, the ERRP expired January 1, 
2014. All ERRP payments have been made and there are no outstanding 
claims or disputes. A portion of the original appropriation remains, 
and will be returned to the Treasury when the appropriation is closed 
out in due course.
    Repealing the ERRP regulations would reduce the volume of Federal 
regulations. Therefore, we propose to delete the regulations in part 
149, and reserve part 149. We seek comment on this proposal.

C. Part 153--Standards Related to Reinsurance, Risk Corridors, and Risk 
Adjustment

1. Sequestration
    In accordance with the OMB Report to Congress on the Joint 
Committee Reductions for Fiscal Year 2020,\18\ both the transitional 
reinsurance program and the permanent risk adjustment program are 
subject to the fiscal year 2020 sequestration. The Federal Government's 
2020 fiscal year began October 1, 2019. While the 2016 benefit year was 
the final year of the transitional reinsurance program, there might be 
reinsurance payments in the 2020 fiscal year for close-out activities. 
Therefore, the risk adjustment and reinsurance programs will be 
sequestered at a rate of 5.9 percent for payments made from fiscal year 
2020 resources (that is, funds collected during the 2020 fiscal year).
---------------------------------------------------------------------------

    \18\ Available at https://www.whitehouse.gov/wp-content/uploads/2019/03/2020_JC_Sequestration_Report_3-18-19.pdf.
---------------------------------------------------------------------------

    HHS, in coordination with the OMB, has determined that, under 
section 256(k)(6) of the Balanced Budget and Emergency Deficit Control 
Act of 1985 (Pub. L. 99-177, enacted December 12, 1985), as amended, 
and the underlying authority for the reinsurance and risk adjustment 
program, the funds that are sequestered in fiscal year 2020 from the 
risk adjustment or reinsurance programs will become available for 
payment to issuers in fiscal year 2021 without further Congressional 
action. If Congress does not enact deficit reduction provisions that 
replace the Joint Committee reductions, the program would be 
sequestered in future fiscal years, and any sequestered funding

[[Page 7097]]

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 2021 benefit 
year. Therefore, HHS will operate risk adjustment in every state and 
the District of Columbia for the 2021 benefit year.
    We propose changes in this rule to recalibrate the risk adjustment 
models consistent with the methodology we finalized for the 2020 
benefit year. For the 2021 benefit year, we propose to incorporate the 
most recent benefit years of enrollee-level EDGE data that are 
available, and to rely only on enrollee-level EDGE data for 2021 and 
beyond for purposes of recalibrating the HHS risk adjustment models. We 
also propose the risk adjustment user fee for the 2020 benefit year and 
modifications to certain RADV requirements.
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 
2020 Payment Notice.\19\ 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 CSR adjustment that accounts for differences in induced 
demand at various levels of cost sharing.
---------------------------------------------------------------------------

    \19\ See 84 FR 17454 at 17463.
---------------------------------------------------------------------------

    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 for the applicable state market risk 
pool. 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.
(1) Updates to Data Used for Risk Adjustment Model Recalibration
    We propose to discontinue our reliance on MarketScan[supreg] data 
to recalibrate the risk adjustment models. Previously, 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 that 
enrollee-level EDGE data was used for this purpose. In keeping with our 
previously-stated intention to transition away from the 
MarketScan[supreg] commercial database, we further reduced our use of 
MarketScan[supreg] data in 2020 benefit year model recalibration by 
using only 1 year of MarketScan[supreg] data (2015), and the 2 most 
recent years of available enrollee-level EDGE data (2016 and 2017). 
During all prior recalibrations, we implemented an approach that 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.
    Consistent with the policy announced in the 2020 Payment 
Notice,\20\ we propose in this rule to no longer incorporate 
MarketScan[supreg] data in the recalibration process beginning with the 
2021 benefit year. Rather, we propose for the 2021 benefit year and 
beyond to blend the 3 most recent years of available enrollee-level 
EDGE data. This approach would incorporate the most recent years' 
claims experience that is available without resulting in drastic year-
to-year changes to risk scores, as the recalibration of the models for 
the applicable benefit year would maintain 2 years of EDGE data that 
were used in the previous years' models. It also would continue our 
efforts to recalibrate the risk adjustment models using actual data 
from issuers' individual and small group populations and complete the 
transition from the MarketScan[supreg] commercial database that merely 
approximates individual and small group (including merged) market 
populations. For the 2021 benefit year, we propose to use 2016, 2017, 
and 2018 enrollee-level EDGE data to recalibrate the risk adjustment 
models. We propose to maintain the approach of using the 3 most recent 
years of available enrollee-level EDGE data for recalibration of the 
risk adjustment models for future benefit years beyond 2021, unless 
changed through rulemaking.
---------------------------------------------------------------------------

    \20\ 84 FR 17454 at 17464.
---------------------------------------------------------------------------

    We seek comment on our proposal to determine coefficients for the 
2021 benefit year based on a blend of separately solved coefficients 
from the 2016, 2017, and 2018 benefit years' enrollee-level EDGE data. 
We also seek comment on maintaining the approach of using the 3 most 
recent years of available enrollee-level EDGE data for recalibration of 
the risk adjustment models for future benefit years beyond 2021.
    Due to the timing of this proposed rule, we are unable to 
incorporate the 2018 benefit year enrollee-level EDGE data in the 
calculation of the proposed coefficients in this rule. Therefore, 
consistent with prior years' proposed payment notices (2017 and 2019), 
the coefficients listed below are based on the 2 most recent years of 
data available at the time the proposed rule was drafted--the 2016 and 
2017 benefit year enrollee-level EDGE data. Considering that 2 of the 3 
years of enrollee-level EDGE data that we plan to use to recalibrate 
the 2021 risk adjustment models are reflected in the coefficients that 
we are publishing in this proposed rule, we believe that the draft 
coefficients listed below provide a reasonably close approximation of 
what could be anticipated from blending the 2016, 2017, and 2018 
benefit years' enrollee-level EDGE data. If we finalize the proposed 
recalibration approach and are unable to incorporate the 2018 benefit 
year EDGE data in time to publish updated coefficients in the final 
rule, we will publish the final coefficients for the 2021 benefit year 
in guidance after the publication of the

[[Page 7098]]

final rule, consistent with our approach in previous benefit years.\21\
---------------------------------------------------------------------------

    \21\ For example, see the HHS Notice of Benefit and Payment 
Parameters for 2018 Final Rule (the 2018 Payment Notice), 81 FR 
94058 (December 22, 2016). Also see 45 CFR 153.320(b)(1)(i).
---------------------------------------------------------------------------

(2) Updates to the Risk Adjustment Model Recalibration Hierarchical 
Condition Categories (HCCs)
    We propose to incorporate the HCC changes identified below 
beginning with the 2021 benefit year risk adjustment models. The main 
purpose of these proposed HCC changes is to update the HCCs based on 
availability of more recent diagnosis code information and the 
availability of more recent claims data. To provide risk adjustment 
factors that best reflect more recent treatment patterns and costs, we 
propose to update the HHS-HCC clinical classification in the current 
HHS-HCC risk adjustment models by using more recent claims data to 
develop updated risk factors, as part of our continued assessment of 
modifications to the HHS-operated risk adjustment program for the 
individual and small group markets.
    The HHS-HCC clinical classification is the foundation of the models 
used in calculating transfers under the state payment transfer formula 
in the HHS-operated risk adjustment program established under section 
1343 of the PPACA. Except for annual diagnosis code updates and the 
reconfiguration of one HCC,\22\ the HHS-HCC clinical classification has 
not been modified since it was implemented in the 2014 benefit year.
---------------------------------------------------------------------------

    \22\ As detailed in the 2018 Payment Notice, beginning with the 
2018 benefit year, HCC 37--Chronic Hepatitis--was split into two 
HCCs to distinguish the treatment costs of chronic hepatitis C into 
HCC 37_1--Chronic Viral Hepatits and HCC 37_2--Chronic Hepatitis, 
Other/Unspecified. See 81 FR 94058 at 94085 (December 22, 2016).
---------------------------------------------------------------------------

    The HHS-HCC clinical classification, in place since 2014, was based 
on the International Classification of Diseases, 9th Edition, Clinical 
Modification (ICD-9-CM) diagnosis codes, an approved U.S. modification 
of the World Health Organization's classification system that was 
currently in use at the time. That system was subsequently replaced by 
the International Classification of Diseases, 10th Revision (ICD-10-
PCS) and International Classification of Diseases, 10th Revision, 
Clinical Modification (a corresponding U.S. clinical modification) 
(ICD-10-CM). When ICD-10-CM was implemented in the U.S. on October 1, 
2015, ICD-10 codes were cross-walked to ICD-9 codes and to the existing 
ICD-9-based HHS-HCC clinical classification.
    In preparation for proposing these changes in this rulemaking, we 
released a paper on June 17, 2019 entitled ``Potential Updates to the 
HHS-HCCs for the HHS-operated Risk Adjustment Program'' (HHS-HCCs 
Update Paper).\23\ This paper described our methodology for reviewing 
and restructuring the HHS-HCC classification to incorporate ICD-10 
diagnosis codes, and our intention to evaluate potential changes to the 
HHS-HCC model classification using enrollee-level EDGE data, which is 
representative of the population for which the models are targeted. Our 
main goal for reclassifying HHS-HCCs is to use them to update the HHS-
HCC models to better incorporate coding changes made in the transition 
to ICD-10 diagnosis classification system. We also used this 
opportunity to review and use the newly available 2016 and 2017 benefit 
years enrollee-level EDGE claims data, which reflect the first 2 full 
years of ICD-10 diagnosis coding on claims. While this analysis did not 
consider updates to the RXCs,\24\ it examined other components of the 
clinical classification, including payment and non-payment HCCs, 
certain clinical hierarchies, HCC groups and a priori constraints on 
HCC coefficients, and other HCC interactions affected by potential 
changes.
---------------------------------------------------------------------------

    \23\ The Potential Updates to HHS-HCCs for the HHS-operated Risk 
Adjustment Program (June 17, 2019) paper is available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Potential-Updates-to-HHS-HCCs-HHS-operated-Risk-Adjustment-Program.pdf.
    \24\ RXCs were not implemented in the HHS-operated risk 
adjustment models until the 2018 benefit year and they currently 
only apply to the adult models.
---------------------------------------------------------------------------

    In the HHS-HCCs Update Paper, we explained our considerations for 
examining potential changes to HCCs and in determining which diagnosis 
codes should be included, how they should be grouped, and how the 
diagnostic groupings should interact for risk adjustment purposes, 
which is a critical step in the development of the HHS-HCC risk 
adjustment models. To guide the reclassification process, we used 10 
principles that were discussed in the proposed 2014 Payment Notice that 
guided the creation of the original HHS-HCC diagnostic classification 
system,\25\ and that were used to develop the HCC classification system 
for the Medicare risk adjustment model.\26\ These principles included:
---------------------------------------------------------------------------

    \25\ See the HHS Notice of Benefit and Payment Parameters for 
2014, Proposed Rule, 77 FR 73118 at 73128 (December 7, 2012).
    \26\ Report to Congress: Risk Adjustment in Medicare Advantage 
(December 2018) also discusses these principles in Section 2.3 under 
``Principle for Risk Adjustment Models'' from pages 14-16 and is 
available at https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/RTC-Dec2018.pdf.
---------------------------------------------------------------------------

     Principle 1--Diagnostic categories should be 
clinically meaningful.
     Principle 2--Diagnostic categories should 
predict medical (including drug) expenditures.
     Principle 3--Diagnostic categories that will 
affect payments should have adequate sample sizes to permit accurate 
and stable estimates of expenditures.
     Principle 4--In creating an individual's 
clinical profile, hierarchies should be used to characterize the 
person's illness level within each disease process, while the effects 
of unrelated disease processes accumulate.
     Principle 5--The diagnostic classification 
should encourage specific coding.
     Principle 6--The diagnostic classification 
should not reward coding proliferation.
     Principle 7--Providers should not be penalized 
for recording additional diagnoses (monotonicity).
     Principle 8--The classification system should be 
internally consistent (transitive).
     Principle 9--The diagnostic classification 
should assign all diagnosis codes (exhaustive classification).
     Principle 10--Discretionary diagnostic 
categories should be excluded from payment models.
    Using these principles, we conducted a multi-step analysis of the 
current HHS-HCC classification to develop the list of HCC changes that 
we propose to reclassify.
    We began by conducting a comprehensive review of the current HHS-
HCC full classification and risk adjustment model classification, 
including an examination of disease groups with extensive ICD-10 code 
classification changes, HCCs whose counts had changed considerably 
following ICD-10 implementation, clinical areas of interest (for 
example, substance use disorders), and model under-prediction or over-
prediction as identified by predictive ratios. We then examined HCC 
reconfigurations, payment HCC designation, HCC Groups, and hierarchies 
to develop the preliminary regression analyses using 2016 data.\27\ We 
also conducted a series of clinical reviews to inform potential 
changes. Next, we reviewed the payment model and full classification

[[Page 7099]]

regressions to compare frequencies and predicted incremental costs of 
HCCs. Then, we repeated the preliminary regression analyses using 2017 
data, reviewed regression results, and developed the new potential HHS-
HCC reclassification.\28\
---------------------------------------------------------------------------

    \27\ Payment HCCs are those included in the HHS-HCC risk 
adjustment models. The full classification includes both payment and 
non-payment HCCs. HCC Groups refers to payment HCCs that are grouped 
together in the HHS-HCC risk adjustment model.
    \28\ To further clarify, in the HHS-HCCs Update Paper V05 
reflects the current classification model, V06 is the initial 
assessment of potential revisions to the classification model 
developed using the 2016 benefit year data, and V06a is the 
reassessment of potential revisions to the classification model that 
included 2017 benefit year data.
---------------------------------------------------------------------------

    During our analysis, for some disease groups, such as substance use 
disorders and pregnancy, we explored multiple model variations. For 
substance use disorders, we tested different configurations to add new 
drug use disorder HCCs and alcohol use disorder HCCs to the HHS-HCC 
risk adjustment model--a single hierarchy approach; two hierarchies 
(drug and alcohol HCCs being additive); interaction terms; and for each 
of these iterations, grouping HCCs or leaving them ungrouped. For 
pregnancy, we tested different configurations for adding ongoing 
pregnancy HCCs to the model, which already includes miscarriage HCCs 
and completed pregnancy HCCs. These configurations included a single 
hierarchy or separate additive HCCs to distinguish pregnancy care from 
delivery; interactions between completed and ongoing pregnancy HCCs to 
account for when in the episode of care complications occur; and 
removal of or changes to HCC groups to better reflect cost 
distinctions.
    In evaluating options for reclassification, we considered their 
predictive power, model complexity, and coding incentives. Based on 
this reclassification analysis, we propose to incorporate the changes 
presented in Table 1 to payment HCCs beginning with the 2021 benefit 
year risk adjustment models.
---------------------------------------------------------------------------

    \29\ References to ``all models'' in Table 1 refers to the 
adult, child and infants models.
    \30\ In a priori constraints, the HCC estimates are constrained 
to be equal to each other. These are applied to stabilize high cost 
estimates that may vary greatly due to small sample size.

                     Table 1--Summary of Proposed Payment HCC Risk Adjustment Model Changes
----------------------------------------------------------------------------------------------------------------
                                         Payment HCC  proposed
              Condition                         change                Summary of proposed payment HCC changes
----------------------------------------------------------------------------------------------------------------
                                               Payment HCC Changes
----------------------------------------------------------------------------------------------------------------
Substance Use Disorders.............  +3........................   Add 2 new HCCs for alcohol use
                                                                   disorders and one new HCC for lower severity
                                                                   drug use disorders to risk adjust for a
                                                                   larger number of substance use diagnoses for
                                                                   all models.\29\
                                                                   Reconfigure drug dependence HCC to
                                                                   include drug use disorders with non-psychotic
                                                                   complications and a subset of drug poisoning
                                                                   (overdose) codes to reflect the revised
                                                                   conceptualization of substance use disorders
                                                                   in ICD-10 for all models.
                                                                   Impose a new combined hierarchy on
                                                                   drug use and alcohol use HCCs due to the high
                                                                   prevalence of both drugs and alcohol use
                                                                   among those with alcohol or drug use
                                                                   disorders for all models.
Pregnancy...........................  +3........................   Add 3 (ongoing) pregnancy-without-
                                                                   delivery HCCs, leaving them ungrouped in the
                                                                   adult models (to reflect differences in costs
                                                                   by level of complications) and grouping them
                                                                   in the child models (to address small sample
                                                                   sizes and unstable estimates).
                                                                   Revise two existing pregnancy HCC
                                                                   Groups in both adult and child models,
                                                                   separating out the ectopic/molar pregnancy
                                                                   HCC and the uncomplicated pregnancy-with-
                                                                   delivery HCC to better distinguish
                                                                   incremental costs.
Diabetes: Type 1....................  +1........................   Add a diabetes type 1 additive HCC to
                                                                   the adult models to distinguish additional
                                                                   costs for diabetes type 1.
                                                                   Remap hyperglycemia and hypoglycemia
                                                                   codes in the adult model from the ``chronic
                                                                   complications'' HCC to the ``without
                                                                   complication'' HCC based on clinical input.
Asthma..............................  +1........................   Split current asthma HCC into two
                                                                   severity-specific HCCs given new clinical
                                                                   distinctions for severity levels in the ICD-
                                                                   10 and to distinguish costs by severity for
                                                                   all models.
                                                                   Continue to group asthma HCCs with
                                                                   chronic obstructive pulmonary disease HCC in
                                                                   adult model and leave the 3 HCCs ungrouped to
                                                                   distinguish costs in child models.
Fractures...........................  -1, +1....................   Delete an HCC (pathological
                                                                   fractures) to address a clinical distinction
                                                                   that may be inconsistently diagnosed/coded
                                                                   for all models.
                                                                   Reconfigure an existing HCC (hip
                                                                   fractures) to better distinguish fracture
                                                                   codes by site for all models.
                                                                   Add a new HCC (vertebral fractures)
                                                                   to better predict vertebral fractures, which
                                                                   may be indicative of chronic disease and
                                                                   frailty for all models.
Third Degree Burns and Major Skin     +2........................   Reconfigure and add 2 HCCs (extensive
 Conditions.                                                       third degree burns; major skin burns or
                                                                   conditions) in an imposed hierarchy because
                                                                   these HCCs are currently being under-
                                                                   predicted, contain chronic conditions or are
                                                                   burns that involve long-term follow up care
                                                                   for all models.
                                                                   Impose an a priori constraint \30\
                                                                   between extensive third degree burns and
                                                                   severe head injury in child models due to
                                                                   small sample size.
Coma and Severe Head Injury.........  +1........................   Add a new severe head injury HCC
                                                                   (represents a condition with ongoing care
                                                                   costs; similar to the inclusion of other
                                                                   injury HCCs) in a hierarchy above the coma/
                                                                   brain compression for all models.
                                                                   Impose an a priori constraint between
                                                                   extensive third degree burns and severe head
                                                                   injury in the child models due to small
                                                                   sample size.
Traumatic Amputations...............  +1........................   Add a new HCC in a hierarchy with the
                                                                   current amputation status HCC and reconfigure
                                                                   codes between the new HCC and current
                                                                   amputation status HCC to better distinguish
                                                                   early treatment and complication costs from
                                                                   long-term costs for all models.
                                                                   Leave HCCs ungrouped in the adult
                                                                   models; group them in the child model for
                                                                   coefficient stability purposes due to small
                                                                   sample size.
Narcolepsy and Cataplexy............  +1........................   Add a new HCC to both child and adult
                                                                   models because these conditions are currently
                                                                   under-predicted and have associated treatment
                                                                   costs.
Exudative Macular Degeneration......  +1........................   Add a new HCC to adult models because
                                                                   the condition is currently under-predicted;
                                                                   costs are primarily related to drug
                                                                   treatments.
Congenital Heart Anomalies..........  new to adult..............   Add 3 new HCCs to adult models
                                                                   (already in the child and infant models)
                                                                   because the conditions are currently under-
                                                                   predicted. Group them in the adult models
                                                                   only.
----------------------------------------------------------------------------------------------------------------
                                       Changes in HCC Groups, Hierarchies
----------------------------------------------------------------------------------------------------------------
Metabolic and Endocrine Disorders...  N/A.......................   Group HCCs 26 and 27 together in both
                                                                   the child and adult models to distinguish
                                                                   their significantly higher incremental costs
                                                                   from other HCCs (HCCs 28-30) previously in
                                                                   the full group (HCCs 26 and 27 are currently
                                                                   under-predicted in the models due to
                                                                   grouping).
                                                                   Ungroup HCCs 29 and 30 in the adult
                                                                   models as they have adequate sample sizes and
                                                                   clinical and cost distinctions.

[[Page 7100]]

 
                                                                   Group HCCs 28 and 29 in the child
                                                                   models due to small sample sizes, clinical
                                                                   similarity, and similar predicted costs.
                                                                   Leave HCC 30 ungrouped in the child
                                                                   models because it is clinically distinct from
                                                                   HCCs 28 and 29.
Necrotizing Fasciitis...............  N/A.......................   Ungroup the necrotizing fasciitis HCC
                                                                   (HCC 54) in the adult models to better
                                                                   predict higher incremental costs compared to
                                                                   HCC 55 (the condition that is currently
                                                                   grouped with this HCC).
Blood Disorders.....................  N/A.......................   Revise groups in both adult and child
                                                                   models to move HCC 69 from its previous
                                                                   grouping with HCCs 70 and 71 to the group
                                                                   with HCCs 67 and 68 to better reflect
                                                                   clinical severity and associated costs.
                                                                   Reconfigure HCCs 69 and 71 in both
                                                                   adult and child models based on clinical
                                                                   input.
Mental Health.......................  N/A.......................   Move delusional disorders/psychosis
                                                                   HCC above major depressive disorders/bipolar
                                                                   disorders HCC in the hierarchy and renumber
                                                                   the HCCs (that is, HCCs 88 and 89 switch
                                                                   positions) because the costs and diagnoses
                                                                   associated with the HCC are more aligned with
                                                                   HCC 87 (Schizophrenia) for all models.
                                                                   Relabel HCCs to align with ICD-10
                                                                   categorizations for all models.
Cerebral Palsy and Spina Bifida.....  N/A.......................   Refine hierarchies to exclude
                                                                   paralysis HCCs for enrollees with cerebral
                                                                   palsy HCCs, as ICD-10 coding guidelines
                                                                   prohibit these conditions from coding
                                                                   together for all models.
                                                                   Refine hierarchies to exclude
                                                                   hydrocephalus HCC for enrollees with spina
                                                                   bifida HCC for similar coding restriction
                                                                   purposes for all models.
Pancreatitis........................  N/A.......................   Reconfigure the acute pancreatitis
                                                                   HCC to move pancreatic disorders and
                                                                   intestinal malabsorption out of the acute
                                                                   pancreatitis HCC to differentiate higher cost
                                                                   conditions for all models.
                                                                   Revise the hierarchy for pancreas
                                                                   transplant HCC to remove exclusion of
                                                                   pancreatitis HCCs because pancreas
                                                                   transplants are done primarily for diabetes
                                                                   and insulin conditions rather than
                                                                   pancreatitis for all models.
Liver...............................  N/A.......................   Reconfigure codes in liver HCCs to
                                                                   reflect clinical distinctions for all models.
                                                                   Move acute liver failure HCC above
                                                                   chronic liver failure HCC in the hierarchy
                                                                   and renumber HCCs to address cost
                                                                   implications of chronic versus acute liver
                                                                   failure for all models.
----------------------------------------------------------------------------------------------------------------
                                   Summary of the Adult Model Specific Changes
----------------------------------------------------------------------------------------------------------------
Payment HCC change..................  +17.......................   Net change of 17 HCCs; 18 HCCs added
                                                                   and 1 HCC deleted (for details see the above
                                                                   portion of this table).
Severe Illness Interactions.........  -1 (other model variable).   Remove medium cost severe illness
                                                                   interaction term from model because its
                                                                   parameter estimate is usually very low or
                                                                   negative.
----------------------------------------------------------------------------------------------------------------
                                   Summary of the Child Model Specific Changes
----------------------------------------------------------------------------------------------------------------
Payment HCC change..................  +12.......................   Net change of 12 HCCs; 13 HCCs added
                                                                   and 1 HCC deleted (for details see the above
                                                                   portion of this table).
Transplant A Priori Constraints.....  N/A.......................   Revise a priori constraints applied
                                                                   to the transplant HCCs to better distinguish
                                                                   costs while improving estimate stability due
                                                                   to small sample sizes and unconstrained HCC
                                                                   129 Cystic Fibrosis from HCC 158 Lung
                                                                   Transplant Status/Complications due to the
                                                                   high associated drug costs and higher
                                                                   predicted costs.
----------------------------------------------------------------------------------------------------------------
                                  Summary of the Infant Model Specific Changes
----------------------------------------------------------------------------------------------------------------
Payment HCC change..................  +8........................   Net change of 8; 9 HCCs added and 1
                                                                   HCC deleted (for details see the above
                                                                   portion of this table).
Categorical Model...................  N/A.......................   Revise severity level assignments of
                                                                   a subset of HCCs to better reflect clinical
                                                                   severity and costs and assign new HCCs to
                                                                   severity levels.
                                                                   Reconfigure code assignments to
                                                                   newborn HCCs for subset of codes whose weeks
                                                                   gestation classification in ICD-10 differed
                                                                   from ICD-9.
----------------------------------------------------------------------------------------------------------------

    We propose to incorporate these changes into the risk adjustment 
coefficients beginning with the 2021 benefit year and they are 
reflected in the draft factors below.\31\ Under the above-proposed HHS-
HCC updates, we made one modification to the child model from the 
potential updates described in HHS-HCCs Update Paper. In the paper, we 
noted that we may re-examine the hierarchy violation constraints for 
non-transplant HCCs in the child model that affect the predicted costs 
of the transplant set. We explained that HCC 159 Cystic Fibrosis in the 
child model, which has high associated drug costs, has higher predicted 
costs than HCC 158 Lung Transplant Status/Complications. For this 
reason, a hierarchy violation was occurring whereby the higher-cost HCC 
159 Cystic Fibrosis was being constrained to the lower-cost transplant 
coefficients. To address this hierarchy violation, we propose in this 
rule to not impose a hierarchy in this case beginning with the 2021 
benefit year coefficients in the child models and propose to remove a 
constraint for HCC 159 Cystic Fibrosis to allow it to have higher 
predicted costs than HCC 158 Lung Transplant Status/Complications.
---------------------------------------------------------------------------

    \31\ As noted earlier, the factors displayed in this rulemaking 
reflect the equally weighted blended factors from the 2016 and 2017 
enrollee-level EDGE data separately solved models, including all of 
the proposed HHS-HCC updates and the proposed constraints for the 
Hepatitis C RXC coefficient. If the recalibration policies are 
finalized as proposed, we would incorporate the 2018 enrollee-level 
EDGE data in the coefficients listed in the final rule or, if 
necessary, after publication of the final rule consistent with 45 
CFR 153.320(b)(1)(i).
---------------------------------------------------------------------------

    We are proposing to apply all of the HHS-HCC changes at one time 
for the 2021 benefit year and beyond to account for all of the ICD-10 
coding changes at one time. Additionally, to assist commenters in 
reviewing the code level changes, we are providing a crosswalk of ICD-
10 codes to the proposed HCCs under the ``Draft ICD-10 Crosswalk for 
Potential Updates to the HHS-HCC Risk Adjustment Model for the 2021 
Benefit Year'', which is available here at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/index.html.\32\ While we recognize 
that the number of HHS-HCC changes proposed in this rule is 
significantly higher than in previous annual Payment Notice 
rulemakings, we do not expect to make significant HHS-HCC changes each 
year. We solicit comment on all of the proposed HHS-HCC updates.
---------------------------------------------------------------------------

    \32\ The Draft ICD-10 Crosswalk for Potential Updates to the 
HHS-HCC Risk Adjustment Model for the 2021 Benefit Year includes 
Table 3, which crosswalks ICD-10 codes to the Condition Categories 
(CCs) in the risk adjustment models, and Table 4, which provides the 
hierarchy rules to apply to the CCs to create HCCs. These Tables are 
similar to the Tables 3 and 4 that CMS includes as part of the HHS-
Developed Risk Adjustment Model Algorithm ``Do It Yourself (DIY)'' 
Software.
---------------------------------------------------------------------------

    For the 2020 benefit year adult models, we made a pricing 
adjustment for one RXC coefficient for Hepatitis C drugs.\33\ In the 
2020 Payment Notice, we stated that we intend to reassess this pricing 
adjustment in future benefit years' model recalibrations with 
additional years of enrollee-level EDGE

[[Page 7101]]

data.\34\ For the 2021 benefit year model recalibration, we reassessed 
the Hepatitis C RXC to consider whether the adjustment was still 
needed, or needed to be modified. We found that the current data for 
the Hepatitis C RXC still does not take into account the significant 
pricing changes due to the introduction of new Hepatitis C drugs, and 
therefore, it does not precisely reflect the average cost of Hepatitis 
C treatments applicable to the benefit year in question. We also 
continue to be 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. For these reasons, we continue 
to believe that a pricing adjustment is needed for this RXC coefficient 
and are proposing to adjust the Hepatitis C RXC for the 2021 benefit 
year model recalibration. For the proposed RXC coefficients listed in 
Table 2 of this proposed rule, we constrained the Hepatitis C 
coefficient to the average expected costs of Hepatitis C drugs. Similar 
to the adjustment for the 2020 benefit year model recalibration, this 
has the material effect of reducing the Hepatitis C RXC, and the RXC-
HCC interaction coefficients. For the final 2021 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 these 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.
---------------------------------------------------------------------------

    \33\ 84 FR 17454 at 17463 through 17466.
    \34\ Ibid.
---------------------------------------------------------------------------

    In light of the recent recommendation by the U.S. Preventive 
Service Task Force to expand the use of pre-exposure prophylaxis (PrEP) 
as a preventive service that must be covered by applicable health plans 
for persons who are at high risk of HIV acquisition,\35\ we also 
propose to incorporate PrEP as a preventive service in the simulation 
of plan liability for HHS's adult and child risk adjustment models in 
the final 2021 benefit year model recalibration.\36\ Currently, PrEP is 
not incorporated into RXC 1 (Anti-HIV) because PrEP does not indicate 
an HIV/AIDS diagnosis.\37\ As a general principle, RXCs are 
incorporated into the HHS risk adjustment adult models to impute a 
missing diagnosis or indicate severity of a diagnosis.\38\ Although 
preventive services are incorporated in the simulation of plan 
liability, they do not directly affect specific HCCs. We incorporate 
preventive services into the models to ensure that 100 percent of the 
cost of those services are reflected in the simulation of plan 
liability; preventive services are applied under relevant recommended 
conditions or groups. We propose including PrEP as a preventive service 
along with our general updates to preventive services in the simulation 
of plan liability for the HHS risk adjustment models in the final 2021 
benefit year adult and child models. We seek comment on this proposal.
---------------------------------------------------------------------------

    \35\ Final Recommendation Statement on ``Prevention of Human 
Immunodeficiency Virus (HIV) Infection: Preexposure Prophylaxis. 
U.S. Preventive Services Task Force. June 2019. https://www.uspreventiveservicestaskforce.org/Page/Document/RecommendationStatementFinal/prevention-of-human-immunodeficiency-virus-hiv-infection-pre-exposure-prophylaxis.
    \36\ The June 11, 2019 ``Preexposure Prophylaxis for the 
Prevention of HIV Infection: US Preventive Services Task Force 
Recommendations Statement'' published in JAMA states that 
adolescents at high risk of HIV acquisition could benefit from PrEP 
and it is approved for adolescents who weigh at least 35kg (~77 
pounds). https://jamanetwork.com/journals/jama/fullarticle/2735509.
    \37\ https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Draft-RxC-Crosswalk-Memo-9-18-17.pdf.
    \38\ See 81 FR 94058 at 94075. Also see March 31, 2016, HHS-
Operated Risk Adjustment Methodology Meeting Questions & Answers. 
June 8, 2016. Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/RA-OnsiteQA-060816.pdf.
---------------------------------------------------------------------------

    As part of the proposed 2021 model recalibration, we also 
considered whether to add an additional age-sex category for enrollees 
age 65 and over as part of the recalibration of the adult models. 
MarketScan[supreg] data does not include enrollees who are age 65 and 
over, but the enrollee-level EDGE data does. Currently, the risk 
adjustment program incorporates the risk and costs of enrollees age 65 
and over using the 60-64 age-sex coefficients. We originally excluded 
enrollees age 65 and over from recalibration to prevent having 
different methodologies for the MarketScan[supreg] and the enrollee-
level EDGE datasets that were used to solve for the blended 
coefficients for the risk adjustment models.
    Given that we are proposing to no longer use the MarketScan[supreg] 
data to recalibrate the risk adjustment models beginning with the 2021 
benefit year, we considered whether new age-sex coefficients should be 
created for enrollees age 65 and over beginning with the 2021 benefit 
year adult models. In reviewing the enrollee-level EDGE data, we found 
that over 70 percent of the enrollees age 65 and over are within the 
65-66 age range, and we believe these enrollees are likely transferring 
into Medicare coverage once eligible. Our analysis also found that the 
enrollees ages 65-66 have lower average annual expenditures than those 
enrollees between ages 60 and 64. In contrast, we found that enrollees 
age 67 and over have higher average annual expenditures than those 
between ages 60 and 64. Due to these two different trends in the age 65 
and over population, we are not proposing to add new age-sex 
coefficients to the adult models at this time, and would continue to 
exclude enrollees age 65 and over in the adult models' calibration. 
However, we intend to continue to monitor expenditures for enrollees 
age 65 and over to determine whether the addition of new age-sex 
coefficients to the adult models in a future year is appropriate.
(3) Improving Risk Adjustment Model Predictions
    In addition to the aforementioned updates to the HHS-HCCs, we are 
soliciting comment on different options to modify the risk adjustment 
models to improve model prediction for enrollees without HCCs or 
enrollees with low actual expenditures. In the 2018 Payment Notice, we 
stated that based on the commercial MarketScan[supreg] data, the HHS 
risk adjustment models slightly under-predict risk for low-cost 
enrollees and slightly over-predict risk for high-cost enrollees.\39\ 
More precisely, the current HHS-HCC models under predict for enrollees 
without HCCs, slightly over-predict for enrollees with low HCC counts 
and under predict for enrollees with the highest HCC counts. In the 
2018 Payment Notice, we also sought comments on ways to address these 
issues in response to feedback from stakeholders that HHS should adjust 
the risk adjustment models to address the under-prediction of risk for 
low cost enrollees and the over-prediction of risk for enrollees with 
higher expenditures, which affects the plan liability risk scores of 
plans that enroll more healthy individuals or plans that enroll more 
individuals with the most extreme chronic health conditions.\40\ While 
we did not implement changes to address these issues, we indicated we 
would continue to explore different options to improve the models' 
predictive power for certain subgroups of enrollees, including analyses 
of these issues using enrollee-level EDGE data once available,

[[Page 7102]]

and consider changes for future benefit years.\41\
---------------------------------------------------------------------------

    \39\ See 81 FR 61455 at 61472 through 61473. Also see 81 FR 
94058 at 94082 through 94083.
    \40\ 81 FR 94058 at 94082 through 94083.
    \41\ Ibid.
---------------------------------------------------------------------------

    As detailed below, we are still evaluating the tradeoffs that would 
need to be made in model predictive power among subgroups of enrollees. 
We continue to believe that further evaluation is appropriate before 
pursuing these options; however, we also recognize that additional 
stakeholder comment is a critical aspect to this analysis. Therefore, 
in this rule, we outline and solicit comment on the different options 
that we continue to consider to improve the models' predictive ability 
for certain subgroups of enrollees in light of experience and currently 
available information.
    As detailed in the 2018 Payment Notice,\42\ we previously 
considered implementing a constrained regression approach, under which 
we would estimate the adult risk adjustment model using only the age-
sex variables, and then, we would re-estimate the model using the full 
set of HCCs, while constraining the value of the age-sex coefficients 
to be the same as those from the first estimation. At the time, we 
believed that this two-step estimation approach would result in age-sex 
coefficients of greater magnitude, potentially helping us predict the 
risk of the healthiest subpopulations more accurately. However, upon 
further analysis, we also found that the mean expenditures of 
individual HCCs under this approach were under-predicted compared to 
the current adult models. In particular, the mean expenditures of 
extremely expensive enrollees are more under-predicted under this 
approach than in the current adult models.
---------------------------------------------------------------------------

    \42\ Ibid.
---------------------------------------------------------------------------

    Another option we previously evaluated was directly adjusting plan 
liability risk scores outside of the models for these 
subpopulations.\43\ Specifically, we evaluated using a post-estimation 
adjustment to the current models' individual-level risk scores in order 
to correct for the patterns of over- and under-prediction. Under this 
approach, we would adjust individual-level plan liability risk scores 
by directly increasing underestimated plan liability risk scores or 
reducing overestimated plan liability risk scores in an attempt to 
better match the relative risks of these sub-populations. These 
adjustments would be based on predictive ratios calculated from the 
models. This approach would estimate the models for all five metal 
levels, and within each metal level, predictive ratios for each decile 
of predicted expenditures would be calculated to generate a 
``predicted'' predictive ratio based on metal level, predictive ratio, 
and risk score. In theory, this approach should have the advantages of 
retaining the current models. We noted that, while we believed 
modifications of this type could improve the model's performance along 
this specific dimension (deciles of predicted expenditures), there is a 
risk that such modifications could unintentionally worsen model 
performance along other dimensions on which the model currently 
performs well. One possible problem is that the scores are being 
adjusted by the average predictive ratio of the predicted expenditure 
level they are in, not their own over- or under-prediction.
---------------------------------------------------------------------------

    \43\ Ibid.
---------------------------------------------------------------------------

    We recently reassessed this adjustment option given the 
availability of the more recent enrollee-level EDGE data and the 
implementation of several updates beginning with the 2018 benefit 
year.\44\ We did not find improvements in the predictive ratios when 
compared to the predictive ratios of the current approach. Our analysis 
of this adjustment option showed that the estimates for the lowest-cost 
decile and top two highest-cost deciles of enrollees were more 
underpredicted under this approach as compared to the current model. 
Additionally, this approach results in worse prediction along other 
dimensions, such as for subgroups of enrollees with no HCCs and those 
with 1 or more payment HCCs.
---------------------------------------------------------------------------

    \44\ For example, we incorporated the high costs risk pool 
parameters into the HHS risk adjustment methodology, added RXCs into 
the adult risk adjustment models, and applied an administrative cost 
reduction to the statewide average premiums in the state payment 
transfer formula starting with the 2018 benefit year. See the 2018 
Payment Notice, 81 FR 94058 (December 22, 2016).
---------------------------------------------------------------------------

    Given the shortcomings with both of these approaches, we ultimately 
did not adopt either of them. However, we have continued to consider 
other potential approaches to address the under-prediction of risk for 
low-cost enrollees and over-prediction for high-cost enrollees. In 
particular, we are examining non-linear and count model specifications 
and whether these options could be used to improve the current adult 
models' predictive power. Our initial analysis of these options has 
shown that these alternatives can improve prediction in the adult 
models.
    For the non-linear model, we have been considering an option that 
would add a coefficient-weighted sum of payment HCCs raised to a power 
to the linear specification. Under this approach, the non-linear term 
would be added as the exponentiated p term as shown in the following 
formula:

Plan liability = Current Model + 
([Sigma][beta]iHCCi)\p\

Where:

[Sigma][beta]iHCCi = the sum of payment HCCs 
weighted by their parameter estimates;
p = an exponential factor estimated by the model.
The non-linear term could be interpreted as a measure of overall 
disease burden for the enrollee in which having combinations of 
conditions can have a larger effect than the sum of the individual 
conditions. This type of non-linear model would measure the total 
disease burden by a weighted count of HCCs rather than a simple count 
of the payment HCCs, while only requiring one additional parameter. 
This approach allows the demographic terms for enrollees with no 
payment HCCs to be better estimated, while using a nonlinearity for the 
disease burden that could keep the model reasonably simple. As such, we 
believe that adding a non-linear term to the models could be a 
reasonable approach to potentially improve the prediction of the 
models. However, the non-linear model may not improve the prediction 
for all subpopulations in the models.
    Under the count model that we have been considering, we would add 
eight indicator variables corresponding to 1 to 8-or-more payment HCCs. 
Under this option, the incremental predictions would vary with a 
person's count of HCCs (from 1 to 8-or-more payment HCCs) as the 
incremental predictions for HCCs in a HCC count model have two 
components, the HCC coefficient and the change in the number of HCCs 
(from 1 to 8-or-more payment HCCs). We are considering using 1 to 8 or 
more payment HCCs based on reviewing the information on enrollees with 
HCCs in the 2017 benefit year enrollee-level EDGE data. We found that 
the population size of enrollees with a given count of HCCs begins to 
drop off around 8 HCCs per enrollee. In general, the count model that 
we are considering is similar to the recently finalized Medicare 
Advantage risk adjustment model incorporating payment HCC counts.\45\ 
Even though the Medicare Advantage count model has variables that use 
more than 8 HCCs in its model, this option would be generally more 
consistent with other programs than the non-linear model, and has 
yielded

[[Page 7103]]

similar results in model performance and improving the prediction in 
the adult models as the non-linear model. However, similar to the non-
linear model, the count model may not improve the prediction for all 
subpopulations in the models.
---------------------------------------------------------------------------

    \45\ Announcement of Calendar Year (CY) 2020 Medicare Advantage 
Capitation Rates and Medicare Advantage and Part D Payment Policies 
and Final Call Letter. April 1, 2019. https://www.cms.gov/Medicare/Health-Plans/MedicareAdvtgSpecRateStats/Downloads/Announcement2020.pdf.
---------------------------------------------------------------------------

    In short, both the non-linear and count models could allow the 
incremental effect of payment HCCs on plan liability to vary with the 
total number of payment HCCs (or overall disease burden). Our recent 
analyses on the enrollee-level EDGE data suggest that the non-linear 
and count models may yield considerable gains in the adult models for 
predictive accuracy across several groups when compared to the current 
linear model.
    To further assess these approaches, we have been testing the impact 
of the count and non-linear model specifications on subpopulations 
within the adult model using the silver metal tier level and examining 
the model fit using the R-squared of the models and predictive ratios 
for various subgroups. As part of our analysis, we have been assessing 
the models based on subpopulations that can be determined by the age-
sex categories, the number of HCCs an enrollee has, the applicable 
enrollment duration and other relevant criteria.
    Based on the initial testing of both the count and non-linear 
models' impact on the adult silver model, we found that the enrollees 
with the lowest costs have better predictive ratios under both the 
count and non-linear models than under the current model, with the non-
linear model slightly over-predicting the costs of those enrollees. 
Unlike the current model and the count model, the non-linear model does 
not over-predict for enrollees with higher costs. While both the count 
and non-linear models show promise in terms of improving the HHS risk 
adjustment models' predictive power, we are not proposing to adopt 
either of these options as part of the 2021 benefit year recalibration. 
We believe further evaluation is needed of the model performance before 
choosing to implement such an approach. For example, we would like to 
assess these options using additional data and applying the options to 
different metal levels beyond the silver metal level to consider 
whether the results on subpopulations persist across metal levels, and 
whether the adoption of one or more of these options would necessitate 
adjustments to other model specifications. We also have concerns about 
making these changes concurrent with the numerous changes to the HCCs 
being proposed in this rule for the adult, child and infant models for 
the 2021 benefit year. As such, we intend to test the model 
specifications with an additional year of data before considering these 
model changes for future years.
    As noted above, we continue to evaluate all of these alternative 
modeling approaches while considering several important trade-offs in 
making improvements to risk prediction and providing consistency year-
to-year for issuers in the HHS-operated risk adjustment program. 
Although we do not propose to incorporate any of these options in the 
2021 benefit year risk adjustment model recalibration in this rule, we 
are generally soliciting comments on these options. We also solicit 
comments on the incorporation of one (or more) of these approaches as 
part of the 2022 benefit year risk adjustment model recalibration or 
for other future benefit years, whether one of these approaches is 
preferable to the other and why, and any considerations that should be 
made to implement either model and to analyze the resulting factors. 
For example, we are interested in comments on the model specifications 
of the count and non-linear variables described in this rule (such as 
whether the described 8 HCC variables should be used for the count 
model). While we do not believe that the count or non-linear models 
would impact incentives to code additional HCCs in comparison to the 
current model, we are also interested in comments about whether and 
what considerations should be made about count and non-linear models' 
impact on coding incentives.
    In addition to considering the non-linear and count model 
approaches for future benefit years, we are also considering potential 
adjustments to the enrollment duration factors in the adult models, as 
well as assessing whether such factors should be incorporated into the 
child and infant models. In the past, we found that partial-year 
enrollment is more common in the individual and small group markets 
than in the MarketScan[supreg] data, which generally reflects the large 
group market, that we had been using to recalibrate the risk adjustment 
models in prior years. Using the 2016 and 2017 enrollee-level EDGE data 
that recently became available, we have investigated heterogeneity 
(variations) in the relationship between partial-year enrollment and 
predicted expenditures. We have explored heterogeneity according to the 
presence of certain diagnoses, market (individual or small group),\46\ 
and enrollment circumstances, such as enrollment beginning later in the 
year or ending before the end of the year. Our preliminary analysis of 
2017 enrollee-level EDGE data found that current enrollment duration 
factors are driven mainly by enrollees with HCCs, that is, partial year 
enrollees with HCCs have higher per member per month (PMPM) 
expenditures on average as compared to full year enrollees with HCCs, 
whereas partial year enrollees without HCCs have similar PMPM 
expenditures compared to their full year counterparts. In comparison to 
the effect of the presence of HCCs on enrollment duration factors, 
enrollment timing (for example, enrollment at the beginning of the year 
compared to enrollment after open enrollment period, or drop in 
enrollment before the end of the year) does not appear to affect PMPM 
expenditures on average. Our analysis also found that separate 
enrollment duration factors by market in the adult models may be 
warranted, given the differences in risk profiles of partial year 
enrollees between the individual and small group markets.\47\ However, 
due to limitations with the extracted enrollee-level EDGE data for the 
2016 and 2017 benefit years that do not permit us to connect non-
calendar year enrollees in the small group market across plan years 
within the same calendar year, we are unable to develop and propose 
separate enrollment duration factors by market at this time. Based on 
these analyses, because partial-year enrollees with HCCs seem to have 
the most distinctive additional expenditures, we believe that 
eliminating the enrollment duration factors and replacing them with 
monthly enrollment duration factors (up to 6-months), for those with 
HCCs, would most improve model prediction.
---------------------------------------------------------------------------

    \46\ In the enrollee-level EDGE data, merged market enrollees 
are assigned to the individual or small group market indicator based 
on their plan.
    \47\ In the enrollee-level EDGE data, merged market enrollees 
are assigned to the individual or small group market indicator based 
on their plan.
---------------------------------------------------------------------------

    For the child and infant models, we analyzed incorporating 
enrollment duration factors in the same manner as the adult models. We 
found that partial year enrollees in the child models did not have the 
same risk differences as partial year enrollees in the adult models, 
and partial year enrollees in the child models tended to have similar 
risk to full year enrollees in the child models. In the infant models, 
we found that partial year infants have higher expenditures on average 
compared to their full year counterparts. However, we found that the 
incorporation of

[[Page 7104]]

enrollment duration factors created interaction issues with the current 
severity and maturity factors in the infant models and did not have a 
meaningful impact on the general predictive accuracy of the infant 
models. As such, we are not proposing to add partial year factors to 
the child or infant models.
    We are not proposing any changes to the current enrollment duration 
factors for the adult models at this time given the aforementioned data 
limitation in the extracted enrollee-level EDGE data and the numerous 
changes to the HCCs being proposed in this rule for the 2021 benefit 
year. As previously mentioned, we intend to review the enrollment 
duration factor assumptions seen in the 2016 and 2017 benefit year 
enrollee-level EDGE data before considering changes for future benefit 
years. Although we do not propose any changes to enrollment duration 
factors as part of this rulemaking, we generally solicit comments on 
these options and potential changes to the enrollment duration factors 
for future benefit years.
    Finally, as we analyzed the count and non-linear models and the 
enrollment duration factors (including potential changes to such 
factors) and evaluated the interaction of such changes, we also found 
that enrollment duration factors may no longer be needed if a count or 
non-linear model specification is applied to the HHS risk adjustment 
adult models. We intend to continue to conduct analysis on enrollment 
duration factors and the interaction of such changes on other potential 
updates to the risk adjustment models, using 2018 benefit year 
enrollee-level EDGE data once available, and will solicit comments on 
any such proposed changes for future benefit years.
(4) 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 and 2017 enrollee-level EDGE data separately solved 
models, including all of the proposed HCC changes detailed in the 
previous section and the proposed constraints for the Hepatitis C RXC 
coefficient, are shown in Tables 2 through 7. As stated above, we 
believe that the draft coefficients listed below provide a reasonably 
close approximation of what could be anticipated from blending the 
2016, 2017 and 2018 benefit years' enrollee-level EDGE data. If we 
finalize the recalibration approach proposed in this rule, we would 
incorporate the 2018 benefit year enrollee-level EDGE data in the final 
rule or in guidance after publication of the final rule, consistent 
with our approach in previous benefit years.\48\ The adult, child, and 
infant models have been truncated to account for the high-cost risk 
pool payment parameters by removing 60 percent of costs above the $1 
million threshold.\49\ Table 2 contains factors for each adult model, 
including the age-sex, HCCs, RXCs, RXC-HCC interactions, and enrollment 
duration coefficients.
---------------------------------------------------------------------------

    \48\ See 45 CFR 153.320(b)(1)(i).
    \49\ As detailed below, we are not proposing changes to the 
high-cost risk pool parameters for the 2021 benefit year. Therefore, 
consistent with the policy finalized in the 2020 Payment Notice, we 
would maintain the $1 million threshold and 60 percent coinsurance 
rate for the 2021 benefit year. See 84 FR at 17466 through 17468.
---------------------------------------------------------------------------

    Table 3 contains the HHS-HCCs in the severity illness indicator 
variable. Table 4 contains the factors for each child model. Table 5 
contains the factors for each infant model. Tables 6 and 7 contain the 
HCCs included in the infant models' maturity and severity categories, 
respectively.

                   Table 2--Proposed Adult Risk Adjustment Model Factors for 2021 Benefit Year
----------------------------------------------------------------------------------------------------------------
         HCC or RXC No.                  Factor          Platinum     Gold      Silver     Bronze   Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
                                  Age 21-24, Male.....      0.128      0.099      0.062      0.027         0.024
                                  Age 25-29, Male.....      0.138      0.108      0.070      0.034         0.031
                                  Age 30-34, Male.....      0.166      0.130      0.085      0.042         0.038
                                  Age 35-39, Male.....      0.198      0.154      0.102      0.051         0.047
                                  Age 40-44, Male.....      0.235      0.186      0.128      0.070         0.065
                                  Age 45-49, Male.....      0.269      0.214      0.149      0.085         0.079
                                  Age 50-54, Male.....      0.346      0.282      0.204      0.127         0.120
                                  Age 55-59, Male.....      0.391      0.319      0.233      0.150         0.142
                                  Age 60-64, Male.....      0.437      0.355      0.261      0.167         0.159
                                  Age 21-24, Female...      0.212      0.170      0.113      0.059         0.054
                                  Age 25-29, Female...      0.239      0.193      0.130      0.071         0.065
                                  Age 30-34, Female...      0.315      0.256      0.185      0.117         0.111
                                  Age 35-39, Female...      0.386      0.317      0.237      0.160         0.154
                                  Age 40-44, Female...      0.442      0.363      0.272      0.185         0.177
                                  Age 45-49, Female...      0.453      0.369      0.272      0.177         0.168
                                  Age 50-54, Female...      0.489      0.401      0.296      0.191         0.181
                                  Age 55-59, Female...      0.465      0.377      0.272      0.166         0.156
                                  Age 60-64, Female...      0.466      0.375      0.265      0.155         0.145
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HCC001..........................  HIV/AIDS............      5.048      4.623      4.355      4.286         4.282
HCC002..........................  Septicemia, Sepsis,       7.523      7.302      7.196      7.241         7.248
                                   Systemic
                                   Inflammatory
                                   Response Syndrome/
                                   Shock.
HCC003..........................  Central Nervous           6.357      6.266      6.212      6.226         6.228
                                   System Infections,
                                   Except Viral
                                   Meningitis.
HCC004..........................  Viral or Unspecified      5.200      4.965      4.831      4.739         4.732
                                   Meningitis.
HCC006..........................  Opportunistic             6.905      6.829      6.780      6.732         6.727
                                   Infections.
HCC008..........................  Metastatic Cancer...     23.310     22.744     22.402     22.419        22.421
HCC009..........................  Lung, Brain, and         13.030     12.613     12.358     12.314        12.310
                                   Other Severe
                                   Cancers, Including
                                   Pediatric Acute
                                   Lymphoid Leukemia.
HCC010..........................  Non-Hodgkin               6.063      5.794      5.613      5.525         5.516
                                   Lymphomas and Other
                                   Cancers and Tumors.
HCC011..........................  Colorectal, Breast        4.278      4.012      3.832      3.736         3.727
                                   (Age < 50), Kidney,
                                   and Other Cancers.
HCC012..........................  Breast (Age 50+) and      2.860      2.667      2.529      2.439         2.431
                                   Prostate Cancer,
                                   Benign/Uncertain
                                   Brain Tumors, and
                                   Other Cancers and
                                   Tumors.
HCC013..........................  Thyroid Cancer,           1.248      1.108      0.988      0.858         0.846
                                   Melanoma,
                                   Neurofibromatosis,
                                   and Other Cancers
                                   and Tumors.
HCC018..........................  Pancreas Transplant       2.602      2.537      2.494      2.494         2.493
                                   Status.
HCC019..........................  Diabetes with Acute       0.481      0.414      0.349      0.282         0.276
                                   Complications.

[[Page 7105]]

 
HCC020..........................  Diabetes with             0.481      0.414      0.349      0.282         0.276
                                   Chronic
                                   Complications.
HCC021..........................  Diabetes without          0.481      0.414      0.349      0.282         0.276
                                   Complication.
HCC022..........................  Type 1 Diabetes           0.493      0.432      0.400      0.342         0.336
                                   Mellitus, add-on to
                                   Diabetes HCCs 19-21.
HCC023..........................  Protein-Calorie          11.452     11.450     11.455     11.553        11.561
                                   Malnutrition.
HCC026..........................  Mucopolysaccharidosi     29.027     28.794     28.644     28.659        28.661
                                   s.
HCC027..........................  Lipidoses and            29.027     28.794     28.644     28.659        28.661
                                   Glycogenosis.
HCC029..........................  Amyloidosis,              7.542      7.410      7.320      7.287         7.284
                                   Porphyria, and
                                   Other Metabolic
                                   Disorders.
HCC030..........................  Adrenal, Pituitary,       1.890      1.792      1.715      1.649         1.644
                                   and Other
                                   Significant
                                   Endocrine Disorders.
HCC034..........................  Liver Transplant         10.612     10.532     10.481     10.478        10.475
                                   Status/
                                   Complications.
HCC035_1........................  Acute Liver Failure/     10.010      9.944      9.902      9.941         9.941
                                   Disease, Including
                                   Neonatal Hepatitis.
HCC035_2........................  Chronic Liver             3.346      3.145      3.034      3.023         3.021
                                   Failure/End-Stage
                                   Liver Disorders.
HCC036..........................  Cirrhosis of Liver..      1.189      1.066      0.984      0.917         0.910
HCC037_1........................  Chronic Viral             0.967      0.852      0.775      0.707         0.701
                                   Hepatitis C.
HCC037_2........................  Chronic Hepatitis,        0.967      0.852      0.775      0.707         0.701
                                   Except Chronic
                                   Viral Hepatitis C.
HCC041..........................  Intestine Transplant     37.750     37.652     37.589     37.563        37.564
                                   Status/
                                   Complications.
HCC042..........................  Peritonitis/              9.512      9.264      9.117      9.131         9.133
                                   Gastrointestinal
                                   Perforation/
                                   Necrotizing
                                   Enterocolitis.
HCC045..........................  Intestinal                5.721      5.459      5.315      5.286         5.284
                                   Obstruction.
HCC046..........................  Chronic Pancreatitis      4.065      3.860      3.754      3.762         3.764
HCC047..........................  Acute Pancreatitis..      3.357      3.091      2.947      2.876         2.872
HCC048..........................  Inflammatory Bowel        2.466      2.283      2.148      2.037         2.026
                                   Disease.
HCC054..........................  Necrotizing              11.372     11.264     11.191     11.262        11.266
                                   Fasciitis.
HCC055..........................  Bone/Joint/Muscle         5.586      5.381      5.258      5.277         5.279
                                   Infections/Necrosis.
HCC056..........................  Rheumatoid Arthritis      4.212      3.966      3.797      3.735         3.729
                                   and Specified
                                   Autoimmune
                                   Disorders.
HCC057..........................  Systemic Lupus            0.841      0.716      0.607      0.477         0.464
                                   Erythematosus and
                                   Other Autoimmune
                                   Disorders.
HCC061..........................  Osteogenesis              2.728      2.522      2.381      2.295         2.287
                                   Imperfecta and
                                   Other
                                   Osteodystrophies.
HCC062..........................  Congenital/               2.728      2.522      2.381      2.295         2.287
                                   Developmental
                                   Skeletal and
                                   Connective Tissue
                                   Disorders.
HCC063..........................  Cleft Lip/Cleft           2.077      1.912      1.798      1.715         1.709
                                   Palate.
HCC066..........................  Hemophilia..........     70.505     70.072     69.794     69.809        69.810
HCC067..........................  Myelodysplastic          14.381     14.246     14.162     14.150        14.149
                                   Syndromes and
                                   Myelofibrosis.
HCC068..........................  Aplastic Anemia.....     14.381     14.246     14.162     14.150        14.149
HCC069..........................  Acquired Hemolytic       14.381     14.246     14.162     14.150        14.149
                                   Anemia, Including
                                   Hemolytic Disease
                                   of Newborn.
HCC070..........................  Sickle Cell Anemia        2.797      2.644      2.532      2.451         2.444
                                   (Hb-SS).
HCC071..........................  Beta Thalassemia          2.797      2.644      2.532      2.451         2.444
                                   Major.
HCC073..........................  Combined and Other        5.580      5.432      5.343      5.334         5.334
                                   Severe
                                   Immunodeficiencies.
HCC074..........................  Disorders of the          5.580      5.432      5.343      5.334         5.334
                                   Immune Mechanism.
HCC075..........................  Coagulation Defects       2.934      2.842      2.776      2.735         2.731
                                   and Other Specified
                                   Hematological
                                   Disorders.
HCC081..........................  Drug Use with             5.206      4.919      4.756      4.704         4.701
                                   Psychotic
                                   Complications.
HCC082..........................  Drug Use Disorder,        3.098      2.855      2.681      2.523         2.507
                                   Moderate/Severe, or
                                   Drug Use with Non-
                                   Psychotic
                                   Complications.
HCC083..........................  Alcohol Use with          2.264      2.005      1.864      1.847         1.847
                                   Psychotic
                                   Complications.
HCC084..........................  Alcohol Use               1.390      1.218      1.097      0.989         0.980
                                   Disorder, Moderate/
                                   Severe, or Alcohol
                                   Use with Specified
                                   Non-Psychotic
                                   Complications.
HCC085..........................  Drug Use Disorder,        0.993      0.836      0.704      0.549         0.534
                                   Mild,
                                   Uncomplicated,
                                   Except Cannabis.
HCC087..........................  Schizophrenia.......      2.734      2.500      2.349      2.238         2.229
HCC088..........................  Delusional and Other      2.724      2.500      2.349      2.238         2.229
                                   Specified Psychotic
                                   Disorders,
                                   Unspecified
                                   Psychosis.
HCC089..........................  Major Depressive          1.546      1.382      1.254      1.121         1.108
                                   Disorder, Severe,
                                   and Bipolar
                                   Disorders.
HCC090..........................  Personality               1.178      1.055      0.940      0.802         0.788
                                   Disorders.
HCC094..........................  Anorexia/Bulimia          2.787      2.612      2.484      2.399         2.391
                                   Nervosa.
HCC096..........................  Prader-Willi, Patau,      7.260      7.189      7.142      7.098         7.092
                                   Edwards, and
                                   Autosomal Deletion
                                   Syndromes.
HCC097..........................  Down Syndrome,            1.413      1.319      1.243      1.175         1.168
                                   Fragile X, Other
                                   Chromosomal
                                   Anomalies, and
                                   Congenital
                                   Malformation
                                   Syndromes.
HCC102..........................  Autistic Disorder...      1.235      1.125      1.010      0.877         0.864
HCC103..........................  Pervasive                 1.178      1.055      0.940      0.802         0.788
                                   Developmental
                                   Disorders, Except
                                   Autistic Disorder.
HCC106..........................  Traumatic Complete       12.545     12.385     12.284     12.256        12.253
                                   Lesion Cervical
                                   Spinal Cord.
HCC107..........................  Quadriplegia........     12.545     12.385     12.284     12.256        12.253
HCC108..........................  Traumatic Complete        8.420      8.227      8.104      8.059         8.054
                                   Lesion Dorsal
                                   Spinal Cord.
HCC109..........................  Paraplegia..........      8.420      8.227      8.104      8.059         8.054
HCC110..........................  Spinal Cord               5.728      5.472      5.313      5.264         5.259
                                   Disorders/Injuries.
HCC111..........................  Amyotrophic Lateral       2.500      2.272      2.124      2.001         1.990
                                   Sclerosis and Other
                                   Anterior Horn Cell
                                   Disease.
HCC112..........................  Quadriplegic              1.461      1.226      1.079      0.993         0.985
                                   Cerebral Palsy.
HCC113..........................  Cerebral Palsy,           0.766      0.661      0.577      0.485         0.476
                                   Except Quadriplegic.
HCC114..........................  Spina Bifida and          1.640      1.497      1.399      1.326         1.319
                                   Other Brain/Spinal/
                                   Nervous System
                                   Congenital
                                   Anomalies.
HCC115..........................  Myasthenia Gravis/        5.608      5.480      5.403      5.388         5.386
                                   Myoneural Disorders
                                   and Guillain-Barre
                                   Syndrome/
                                   Inflammatory and
                                   Toxic Neuropathy.
HCC117..........................  Muscular Dystrophy..      1.871      1.723      1.615      1.502         1.490
HCC118..........................  Multiple Sclerosis..      4.312      4.071      3.906      3.814         3.805
HCC119..........................  Parkinson's,              1.871      1.723      1.615      1.502         1.490
                                   Huntington's, and
                                   Spinocerebellar
                                   Disease, and Other
                                   Neurodegenerative
                                   Disorders.
HCC120..........................  Seizure Disorders         1.176      1.031      0.925      0.824         0.815
                                   and Convulsions.
HCC121..........................  Hydrocephalus.......      8.731      8.600      8.508      8.481         8.479
HCC122..........................  Coma, Brain               8.322      8.162      8.060      8.059         8.058
                                   Compression/Anoxic
                                   Damage.
HCC123..........................  Narcolepsy and            5.216      5.016      4.864      4.746         4.733
                                   Cataplexy.
HCC125..........................  Respirator               24.309     24.275     24.263     24.371        24.379
                                   Dependence/
                                   Tracheostomy Status.
HCC126..........................  Respiratory Arrest..      7.162      6.991      6.911      7.005         7.016
HCC127..........................  Cardio-Respiratory        7.162      6.991      6.911      7.005         7.016
                                   Failure and Shock,
                                   Including
                                   Respiratory
                                   Distress Syndromes.
HCC128..........................  Heart Assistive          29.666     29.439     29.311     29.335        29.338
                                   Device/Artificial
                                   Heart.
HCC129..........................  Heart Transplant         29.666     29.439     29.311     29.335        29.338
                                   Status/
                                   Complications.
HCC130..........................  Heart Failure.......      2.668      2.560      2.494      2.480         2.479

[[Page 7106]]

 
HCC131..........................  Acute Myocardial          7.022      6.720      6.551      6.599         6.605
                                   Infarction.
HCC132..........................  Unstable Angina and       5.250      4.924      4.756      4.734         4.734
                                   Other Acute
                                   Ischemic Heart
                                   Disease.
HCC135..........................  Heart Infection/          5.986      5.859      5.779      5.747         5.745
                                   Inflammation,
                                   Except Rheumatic.
HCC137..........................  Hypoplastic Left          2.826      2.703      2.606      2.538         2.532
                                   Heart Syndrome and
                                   Other Severe
                                   Congenital Heart
                                   Disorders.
HCC138..........................  Major Congenital          2.826      2.703      2.606      2.538         2.532
                                   Heart/Circulatory
                                   Disorders.
HCC139..........................  Atrial and                2.826      2.703      2.606      2.538         2.532
                                   Ventricular Septal
                                   Defects, Patent
                                   Ductus Arteriosus,
                                   and Other
                                   Congenital Heart/
                                   Circulatory
                                   Disorders.
HCC142..........................  Specified Heart           2.569      2.423      2.318      2.237         2.231
                                   Arrhythmias.
HCC145..........................  Intracranial              7.001      6.724      6.563      6.520         6.517
                                   Hemorrhage.
HCC146..........................  Ischemic or               1.669      1.516      1.434      1.391         1.388
                                   Unspecified Stroke.
HCC149..........................  Cerebral Aneurysm         2.891      2.700      2.577      2.495         2.488
                                   and Arteriovenous
                                   Malformation.
HCC150..........................  Hemiplegia/               4.722      4.595      4.532      4.576         4.582
                                   Hemiparesis.
HCC151..........................  Monoplegia, Other         3.044      2.909      2.822      2.767         2.762
                                   Paralytic Syndromes.
HCC153..........................  Atherosclerosis of        9.241      9.131      9.079      9.187         9.198
                                   the Extremities
                                   with Ulceration or
                                   Gangrene.
HCC154..........................  Vascular Disease          6.988      6.834      6.742      6.742         6.741
                                   with Complications.
HCC156..........................  Pulmonary Embolism        3.767      3.608      3.503      3.431         3.424
                                   and Deep Vein
                                   Thrombosis.
HCC158..........................  Lung Transplant          24.105     23.953     23.866     23.912        23.916
                                   Status/
                                   Complications.
HCC159..........................  Cystic Fibrosis.....      8.916      8.553      8.315      8.257         8.253
HCC160..........................  Chronic Obstructive       0.887      0.771      0.669      0.560         0.550
                                   Pulmonary Disease,
                                   Including
                                   Bronchiectasis.
HCC161_1........................  Severe Asthma.......      0.887      0.771      0.669      0.560         0.550
HCC161_2........................  Asthma, Except            0.887      0.771      0.669      0.560         0.550
                                   Severe.
HCC162..........................  Fibrosis of Lung and      2.069      1.953      1.877      1.816         1.809
                                   Other Lung
                                   Disorders.
HCC163..........................  Aspiration and            6.983      6.979      6.977      7.024         7.028
                                   Specified Bacterial
                                   Pneumonias and
                                   Other Severe Lung
                                   Infections.
HCC174..........................  Exudative Macular         1.623      1.444      1.322      1.195         1.183
                                   Degeneration.
HCC183..........................  Kidney Transplant         6.450      6.230      6.091      6.009         6.013
                                   Status/
                                   Complications.
HCC184..........................  End Stage Renal          25.460     25.135     24.947     25.122        25.210
                                   Disease.
HCC187..........................  Chronic Kidney            1.310      1.251      1.219      1.234         1.242
                                   Disease, Stage 5.
HCC188..........................  Chronic Kidney            1.310      1.251      1.219      1.234         1.242
                                   Disease, Severe
                                   (Stage 4).
HCC203..........................  Ectopic and Molar         2.232      1.929      1.728      1.468         1.445
                                   Pregnancy.
HCC204..........................  Miscarriage with          0.878      0.754      0.613      0.392         0.367
                                   Complications.
HCC205..........................  Miscarriage with No       0.878      0.754      0.613      0.392         0.367
                                   or Minor
                                   Complications.
HCC207..........................  Pregnancy with            4.401      3.896      3.635      3.286         3.259
                                   Delivery with Major
                                   Complications.
HCC208..........................  Pregnancy with            4.401      3.896      3.635      3.286         3.259
                                   Delivery with
                                   Complications.
HCC209..........................  Pregnancy with            3.125      2.749      2.526      2.092         2.046
                                   Delivery with No or
                                   Minor Complications.
HCC210..........................  (Ongoing) Pregnancy       1.343      1.158      0.962      0.699         0.672
                                   without Delivery
                                   with Major
                                   Complications.
HCC211..........................  (Ongoing) Pregnancy       0.854      0.730      0.560      0.356         0.337
                                   without Delivery
                                   with Complications.
HCC212..........................  (Ongoing) Pregnancy       0.356      0.297      0.195      0.105         0.097
                                   without Delivery
                                   with No or Minor
                                   Complications.
HCC217..........................  Chronic Ulcer of          2.067      1.946      1.874      1.848         1.846
                                   Skin, Except
                                   Pressure.
HCC218..........................  Extensive Third          19.316     18.987     18.771     18.723        18.719
                                   Degree Burns.
HCC219..........................  Major Skin Burn or        2.976      2.833      2.729      2.663         2.657
                                   Condition.
HCC223..........................  Severe Head Injury..     17.344     17.207     17.106     17.069        17.064
HCC226..........................  Hip and Pelvic            8.859      8.562      8.388      8.418         8.421
                                   Fractures.
HCC228..........................  Vertebral Fractures       5.295      5.072      4.928      4.846         4.838
                                   without Spinal Cord
                                   Injury.
HCC234..........................  Traumatic                 5.657      5.468      5.362      5.374         5.377
                                   Amputations and
                                   Amputation
                                   Complications.
HCC251..........................  Stem Cell, Including     27.223     27.219     27.217     27.250        27.253
                                   Bone Marrow,
                                   Transplant Status/
                                   Complications.
HCC253..........................  Artificial Openings       8.573      8.481      8.432      8.485         8.489
                                   for Feeding or
                                   Elimination.
HCC254..........................  Amputation Status,        2.358      2.206      2.120      2.095         2.095
                                   Upper Limb or Lower
                                   Limb.
----------------------------------------------------------------------------------------------------------------
                                               Interaction Factors
----------------------------------------------------------------------------------------------------------------
SEVERE x HCC006.................  Severe illness x          6.705      6.924      7.064      7.208         7.220
                                   Opportunistic
                                   Infections.
SEVERE x HCC008.................  Severe illness x          6.705      6.924      7.064      7.208         7.220
                                   Metastatic Cancer.
SEVERE x HCC009.................  Severe illness x          6.705      6.924      7.064      7.208         7.220
                                   Lung, Brain, and
                                   Other Severe
                                   Cancers, Including
                                   Pediatric Acute
                                   Lymphoid Leukemia.
SEVERE x HCC010.................  Severe illness x Non-     6.705      6.924      7.064      7.208         7.220
                                   Hodgkin Lymphomas
                                   and Other Cancers
                                   and Tumors.
SEVERE x HCC115.................  Severe illness x          6.705      6.924      7.064      7.208         7.220
                                   Myasthenia Gravis/
                                   Myoneural Disorders
                                   and Guillain-Barre
                                   Syndrome/
                                   Inflammatory and
                                   Toxic Neuropathy.
SEVERE x HCC135.................  Severe illness x          6.705      6.924      7.064      7.208         7.220
                                   Heart Infection/
                                   Inflammation,
                                   Except Rheumatic.
SEVERE x HCC145.................  Severe illness x          6.705      6.924      7.064      7.208         7.220
                                   Intracranial
                                   Hemorrhage.
SEVERE x _G06A..................  Severe illness x HCC      6.705      6.924      7.064      7.208         7.220
                                   group G06A (HCC 67
                                   Myelodysplastic
                                   Syndromes and
                                   Myelofibrosis or
                                   HCC 68 Aplastic
                                   Anemia or HCC 69
                                   Acquired Hemolytic
                                   Anemia, Including
                                   Hemolytic Disease
                                   of Newborn).
SEVERE x G08....................  Severe illness x HCC      6.705      6.924      7.064      7.208         7.220
                                   group G08 (HCC 73
                                   Combined and Other
                                   Severe
                                   Immunodeficiencies
                                   or HCC 74 Disorders
                                   of the Immune
                                   Mechanism).
----------------------------------------------------------------------------------------------------------------
                                           Enrollment Duration Factors
----------------------------------------------------------------------------------------------------------------
                                  1 month of                0.252      0.219      0.196      0.183         0.182
                                   enrollment.
                                  2 months of               0.252      0.219      0.196      0.183         0.182
                                   enrollment.
                                  3 months of               0.252      0.219      0.196      0.183         0.182
                                   enrollment.
                                  4 months of               0.215      0.184      0.159      0.147         0.146
                                   enrollment.
                                  5 months of               0.201      0.174      0.149      0.135         0.134
                                   enrollment.
                                  6 months of               0.176      0.152      0.128      0.115         0.114
                                   enrollment.
                                  7 months of               0.123      0.105      0.087      0.076         0.075
                                   enrollment.
                                  8 months of               0.085      0.073      0.059      0.051         0.051
                                   enrollment.
                                  9 months of               0.051      0.042      0.033      0.028         0.027
                                   enrollment.
                                  10 months of              0.000      0.000      0.000      0.000         0.000
                                   enrollment.
                                  11 months of              0.000      0.000      0.000      0.000         0.000
                                   enrollment.
----------------------------------------------------------------------------------------------------------------

[[Page 7107]]

 
                                            Prescription Drug Factors
----------------------------------------------------------------------------------------------------------------
RXC 01..........................  Anti-HIV Agents.....      7.913      7.213      6.737      6.388         6.360
RXC 02..........................  Anti-Hepatitis C         10.016      9.334      8.948      9.021         9.034
                                   (HCV) Agents.
RXC 03..........................  Antiarrhythmics.....      0.127      0.116      0.114      0.073         0.058
RXC 04..........................  Phosphate Binders...      1.998      1.987      1.980      1.913         1.775
RXC 05..........................  Inflammatory Bowel        1.688      1.537      1.409      1.222         1.202
                                   Disease Agents.
RXC 06..........................  Insulin.............      1.940      1.753      1.549      1.315         1.293
RXC 07..........................  Anti-Diabetic             0.793      0.676      0.563      0.399         0.382
                                   Agents, Except
                                   Insulin and
                                   Metformin Only.
RXC 08..........................  Multiple Sclerosis       21.606     20.549     19.915     19.748        19.731
                                   Agents.
RXC 09..........................  Immune Suppressants      13.848     13.192     12.820     12.893        12.902
                                   and
                                   Immunomodulators.
RXC 10..........................  Cystic Fibrosis          18.151     17.703     17.461     17.511        17.519
                                   Agents.
RXC 01 x HCC001.................  Additional effect        -2.152     -1.718     -1.385     -0.930        -0.891
                                   for enrollees with
                                   RXC 01 (Anti-HIV
                                   Agents) and HCC 001
                                   (HIV/AIDS).
RXC 02 x HCC037_1, 036, 035, 034  Additional effect        -0.412     -0.208     -0.082      0.034         0.040
                                   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        -0.676     -0.629     -0.565     -0.520        -0.515
                                   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         0.049      0.038      0.129      0.208         0.214
                                   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        -0.481     -0.414     -0.349     -0.282        -0.276
                                   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        -2.347     -1.771     -1.399     -1.043        -1.007
                                   for enrollees with
                                   RxC 08 (Multiple
                                   Sclerosis Agents)
                                   and HCC 118
                                   (Multiple
                                   Sclerosis).
RXC 09 x HCC056 or 057 and 048    Additional effect         1.001      1.149      1.262      1.390         1.402
 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        -4.212     -3.966     -3.797     -3.735        -3.729
                                   for enrollees with
                                   RxC 09 (Immune
                                   Suppressants and
                                   Immunomodulators)
                                   and HCC 056
                                   (Rheumatoid
                                   Arthritis and
                                   Specified
                                   Autoimmune
                                   Disorders).
RXC 09 x HCC057.................  Additional effect        -0.841     -0.716     -0.607     -0.477        -0.464
                                   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        -1.791     -1.655     -1.583     -1.517        -1.511
                                   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        43.951     44.137     44.226     44.340        44.347
                                   for enrollees with
                                   RxC 10 (Cystic
                                   Fibrosis Agents)
                                   and (HCC 159
                                   (Cystic Fibrosis)
                                   or 158 (Lung
                                   Transplant Status/
                                   Complications)).
----------------------------------------------------------------------------------------------------------------


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


                   Table 4--Proposed Child Risk Adjustment Model Factors for 2021 Benefit Year
----------------------------------------------------------------------------------------------------------------
             Factor                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
                                               Demographic Factors
----------------------------------------------------------------------------------------------------------------
Age 2-4, Male...................           0.217           0.175           0.126           0.082           0.078
Age 5-9, Male...................           0.159           0.125           0.084           0.052           0.049

[[Page 7108]]

 
Age 10-14, Male.................           0.187           0.152           0.106           0.073           0.070
Age 15-20, Male.................           0.229           0.186           0.133           0.087           0.083
Age 2-4, Female.................           0.164           0.130           0.091           0.060           0.057
Age 5-9, Female.................           0.106           0.077           0.044           0.020           0.017
Age 10-14, Female...............           0.175           0.141           0.100           0.069           0.067
Age 15-20, Female...............           0.251           0.199           0.134           0.077           0.072
----------------------------------------------------------------------------------------------------------------
                                                Diagnosis Factors
----------------------------------------------------------------------------------------------------------------
HIV/AIDS........................           4.963           4.448           4.125           3.974           3.961
Septicemia, Sepsis, Systemic              13.606          13.374          13.257          13.250          13.252
 Inflammatory Response Syndrome/
 Shock..........................
Central Nervous System                     8.979           8.793           8.685           8.692           8.692
 Infections, Except Viral
 Meningitis.....................
Viral or Unspecified Meningitis.           3.297           3.038           2.882           2.694           2.676
Opportunistic Infections........          15.380          15.343          15.312          15.287          15.283
Metastatic Cancer...............          38.340          38.034          37.827          37.835          37.835
Lung, Brain, and Other Severe              9.944           9.643           9.433           9.331           9.322
 Cancers, Including Pediatric
 Acute Lymphoid Leukemia........
Non-Hodgkin Lymphomas and Other            8.185           7.898           7.693           7.569           7.557
 Cancers and Tumors.............
Colorectal, Breast (Age <50),              4.162           3.968           3.822           3.694           3.681
 Kidney, and Other Cancers......
Breast (Age 50+) and Prostate              4.162           3.968           3.822           3.694           3.681
 Cancer, Benign/Uncertain Brain
 Tumors, and Other Cancers and
 Tumors.........................
Thyroid Cancer, Melanoma,                  1.089           0.955           0.840           0.717           0.706
 Neurofibromatosis, and Other
 Cancers and Tumors.............
Pancreas Transplant Status......          11.602          11.388          11.260          11.196          11.191
Diabetes with Acute                        2.923           2.541           2.309           1.978           1.949
 Complications..................
Diabetes with Chronic                      2.923           2.541           2.309           1.978           1.949
 Complications..................
Diabetes without Complication...           2.923           2.541           2.309           1.978           1.949
Protein-Calorie Malnutrition....          15.462          15.352          15.286          15.324          15.327
Mucopolysaccharidosis...........          40.368          40.041          39.835          39.821          39.820
Lipidoses and Glycogenosis......          40.368          40.041          39.835          39.821          39.820
Congenital Metabolic Disorders,            5.342           5.207           5.103           5.035           5.028
 Not Elsewhere Classified.......
Amyloidosis, Porphyria, and                5.342           5.207           5.103           5.035           5.028
 Other Metabolic Disorders......
Adrenal, Pituitary, and Other              6.403           6.133           5.947           5.901           5.897
 Significant Endocrine Disorders
Liver Transplant Status/                  11.602          11.388          11.260          11.196          11.191
 Complications..................
Acute Liver Failure/Disease,              11.602          11.388          11.260          11.196          11.191
 Including Neonatal Hepatitis...
Chronic Liver Failure/End-Stage           11.602          11.388          11.260          11.196          11.191
 Liver Disorders................
Cirrhosis of Liver..............           3.872           3.780           3.730           3.705           3.707
Chronic Viral Hepatitis C.......           3.654           3.477           3.370           3.375           3.379
Chronic Hepatitis, Except                  0.171           0.103           0.045           0.000           0.000
 Chronic Viral Hepatitis C......
Intestine Transplant Status/              18.843          18.775          18.746          18.763          18.763
 Complications..................
Peritonitis/Gastrointestinal              13.335          13.022          12.831          12.820          12.821
 Perforation/Necrotizing
 Enterocolitis..................
Intestinal Obstruction..........           5.279           5.057           4.899           4.788           4.777
Chronic Pancreatitis............          12.466          12.206          12.054          12.051          12.051
Acute Pancreatitis..............           7.967           7.708           7.549           7.452           7.443
Inflammatory Bowel Disease......           8.630           8.166           7.866           7.739           7.727
Necrotizing Fasciitis...........           3.865           3.630           3.462           3.372           3.364
Bone/Joint/Muscle Infections/              3.865           3.630           3.462           3.372           3.364
 Necrosis.......................
Rheumatoid Arthritis and                   4.660           4.380           4.177           4.082           4.074
 Specified Autoimmune Disorders.
Systemic Lupus Erythematosus and           0.853           0.719           0.594           0.457           0.443
 Other Autoimmune Disorders.....
Osteogenesis Imperfecta and                1.303           1.185           1.085           1.002           0.994
 Other Osteodystrophies.........
Congenital/Developmental                   1.303           1.185           1.085           1.002           0.994
 Skeletal and Connective Tissue
 Disorders......................
Cleft Lip/Cleft Palate..........           1.305           1.118           0.981           0.846           0.834
Major Congenital Anomalies of              0.000           0.000           0.000           0.000           0.000
 Diaphragm, Abdominal Wall, and
 Esophagus, Age <2..............
Hemophilia......................          72.963          72.352          71.961          71.927          71.924
Myelodysplastic Syndromes and             15.864          15.660          15.531          15.503          15.502
 Myelofibrosis..................
Aplastic Anemia.................          15.864          15.660          15.531          15.503          15.502
Acquired Hemolytic Anemia,                15.864          15.660          15.531          15.503          15.502
 Including Hemolytic Disease of
 Newborn........................
Sickle Cell Anemia (Hb-SS)......           6.184           5.903           5.700           5.560           5.547
Beta Thalassemia Major..........           6.184           5.903           5.700           5.560           5.547
Combined and Other Severe                  6.330           6.151           6.031           5.981           5.976
 Immunodeficiencies.............
Disorders of the Immune                    6.330           6.151           6.031           5.981           5.976
 Mechanism......................
Coagulation Defects and Other              4.965           4.828           4.724           4.642           4.635
 Specified Hematological
 Disorders......................
Drug Use with Psychotic                    3.275           3.036           2.876           2.745           2.734
 Complications..................

[[Page 7109]]

 
Drug Use Disorder, Moderate/               3.275           3.036           2.876           2.745           2.734
 Severe, or Drug Use with Non-
 Psychotic Complications........
Alcohol Use with Psychotic                 0.831           0.688           0.565           0.410           0.396
 Complications..................
Alcohol Use Disorder, Moderate/            0.831           0.688           0.565           0.410           0.396
 Severe, or Alcohol Use with
 Specified Non-Psychotic
 Complications..................
Drug Use Disorder, Mild,                   0.831           0.688           0.565           0.410           0.396
 Uncomplicated, Except Cannabis.
Schizophrenia...................           5.241           4.864           4.620           4.470           4.455
Delusional and Other Specified             3.493           3.209           3.007           2.832           2.817
 Psychotic Disorders,
 Unspecified Psychosis..........
Major Depressive Disorder,                 2.952           2.706           2.515           2.341           2.325
 Severe, and Bipolar Disorders..
Personality Disorders...........           0.497           0.396           0.283           0.145           0.131
Anorexia/Bulimia Nervosa........           2.438           2.226           2.065           1.954           1.943
Prader-Willi, Patau, Edwards,              1.556           1.402           1.294           1.202           1.193
 and Autosomal Deletion
 Syndromes......................
Down Syndrome, Fragile X, Other            1.556           1.402           1.294           1.202           1.193
 Chromosomal Anomalies, and
 Congenital Malformation
 Syndromes......................
Autistic Disorder...............           2.952           2.706           2.515           2.341           2.325
Pervasive Developmental                    0.527           0.442           0.341           0.226           0.216
 Disorders, Except Autistic
 Disorder.......................
Traumatic Complete Lesion                 10.660          10.444          10.322          10.337          10.341
 Cervical Spinal Cord...........
Quadriplegia....................          10.660          10.444          10.322          10.337          10.341
Traumatic Complete Lesion Dorsal           7.948           7.672           7.503           7.436           7.428
 Spinal Cord....................
Paraplegia......................           7.948           7.672           7.503           7.436           7.428
Spinal Cord Disorders/Injuries..           4.052           3.825           3.665           3.547           3.536
Amyotrophic Lateral Sclerosis             25.035          24.747          24.542          24.466          24.460
 and Other Anterior Horn Cell
 Disease........................
Quadriplegic Cerebral Palsy.....           4.502           4.268           4.155           4.153           4.155
Cerebral Palsy, Except                     0.887           0.724           0.606           0.476           0.463
 Quadriplegic...................
Spina Bifida and Other Brain/              2.436           2.284           2.181           2.112           2.106
 Spinal/Nervous System
 Congenital Anomalies...........
Myasthenia Gravis/Myoneural               11.304          11.122          11.009          11.018          11.020
 Disorders and Guillain-Barre
 Syndrome/Inflammatory and Toxic
 Neuropathy.....................
Muscular Dystrophy..............           3.484           3.273           3.131           3.013           3.004
Multiple Sclerosis..............          12.435          11.963          11.675          11.652          11.650
Parkinson's, Huntington's, and             3.484           3.273           3.131           3.013           3.004
 Spinocerebellar Disease, and
 Other Neurodegenerative
 Disorders......................
Seizure Disorders and                      2.304           2.137           1.992           1.844           1.830
 Convulsions....................
Hydrocephalus...................           5.235           5.125           5.045           5.012           5.009
Coma, Brain Compression/Anoxic             5.348           5.203           5.104           5.056           5.051
 Damage.........................
Narcolepsy and Cataplexy........           4.262           4.066           3.904           3.739           3.720
Respirator Dependence/                    33.399          33.291          33.254          33.422          33.437
 Tracheostomy Status............
Respiratory Arrest..............          10.466          10.201          10.058          10.029          10.027
Cardio-Respiratory Failure and            10.466          10.201          10.058          10.029          10.027
 Shock, Including Respiratory
 Distress Syndromes.............
Heart Assistive Device/                   18.843          18.775          18.746          18.763          18.763
 Artificial Heart...............
Heart Transplant Status/                  18.843          18.775          18.746          18.763          18.763
 Complications..................
Heart Failure...................           6.428           6.307           6.223           6.181           6.177
Acute Myocardial Infarction.....           5.114           4.984           4.935           4.944           4.947
Unstable Angina and Other Acute            2.526           2.378           2.302           2.284           2.288
 Ischemic Heart Disease.........
Heart Infection/Inflammation,             13.717          13.595          13.518          13.514          13.513
 Except Rheumatic...............
Hypoplastic Left Heart Syndrome            4.066           3.895           3.736           3.623           3.612
 and Other Severe Congenital
 Heart Disorders................
Major Congenital Heart/                    1.226           1.120           0.994           0.876           0.866
 Circulatory Disorders..........
Atrial and Ventricular Septal              0.831           0.735           0.632           0.543           0.536
 Defects, Patent Ductus
 Arteriosus, and Other
 Congenital Heart/Circulatory
 Disorders......................
Specified Heart Arrhythmias.....           3.957           3.782           3.644           3.563           3.556
Intracranial Hemorrhage.........          11.763          11.547          11.426          11.425          11.426
Ischemic or Unspecified Stroke..           3.610           3.533           3.497           3.498           3.501
Cerebral Aneurysm and                      3.322           3.116           2.986           2.900           2.892
 Arteriovenous Malformation.....
Hemiplegia/Hemiparesis..........           7.246           7.110           7.024           6.991           6.987
Monoplegia, Other Paralytic                3.285           3.098           2.978           2.898           2.890
 Syndromes......................
Atherosclerosis of the                    14.234          13.963          13.796          13.739          13.735
 Extremities with Ulceration or
 Gangrene.......................
Vascular Disease with                     10.519          10.396          10.319          10.348          10.349
 Complications..................
Pulmonary Embolism and Deep Vein          17.678          17.551          17.486          17.500          17.501
 Thrombosis.....................
Lung Transplant Status/                   18.843          18.775          18.746          18.763          18.763
 Complications..................
Cystic Fibrosis.................          40.080          39.483          39.100          39.106          39.106
Chronic Obstructive Pulmonary              3.156           2.986           2.856           2.739           2.729
 Disease, Including
 Bronchiectasis.................
Severe Asthma...................           0.818           0.633           0.468           0.270           0.251
Asthma, Except Severe...........           0.354           0.289           0.200           0.113           0.106

[[Page 7110]]

 
Fibrosis of Lung and Other Lung            1.708           1.621           1.529           1.444           1.436
 Disorders......................
Aspiration and Specified                   6.676           6.622           6.585           6.603           6.605
 Bacterial Pneumonias and Other
 Severe Lung Infections.........
Exudative Macular Degeneration..           0.000           0.000           0.000           0.000           0.000
Kidney Transplant Status/                 11.602          11.388          11.260          11.196          11.191
 Complications..................
End Stage Renal Disease.........          41.286          41.057          40.934          41.046          41.057
Chronic Kidney Disease, Stage 5.           5.961           5.857           5.771           5.679           5.670
Chronic Kidney Disease, Severe             5.961           5.857           5.771           5.679           5.670
 (Stage 4)......................
Ectopic and Molar Pregnancy.....           1.847           1.546           1.348           1.100           1.080
Miscarriage with Complications..           0.834           0.700           0.534           0.292           0.266
Miscarriage with No or Minor               0.834           0.700           0.534           0.292           0.266
 Complications..................
Pregnancy with Delivery with               3.796           3.315           3.047           2.628           2.585
 Major Complications............
Pregnancy with Delivery with               3.796           3.315           3.047           2.628           2.585
 Complications..................
Pregnancy with Delivery with No            2.681           2.342           2.111           1.635           1.578
 or Minor Complications.........
(Ongoing) Pregnancy without                0.403           0.313           0.179           0.035           0.028
 Delivery with Major
 Complications..................
(Ongoing) Pregnancy without                0.403           0.313           0.179           0.035           0.028
 Delivery with Complications....
(Ongoing) Pregnancy without                0.403           0.313           0.179           0.035           0.028
 Delivery with No or Minor
 Complications..................
Chronic Ulcer of Skin, Except              2.956           2.861           2.771           2.695           2.690
 Pressure.......................
Extensive Third Degree Burns....          16.269          16.040          15.884          15.865          15.864
Major Skin Burn or Condition....           2.467           2.297           2.168           2.059           2.050
Severe Head Injury..............          16.269          16.040          15.884          15.865          15.864
Hip and Pelvic Fractures........           4.925           4.669           4.475           4.362           4.354
Vertebral Fractures without                4.052           3.820           3.642           3.495           3.480
 Spinal Cord Injury.............
Traumatic Amputations and                  5.553           5.291           5.118           4.987           4.971
 Amputation Complications.......
Stem Cell, Including Bone                 18.843          18.775          18.746          18.763          18.763
 Marrow, Transplant Status/
 Complications..................
Artificial Openings for Feeding           11.570          11.418          11.359          11.471          11.484
 or Elimination.................
Amputation Status, Upper Limb or           5.553           5.291           5.118           4.987           4.971
 Lower Limb.....................
----------------------------------------------------------------------------------------------------------------


                  Table 5--Proposed Infant Risk Adjustment Model Factors for 2021 Benefit Year
----------------------------------------------------------------------------------------------------------------
              Group                  Platinum          Gold           Silver          Bronze       Catastrophic
----------------------------------------------------------------------------------------------------------------
Extremely Immature * Severity            225.321         223.595         222.465         222.451         222.455
 Level 5 (Highest)..............
Extremely Immature * Severity            144.819         142.871         141.573         141.365         141.352
 Level 4........................
Extremely Immature * Severity             33.455          32.014          31.032          30.738          30.717
 Level 3........................
Extremely Immature * Severity             33.455          32.014          31.032          30.738          30.717
 Level 2........................
Extremely Immature * Severity             33.455          32.014          31.032          30.738          30.717
 Level 1 (Lowest)...............
Immature *Severity Level 5               142.379         140.578         139.388         139.305         139.299
 (Highest)......................
Immature *Severity Level 4......          71.986          70.220          69.038          68.884          68.870
Immature *Severity Level 3......          33.455          32.014          31.032          30.738          30.717
Immature *Severity Level 2......          25.570          24.161          23.190          22.827          22.795
Immature *Severity Level 1                25.570          24.161          23.190          22.827          22.795
 (Lowest).......................
Premature/Multiples * Severity           110.794         109.215         108.168         108.011         107.996
 Level 5 (Highest)..............
Premature/Multiples * Severity            29.484          27.938          26.919          26.632          26.612
 Level 4........................
Premature/Multiples * Severity            14.338          13.201          12.389          11.819          11.768
 Level 3........................
Premature/Multiples * Severity             8.284           7.501           6.838           6.107           6.031
 Level 2........................
Premature/Multiples * Severity             5.769           5.196           4.607           4.019           3.967
 Level 1 (Lowest)...............
Term *Severity Level 5 (Highest)          86.802          85.471          84.564          84.347          84.329
Term *Severity Level 4..........          17.042          15.936          15.163          14.630          14.588
Term *Severity Level 3..........           6.318           5.730           5.154           4.524           4.466
Term *Severity Level 2..........           3.559           3.136           2.604           1.944           1.884
Term *Severity Level 1 (Lowest).           1.698           1.477           1.054           0.712           0.691
Age1 *Severity Level 5 (Highest)          65.628          64.812          64.248          64.124          64.114
Age1 *Severity Level 4..........          12.979          12.412          12.003          11.748          11.726
Age1 *Severity Level 3..........           3.335           3.059           2.809           2.602           2.585
Age1 *Severity Level 2..........           2.054           1.841           1.620           1.396           1.376
Age1 *Severity Level 1 (Lowest).           0.545           0.501           0.447           0.404           0.400
Age 0 Male......................           0.645           0.597           0.560           0.489           0.481
Age 1 Male......................           0.115           0.099           0.083           0.062           0.060
----------------------------------------------------------------------------------------------------------------


     Table 6--HHS HCCs Included in Infant Model Maturity Categories
------------------------------------------------------------------------
      Maturity category                     HCC/description
------------------------------------------------------------------------
Extremely Immature...........  Extremely Immature Newborns, Birth weight
                                <500 Grams.
Extremely Immature...........  Extremely Immature Newborns, Including
                                Birth weight 500-749 Grams.
Extremely Immature...........  Extremely Immature Newborns, Including
                                Birth weight 750-999 Grams.

[[Page 7111]]

 
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 7--HHS HCCs Included in Infant Model Severity Categories
------------------------------------------------------------------------
      Severity category                     HCC/description
------------------------------------------------------------------------
Severity Level 5 (Highest)...  Metastatic Cancer.
Severity Level 5.............  Pancreas Transplant Status.
Severity Level 5.............  Liver Transplant Status/Complications.
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 Status/Complications.
Severity Level 5.............  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/Complications.
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.............  Acute Liver Failure/Disease, Including
                                Neonatal Hepatitis.
Severity Level 4.............  Chronic Liver Failure/End-Stage Liver
                                Disorders.
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.............  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.............  Coma, Brain Compression/Anoxic Damage.
Severity Level 4.............  Respiratory Arrest.
Severity Level 4.............  Cardio-Respiratory Failure and Shock,
                                Including Respiratory Distress
                                Syndromes.
Severity Level 4.............  Acute Myocardial Infarction.
Severity Level 4.............  Heart Infection/Inflammation, Except
                                Rheumatic.
Severity Level 4.............  Major Congenital Heart/Circulatory
                                Disorders.
Severity Level 4.............  Intracranial Hemorrhage.
Severity Level 4.............  Ischemic or Unspecified Stroke.
Severity Level 4.............  Vascular Disease with Complications.
Severity Level 4.............  Pulmonary Embolism and Deep Vein
                                Thrombosis.
Severity Level 4.............  Aspiration and Specified Bacterial
                                Pneumonias and Other Severe Lung
                                Infections.
Severity Level 4.............  Chronic Kidney Disease, Stage 5.
Severity Level 4.............  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 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.............  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.............  Combined and Other Severe
                                Immunodeficiencies.
Severity Level 3.............  Disorders of the Immune Mechanism.
Severity Level 3.............  Coagulation Defects and Other Specified
                                Hematological Disorders.
Severity Level 3.............  Drug Use with Psychotic Complications.

[[Page 7112]]

 
Severity Level 3.............  Drug Use Disorder, Moderate/Severe, or
                                Drug Use with Non-Psychotic
                                Complications.
Severity Level 3.............  Alcohol Use with Psychotic Complications.
Severity Level 3.............  Alcohol Use Disorder, Moderate/Severe, or
                                Alcohol Use with Specified Non-Psychotic
                                Complications.
Severity Level 3.............  Drug Use Disorder, Mild, Uncomplicated,
                                Except Cannabis.
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.............  Spina Bifida and Other Brain/Spinal/
                                Nervous System Congenital Anomalies.
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.............  Extensive Third Degree Burns.
Severity Level 3.............  Severe Head Injury.
Severity Level 3.............  Hip and Pelvic Fractures.
Severity Level 3.............  Vertebral Fractures without Spinal Cord
                                Injury.
Severity Level 2.............  Viral or Unspecified Meningitis.
Severity Level 2.............  Thyroid Cancer, 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.............  Acute 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.............  Down Syndrome, Fragile X, Other
                                Chromosomal Anomalies, and Congenital
                                Malformation Syndromes.
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.............  Severe Asthma.
Severity Level 2.............  Fibrosis of Lung and Other Lung
                                Disorders.
Severity Level 2.............  Chronic Kidney Disease, Severe (Stage 4).
Severity Level 2.............  Chronic Ulcer of Skin, Except Pressure.
Severity Level 2.............  Major Skin Burn or Condition.
Severity Level 1 (Lowest)....  Chronic Viral Hepatitis C.
Severity Level 1.............  Chronic Hepatitis, Except Chronic Viral
                                Hepatitis C.
Severity Level 1.............  Beta Thalassemia Major.
Severity Level 1.............  Autistic Disorder.
Severity Level 1.............  Pervasive Developmental Disorders, Except
                                Autistic Disorder.
Severity Level 1.............  Multiple Sclerosis.
Severity Level 1.............  Asthma, Except Severe.
Severity Level 1.............  Traumatic Amputations and Amputation
                                Complications.
Severity Level 1.............  Amputation Status, Upper Limb or Lower
                                Limb.
------------------------------------------------------------------------

(5) Cost-Sharing Reduction Adjustments
    We propose to continue including an adjustment for the receipt of 
CSRs in the risk adjustment models to account for increased plan 
liability due to increased utilization of health care services by 
enrollees receiving CSRs in all 50 states and the District of Columbia. 
For the 2021 benefit year, to maintain stability and certainty for 
issuers, we are proposing to maintain the CSR factors

[[Page 7113]]

finalized in the 2019 and 2020 Payment Notices.\50\ See Table 8.
---------------------------------------------------------------------------

    \50\ See 83 FR 16930 at 16953 and 84 FR 17454 at 17478 through 
17479.
---------------------------------------------------------------------------

    Consistent with the approach finalized in the 2017 Payment 
Notice,\51\ we will continue to use a CSR adjustment factor 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 AVs above 94 percent.
---------------------------------------------------------------------------

    \51\ See 81 FR 12203 at 12228.
---------------------------------------------------------------------------

    We seek comment on these proposals.

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

(6) 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 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.\52\ Because we blended 
the coefficients from separately solved models based on the 2016 and 
2017 benefit years' enrollee-level EDGE data that were available at the 
time of 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 9. If the proposed 
2021 benefit year model recalibration data is finalized, we intend to 
publish updated R-squared statistics to reflect results from the 
blending of the 2016, 2017, and 2018 benefit years' enrollee-level EDGE 
datasets used to recalibrate the models for the 2021 benefit year.
---------------------------------------------------------------------------

    \52\ Winkleman, Ross and Syed Mehmud. ``A Comparative Analysis 
of Claims-Based Tools for Health Risk Assessment.'' Society of 
Actuaries. April 2007.

  Table 9--R-Squared Statistic for Proposed HHS Risk Adjustment Models
------------------------------------------------------------------------
                           R-Squared statistic
-------------------------------------------------------------------------
                                                    2016         2017
                                                 enrollee-    enrollee-
                    Models                       level EDGE   level EDGE
                                                    data         data
------------------------------------------------------------------------
Platinum Adult................................       0.4256       0.4210
Gold Adult....................................       0.4198       0.4148
Silver Adult..................................       0.4154       0.4101
Bronze Adult..................................       0.4123       0.4068
Catastrophic Adult............................       0.4119       0.4064
Platinum Child................................       0.3212       0.3382
Gold Child....................................       0.3166       0.3336
Silver Child..................................       0.3129       0.3299
Bronze Child..................................       0.3095       0.3267
Catastrophic Child............................       0.3091       0.3263
Platinum Infant...............................       0.3283       0.3303
Gold Infant...................................       0.3245       0.3263
Silver Infant.................................       0.3218       0.3235
Bronze Infant.................................       0.3203       0.3220
Catastrophic Infant...........................       0.3201       0.3218
------------------------------------------------------------------------

b. Overview of the Risk Adjustment Transfer Methodology (Sec.  153.320)
    We are proposing to continue to use the HHS state payment transfer 
formula that was finalized in the 2020 Payment Notice.\53\ Although the 
proposed HHS state payment transfer formula for the 2021 benefit year 
is unchanged from what was finalized for the previous benefit year, 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, although these factors and terms also 
remain unchanged in this proposed rule.\54\
---------------------------------------------------------------------------

    \53\ 84 FR 17454 at 17480 and 17485.
    \54\ Ibid.
---------------------------------------------------------------------------

    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.\55\ 
This 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 the 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 via a cost scaling factor. In the 
absence of additional funding, we established, through notice and 
comment rulemaking,\56\ 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. In light of the budget-neutral framework, 
HHS uses statewide average premium as the cost-scaling factor in the 
state payment transfer formula under 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.\57\
---------------------------------------------------------------------------

    \55\ The state payment transfer formula refers to the part of 
the HHS risk adjustment methodology that calculates payments and 
charges at the state market risk pool level prior to the calculation 
of the high-cost risk pool payment and charge terms that apply 
beginning with the 2018 benefit year.
    \56\ 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).
    \57\ See the 2020 Payment Notice for further details on why 
statewide average premium is the cost-scaling factor in the state 
payment transfer formula. See 84 FR 17454 at 17480 through 17484.
---------------------------------------------------------------------------

    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. Transfers (payments and charges) under the 
state payment transfer formula are 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

[[Page 7114]]

adjustment transfer methodology follows the formula:
[GRAPHIC] [TIFF OMITTED] TP06FE20.004

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 denominators are 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.\58\ This resulting PMPM plan payment or 
charge is multiplied by the number of billable member months to 
determine the plan payment or charge based on plan liability risk 
scores for a plan's geographic rating area for the risk pool market 
within the state. The payment or charge under the state payment 
transfer formula is thus calculated to balance the state market risk 
pool in question.
---------------------------------------------------------------------------

    \58\ 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 are maintaining the 14 percent administrative cost reduction to 
the statewide average premium for the 2021 benefit year and are not 
proposing to modify the adjustment at this time.\59\
---------------------------------------------------------------------------

    \59\ See 84 FR 17454 at 17486 for a visual illustration of the 
equation for this adjustment.
---------------------------------------------------------------------------

    To account for costs associated with exceptionally high-risk 
enrollees we previously added a high-cost risk pool adjustment to the 
HHS risk adjustment transfer methodology. As finalized in the 2020 
Payment Notice, \60\ we intend to maintain the high-cost risk pool 
parameters with a threshold of $1 million and a coinsurance rate of 60 
percent for benefit years 2020 and onward, unless amended through 
notice-and-comment rulemaking. We are not proposing any changes to the 
high-cost risk pool parameters as part of this rulemaking, so would 
maintain the threshold of $1 million and coinsurance rate of 60 percent 
for the 2021 benefit year.
---------------------------------------------------------------------------

    \60\ 84 FR 17454 at 17466 through 17468.
---------------------------------------------------------------------------

    The high-cost risk pool adjustment amount is 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 and merged market 
plans, and another for the small group market), and the plan's total 
premiums (TPi). For this calculation, we 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 are calculated as 
the product of the plan's PMPM transfer amount (Ti) 
multiplied by the plan's billable member months (Mi), plus 
the high-cost risk pool adjustments. The total plan transfer (payment 
or charge) amounts under the HHS risk adjustment payment transfer 
formula are 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.

(1) 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.\61\
---------------------------------------------------------------------------

    \61\ 2019 Payment Notice Final Rule, 83 FR 16930 (April 17, 
2018) and 45 CFR 153.320(d)(3).
---------------------------------------------------------------------------

    As finalized in the 2020 Payment Notice, 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 FOIA regulations 
at 45 CFR 5.31(d), HHS will make 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 by posting a 
redacted version of the state's supporting evidence.\62\
---------------------------------------------------------------------------

    \62\ See 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 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. If approved by HHS, state reduction 
requests will be applied to the plan PMPM payment or charge transfer 
amount (Ti in the state payment transfer calculation).
    For the 2021 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

[[Page 7115]]

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 2021 benefit year would not 
exceed 1 percent, the de minimis premium increase threshold set forth 
in Sec.  153.320(d)(1)(iii) and (d)(4)(i)(B). We seek comment on this 
request to reduce risk adjustment transfers in the Alabama small group 
market by 50 percent for the 2021 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.
c. Risk Adjustment User Fee for 2021 Benefit Year (Sec.  153.610(f))
    As noted above, if a state is not approved to operate, or chooses 
to forgo operating, its own risk adjustment program, HHS will operate 
risk adjustment on its behalf. For the 2021 benefit year, HHS will be 
operating a risk adjustment program in every state and the District of 
Columbia. As described in the 2014 Payment Notice, HHS's operation of 
risk adjustment on behalf of states is funded through a risk adjustment 
user fee. Section 153.610(f)(2) provides that, where HHS operates a 
risk adjustment program on behalf of a state, 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 specified in the annual HHS notice of 
benefit and payment parameters for the applicable benefit year.
    OMB Circular No. A-25R established Federal policy regarding user 
fees, and specifies that a user charge will be assessed against each 
identifiable recipient for special benefits derived from Federal 
activities beyond those received by the general public. The risk 
adjustment program will provide special benefits as defined in section 
6(a)(1)(B) of Circular No. A-25R to issuers of risk adjustment covered 
plans because it 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 2020 Payment Notice, we calculated the Federal 
administrative expenses of operating the risk adjustment program for 
the 2020 benefit year to result in a risk adjustment user fee rate of 
$0.18 PMPM based on our estimated contract costs for risk adjustment 
operations and estimated billable member months for individuals 
enrolled in risk adjustment covered plans. For the 2021 benefit year, 
we propose to use the same methodology to estimate our administrative 
expenses to operate the program. These costs cover development of the 
model and methodology, collections, payments, account management, data 
collection, data validation, program integrity and audit functions, 
operational and fraud analytics, stakeholder training, operational 
support, and administrative and personnel costs dedicated to risk 
adjustment program activities. To calculate the user fee, we divided 
HHS's projected total costs for administering the risk adjustment 
programs on behalf of states by the expected number of billable member 
months in risk adjustment covered plans in states where the HHS-
operated risk adjustment program will apply in the 2021 benefit year.
    We estimate that the total cost for HHS to operate the risk 
adjustment program on behalf of states for 2021 will be approximately 
$50 million, and the risk adjustment user fee would be $0.19 PMPM. The 
risk adjustment user fee costs for the 2021 benefit year are expected 
to remain steady from the prior 2020 benefit year estimates. However, 
we project a small decline in billable member months in the individual 
and small group markets overall in the 2021 benefit year based on the 
declines observed in the 2018 benefit year. We seek comment on the 
proposed risk adjustment user fee for the 2021 benefit year.
3. Risk Adjustment Data Validation Requirements When HHS Operates Risk 
Adjustment (Sec.  153.630)
    We conduct RADV 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 2021 benefit year includes all 50 states and the District of 
Columbia. The purpose of RADV 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. The HHS RADV program also ensures that risk adjustment 
transfers reflect verifiable actuarial risk differences among issuers, 
rather than risk score calculations that are based on poor data 
quality, thereby helping to ensure that the HHS-operated risk 
adjustment program assesses charges to issuers with plans with lower-
than-average actuarial risk while making payments to issuers with plans 
with higher-than-average actuarial risk.
    RADV 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 the issuer's 
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 RADV program that stem from issuer 
feedback and HHS's examination of results from during the first 2 pilot 
years and first transfer adjustment year of the program. None of the 
policy options discussed in the ``HHS Risk Adjustment Data Validation 
(HHS-RADV) White Paper'',\63\ published on December 6th, 2019, preclude 
or supersede the proposals in this proposed rule.
---------------------------------------------------------------------------

    \63\ See https://www.cms.gov/files/document/2019-hhs-risk-adjustment-data-validation-hhs-radv-white-paper.
---------------------------------------------------------------------------

a. Application of Risk Adjustment Data Validation Adjustments in Cases 
Where HCC Count is Low
    Beginning with the 2019 benefit year RADV, we propose to amend the 
outlier identification process when an issuer has fewer HCCs within an 
HCC group than are necessary to determine statistical significance. 
Specifically, we propose not to consider as an outlier any issuer's 
failure rate for an HCC group in which that issuer has fewer than 30 
HCCs recorded on the issuer's EDGE server. Under this proposed 
approach, an issuer with fewer than 30 HCCs recorded on its EDGE server 
in an HCC group would have its data included in the calculation of the 
overall national metrics, but would not have its risk score adjusted 
for that group, even if the magnitude of its failure rate appeared to 
otherwise be very large relative to other issuers. Such an issuer could 
still be considered an outlier, and have its risk score adjusted, in 
another HCC group in which it had at least 30 HCCs recorded.
    In the 2019 Payment Notice,\64\ to avoid adjusting all issuers' 
risk

[[Page 7116]]

adjustment transfers for expected variation and error, we finalized a 
proposal to evaluate material statistical deviation in data validation 
failure rates beginning with 2017 benefit year RADV. When an issuer's 
failure rate within a group of HCCs materially deviates from the mean 
of the failure rate for that HCC group, we apply the difference between 
the mean group failure rate and the issuer's calculated failure rate. 
If all failure rates in a state market risk pool do not materially 
deviate from the national mean failure rates, we do not apply any 
adjustments to issuers' risk scores for that benefit year in the 
respective state market risk pool.\65\
---------------------------------------------------------------------------

    \64\ 83 FR 16930.
    \65\ When an issuer is determined to be an outlier in an HCC 
group, the transfers for other issuers in the state market risk pool 
(including those who are not outliers in any HCC group) will also be 
adjusted due to the budget neutral nature of the HHS-operated risk 
adjustment program.
---------------------------------------------------------------------------

    Consistent with the methodology finalized in the 2019 Payment 
Notice, for RADV for 2017 and 2018 benefit years, we currently 
calculate the data validation failure rate for each HCC in issuers' 
initial validation audit samples as:
[GRAPHIC] [TIFF OMITTED] TP06FE20.005

Where:

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

    HHS then creates three HCC groups based on the HCC failure rates 
derived in the calculation above. 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. That is, each HCC group may have an unequal 
number of unique HCCs, but the total observations in each group are 
approximately equal based on total observations of HCCs reflected in 
EDGE data for all issuers' initial validation audit sample enrollees, 
which prevents small sample sizes for an HCC group for any issuer.
    HHS then compares each issuer's failure rate for each HCC group 
based on the number of HCCs validated in the initial validation audit, 
compared to the number of HCCs recorded on EDGE within that HCC group 
for the initial validation audit sample enrollees. The issuer's HCC 
group failure rate is compared to the weighted mean failure rate for 
that HCC group. We calculate an issuer's HCC group failure rate as:
[GRAPHIC] [TIFF OMITTED] TP06FE20.006

Where:

Freq_EDGEiG is the number of HCCs in group G in the EDGE sample of 
issuer i.
Freq_IVAiG is the number of HCCs in group G in the initial 
validation audit sample of issuer i.
GFRiG is i's group failure rate for the HCC group G.

    We also calculate the weighted mean failure rate and the standard 
deviation of each HCC group as:
[GRAPHIC] [TIFF OMITTED] TP06FE20.007

Where:

[mu](GFRG) is the weighted mean of GFRiG of all issuers for the HCC 
group G weighted by all issuers' sample observations in each group.
Sd(GFRG) is the standard deviation of GFRiG of all issuers for the 
HCC group G.

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

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

Where:

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

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

If GFRiG > UBG or GFRiG < LBG:
Then FlagiG = ``outlier'' and AdjustmentiG = GFRiG-[mu](GFRG)
If GFRiG <= UBG and GFRiG >= LBG:
Then FlagiG = ``not outlier'' and AdjustmentiG = 0

Where:

FlagiG is the indicator if issuer i's group failure rate for group G 
locates beyond a calculated threshold that we are using to classify 
issuers into ``outliers'' or ``not outliers'' for group G.
AdjustmentiG is the calculated adjustment amount to adjust issuer 
i's EDGE risk scores for all sampled HCCs in group G.

    We then compute total adjustments and risk adjustment transfer 
error rates

[[Page 7117]]

for each issuer based on the sums of the AdjustmentiG.\66\
---------------------------------------------------------------------------

    \66\ See, for example, the 2018 Benefit Year Protocols: PPACA 
HHS Risk Adjustment Data Validation, Version 7.0 (June 24, 2019) 
that are available at https://www.regtap.info/uploads/library/HRADV_2018Protocols_070319_5CR_070519.pdf.
---------------------------------------------------------------------------

    Although the failure rate and error estimation methodology 
described above are based on the number of HCCs within a sample, our 
sampling methodology samples individual enrollees and varies in size 
for issuers with fewer than 4,000 enrollees,\67\ rather than sampling 
HCCs directly. This difference in unit of analysis between the error 
estimation methodology--which applies to all non-exempt RADV issuers, 
regardless of their size--and the sampling methodology may lead to 
fewer HCCs in an HCC group than are necessary to reliably determine, at 
the targeted precision and confidence levels, whether an issuer is an 
outlier--that is, whether an issuer is statistically different from the 
national (average) HCC failure rate, as defined by an unadjusted 95 
percent confidence interval.
---------------------------------------------------------------------------

    \67\ For issuers with fewer than 4,000 enrollees, the sample 
size varies according to a finite population correction (FPC) such 
that , nadjusted = noriginal * FPC, where nadjusted is the adjusted 
sample size and noriginal is the original sample size of 200 
enrollees. The FPC is determined by the equation FPC = (N-
n_original)/N, where N is the population size. By these formulae, if 
an issuer's adjusted sample size would be smaller than 50 enrollees, 
that issuer should sample either a minimum of 50 enrollees or their 
entire population of enrollees, whichever is smaller. See Ibid at 
37.
---------------------------------------------------------------------------

    Standard statistical theorems \68\ state that, as sample sizes 
increase, the sampling distribution of the means of those samples (in 
this case, the distribution of mean HCC group failure rates) will more 
closely approximate a normal distribution. Lower sample sizes are more 
likely to lead to non-normal distributions of sample summary 
statistics--for example, the means of multiple samples--if the 
distribution of the underlying population is non-normal. The divergence 
from a normally distributed distribution of sample means that can occur 
at lower sample sizes may result in violations of the assumptions of 
statistical testing, which may lead to the detection of more apparent 
outliers than would be desirable.
---------------------------------------------------------------------------

    \68\ In other words, the Central Limit Theorem (CLT). For 
background regarding the CLT, see Ivo D. Dinov, Nicolas Christou, 
and Juana Sanchez. ``Central limit theorem: New SOCR applet and 
demonstration activity.'' Journal of Statistics Education 16, no. 2 
(2008). DOI: 10.1080/10691898.2008.11889560.
---------------------------------------------------------------------------

    Taking all of these points into consideration, we conducted an 
analysis in which we simulated the selection of samples from an average 
issuer using progressively smaller HCC counts. By this process, we 
identified a threshold of 30 HCCs per sample of enrollees below which 
the implied alpha of our statistical tests for outliers was higher than 
5 percent. Moreover, statistical practice often relies on a standard 
recommendation regarding the determination of sample size, which states 
that sample sizes below 30 observations are often insufficient to 
assume that the sampling distribution is normally distributed.\69\
---------------------------------------------------------------------------

    \69\ For example, David C. Howell, ``Hypothesis Tests Applied to 
Means'' In Statistical Methods for Psychology (8th Ed.), 177-228. 
Belmont, CA: Wadsworth, 2010.
---------------------------------------------------------------------------

    Based on these findings, beginning with 2019 benefit year RADV, we 
propose to not consider as an outlier any issuer's failure rate for an 
HCC group in which that issuer has fewer than 30 HCCs. Such an issuer's 
data would be included in the calculation of national metrics for that 
HCC group, including the national mean failure rate, standard 
deviation, and upper and lower confidence interval bounds. In addition, 
this issuer may be considered an outlier in other HCC groups in which 
it has 30 or more HCCs. Under this proposal, the adjustment amount for 
outliers will continue to be the distance between issuer i's Group 
Failure Rate GFRiG and the weighted mean [mu](GFRG), now calculated as:

If GFRiG > UBG or GFRiG < LBG,
And if Freq_EDGEiG >= 30:
Then FlagiG = ``outlier'' and AdjustmentiG = GFRiG-[mu](GFRG)
If GFRiG <= UBG and GFRiG >= LBG,
Or if Freq_EDGEiG:
Then FlagiG = ``not outlier'' and AdjustmentiG = 0

    We are committed to monitoring and improving the RADV methodology 
as we gain experience with years for which we make transfer adjustments 
under the program, and believe that this proposed change will improve 
the precision and reliability of RADV results, while mitigating the 
burden on smaller issuers. We may explore additional methodological 
changes for future benefit years.
    We solicit comments on this proposal.
b. Prescription Drugs for the 2019 Benefit Year Risk Adjustment Data 
Validation
    We propose that the 2019 benefit year RADV will serve as a second 
pilot year for the purposes of prescription drug data validation, in 
addition to the 2018 benefit year RADV pilot for prescription drugs. 
This proposal is intended to give HHS and issuers more time and 
experience with the prescription drug data validation process before 
those results would be used to adjust risk scores and transfers. The 
proposed second pilot year is consistent with the two pilot years 
provided for the 2015 and 2016 benefit years of the HHS RADV program. 
This proposal is also responsive to issuer concerns that were 
previously expressed in comments to the 2020 Payment Notice.\70\
---------------------------------------------------------------------------

    \70\ See, for example, America's Health Insurance Plans comment 
on HHS Notice of Benefit and Payment Parameters for 2020 Proposed 
Rule, February 19, 2019, https://www.regulations.gov/contentStreamer?documentId=CMS-2019-0006-23013&attachmentNumber=1&contentType=pdf, and BlueCross BlueShield 
Association comment on HHS Notice of Benefit and Payment Parameters 
for 2020 Proposed Rule, February 19, 2019, https://www.regulations.gov/contentStreamer?documentId=CMS-2019-0006-23345&attachmentNumber=1&contentType=pdf.
---------------------------------------------------------------------------

    In the 2020 Payment Notice,\71\ we finalized an approach to 
incorporate RXCs into RADV as a method of discovering materially 
incorrect EDGE server data submissions in a manner similar to how we 
address demographic and enrollment errors discovered during RADV. We 
also finalized an approach to pilot the incorporation of these drugs 
into the RADV process for 2018 benefit year RADV, and stated that RXC 
errors that we identified during 2018 benefit year RADV RXC pilot will 
not be used to adjust risk scores or transfers. We stated that we 
finalized this policy to treat the incorporation of RXCs into 2018 
benefit year RADV as a pilot year to allow HHS and issuers to gain 
experience in validating RXCs before RXCs are used to adjust issuers' 
risk scores. Through continued analysis of this issue after publication 
of the 2020 Payment Notice, we have recognized that there may be more 
differences between validating HCCs and RXCs that need to be considered 
when incorporating RXCs into RADV than initially anticipated and that 
the metrics to validate a RXC are not the same as coding a HCC. A 
second pilot year for validation of RXCs provides additional time to 
examine these issues and any potential mitigating strategies (as may be 
necessary). Therefore, after further consideration, we are proposing a 
second pilot year (2019 benefit year) for RXC validation.
---------------------------------------------------------------------------

    \71\ 84 FR 17454 at 17498 through 17503.
---------------------------------------------------------------------------

    We solicit comments on this proposal.

[[Page 7118]]

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

1. Verification Process Related to Eligibility for Insurance 
Affordability Programs
a. Employer-sponsored Plan Verification
    Strengthening program integrity with respect to subsidy payments in 
the individual market continues to be a top priority. Currently, 
Exchanges must verify whether an applicant is eligible for or enrolled 
in an eligible employer-sponsored plan for the benefit year for which 
coverage is requested using available data sources, if applicable, as 
described in Sec.  155.320(d). For any coverage year that an Exchange 
does not reasonably expect to obtain sufficient verification data as 
described in Sec.  155.320(d)(2)(i) through (iii), an alternate 
procedure applies. Specifically, Exchanges must select a statistically 
significant random sample of applicants and meet the requirements of 
Sec.  155.320(d)(4)(i). For benefit years 2016 through 2019, Exchanges 
also could use an alternative process approved by HHS. We are exploring 
a new alternative approach to replace the current procedures in Sec.  
155.320(d)(4)(i), under which an Exchange may design its verification 
process based on the Exchange's assessment of risk for inappropriate 
eligibility or payment for APTC or CSRs.
    HHS's experience conducting random sampling revealed that employer 
response rates to HHS's request for information were low. The manual 
verification process described in Sec.  155.320(d)(4)(i) requires 
significant resources and government funds, and the value of the 
results ultimately does not appear to outweigh the costs of conducting 
the work because only a small percentage of sample enrollees have been 
determined by HHS to have received APTC/CSRs inappropriately. We 
believe an approach to verifying an applicant's attestation regarding 
access to an employer-sponsored plan should be rigorous, while posing 
the least amount of burden on states, employers, consumers, and 
taxpayers. Based on our experiences with random sampling methodology 
under Sec.  155.320(d)(4)(i), HHS now believes that this methodology 
may not be the best approach for all Exchanges to assess the associated 
risk for inappropriate payment of APTC/CSRs. As such, HHS is currently 
conducting a study to (1) determine the unique characteristics of the 
population with offers of employer-sponsored coverage that meets 
minimum value and affordability standards, (2) compare premium and out-
of-pocket costs for consumers enrolled in affordable employer-sponsored 
coverage to Exchange coverage, and (3) identify the incentives, if any, 
that drive consumers to enroll in Exchange coverage rather than 
coverage offered through their current employer. The results of this 
study, which HHS expects to be finalized in early 2020, will inform the 
risk assessment of potential inappropriate payments of APTC/CSRs to 
those with offers of affordable employer-sponsored coverage for 
Exchanges using the Federal eligibility and enrollment platform. HHS 
encourages State Exchanges to conduct similar research of their past 
and current enrolled populations in anticipation of this future 
rulemaking.
    As HHS continues to explore the best options for verification of 
employer-sponsored coverage, we will not take enforcement action 
against Exchanges that do not perform random sampling as required by 
Sec.  155.320(d)(4) for plan years 2020 and 2021. HHS will exercise 
such discretion in anticipation of receiving the results of the 
employer verification study described above and of the future changes 
discussed earlier in this preamble.
2. Eligibility Redetermination During a Benefit Year (Sec.  155.330)
a. Process for Voluntary Termination Upon a Finding of Dual Enrollment 
via Periodic Data Matching (PDM)
    In accordance with Sec.  155.330(d), Exchanges must periodically 
examine available data sources to determine whether enrollees in a QHP 
through an Exchange who are receiving APTC or CSRs have been determined 
eligible for or are enrolled in other qualifying coverage through 
Medicare, Medicaid, CHIP, or the Basic Health Program (BHP), if a BHP 
is operating in the service area of the Exchange. Individuals enrolled 
in one of these forms of MEC and Exchange coverage are referred to as 
dually enrolled consumers and are identified through periodic checks 
known as PDM.
    Section 155.430(b)(1)(ii) requires an Exchange to provide an 
opportunity at the time of plan selection for an enrollee to choose to 
remain enrolled in QHP coverage or have their QHP coverage terminated 
if the Exchange finds that he or she has become eligible for or 
enrolled in other MEC, or to terminate QHP coverage if the enrollee 
does not choose to remain enrolled in the QHP upon completion of the 
redetermination process. As such, for plan year 2018 and thereafter, 
HHS added language to the single streamlined application generally used 
by the Exchanges using the Federal platform to allow consumers to 
authorize the Exchange to obtain eligibility and enrollment data and, 
if so desired by the consumer, to end their QHP coverage if the 
Exchange finds during periodic checks that the consumer has become 
eligible for or enrolled in other MEC. This consumer authorization to 
provide written consent for the Exchange to end QHP coverage is 
voluntary, as consumers may opt-in to or opt-out of permitting the 
Exchange to process a voluntary termination of QHP coverage if the 
consumers are found to be also enrolled in other MEC, via PDM. We note 
that the PDM operational processes described above pertain only to 
those Exchange enrollees receiving APTC/CSRs in accordance with Sec.  
155.330(d).
    We further note that for plan year 2019, the Exchanges using the 
Federal platform will continue to end QHP coverage or subsidies for 
Medicare PDM only; terminations of Exchange coverage based on consumer 
pre-authorization resulting from Medicaid/CHIP PDM will be implemented 
at a time deemed appropriate by CMS to ensure the accuracy of the 
Medicaid/CHIP data before it is utilized for Exchange coverage 
terminations. Additionally, because the Medicaid/CHIP population may 
become eligible or ineligible for Medicaid/CHIP throughout a plan year 
as eligibility for the program is directly tied to fluctuations in 
income, HHS will continue to evaluate the best manner by which to 
implement this process for Medicaid/CHIP PDM to ensure that Exchange 
enrollees do not experience unnecessary gaps in coverage. Similarly, we 
expect that the two State Exchanges that operate their own eligibility 
and enrollment platform and that currently offer BHP coverage--New York 
and Minnesota--consider adding the option for consumer pre-
authorization of terminations of Exchange coverage resulting from BHP 
PDM.
    Given that enrollees may permit the Exchanges to terminate their 
QHP enrollment upon finding that they are dually eligible for or 
enrolled in other MEC, in accordance with Sec.  155.330(d), discussed 
above, we are proposing to amend Sec.  155.330(e)(2)(i)(D) to provide 
that Exchanges need not redetermine eligibility for APTC or CSRs for 
enrollees who (1) are found to be dually enrolled in QHP coverage and 
MEC consisting of Medicare, Medicaid/CHIP, or, if applicable, the BHP, 
(2) have not responded to the Exchange notice to provide updated 
information within 30-days, as required by Sec.  155.330(e)(2)(i) and 
(e)(3) have provided written consent to the Exchange to act to end

[[Page 7119]]

their QHP coverage via PDM in the event of dual enrollment or 
eligibility. We believe that this revision would ensure more efficient 
Exchange operations and would make clear that a voluntary QHP 
termination conducted as part of PDM under Sec.  155.430(b)(1)(ii) 
follows the same process as other enrollee-initiated voluntary 
terminations of QHP coverage. Furthermore, we believe these changes 
would support HHS's program integrity efforts by helping to ensure that 
APTC or CSRs are not paid inappropriately to those enrollees who are 
ineligible to receive subsidies. Finally, we believe this change would 
also ensure more efficient termination of unnecessary or duplicative 
coverage for consumers who have opted to have their coverage terminated 
in such circumstances.
    We seek comment on this proposal.
b. Effective Date for Termination via Death PDM
    In accordance with Sec.  155.330(e)(2), Exchanges must periodically 
check available data sources to identify Exchange enrollees who may 
have become deceased during a plan year and subsequently terminate QHP 
coverage after following the process outlined at Sec.  155.330(e)(2)(i) 
and following a redetermination of eligibility in accordance with Sec.  
155.330(e)(1).
    In late 2019, Exchanges using the Federal platform will conduct 
periodic checks for enrollees who are enrolled in QHP coverage and may 
have become deceased during plan year 2019. Additionally, the Exchange 
will follow the termination process outlined at Sec.  155.430(d)(7) 
that requires the Exchange to terminate QHP coverage retroactively to 
the date of death when the Exchange initiates a termination due to the 
death of an enrollee during a plan year. As such, we are proposing to 
further amend Sec.  155.330(e)(2)(i)(D) by adding new language that 
clarifies when the Exchange identifies deceased enrollees via PDM, 
specifically for enrollees who do not respond or contest the updated 
information within the 30-day period specified in paragraph 
(e)(2)(i)(B), the Exchange will follow the process outlined in Sec.  
155.430(d)(7) and terminate coverage retroactively to the date of 
death, without a need to redetermine the eligibility of the deceased 
enrollee. We believe that these changes clarify the Exchange's 
operations when conducting periodic checks for deceased enrollees as 
part of PDM and would serve to strengthen the integrity of the 
individual market by mitigating the risk of unnecessary funds leaving 
the Treasury in the form of APTC or CSRs for enrollees identified as 
deceased during a plan year.
    We seek comment on this proposal.
3. Automatic Re-Enrollment Process
    In the proposed rule titled, ``Patient Protection and Affordable 
Care Act; HHS Notice of Benefit and Payment Parameters for 2020'' (84 
FR 227) (proposed 2020 Payment Notice) we noted that enrollees in plans 
offered through Exchanges 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 (or if 
their current plan is no longer available, a plan selected under a 
hierarchy designed to identify a plan that is similar to their current 
plan).
    Since the program's inception, Exchanges using the Federal platform 
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. Automatic re-enrollment significantly reduces 
issuer administrative expenses, makes enrolling in health insurance 
more convenient for the consumer, and is consistent with general health 
insurance industry practice. In the open enrollment period for 2019 
coverage, 1.8 million people in FFE and SBE-FP states were 
automatically re-enrolled in coverage, including about 270,000 persons 
who were enrolled in a plan with zero premium after application of 
APTC.
    We continue to believe that while allowing auto-re-enrollment was 
designed to be consistent with broader industry practices, this market 
is different because most current enrollees receive significant 
government subsidies, making them potentially less sensitive to 
premiums and premium changes.
    The proposed 2020 Payment Notice sought comment on 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. As we noted in the final 
rule, ``Patient Protection and Affordable Care Act; HHS Notice of 
Benefit and Payment Parameters for 2020'' (84 FR 17454) (final 2020 
Payment Notice), commenters unanimously supported retaining automatic 
re-enrollment processes. Supporters cited benefits such as the 
stabilization of the risk pool due to the retention of lower-risk 
enrollees who are least likely to actively re-enroll, the increased 
efficiencies and reduced administrative costs for issuers, the 
reduction of the numbers of uninsured, and lower premiums. Commenters 
stated that existing processes, such as eligibility redeterminations, 
electronic and document-based verification of eligibility information, 
PDM, and PTC reconciliations, are sufficient safeguards against 
potential eligibility errors and increased Federal spending.
    We also noted in the final 2020 Payment Notice that we would 
continue to explore options to improve Exchange program integrity. To 
that end, we remain concerned that automatic re-enrollment may lead to 
incorrect expenditures of APTC, some of which cannot be recovered 
through the reconciliation process due to statutory caps. We believe 
that there may be particular risk associated with enrollees who are 
automatically re-enrolled with APTC that cover the entire plan premium, 
since such enrollees do not need to make payments to continue coverage.
    As such, we solicit comment on modifying the automatic re-
enrollment process such that any enrollee who would be automatically 
re-enrolled with APTC that would cover the enrollee's entire premium 
would instead be automatically re-enrolled without APTC. This would 
ensure that any enrollee in this situation would need to return to the 
Exchange and obtain an updated eligibility determination prior to 
having APTC paid on his or her behalf for the upcoming year. We also 
request comments on a variation on this approach that we are 
considering finalizing in a final rule, where APTC for this population 
would be reduced to a level that would result in an enrollee premium 
that is greater than zero dollars, but not eliminated entirely. This 
variation would be designed to ensure a consumer's active involvement 
in re-enrollment, because any enrollment in a plan with an enrollee 
premium that is greater than zero would require the enrollee to take an 
action by making the premium payment to effectuate or maintain 
coverage, or else face eventual termination of coverage for non-
payment. We would also appreciate commenters' perspectives on whether 
there are other approaches that could help limit risk in connection 
with automatic re-enrollment into plans with APTC that cover the entire 
plan premium. If we were to implement such a change, we would conduct 
consumer outreach and education alerting consumers to the new process 
and emphasizing the importance of

[[Page 7120]]

returning to the Exchange during open enrollment to update their 
application to ensure that their income and other information is 
correct and that they are still in the best plan for their needs. This 
outreach could include fact sheets, email or mail outreach depending on 
preference, and education among issuers, agents, brokers, Navigators, 
and other assisters.
    We note that under current regulations at Sec.  155.335, each 
Exchange has some flexibility to define its own annual redetermination 
procedures. We solicit comment on whether the approaches discussed 
above should be adopted only for Exchanges using the Federal platform, 
or whether they should also be required for State Exchanges that 
operate their own eligibility and enrollment platforms.
    On December 20, 2019, section 1311(c) of PPACA was amended to 
require the Secretary to establish a process to re-enroll persons 
enrolled in QHP coverage through an FFE during the 2020 plan year who 
do not actively re-enroll for plan year 2021 and who do not elect to 
disenroll for 2021 coverage during the open enrollment period for 2021 
coverage in a QHP for the 2021 plan year.\72\ We believe the current 
auto-reenrollment process under Sec.  155.335(j) (that was in place 
during the 2020 open enrollment period and prior years) aligns with 
this requirement.
---------------------------------------------------------------------------

    \72\ Further Consolidated Appropriations Act, 2020, Division N, 
title I, subtitle F, section 608 (Pub. L. 116-94: December 20, 2019, 
enacting H.R. 1865).
---------------------------------------------------------------------------

4. Enrollment of Qualified Individuals Into QHPs (Sec.  155.400)
    For a discussion of the proposals related to prospective binder 
payment rules at Sec.  155.400(e)(1)(i) and (ii), and retroactive 
binder payment rules at Sec.  155.400(e)(1)(iii) and (iv), please see 
the preamble to Sec.  155.420 of this proposed rule.
5. Special Enrollment Periods (Sec.  155.420)
a. Exchange Enrollees Newly Ineligible for Cost-Sharing Reductions
    In 2017, the HHS Market Stabilization Rule preamble explained that 
HHS would move forward with a pre-enrollment verification of 
eligibility for certain special enrollment periods in all states served 
by the Federal platform. This practice was part of an effort to 
stabilize the individual market, and addressed concerns that allowing 
individuals to enroll in coverage through a special enrollment period 
without electronic or document-based verification could negatively 
affect the individual market risk pool by allowing individuals to newly 
enroll in coverage based on health needs during the coverage year as 
opposed to enrolling during open enrollment and maintaining coverage 
for a full year.
    To address related concerns that Exchange enrollees were utilizing 
special enrollment periods to change plan metal levels based on ongoing 
health needs during the coverage year, negatively affecting the 
individual market risk pool, the Market Stabilization Rule also set 
forth requirements at Sec.  155.420(a)(4) to limit Exchange enrollees' 
ability to change to a QHP of a different metal level when they qualify 
for, or when a dependent(s) newly enrolls, in Exchange coverage through 
most types of special enrollment periods.\73\
---------------------------------------------------------------------------

    \73\ These limitations do not apply to enrollees who qualify for 
certain types of special enrollment period, including those under 
Sec. Sec.  155.420(d)(4), (8), (9), (10), (12), and (14). While 
special enrollment periods under Sec. Sec.  155.420(d)(2)(i) and 
(d)(6)(i) and (ii) are excepted from Sec.  155.420(a)(4)(iii), Sec.  
155.420(a)(4)(i) and (ii) apply other plan category limitations to 
them. See also the proposals about applicability of plan category 
limitations to certain special enrollment periods in this section of 
this proposed rule.
---------------------------------------------------------------------------

    Generally, Sec.  155.420(a)(4) provides that enrollees who newly 
add a dependent through most types of special enrollment periods may 
add the dependent to their current QHP or enroll the dependent in a 
separate QHP,\74\ and that if an enrollee qualifies for certain special 
enrollment periods, the Exchange must allow the enrollee and his or her 
dependents to change to another QHP within the same level of coverage 
(or one metal level higher or lower, if no such QHP is available), as 
outlined in Sec.  156.140(b). To ensure that individuals who are newly 
eligible for CSRs can access this benefit, Sec.  155.420(a)(4)(ii) 
provides that if an enrollee and his or her dependents become newly 
eligible for CSRs in accordance with paragraph (d)(6)(i) or (ii) of 
this section and are not enrolled in a silver-level QHP, the Exchange 
must allow them to change to a silver-level QHP if they elect to change 
their QHP enrollment so that they may access CSRs they are eligible 
for.
---------------------------------------------------------------------------

    \74\ Section 155.420(a)(4)(i) and (a)(4)(iii)(B) also provide 
that alternatively, if the QHP's business rules do not allow the 
dependent to enroll, the Exchange must allow the enrollee and his or 
her dependents to change to another QHP within the same level of 
coverage (or one metal level higher or lower, if no such QHP is 
available), as outlined in 45 CFR 156.140(b).
---------------------------------------------------------------------------

    However, there is no corresponding provision to permit enrollees 
and their dependents who become newly ineligible for CSRs in accordance 
with Sec.  155.420(d)(6)(i) or (ii), and who are enrolled in a silver-
level QHP, to change to a QHP of a different metal level in order to 
account for their change in financial assistance. Instead, if they wish 
to change plans, Sec.  155.420(a)(4)(iii)(A) limits them to changing to 
another QHP within the same level of coverage (or one metal level 
higher or lower, if no such QHP is available) because Sec.  
155.420(a)(4)(ii) does not include them and the provision at Sec.  
155.420(a)(4)(iii) that excepts the special enrollment period 
triggering events at Sec.  155.420(d)(6)(i) and (ii) from this 
limitation only applies to individuals becoming newly eligible for 
CSRs, not those becoming newly ineligible for CSRs. Since the 
implementation of Sec.  155.420(a)(4) in states served by the Federal 
platform, HHS has received questions and concerns about this issue from 
HHS Navigators and other enrollment assisters, as well as from agents 
and brokers, based on their experiences with consumers who, upon losing 
eligibility for CSRs, are unable to afford cost sharing for their 
current silver-level QHP and therefore wish to change to a lower-cost 
QHP in order to maintain their coverage.
    Therefore, we propose to redesignate Sec.  155.420(a)(4)(ii) as 
(a)(4)(ii)(A) and add a new Sec.  155.420(a)(4)(ii)(B) in order to 
allow enrollees and their dependents who become newly ineligible for 
CSRs in accordance with paragraph (d)(6)(i) or (ii) of this section, 
and are enrolled in a silver-level QHP, to change to a QHP one metal 
level higher or lower if they elect to change their QHP enrollment in 
an Exchange. We further propose to modify Sec.  155.420(a)(4)(iii) to 
include Sec.  155.420(d)(6)(i) and (ii) for becoming newly ineligible 
for CSRs in the list of trigger events excepted from the limitations at 
Sec.  155.420(a)(3)(iii). This proposal may help impacted enrollees' 
ability to maintain continuous coverage for themselves and for their 
dependents in spite of a potentially significant change to their out of 
pocket costs. For example, an enrollee impacted by an increase to his 
or her monthly premium payment could change to a bronze-level plan, 
while an enrollee who has concerns about higher copayment or co-
insurance cost sharing requirements could change to a gold-level plan. 
HHS requests comment on this proposal. Current regulations at 45 CFR 
147.104(b)(2)(iii) establish that plan category limitations do not 
apply off-Exchange. Therefore, in the case of an individual who loses 
eligibility for CSRs and wishes to use his or her special enrollment 
period to purchase coverage

[[Page 7121]]

off-Exchange, he or she is not limited to any specific metal level(s) 
of coverage.
    We seek comments on these proposals.
b. Special Enrollment Period Limitations for Enrollees Who Are 
Dependents
    As discussed in the preceding section of this preamble, per Sec.  
155.420(a)(4)(i) and (a)(4)(iii)(B), enrollees who newly add a 
dependent through most types of special enrollment periods may add the 
dependent to their current QHP or enroll the dependent in a separate 
QHP.\75\ Specifically, Sec.  155.420(a)(4)(i) establishes that if an 
enrollee has gained a dependent in accordance with Sec.  
155.420(d)(2)(i), the Exchange must allow the enrollee to add the 
dependent to his or her current QHP, or, if the current QHP's business 
rules do not allow the dependent to enroll, the Exchange must allow the 
enrollee and his or her dependents to change to another QHP within the 
same level of coverage (or one metal level higher or lower, if no such 
QHP is available), as outlined in Sec.  156.140(b), or, at the option 
of the enrollee or dependent, enroll the dependent in any separate 
QHP.\76\ Per Sec.  155.420(a)(4)(iii)(B), if a dependent qualifies for 
a special enrollment period not related to becoming a new dependent, 
and an enrollee is adding the dependent to his or her QHP, the Exchange 
must allow the enrollee to add the dependent to his or her current QHP; 
or, if the QHP's business rules do not allow the dependent to enroll in 
that plan, the Exchange must allow the enrollee and his or her 
dependents to change to another QHP within the same level of coverage 
(or one metal level higher or lower, if no such QHP is available), as 
outlined in Sec.  156.140(b), or enroll the new qualified individual in 
a separate QHP. Finally, Sec.  155.420(a)(4)(iii)(A) requires that if 
an enrollee qualifies for certain special enrollment periods, the 
Exchange must allow the enrollee and his or her dependents to change to 
another QHP within the same level of coverage (or one metal level 
higher or lower, if no such QHP is available), as outlined in Sec.  
156.140(b).
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    \75\ Section 155.420(a)(4)(i) and (a)(4)(iii)(B) also provide 
that alternatively, if the QHP's business rules do not allow the 
dependent to enroll, the Exchange must allow the enrollee and his or 
her dependents to change to another QHP within the same level of 
coverage (or one metal level higher or lower, if no such QHP is 
available), as outlined in 45 CFR 156.140(b).
    \76\ Per Sec.  155.420(a)(2), ``dependent'' has the same meaning 
as it does in 26 CFR 54.9801-2, referring to any individual who is 
or who may become eligible for coverage under the terms of a QHP 
because of a relationship to a qualified individual or enrollee.
---------------------------------------------------------------------------

    Per Sec.  155.420(a)(2), a dependent refers to any individual who 
is or who may become eligible for coverage under the terms of a QHP 
because of a relationship to a qualified individual or enrollee. The 
current rules do not explicitly address all situations in which a 
current enrollee is a dependent of a qualified individual who is newly 
enrolling in Exchange coverage through a special enrollment period. For 
example, the rules do not currently explicitly address what limitations 
apply when a mother loses her self-only employer-sponsored coverage, 
thereby gaining eligibility for a special enrollment period for loss of 
MEC, and seeks to be added as an enrollee to the Exchange coverage in 
which her two young children are currently enrolled. Applying the 
limitations at Sec.  155.420(a)(4) to such circumstances is consistent 
with HHS's goals of establishing equivalent treatment for all special 
enrollment period eligible qualified individuals, and preventing 
enrollees from changing plans in the middle of the coverage year based 
on ongoing or newly emerging health issues. In fact, preamble language 
from the 2017 Market Stabilization Proposed Rule explains that the 
requirement at Sec.  155.420(a)(4)(iii) would extend to enrollees who 
are on an application where a new applicant is enrolling in coverage 
through a special enrollment period, using general terms to convey that 
restrictions should apply to enrollees and newly-enrolling individuals 
regardless of whether the new enrollee is a dependent.\77\
---------------------------------------------------------------------------

    \77\ 82 FR at 10986.
---------------------------------------------------------------------------

    Therefore, we are proposing to apply the same limitations to 
dependents who are currently enrolled in Exchange coverage that applies 
to current, non-dependent Exchange enrollees by adding a new Sec.  
155.420(a)(4)(iii)(C) to establish that the Exchange must allow a 
qualified individual who is not an enrollee, who qualifies for a 
special enrollment period and has one or more dependents who are 
enrollees, to add him or herself to a dependent's current QHP; or, per 
similar existing rules at Sec.  155.420(a)(4)(iii)(B), if the QHP's 
business rules do not allow the qualified individual to enroll in such 
coverage, to enroll with his or her dependent(s) in another QHP within 
the same level of coverage (or one metal level higher or lower, if no 
such QHP is available), as outlined in Sec.  156.140(b), or enroll him 
or herself in a separate QHP.
    Proposed Sec.  155.420(a)(4)(iii)(C) would be parallel to Sec.  
155.420(a)(4)(iii)(B), which applies plan category limitations to 
current enrollees whose dependent(s) qualify for a special enrollment 
period to newly enroll in coverage, and specifies that the Exchange 
must permit the enrollee to change plans in order to add the dependent 
when the enrollee's current plan's business rules do not permit adding 
the dependent, notwithstanding whether the enrollee also qualifies for 
a special enrollment period. In other words, proposed Sec.  
155.420(a)(4)(iii)(C) would apply plan category limitations in allowing 
currently enrolled dependents who are enrolled in a plan that has 
business rules that do not permit the non-dependent to be added to the 
enrollment, to change plans in order to enroll together with the non-
dependent.
    Current regulations at Sec.  147.104(b)(2)(iii) establish that 
Sec.  155.420(a)(4) does not apply off-Exchange. Therefore, the 
existing and proposed requirements and restrictions of that section, 
including the proposed requirements that would require an issuer to 
newly enroll a non-dependent household member(s) who qualifies for a 
special enrollment period, with currently enrolled dependents, and the 
plan category limitations associated with that requirement, do not 
apply off-Exchange. However, our regulations do not prohibit issuers 
off-Exchange from newly enrolling with currently enrolled dependents a 
non-dependent household member(s) who qualifies for a special 
enrollment period, or from newly enrolling dependent household members 
who qualify for a special enrollment period with currently enrolled 
individuals of whom they are a dependent, to the extent consistent with 
applicable state law.
    We seek comments on these proposals.
c. Special Enrollment Period Prospective Coverage Effective Dates
    Under regular special enrollment period effective date rules at 
Sec.  155.420(b)(1), the Exchange must ensure a coverage effective date 
of the first day of the following month for individuals who select a 
QHP between the 1st and the 15th day of any month. The Exchange must 
ensure a coverage effective date of the first day of the second 
following month for individuals who select a QHP between the 16th and 
the last day of any month. Under these rules, it could take as many as 
47 days from plan selection to effectuate coverage under a special 
enrollment period (that is, from the 16th of a month to the first of 
the next following month; or for example, from July 16 to September 1). 
In the Exchanges using the Federal platform, these rules apply

[[Page 7122]]

to special enrollment periods provided under Sec.  155.420(d)(3), 
(d)(6)(i), (ii), (iv), and (v), and (d)(7), (8), (10), and (12). Under 
other special enrollment periods, such as those under Sec.  
155.420(d)(4), (5), and (9), in the Exchanges using the Federal 
platform, the consumer is generally offered a choice of regular 
effective dates that would apply under Sec.  155.420(b)(1), or an 
effective date that is retroactive to the date that would have applied 
if not for the harm to the individual per the trigger event. In 
addition, under Sec.  147.104(b)(5), the coverage effective date rules 
in Sec.  155.420(b) apply to each of those special enrollment periods 
to the extent they apply off-Exchange, as specified in Sec.  
147.104(b)(2)(i).
    These regular special enrollment period effective date rules under 
Sec.  155.420(b)(1), along with the initial open enrollment period 
effective date rules under Sec.  155.410(c), were originally designed 
to provide issuers several weeks to collect binder payments, mail 
identification cards, and complete other administrative actions prior 
to the policy's start date. However, all issuers already effectuate 
coverage and process changes in circumstance using first-of-the-month 
rules. In 2017, issuers processed 88 percent of special enrollment 
periods for individuals newly enrolling in coverage through Exchanges 
using the Federal platform under accelerated or retroactive effective 
date rules.\78\ HHS internal data on enrollments through Exchanges 
using the Federal platform in 2018 indicates that issuers processed a 
majority of changes in circumstances (including those resulting in 
special enrollment periods) under accelerated or faster effective date 
rules. Because issuers in Exchanges using the Federal platform 
routinely effectuate coverage on a shorter timeframe, we do not 
anticipate that this change would be difficult for issuers to 
implement.
---------------------------------------------------------------------------

    \78\ Centers for Medicare & Medicaid Services, The Exchanges 
Trends Report (July 2, 2018), available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-3.pdf.
---------------------------------------------------------------------------

    Additionally, as a program integrity measure, we believe any 
changes in enrollment related to changes in eligibility for coverage 
through the Exchange or for insurance affordability programs should be 
implemented as soon as practicably possible. This is particularly 
important for consumers with special enrollment periods based on 
changes in eligibility for APTC under Sec.  155.420(d)(6)(i) and (ii), 
which currently follow regular effective date rules in the Exchanges 
using the Federal platform. Therefore, we propose that in the Exchanges 
using the Federal platform, special enrollment periods currently 
following regular effective date rules would instead be effective on 
the first of the month following plan selection. Specifically, we 
propose to amend Sec.  155.420(b)(3) for improved clarity and to 
specify how Exchanges using the Federal platform would implement this 
proposal.
    This proposal would permit Exchanges, including those using the 
Federal platform, and issuers to more rapidly implement changes in QHP 
enrollment, particularly those related to changes in financial 
assistance eligibility, and would standardize prospective special 
enrollment period effective dates across the Exchanges using the 
Federal platform. It would also help reduce consumer confusion 
regarding different effective date rules and minimize gaps in coverage. 
For example, under current rules, a consumer in off-Exchange coverage 
who is eligible for a special enrollment period because she gains 
access to new QHPs as a result of a permanent move under Sec.  
155.420(d)(7) would be subject to regular effective date rules under 
Sec.  155.420(b)(1) (because the Exchanges using the Federal platform 
have not adopted the option under Sec.  155.420(c)(2) to provide 
advanced availability of the special enrollment period under Sec.  
155.420(d)(7)). This means that if she moved out of her current plan's 
service area on May 10 and selected a QHP on May 16, the FFE would set 
an effective date for her new coverage of July 1; she could therefore 
be with limited coverage in her new service area--or no coverage, if 
her current issuer terminates her coverage based on her moving outside 
the issuer's service area--for almost 2 months. Instead, under our 
proposal to modify prospective special enrollment period effective 
dates so that coverage is effective the first of the month following 
plan selection, this enrollee would have coverage beginning June 1, 
minimizing any unintended gap in coverage.
    This proposal would also allow State Exchanges the flexibility to 
retain current special enrollment period regular effective date rules 
or to adopt the approach that would be taken in the Exchanges using the 
Federal platform. State Exchanges already have flexibility under Sec.  
155.420(b)(3) to effectuate coverage in a shorter timeframe if their 
issuers agree. Several State Exchanges have already transitioned to 
faster than regular effective date rules for special enrollment 
periods. Under our proposed changes, State Exchanges could retain their 
current effective date rules or implement faster ones without needing 
to demonstrate issuer concurrence.
    By reference, the effective-date-of-coverage rules at Sec.  
155.420(b) apply off-Exchange, under Sec.  147.104(b)(5). This proposal 
would continue to provide the applicable state authority with 
flexibility regarding the options for effective dates under current 
rules for off-Exchange coverage.
    We note that many special enrollment periods already have effective 
date rules that provide Exchanges and/or qualified individuals or 
enrollees with discretion regarding effective dates, regardless of 
issuer concurrence. Under Sec.  155.420(b)(2)(i), (iv), and (v), 
Exchanges and/or qualified individuals or enrollees have the option to 
apply regular effective date rules or provide an effective date on the 
first of the month following plan selection for special enrollment 
periods provided under Sec.  155.420(d)(1) and (3), (d)(6)(iii) and 
(iv), and (d)(7), and certain triggering events under (d)(2). Under 
Sec.  155.420(b)(2)(iii), Exchanges have discretion to ensure that 
coverage is effective on an appropriate date based on the circumstances 
of the special enrollment period, for special enrollment periods 
provided under Sec.  155.420(d)(4), (5), (9), (10), (12), and (13). 
Since regulations already allow Exchanges and/or qualified individuals 
or enrollees discretion regarding which effective date rules to use for 
many special enrollment periods, we do not believe issuers will 
experience difficulty implementing this proposal.
    This proposal would also help reduce confusion around binder 
payment deadlines, since these deadlines depend on a policy's coverage 
effective date. Accordingly, we propose to make updates to binder 
payment deadlines in Sec.  155.400(e)(1)(ii) to ensure that special 
enrollment periods using effective dates under revised Sec.  
155.420(b)(3) would also be subject to the same binder payment rules as 
other special enrollment periods that are effective the first of the 
month following plan selection. Because the Exchanges using the Federal 
platform would no longer be following regular coverage effective dates 
for special enrollment periods under Sec.  155.420(b)(1), we also 
propose to remove reference to that provision in Sec.  155.400(e)(1)(i) 
and to replace ``regular effective dates'' in Sec.  155.400(e)(1)(iii) 
with a reference to Sec.  155.420(b)(3). This latter change would 
provide that in the Exchanges using the Federal platform, coverage 
would be effective on the first of the month following plan selection 
for consumers who are eligible for retroactive coverage but just pay 1 
month's premium and receive only

[[Page 7123]]

prospective coverage. This change would help ensure that prospective 
effective dates across the Exchanges using the Federal platform are 
streamlined under one rule.
    We seek comments on these proposals.
d. Special Enrollment Period Retroactive Coverage Effective Dates
    Section 155.400(e)(1)(iii) states that for coverage to be 
effectuated under retroactive special enrollment period effective 
dates, as provided for in Sec.  155.420(b)(2), a consumer's binder 
payment must include the premium due for all months of retroactive 
coverage through the first prospective month of coverage. If only the 
premium for 1 month of coverage is paid, only prospective coverage 
should be effectuated, in accordance with regular effective dates. As 
an example, a consumer has a special enrollment period that is not 
subject to verification with a March 1 effective date, but the 
enrollment is delayed due to an Exchange error. The issuer does not 
receive the transaction until April 15. Under this rule, to effectuate 
retroactive coverage beginning March 1, the issuer must receive 
premiums for March, April, and May. If the issuer only receives a 
premium payment for 1 or 2 months of coverage, it must effectuate only 
prospective coverage beginning May 1. This rule was designed to allow 
consumers who might have difficulty paying for retroactive coverage 
through a special enrollment period or a favorable eligibility appeal 
decision to enroll with prospective coverage only.\79\
---------------------------------------------------------------------------

    \79\ If the enrollee pays some, but not all, months of 
retroactive premium due (two months in the example above), then the 
issuer would effectuate coverage prospectively. See 2017 Payment 
Notice, 81 FR at 12272. The issuer could then apply any amount paid 
in excess of 1 month's premium but less than the full amount needed 
to effectuate retroactive coverage to the next month's premium, or 
refund the excess amount to the enrollee, at the enrollee's request.
---------------------------------------------------------------------------

    The Market Stabilization Rule added a different set of binder 
payment rules at Sec.  155.400(e)(1)(iv) for retroactive effective 
dates after an enrollment has been delayed due to a prolonged special 
enrollment period verification under Sec.  155.420(b)(5).\80\ If a 
consumer's enrollment is delayed until after the verification of the 
consumer's eligibility for a special enrollment period, and the 
assigned effective date would require the consumer to pay 2 or more 
months of retroactive premium to effectuate coverage or avoid 
cancellation, the consumer has the option to choose a coverage 
effective date that is no more than 1 month later than had previously 
been assigned. If the consumer does not move her effective date, her 
binder payment would be the premium due for all months of retroactive 
coverage through the first prospective month of coverage, consistent 
with other binder payment rules. For instance, if the consumer's 
special enrollment period in the above example were subject to 
verification, and, as above, the March 1 effective date were pended 
until April 15 due to pre-enrollment verification, the consumer's only 
effective date options require payment for retroactive months, unlike 
the previous example. To effectuate coverage under the special 
enrollment period verification rules in Sec. Sec.  155.400(e)(1)(iv) 
and 155.420(b)(5), she could either pay the premiums for March, April, 
and May; or move her effective date forward only 1 month to April 1, 
and must still pay for April and May coverage.
---------------------------------------------------------------------------

    \80\ Market Stabilization Rule, 82 FR at 18346.
---------------------------------------------------------------------------

    HHS established the special enrollment period verification 
effective date rules in response to issuer concerns that delays in 
special enrollment period verification and an un-checked ability of 
consumers to move their effective date later (as contemplated in the 
original version of that paragraph in the 2018 Payment Notice) would 
result in adverse selection, with healthier enrollees requesting a 
later effective date and sicker enrollees keeping the original 
retroactive date. However, we have been able to manage our operational 
processes so that delays in special enrollment period verification 
processing have not materialized. In 2017, HHS averaged a response time 
of 1 to 3 days to review consumer-submitted special enrollment period 
verification documents and provide consumers a response.\81\ The 
response time in 2018 was substantially similar. Additionally, in 2018 
and 2019, CMS resolved over 800,000 special enrollment period 
verifications, and fewer than 300 enrollees subject to special 
enrollment period verification have requested to move forward their 
effective date under Sec. Sec.  155.400(e)(1)(iv) and 155.420(b)(5). 
This indicates that these rules are largely unnecessary.
---------------------------------------------------------------------------

    \81\ Centers for Medicare & Medicaid Services, The Exchanges 
Trends Report (July 2, 2018), available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/Downloads/2018-07-02-Trends-Report-3.pdf.
---------------------------------------------------------------------------

    Therefore, we propose to eliminate the option to move forward by no 
more than 1 month the effective date of enrollments that have been 
pended due to special enrollment period verification, aligning the 
retroactive effective date and binder payment rules so that any 
consumer who is eligible to receive retroactive coverage, whether due 
to a special enrollment period, a favorable eligibility appeal 
decision, or a special enrollment period verification processing delay, 
has the option to pay the premium due for all months of retroactive 
coverage through the first prospective month of coverage, or only the 
premium for 1 month of coverage and receive prospective coverage only. 
Specifically, we propose to eliminate Sec.  155.420(b)(5).
    We also propose to remove the corresponding cross-reference at 
Sec.  155.420(b)(1) and the special enrollment period verification 
binder payment rule at Sec.  155.400(e)(1)(iv). Finally, we propose to 
amend Sec.  155.400(e)(1)(iii) to state more explicitly that any 
consumer who can effectuate coverage with a retroactive effective date, 
including those whose enrollment is delayed until after special 
enrollment period verification, also has the option to effectuate 
coverage with the applicable prospective coverage date by choosing to 
only pay for 1 month of coverage by the applicable deadline, 
notwithstanding the retroactive effective date that the Exchange 
otherwise would be required to ensure.
    Standardizing a single binder payment rule for retroactive 
effective dates would improve operational efficiency for issuers and 
Exchanges using the Federal platform. Issuers have indicated that it is 
difficult to determine the appropriate binder payment rule to apply to 
an enrollment with a retroactive effective date when they receive fewer 
than all retroactive months of premium, as they need to discern whether 
the consumer's eligibility stems from an appeal, a non-verified special 
enrollment period, or a special enrollment period with a delay in 
verification processing. For example, if on March 5, an issuer receives 
a plan selection for a mother and child enrolling through an adoption 
special enrollment period with a January 10 effective date, and neither 
the mother nor child are current enrollees with the issuer, the issuer 
has no way of knowing whether this transaction was subject to 
verification. If the issuer in this case only receives 1 month's 
premium, it would not know whether to cancel the enrollment or 
effectuate prospective-only coverage. This change would simplify issuer 
operations by eliminating that complexity.
    Implementing a single set of binder payment rules would help ensure 
all enrollees (including those subject to special enrollment period 
verification) can access affordable coverage without being required to 
pay for months of retroactive coverage that may be prohibitively 
expensive, and during

[[Page 7124]]

which most providers would have insisted on direct payment in order to 
provide health care services.
    Finally, by reference, the effective-date-of-coverage rules at 
Sec.  155.420(b) apply off-Exchange, in accordance with Sec.  
147.104(b)(5). Therefore, our proposal to remove Sec.  155.420(b)(5) 
would also remove this requirement off-Exchange.
    We seek comments on these proposals, including alternative 
approaches to streamlining retroactive effective date rules.
e. Enrollees Covered by a Non-Calendar Year Plan Year QSEHRA
    The HRA rule allows employers to offer HRAs and other account-based 
group health plans integrated with individual health insurance coverage 
or Medicare Part A and B or Part C, if certain conditions are 
satisfied.\82\ These are called individual coverage HRAs. Among other 
conditions, an individual coverage HRA must require that the 
participant and any covered dependent(s) be enrolled in individual 
health insurance coverage (either on or off-Exchange) or Medicare Part 
A and B or Part C, for each month that they are covered by the 
individual coverage HRA.\83\
---------------------------------------------------------------------------

    \82\ 84 FR 28888 (June 20, 2019).
    \83\ For purposes of individual coverage HRAs, references to 
individual health insurance coverage do not include individual 
health insurance coverage that consists solely of excepted benefits. 
See 45 CFR 146.123(c)(1)(i).
---------------------------------------------------------------------------

    The HRA rule provides a special enrollment period to employees and 
dependents who newly gain access to an individual coverage HRA to 
enroll in individual health insurance coverage, or to change to other 
individual health insurance coverage in order to maximize the use of 
their individual coverage HRA.\84\ In addition, because employees and 
dependents with a qualified small employer health reimbursement 
arrangement (QSEHRA) \85\ generally must be enrolled in MEC,\86\ and 
one category of MEC is individual health insurance coverage, the HRA 
rule provides that individuals who are newly provided a QSEHRA also 
qualify for the new special enrollment period.\87\
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    \84\ See Sec.  155.420(d)(14).
    \85\ Section 18001 of the Cures Act amends the Code, ERISA, and 
the PHS Act to permit an eligible employer to provide a QSEHRA to 
its eligible employees. See IRS Notice 2017-67, 2017-11 IRB 1010, 
for related guidance: https://www.irs.gov/pub/irs-drop/n-17-67.pdf.
    \86\ Generally, payments from a QSEHRA to reimburse an eligible 
employee's medical care expenses are not includible in the 
employee's gross income if the employee has coverage that provides 
MEC as defined in Code section 5000A(f), which includes individual 
health insurance coverage.
    \87\ This preamble refers to a QSEHRA being ``provided'' as 
opposed to being ``offered'' because, per Sec.  146.123(c)(4), an 
individual coverage HRA eligible employee has an annual opportunity 
to opt out of and forfeit future payments from the HRA. However, 
this is not the case for employees and dependents with a QSEHRA.
---------------------------------------------------------------------------

    The HRA rule also solicited and addressed public comments on 
whether the new special enrollment period should be available on an 
annual basis at the beginning of each new plan year of the employee's 
individual coverage HRA or QSEHRA, particularly if the new plan year is 
not aligned with the calendar year.\88\ In the preamble to the HRA 
rule, HHS stated that it had determined that individual coverage HRA or 
QSEHRA enrollees should have the option to re-evaluate their individual 
health insurance coverage for each new HRA plan year, regardless of 
whether the HRA is provided on a calendar year basis. Therefore, while 
the HRA rule did not make the new individual coverage HRA and QSEHRA 
special enrollment period available on an annual basis, it clarified 
that those who are enrolled in an individual coverage HRA with a non-
calendar year plan year--that is, the HRA's plan year begins on a day 
other than January 1--will be eligible annually for the special 
enrollment period under existing regulations at Sec.  
155.420(d)(1)(ii), because individual coverage HRAs are group health 
plans. While the HRA rule did not make any changes to Sec.  
155.420(d)(1)(ii), the preamble of the rule expressed HHS's intention 
to treat a QSEHRA with a non-calendar year plan year as a group health 
plan for the limited purpose of qualifying for this special enrollment 
period, and to codify this interpretation in future rulemaking.\89\
---------------------------------------------------------------------------

    \88\ 84 FR at 28955 through 28956.
    \89\ Id. at 28956.
---------------------------------------------------------------------------

    As HHS explained in the HRA rule, we believe making the non-
calendar year plan year special enrollment period available annually to 
individual market enrollees with a non-calendar year plan year 
individual coverage HRA or QSEHRA appropriately provides employers with 
flexibility to offer individual coverage HRAs or provide QSEHRAs on a 
12-month cycle that meets their needs. The expansion also allows 
employees and their dependents the flexibility to re-assess their 
individual health insurance coverage options at the same time that the 
terms of their individual coverage HRA or QSEHRA may change. We believe 
accessing this non-calendar year plan year special enrollment period 
may be important to some individuals, including those who wish to 
change their individual health insurance plan due to a change in the 
terms of their individual coverage HRA or QSEHRA. However, we 
anticipate that most individuals with an individual coverage HRA or a 
QSEHRA would not seek to change their individual coverage outside of 
the individual market open enrollment period when their new HRA plan 
year starts since doing so would generally cause their accumulators to 
reset. Therefore, we do not anticipate significant additional 
administrative burden for issuers or a significant increase in the 
potential for adverse selection in the individual market associated 
with this special enrollment period. In addition, because the non-
calendar year plan year special enrollment period is subject to plan 
category limitations for Exchange enrollees, HHS determined these 
limitations will further mitigate the potential risk of adverse 
selection in the Exchanges.
    As discussed in the HRA rule preamble,\90\ under section 2791 of 
the PHS Act, section 733 of the ERISA, and section 9831 of the Code, 
QSEHRAs are not group health plans \91\ and so employees and their 
dependents with a QSEHRA do not qualify for the non-calendar year 
special enrollment period as currently written. Therefore, we propose 
to amend Sec.  155.420(d)(1)(ii) to codify that individuals and 
dependents who are provided a QSEHRA with a non-calendar year plan year 
may qualify for this special enrollment period. We note that this 
special enrollment period also is incorporated by reference in the 
guaranteed availability regulations at Sec.  147.104(b)(2). Therefore, 
if this approach is finalized as proposed, individuals provided a non-
calendar year plan year QSEHRA would be entitled to a special 
enrollment period to enroll in or change their individual health 
insurance coverage through or outside of an Exchange.
---------------------------------------------------------------------------

    \90\ 84 FR at 28956.
    \91\ One exception to this general rule is that a QSEHRA 
continues to be treated as a group health plan under the PHS Act for 
purpose of Part C Title XI of the Social Security Act. See section 
2791(a)(1) of the PHS Act.
---------------------------------------------------------------------------

    We seek comment on this proposal.
6. Termination of Exchange Enrollment or Coverage (Sec.  155.430)
a. Enrollee-Initiated Terminations Upon a Finding of Dual Enrollment in 
Medicare via PDM
    Consistent with our discussion of voluntary terminations upon a 
finding of dual enrollment in the preamble to Sec.  155.330, we propose 
to revise paragraph (b)(1)(ii) by removing the requirement that the 
Exchange must initiate termination of a Medicare dual

[[Page 7125]]

enrollee's QHP coverage upon completion of the redetermination process 
specified in Sec.  155.330. We also propose to add to Sec.  
155.330(b)(1)(ii) a reference to the process and authority outlined in 
Sec.  155.330(e)(2) to align with the proposed changes to Sec.  
155.330(e)(2)(i)(D), discussed in the preamble to Sec.  155.330. For 
more detailed discussions of these proposals, please see the preamble 
discussion under Sec.  155.330.
b. Effective Dates for Retroactive Termination of Coverage or 
Enrollment Due to Exchange Error
    The 2019 Payment Notice amended Sec.  155.430(d)(2) to allow 
additional flexibility regarding the effective date for enrollee-
initiated terminations. This flexibility included permitting 
Exchanges--at the option of the Exchange--to provide for enrollee-
initiated terminations to be effective on the date on which the 
termination was requested by the enrollee, or on another prospective 
date selected by the enrollee. Previously, enrollees generally had to 
provide 14-days advance notice before termination became effective. 
Corresponding updates to reflect the new flexibilities were not made to 
Sec.  155.430(d)(9), which defines the effective date for retroactive 
terminations due to a technical error as described in paragraph 
(b)(1)(iv)(A). The current provision specifies that termination in 
these circumstances will be no sooner than 14 days after the date that 
the enrollee can demonstrate he or she contacted the Exchange to 
terminate his or her coverage or enrollment through the Exchange, 
unless the issuer agrees to an earlier effective date as set forth in 
Sec.  155.430(d)(2)(iii).
    To ensure that enrollees who suffered technical errors are put in 
the position they would have been absent the technical error, we 
propose to align Sec.  155.430(d)(9) with the provisions for enrollee-
initiated terminations at Sec.  155.430(d)(2).
    We seek comment on this proposal.
7. Eligibility Pending Appeal (Sec.  155.525)
a. Retroactive Applicability of Eligibility Pending Appeal
    We are considering whether changes to Sec.  155.525 governing 
eligibility pending appeals are necessary or prudent to provide greater 
clarity to Exchanges, issuers, and consumers who appeal Exchange 
determinations. Under Sec.  155.525, when an appellant accepts 
eligibility pending appeal, an Exchange must continue the appellant's 
eligibility for enrollment in a QHP, APTC, and CSR, as applicable, in 
accordance with the level of eligibility that was in effect immediately 
before the eligibility redetermination that the consumer is appealing. 
Based on the experience of the FFEs and HHS appeals entity in 
administering this provision, we are considering changes for future 
rulemaking that would provide greater clarity to Exchanges, issuers, 
and appellants. We identify in the discussion that follows examples to 
illustrate issues that are not explicitly addressed in the current 
regulations and invite comment on them.
    Should appellants who request and are granted eligibility pending 
appeal be permitted to enroll in any plan or otherwise be limited in 
any way to a particular issuer or plan category? For example, an 
enrollee who had been receiving APTC and CSR is redetermined ineligible 
for APTC and CSR for the subsequent plan year. This enrollee might 
select a bronze plan during open enrollment because it is the most 
affordable option available. However, this same enrollee may end up 
submitting the appeal request well after the date on which the 
enrollment in the bronze plan became effective. In the course of filing 
an appeal, the appellant may ask for eligibility pending appeal; if the 
request is granted, the appellant may wish to remain enrolled in the 
bronze plan. However, there is no ability to continue the appellant's 
eligibility for CSRs in such a plan.
    We generally believe the appellant should have the option to remain 
enrolled in the bronze plan to allow for the continuation of APTC only, 
as well as the option to be enrolled in a silver plan offered by the 
same or a different issuer to allow for the continuation of both APTC 
and CSRs. We also believe it may be appropriate for eligibility pending 
appeal and the corresponding enrollment to take effect retroactively, 
as if the challenged redetermination had not been made. We welcome 
feedback on the value and implications of such flexibility. We would 
also welcome feedback on whether there are advantages to other options, 
such as allowing eligibility pending appeal and enrollment to take 
effect prospectively based on the date that the request for eligibility 
pending appeal is granted.
b. Timeliness of Filing for Eligibility Pending Appeal
    Section 155.520(b) specifies that in general an applicant or 
enrollee must request an appeal within 90 days of the date of the 
eligibility determination being appealed. However, there is no similar 
timeliness requirement for requesting eligibility pending appeal with 
respect to Exchange coverage and eligibility. The preamble of the first 
Program Integrity Rule stated that pended benefits are offered on 
appeal of a redetermination, regardless of when the appellant requests 
the appeal within the 90-day appeal request timeframe.\92\ If it is 
unclear whether an individual is asking for eligibility pending appeal 
at the time an appeal request is made; if the individual is unable to 
make this request absent additional information about it; or if an 
appeal request is filed on the 90th day of the appeal request 
timeframe, there may be little to no time remaining in the 90-day 
appeal request timeframe for the appellant to ask for eligibility 
pending appeal.
---------------------------------------------------------------------------

    \92\ 78 FR at 54102.
---------------------------------------------------------------------------

    We considered for example whether a reasonable period may be 30 
days from the date the Exchange appeals entity issues a notice to the 
appellant acknowledging receipt of a valid appeal request consistent 
with Sec.  155.520(d), provided that the appeal had not been decided or 
dismissed prior to the end of that 30-day period. For example, a 30-day 
period might provide an opportunity for appellants to learn about the 
appeals process including their right to ask for eligibility pending 
appeal, which could occur after the appeal receipt date. We also 
considered whether a shorter period to make this request is preferable 
in order to limit downstream impacts on issuers. The more time an 
appellant has to make this request, the longer period of time over 
which an issuer could be required to make retroactive adjustments to 
the appellant's enrollment, premiums, and benefits. Conversely, we did 
not think that it was reasonable to require appellants to make a 
request for eligibility pending appeal on the date they submit their 
appeal request, since they may not be aware of this option and have a 
chance to weigh the financial consequences of this choice, particularly 
should they ultimately receive an unfavorable decision. Finally, we 
considered whether there ought to be a good cause exception for an 
appellant who does not request eligibility pending appeal within a 
prescribed timeframe. In the context of an untimely appeal request, 
Sec.  155.520(d)(2)(i)(D) permits an applicant or enrollee to 
demonstrate within a reasonable timeframe as determined by the appeals 
entity that failure to timely submit was due to exceptional 
circumstances. Consideration could be given to similar exceptional 
circumstances such as a hospitalization, natural disaster, or another 
such event should an appellant fail to make a request for eligibility

[[Page 7126]]

pending appeal within a reasonable timeframe. We solicit comment on the 
advisability of establishing a timeliness standard, whether Exchanges 
should have the flexibility to determine their own timeliness 
standards, and what a reasonable timeliness standard should be.
c. Life Events Occurring During the Pendency of the Appeal
    When an eligibility redetermination is being appealed and 
eligibility pending appeal has been granted, it is possible that the 
appellant may subsequently experience a life event that impacts 
eligibility. For example, an appellant who is redetermined ineligible 
for APTC and CSR may appeal this redetermination and request and be 
granted eligibility pending appeal. If the appellant has a baby during 
the pendency of the appeal and reports the change in family size to the 
Exchange, the appellant would have her eligibility redetermined based 
on the addition of the newborn to the household. The regulations do not 
explicitly specify how an Exchange should resolve a pending appeal with 
eligibility pending appeal when an appellant who is receiving APTC and, 
as applicable, CSRs under eligibility pending appeal reports a change 
to the Exchange, and how the resultant eligibility from this reported 
change interacts with this appellant's eligibility pending appeal. We 
solicit comment on ways to facilitate the administration of these 
eligibility changes.
d. Impact of Eligibility Decision on Eligibility Pending Appeal
    Appellants who are granted eligibility pending appeal may 
ultimately have their eligibility redetermination overturned. When a 
decision overturns the eligibility redetermination being appealed, 
under Sec.  155.545(c)(1)(ii) the appellant has the option to have the 
decision implemented retroactively, to the coverage effective date the 
appellant did receive or would have received if they had enrolled in 
coverage under the incorrect eligibility (re)determination that is 
being appealed. In cases where the appellant is continuing to receive 
APTC and CSRs under a grant of eligibility pending appeal, it is 
possible that the decision determines the appellant eligible for a 
higher dollar amount of APTC and/or a higher level of CSRs than what 
was provided during the pendency of the appeal. We also recognize that 
retroactive implementation of a decision may create additional burdens 
on issuers who may have to re-process claims and recalculate cost-
sharing amounts and out-of-pocket maximums, as well as refund premiums 
in excess of what the appellant paid, which an issuer may be 
experiencing for a second time, following implementation of a request 
for eligibility pending appeal. We solicit input on what if any 
limitations on implementation of a decision when eligibility pending 
appeal has been granted may be appropriate and under what 
circumstances.
e. Eligibility Pending Appeal and Non-Payment of Premiums
    Finally, we solicit comment on how eligibility pending appeal 
interacts with the consequences of non-payment of premiums. The 
preamble to the final rule establishing Sec.  155.525 stated that an 
issuer may terminate coverage as provided in Sec.  155.430(b)(2)(ii); 
however, the regulations are not explicit about the applicability of 
the 3-month grace period as described in Sec.  156.270(d) and (g) for 
appellants who are granted eligibility pending appeal. We believe that 
issuers and appellants may appreciate more clarity about this issue in 
general, as well as about how to treat appellants who may be in a grace 
period at the time that the redetermination is made and eligibility 
pending appeal request is granted. We will consider any comments we 
receive on this topic for future rulemaking.
    We appreciate comment on these issues, as well as any others 
impacting the administration of eligibility pending appeal.
8. Eligibility Standards for Exemptions (Sec.  155.605)
a. Required Contribution Percentage (Sec.  155.605(d)(2))
    HHS calculates the required contribution percentage for each 
benefit year using the most recent projections and estimates of premium 
growth and income growth over the period from 2013 to the preceding 
calendar year. We propose to calculate the required contribution 
percentage for the 2021 benefit year, using income and premium growth 
data for the 2013 and 2020 calendar years.
    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 reduced the individual shared responsibility payment to $0 for 
months beginning after December 31, 2018, the required 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 the 2021 premium adjustment percentage of 
1.3542376277 (or an increase of about 35.4 percent over the period from 
2013 to 2020). This reflects an increase of about 5.0 percent over the 
2020 premium adjustment percentage (1.3542376277/1.2895211380).
    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 Accounts (NHEA) data, the rate of 
income growth for 2021 is the percentage (if any) by which the most 
recent projection of per capita PI for the preceding calendar year 
($58,821 for 2020) exceeds per capita PI for 2013 ($44,922), carried 
out to ten significant digits. The ratio of per capita PI for 2020 over 
the per capita PI for 2013 is estimated to be 1.3094029651 (that is, 
per capita income growth of about 30.9 percent).\93\ This rate of 
income growth

[[Page 7127]]

between 2013 and 2020 reflects an increase of approximately 4.6 percent 
over the rate of income growth for 2013 to 2019 (1.3094029651/
1.2524152976) that was used in the 2020 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.).\94\
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    \93\ The 2013 and 2020 per capita personal income figures used 
for this calculation reflect the latest NHEA data, which was updated 
between the publication of the proposed rule and this final rule, on 
February 20, 2019. 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 
2018-2027--Tables'' link located in the Downloads section at 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/ProjectionsMethodology.pdf.
    \94\ 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.
---------------------------------------------------------------------------

    Thus, using the 2021 premium adjustment percentage proposed in this 
rule, the excess of the rate of premium growth over the rate of income 
growth for 2013 to 2020 is 1.3542376277 /1.3094029651, or 1.0342405385. 
This results in a proposed required contribution percentage for 2021 of 
8.00x1.0342405385 or 8.27 percent, when rounded to the nearest one-
hundredth of one percent, an increase of 0.04 percentage points from 
2020 (8.27392-8.23702). We seek comment on this proposal.
9. Quality Rating Information Display Standards for Exchanges 
(Sec. Sec.  155.1400 and 155.1405)
    To implement sections 1311(c)(3) and 1311(c)(4) of the PPACA, we 
developed the QRS and the QHP Enrollee Experience Survey (collectively 
referred to as the quality rating information). In the Exchange and 
Insurance Market Standards for 2015 and Beyond Final Rule,\95\ HHS 
issued regulations at Sec. Sec.  155.1400 and 155.1405 to establish 
quality rating information display standards for Exchanges.\96\ 
Consistent with these regulations, Exchanges must prominently display 
on its website, in accordance with Sec.  155.205(b)(1)(iv) and (v), 
quality rating information assigned for each QHP,\97\ as provided by 
HHS and in a form and manner specified by HHS.
---------------------------------------------------------------------------

    \95\ See the Patient Protection and Affordable Care Act; 
Exchange and Insurance Market Standards for 2015 and Beyond; Final 
Rule; (May 27, 2014), 79 FR 30240 at 30310, available at https://www.gpo.gov/fdsys/pkg/FR-2014-05-27/pdf/2014-11657.pdf.
    \96\ Patient Protection and Affordable Care Act; Exchange and 
Insurance Market Standards for 2015 and Beyond, Final Rule, 79 FR 
30240 at 30352 (May 27, 2014).
    \97\ Exchanges can satisfy the requirement to display the QHP 
Enrollee Survey results by displaying the QRS star ratings (which 
incorporate member experience data from the QHP Enrollee Survey). 
See 79 FR at 30310.
---------------------------------------------------------------------------

    To balance HHS's strategic goals of empowering consumers through 
data, minimizing cost and burden on QHP issuers, and supporting state 
flexibility, HHS developed a phased-in approach to display of quality 
rating information across the Exchanges. In particular, during plan 
years 2017, 2018, and 2019, HHS displayed quality rating information on 
HealthCare.gov in a handful of select FFE states as part of a limited 
pilot program. During this time, State Exchanges that operate their own 
eligibility and enrollment platforms were given the option to display 
their respective QHP quality rating information and several of these 
State Exchanges voluntarily elected to display on their State Exchange 
websites. The QRS pilot involved focused consumer testing of the 
display of quality rating information to maximize the clarity of the 
information provided and to assess how the information was displayed 
and used on Exchange websites.
    In August 2019, HHS issued a Quality Rating Information Bulletin to 
announce the transition away from the QRS pilot to the public display 
of quality rating information for plan year 2020 by all Exchanges, 
including FFEs, SBE-FPs, and State Exchanges that operate their own 
eligibility and enrollment platform.\98\ This included flexibility for 
State Exchanges that operate their own eligibility and enrollment 
platforms to display QHP quality rating information on their websites 
in the form and manner specified by HHS or with some limited state 
customizations. Based upon experience during the QRS pilot, we 
recognize there are benefits to permitting some flexibility for State 
Exchanges that operate their own eligibility and enrollment platforms 
to customize the quality rating information for their QHPs. We 
understand that during the QRS pilot, some State Exchanges that operate 
their own eligibility and enrollment platforms displayed the quality 
rating information as provided by HHS, while others displayed quality 
rating information with certain state-specific customizations in order 
to best reflect local priorities or information. Therefore, HHS 
proposes to amend Sec. Sec.  155.1400 and 155.1405 to codify this 
flexibility and provide State Exchanges that operate their own 
eligibility and enrollment platforms some flexibility to customize the 
display of quality rating information for their respective QHPs. For 
example, we would allow State Exchanges that operate their own 
eligibility and enrollment platform to make some state-specific 
customizations, such as to incorporate additional state or local 
quality information or to modify the display names of the QRS star 
ratings. However, we clarify that State Exchanges that operate their 
own eligibility and enrollment platform cannot develop their own 
programs to replace the quality ratings calculated by HHS. Consistent 
with the statute, the Secretary remains responsible for the development 
of the QRS and QHP Enrollee Survey and the calculation of quality 
ratings under these programs across all Exchanges.\99\ We believe this 
flexibility supports the feedback we received from a Request for 
Information, entitled ``Reducing Regulatory Burdens Imposed by the 
Patient Protection and Affordable Care Act and Improving Healthcare 
Choices to Empower Patients'', published in the June 12, 2017 Federal 
Register (82 FR 26885), in identifying ways to reduce burden and 
promote State Exchange flexibility. We seek comment on this proposal.
---------------------------------------------------------------------------

    \98\ Quality Rating Information Bulletin for Plan Year 2020. 
Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/QualityRatingInformationBulletinforPlanYear2020.pdf.
    \99\ See sections 1311(c)(3) and (c)(4) of the PPACA.
---------------------------------------------------------------------------

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

1. Definitions (Sec.  156.20)
    We are proposing to remove the definition of the term ``generic'' 
at Sec.  156.20 because the proposed revision at Sec.  156.130(h) would 
no longer use the term ``generic''. For a discussion of that proposal, 
please see the preamble to Sec.  156.130(h).
2. FFE and SBE-FP User Fee Rates for the 2021 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. 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

[[Page 7128]]

monthly premium charged by the issuer for each policy where enrollment 
is through an FFE or SBE-FP. In addition, OMB Circular No. A-25R 
establishes Federal policy regarding the assessment of user charges 
under other statutes and applies to the extent permitted by law. 
Furthermore, OMB Circular A-25R specifically provides 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 2020, 
issuers seeking to participate in an FFE in the 2021 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 2021 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).
    Activities through which FFE issuers receive a special benefit also 
include the Health Insurance and Oversight System (HIOS) and 
Multidimensional Insurance Data Analytics System (MIDAS) platforms, 
which are partially funded by Exchange user fees. Based on estimated 
costs, enrollment (including anticipated establishment of State 
Exchanges in certain states in which FFEs currently are operating), and 
premiums for the 2021 plan year, we seek comment on two alternative 
proposals. First, we propose maintaining the FFE user fee for all 
participating FFE issuers at 3.0 percent of total monthly premiums in 
order to preserve and ensure that the FFE has sufficient funding to 
cover the cost of all special benefits provided to FFE issuers during 
the 2021 plan year.
    Alternatively, we are considering and seek comment on reducing the 
FFE user fee rate below the 2020 benefit year level. This alternative 
proposal reflects our estimates of premium increases and enrollment 
decreases for the 2021 benefit year, as well as potential savings 
resulting from cost-saving measures implemented over the last several 
years in hopes of reducing the user fee burden on consumers and 
creating downward pressure on premiums. We are also seeking information 
on trends in usage of Exchange functions and services, potential 
efficiencies in Exchange operations, and premium and enrollment 
projections, all of which might inform a change in the user fee level 
in the final rule. If these savings do not materialize, CMS anticipates 
having to increase user fee rates for the subsequent benefit year, to 
ensure that sufficient funds would be available to cover the costs of 
special benefits provided to FFE issuers. We seek comment on this 
proposal.
    As previously discussed, OMB Circular No. A-25R establishes Federal 
policy regarding user fees, and specifies that a user charge will be 
assessed against each identifiable recipient for special benefits 
derived from Federal activities beyond those received by the general 
public.
    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. 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 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.
    For the same reasons we discuss above in relation to the FFE user 
fee rate, we are considering and seek comment on an alternative 
proposal to ensure HHS can cover the costs of the special benefits it 
will provide to SBE-FP issuers during the 2021 benefit year. First, we 
are proposing 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. Similar to our proposal to maintain the FFE user rate 
applicable to benefit year 2020, maintaining the SBE-FP user rate at 
2.5 percent of premium would help to ensure that user fees sufficiently 
cover the costs of the special benefits HHS provides to SBE-FP issuers.
    Also, for the same reasons discussed above in relation to the FFE 
user fee rate, we are also considering and seek comment on lowering the 
SBE-FP user fee rate below the 2020 benefit year level. In addition, we 
are also seeking information on trends in usage of Federal platform 
functions and services, potential efficiencies in Federal platform 
operations, and premium and enrollment projections, all of which might 
inform a change in the user fee level in the final rule. We seek 
comment on this alternative proposal.
    We will continue to examine contract cost estimates for the special 
benefits provided to issuers offering QHPs on the Exchanges using the 
Federal platform for the 2021 benefit year as we finalize the FFE and 
SBE-FP user fee rates.
3. State Selection of EHB-Benchmark Plan for Plan Years Beginning on or 
after January 1, 2020 (Sec.  156.111)
a. Annual Reporting of State-Required Benefits
    We propose amending Sec.  156.111 to require states each year, 
beginning in plan year 2021, to identify required benefits mandated by 
state law and which of those benefits are in addition to EHB in a 
format and by a date specified by HHS. If the state does not comply 
with this annual reporting submission deadline, we propose that HHS 
will determine which benefits are in addition to EHB for the state.
    Section 1311(d)(3)(B) of the PPACA permits a state to require QHPs 
offered in the state to cover benefits in addition to the EHB, but 
requires the state to make payments, either to the individual enrollee 
or to the issuer on behalf of the enrollee, to defray the cost of these 
additional state-required benefits. In the EHB final rule,\100\ we 
finalized a standard at Sec.  155.170(a)(2) that specifies benefits 
mandated by state action taking place on or before December 31, 2011,

[[Page 7129]]

even if not effective until a later date, may be considered EHB, such 
that the state is not required to defray costs for these state-required 
benefits. Under this policy, benefits mandated by state action taking 
place after December 31, 2011 are considered in addition to EHB, even 
if the mandated benefits also are embedded in the state's selected EHB-
benchmark plan. In such cases, states must defray the associated costs 
of QHP coverage of such benefits, and those costs should not be 
included in the percentage of premium attributable to coverage of EHB 
for purpose of calculating PTCs.
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    \100\ Standards Related to Essential Health Benefits, Actuarial 
Value, and Accreditation, 78 FR 12834, 12837 through 12838 (February 
20, 2013), available at https://www.gpo.gov/fdsys/pkg/FR-2013-02-25/pdf/2013-04084.pdf.
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    We also finalized in the EHB final rule that, because the Exchange 
is responsible for certifying QHPs, the Exchange would be the entity 
responsible for identifying which additional state-required benefits, 
if any, are in addition to the EHB. We also finalized that it is the 
QHP issuer's responsibility to quantify the cost attributable to each 
additional required benefit based on an analysis performed in 
accordance with generally accepted actuarial principles and 
methodologies conducted by a member of the American Academy of 
Actuaries and to then report this to the state. Although Sec.  155.170 
contemplates issuers conducting the cost analysis independently from 
the state, we now clarify that it would also be permissible for issuers 
to choose to rely on another entity, such as the state, to produce the 
cost analysis, provided the issuer remains responsible for ensuring 
that the quantification has been completed in a manner that complies 
with Sec.  155.170(c)(2)(i) through (iii).
    We also finalized that this calculation should be done 
prospectively to allow for the offset of an enrollee's share of premium 
and for purposes of calculating the PTC and reduced cost sharing. We 
reminded states and issuers that section 36B(b)(3)(D) of the Code 
specifies that the portion of the premium allocable to state-required 
benefits in addition to EHB shall not be taken into account in 
determining a PTC. We also finalized that because states may wish to 
take different approaches with regard to basing defrayal payments on 
either a statewide average or each issuer's actual cost that we were 
not establishing a standard and would permit both options for 
calculating state payments, at the election of the state. We also now 
clarify that we interpret actual cost to refer to the actuarial 
estimate of what part of the premium is attributable to the state-
required benefit that is in addition to EHB, which is an analysis that 
should be performed prospectively to the extent possible.
    In the 2017 Payment Notice,\101\ we clarified that section 
1311(d)(3)(B) of the PPACA governing defrayal of state-required 
benefits is not specific to state statutes and we thus interpreted that 
section to apply not only in cases of legislative action but also in 
cases of state regulation, guidance, or other state action. We also 
finalized a change to Sec.  155.170(a)(3), designating the state, 
rather than the Exchange, as the entity required to identify which 
benefits mandated by state action are in addition to EHB and require 
defrayal. We also clarified in the 2017 Payment Notice \102\ that there 
is no requirement to defray the cost of benefits added through 
supplementation of the state's base-benchmark plan, as long as the 
state is supplementing the base-benchmark to comply with the PPACA or 
another Federal requirement. We also explained in the 2017 Payment 
Notice that this means benefits mandated by state action after December 
31, 2011 for purposes of compliance with new Federal requirements would 
not require defrayal. Examples of such Federal requirements include: 
requirements to provide benefits and services in each of the ten 
categories of EHB; requirements to cover preventive services; 
requirements to comply with the Paul Wellstone and Pete Domenici Mental 
Health Parity and Addiction Equity Act of 2008 (MHPAEA) (Pub. L. 110-
343, enacted October 3, 2008); and the removal of discriminatory age 
limits from existing benefits.
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    \101\ 81 FR at 12242.
    \102\ This was originally clarified in the 2016 Payment Notice, 
and reiterated in the 2017 Payment Notice.
---------------------------------------------------------------------------

    In the 2017 Payment Notice, we also affirmed a transitional policy 
originating from the 2016 Payment Notice, specifying that Sec.  
156.110(f) allows states to determine services included in the 
habilitative services and devices category without triggering defrayal 
if the state's base-benchmark plan does not include coverage for that 
category. We interpreted this to mean that, when a state has an 
opportunity to reselect its EHB-benchmark plan, a state may use this as 
an opportunity to also update its habilitative services category within 
the applicable Federal parameters for doing so as part of EHB-benchmark 
plan reselection. As such, once a state has defined its habilitative 
services category under Sec.  156.110(f), state-required benefits 
related to habilitative services may trigger defrayal in accordance 
with Sec.  155.170 if they are in addition to EHB and/or outside of an 
EHB-benchmark plan selection process.
    In the 2019 Payment Notice,\103\ we finalized that, as part of the 
new EHB-benchmark plan selection options for states at Sec.  156.111, 
we would not make any changes to the policies governing defrayal of 
state-required benefits at Sec.  155.170. That is, whether a benefit 
mandated by state action could be considered EHB would continue to 
depend on when the state enacted the mandate (unless the benefit 
mandated was for the purposes of compliance with Federal requirements). 
We reminded states of their obligations in light of the new EHB-
benchmark plan selection options for states at Sec.  156.111 in an 
October 2018 FAQ.\104\ In this FAQ we also reminded states that, 
although it is the state's responsibility to identify which state-
required benefits require defrayal, states must make such 
determinations using the framework finalized at Sec.  155.170. For 
example, a law requiring coverage of a benefit passed by a state after 
December 31, 2011, is still a state-required benefit requiring defrayal 
even if the text of the law says otherwise. We affirm that here. We 
also noted that we are monitoring state compliance with the defrayal 
requirements regarding state-required benefits in addition to EHB at 
Sec.  155.170, and that we encourage states to reach out to us 
concerning any state defrayal questions in advance of passing and 
implementing benefit mandates.
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    \103\ 83 FR 16930, at 16977.
    \104\ Frequently Asked Questions on Defrayal of State Additional 
Required Benefits (October 2018), available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQ-Defrayal-State-Benefits.pdf.
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    HHS is aware of stakeholder concerns that there may be states not 
defraying the costs of their state-required benefits in addition to EHB 
in accordance with Federal requirements. HHS shares these concerns.
    State noncompliance with section 1311(d)(3)(B) of the PPACA, as 
implemented at Sec.  155.170, may result in an increase in the percent 
of premium that QHP issuers report as attributable to EHB, more 
commonly referred to as the ``EHB percent of premium,'' which is used 
to calculate PTCs. Issuers may be covering as EHB benefits required by 
state action after December 31, 2011 that actually require defrayal 
under Federal requirements, but for which the state is not actively 
defraying costs. As such, to strengthen program integrity and 
potentially reduce improper Federal expenditures, we are proposing to 
amend Sec.  156.111(d) and add a new Sec.  156.111(f) to explicitly 
require states to annually notify HHS in a form and

[[Page 7130]]

manner specified by HHS, and by a date determined by HHS, of any state-
required benefits applicable to QHPs in the individual and/or small 
group market that are considered to be ``in addition to EHB'' in 
accordance with Sec.  155.170(a)(3).
    As part of this proposed collection at Sec.  156.111(f), we are 
also proposing that states identify which state-required benefits it 
has determined are not in addition to EHB and do not require defrayal 
in accordance with Sec.  155.170, and provide the basis for the state's 
determination. A state's submission would be required to describe all 
benefits requirements under state mandates applicable to QHPs in the 
individual or small group market that were imposed on or before 
December 31, 2011 and that were not withdrawn or otherwise no longer 
effective before December 31, 2011, as well as all benefits 
requirements under state mandates that were imposed any time after 
December 31, 2011 applicable to the individual or small group market. 
For example, if a state benefit requirement applicable to QHPs in the 
individual or small group market was imposed before December 31, 2011, 
but was no longer in effect on December 31, 2011, then the state would 
not be expected to include that state mandate in its report. The 
state's report would also be required to describe whether any of the 
state benefit requirements in the report were amended or repealed after 
December 31, 2011. Information in the state's report would be required 
to be accurate as of the day that is at least 60 days prior to the 
annual reporting submission deadline set by HHS.
    We are also proposing at Sec.  156.111(d)(2) to specify that if the 
state does not notify HHS of its required benefits considered to be in 
addition to EHB by the annual reporting submission deadline, or does 
not do so in the form and manner specified by HHS, HHS will determine 
which benefits are in addition to EHB for the state for the applicable 
plan year. HHS's determination of which benefits are in addition to EHB 
would become part of the definition of EHB for the applicable state for 
the applicable plan year. We solicit comment on whether we should also 
allow states to affirmatively decline to report, indicating to HHS that 
HHS should determine which of the states' mandated benefits require 
defrayal.
    We believe requiring states to annually report to HHS on their 
state-required benefits would also help states be diligent about their 
framework for determining which mandates are in addition to EHB in 
accordance with Sec.  155.170. This proposal properly aligns with 
Federal requirements for defraying the cost of state-required benefits, 
would generally improve transparency with regard to the types of 
benefit requirements states are enacting, would provide the necessary 
information to HHS for increased oversight over whether states are 
appropriately determining which state-required benefits require 
defrayal, whether states are correctly implementing the definition of 
EHB, and whether QHP issuers are properly allocating the portion of 
premiums attributable to EHB for purposes of calculating PTCs.
    We propose that the annual reporting of state-required benefits 
would begin in plan year 2021. We believe this would give states 
sufficient time to review the proposed requirements and prepare for 
submission of their annual EHB reporting package. For the first year of 
reporting, we propose that the deadline for states to submit to HHS 
their complete annual reporting package would be July 1, 2021. This 
would mean that for the first year of reporting, states would notify 
HHS in the manner specified by HHS by July 1, 2021, of any benefits in 
addition to EHB that QHPs are required to cover in plan year 2021 or 
after plan year 2021 by state action taken by May 2, 2021 (60 days 
prior to the annual submission deadline). As specified below at Sec.  
156.111(f) we are also proposing states identify which state-required 
benefits are not in addition to EHB and do not require defrayal in 
accordance with Sec.  155.170, and provide the basis for the state's 
determination, by the annual reporting submission deadline.
    We acknowledge that the start and end dates of state legislative 
sessions vary greatly by state, and that many state legislative 
sessions may not have concluded by May 2, 2021. However, we believe it 
is important to set a cut-off date after which states are not expected 
to report on their state-required benefits until the following annual 
reporting deadline. We believe that setting this cut-off date at least 
60 days prior to the submission deadline would allow a state sufficient 
time to analyze its state benefit requirements imposed, amended, or 
repealed through state action taken by that date and prepare the 
required documents we are proposing that states submit to HHS. A state 
where a legislative session ends after the 60-day cut-off date (for 
example, after May 2, 2021) that happens to enact, amend, or repeal a 
state-required benefit after this cut-off date but before the annual 
reporting submission deadline (for example, before July 1, 2021) would 
not be expected to report that state-required benefit in that plan 
year's annual reporting submission. Instead, the state would be 
expected to include that state-required benefit in the annual reporting 
package for the following year. States would be permitted to submit 
their reports any time between the 60-day cut-off date and the 
applicable deadline.
    As explained further below, this proposed annual reporting cut-off 
date would not impact a state's requirement to defray the cost of 
benefits in addition to EHB that result from state action taken after 
the cut-off date. In other words, states must defray benefits in 
addition to EHB in accordance with Sec.  155.170 regardless of whether 
the state benefit requirement was imposed, amended, or repealed through 
state action taken before or after the proposed 60 day cut-off date for 
inclusion in that plan year's annual reporting submission.
    We solicit comment on the proposed reporting deadline and 60 day 
cut-off date, including on whether the window between the cut-off date 
and submission deadline should be shortened to 30 days, and whether 
this reporting should be required less frequently to decrease burden on 
states, for example, every other year.
    At Sec.  156.111(f), we propose specifying the type of information 
states would be required to submit to HHS by the annual submission 
deadline in a form and manner specified by HHS. We propose that for a 
reporting package to be complete, it would need to comply with the 
following requirements. Specifically, Sec.  156.111(f)(1) proposes that 
states annually reporting to HHS would be required to provide a 
document that is accurate as of the day that is at least 60 days prior 
to the annual reporting submission deadline set by HHS that lists all 
state benefit requirements applicable to QHPs in the individual and/or 
small group market under state mandates that were imposed on or before 
December 31, 2011, and that were not withdrawn or otherwise no longer 
effective before December 31, 2011, as well as any state benefit 
requirements under state mandates applicable to QHPs in the individual 
or small group market that were imposed any time after December 31, 
2011.
    In the first reporting year, this document would include a 
comprehensive list of all state benefit requirements applicable to QHPs 
in the individual and/or small group market under state mandates that 
were imposed on or before December 31, 2011 and that were not withdrawn 
or otherwise no longer effective before December 31, 2011, and any 
state benefit requirements under state mandates that were imposed

[[Page 7131]]

any time after December 31, 2011, regardless of whether the state 
believes they require defrayal in accordance with Sec.  155.170. The 
first reporting cycle is intended to set the baseline list of state-
required benefits applicable to QHPs in the individual and/or small 
group market. Each annual reporting cycle thereafter, the state would 
only need to update the content in its report to add any new benefit 
requirements, and to indicate whether benefit requirements previously 
reported to HHS have been amended or repealed. State reports for 
subsequent years must be accurate as of 60 days prior to the annual 
reporting submission deadline set by HHS for that year. We will 
announce the annual reporting submission deadline for subsequent years 
in subsequent Payment Notices. If a state has not imposed, amended, or 
repealed any state benefit requirements during the applicable time 
period, the state would still be required to report to HHS that there 
have been no changes to state-required benefits since the previous 
reporting cycle. We propose that, in such a scenario, the state submit 
the same reporting package as the previous reporting cycle and 
affirmatively indicate to HHS that there have been no changes. We 
solicit comment on this proposal.
    Section 156.111(f)(2) proposes that states annually reporting to 
HHS would also be required to specify which of those state-required 
benefits listed in accordance with Sec.  156.111(f)(1) the state has 
identified as in addition to EHB and subject to state defrayal under 
Sec.  155.170. We expect states to already be carefully considering 
state benefit requirements imposed, amended, or repealed through state 
action taken after December 31, 2011, to determine whether they require 
state defrayal in accordance with Federal requirements. We further 
expect that states are already defraying the costs of those benefits. 
As such, we expect that this information will be readily accessible to 
states.
    Section 156.111(f)(3) proposes that states must identify in their 
annual reports which of the state-required benefits listed in 
accordance with Sec.  156.111(f)(1) the state has identified as not in 
addition to EHB and not subject to defrayal, in accordance with Sec.  
155.170, and describe the basis for the state's determination. The 
justification that states would be required to provide under this 
proposal should be concise and refer to applicable Federal standards 
for determining whether a state-required benefit is not in addition to 
EHB and does not require defrayal. For example, a state could explain 
that a state-required benefit is not in addition to EHB and does not 
require defrayal because the state benefit requirement was enacted on 
or before December 31, 2011.
    The proposal in Sec.  156.111(f)(4) would require states to submit 
other information about those state-required benefits listed in 
accordance with Sec.  156.111(f)(1). This information is necessary for 
HHS oversight and would include information such as the following: date 
of state action imposing the requirement to cover the state-required 
benefit; the effective date of the applicable state action; the market 
it applies to (that is, individual, small group, or both); the precise 
benefit or set of benefits that QHPs in the individual and/or small 
group market are required to cover; any exclusions; and the citation to 
the relevant state action. In Sec.  156.111(f)(5), we propose requiring 
the document to be signed by a state official with authority to make 
the submission on behalf of the state, to confirm the accuracy of the 
submission. In Sec.  156.111(f)(6), we propose to require states to 
make updates to this list of state-required benefits annually, in a 
form and manner and by a date specified by HHS, to include any new 
state benefit requirements, and to indicate whether benefit 
requirements previously reported to HHS under this paragraph (f) have 
been amended, repealed, or otherwise affected by state regulatory or 
legislative action.
    We solicit comment generally on this proposal, including its 
information collection requirements, specifically with regard to 
whether HHS should require any additional information from states as 
part of the annual reporting submission on state-required benefits.
    If this proposal is finalized as proposed, HHS would provide 
template(s) reflecting the form and manner of the report that states 
would be required to use for reporting the required information 
proposed in Sec.  156.111(f)(1) through (6). We intend to post state 
submissions of these documents on the CMS website prior to the end of 
the plan year during which the annual reporting takes place such that 
this information is accessible to states, QHP issuers, enrollees, 
stakeholders, and the general public. If the state does not notify HHS 
of its state-required benefits that are in addition to EHB in 
accordance with the proposed requirements at Sec.  156.111(f), HHS will 
complete a similar document for the state and post it to the CMS 
website. We seek comment on whether any benefit would be derived from 
offering a public comment period on the aforementioned documents that 
we plan to post to the CMS website. We are particularly interested in 
whether the benefit to such a comment period would outweigh publishing 
the final documents later in the year, as would be necessary to 
accommodate such a comment period.
    We emphasize for states that this proposed reporting requirement 
would be independent of the state's requirement to defray the cost of 
QHP coverage of state-required benefits in addition to EHB in 
accordance with Sec.  155.170. The obligation for a state to defray the 
cost of QHP coverage of state-required benefits in addition to EHB is 
an independent statutory requirement under section 1311(d)(3)(b) of the 
PPACA, as implemented at Sec.  155.170, and would remain fully 
applicable to states regardless of whether they annually report state-
required benefits to HHS under this proposal or defer to HHS to make 
determinations as to which state-required benefits require defrayal. We 
also note that under these proposals the issuer would still be 
responsible for quantifying the cost of these benefits and reporting 
that to the state. States remain required to make payments to defray 
the cost of additional required benefits to the enrollee or QHP issuer 
on behalf of the enrollee.
    We acknowledge that each state's structure likely varies for 
tracking, analyzing, and defraying state-required benefits in 
accordance with Sec.  155.170. So long as the state's current structure 
for identifying state-required benefits in addition to EHB and 
defraying the cost of those benefits complies with Sec.  155.170, the 
state may continue its current approach and need not make changes to 
align with the timing of the proposed annual reporting requirements at 
Sec.  156.111, provided it still reports according to the timeline 
established under Sec.  156.111.
    We are proposing the annual reporting requirement to strengthen 
program integrity and to provide the necessary information to HHS for 
increased oversight over whether states are appropriately determining 
which state-required benefits require defrayal, whether states are 
correctly implementing the definition of EHB, and whether QHP issuers 
are properly allocating the portion of premiums attributable to EHB for 
purposes of calculating PTCs. However, the annual reporting proposal is 
also intended to be complementary to a state's current process for 
identifying state-required benefits in addition to EHB.
    For example, a state may currently have in place a structure for 
identifying and defraying state-required benefits in addition to EHB 
where the state works

[[Page 7132]]

in tandem with its state legislature as bills are introduced to assess 
whether they contain state-required benefits that would require 
defrayal if passed. The same state may be working on a continual basis 
with actuaries to conduct actuarial analyses of the potential state-
required benefits in advance of the bill's passage to anticipate the 
amount the state may be required to defray. If the bill passes, the 
same state may then collect issuers' actuarial quantifications of the 
state-required benefit and, depending on the effective date of the 
state-required benefit, immediately begin making payments to the issuer 
or enrollee on a monthly basis to defray the cost of the state-required 
benefit. Under this example, a state that annually reports to HHS would 
not be required to delay or modify the timing of any of these steps due 
to the proposed annual reporting requirement and associated deadlines. 
If finalized, the annual reporting requirement may function as an 
additional, but complementary step to those already in place at Sec.  
155.170.
    Although this would remain true for a state that does not annually 
report to HHS by the annual submission deadline such that HHS will 
determine which benefits are in addition to EHB for the state, we 
recognize it may be best for these states to wait for HHS to post the 
information required in Sec.  156.111(f)(1) through (6) on the CMS 
website before the state begins making payments to the enrollee or the 
QHP issuer to defray the costs of state-required benefits in addition 
to EHB. In other words, we recommend that where states defer to HHS the 
task of identifying state-required benefits that require defrayal, 
states may modify their existing timeline for defrayal as necessary to 
work in tandem with HHS determinations as to which of the state-
required benefits are in addition to EHB.
    We seek comment on the extent to which states are not appropriately 
identifying and defraying state-required benefits in addition to EHB to 
inform HHS' understanding of whether there is sufficient value in 
finalizing this proposal. We also solicit comment on whether states are 
the appropriate entities to continue making these determinations, or 
whether HHS should amend Sec.  155.170(a)(3) to make the Exchanges 
again responsible for determining which state-required benefits are in 
addition to EHB, since the Exchange is responsible for certifying QHPs.
    In practice, providing Exchanges with this authority would mean 
that the Federal government, as operator of the FFEs, would determine 
which state-required benefits are in addition to EHB in FFE states. 
State Exchanges would have the authority to make that determination in 
states that established their own Exchanges. We also solicit comment on 
whether we should instead revise Sec.  155.170(a)(3) to make HHS the 
entity responsible for determining which state-required benefits are in 
addition to EHB in every state such that HHS would determine which 
state-required benefits require defrayal. Regardless of whether HHS or 
a state makes this determination, QHP issuers would still be 
responsible for quantifying the costs for these additional mandates and 
reporting them to the state, which would generally trigger the state's 
duty to make defrayal payments directly to the enrollee or the QHP 
issuer.
    Given the proposed changes to this section, we are further 
proposing to rename this section ``State selection of EHB-benchmark 
plan for plan years beginning on or after January 1, 2020, and annual 
reporting of state-required benefits'' to better reflect its contents.
b. States' EHB-Benchmark Plan Options
    In the 2019 Payment Notice, we stated that we believe states should 
have additional choices with respect to benefits and affordable 
coverage. Therefore, we finalized options for states to select new EHB-
benchmark plans starting with the 2020 plan year. Under Sec.  
156.111(a), 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 also has 
to meet additional standards, including EHB scope of benefit 
requirements under Sec.  156.111(b). These requirements include 
providing a scope of benefits that is equal to, or greater than, to the 
extent any supplementation is required to provide coverage within each 
EHB category, the scope of benefits provided under a typical employer 
plan. Section 156.111(b)(2) defines a typical employer plan as either: 
(1) One of the selecting state's 10 base-benchmark plan options 
established at Sec.  156.100 from which the state was able to select 
for the 2017 plan year; or (2) the largest health insurance plan by 
enrollment in any of the five largest large group health insurance 
products by enrollment in the selecting state, as product and plan are 
defined at Sec.  144.103, provided that: (a) The product has at least 
10 percent of the total enrollment of the five largest large group 
health insurance products by enrollment in the selecting state; (b) the 
plan provides minimum value; (c) the benefits are not excepted 
benefits; and (d) the benefits in the plan are from a plan year 
beginning after December 31, 2013. The state's EHB-benchmark plan must 
also satisfy the generosity standard at Sec.  156.111(b)(2)(ii), which 
specifies that a state's EHB-benchmark plan must not exceed the 
generosity of the most generous among a set of comparison plans, 
including the EHB-benchmark plan used by the state in 2017, and any of 
the state's base-benchmark plan options for the 2017 plan year, 
supplemented as necessary.
    Additionally, states must document meeting these requirements 
through an actuarial certification and associated actuarial report from 
an actuary who is a member of the American Academy of Actuaries, in 
accordance with generally accepted actuarial principles and 
methodologies. We published the ``Example of an Acceptable Methodology 
for Comparing Benefits of a State's EHB-benchmark Plan Selection in 
Accordance with Sec.  156.111(b)(2)(i) and (ii)'' (example methodology 
guidance), alongside the 2019 Payment Notice.\105\ We finalized that 
the current EHB-benchmark plan selection would continue to apply for 
any year for which a state does not select a new EHB-benchmark plan 
from among these options.
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    \105\ Example of an Acceptable Methodology for Comparing 
Benefits of a State's EHB-benchmark Plan Selection in Accordance 
with 45 CFR 156.111(b)(2)(i) and (ii), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-Example-Acceptable-Methodology-for-Comparing-Benefits.pdf.
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    The 2019 Payment Notice stated that we would propose EHB-benchmark 
plan submission deadlines in the HHS annual Notice of Benefit and 
Payment Parameters. Accordingly, we propose May 7, 2021, as the 
deadline for states to submit the required documents for the state's 
EHB-benchmark plan selection for the 2023 plan year. We emphasize that 
this deadline would be firm, and that states should optimally have one 
of their points of contact who has been predesignated to use the EHB 
Plan Management Community reach out to us using the EHB Plan Management 
Community well in advance of the deadline with any questions. Although 
not a requirement, we recommend states submit applications at least 30 
days prior to the submission deadline to

[[Page 7133]]

ensure completion of their documents by the proposed deadline. We also 
remind states that they must complete the required public comment 
period and submit a complete application by the deadline. We seek 
comment on the proposed deadline.
    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 
deadline applicable to state selection of a new benchmark plan would 
also apply to this state opt-in process. We therefore propose May 7, 
2021, as the deadline for states to notify us that they wish to permit 
between-category substitution for the 2023 plan year. States wishing to 
make such an election must do so via the EHB Plan Management Community. 
We seek comment on the proposed deadline.
    We also reiterate the scope of benefits requirements at Sec.  
156.111(b)(2). We finalized the definition of a typical employer plan 
to establish the minimum level of benefits for the state's EHB-
benchmark plan selection and to ensure plans that meet EHB standards 
are equal in scope to a typical employer plan as required pursuant to 
section 1302(2)(A) of the PPACA, and a generosity standard to establish 
the maximum level of benefits for a state's EHB-benchmark plan 
selection.
    The generosity standard at Sec.  156.111(b)(2)(ii) balances our 
goal of promoting state flexibility with the need to preserve coverage 
affordability by minimizing the opportunity for a state to select EHB 
in a manner that would make coverage unaffordable for patients and 
increase Federal costs. As such, we clarify for states that when 
selecting an updated EHB-benchmark plan from the available options 
listed at Sec.  156.111(a), the new EHB-benchmark plan may not exceed 
the generosity of the most generous among the set of comparison plans 
listed at Sec.  156.111(b)(2)(ii) even by a de minimis amount, and that 
states must clearly demonstrate in their actuarial report to HHS how 
the state's updated EHB-benchmark plan satisfies the generosity test. 
In other words, the generosity of the state's updated EHB-benchmark 
plan may not exceed a 0.0 percentage point actuarial increase above the 
most generous among the set of comparison plans listed at Sec.  
156.111(b)(2)(ii).
    Finally, we clarify that the typical employer plan and generosity 
standard requirements are two separate tests that an EHB-benchmark plan 
must satisfy. However, we recognize that there may be some instances in 
which it may be difficult to design an EHB-benchmark plan that 
satisfies both standards. Therefore, we remind states that, as we 
stated in the example methodology guidance,\106\ states should consider 
using the same plan as the comparison plan for both tests, to the 
extent possible, to help minimize burden and to mitigate against any 
potential conflict caused by applying each test with a different 
comparison plan.
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    \106\ Example of an Acceptable Methodology for Comparing 
Benefits of a State's EHB-benchmark Plan Selection in Accordance 
with 45 CFR 156.111(b)(2)(i) and (ii), available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Final-Example-Acceptable-Methodology-for-Comparing-Benefits.pdf.
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4. Essential Health Benefits Package (Sec.  156.130)
a. Premium Adjustment Percentage (Sec.  156.130)
    We propose to update the annual premium adjustment percentage using 
the most recent estimates and projections of per enrollee premiums for 
private health insurance (excluding Medigap and property and casualty 
insurance) from the NHEA, which are calculated by the CMS Office of the 
Actuary. For the 2021 benefit year, the premium adjustment percentage 
will represent the percentage by which this measure for 2020 exceeds 
that for 2013.
    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 \107\ and 2015 Market Standards Rule \108\ 
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. 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 the 2016 through 2019 
benefit years, 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.
---------------------------------------------------------------------------

    \107\ 79 FR 13743.
    \108\ 79 FR 30240.
---------------------------------------------------------------------------

    In the 2020 Payment Notice, we adopted a modification of the 
premium measure that we use to calculate the premium adjustment 
percentage. This premium measure captures increases in individual 
market premiums in addition to increases in employer-sponsored 
insurance premiums for purposes of calculating the premium adjustment 
percentage. Specifically, we calculate the premium measures for 2013 
and 2020 as private health insurance premiums minus premiums paid for 
Medicare supplement (Medigap) insurance and property and casualty 
insurance, divided by the unrounded number of unique private health 
insurance enrollees, excluding all Medigap enrollees.
    This premium measure 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).

[[Page 7134]]

The measure we used in the 2020 Payment Notice is published by NHEA and 
includes NHEA estimates and projections of employer-sponsored insurance 
and direct purchase insurance premiums, but we excluded 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. We used per enrollee premiums for 
private health insurance (excluding Medigap and property and casualty 
insurance) so that the premium measure more closely reflects premium 
trends for all individuals primarily covered in the private health 
insurance market since 2013, and we anticipated that the change to use 
per enrollee premiums for private health insurance (excluding Medigap 
and property and casualty insurance) would additionally reduce Federal 
PTC expenditures, if the Department of the Treasury and the IRS were to 
adopt the proposed change.\109\
---------------------------------------------------------------------------

    \109\ The Department of the Treasury and the IRS have since 
adopted the premium growth measure provided in the 2020 Payment 
Notice for purposes of the indexing adjustments under section 36B of 
the Code. See Revenue Procedure 2019-29, 2019-32 IRB 620. https://www.irs.gov/pub/irs-drop/rp-19-29.pdf.
---------------------------------------------------------------------------

    We propose to continue to use the private health insurance premium 
measure (excluding Medigap and property and casualty insurance) for the 
2021 benefit year. As such, we propose that the premium adjustment 
percentage for 2021 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 2020 
($6,759) exceeds the most recent NHEA estimate of per enrollee premiums 
for private health insurance (excluding Medigap and property and 
casualty insurance) for 2013 ($4,991).\110\ Using this formula, the 
proposed premium adjustment percentage for the 2021 benefit year is 
1.3542376277 ($6,759/$4,991), which represents an increase in private 
health insurance (excluding Medigap and property and casualty 
insurance) premiums of approximately 35.4 percent over the period from 
2013 to 2020.
---------------------------------------------------------------------------

    \110\ The 2013 and 2020 per enrollee premiums for private health 
insurance (excluding Medigap and property and casualty insurance) 
figures used for this calculation reflect the latest NHEA data. The 
series used in the determinations of the adjustment percentages can 
be found in Table 17 on the CMS website, which can be accessed by 
clicking the ``NHE Projections 2018-2027--Tables'' link located in 
the Downloads section at 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/ProjectionsMethodology.pdf.
---------------------------------------------------------------------------

    Based on the proposed 2021 premium adjustment percentage, we 
propose the following cost-sharing parameters for benefit year 2021.
(1) Maximum Annual Limitation on Cost Sharing for Plan Year 2021
    We propose to increase the maximum annual limitation on cost 
sharing for the 2021 benefit year based on the proposed value 
calculated for the premium adjustment percentage for the 2021 benefit 
year. Under Sec.  156.130(a)(2), for the 2021 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 2021. 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 1.3542376277 for 2021 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,\111\ we propose that the 2021 maximum annual limitation on 
cost sharing would be $8,550 for self-only coverage and $17,100 for 
other than self-only coverage. This represents an approximately 4.9 
percent increase above the 2020 parameters of $8,150 for self-only 
coverage and $16,300 for other than self-only coverage. We seek comment 
on this proposal.
---------------------------------------------------------------------------

    \111\ See Revenue Procedure 2013-25, 2013-21 IRB 1110. http://www.irs.gov/pub/irs-drop/rp-13-25.pdf.
---------------------------------------------------------------------------

b. Reduced Maximum Annual Limitation on Cost-Sharing (Sec.  156.130)
    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 to serve enrollees at three ranges of household income below 
250 percent of FPL. 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 CSRs. 
Specifically, in part 156, subpart E, we specified that QHP issuers 
must provide CSRs 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) of the PPACA 
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) of the PPACA 
(that is, 73 percent, 87 percent, or 94 percent, depending on the 
income of the enrollee).
    As we propose above, the 2021 maximum annual limitation on cost 
sharing would be $8,550 for self-only coverage and $17,100 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 2021 plan year and our 
proposed results.
(1) Analysis for Determining the Reduced Maximum Annual Limitation on 
Cost-Sharing
    Consistent with our analysis in the 2014 through 2020 Payment 
Notices, we developed three test silver level QHPs, and analyzed the 
impact on AV of the reductions described in the PPACA to the proposed 
estimated 2021 maximum annual limitation on cost sharing for self-only 
coverage ($8,550). The test plan designs are based on data collected 
for 2020 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 2021, the test silver 
level QHPs included a PPO with typical cost-sharing structure ($8,550 
annual limitation on cost sharing, $2,650 deductible, and 20 percent 
in-network coinsurance rate); a PPO with a lower annual limitation on 
cost sharing ($6,800 annual limitation on cost sharing, $3,000 
deductible, and 20 percent in-network coinsurance rate); and an HMO 
($8,550 annual limitation on cost sharing, $4,375 deductible, 20 
percent in-network coinsurance rate,

[[Page 7135]]

and the following services with copayments that are not subject to the 
deductible or coinsurance: $500 inpatient stay per day, $500 emergency 
department visit, $30 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 draft version of the 2021 
AV Calculator \112\ 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).
---------------------------------------------------------------------------

    \112\ Available at https://www.cms.gov/cciio/resources/regulations-and-guidance/index.
---------------------------------------------------------------------------

    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 10.
    These proposed reductions in the maximum annual limitation on cost 
sharing must 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, the statutory 
reductions in the maximum annual limitation on cost sharing will cause 
an 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 2021.
    We note that for 2021, as described in Sec.  156.135(d), states are 
permitted to submit for HHS approval state-specific datasets for use as 
the standard population to calculate AV. No state submitted a dataset 
by the September 1, 2019 deadline.

  Table 10--Reductions in Maximum Annual Limitation on Cost Sharing for
                                  2021
------------------------------------------------------------------------
                                                        Reduced maximum
                                    Reduced maximum    annual limitation
                                   annual limitation    on cost sharing
      Eligibility category          on cost sharing     for other than
                                     for self-only    self-only coverage
                                   coverage for 2020       for 2020
------------------------------------------------------------------------
Individuals eligible for CSRs                 $2,850              $5,700
 under Sec.   155.305(g)(2)(i)
 (100-150 percent of FPL).......
Individuals eligible for CSRs                  2,850               5,700
 under Sec.   155.305(g)(2)(ii)
 (151-200 percent of FPL).......
Individuals eligible for CSRs                  6,800              13,600
 under Sec.   155.305(g)(2)(iii)
 (201-250 percent of FPL).......
------------------------------------------------------------------------

c. Cost-Sharing Requirements (Sec.  156.130)
    In the 2020 Payment Notice at Sec.  156.130(h)(1), we finalized 
that, for plan years beginning on or after January 1, 2020, 
notwithstanding any other provision of Sec.  156.130, and to the extent 
consistent with applicable state law, amounts paid toward cost sharing 
using any form of direct support offered by drug manufacturers to 
enrollees to reduce or eliminate immediate out-of-pocket costs for 
specific prescription brand drugs that have an available and medically 
appropriate generic equivalent are not required to be counted toward 
the annual limitation on cost sharing. In that rule, we expressed 
concern that market distortion can exist when a consumer selects a 
higher-cost brand name drug when an equally effective generic drug is 
available.
    Since finalizing Sec.  156.130(h)(1), we have received feedback 
that indicates there is confusion about whether Sec.  156.130(h)(1), as 
finalized, requires plans and issuers to count the value of drug 
manufacturers' coupons toward the annual limitation on cost sharing, 
other than in circumstances in which there is a medically appropriate 
generic equivalent available, particularly with regard to large group 
market and self-insured group health plans. On August 26, 2019, HHS and 
the Departments of Labor and the Treasury released FAQ Part 40, 
acknowledging the confusion among stakeholders and the possibility that 
the requirement could create a conflict with certain rules for HDHPs 
that are intended to allow eligible individuals to establish a health 
savings account (HSA).
    Specifically, Q&A-9 of IRS Notice 2004-50 states that the provision 
of drug discounts will not disqualify an individual from being an 
eligible individual if the individual is responsible for paying the 
costs of any drugs (taking into account the discount) until the 
deductible under the HDHP is satisfied. Thus, Q&A-9 of Notice 2004-50 
requires an HDHP to disregard drug discounts and other manufacturer and 
provider discounts when determining if the deductible for an HDHP has 
been satisfied, and only allows amounts actually paid by the individual 
to be taken into account for that purpose. Such a requirement could put 
the issuer or sponsor of an HDHP in the position of complying with 
either the requirement under the 2020 Payment Notice for limits on cost 
sharing in the case of a drug manufacturer coupon for

[[Page 7136]]

a brand name drug with no available or medically appropriate generic 
equivalent or the IRS rules for minimum deductibles for HDHPs, but 
potentially being unable to comply with both rules simultaneously.\113\
---------------------------------------------------------------------------

    \113\ FAQs About Affordable Care Act Implementation Part 40. 
August 26, 2019. Available at https://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/FAQs-Part-40.pdf and https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-40.
---------------------------------------------------------------------------

    Accordingly, in FAQ Part 40, we explained that we intended to 
undertake rulemaking in the HHS Notice of Benefit and Payment 
Parameters for 2021, in consultation with the Departments of Labor and 
the Treasury to address the conflict, and that until the 2021 Payment 
Notice is issued and effective, the Departments will not initiate an 
enforcement action if an issuer of group or individual health insurance 
coverage or a group health plan excludes the value of drug 
manufacturers' coupons from the annual limitation on cost sharing, 
including in circumstances in which there is no medically appropriate 
generic equivalent available.
    Accordingly, we propose to revise Sec.  156.130(h) in its entirety 
to provide that, notwithstanding any other provision of the annual 
limitation on cost sharing regulation, and to the extent consistent 
with applicable state law, amounts paid toward reducing the cost 
sharing incurred by an enrollee using any form of direct support 
offered by drug manufacturers to enrollees for specific prescription 
drugs are permitted, but not required, to be counted toward the annual 
limitation on cost sharing. Under this proposal, plans and issuers have 
the flexibility to determine whether to include or exclude coupon 
amounts from the annual limitation on cost sharing, regardless of 
whether a generic equivalent is available.
    Consistent with this proposal, we also propose to interpret the 
definition of cost sharing to exclude expenditures covered by drug 
manufacturer coupons. Therefore, the value of these coupons would not 
be required to count towards the annual limitation on cost sharing. 
Section 1302(c)(3)(A) of the PPACA defines the term cost sharing to 
include: (1) Deductibles, coinsurance, copayments, or similar charges; 
and (2) any other expenditure required of an insured individual which 
is a qualified medical expense \114\ with respect to EHB covered under 
the plan. Section 1302(c)(1) of the PPACA states that the cost sharing 
incurred under a health plan shall not exceed the annual limitation on 
cost sharing. Drug manufacturer coupon amounts reduce the costs 
incurred by an enrollee under the health plan because they reduce the 
amount that the enrollee is required to pay at the point-of-sale in 
order to obtain coverage for the drug. The value of the coupon is not a 
cost incurred by or charged to the enrollee; thus, we believe its value 
should not be required to count toward the annual limitation on cost 
sharing. Under this interpretation, and to the extent consistent with 
applicable state law, issuers of non-grandfathered individual and group 
market coverage, and all non-grandfathered group health plans subject 
to section 2707(b) of the PHS Act, would have flexibility to determine 
whether to include or exclude drug manufacturer coupon amounts from the 
annual limitation on cost sharing, regardless of whether a medically 
appropriate generic equivalent is available.\115\ This proposal would 
enable issuers and group health plans to continue longstanding 
practices with regard to how and whether drug manufacturer coupons 
accrue towards an enrollee's annual limitation on cost sharing.
---------------------------------------------------------------------------

    \114\ As defined in section 223(d)(2) of the Code.
    \115\ We note that an issuer or group health plan that elects to 
credit coupon amounts toward the minimum deductible of an HDHP could 
disqualify an individual from making HSA contributions, pursuant to 
Q&A-9 of Notice 2004-50.
---------------------------------------------------------------------------

    The proposal would also afford issuers of non-grandfathered 
individual and group market coverage, and all non-grandfathered group 
health plans subject to section 2707(b) of the PHS Act, the same 
opportunity as under the current Sec.  156.130(h)(1) to incentivize 
generic drug usage by excluding the amounts of drug manufacturer 
coupons for brand name drugs from the annual limitation on cost sharing 
when a medically appropriate generic equivalent is available. We 
encourage issuers and group health plans to consider utilizing this 
proposed flexibility to find innovative methods to address the market 
distortion that occurs when consumers select a higher-cost brand name 
drug when an equally effective, medically appropriate generic drug is 
available.\116\ We would expect issuers and group health plans to be 
transparent with enrollees and prospective enrollees regarding whether 
the value of drug manufacturer coupons accrues to the annual limitation 
on cost sharing as issuers' policies would affect enrollees' out-of-
pocket liability under their plans. We would expect issuers to 
prominently include this information on websites and in brochures, plan 
summary documents, and other collateral material that consumers may use 
to select, plan, and understand their benefits.
---------------------------------------------------------------------------

    \116\ We also encourage issuers and group health plans to 
consider utilizing this flexibility to promote the use of 
biosimilars over the use of their respective reference biological 
product.
---------------------------------------------------------------------------

    We seek comment on this proposal.
5. Requirements for Timely Submission of Enrollment Reconciliation Data 
(Sec.  156.265)
    In the Establishment of Exchanges and Qualified Health Plans; 
Exchange Standards interim final rule,\117\ we established standards 
for the collection and transmission of enrollment information. At Sec.  
156.265(f), we set forth standards on the enrollment reconciliation 
process, specifying that issuers must reconcile enrollment with the 
Exchange no less than once a month. Issuers in Exchanges using the 
Federal platform currently update data through ongoing processes 
collectively referred to as Enrollment Data Alignment, which includes 
834 transactions, the monthly enrollment reconciliation cycle, and two 
dispute processes (enrollment disputes and payment disputes) that are 
used to make enrollment updates that cannot be handled through monthly 
reconciliation. Issuers offering plans through State Exchanges update 
Exchange data through processes designed by the State Exchange.
---------------------------------------------------------------------------

    \117\ See 77 FR 18309 at 18425.
---------------------------------------------------------------------------

    Although the regulations in Sec.  156.265 require issuers to 
reconcile enrollment with the Exchange monthly, they do not specify 
standards for the format or quality of these data exchanges, such as 
the manner in which enrollment updates must be reflected in updates of 
previously submitted enrollment data, or the timeframe in which issuers 
should report data updates and data errors to the Exchange. If QHP 
issuers fail to make or report enrollment updates accurately and 
timely, the accuracy of payment, the accuracy of enrollment data that 
the Exchange has available to address consumer questions, and the 
accuracy of the data reported to consumers on their 1095-A tax forms 
after the end of the coverage year could be affected. For example, if 
an issuer does not regularly update its enrollment data to reflect 
retroactive enrollment changes throughout the year, and instead submits 
large volumes of changes to the Exchange well after the plan year has 
ended. These late changes trigger the mailing of corrected tax forms to 
consumers after tax season, creating consumer burden and confusion.
    To more explicitly state requirements for issuers in the Exchanges, 
we propose amending Sec.  156.265(f) to require an

[[Page 7137]]

issuer to include in its enrollment reconciliation submission to the 
Exchange the most recent enrollment information that is available and 
that has been verified to the best of its knowledge or belief. We also 
propose to amend Sec.  156.265(g) to direct QHP issuers to update their 
enrollment records as directed by the Exchange, and to inform the 
Exchange if any such records contain errors, within 30 days. In State 
Exchanges on the Federal platform, references in this section to the 
Exchange should be understood to mean CMS, as administrator of the 
Federal platform. We believe these amendments will encourage more 
timely reconciliation and error reporting, resulting in an improved 
consumer experience.
6. Promoting Value-Based Insurance Design
    The proposals in this section seek to promote a consumer-driven 
health care system in which consumers are empowered to select and 
maintain health care coverage of their choosing. We are proposing to 
offer QHP issuers options to assist them design value-based insurance 
plans that would empower consumers to receive high value services at 
lower cost.
    In the 2017, 2018, and 2019 Payment Notices, we sought comment on 
ways in which HHS can foster market-driven programs that can improve 
the management and costs of care and that provide consumers with 
quality, person-centered coverage. We also sought comment on how we may 
encourage value-based insurance design within the individual and small 
group markets and ways to support issuers in using cost sharing to 
incentivize more cost-effective consumer behavior. We solicited 
comments on how HHS can better encourage these types of plan designs, 
and whether any existing regulatory provisions or practices discourage 
such designs.
    We also previously noted our interest in value-based insurance 
designs that: focus on cost effective drug tiering structures; address 
overused, higher cost health services; provide innovative network 
design that incentivizes enrollees to use higher quality care; and 
promote use of preventive care and wellness services. In response to 
these comment solicitations we received many comments supporting HHS's 
efforts to explore ways to encourage innovations and value-based 
insurance design.
    We are now pursuing strategies that will assist in the uptake and 
offering of value-based insurance design by QHP issuers. Specifically, 
we are outlining a ``value-based'' model QHP that contains consumer 
cost-sharing levels aimed at driving utilization of high value services 
and lowering utilization of low value services when medically 
appropriate.
    Currently, under our rules, issuers have considerable discretion in 
the design of cost-sharing structures, subject to certain statutory AV 
requirements, non-discrimination provisions,\118\ and other applicable 
laws such as the MHPAEA (section 2726 of the PHS Act). We are not 
proposing any changes to this flexibility. We are providing additional 
specificity around value-based design and how issuers could opt to 
incorporate such design into their QHPs. Offering a value-based 
insurance design QHP would be voluntary and issuers are encouraged to 
select services and cost sharing that work best for their consumers.
---------------------------------------------------------------------------

    \118\ We note that issuers are also subject to federal civil 
rights laws, including Title VI of the Civil Rights Act. Section 504 
of the Rehabilitation Act, the Age Discrimination Act, section 1557 
of the PPACA, and conscience and religious freedom laws.
---------------------------------------------------------------------------

    Borrowing from work provided by the Center for Value-based 
Insurance Design at the University of Michigan \119\ (the Center), 
Table 11 lists high value services and drugs that an issuer may want to 
consider offering with lower or zero cost sharing. Table 11 also 
includes a list of low value services that issuers should consider 
setting at higher consumer cost sharing. High value services are those 
that most people will benefit from and have a strong clinical evidence 
base demonstrating appropriate care. The high value services and drugs 
identified in Table 11 are supported by strong clinical effectiveness 
evidence. Low value services are those services in which the majority 
of consumers would not derive a clinical benefit. The Center considered 
services that have been identified by other aligned efforts, such as 
the Choosing Wisely initiative, the Value-based Insurance Design Health 
Task Force on Low Value Care, the Oregon Public Employee's Benefits 
Board, SmarterCare CA, and the Washington State Health Authority.\120\ 
The Center's research has shown that a silver level of coverage base 
plan could alter the cost sharing as proposed in Table 11 and could 
achieve a zero impact on plan premiums, while incentivizing the 
consumer to seek more appropriate care.
---------------------------------------------------------------------------

    \119\ For more information please see information about the 
VBID-X project available at http://vbidcenter.org/initiatives/vbid-x/ and resulting white paper, available at http://vbidcenter.org/wp-content/uploads/2019/07/VBID-X-Final-Report_White-Paper-7.13.19.pdf.
    \120\ Additional information on data sources considered by the 
Center, please see: https://www.choosingwisely.org/;http://vbidhealth.com/low-value-care-task-force.php; https://www.oregon.gov/oha/pebb/pages/index.aspx; https://www.iha.org/our-work/insights/smart-care-california; https://www.hca.wa.gov.

         TABLE 11--High and Low Value Services and Drug Classes
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
               High Value Services With Zero Cost Sharing
------------------------------------------------------------------------
Blood pressure monitors (hypertension)
Cardiac rehabilitation
Glucometers and testing strips (diabetes)
Hemoglobin a1c testing (diabetes)
INR testing (hypercoagulability)
LDL testing (hyperlipidemia)
Peak flow meters (asthma)
Pulmonary rehabilitation
------------------------------------------------------------------------
         High Value Generic Drug Classes With Zero Cost Sharing
------------------------------------------------------------------------
ACE inhibitors and ARBs
Anti-depressants
Antipsychotics
Anti-resorptive therapy
Antiretrovirals
Antithrombotics/anticoagulants
Beta blockers
Buprenorphine-naloxone
Glucose lowering agents
Inhaled corticosteroids
Naloxone
Rheumatoid arthritis medications
Statins
Thyroid-related
Tobacco cessation treatments
------------------------------------------------------------------------
        High Value Branded Drug Classes With Reduced Cost Sharing
------------------------------------------------------------------------
Anti-TNF (tumor necrosis factor)
Hepatitis C directing-acting combination
Pre-exposure prophylaxis for HIV (PrEP)\121\
------------------------------------------------------------------------
                 Specific Low Value Services Considered
------------------------------------------------------------------------
Proton beam therapy for prostate cancer
Spinal fusions
Vertebroplasty and kyphoplasty
Vitamin D testing
------------------------------------------------------------------------
    Commonly Overused Service Categories With Increased Cost-Sharing
------------------------------------------------------------------------
Outpatient specialist services
Outpatient labs
High-cost imaging
X-rays and other diagnostic imaging
Outpatient surgical services
Non-preferred branded drugs
------------------------------------------------------------------------

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

    \121\ Per 26 CFR 54.9815-2713, 29 CFR 2590.715-2713 and 45 CFR 
147.130, non-grandfathered group health plans and non-grandfathered 
health insurance coverage in the group or individual markets, 
including QHP issuers in the individual market, will be required to 
cover PrEP without imposing any cost-sharing requirements for plan 
or policy years beginning on or after June 30, 2020, in a manner 
consistent with the U.S Preventive Services Task Force (USPSTF) 
final recommendation at https://www.uspreventiveservicestaskforce.org/Page/Document/RecommendationStatementFinal/prevention-of-human-immunodeficiency-virus-hiv-infection-pre-exposure-prophylaxis.

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[[Page 7138]]

    For issuers in Exchanges using the Federal platform, HHS is not 
proposing to offer preferential display on HealthCare.gov for QHPs that 
include value-based insurance design. However, we are considering ways 
in which consumers could easily identify a ``value-based'' QHP. We seek 
comments on ways in which these ``value-based'' QHPs could be 
identified to consumers on HealthCare.gov, how best to communicate 
their availability to consumers, how best demonstrate how the cost-
sharing structures who affect different consumers, and how to assist 
consumers in selecting a value-based QHP if it is an appropriate 
option.
    We are also soliciting comment on how HHS could collect information 
from issuers in Exchanges using the Federal platform to indicate that 
their QHP includes value-based insurance design. This could include 
collecting the information from the issuer, instructing issuers to 
include ``value-based'' in the plan name, or establishing HHS-adopted 
criteria that an issuer would have to meet in order to be labeled 
value-based.
    We also solicit comment on principles that HHS could adopt to 
establish what constitutes a value-based plan, perhaps establishing 
minimum standards, as well as obstacles to other obstacles to 
implementation. We are interested in additional ways in which HHS could 
provide operational assistance to issuers offering value-based QHPs. We 
understand that some states require the use of standardized plan 
designs and may not be able to certify QHPs with alternative cost 
sharing structures. We solicit comment from states that believe their 
cost sharing laws would not allow for this type of plan design.
    Lastly, we solicit comment on other value-based insurance design 
activities HHS should pursue in the future, including applicable models 
for stand-alone dental plans.
7. Termination of Coverage or Enrollment for Qualified Individuals 
(Sec.  156.270)
    Issuers are currently required under Sec.  156.270(b)(1) to send 
termination notices, including the termination effective date and 
reason for termination, to enrollees only for terminations due to (1) 
loss of eligibility for QHP coverage, (2) non-payment of premiums, and 
(3) rescission of coverage. For this purpose, we consider a termination 
of coverage of a consumer whose enrollment would violate the anti-
duplication provision of section 1882 of the Social Security Act to be 
a termination because the enrollee is no longer eligible for QHP 
coverage under Sec.  155.430(b)(2)(i), and therefore issuers are 
required to send a termination notice under Sec.  156.270(b)(1) when 
the consumer's coverage is non-renewed.\122\
---------------------------------------------------------------------------

    \122\ See 3.4.8 Medicare Enrollment and Non-renewals of the 2019 
federally-facilitated Exchanges (FFEs) and federally-facilitated 
Small Business Health Options Program (FF-SHOP) Enrollment Manual at 
https://www.regtap.info/uploads/library/ENR_EnrollmentManualForFFEandFF-SHOP_5CR_071019.pdf.
---------------------------------------------------------------------------

    However, there are a number of scenarios where issuers are not 
clearly required to send termination notices, including enrollee-
initiated terminations, the death of the enrollee, the enrollee 
changing from one QHP to another during an annual open enrollment 
period or special enrollment period, and terminations for dual 
enrollment when an enrollee has asked the Exchange to end QHP coverage 
when found in other coverage, such as through Medicare PDM. We propose 
to amend Sec.  156.270(b)(1) to require QHP issuers to send to 
enrollees a termination notice for all termination events described in 
Sec.  155.430(b), regardless of who initiated the termination.
    The original version of Sec.  156.270 required a termination notice 
when an enrollee's coverage was terminated ``for any reason,'' \123\ 
with a 30-day advance notice requirement. This requirement was 
eventually replaced with the current requirement. As bases for 
termination in Sec.  155.430(b)(2) were expanded, Sec.  156.270 was not 
updated in parallel. Although we currently recommend that issuers send 
termination notices whenever an enrollee's coverage is terminated, 
questions have arisen from issuers regarding when termination notices 
are required. Updating our regulations to require issuers to send 
termination notices to enrollees for all termination events, regardless 
of who initiated the termination, would help streamline issuer 
operations and reduce confusion. This change would also help promote 
continuity of coverage by ensuring that enrollees are aware that their 
coverage is ending, as well as the reason for its termination and the 
termination effective date, so that they can take appropriate action to 
enroll in new coverage, if eligible.
---------------------------------------------------------------------------

    \123\ Patient Protection and Affordable Care Act; Establishment 
of Exchanges and Qualified Health Plans; Exchange Standards for 
Employers; Final Rule and Interim Final Rule, March 27, 2012 (77 FR 
18310).
---------------------------------------------------------------------------

    We request comments on this proposal.
8. Dispute of HHS Payment and Collections Reports (Sec.  156.1210)
    In the 2014 Payment Notice,\124\ we established provisions related 
to confirmation and dispute of payment and collection reports. These 
provisions were written under the assumption that issuers would 
generally be able to provide these confirmations or disputes 
automatically to HHS. However, we have found that many issuers prefer 
to research payment errors and use enrollment reconciliation and 
disputes to update their enrollment and payment data, and may be unable 
to complete this research and provide confirmation or dispute of their 
payment and collection reports within 15 days, as currently required 
under Sec.  156.1210. In addition, because the FFE typically reflects 
enrollment reconciliation updates 1 to 2 months after they have 
occurred, issuers attempting to comply with the 15-day deadline may 
submit disputes that are no longer necessary after the reconciliation 
updates have been processed.
---------------------------------------------------------------------------

    \124\ See 78 FR 65045 at 65080.
---------------------------------------------------------------------------

    Therefore, we propose to amend Sec.  156.1210 to lengthen the time 
to report payment inaccuracies from 15 days to 90 days to allow issuers 
more time to research, report, and correct inaccuracies through other 
channels. The longer timeframe also allows for the processing of 
reconciliation updates, which may resolve potential disputes. This is 
captured in the new proposed Sec.  156.1210(a).
    We also propose to remove the requirement currently captured at 
Sec.  156.1210(a) that issuers actively confirm payment accuracy to HHS 
each month, as well as the language currently captured at Sec.  
156.1210(b) regarding late filed discrepancies. We propose to instead 
require at new Sec.  156.1210(b) an annual confirmation after the end 
of each payment year, in a form and manner specified by HHS. Issuers 
would also have an opportunity as part of the proposed annual 
confirmation process to notify HHS of disputes related to identified 
inaccuracies. These changes are based on our experience with current 
enrollment and payment operations, which include frequent updates to 
enrollment and payment data throughout the year, and that we believe 
make monthly confirmation unnecessarily burdensome.
    Finally, we propose to delete the current provision at Sec.  
156.1210(c)

[[Page 7139]]

related to discrepancies to be addressed in future reports. We believe 
that any discrepancies would already be addressed through the payment 
process described in the payment dispute paragraph as described in the 
proposed new Sec.  156.1210 or through the adjustments to the 
enrollment process in Sec.  156.265(f). Therefore, the current 
provision at Sec.  156.1210(c) would be duplicative and unnecessary.
    HHS intends to work cooperatively with issuers that make a good 
faith effort to comply with these procedures. Issuers can demonstrate 
that they are working in good faith cooperatively with HHS by sending 
regular and accurate enrollment reconciliation files and timely 
enrollment disputes throughout the applicable enrollment calendar, 
submitting payment disputes within the proposed 90 day dispute window, 
making timely and regular changes to enrollment reconciliation and 
dispute files to correct past errors, and by reaching out to HHS and 
responding timely to HHS outreach to address any issues identified.
    We solicit comment on these proposed changes.

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

1. Reporting Requirements Related to Premiums and Expenditures (Sec.  
158.110)
    We propose amending Sec.  158.110(a) to clarify requirements for 
MLR purposes for issuer reporting of expenses for functions outsourced 
to or services provided by other entities. Such entities include third-
party vendors, other health insurance issuers, and other entities, 
whether affiliated or unaffiliated with the issuer.
    Section 2718(a) of the PHS Act requires health insurance issuers to 
separately report the percentage of premium revenue (after certain 
adjustments) expended on reimbursement for clinical services provided 
to enrollees under such coverage. Section 158.110 codifies the general 
reporting requirements for issuers in the group and individual health 
insurance markets. However, the current regulation does not 
comprehensively address the reporting requirements for expenses for 
functions outsourced to other entities that are contracted to perform 
clinical and administrative activities for health insurance issuers in 
the group and individual markets.
    Section 158.140(b)(3)(i) through (iii) specifies that issuers may 
not include in incurred claims amounts paid to third-party vendors for 
secondary network savings, and administrative costs and profits, but 
does not explicitly state that payment to third-party vendors for 
provision of clinical services may be included in incurred claims. The 
May 13, 2011 CCIIO Technical Guidance (CCIIO 2011-002) (May 2011 
Guidance) \125\ Q&A #12 clarified that issuers may include payments to 
third-party vendors attributable to direct provision of clinical 
services to enrollees in incurred claims, and that such payments to a 
third-party vendor may include an administrative cost component.
---------------------------------------------------------------------------

    \125\ Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/dwnlds/mlr-guidance-20110513.pdf.
---------------------------------------------------------------------------

    We note that the inclusion of a third-party vendor's administrative 
costs as incurred claims in this scenario is only permitted to the 
extent the vendor is reimbursed under a capitation arrangement, which 
is consistent with how capitation payments to providers (addressed in 
Q&A #8 in the May 2011 Guidance) are treated for MLR purposes. Q&A #14 
in the May 2011 Guidance similarly clarified that payments to third-
party vendors for performing health care QIA expenses on behalf of the 
issuer may be reported as QIA, to the extent that the issuer and the 
vendor can show that these activities meet the definitions in 
Sec. Sec.  158.150 and 158.151.
    However, Q&A #14 also specified that third-party vendor QIA 
expenses must not include the vendor's administrative costs or profits, 
consistently with the treatment of reporting third-party vendor 
incurred claims costs which is codified in Sec.  158.140(b)(3)(ii). We 
note that this requirement applies regardless of whether QIA services 
are provided under a capitation arrangement, due to the difference in 
the nature of clinical services and QIA and the greater potential for 
abuse.
    The July 18, 2011 CCIIO Technical Guidance (CCIIO 2011-004) \126\ 
Q&A #19 further clarified that payments to third-party vendors may only 
be included in incurred claims to the extent the vendor provides 
clinical services through its own employees, and that payments to the 
vendor to perform administrative functions on behalf of the issuer must 
be reported as a non-claims administrative expense. As stated in the 
May 2011 Guidance, Q&A #11, an issuer that needs to include payments to 
third-party vendors in its MLR reporting is only required to obtain 
from the third-party vendor the aggregate amounts attributable to 
providing direct clinical services to enrollees and attributable to 
administrative cost and profit component of the payments, and that 
nothing in the regulation requires the third-party vendor to disclose 
proprietary data concerning pricing arrangements.
---------------------------------------------------------------------------

    \126\ Available at https://www.cms.gov/CCIIO/Resources/Files/Downloads/20110718_mlr_guidance.pdf.
---------------------------------------------------------------------------

    In order to consolidate and clarify the MLR treatment of payments 
to third-party vendors and other entities, we propose to revise Sec.  
158.110(a) to capture the requirement that expenses for functions 
outsourced to or services provided by other entities retained by an 
issuer must be reported consistently with how expenses must be reported 
when incurred directly by the issuer. We seek comments on this 
proposal.
2. Reimbursement for Clinical Services Provided to Enrollees (Sec.  
158.140)
    Section 2718(a) of the PHS Act requires health insurance issuers 
to, for MLR purposes, separately report the percentage of premium 
revenue (after certain adjustments) expended on reimbursement for 
clinical services provided to enrollees under such coverage, on 
activities that improve health care quality, and on non-claims 
(administrative) costs. Section 158.140 sets forth the MLR reporting 
requirements related to the reimbursement for clinical services 
provided to enrollees, including a requirement that issuers must deduct 
from incurred claims prescription drug rebates received by the issuer. 
We propose to amend Sec.  158.140(b)(1)(i) to require issuers to deduct 
from incurred claims prescription drug rebates and other price 
concessions not only when received by the issuer, but also when 
received and retained by an entity providing pharmacy benefit 
management services (including drug price negotiation services) to the 
issuer, typically a pharmacy benefit manager (PBM). The phrase ``price 
concession,'' when used in this context, is intended to capture any 
time an issuer or an entity that provides pharmacy benefit management 
services to the issuer receives something of value related to the 
provision of a covered prescription drug (for example, manufacturer 
rebate, incentive payment, direct or indirect remuneration, etc.) 
regardless from whom the item of value is received (for example, 
pharmaceutical manufacturer, wholesaler, retail pharmacy, vendor, 
etc.).
    For example, pharmaceutical drug manufacturers often provide, 
either directly to issuers or indirectly through PBMs retained by 
issuers, prescription drug rebates and other price concessions based 
upon such considerations as securing a more favorable placement on

[[Page 7140]]

an issuer's drug formulary, increasing the drug utilization and market 
share, or limiting an issuer's exposure to drug price changes. The 
portion of premium revenue that an issuer expends on its enrollees' 
pharmacy costs (excluding the administrative costs and profits related 
to the provision of pharmacy benefits) is the actual reimbursement to 
pharmacies, less the prescription drug rebates or other price 
concessions secured from drug manufacturers.
    For purposes of the MLR and rebate calculations, the MLR December 
1, 2010 interim final rule (75 FR 74864) directed issuers to deduct 
from incurred claims prescription drug rebates received by 
issuers.\127\ The MLR December 1, 2010 interim final rule additionally 
required issuers who outsource administration of their pharmacy 
benefits to PBMs (or other third-party vendors) to exclude from 
incurred claims the portion of payments they make to PBMs that exceeds 
the reimbursement to providers and thus represents the PBMs' 
administrative costs and profits.\128\ This approach sought to ensure 
that issuers' spending on pharmacy benefits was treated consistently 
regardless of whether issuers choose to administer the benefits 
themselves or outsource these functions to an entity providing pharmacy 
benefit management services. However, the current approach provides an 
unfair advantage to issuers who utilize an entity to provide pharmacy 
benefit management services and allow the entity to retain prescription 
drug rebates or other price concessions.
---------------------------------------------------------------------------

    \127\ The MLR reporting form instructions further clarify that 
prescription drug price concessions must be deducted regardless of 
the specific form they take, including prescription drug rebates, 
refunds, incentive payments, bonuses, discounts, charge backs, 
coupons, grants, direct or indirect subsidies, direct or indirect 
remuneration, upfront payments, goods in kinds, or similar benefits.
    \128\ 45 CFR 158.140(b)(3)(i) through (iii).
---------------------------------------------------------------------------

    An issuer that chooses to retain an entity to provide pharmacy 
benefit management services may incur administrative costs in the form 
of paying the entity a fee, providing the entity an inflated pharmacy 
reimbursement amount, and/or allowing the entity to retain a portion or 
all of the prescription drug rebates and other price concessions 
generated by the issuer's enrollees' drug utilization. The issuer may 
realize a profit on pharmacy benefits to the extent outsourcing 
pharmacy benefit management and compensating the entity in any one of 
the above ways is more cost-effective than providing pharmacy benefits 
directly. The current regulatory framework in Sec.  158.140(b)(1)(i) 
and (b)(3)(i) through (iii) only accounts for the situation where the 
administrative costs and profits related to the provision of pharmacy 
benefits are comprised of an administrative fee paid by an issuer to 
the entity providing pharmacy benefit management services or a 
``spread'' (retained by the entity) between the amount the issuer 
provides to the entity for pharmacy reimbursement and a lower amount 
the entity actually reimburses to the pharmacy. The regulation does not 
clearly address the situation where the administrative costs and 
profits related to the provision of pharmacy benefits are comprised, in 
whole or in part, of a portion or all of the prescription drug rebates 
or other price concession that the issuer allows the entity providing 
pharmacy benefit management services to retain. In both situations, the 
net portion of premium revenue that an issuer expends on enrollees' 
pharmacy costs is the actual reimbursement to pharmacies, less 
prescription drug rebates or other price concessions. However, because 
the regulation currently requires an issuer to deduct from incurred 
claims prescription drug rebates only when received by the issuer and 
does not clearly provide that rebates and price concessions retained by 
an entity providing pharmacy benefit management services to the issuer 
must be reported in situations where the issuer allows the entity to 
retain a portion or all of such rebates and price concessions, the 
portion retained by the entity is not reflected anywhere in the MLR 
reporting or calculation. Consequently, under the current regulation, 
enrollees fail to receive the benefit of prescription drug rebates and 
price concessions to the extent these are retained by an entity other 
than the issuer. In addition, the current regulation enables issuers 
who compensate entities providing pharmacy benefit management services 
by allowing them to retain prescription drug rebates or price 
concessions to inflate the incurred claims and MLRs relative to 
financially identically situated issuers who choose to compensate these 
entities by paying a fee or an inflated pharmacy reimbursement amount.
    Therefore, we propose to revise Sec.  158.140(b)(1)(i) to require 
adjustments that must be deducted from incurred claims to include not 
only prescription drug rebates received by the issuer, but also any 
price concessions received by the issuer, and any prescription drug 
rebates or other price concessions received and retained by an entity 
providing pharmacy benefit management services (including drug price 
negotiation services) to the issuer that are associated with 
administering the issuer's prescription drug benefits. We also propose 
to make conforming revisions to Sec.  158.160(b)(2) to require issuers 
to report the prescription drug rebates and price concessions described 
above as non-claims costs. These proposed revisions would not only 
provide for a more equitable treatment of issuers in the commercial 
health insurance markets, but also align more closely with the MLR 
provisions that apply to the Medicare Advantage organizations and Part 
D sponsors and Medicaid managed care organizations,\129\ both of which 
require that the full amount of prescription drug rebates and price 
concessions be deducted from incurred claims. We seek comments on all 
aspects of these proposals.
---------------------------------------------------------------------------

    \129\ See the Medicare Advantage program and Prescription Drug 
Benefit program May 23, 2013 final rule (78 FR 31284), as amended by 
the April 16, 2018 final rule (83 FR 16440); and the Medicaid 
managed care May 6, 2016 final rule (81 FR 27497) and the CMCS May 
15, 2019 information bulletin available at https://www.medicaid.gov/federal-policy-guidance/downloads/cib051519.pdf.
---------------------------------------------------------------------------

    We propose that these amendments would be applicable beginning with 
the 2021 MLR reporting year (reports due by July 31, 2022). We seek 
comments regarding the applicability date to ensure that issuers have 
adequate time to adjust contracts with entities that provide pharmacy 
benefit management service to issuers to share information with those 
issuers about rebates and other price concessions they receive (to the 
extent not already required by law).
3. Activities That Improve Health Care Quality (Sec.  158.150)
    We propose amending Sec.  158.150(b)(2)(iv)(A)(5) to clarify that 
issuers in the individual market may include the cost of certain 
wellness incentives \130\ as QIA expenses in the MLR calculation.
---------------------------------------------------------------------------

    \130\ For this purpose, the term ``wellness incentive'' has the 
same meaning as the term ``reward'' in Sec.  146.121(f)(1)(i).
---------------------------------------------------------------------------

    Section 2718(a)(2) of the PHS Act requires health insurance issuers 
to submit an annual report to the Secretary that includes information 
on the percent of total premium revenue that is spent on activities 
that improve health care quality. A non-exhaustive list of examples of 
allowable wellness QIA in Sec.  158.150(b)(2)(iv) includes the cost of 
certain wellness incentives offered by issuers in the group markets, 
but does not explicitly list wellness incentives offered in the 
individual market. However, issuers in the individual market are 
currently permitted to offer participatory wellness programs,

[[Page 7141]]

provided such programs are consistent with applicable state law and 
available to all similarly situated individuals.\131\ In addition, CMS 
recently announced a new wellness program demonstration project through 
the September 30, 2019 CMS Bulletin: Opportunity for States to 
Participate in a Wellness Program Demonstration Project to Implement 
Health-Contingent Wellness Programs in the Individual Market.\132\ This 
bulletin announced the opportunity for states to apply to participate 
in a 10-state wellness program demonstration project, as described in 
section 2705(l) of the PHS Act. Under this demonstration project, 
participating states may implement nondiscriminatory health-contingent 
wellness programs in the individual market, subject to the wellness 
program provisions of section 2705(j) of the PHS Act.
---------------------------------------------------------------------------

    \131\ See the Incentives for Nondiscriminatory Wellness Programs 
in Group Health Plans; Final Rule; 78 FR 33158 at 33167 (June 3, 
2013).
    \132\ https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Wellness-Program-Demonstration-Project-Bulletin.pdf. Available at https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Wellness-Program-Demonstration-Project-Bulletin.pdf.
---------------------------------------------------------------------------

    To ensure consumer choice and access to wellness programs, we 
propose to amend Sec.  158.150(b)(2)(iv)(A)(5) to clarify that issuers 
in the individual market are allowed to include wellness incentives in 
the same manner as is permitted for the group market, to the extent 
such incentives are permitted by section 2705 of the PHS Act, as QIA in 
the MLR calculation.\133\ We propose that these amendments would be 
applicable beginning with the 2021 MLR reporting year (reports due by 
July 31, 2022). We seek comment on this proposal.
---------------------------------------------------------------------------

    \133\ Under section 2705(j) of the PHS Act and 45 CFR 
146.121(f), health-contingent and participatory wellness programs 
are permitted in the group market. As detailed above, HHS previously 
recognized that participatory wellness programs in the individual 
market do not violate section 2705 and are therefore permitted, 
provided that such programs are consistent with applicable state law 
and available to all similarly situated individuals enrolled in the 
individual health insurance coverage. See 78 FR at 33167. In 
addition, section 2705(l) of the PHS Act authorizes the Secretary to 
establish a 10-state wellness program demonstration project under 
which issuers may offer non-discriminatory wellness programs in the 
individual market.
---------------------------------------------------------------------------

4. Other Non-Claims Costs (Sec.  158.160)
    For a discussion of the proposed amendment to Sec.  158.160(b)(2) 
regarding non-claims costs other than taxes and regulatory fees, please 
see the preamble to Sec.  158.140.

IV. Collection of Information Requirements

    Under the Paperwork Reduction Act of 1995, we are required to 
provide 60-day notice in the Federal Register and solicit public 
comment before a collection of information requirement is submitted to 
the Office of Management and Budget (OMB) for review and approval. This 
proposed rule contains information collection requirements (ICRs) that 
are subject to review by OMB. A description of these provisions is 
given in the following paragraphs with an estimate of the annual 
burden, summarized in Table 15. To fairly evaluate whether an 
information collection should be approved by OMB, section 3506(c)(2)(A) 
of the Paperwork Reduction Act of 1995 (PRA) requires that we solicit 
comment on the following issues:
     The need for the information collection and its usefulness 
in carrying out the proper functions of our agency.
     The accuracy of our estimate of the information collection 
burden.
     The quality, utility, and clarity of the information to be 
collected.
     Recommendations to minimize the information collection 
burden on the affected public, including automated collection 
techniques.
    We are soliciting public comment on each of the required issues 
under section 3506(c)(2)(A) of the PRA for the following information 
collection requirements.

A. Wage Estimates

    To derive wage estimates, we generally used data from the Bureau of 
Labor Statistics to derive average labor costs (including a 100 percent 
increase for fringe benefits and overhead) for estimating the burden 
associated with the ICRs.\134\ Table 12 in this proposed rule presents 
the mean hourly wage, the cost of fringe benefits and overhead, and the 
adjusted hourly wage.
---------------------------------------------------------------------------

    \134\ See May 2018 Bureau of Labor Statistics, Occupational 
Employment Statistics, National Occupational Employment and Wage 
Estimates. Available at https://www.bls.gov/oes/current/oes_stru.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 alternative, and we 
believe that doubling the hourly wage to estimate total cost is a 
reasonably accurate estimation method.

                            Table 12--Adjusted Hourly Wages Used in Burden Estimates
----------------------------------------------------------------------------------------------------------------
                                                                                      Fringe
                                                   Occupational     Mean hourly    benefits and      Adjusted
                Occupation title                       code        wage ($/hr.)    overhead ($/   hourly wage ($/
                                                                                       hr.)            hr.)
----------------------------------------------------------------------------------------------------------------
Chief Executive *...............................         11-1011          $96.22          $96.22         $192.44
General and Operations Manager..................         11-1021           59.56           59.56          119.12
Compensation and Benefits Manager...............         11-3111           63.87           63.87          127.74
Lawyer..........................................         23-1011           69.34           69.34          138.68
Legal Support Worker............................         23-2099           34.34           34.34           68.68
----------------------------------------------------------------------------------------------------------------
* Chief executive wage is used to estimate the state official wages.

B. ICRs Regarding Notice Requirement for Excepted Benefit HRAs Offered 
by Non-Federal Governmental Plan Sponsors (Sec.  
146.145(b)(3)(viii)(E))

    In Sec.  146.145(b)(3)(viii)(E), we are proposing that an excepted 
benefit HRA offered by a non-Federal governmental plan sponsor must 
provide a notice that describes conditions pertaining to eligibility to 
receive benefits, annual or lifetime caps or other limits on benefits 
under the plan, and a description or summary of the benefits. This 
notice would be provided on an annual basis no later than 90 days after 
the first day of the excepted benefit HRA plan year (or, if a 
participant is not eligible to participate at the beginning of the plan 
year, no later than 90 days after the employee becomes a participant in 
the excepted benefit HRA).
    We estimate that for each excepted benefit HRA sponsored by a non-
Federal governmental plan, a compensation and

[[Page 7142]]

benefits manager would need 1 hour (at $127.74 per hour) and a lawyer 
would need 0.5 hours (at $138.68 per hour) to prepare the notice. The 
total burden for an HRA plan sponsor would be 1.5 hours with an 
equivalent cost of approximately $197. This burden would be incurred 
the first time the non-Federal governmental plan sponsor provides an 
excepted benefit HRA. In subsequent years, the burden to update the 
notice is expected to be minimal and therefore is not estimated.
    We estimate that approximately 901 state and local government 
entities will offer excepted benefit HRAs each year.\135\ The total 
burden to prepare the notices would be approximately 1,352 hours with 
an equivalent cost of approximately $177,569.
---------------------------------------------------------------------------

    \135\ HHS assumes that only 1 percent of state and local 
government entities will offer excepted benefit HRAs.
---------------------------------------------------------------------------

    Non-Federal government sponsors of excepted benefit HRAs would 
provide the notice to eligible participants every year. We estimate 
that sponsors would provide printed copies of these notices to 
approximately 193,715 eligible participants annually.\136\ We 
anticipate that the notices would be approximately 1 page long and the 
cost of materials and printing would be $0.05 per notice. It is assumed 
that these notices would be provided along with other benefits 
information with no additional mailing cost. We assume that 
approximately 54 percent of notices would be provided electronically 
and approximately 46 percent would be provided in print along with 
other benefits information. Therefore, state and local government 
entities providing excepted benefit HRAs to their employees would print 
approximately 89,109 notices at a cost of approximately $4,455 
annually. We are seeking comment on whether sponsors of non-Federal 
governmental excepted benefit HRAs should be required to provide the 
notice annually after the initial notice; or whether, after providing 
the initial notice, they should only be required to provide the notice 
with respect to plan years for which the terms of the excepted benefit 
HRA change from the previous plan year and if so, what type or 
magnitude of change should trigger such a subsequent notice. If the 
requirement is finalized such that notice must be provided only for 
plan years for which there is a change from the previous years, the 
printing and materials costs would be lower and this estimate would 
represent an upper bound for the annual cost after the first year.
---------------------------------------------------------------------------

    \136\ HHS assumes that excepted benefit HRAs will be offered to 
all employees of state and local government entities that offer 
excepted benefit HRAs. This is an upper bound and actual number of 
eligible participants is likely to be lower if excepted benefit HRAs 
are offered to only some employee classes.
---------------------------------------------------------------------------

    The total burden to prepare and send the notices in the first year 
would be approximately $182,000. In subsequent years, under the 
proposal that would require an annual notice regardless of whether 
there was a change from the previous years, these employers would only 
incur printing and materials costs of approximately $4,455 annually. 
The average annual burden over 3 years would be 451 hours with an 
equivalent annual cost of $59,190, and an average annual total cost of 
$63,645.

                                                            Table 13--Annual Burden and Costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                           Estimated  number
                                                             of non-federal    Estimated number                                         Total  estimated
                           Year                               governmental      of notices to       Total annual     Total estimated      printing and
                                                               employers         all eligible     burden  (hours)       labor cost       materials cost
                                                             offering  HRAs      participants
--------------------------------------------------------------------------------------------------------------------------------------------------------
2020.....................................................                901            193,715              1,352           $177,569             $4,455
2021.....................................................                901            193,715                  0                  0              4,455
2022.....................................................                901            193,715                  0                  0              4,455
3 year Average...........................................                901            193,715                451             59,190              4,455
--------------------------------------------------------------------------------------------------------------------------------------------------------

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

    We propose to amend Sec.  155.420(d)(1)(ii) to codify the special 
enrollment period available to qualified individuals and dependents who 
are provided a QSEHRA with a non-calendar year plan year, which is 
subject to pre-enrollment eligibility verification. While the FFEs make 
every effort to verify an individual's special enrollment period 
eligibility through automated electronic means, including when it is 
verifying eligibility on behalf of SBE-FPs, the FFEs currently cannot 
electronically verify whether an individual has a non-calendar year 
plan year QSEHRA. Therefore, qualifying individuals would be required 
to provide supporting documentation within 30 days of plan selection to 
confirm their special enrollment period triggering event, which is the 
end date of their QSEHRA. Acceptable documents may include a dated 
letter from their employer stating when their QSEHRA plan year ends or 
a copy of the notice that their employer provided them with to comply 
with section 9831(d)(4) of the Code.\137\
---------------------------------------------------------------------------

    \137\ Per IRS Notice 2017-67, this notice must include the date 
on which the QSEHRA is first provided to the eligible employee. 
Therefore, it is likely that in some cases it will also include or 
imply the QSEHRA end date.
---------------------------------------------------------------------------

    We estimate that this policy would result in relatively few 
additional consumers being required to submit documents to verify their 
eligibility to enroll through the proposed special enrollment period on 
or off-Exchange, because this group consists of a subset of consumers 
with a QSEHRA whose QSEHRA renews on a non-calendar year plan year 
basis. Within that group, only those who are not already enrolled in 
individual market health insurance coverage in order to meet their 
QSEHRA's requirement to have MEC who wish to change plans mid-calendar 
year would be required to submit documents to confirm SEP eligibility. 
Additionally, because changing plans mid-calendar year would generally 
result in these consumers' deductibles and other cost-sharing 
accumulators re-setting we anticipate that few consumers will opt to do 
so, which will result in a minimal increase in burden for individuals 
with a QSEHRA that renews on a non-calendar year basis and wish to 
change their plans mid-calendar year. We solicit comment on whether or 
not this is the case.

D. ICRs Regarding Quality Rating Information Display Standards for 
Exchanges (Sec. Sec.  155.1400 and 155.1405)

    At Sec. Sec.  155.1400 and 155.1405, we propose to codify the 
flexibility for State

[[Page 7143]]

Exchanges that operate their own eligibility and enrollment platforms 
regarding the display of quality rating information for their QHPs. The 
burden related to the proposed requirements was previously approved 
under OMB control number 0938-1312 (Establishment of an Exchange by a 
State and Qualified Health Plans PRA (CMS-10593)); the approval expired 
in August 2019. We are in the process of reinstating this information 
collection.

E. ICRs Regarding State Selection of EHB-Benchmark Plan for Plan Years 
Beginning on or After January 1, 2020 (Sec.  156.111)

    At Sec.  156.111, we propose to require states to annually report 
to HHS, in a form and manner specified by HHS and by a date determined 
by HHS, any state-required benefits applicable to the individual and/or 
small group market that are considered in addition to EHB in accordance 
with Sec.  155.170. States would be required to include in their 
initial reports information of state benefit requirements under state 
mandates that were imposed on or before December 31, 2011, that are 
applicable to QHPs in the individual or small group market and that 
were not withdrawn or otherwise no longer effective before December 31, 
2011, as well as any state-required benefits under mandates that were 
imposed any time after December 31, 2011, that are applicable to QHPs 
in the individual or small group market. In subsequent years, states 
would be required to update the content in its report to add any new 
state benefit requirements imposed during the applicable reporting 
period, and to indicate whether benefit requirements previously 
reported to HHS were amended, repealed, or otherwise affected by state 
action during the reporting period. In every report, states would be 
required to identify which state-required benefits it has determined is 
in addition to EHB and subject to defrayal. States would also be 
required to identify which state-required benefit it has determined not 
to be in addition to EHB and not subject to defrayal, and would be 
required to describe the basis of such determinations. If the state 
fails to notify HHS of its required benefits considered to be in 
addition to EHB by applicable annual submission deadlines, or fails to 
do so in the form and manner specified by HHS, we propose that HHS 
would determine which benefits are in addition to EHB for the state.
    At Sec.  156.111(f) we propose specifying the type of information 
states would be required to submit to HHS by the annual submission 
deadline in a form and manner specified by HHS. Specifically, Sec.  
156.111(f)(1) proposes that states annually reporting to HHS would be 
required to provide a document that is accurate as of the day that is 
at least 60 days prior to the annual reporting submission deadline set 
by HHS that lists state benefit requirements applicable to QHPs in the 
individual and/or small group markets under state mandates that were 
imposed on or before December 31, 2011 and that were not withdrawn or 
otherwise no longer effective before December 31, 2011, as well as any 
state benefit requirements under state mandates that were imposed any 
time after December 31, 2011 that are applicable to QHPs in the 
individual or small group market.
    Section 156.111(f)(2) proposes that states annually reporting to 
HHS would also be required to specify which of those state-required 
benefits listed in accordance with Sec.  156.111(f)(1) the state has 
identified as in addition to EHB and subject to state defrayal under 
Sec.  155.170. Section 156.111(f)(3) proposes that states annually 
reporting to HHS be required to specify which of the state mandates 
listed in accordance with Sec.  156.111(f)(1) the state has identified 
as not in addition to EHB and not subject to defrayal in accordance 
with Sec.  155.170, and describe the basis for the state's 
determination. Section 156.111(f)(4) proposes that states submit other 
information about those state-required benefits listed in accordance 
with Sec.  156.111(f)(1) that is necessary for HHS oversight, as 
specified by HHS.
    In Sec.  156.111(f)(5), we propose that this document be signed by 
a state official with authority to make the submission on behalf of the 
state, to confirm the accuracy of the submission. We solicit comment 
generally on these document collection requirements, specifically with 
regard to whether HHS should require any additional information from 
states on state-required benefits as part of the annual reporting 
submission. In Sec.  156.111(f)(6), we propose to require states to 
make updates to this list of state-required benefits annually, in a 
form and manner and by a date specified by HHS, to include any new 
state benefit requirements, and to indicate whether benefit 
requirements previously reported to HHS under this paragraph (f) have 
been amended, repealed or are otherwise affected by state regulatory or 
legislative action.
    If finalized as proposed, HHS would provide the template(s) that 
states would be required to use for reporting the required information 
proposed in Sec.  156.111(f)(1) through (6). We would post state 
submission of these documents on the EHB website prior to the end of 
the plan year during which the reporting takes place. If the state does 
not notify HHS of its state-required benefits that are in addition to 
EHB in accordance with the proposed requirements at Sec.  156.111(f), 
HHS would complete a similar document for the state and post it to the 
CMS website.
    We anticipate that the majority of states would choose to annually 
notify HHS under this policy, as states are already required under 
Sec.  155.170 to identify which state-required benefits are in addition 
to EHB and to defray the cost of QHP coverage of those benefits. 
Because we believe the information we are proposing that states report 
to HHS as part of this annual reporting should already be readily 
accessible to states, we estimate that approximately ten states would 
not report and the remaining states would annually report to HHS by the 
annual reporting submission deadline. Therefore, we estimate that 
approximately forty-one (41) states would respond to the information 
collection requirements associated with these proposals.
    For the first year in which the annual reporting would take place, 
states would be required to include a comprehensive list of all state-
required benefits applicable to QHPs in the individual and/or small 
group markets under state mandates that were imposed on or before 
December 31, 2011 and that were not withdrawn or otherwise no longer 
effective before December 31, 2011, as well as those state mandates 
that were imposed after December 31, 2011, regardless of whether the 
state believes such state-required benefits require defrayal in 
accordance with Sec.  155.170. Each annual reporting cycle thereafter, 
the state would only need to update the content in its report to add 
any new state benefit requirements, and to indicate whether state 
benefit requirements previously reported to HHS have been amended or 
repealed. Information in states' initial reports must be accurate as of 
a day that is at least 60 days prior to the first reporting submission 
deadline set by HHS. As such, we estimate that the burden estimates for 
states in the first year of annual reporting would be higher than in 
each subsequent year.
    Although we estimate a higher burden in the first year of annual 
reporting of state-required benefits, states are already expected to 
identify which state-required benefits are in addition to EHB and to 
defray the cost of QHP coverage of those benefits in accordance with 
Sec.  155.170. Because we believe the information we are proposing that 
states report to HHS should be readily accessible to states, we 
estimate that it

[[Page 7144]]

would require a legal support worker 25 hours (at a rate of $68.68) to 
pull and review all mandates, transfer this information into the HHS 
provided template, and validate the information in the first year of 
annual reporting. We estimate that it would require a general and 
operations manager 3 hours (at a rate of $119.12) to then review the 
completed template and submit it to HHS in the first year of annual 
reporting. We estimate that it would require a state official 2 hours 
(at a rate of $192.44) in the first year of annual reporting to review 
and sign the required document(s) for submission on behalf of the 
state, to confirm the accuracy of the submission. The information would 
be submitted to HHS electronically at minimal cost. Therefore, we 
estimate that the burden for each state to meet this reporting 
requirement in the first year would be 30 hours, with an equivalent 
cost of approximately $2,459, with a total first year burden for all 41 
states of 1,025 hours and an associated total first year cost of 
approximately $100,829.
    Because the first year of annual reporting is intended to set the 
baseline list of state-required benefits which states would update as 
necessary in future annual reporting cycles, we believe the burden 
associated with each annual reporting thereafter would be lower than 
the first year. We estimate that for each annual reporting cycle after 
the first year it would require a legal support worker 10 hours (at a 
rate of $68.68) to transfer the information about state-required 
benefits into the HHS provided template and validate the information. 
We estimate that it would require a general and operations manager 2 
hours (at a rate of $119.12) to review the completed template and 
submit it to HHS each year after the first annual reporting. We 
estimate that it would require a state official 1 hour (at a rate of 
$192.44) to review and sign the required document(s) for submission on 
behalf of the state, to confirm the accuracy of the submission. 
Therefore, we estimate that the burden for each state to meet the 
annual reporting requirement each year after the first year of annual 
reporting would be 13 hours with an equivalent cost of approximately 
$1,117, with a total annual burden for all 41 states of 533 hours and 
an associated total annual cost of approximately $45,817. The average 
annual burden over 3 years would be approximately 697 hours with an 
equivalent average annual cost of approximately $64,154.
    We propose to amend the information collection currently approved 
under OMB control number: 0938-1174 (Essential Health Benefits 
Benchmark Plans (CMS-10448)) to include this burden.

F. ICRs Regarding Termination of Coverage or Enrollment for Qualified 
Individuals (Sec.  156.270)

    The collection of information titled, ``Establishment of Exchanges 
and Qualified Health Plans; Exchange Standards for Employers'' (OMB 
control number 0938-1341 (CMS-10592)) already accounts for burden 
estimates for QHP issuers to provide notice to an enrollee if the 
enrollee's coverage in a QHP is terminated. Consequently, we are not 
making any changes under the aforementioned control number. Subject to 
renewal, the control number is currently set to expire on September 30, 
2020. It was last approved on September 18, 2017, and remains active. 
Since we are not proposing any changes to the submission process or 
burden, we are not making any changes under the aforementioned control 
number.

G. ICRs Regarding Medical Loss Ratio (Sec. Sec.  158.110, 158.140, 
158,150, and 158.160)

    We propose to amend Sec.  158.110(a) to clarify that issuers must 
report for MLR purposes expenses for functions they outsource to or 
services provided by other entities, consistent with how issuers must 
report directly incurred expenses. We also propose to amend Sec.  
158.140(b)(1)(i) to require issuers to deduct from incurred claims 
price concessions received by the issuer and any prescription drug 
rebates and other price concessions received and retained by an entity 
that provides pharmacy benefit management services to the issuer 
(including drug price negotiation services) that are associated with 
administering the issuer's prescription drug benefits. We propose 
conforming amendments to Sec.  158.160(b)(2) to require such amounts to 
be reported as a non-claims cost.
    Finally, we propose to amend Sec.  158.150(b)(2)(iv)(A)(5) to 
explicitly allow issuers in the individual market to include the cost 
of certain wellness incentives as QIA in the MLR calculation. We do not 
anticipate that implementing any of these provisions would require 
changes to the MLR annual reporting form or significantly change the 
associated burden. The burden related to this information collection is 
currently approved under OMB control number 0938-1164 (Medical Loss 
Ratio Annual Reports, MLR Notices, and Recordkeeping Requirements (CMS-
10418)). The control number is currently set to expire on October 31, 
2020.

H. Summary of Annual Burden Estimates for Proposed Requirements

                                           Table 14--Proposed Annual Recordkeeping and Reporting Requirements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                            Burden per     Total annual
          Regulation section(s)             OMB control      Number of       Number of       response         burden       Labor cost of  Total cost ($)
                                                No.         respondents      responses        (hours)         (hours)      reporting ($)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Sec.   146.145(b)(3)(viii)(E)...........       0938-1361             901         193,715             1.5             451         $59,190         $63,645
Sec.   156.111..........................       0938-1174              41              41            15.3             697          64,154          64,154
rrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
    Total...............................  ..............             942         193,756  ..............           1,148         123,344         127,799
--------------------------------------------------------------------------------------------------------------------------------------------------------
Note: There are no capital/maintenance costs associated with the information collection requirements contained in this rule; therefore, we have removed
  the associated column from Table 14.

I. 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

[[Page 7145]]

electronically as specified in the ADDRESSES section of this proposed 
rule and identify the rule (CMS-9916-P), the ICR's CFR citation, CMS ID 
number, and OMB control number.
    ICR-related comments are due April 6, 2020.

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 2021 benefit year, clarifications and improvements to the RADV 
program, as well as certain modifications that will promote 
transparency, innovation in the private sector, reduce burden on 
stakeholders, and improve program integrity. This rule proposes 
additional standards related to eligibility redetermination, special 
enrollment periods, state selection of EHB-benchmark plan and annual 
reporting of state-required benefits, premium adjustment percentage, 
termination of coverage, excepted benefit HRAs, the medical loss ratio 
(MLR) program, and FFE and SBE-FP user fees.

B. Overall Impact

    We have examined the impacts of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 202 of the Unfunded Mandates Reform Act 
of 1995 (March 22, 1995, Pub. L. 104-4), Executive Order 13132 on 
Federalism (August 4, 1999), 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) 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 is expected to be economically significant 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 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 still some uncertainty regarding the net 
effect on 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 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 states, would incur costs related to the 
EHB reporting requirement, defrayal of the cost of state-required 
benefits; implementation of new special enrollment period requirements; 
and non-Federal Government plan sponsors offering excepted benefit HRAs 
would incur expenses associated with providing a notice. Issuers would 
experience an increase in rebates paid to consumers due to proposed 
amendments to the MLR requirements. In accordance with Executive Order 
12866, HHS believes that the benefits of this regulatory action justify 
the costs.

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

    In accordance with OMB Circular A-4, Table 15 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 15 
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 annual monetized transfers 
described in Table 15 include changes to costs associated with the risk 
adjustment user fee paid to HHS by issuers and the potential increase 
in rebates from issuers to consumers due to proposed amendments to MLR 
requirements.
    We are proposing the risk adjustment user fee of $0.19 PMPM for the 
2021 benefit year to operate the risk adjustment program on behalf of 
states,\138\ which we estimate to cost approximately $50 million in 
benefit year 2021. We expect risk adjustment user fee transfers from 
issuers to the Federal Government to remain steady at $50 million, the 
same as estimated for

[[Page 7146]]

the 2020 benefit year; this is included in Table 15.
---------------------------------------------------------------------------

    \138\ As noted earlier in this proposed rule, no state has 
elected to operate the risk adjustment program for the 2021 benefit 
year; therefore, HHS will operate the program for all 50 states and 
the District of Columbia.
---------------------------------------------------------------------------

    Additionally, for 2021, we are considering two alternative 
proposals. First, we are proposing maintaining the FFE and the SBE-FP 
user fee rates at current levels, 3.0 and 2.5 percent of premiums, 
respectively. Alternatively, we are considering and seek comment on 
reducing the user fee rates below the 2020 plan year levels.

                                           TABLE 15--Accounting Table
----------------------------------------------------------------------------------------------------------------
 
----------------------------------------------------------------------------------------------------------------
                                                    Benefits
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Greater market stability resulting from updates to the risk adjustment methodology.................
     Increase in consumers' understanding of their excepted benefit HRA offer...........................
     Strengthened program integrity related to proposals to terminate QHP coverage for Exchange
     enrollees who have become deceased during a plan year and via processing voluntary terminations on behalf
     of Medicare, Medicaid/CHIP, if applicable, BHP, dual enrollees via PDM.....................................
     More plan options for Exchange enrollees newly ineligible for CSRs, resulting in increased
     continuous coverage and associated benefit to risk pools...................................................
     Streamlined Exchange operations by eliminating certain prospective coverage effective date rules
     and retroactive payment rules for special enrollment periods...............................................
----------------------------------------------------------------------------------------------------------------
                      Costs                          Estimate       Year dollar    Discount rate  Period covered
                                                      million                        (percent)
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................         -$50.48            2019               7       2020-2024
                                                         -$47.66            2019               3       2020-2024
----------------------------------------------------------------------------------------------------------------
Quantitative:
     Costs incurred by sponsors of non-Federal governmental plans and states to comply with provisions
     related to notice requirement for excepted benefit HRAs and reporting related to state mandated benefits,
     as detailed in the Collection of Information Requirements section, estimated to be approximately $283,000
     in 2020 and approximately $50,000 2021 onwards.............................................................
     Reduction in potential costs to Exchanges since they would not be required to conduct random
     sampling as a verification process for enrollment in or eligibility for employer-based insurance when the
     Exchange reasonably expects that it will not obtain sufficient verification data, estimated to be one-time
     savings of $44 million in 2020 and annual savings of $92 million in 2020 and 2021..........................
     Regulatory familiarization costs of approximately $54,000 in 2020..................................
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Increased costs due to increases in providing medical services (if health insurance enrollment
     increases).................................................................................................
     Potentially minor costs to Exchanges and DE partners to update the application and logic to account
     for new plan options for Exchange enrollees newly ineligible for CSRs and enrollees covered by a non-
     calendar plan year QSEHRA..................................................................................
     Potential reduction in costs to issuers due to elimination of duplicative coverage as part of PDM..
     Potential reduction in costs to consumers due to PDM noticing efforts to notify enrollees of
     duplicative coverage and risk for tax liability............................................................
     Potential costs to the Exchanges and consumers to comply with the new special enrollment period
     requirements...............................................................................................
     Potential reduction in burden for Exchanges and issuers to comply with the proposed special
     enrollment period prospective coverage effective dates.....................................................
----------------------------------------------------------------------------------------------------------------
                    Transfers                        Estimate       Year dollar    Discount rate  Period covered
                                                      million                        (percent)
----------------------------------------------------------------------------------------------------------------
Annualized Monetized ($/year)...................           $14.1            2019               7       2020-2024
                                                            14.3            2019               3       2020-2024
----------------------------------------------------------------------------------------------------------------
Quantitative:
     Net increase in transfers from health insurance issuers to consumers in the form of rebates of
     $18.2 million per year due to proposed amendments to the MLR requirements..................................
----------------------------------------------------------------------------------------------------------------
Qualitative:
     Potential decreases in premiums and PTCs associated with adjustments to MLR........................
     Potential decrease in APTC and CSR payments due to reduction in duplicative coverage and
     retroactive termination of coverage to the date of death as part of PDM and more accurate defrayal of costs
     for state mandated benefits................................................................................
     Transfer of costs from issuers to states to the extent that a state would newly defray the cost of
     state-required benefits it should have already been defraying..............................................
----------------------------------------------------------------------------------------------------------------

    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 ends the transitional reinsurance program and 
temporary risk corridors program after the benefit year 2016. 
Therefore, the costs associated with those programs are not included in 
Table 16 or 17. Table 16 summarizes the effects of the risk adjustment 
program on the Federal budget from fiscal years 2020 through 2024, with 
the additional, societal effects of this proposed rule discussed in 
this RIA. We do not expect the provisions of tZhis proposed rule to 
significantly alter CBO's estimates of the budget impact of the premium 
stabilization programs that are described in Table 16.
    In addition to utilizing CBO projections, HHS conducted an internal 
analysis of the effects of its regulations on enrollment and premiums. 
Based on these internal analyses, we anticipate that the quantitative 
effects of the provisions proposed in this rule are consistent with our 
previous estimates in the 2020 Payment Notice for the impacts 
associated with the APTCs, the

[[Page 7147]]

premium stabilization programs, and FFE user fee requirements.
---------------------------------------------------------------------------

    \139\ Reinsurance collections ended in FY 2018 and outlays in 
subsequent years reflect remaining payments, refunds, and allowable 
activities.

  TABLE 16--Estimated Federal Government Outlays and Receipts for the Risk Adjustment and Reinsurance Programs
                            From Fiscal Year 2020-2024, in Billions of Dollars \139\
----------------------------------------------------------------------------------------------------------------
               Year                     2020         2021         2022         2023         2024      2020-2024
----------------------------------------------------------------------------------------------------------------
Risk Adjustment and Reinsurance               5            6            6            6            6           29
 Program Payments.................
Risk Adjustment and Reinsurance               5            6            6            6            6           29
 Program Collections..............
----------------------------------------------------------------------------------------------------------------
Note: Risk adjustment program payments and receipts lag by one quarter. Receipt will fully offset payments over
  time.
Source: Congressional Budget Office. Federal Subsidies for Health Insurance Coverage for People Under Age 65:
  Tables From CBO's May 2019 Projections Table 2. May 2, 2019. Available at https://www.cbo.gov/system/files/2019-05/51298-2019-05-healthinsurance.pdf.

1. Notice Requirement for Excepted Benefit HRAs Offered by Non-Federal 
Governmental Plan Sponsors (Sec.  146.145(b)(3)(viii)(E))
    In Sec.  146.145(b)(3)(viii)(E), we are proposing that an excepted 
benefit HRA offered by a non-Federal governmental plan sponsor must 
provide, on an annual basis, a notice that describes conditions 
pertaining to eligibility to receive benefits, annual or lifetime caps 
or other limits on benefits under the plan, and a description or 
summary of the benefits. This notice would provide employees with clear 
information regarding excepted benefit HRAs offered by their employers. 
Excepted benefit HRAs sponsored by non-Federal Government entities 
would incur costs to provide the notice as detailed previously in the 
Collection of Information Requirements section.
2. Early Retiree Reinsurance Program (Part 149)
    Our proposal to remove the regulations at part 149 of title 45 
governing the ERRP would not have any direct regulatory impact since 
the ERRP sunset as of January 1, 2014. However, removing the 
regulations would reduce the volume of Federal regulations.
3. Risk Adjustment
    The risk adjustment program is a permanent program created by 
section 1343 of the PPACA that collects charges from issuers with 
lower-than-average risk populations and uses those funds to make 
payments 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 part 
153.
    If a state is not approved to operate, or chooses to forgo 
operating its own risk adjustment program, HHS will operate risk 
adjustment on its behalf. For the 2021 benefit year, HHS will operate a 
risk adjustment program in every state and the District of Columbia. As 
described in the 2014 Payment Notice, HHS's operation of risk 
adjustment on behalf of states is funded through a risk adjustment user 
fee. For the 2021 benefit year, we propose to use the same methodology 
that we finalized in the 2020 Payment Notice to estimate our 
administrative expenses to operate the program. Risk adjustment user 
fee costs for the 2021 benefit year are expected to remain steady from 
the prior 2020 benefit year estimates of approximately $50 million. We 
estimate that the total cost for HHS to operate the risk adjustment 
program on behalf of states and the District of Columbia for 2021 will 
be approximately $50 million, and the risk adjustment user fee would be 
$0.19 PMPM. Because overall risk adjustment contract costs estimated 
for the 2021 benefit year are similar to 2020 benefit year costs, we do 
not expect the proposed risk adjustment user fee for the 2021 benefit 
year to materially impact transfers from issuers of risk adjustment 
covered plans to the Federal Government.
    Additionally, to use risk adjustment factors that reflect more 
recent treatment patterns and costs, we propose to recalibrate the HHS 
risk adjustment models for the 2021 benefit year by using more recent 
claims data to develop updated risk factors, as part of our continued 
assessment of modifications to the HHS-operated risk adjustment program 
for the individual and small group (and merged) markets. We propose to 
discontinue our reliance on MarketScan[supreg] data to recalibrate the 
risk adjustment models, and to adopt and maintain an approach of using 
the 3 most recent years of available enrollee-level EDGE data for 
recalibration of the risk adjustment models beginning with the 2021 
benefit year and beyond. We believe that the approach of blending (or 
averaging) 3 years of separately solved coefficients would provide 
stability within the risk adjustment program and minimize volatility in 
changes to risk scores from the 2020 benefit year to the 2021 benefit 
year due to differences in the datasets' underlying populations. We 
also propose to incorporate several proposed HCC changes into the 2021 
benefit year risk adjustment models. We do not expect these proposals 
to affect the absolute value of risk adjustment transfers, or impact 
issuer burden beyond what we previously estimated in the 2020 Payment 
Notice.
4. Risk Adjustment Data Validation (Sec.  153.630)
    Under Sec.  153.630, we are proposing changes to the requirements 
for RADV. Beginning with the 2019 benefit year of RADV, we propose to 
consider issuers to be outliers only if they have 30 or more HCCs 
recorded on EDGE for any HCC group in which their failure rate appears 
anomalous. As only a very small number of issuers would be affected by 
this change, and those affected already have small total plan liability 
risk scores for the affected HCC groups due to their low HCC counts, we 
expect the total reduction of burden to issuers to be small. 
Projections based on 2017 benefit year RADV adjustments estimate an 
overall 0.7 percent reduction in absolute RADV transfer adjustments 
across all issuers for benefit years to which this change may apply.
    We also propose that the 2019 benefit year RADV would serve as a 
second pilot year for the purposes of prescription drug data validation 
in addition to the 2018 benefit year RADV. We are proposing this second 
pilot year to provide HHS and issuers with 2 full years of experience 
with the data validation process for prescription drugs before 
adjusting transfers. We do not expect this proposal to affect the 
magnitude of RADV adjustments to risk adjustment transfers, or to 
impact issuer

[[Page 7148]]

burden or administrative costs beyond what we previously estimated in 
the 2020 Payment Notice.
5. Verification Process Related to Eligibility for Insurance 
Affordability Programs (Sec.  155.320)
    In future rulemaking, we intend to propose amendments to Sec.  
155.320(d)(4)(i) to remove the requirement that Exchanges use random 
sampling as part of its program to verify whether an applicant for 
insurance affordability programs (for example, APTC and CSRs) is 
enrolled in or eligible for employer-sponsored coverage. We intend to 
propose amendments under which Exchanges will have the flexibility to 
design their employer-sponsored coverage verification programs based on 
a fulsome assessment of the risk for inappropriate payments of APTC and 
CSRs, which would be based on reliable studies, research, and analyses 
of an Exchange's own enrollment data. We believe this flexibility would 
benefit employers, employees, Exchanges using the Federal platform, and 
State Exchanges that operate their own eligibility and enrollment 
platform because it would eliminate the burden of investing resources 
to conduct and respond to random sampling.
    In the 2019 Payment Notice final rule, we discussed the burden 
associated with sampling based in part on the alternative process used 
for the Exchanges. HHS incurred approximately $750,000 in costs to 
design and operationalize this study and the study indicated that 
$353,581 of APTC was potentially incorrectly granted to individuals who 
inaccurately attested to their enrollment in or eligibility for a 
qualifying eligible employer-sponsored plan. We placed calls to 
employers to verify 15,125 cases but were only able to verify 1,948 
cases. A large number of employers either could not be reached or were 
unable to verify a consumer's information, resulting in a verification 
rate of approximately 13 percent. The sample-size involved in the 2016 
study did not represent a statistically significant sample of the 
target population and did not fulfill all regulatory requirements for 
sampling under paragraph (d)(4)(i) of Sec.  155.320.
    We estimate that the overall one-time cost of implementing sampling 
would be approximately $8 million for the Exchanges using the Federal 
platform, and between $2 million and $7 million for other Exchanges, 
depending on their enrollment volume and existing infrastructure. 
Therefore, we estimate that the average per-Exchange cost of 
implementing sampling that resembles the approach taken by the 
Exchanges using the Federal platform would be approximately $4.5 
million for State Exchanges that operate their own eligibility and 
enrollment platform, for a total cost of $54 million for the 12 State 
Exchanges that operate their own eligibility and enrollment platform 
(operating in 11 States and the District of Columbia).
    We are aware, however, that 4 State Exchanges that operate their 
own eligibility and enrollment platform, have already incurred costs to 
implement sampling and estimate that they have incurred one-time costs 
of approximately $4.5 million per Exchange with a total of $18 million 
and would only experience savings related to recurring costs. 
Therefore, the one-time savings for Exchanges using the Federal 
platform and the remaining State Exchanges that operate their own 
eligibility and enrollment platform would be approximately $44 million. 
We estimate the annual costs to conduct sampling on a statistically 
significant sample size of approximately 1 million cases to be 
approximately $6 million to $8 million for the Exchanges using the 
Federal platform and State Exchanges that operate their own eligibility 
and enrollment platform. This estimate includes operational activities 
such as noticing, inbound and outbound calls to the Marketplace call 
center, and adjudicating consumer appeals. We estimate that average 
recurring cost for each State Exchange that operates its own 
eligibility and enrollment platform to conduct sampling would be $7 
million, and the total annual cost for the Exchanges using the Federal 
platform and the 12 State Exchanges that operate their own eligibility 
and enrollment platform would be $92 million. Relieving Exchanges of 
the requirement to conduct sampling for plan years 2020 and 2021 would 
therefore result in annual savings of approximately $92 million. We 
seek comment on this estimate.
    In addition to significant cost savings, these future plans would 
provide more flexibility for states to design and implement a 
verification process for employer-sponsored coverage that is tailored 
to their unique populations, and would protect the integrity of states' 
respective individual markets. Furthermore, we believe that this future 
change would reduce burden on employers and employees, as the current 
random sampling, notification, and information gathering processes 
required significant time and resources to comply with, and likely 
would be reduced under the alternative approach we are exploring.
6. Eligibility Redetermination During a Benefit Year (Sec.  155.330)
    We propose to amend Sec.  155.330(e)(2)(i)(D) to clarify that the 
Exchanges will not redetermine eligibility for APTC/CSRs for Medicare, 
Medicaid/CHIP, and, if applicable, BHP for dual enrollees who provide 
written consent for Exchanges to end their QHP coverage prior to 
terminating the coverage. We anticipate that this would benefit dual 
enrollees, as processing a voluntary termination mitigates the risk for 
future tax liability for APTC/CSRs paid inappropriately during months 
of overlapping coverage. It would also streamline the termination 
process. Additionally, we believe this proposal would safeguard 
consumers against being enrolled in unnecessary or duplicative 
coverage. The proposal could reduce burden on Exchanges by allowing 
them to streamline their PDM operations since eligibility 
redeterminations for APTC/CSRs are not necessary when processing a 
voluntary termination of coverage for a dual enrollee who has permitted 
the Exchange to do so, and would provide Exchanges with more 
flexibility in their operations.
    HHS requests comment on the impacts of this proposal.
    We propose to further amend Sec.  155.330(e)(2)(i)(D) by adding new 
language that clarifies when the Exchange identifies deceased enrollees 
via PDM, the Exchange will follow the process outlined in Sec.  
155.430(d)(7) and terminate coverage retroactively to the date of 
death, without the need to redetermine the eligibility of the deceased 
enrollee. We believe this change would reduce the amount of time a 
deceased enrollee remains in QHP coverage while receiving APTC/CSRs. 
Additionally, we believe this proposal would not increase burden on 
State Exchanges that operate their own eligibility and enrollment 
platform because we believe these changes merely clarify the 
operational process when conducting checks for deceased enrollees and 
would not impose new requirements on State Exchanges that operate their 
own eligibility and enrollment platform. Additionally, this proposal 
might help streamline Exchanges' PDM operations, as eligibility 
redeterminations are not necessary when termination of coverage is for 
a deceased enrollee, and would provide Exchanges with more flexibility 
in their operations.
    We request comment on the impacts of this proposal.

[[Page 7149]]

7. Special Enrollment Periods (Sec.  155.420)
a. Exchange Enrollees Newly Ineligible for CSRs
    We propose to amend Sec.  155.420(a)(4) to allow enrollees who 
qualify for a special enrollment period due to becoming newly 
ineligible for CSRs to change to a QHP one metal level higher or lower. 
We anticipate that this would benefit applicable enrollees and 
dependents by providing them with additional flexibility to change to a 
plan better suited to their needs based on changes to their premiums 
and/or cost-sharing requirements. In some cases it might help impacted 
enrollees to maintain continuous coverage for themselves and for their 
dependents when they otherwise would have no longer been able to afford 
higher premiums or increased cost sharing requirements of their current 
silver-level plan. Relatedly, this proposal might also provide some 
benefit to the individual market risk pool by making it easier for 
applicable enrollees to maintain continuous coverage in spite of 
potentially significant changes in their out-of-pocket health care 
costs. Regardless, we believe that this change would not have a 
negative impact on the individual market risk pool, because most 
applicable enrollees would be seeking to change coverage based on 
financial rather than health needs. However, this proposal would impose 
a small cost to Exchanges that have implemented plan category 
limitations, because it would require a change to application and plan 
selection system logic to permit applicable enrollees and dependents to 
change to gold or bronze level plans after having previously restricted 
them to silver level plans. We solicit comments on the extent to which 
Exchanges would experience burden due to this proposed change.
    Finally, because it represents a change to current system logic, 
this proposal might impose some burden on FFE Direct Enrollment and 
Enhanced Direct Enrollment partners. We solicit comment on this matter, 
as well as more generally, on the impact this proposal.
b. Special Enrollment Period Limitations for Enrollees Who Are 
Dependents
    We believe that our proposal to add a new Sec.  
155.420(a)(4)(iii)(C) would not impose burden on Exchanges, because it 
would streamline the rules at Sec.  155.420(a)(4) by ensuring that all 
existing enrollees are treated in the same way, and therefore might 
simplify implementation. We also anticipate that it would help mitigate 
confusion on the part of issuers, Exchanges, and consumers by 
clarifying that the 2017 Market Stabilization Rule's intent was to 
apply the same limitations to dependents who are currently enrolled in 
Exchange coverage that it applies to current, non-dependent Exchange 
enrollees.
    However, we seek comment from Exchanges on whether this is the 
case, and if not, on the costs that this proposal would impose in terms 
of updates to application system logic, as well as potential consumer 
burden based on the number of enrollees who might be impacted by this 
type of plan category limitation.
c. Special Enrollment Period Prospective Coverage Effective Dates
    The proposal to transition special enrollment periods currently 
following regular effective date rules to instead be effective on the 
first of the month following plan selection in Exchanges using the 
Federal platform would improve long-term operational efficiency through 
standardization for issuers and the Exchanges using the Federal 
platform, while reducing consumer confusion and minimizing gaps in 
coverage. We do not expect issuers to incur substantial new costs by 
aligning these effective dates, as issuers routinely effectuate 
coverage on the first of the month following plan selection or faster.
    Additionally, because billing is tied to effective dates, 
transitioning to these more expedited effective dates in the Exchanges 
using the Federal platform would simplify issuer billing practices. 
Operationalizing the aligned prospective effective dates may reduce 
system errors and related casework, as well as confusion for consumers, 
issuers, and caseworker and call center staff based on different rules 
applying for different scenarios. Also, we believe eliminating the 
requirement that Exchanges demonstrate that all of their participating 
QHP issuers agree to effectuate coverage in a shorter timeframe would 
reduce burden for both issuers and Exchanges. We seek comment on these 
expectations.
d. Special Enrollment Period Retroactive Coverage Effective Dates
    Our proposal to eliminate the special rule for retroactive 
effective dates after an enrollment has been pended due to special 
enrollment period verification and to simplify applicability of 
retroactive effective date and binder payment rules to clarify the 
ability of consumers effectuating enrollments with retroactive 
effective dates to select prospective coverage by paying only one 
month's premium would improve long-term operational efficiency for 
issuers and Exchanges, while reducing confusion for consumers, issuers, 
and caseworker and call center staff based on different rules for 
different scenarios. We do not expect issuers to incur new costs in 
streamlining applicability of the retroactive effective date rule. 
Under current Sec.  155.400(e)(1)(iii), issuers already receive 
transactions for retroactive coverage and assign coverage effective 
dates either retroactively or prospectively based on consumer payments. 
Our proposed change would simply eliminate the complexity for an issuer 
to have to determine the appropriate binder payment rule to apply to an 
enrollment with a retroactive effective date when issuers receive only 
1 month's premium. Finally, because issuers, not Exchanges using the 
Federal platform, are responsible for assigning effective dates based 
on premium payments received under this policy, Exchanges using the 
Federal platform would not incur costs based on this change.
    We seek comment on these expectations.
e. Enrollees Covered by a Non-Calendar Year Plan Year QSEHRA
    We anticipate that the proposal to amend Sec.  155.420(d)(1)(ii) to 
codify the special enrollment period available to qualified individuals 
and dependents who are provided a QSEHRA with a non-calendar year plan 
year would impose some burden on Exchanges and off-Exchange individual 
health insurance issuers that implement pre-enrollment eligibility 
verification for special enrollment periods due to related updates to 
the application and the need to train staff that reviews documents from 
applicants to verify special enrollment period eligibility. However, we 
believe that this burden would be limited because the ``non-calendar 
year plan year special enrollment period'' is already subject to pre-
enrollment eligibility verification, and because individuals who 
qualify may already be enrolled in Exchange coverage and therefore not 
subject to pre-enrollment eligibility verification. We also anticipate 
that this proposal would impose limited burden on FFE Enhanced Direct 
Enrollment partners, because required changes for these partners would 
be limited to updating application question wording.
    Additionally, while this proposal would provide QSEHRA enrollees an 
opportunity to change their individual health insurance plan, we 
believe that uptake would be limited as most eligible employees would 
likely not want to

[[Page 7150]]

change to a new QHP during the QHP's plan year because such a change 
would result in their deductibles and other accumulators re-setting. 
Similarly, we believe that burden on issuers related to adverse 
selection would be limited due to low uptake because of the 
disadvantages to enrollees of changing their coverage during its plan 
year, and because the special enrollment period at Sec.  
155.420(d)(1)(ii) is subject to plan category limitations per Sec.  
155.420(a)(4)(iii). We solicit comments on this proposal, including 
from Exchanges, on implementation burden and costs.
8. Effective Dates for Terminations (Sec.  155.430)
    As discussed earlier in the preamble to Sec.  155.430, our proposal 
would align the provision for termination after an enrollee experiences 
a technical error that does not allow her to terminate her coverage or 
enrollment through the Exchange with all other enrollee-initiated 
termination effective date rules under Sec.  155.430. Specifically, at 
the option of the Exchange, the enrollee would no longer have to 
provide 14-days advance notice before the termination becomes 
effective. Exchanges and issuers are not expected to incur new costs by 
aligning these termination dates, as Exchanges and issuers are both 
well acquainted with same-day termination transactions. Further, 
similar to the 2019 updates to Sec.  155.430(d)(2), this proposal would 
retain State Exchange flexibility to choose whether to implement this 
change. Operationalizing the aligned termination dates might reduce 
system errors and related casework, as well as confusion for consumers, 
issuers, and caseworker and call center staff based on contradictory 
rules for different scenarios.
9. Quality Rating Information Display Standards for Exchanges 
(Sec. Sec.  155.1400 and 155.1405)
    We anticipate our proposal to amend Sec. Sec.  155.1400 and 
155.1405 to codify the flexibility to State Exchanges that operate 
their own eligibility and enrollment platforms, to customize the 
display of quality rating information on their websites would impose 
minimal burden on State Exchanges. In particular, these State Exchanges 
have the choice to pursue this flexibility or to display the quality 
rating information assigned for each QHP as provided by HHS. Further, a 
few State Exchanges during the display pilot have already chosen to 
display quality rating information with some state-specific 
customizations to incorporate additional state or local information or 
to modify the names of the QRS star ratings.
10. FFE and SBE-FP User Fees (Sec.  156.50)
    For 2021, we are considering two alternative proposals. First, we 
are proposing to maintain the FFE and the SBE-FP user fee rates at 
current levels, 3.0 and 2.5 percent of premiums, respectively. 
Alternatively, we are considering and seeking comment on reducing the 
user fee rates below the 2020 benefit year levels. If the user fees are 
lowered below the 2020 plan year levels, FFE and SBE-FP user fee 
transfers from issuers to the Federal Government would be lower 
compared to those estimated for the prior benefit year.
11. State Selection of EHB-Benchmark Plan for Plan Years Beginning on 
or After January 1, 2020 (Sec.  156.111)
    We are proposing to amend Sec.  156.111(d) and add a new Sec.  
156.111(f) to explicitly require states to annually notify HHS in a 
form and manner specified by HHS by a date determined by HHS of any 
state-required benefits in addition to EHB in accordance with Sec.  
155.170 that are applicable to QHPs in the individual and/or small 
group markets. We are also proposing at Sec.  156.111(d)(2) to specify 
that if the state does not notify HHS of its state-required benefits 
considered to be in addition to EHB by the annual reporting submission 
deadline, or does not do so in the form and manner specified by HHS, 
HHS will determine which benefits are in addition to EHB for the state 
for the applicable year. We also propose to specify at Sec.  
156.111(f)(1) through (6) the type of documentation states would be 
required to submit as part of the annual reporting, which among other 
requirements would need to be signed by a state official with authority 
to make the submission on behalf of the state, to confirm the accuracy 
of the submission. We recognize that this proposal would require states 
annually reporting to HHS to submit additional paperwork to HHS on an 
annual basis. However, because states are already required under Sec.  
155.170 to identify which state-required benefits are in addition to 
EHB and to defray the cost of those benefits, we believe any burden 
experienced by states would be minimal and that this reporting 
requirement would be complementary to the process the state should 
already have in place for tracking and analyzing state-required 
benefits. Additionally, states may opt not to report this information 
and instead let HHS make this determination for them.
    We are proposing this annual reporting requirement because we are 
concerned that there may be states not defraying the costs of their 
state-required benefits in addition to EHB in accordance with Federal 
requirements. We therefore acknowledge that there may be states that do 
not currently have in place an effective process for tracking, 
analyzing, and identifying state-required benefits applicable to QHPs 
in the individual and/or small group markets for purposes of 
determining whether they are in addition to EHB and require defrayal. 
For such states, the burden might be higher to meet the annual 
reporting requirement. However, we believe the proposed annual 
reporting requirement is necessary to help states be diligent about 
their framework for determining which mandates are in addition to EHB 
in accordance with Sec.  155.170. This proposal properly aligns with 
Federal requirements for defraying the cost of state-mandated benefits, 
would generally improve transparency with regard to the types of 
benefit requirements states are enacting, and would provide the 
necessary information to HHS for increased oversight over whether 
states are appropriately determining which state-required benefits 
require defrayal, whether states are correctly implementing the 
definition of EHB, and whether QHP issuers are properly allocating the 
portion of premiums attributable to EHB for purposes of calculating 
PTCs. Because we believe the information we are proposing that states 
report to HHS as part of this annual reporting should already be 
readily accessible to states, we believe any burden would be limited to 
the completion of the HHS templates, validation of that information, 
and submission of the templates to HHS. These costs have been discussed 
previously in the Collection of Information Requirements section.
    We do not anticipate these proposals would add any new burden on 
states that do not notify HHS of its required benefits considered to be 
in addition to EHB by the annual reporting submission deadline, or does 
not do so in the form and manner specified by HHS, as they would be 
relying on HHS to make these determinations and fill out these 
templates for them. We acknowledge that the HHS determination of which 
requirements are in addition to EHB and therefore require defrayal 
might conflict with the opinion of a state that does not annually 
report to HHS. Because we are also proposing that HHS's determination 
of which benefits are in

[[Page 7151]]

addition to EHB would become part of the definition of EHB for the 
applicable state for the applicable year, this might require states to 
defray more benefits than the state currently defrays or anticipated 
having to defray. As such, in the former scenario, the annual reporting 
proposal might generate additional costs for a state that defers the 
task of identifying state-mandated benefits that require defrayal to 
HHS in order to properly align the state with Federal requirements 
regarding defrayal.
    To the extent that this proposal would cause a state to newly 
defray the cost of state-required benefits it should have always been 
defraying in accordance with Sec.  155.170 but was neglecting to do so, 
this would represent a transfer of costs from the issuer to the state, 
as the issuer might have been previously covering the costs of benefits 
for which the state should have been defraying. We again emphasize that 
section 36B(b)(3)(D) of the Code specifies that the portion of the 
premium allocable to state-required benefits in addition to EHB shall 
not be taken into account in determining a PTC. In the event that the 
annual reporting proposal causes states to newly identify state-
required benefits as being in addition to EHB that were previously 
being incorrectly covered as part of EHB, this might decrease the 
amount of PTC for enrollees in the state as the percent of premium 
allocable to EHB would be reduced.
12. Provisions Related to Cost-Sharing (Sec.  156.130)
    The Affordable Care Act provides for the reduction or elimination 
of cost sharing for certain eligible individuals enrolled in QHPs 
offered through the Exchanges. This assistance is intended to help many 
low- and moderate-income individuals and families obtain health 
insurance.
    We set forth in this proposed rule the reductions in the maximum 
annual limitation on cost sharing for silver plan variations. 
Consistent with our analysis in previous Payment Notices, we developed 
three model silver level QHPs and analyzed the impact on their AVs of 
the reductions described in the PPACA to the estimated 2021 maximum 
annual limitation on cost sharing for self only coverage of $8,550. We 
do not believe the proposed changes to the maximum annual limitation on 
cost sharing or the reductions in this parameter for silver plan 
variations would result in a significant economic impact.
    We also propose the premium adjustment percentage for the 2021 
benefit year. Section 156.130(e) provides that the premium adjustment 
percentage is the percentage (if any) by which the average per capita 
premium for health insurance coverage for the preceding calendar year 
exceeds such average per capita premium for health insurance for 2013. 
The annual premium adjustment percentage sets the rate of increase for 
three parameters detailed in the Affordable Care Act: The annual 
limitation on cost sharing (defined at Sec.  156.130(a)), the required 
contribution percentage used to determine eligibility for certain 
exemptions under section 5000A of the Code, and the assessable payments 
under sections 4980H(a) and 4980H(b). We believe that the premium 
adjustment percentage of 1.3542376277 based on average per enrollee 
private health insurance premiums (excluding Medigap and property and 
casualty insurance) is well within the parameters used in the modeling 
of the Affordable Care Act, and we do not expect that these proposed 
updated values would alter CBO's May 2018 baseline estimates of the 
budget impact beyond the changes described in the 2020 Payment Notice.
13. Cost-Sharing Requirements and Drug Manufacturers' Coupons (Sec.  
156.130)
    In this proposed rule, we propose to revise Sec.  156.130(h) in its 
entirety to state, notwithstanding any other provision of the annual 
limitation on cost sharing regulation, and to the extent consistent 
with state law, amounts of direct support offered by drug manufacturers 
to enrollees for specific prescription drugs towards reducing the cost 
sharing incurred by an enrollee using any form are not required to be 
counted toward the annual limitation on cost sharing. We believe that 
this proposal would impose minimal burden, as it reflects the 
longstanding practice of health insurance issuers and group health 
plans determining whether drug manufacturer direct support to enrollees 
for specific prescription drugs counts toward the annual limitation on 
cost sharing.
14. Requirements for Timely Submission of Enrollment Reconciliation 
Data (Sec.  156.265)
    In the Establishment of Exchanges and Qualified Health Plans; 
Exchange Standards interim final rule,\140\ we established standards 
for the collection and transmission of enrollment information. At Sec.  
156.265(f), we set forth standards on the enrollment reconciliation 
process, specifying that issuers must reconcile enrollment with the 
Exchange no less than once a month. Although the regulations in Sec.  
156.265 require issuers to reconcile enrollment with the Exchange 
monthly, they do not specify standards for the format or quality of 
these data exchanges, such as the manner in which enrollment updates 
must be reflected in updates of previously submitted enrollment data, 
or the timeframe in which issuers should report data updates and data 
errors to the Exchange. To clarify these procedures, we propose 
amending Sec.  156.265(f) to require a QHP issuer to include in its 
enrollment reconciliation submission to the Exchange the most recent 
enrollment information that is available and that has been verified to 
the best of its knowledge or belief. We also propose to amend Sec.  
156.265(g) to direct a QHP issuer to update its enrollment records as 
directed by the Exchange (or for QHP issuers in SBE-FPs, the Federal 
platform), and to inform the Exchange (or for QHP issuers in SBE-FPs, 
the Federal platform) if any such directions are in error within 30 
days. In State Exchanges on the Federal platform, referenced in this 
section to the Exchange should be understood to mean CMS, as 
administrator of the Federal platform. We believe these amendments 
would encourage more timely reconciliation and error reporting, 
resulting in an improved consumer experience. However, because we 
believe that issuers are already routinely conducting verifications of 
internal enrollment data at various points in the year, we do not 
believe that these clarifying standards on the process for submitting 
enrollment and reconciliation data would materially impact issuer 
burden, beyond what we estimated in the Exchange Establishment rules.
---------------------------------------------------------------------------

    \140\ See 77 FR 18309 at 18425.
---------------------------------------------------------------------------

15. Dispute of HHS Payment and Collections Reports (Sec.  156.1210)
    In the 2014 Payment Notice,\141\ we established provisions related 
to confirmation and dispute of payment and collection reports. These 
provisions were written under the assumption that issuers would 
generally be able to provide these confirmations or disputes 
automatically to HHS. We are proposing to amend Sec.  156.1210 by 
lengthening the time to report payment errors from 15 days to 90 days 
to allow issuers the option of researching, reporting, and correcting 
errors through other channels. We do not believe that this proposal 
would have any impact on issuer burden, beyond what was

[[Page 7152]]

previously estimated in the 2014 Payment Notice.
---------------------------------------------------------------------------

    \141\ See 78 FR 65045 at 65080.
---------------------------------------------------------------------------

16. Medical Loss Ratio (Sec. Sec.  158.110, 158.140, 158.150, and 
158.160)
    In this proposed rule, we propose to amend Sec.  158.110(a) to 
clarify that for MLR purposes, issuers must report expenses for 
functions outsourced to or services provided by other entities 
consistently with how issuers must report directly incurred expenses. 
We do not expect this proposal to change the impact as it does not 
change the existing requirements. We also propose to amend Sec.  
158.140(b)(1)(i) to require issuers to deduct from incurred claims 
price concessions received by the issuer, as well as prescription drug 
rebates and other price concessions attributable to the issuer's 
enrollees and received and retained by an entity providing pharmacy 
benefit management services (including drug price negotiation services) 
to the issuer, and propose conforming amendments to Sec.  158.160(b)(2) 
to require such amounts to be reported as non-claims costs. While there 
does not exist comprehensive public data on the amount, prevalence, or 
retention rate for prescription drug rebates and other price 
concessions retained by PBMs or other entities providing pharmacy 
benefit management services, based on data from the 2017 MLR reporting 
year, including the data from issuers who receive and report 
prescription drug rebates, we estimate that this proposal could 
increase rebate payments from issuers to consumers by $18.4 million per 
year. Since issuers generally prefer to set premium rates at a level 
that avoids rebates, and consequently potential rebate increases create 
a downward pressure on premiums, this proposal is also likely to lead 
to reductions in PTC transfers (which are a function of the premium 
rate for the second lowest-cost silver plan applicable to a consumer, 
the premium rate for the plan purchased by the consumer, and the 
consumer's income level) from the Federal Government to certain 
consumers in the individual market. We additionally propose to amend 
Sec.  158.150(b)(2)(iv)(A)(5) to allow issuers in the individual market 
to include the cost of certain wellness incentives as QIA in the MLR 
calculation. Based on data from the 2017 MLR reporting year, we 
estimate that this proposal could decrease rebate payments from issuers 
to consumers by $0.2 million per year.
17. 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 $109.36 per hour, including overhead and fringe 
benefits.\142\ Assuming an average reading speed, we estimate that it 
would take approximately 1 hours for the staff to review the relevant 
portions of this proposed rule that causes unanticipated burden. We 
assume that 497 entities will review this proposed rule. For each 
entity that reviews the rule, the estimated cost is approximately 
$109.36. Therefore, we estimate that the total cost of reviewing this 
regulation is approximately $54,352 ($109.36 x 497 reviewers).
---------------------------------------------------------------------------

    \142\ 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.
    For the proposal to amend part 146, we considered not proposing a 
requirement that a notice be provided to individuals with an offer of 
an excepted benefit HRA from a non-Federal governmental plan. However, 
we believe that a notice would provide these consumers with important 
information about their excepted benefit HRA.
    Instead of proposing to delete the regulations in part 149, 
governing the ERRP, we considered taking no action and leaving the 
regulations in place. We believe this alternative is less desirable 
than repealing the regulations, which would reduce the overall volume 
of Federal regulations.
    In proposing the risk adjustment model recalibration in part 153, 
we considered whether to add an additional sex and age category for 
enrollees age 65 and over as part of our recalibration of the HHS 
models, due to our proposal to stop using MarketScan[supreg] data. 
However, upon finding different trends in the age 65 and over 
population, as discussed in preamble, we are not proposing to add these 
additional categories.
    Regarding proposed changes to Sec. Sec.  155.330 and 155.430, we 
considered taking no action to clarify Exchange operations regarding 
processing voluntary terminations for Exchange enrollees who provide 
written consent to permit the Exchange to end QHP coverage if they are 
later found to also be enrolled in Medicare via PDM. We ultimately 
determined however that these revisions were necessary to clarify that 
eligibility need not be redetermined as part of terminations at the 
request of enrollees resulting from Medicare PDM.
    Additionally, we considered taking no action and proceeding with 
terminating coverage following an eligibility determination when the 
Exchange conducts periodic checks for deceased enrollees rather than 
retroactively terminating back to the date of death. However, we 
determined that the revisions would clarify that eligibility need not 
be redetermined prior to terminating deceased enrollee coverage 
retroactively to the date of death.
    We considered taking no action regarding our proposal to add a new 
Sec.  155.420(a)(4)(ii)(B) in order to allow enrollees and their 
dependents who become newly ineligible for CSRs and are enrolled in a 
silver-level QHP to change to a QHP one metal level higher or lower if 
they elect to change their QHP enrollment. However, based on questions 
and concerns from HHS Navigators and other enrollment assisters, as 
well as from agents and brokers, the current policy likely prevents 
some enrollees from

[[Page 7153]]

maintaining continuous coverage for themselves and for their dependents 
due to a potentially significant change to their out of pocket costs. 
Under our proposal, an enrollee impacted by an increase to his or her 
monthly premium payment could change to a bronze-level plan, while an 
enrollee who has concerns about higher copayment or coinsurance cost 
sharing requirements could change to a gold-level plan. HHS believes 
that this policy would likely have minimal impact on the individual 
market risk pool because most applicable enrollees would be seeking to 
change coverage based on changes to their financial circumstances 
rather than ongoing or emerging health needs.
    We also considered making no changes regarding our proposal to 
clarify the 2017 Market Stabilization Rule's intent to apply the same 
limitations to dependents who are currently enrolled in Exchange 
coverage that it applies to current, non-dependent Exchange enrollees. 
As discussed above, preamble language from the 2017 Market 
Stabilization Proposed Rule explains that the requirement at Sec.  
155.420(a)(4)(iii) would extend to enrollees who are on an application 
where a new applicant is enrolling in coverage through a special 
enrollment period, using general terms to convey that restrictions 
should apply to enrollees and newly-enrolling individuals regardless of 
the dependent or parent or guardian status of a new enrollee. However, 
because this intended aspect of the limitation is not articulated in 
regulation, we were concerned that the rule's current wording would 
cause confusion among issuers, consumers, and Exchanges. Additionally, 
this proposed change is consistent with HHS's goal to establish 
equivalent treatment for all special enrollment period eligible 
enrollees, and with the policy goal of preventing enrollees from 
changing plans in the middle of the coverage year based on ongoing or 
newly emerging health issues.
    In proposing that special enrollment periods currently following 
regular effective date rules would instead be effective on the first of 
the month following plan selection in Exchanges using the Federal 
platform, we considered whether we could implement this change through 
sub-regulatory guidance, since for many of these special enrollment 
periods, Exchanges have discretion under Sec.  155.420(b)(2)(i), (iv), 
and (v) to provide an effective date on the first of the month 
following plan selection, or under Sec.  155.420(b)(3) to ensure that 
coverage is effective on an appropriate date based on the circumstances 
of the special enrollment period. However, Exchange discretion is not 
available under current regulations for several special enrollment 
periods that use regular effective dates; that is, HHS could not apply 
faster effective dates in the Exchanges using the Federal platform 
without regulatory changes for certain special enrollment periods. 
These are the special enrollment periods available under Sec.  
155.420(d)(6)(i), (ii), and (v) and (d)(8) and (10). Only applying 
faster effective dates for some, but not all, special enrollment 
periods that currently use regular effective date rules would not 
accomplish our goals of standardization and improving long-term 
operational efficiency. We believe the proposed regulatory change is 
necessary to align all prospective special enrollment periods under one 
effective date rule.
    In proposing to align retroactive effective date and binder payment 
rules under Sec.  155.400(e)(1)(iii), we considered eliminating both 
Sec.  155.400(e)(1)(v) (as we propose), but revising, rather than 
eliminating, Sec.  155.420(b)(5). Section 155.420(b)(5) provides that 
if a consumer's enrollment is delayed until after the verification of 
the consumer's eligibility for a special enrollment period, and the 
assigned effective date would require the consumer to pay 2 or more 
months of retroactive premium to effectuate coverage or avoid 
cancellation, the consumer has the option to choose a coverage 
effective date that is no more than 1 month later than had previously 
been assigned. However, we determined that revising this provision 
would cause more confusion than standardizing retroactive effective 
date and binder payment rules under Sec.  155.400(e)(1)(iii). Instead, 
we propose to amend Sec.  155.400(e)(1)(iii) to state more explicitly 
that any consumer who can effectuate coverage with a retroactive 
effective date, including those whose enrollment is delayed until after 
special enrollment period verification, would also have the option to 
effectuate coverage with the applicable prospective coverage.
    Under this proposed rule, a consumer could choose to only pay for 1 
month of coverage by the applicable deadline, notwithstanding the 
retroactive effective date that the Exchange otherwise would be 
required to ensure. Even though very few consumers wait more than a few 
days for HHS to review their special enrollment period verification 
documents and provide a response (as discussed in the preamble for this 
proposal), we want to ensure that those few consumers whose coverage is 
delayed by at least 1 month due to special enrollment period 
verification would have the same options as any other consumers who are 
eligible to receive coverage with a retroactive effective date.
    As described in the HRA rule,\143\ HHS included consumers who are 
newly provided a QSEHRA in the class of persons eligible for a new 
special enrollment period established for qualified individuals, 
enrollees, and dependents who newly gain access to an individual 
coverage HRA. We also expressed our intent to treat a QSEHRA with a 
non-calendar year plan year as a group health plan for the limited 
purpose of the non-calendar year plan year special enrollment period, 
and to codify this interpretation in future rulemaking. Our goal is to 
ensure employees and their dependents with a non-calendar year plan 
year QSEHRA have the same opportunity to change individual health 
insurance coverage outside of the individual market open enrollment 
period as those who are enrolled in a non-calendar year plan year 
individual coverage HRA.
---------------------------------------------------------------------------

    \143\ 84 FR 28888.
---------------------------------------------------------------------------

    In developing the proposal for annual reporting of state-required 
benefits in addition to EHB, we considered a variety of alternatives, 
including making no modifications. We also considered instead issuing a 
toolkit or guidance for states to assist with identifying state-
required benefits in addition to EHB and properly defraying the cost of 
those benefits in accordance with Sec.  155.170. However, neither of 
these options would offer HHS direct insight into the frequency with 
which states require benefits in addition to EHB to be covered. 
Further, we believe that requiring states to annually report to HHS on 
their state-required benefits applicable to QHPs in the individual and/
or small group market will also help states be diligent about their 
framework for determining which mandates are in addition to EHB in 
accordance with Sec.  155.170. This proposal properly aligns with 
Federal requirements for defraying the cost of state-mandated benefits, 
would generally improve transparency with regard to the types of 
benefit requirements states are enacting, and would provide the 
necessary information to HHS for increased oversight over whether 
states are appropriately determining which state-required benefits 
require defrayal, whether states are correctly implementing the 
definition of EHB, and whether QHP issuers are properly allocating the 
portion of premiums

[[Page 7154]]

attributable to EHB for purposes of calculating PTCs.
    We also considered revising the policy such that Exchanges would 
again be the entity responsible for identifying which additional state-
required benefits, if any, are in addition to EHB instead of the state. 
However, as noted previously in the 2017 Payment Notice, we changed the 
policy to make the state the entity responsible for making this 
determination instead of the Exchange because we believe states are 
generally more familiar with state-required benefits. We also 
considered revising Sec.  155.170 to make HHS the entity responsible 
for determining which state-required benefits are in addition to EHB in 
every state such that HHS would always determine which mandates require 
defrayal, but the QHP issuers would still be responsible for 
quantifying the costs for these additional mandates and reporting them 
to the state, at which point the state would be expected to make 
payments directly to the enrollee or the QHP issuer. However, because 
we still believe states are generally most familiar with state-required 
benefits and, because we support state flexibility, we believe that so 
long as the annual reporting requirement demonstrates to HHS that 
states are complying with Sec.  155.170, states should remain the 
entity responsible for making these determinations. We solicit comment 
on all aspects of the annual reporting proposal at Sec.  156.111 and 
specifically whether a different approach would be preferable.
    In proposing to amend Sec.  156.270(b)(1) to require QHP issuers to 
send to enrollees a termination notice for all termination events, we 
considered whether to revert to the original language in the first 
iteration of Sec.  156.270, which required a termination notice when an 
enrollee's coverage was terminated ``for any reason.'' However, because 
the termination notice requirement is triggered under this paragraph 
``[i]f a QHP issuer terminates an enrollee's coverage or enrollment in 
a QHP through the Exchange . . ., '' we were concerned that this could 
be read to require termination notices for issuer-initiated 
terminations only. To be clear that we are proposing to require 
termination notices for the full range of termination events described 
under Sec.  155.430(b), including those initiated by an enrollee, we 
are instead proposing to refer broadly to the reasons listed in Sec.  
155.430(b).
    For the proposed amendments to Sec.  158.150, we considered making 
no change to the current regulation that does not explicitly allow 
issuers in the individual market to include the cost of certain 
wellness incentives as QIA in the MLR calculation. However, we believe 
that changes to this section would ensure that it is interpreted 
consistently and that issuers therefore face a level playing field. We 
also believe that changes to this section would generally increase 
consumer choice and access to wellness programs, as well as ensure that 
there would be no obstacles to HHS implementing a demonstration project 
under which individual market issuers would be permitted to offer 
certain health-based wellness programs.

E. Regulatory Flexibility Act

    The Regulatory Flexibility Act, (5 U.S.C. 601, et seq.), requires 
agencies to prepare an initial regulatory flexibility analysis to 
describe the impact of the proposed rule on small entities, unless the 
head of the agency can certify that the rule will not have a 
significant economic impact on a substantial number of small entities. 
The RFA generally defines a ``small entity'' as (1) a proprietary firm 
meeting the size standards of the Small Business Administration (SBA), 
(2) a not-for-profit organization that is not dominant in its field, or 
(3) a small government jurisdiction with a population of less than 
50,000. States and individuals are not included in the definition of 
``small entity.'' HHS uses a change in revenues of more than 3 to 5 
percent as its measure of significant economic impact on a substantial 
number of small entities.
    In this proposed rule, we propose standards for the risk adjustment 
and RADV programs, which are intended to stabilize premiums and reduce 
incentives for issuers to avoid higher-risk enrollees. 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 $41.5 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 $35 million or less.\144\ 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 \145\ submissions 
for the 2017 MLR reporting year, approximately 90 out of 500 issuers of 
health insurance coverage nationwide had total premium revenue of $41.5 
million or less. This estimate may overstate the actual number of small 
health insurance companies that may be affected, since over 72 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 $41.5 million. 
Only 10 of these 90 potentially small entities, three of them part of 
larger holding groups, are estimated to experience a change in rebates 
under the proposed amendments to the MLR provisions of this proposed 
rule in part 158. Therefore, we do not expect the proposed MLR 
provisions of this rule to affect a substantial number of small 
entities.
---------------------------------------------------------------------------

    \144\ https://www.sba.gov/document/support--table-size-standards.
    \145\ Available at https://www.cms.gov/CCIIO/Resources/Data-Resources/mlr.html.
---------------------------------------------------------------------------

    We believe that a small number of non-Federal Government 
jurisdictions with a population of less than 50,000 would offer 
employees an excepted benefit HRA, and would therefore be subject to 
the proposed notice requirement in part 146. Therefore, we do not 
believe that an initial regulatory flexibility analysis is required for 
such firms.
    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 would 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

[[Page 7155]]

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. Currently, that threshold is approximately $154 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 NAIC, 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, we 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, those states had 
the opportunity to use funds under Exchange Planning and Establishment 
Grants to fund the development of data. Accordingly, some of the 
initial cost of creating 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 potential 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. We are also proposing to require non-Federal governmental plan 
sponsors to provide a notice when offering an excepted benefit HRA, but 
expect state and local governments to incur minimal costs to meet the 
proposed requirements in this rule.
    We also believe this regulation has federalism implications due to 
our proposals regarding clarifications regarding the PDM process, 
specifically for QHP terminations resulting from Medicare, Medicaid/
CHIP, BHP (if applicable) or deceased enrollee PDM. In these instances, 
HHS also believes that the federalism implications are substantially 
mitigated because the proposed requirements merely clarify that the 
Exchange is following termination guidelines that differ from the 
processes when Exchanges are terminating only APTC/CSRs as part of the 
standard PDM processes. Furthermore, these clarifications would not 
impose new requirements on State Exchanges that operate their own 
eligibility and enrollment platform, but rather provides guidance that 
State Exchanges that operate their own eligibility and enrollment 
platform can choose to incorporate into their current operations for 
PDM.
    We believe there may be federalism implications to our two 
proposals related to plan category limitations: (1) Our proposal to add 
a new Sec.  155.420(a)(4)(ii)(B) in order to allow enrollees and their 
dependents who become newly ineligible for CSRs and are enrolled in a 
silver-level QHP, to select a QHP one metal level higher or lower if 
they elect to change their QHP enrollment; and (2) to add a new Sec.  
155.420(a)(4)(iii)(C) to apply the same limitations to dependents who 
are currently enrolled in Exchange coverage that it applies to current, 
non-dependent Exchange enrollees. There might be operational costs to 
State Exchanges that have already implemented plan category limitations 
due to the need to update their application logic to reflect these 
changes. However, given the 2017 Market Stabilization Rule preamble 
language discussed above, it is possible that State Exchanges are 
already in compliance with our proposal to clarify the application of 
the same limitations to dependents who are currently enrolled in 
Exchange coverage that apply to current, non-dependent Exchange 
enrollees. We request comment on how many State Exchanges currently 
implement plan category limitations, as well as estimates related to 
how much time and expense would be required to update these systems to 
comply with these two proposals.
    Additionally, we expect that our proposal to amend Sec.  
155.420(d)(1)(ii) to codify the special enrollment period for qualified 
individuals and dependents who are provided a QSEHRA with a non-
calendar year plan year will have some federalism implications, because 
it would require State Exchanges to update the wording of their 
applications, and to update instructions for verifying a special 
enrollment period due to a loss of MEC to include applicants with a 
non-calendar year plan year QSEHRA. Additionally, State Exchanges, as 
well as FFE Direct Enrollment and Enhanced Direct Enrollment partners, 
might see a nominal increase in the number of consumers obtaining 
coverage through the non-calendar year plan year special enrollment 
period at Sec.  155.420(d)(1)(ii). However, we expect this number to be 
low. We request comment on these expectations.
    We also believe that there may be federalism implications related 
to the proposed requirement for states to annually notify HHS, in a 
form and manner specified by HHS, of any state-required benefits in 
addition to EHB in accordance with Sec.  155.170 that are applicable to 
QHPs in the individual and/or small group market. States that do not 
notify HHS of its required benefits considered to be in addition to EHB 
by the annual reporting submission deadline, or does not do so in the 
form and manner specified by HHS, would be relying on HHS to make these 
determinations. We acknowledge that the HHS determination of which 
requirements are in addition to EHB and therefore require defrayal 
might conflict with the opinion of a state that does not annually 
report to HHS. Such concerns are mitigated however because states can 
avoid such a result by submitting the proposed report.
    We do not anticipate any federalism implications related to our 
proposal that special enrollment periods currently following regular 
effective date rules would instead be effective on the first of the 
month following plan selection in the Exchanges using the Federal 
platform. We believe State Exchanges are best positioned to determine 
which effective date rules meet the needs of their issuers and 
consumers. As such, under our proposed changes, State Exchanges could 
retain their current effective date rules or implement faster ones 
without needing to demonstrate issuer concurrence.
    We do not expect there to be federalism implications related to our 
proposal to remove the separate

[[Page 7156]]

retroactive effective date rule for enrollments pended due to special 
enrollment period verification under Sec.  155.420(b)(5). Neither the 
retroactive binder payment rule specific to enrollments pended due to 
special enrollment period eligibility verification at Sec.  
155.400(e)(1)(v), nor the original retroactive binder payment rule at 
Sec.  155.400(e)(1)(iii), applies outside of Exchanges using the 
Federal platform. Although current Sec.  155.420(b)(5) does apply to 
State Exchanges, a State Exchange that has implemented special 
enrollment period verification would retain flexibility to apply the 
policy that if a consumer's enrollment is delayed until after the 
verification of the consumer's eligibility for a special enrollment 
period, and the assigned effective date would require the consumer to 
pay 2 or more months of retroactive premium to effectuate coverage or 
avoid cancellation, the consumer has the option to choose a coverage 
effective date that is no more than 1 month later than had previously 
been assigned.
    We do not anticipate any federalism implications related to our 
proposal to require QHP issuers to send to enrollees a termination 
notice for all termination events described in Sec.  155.430(b).
    We do not anticipate any federalism implications related to our 
proposal described in Sec.  155.430(d) to align the provision for 
termination after experiencing a technical error that did not allow the 
enrollee to terminate his or her coverage or enrollment through the 
Exchange with all other enrollee-initiated termination effective date 
rules under Sec.  155.430 that, at the option of the Exchange, no 
longer require 14-days advance notice.

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. This proposed rule is a ``major rule'' as that term is defined 
in 5 U.S.C. 804(2), because it is likely to result in an annual effect 
on the economy of $100 million or more.

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 
Executive Order 13771 requires that the new incremental costs 
associated with new regulations shall, to the extent permitted by law, 
be offset by the elimination of existing costs associated with at least 
two prior regulations.
    This proposed rule, if finalized as proposed, is expected to be 
E.O. 13771 deregulatory action. We estimate cost savings of 
approximately $135.66 million in 2020 and $91.95 million in 2021 and 
annual costs of approximately $50,000 thereafter. Thus the annualized 
value of cost savings, as of 2016 and calculated over a perpetual time 
horizon with a 7 percent discount rate, would be 10.55 million.

List of Subjects

45 CFR Part 146

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 149

    Health care, Health insurance, Reporting and recordkeeping 
requirements.

45 CFR Part 155

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

45 CFR Part 156

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

45 CFR Part 158

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

    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 subtitle A, subchapter B, 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 300-gg-92.

0
2. Section 146.145 is amended by adding paragraph (b)(3)(viii)(E) to 
read as follows:


Sec.  146.145   Special rules relating to group health plans.

* * * * *
    (b) * * *
    (3) * * *
    (viii) * * *
    (E) Notice requirement. For plan years beginning on or after [DATE 
30-DAYS AFTER THE EFFECTIVE DATE OF THE FINAL RULE], the HRA or other 
account-based group health plan must provide a notice that describes 
conditions pertaining to eligibility to receive benefits, annual or 
lifetime caps, or other limits on benefits under the plan, and a 
description or summary of the benefits. This notice must be provided no 
later than 90 days after an employee becomes a participant and annually 
thereafter, in a manner reasonably calculated to ensure actual receipt 
by participants eligible for the HRA or other account-based group 
health plan.
* * * * *

PART 149--[REMOVED and RESERVED]

0
3. Part 149 is removed and reserved.

[[Page 7157]]

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

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

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

0
5. Section 155.330 is amended by revising paragraph (e)(2)(i)(D) to 
read as follows:


Sec.  155.330  Eligibility redetermination during a benefit year.

* * * * *
    (e) * * *
    (2) * * *
    (i) * * *
    (D) If the enrollee does not respond contesting the updated 
information within the 30-day period specified in paragraph 
(e)(2)(i)(B) of this section, proceed in accordance with paragraphs 
(e)(1)(i) and (ii) of this section, provided the enrollee has not 
directed the Exchange to terminate his or her coverage under such 
circumstances, in which case the Exchange will terminate the enrollee's 
coverage in accordance with Sec.  155.430(b)(1)(ii), and provided the 
enrollee has not been determined to be deceased, in which case the 
Exchange will terminate the enrollee's coverage in accordance with 
Sec.  155.430(d)(7).
* * * * *
0
6. Section 155.400 is amended by revising paragraphs (e)(1)(i) through 
(iii) and removing paragraph (e)(1)(iv) to read as follows:


Sec.  155.400   Enrollment of qualified individuals into QHPs.

* * * * *
    (e) * * *
    (1) * * *
    (i) For prospective coverage to be effectuated under regular 
coverage effective dates, as provided for in Sec.  155.410(f), the 
binder payment must consist of the first month's premium, and the 
deadline for making the binder payment must be no earlier than the 
coverage effective date, and no later than 30 calendar days from the 
coverage effective date.
    (ii) For prospective coverage to be effectuated under special 
effective dates, as provided for in Sec.  155.420(b)(2) and (3), the 
binder payment must consist of the first month's premium, and the 
deadline for making the binder payment must be no earlier than the 
coverage effective date and no later than 30 calendar days from the 
date the issuer receives the enrollment transaction or the coverage 
effective date, whichever is later.
    (iii) For coverage to be effectuated under retroactive effective 
dates, as provided for in Sec.  155.420(b)(2), including when 
retroactive effective dates are due to a delay until after special 
enrollment period verification, the binder payment must consist of the 
premium due for all months of retroactive coverage through the first 
prospective month of coverage, and the deadline for making the binder 
payment must be no earlier than 30 calendar days from the date the 
issuer receives the enrollment transaction. If only the premium for 1 
month of coverage is paid, only prospective coverage should be 
effectuated, in accordance with Sec.  155.420(b)(3).
* * * * *
0
7. Section 155.420 is amended by --
0
a. Revising paragraphs (a)(4)(ii) and (iii), (b)(1) introductory text, 
and (b)(3);
0
b. Removing paragraph (b)(5); and
0
c. Revising paragraph (d)(1)(ii).
    The revisions and addition read as follows:


Sec.  155.420  Special enrollment periods.

    (a) * * *
    (4) * * *
    (ii)(A) If an enrollee and his or her dependents become newly 
eligible for cost-sharing reductions in accordance with paragraph 
(d)(6)(i) or (ii) of this section and are not enrolled in a silver-
level QHP, the Exchange must allow the enrollee and his or her 
dependents to change to a silver-level QHP if they elect to change 
their QHP enrollment; or
    (B) If an enrollee and his or her dependents become newly 
ineligible for cost-sharing reductions in accordance with paragraph 
(d)(6)(i) or (ii) of this section and are enrolled in a silver-level 
QHP, the Exchange must allow the enrollee and his or her dependents to 
change to a QHP one metal level higher or lower, if they elect to 
change their QHP enrollment.
    (iii) For the other triggering events specified in paragraph (d) of 
this section, except for paragraphs (d)(2)(i), (d)(4), and (d)(6)(i) 
and (ii) of this section for becoming newly eligible or ineligible for 
CSRs and paragraphs (d)(8), (9), (10), (12), and (14) of this section:
    (A) If an enrollee qualifies for a special enrollment period, the 
Exchange must allow the enrollee and his or her dependents, if 
applicable, to change to another QHP within the same level of coverage 
(or one metal level higher or lower, if no such QHP is available), as 
outlined in Sec.  156.140(b) of this subchapter;
    (B) If a dependent qualifies for a special enrollment period, and 
an enrollee who does not also qualify for a special enrollment period 
is adding the dependent to his or her QHP, the Exchange must allow the 
enrollee to add the dependent to his or her current QHP; or, if the 
QHP's business rules do not allow the dependent to enroll, the Exchange 
must allow the enrollee and his or her dependents to change to another 
QHP within the same level of coverage (or one metal level higher or 
lower, if no such QHP is available), as outlined in Sec.  156.140(b) of 
this subchapter, or enroll the new qualified individual in a separate 
QHP; or
    (C) If a qualified individual who is not an enrollee qualifies for 
a special enrollment period and has one or more dependents who are 
enrollees who do not also qualify for a special enrollment period, the 
Exchange must allow the newly enrolling qualified individual to add him 
or herself to a dependent's current QHP; or, if the QHP's business 
rules do not allow the qualified individual to enroll in the 
dependent's current QHP, to enroll with his or her dependent(s) in 
another QHP within the same level of coverage (or one metal level 
higher or lower, if no such QHP is available), as outlined in Sec.  
156.140(b) of this subchapter, or enroll him or herself in a separate 
QHP.
* * * * *
    (b) * * *
    (1) Regular effective dates. Except as specified in paragraphs 
(b)(2) and (3) of this section, for a QHP selection received by the 
Exchange from a qualified individual--
* * * * *
    (3) Option for earlier effective dates. (i) For a QHP selection 
received by the Exchange under a special enrollment period for which 
regular effective dates specified in paragraph (b)(1) of this section 
would apply, the Exchange may provide a coverage effective date that is 
earlier than specified in such paragraph, and a federally-facilitated 
Exchange or a State Exchange on the Federal platform will ensure that 
coverage is effective on the first day of the month following plan 
selection.
    (ii) For a QHP selection received by the Exchange under a special 
enrollment period for which special effective dates specified in 
paragraph (b)(2)(ii) of this section would apply, the Exchange may 
provide a coverage effective date that is earlier than specified in 
such paragraph.
* * * * *
    (d) * * *
    (1) * * *

[[Page 7158]]

    (ii) Is enrolled in any non-calendar year group health plan, 
individual health insurance coverage, or qualified small employer 
health reimbursement arrangement (as defined in section 9831(d)(2) of 
the Internal Revenue Code); even if the qualified individual or his or 
her dependent has the option to renew or re-enroll in such coverage. 
The date of the loss of coverage is the last day of the plan year;
* * * * *
0
8. Section 155.430 is amended by revising paragraphs (b)(1)(ii) and 
(d)(9) to read as follows:


Sec.  155.430  Termination of Exchange enrollment or coverage.

* * * * *
    (b) * * *
    (1) * * *
    (ii) The Exchange must provide an opportunity at the time of plan 
selection for an enrollee to choose to remain enrolled in a QHP if he 
or she becomes eligible for other minimum essential coverage and the 
enrollee does not request termination in accordance with paragraph 
(b)(1)(i) of this section. If an enrollee does not choose to remain 
enrolled in a QHP in such situation, the Exchange must initiate 
termination of his or her enrollment in the QHP upon completion of the 
process specified in Sec.  155.330(e)(2).
* * * * *
    (d) * * *
    (9) In case of a retroactive termination in accordance with 
paragraph (b)(1)(iv)(A) of this section, the termination date will be 
no sooner than the date that would have applied under paragraph (d)(2) 
of this section, based on the date that the enrollee can demonstrate he 
or she contacted the Exchange to terminate his or her coverage or 
enrollment through the Exchange, had the technical error not occurred.
* * * * *
0
9. Section 155.1400 is revised to read as follows:


Sec.  155.1400  Quality rating system.

    The Exchange must prominently display quality rating information 
for each QHP on its website, in accordance with Sec.  155.205(b)(1)(v), 
in a form and manner specified by HHS.
0
10. Section 155.1405 is revised to read as follows:


Sec.  155.1405  Enrollee satisfaction survey system.

    The Exchange must prominently display results from the Enrollee 
Satisfaction Survey for each QHP on its website, in accordance with 
Sec.  155.205(b)(1)(iv), in a form and manner specified by HHS.

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

0
11. The authority citation for part 156 is revised to read as follows:

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


Sec.  156.20  [Amended]

0
12. Section 156.20 is amended by removing the definition of 
``Generic''.
0
13. Section 156.111 is amended by--
0
a. Revising the section heading and paragraph (d) introductory text; 
and
0
b. Adding paragraphs (d)(2) and (f).
    The revisions and additions read as follows:


Sec.  156.111  State selection of EHB-benchmark plan for plan years 
beginning on or after January 1, 2020, and annual reporting of state-
required benefits.

* * * * *
    (d) A State must notify HHS of the selection of a new EHB-benchmark 
plan by a date to be determined by HHS for each applicable plan year 
and, in accordance with paragraph (f) of this section, of any State-
required benefits that are in addition to EHB identified under Sec.  
155.170(a)(3) of this subchapter.
* * * * *
    (2) If the State does not notify HHS of its State-required benefits 
that are in addition to EHB identified under Sec.  155.170(a)(3) of 
this subchapter in accordance with paragraph (f) of this section, HHS 
will determine which benefits are in addition to EHB for the applicable 
plan year in the State, consistent with Sec.  155.170(a)(3) of this 
subchapter.
* * * * *
    (f) A State must submit to HHS in a form and manner and by a date 
specified by HHS, a document that:
    (1) Is accurate as of the day that is at least 60 days prior to the 
annual reporting submission deadline set by HHS and that lists all 
State benefit requirements applicable to QHPs in the individual and/or 
small group market under state mandates imposed on or before December 
31, 2011, and that were not withdrawn or otherwise no longer effective 
before December 31, 2011, and any State benefit requirements that were 
imposed any time after December 31, 2011;
    (2) Specifies which of those State-required benefits listed in 
accordance with paragraph (f)(1) of this section the State has 
identified as in addition to EHB and subject to defrayal in accordance 
with Sec.  155.170 of this subchapter;
    (3) Specifies which of those State-required benefits listed in 
accordance with paragraph (f)(1) of this section the State has 
identified as not in addition to EHB and not subject to defrayal in 
accordance with Sec.  155.170 of this subchapter, and describes the 
basis for the state's determination;
    (4) Provides other information about those State-required benefits 
listed in accordance with paragraph (f)(1) of this section that is 
necessary for HHS oversight, as specified by HHS;
    (5) Is signed by a state official with authority to make the 
submission on behalf of the state certifying the accuracy of the 
submission; and
    (6) Is updated annually, in a form and manner and by a date 
specified by HHS, to include any new State benefit requirements, and to 
indicate whether benefit requirements previously reported to HHS under 
this paragraph (f) have been amended, repealed, or otherwise affected 
by state regulatory or legislative action.
0
14. Section 156.130 is amended by revising paragraph (h) to read as 
follows:


Sec.  156.130  Cost-sharing requirements.

* * * * *
    (h) Use of drug manufacturer coupons. Notwithstanding any other 
provision of this section, and to the extent consistent with State law, 
amounts paid toward reducing the cost sharing incurred by an enrollee 
using any form of direct support offered by drug manufacturers for 
specific prescription drugs may be, but are not required to be, counted 
toward the annual limitation on cost sharing, as defined in paragraph 
(a) of this section.
0
15. Section 156.265 is amended by revising paragraphs (f) and (g) to 
read as follows:


Sec.  156.265  Enrollment process for qualified individuals.

* * * * *
    (f) Enrollment reconciliation. A QHP issuer must reconcile 
enrollment files with the Exchange in a format specified by the 
Exchange (or, for QHP issuers in State Exchanges on the Federal 
Platform, the Federal Platform) no less than once a month in accordance 
with Sec.  155.400(d) of this subchapter, using the most recent 
enrollment information that is available and that has been verified to 
the best of the issuer's knowledge or belief.
    (g) Timely updates to enrollment records. A QHP issuer offering 
plans

[[Page 7159]]

through an Exchange must, in a format specified by the Exchange (or, 
for QHP issuers in State Exchanges on the Federal Platform, the Federal 
Platform), either:
    (1) Confirm to the Exchange (or, for QHP issuers in State Exchanges 
on the Federal Platform, the Federal Platform) that the information in 
the enrollment reconciliation file received from the Exchange (or, for 
QHP issuers in State Exchanges on the Federal Platform, the Federal 
Platform) accurately reflects its enrollment data for the applicable 
benefit year in its next enrollment reconciliation file submission to 
the Exchange (or, for QHP issuers in State Exchanges on the Federal 
Platform, the Federal Platform), and update its internal enrollment 
records accordingly; or
    (2) Describe to the Exchange (or for QHP issuers in State Exchanges 
on the Federal Platform, the Federal Platform) within one 
reconciliation cycle any discrepancy it identifies in the enrollment 
reconciliation files it received from the Exchange (or for QHP issuers 
in State Exchanges on the Federal Platform, the Federal Platform).
0
16. Section 156.270 is amended by revising paragraph (b) introductory 
text to read as follows:


Sec.  156.270  Termination of coverage or enrollment for qualified 
individuals.

* * * * *
    (b) Termination of coverage or enrollment notice requirement. If a 
QHP issuer terminates an enrollee's coverage or enrollment in a QHP 
through the Exchange in accordance with Sec.  155.430(b) of this 
subchapter, the QHP issuer must, promptly and without undue delay:
* * * * *
0
17. Section 156.1210 is revised to read as follows:


Sec.  156.1210  Dispute Submission.

    (a) Responses to reports. Within 90 calendar days of the date of a 
payment and collections report from HHS, the issuer must, in a form and 
manner specified by HHS describe to HHS any inaccuracies it identifies 
in the report.
    (b) Confirmation of HHS payment and collections reports. At the end 
of each payment year, the issuer must, in a form and manner specified 
by HHS, confirm to HHS that the amounts identified in the most recent 
payment and collections report for the coverage year accurately reflect 
applicable payments owed by the issuer to the Federal Government and 
the payments owed to the issuer by the Federal Government, or that the 
issuer has disputed any identified inaccuracies.

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

0
18. The authority citation for part 158 is revised to read as follows:

    Authority:  42 U.S.C. 300gg-18.

0
19. Section 158.110 is amended by revising paragraph (a) to read as 
follows:


Sec.  158.110  Reporting requirements related to premiums and 
expenditures.

    (a) General requirements. For each MLR reporting year, an issuer 
must submit to the Secretary a report which complies with the 
requirements of this part, concerning premium revenue and expenses 
related to the group and individual health insurance coverage that it 
issued. Reporting requirements of this part that apply to expenses 
incurred directly by the issuer also apply to expenses for functions 
outsourced to or services provided by other entities retained by the 
issuer.
* * * * *
0
20. Section 158.140 is amended by revising paragraph (b)(1)(i) to read 
as follows:


Sec.  158.140  Reimbursement for clinical services provided to 
enrollees.

* * * * *
    (b) * * *
    (1) * * *
    (i)(A) For MLR reporting years before 2021, prescription drug 
rebates received by the issuer;
    (B) Beginning with the 2021 MLR reporting year, prescription drug 
rebates and other price concessions received and retained by the 
issuer, or prescription drug rebates and other price concessions that 
are received and retained by an entity providing pharmacy benefit 
management services to the issuer and are associated with administering 
the issuer's prescription drug benefits.
* * * * *
0
21. Section 158.150 is amended by revising paragraph (b)(2)(iv)(A)(5) 
to read as follows:


Sec.  158.150  Activities that improve health care quality.

* * * * *
    (b) * * *
    (2) * * *
    (iv) * * *
    (A) * * *
    (5)(i) For MLR reporting years before 2021, actual rewards, 
incentives, bonuses, and reductions in copayments (excluding 
administration of such programs) that are not already reflected in 
premiums or claims should be allowed as a quality improvement activity 
for the group market to the extent permitted by section 2705 of the PHS 
Act;
    (ii) Beginning with the 2021 MLR reporting year, actual rewards, 
incentives, bonuses, reductions in copayments (excluding administration 
of such programs) that are not already reflected in premiums or claims, 
to the extent permitted by section 2705 of the PHS Act;
* * * * *
0
22. Section 158.160 is amended by adding paragraph (b)(2)(vii) to read 
as follows:


Sec.  158.160  Other non-claims costs.

* * * * *
    (b) * * *
    (2) * * *
    (vii) Beginning with the 2021 MLR reporting year, prescription drug 
rebates and other price concessions that are received and retained by 
the issuer, or that are received and retained by an entity providing 
pharmacy benefit management services to the issuer and are associated 
with administering the issuer's prescription drug benefits.

    Dated: October 24, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.
    Dated: November 7, 2019.
Alex M. Azar II,
Secretary, Department of Health and Human Services.
[FR Doc. 2020-02021 Filed 1-31-20; 8:45 am]
 BILLING CODE 4120-01-P