Federal Register, Volume 85 Issue 27 (Monday, February 10, 2020)

[Federal Register Volume 85, Number 27 (Monday, February 10, 2020)]
[Proposed Rules]
[Pages 7500-7515]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-02472]

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 600

[CMS-2432-PN]
RIN 0938-ZB56

Basic Health Program; Federal Funding Methodology for Program
Year 2021

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

ACTION: Proposed methodology.

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SUMMARY: This document proposes the methodology and data sources
necessary to determine federal payment amounts to be made for program
year 2021 to states that elect to establish a Basic Health Program
under the Affordable Care Act to offer health benefits coverage to low-
income individuals otherwise eligible to purchase coverage through
Affordable Insurance Exchanges.

DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on March 11, 2020.

ADDRESSES: In commenting, refer to file code CMS-2432-PN. Because of
staff and resource limitations, we cannot accept comments by facsimile
(FAX) transmission.
Comments, including mass comment submissions, must be submitted in
one of the following three ways (please choose only one of the ways
listed):
1. Electronically. You may submit electronic comments on this
regulation to http://www.regulations.gov. Follow the ``Submit a
comment'' instructions.
2. By regular mail. You may mail written comments to the following
address ONLY: Centers for Medicare & Medicaid Services, Department of
Health and Human Services, Attention: CMS-2432-PN, 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.

[[Page 7501]]

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-2432-PN, 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: Christopher Truffer, (410) 786-1264;
or Cassandra Lagorio, (410) 786-4554.

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.

I. Background

A. Overview of the Basic Health Program

Section 1331 of the Patient Protection and Affordable Care Act
(Pub. L. 111-148, enacted on March 23, 2010), as amended by the Health
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152, enacted
on March 30, 2010) (collectively referred to as the Affordable Care
Act) provides states with an option to establish a Basic Health Program
(BHP). In the states that elect to operate a BHP, the BHP will make
affordable health benefits coverage available for individuals under age
65 with household incomes between 133 percent and 200 percent of the
federal poverty level (FPL) who are not otherwise eligible for
Medicaid, the Children's Health Insurance Program (CHIP), or affordable
employer-sponsored coverage, or for individuals whose income is below
these levels but are lawfully present non-citizens ineligible for
Medicaid. For those states that have expanded Medicaid coverage under
section 1902(a)(10)(A)(i)(VIII) of the Social Security Act (the Act),
the lower income threshold for BHP eligibility is effectively 138
percent due to the application of a required 5 percent income disregard
in determining the upper limits of Medicaid income eligibility (section
1902(e)(14)(I) of the Act).
A BHP provides another option for states in providing affordable
health benefits to individuals with incomes in the ranges described
above. States may find a BHP a useful option for several reasons,
including the ability to potentially coordinate standard health plans
in the BHP with their Medicaid managed care plans, or to potentially
reduce the costs to individuals by lowering premiums or cost-sharing
requirements.
Federal funding for a BHP under section 1331(d)(3)(A) of the
Affordable Care Act is based on the amount of premium tax credit (PTC)
and cost-sharing reductions (CSRs) that would have been provided for
the fiscal year to eligible individuals enrolled in BHP standard health
plans in the state if such eligible individuals were allowed to enroll
in a qualified health plan (QHP) through Affordable Insurance Exchanges
(``Exchanges''). These funds are paid to trusts established by the
states and dedicated to the BHP, and the states then administer the
payments to standard health plans within the BHP.
In the March 12, 2014 Federal Register (79 FR 14112), we published
a final rule entitled the ``Basic Health Program: State Administration
of Basic Health Programs; Eligibility and Enrollment in Standard Health
Plans; Essential Health Benefits in Standard Health Plans; Performance
Standards for Basic Health Programs; Premium and Cost Sharing for Basic
Health Programs; Federal Funding Process; Trust Fund and Financial
Integrity'' (hereinafter referred to as the BHP final rule)
implementing section 1331 of the Affordable Care Act, which governs the
establishment of BHPs. The BHP final rule establishes the standards for
state and federal administration of BHPs, including provisions
regarding eligibility and enrollment, benefits, cost-sharing
requirements and oversight activities. While the BHP final rule
codifies the overall statutory requirements and basic procedural
framework for the funding methodology, it does not contain the specific
information necessary to determine federal payments. We anticipated
that the methodology would be based on data and assumptions that would
reflect ongoing operations and experience of BHPs, as well as the
operation of the Exchanges. For this reason, the BHP final rule
indicated that the development and publication of the funding
methodology, including any data sources, would be addressed in a
separate annual BHP Payment Notice.
In the BHP final rule, we specified that the BHP Payment Notice
process would include the annual publication of both a proposed and
final BHP Payment Notice. The proposed BHP Payment Notice would be
published in the Federal Register each October, 2 years prior to the
applicable program year, and would describe the proposed funding
methodology for the relevant BHP year,\1\ including how the Secretary
considered the factors specified in section 1331(d)(3) of the
Affordable Care Act, along with the proposed data sources used to
determine the federal BHP payment rates for the applicable program
year. The final BHP Payment Notice would be published in the Federal
Register in February, and would include the final BHP funding
methodology, as well as the federal BHP payment rates for the
applicable BHP program year. For example, payment rates in the final
BHP Payment Notice published in February 2015 applied to BHP program
year 2016, beginning in January 2016. As discussed in section II.C. of
this proposed notice, and as referenced in 42 CFR 600.610(b)(2), state
data needed to calculate the federal BHP payment rates for the final
BHP Payment Notice must be submitted to CMS.
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\1\ BHP program years span from January 1 through December 31.
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As described in the BHP final rule, once the final methodology for
the applicable program year has been published, we will generally make
modifications to the BHP funding methodology on a prospective basis,
but with limited exceptions. The BHP final rule provided that
retrospective adjustments to the state's BHP payment amount may occur
to the extent that the prevailing BHP funding methodology for a given
program year permits adjustments to a state's federal BHP payment
amount due to insufficient data for prospective determination of the
relevant factors specified in the applicable final BHP Payment Notice.
For example, the population health factor adjustment described in
section II.D.3. of this proposed notice allows for a retrospective
adjustment (at the state's option) to account for the impact that BHP
may have had on the risk pool and QHP premiums in the Exchange.
Additional adjustments could be made to the payment rates to correct
errors in applying the methodology (such as mathematical errors).
Under section 1331(d)(3)(ii) of the Affordable Care Act, the
funding methodology and payment rates are expressed as an amount per
eligible individual enrolled in a BHP standard health plan (BHP
enrollee) for each month of enrollment. These payment rates may vary
based on categories or

[[Page 7502]]

classes of enrollees. Actual payment to a state would depend on the
actual enrollment of individuals found eligible in accordance with a
state's certified BHP Blueprint eligibility and verification
methodologies in coverage through the state BHP. A state that is
approved to implement a BHP must provide data showing quarterly
enrollment of eligible individuals in the various federal BHP payment
rate cells. Such data must include the following:
Personal identifier;
Date of birth;
County of residence;
Indian status;
Family size;
Household income;
Number of persons in household enrolled in BHP;
Family identifier;
Months of coverage;
Plan information; and
Any other data required by CMS to properly calculate the
payment.

B. The 2018 Final Administrative Order, 2019 Payment Methodology, and
2020 Payment Methodology

On October 11, 2017, the Attorney General of the United States
provided the Department of Health and Human Services and the Department
of the Treasury with a legal opinion indicating that the permanent
appropriation at 31 U.S.C. 1324, from which the Departments had
historically drawn funds to make CSR payments, cannot be used to fund
CSR payments to insurers. In light of this opinion--and in the absence
of any other appropriation that could be used to fund CSR payments--the
Department of Health and Human Services directed us to discontinue CSR
payments to issuers until Congress provides for an appropriation. In
the absence of a Congressional appropriation for federal funding for
CSRs, we cannot provide states with a federal payment attributable to
CSRs that BHP enrollees would have received had they been enrolled in a
QHP through an Exchange.
Starting with the payment for the first quarter (Q1) of 2018 (which
began on January 1, 2018), we stopped paying the CSR component of the
quarterly BHP payments to New York and Minnesota (the states), the only
states operating a BHP in 2018. The states then sued the Secretary for
declaratory and injunctive relief in the United States District Court
for the Southern District of New York. See State of New York, et al, v.
U.S. Department of Health and Human Services, 18-cv-00683 (S.D.N.Y.
filed Jan. 26, 2018). On May 2, 2018, the parties filed a stipulation
requesting a stay of the litigation so that HHS could issue an
administrative order revising the 2018 BHP payment methodology. As a
result of the stipulation, the court dismissed the BHP litigation. On
July 6, 2018, we issued a Draft Administrative Order on which New York
and Minnesota had an opportunity to comment. Each state submitted
comments. We considered the states' comments and issued a Final
Administrative Order on August 24, 2018 (Final Administrative Order)
setting forth the payment methodology that would apply to the 2018 BHP
program year.
In the November 5, 2019 Federal Register (84 FR 59529 through
59548) (hereinafter referred to as the November 2019 final payment
notice), we finalized the payment methodologies for BHP program years
2019 and 2020. The 2019 payment methodology is the same payment
methodology described in the Final Administrative Order. The 2020
payment methodology is the same methodology as the 2019 payment
methodology with one additional adjustment to account for the impact of
individuals selecting different metal tier level plans in the Exchange,
referred to as the Metal Tier Selection Factor (MTSF).\2\ Through this
proposed notice, and as we explain in more detail below, we propose to
apply the same payment methodology that is applied to program year 2020
to program year 2021, with one modification to the calculation of the
income reconciliation factor (IRF).
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\2\ ``Metal tiers'' refer to the different actuarial value plan
levels offered on the Exchanges. Bronze-level plans generally must
provide 60 percent actuarial value; silver-level 70 percent
actuarial value; gold-level 80 percent actuarial value; and
platinum-level 90 percent actuarial value. See 45 CFR 156.140.
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II. Provisions of the Proposed Notice

A. Overview of the Funding Methodology and Calculation of the Payment
Amount

Section 1331(d)(3) of the Affordable Care Act directs the Secretary
to consider several factors when determining the federal BHP payment
amount, which, as specified in the statute, must equal 95 percent of
the value of the PTC and CSRs that BHP enrollees would have been
provided had they enrolled in a QHP through an Exchange. Thus, the BHP
funding methodology is designed to calculate the PTC and CSRs as
consistently as possible and in general alignment with the methodology
used by Exchanges to calculate the advance payments of the PTC and
CSRs, and by the Internal Revenue Service (IRS) to calculate final
PTCs. In general, we have relied on values for factors in the payment
methodology specified in statute or other regulations as available, and
have developed values for other factors not otherwise specified in
statute, or previously calculated in other regulations, to simulate the
values of the PTC and CSRs that BHP enrollees would have received if
they had enrolled in QHPs offered through an Exchange. In accordance
with section 1331(d)(3)(A)(iii) of the Affordable Care Act, the final
funding methodology must be certified by the Chief Actuary of CMS, in
consultation with the Office of Tax Analysis (OTA) of the Department of
the Treasury, as having met the requirements of section
1331(d)(3)(A)(ii) of the Affordable Care Act.
Section 1331(d)(3)(A)(ii) of the Affordable Care Act specifies that
the payment determination shall take into account all relevant factors
necessary to determine the value of the PTCs and CSRs that would have
been provided to eligible individuals, including but not limited to,
the age and income of the enrollee, whether the enrollment is for self-
only or family coverage, geographic differences in average spending for
health care across rating areas, the health status of the enrollee for
purposes of determining risk adjustment payments and reinsurance
payments that would have been made if the enrollee had enrolled in a
QHP through an Exchange, and whether any reconciliation of PTC and CSR
would have occurred if the enrollee had been so enrolled. Under the
payment methodologies for 2015 (79 FR 13887) (published in March 2014),
for 2016 (80 FR 9636) (published in February 2015), for 2017 and 2018
(81 FR 10091) (published in February 2016), and for 2019 and 2020 (84
FR 59529) (published in November 2019), the total federal BHP payment
amount has been calculated using multiple rate cells in each state.
Each rate cell represents a unique combination of age range (if
applicable), geographic area, coverage category (for example, self-only
or two-adult coverage through the BHP), household size, and income
range as a percentage of FPL, and there is a distinct rate cell for
individuals in each coverage category within a particular age range who
reside in a specific geographic area and are in households of the same
size and income range. The BHP payment rates developed also are
consistent with the state's rules on age rating. Thus, in the case of a
state that does not use age as a rating factor on an Exchange, the BHP
payment rates would not vary by age.
Under the methodology in the November 2019 final payment notice,

[[Page 7503]]

the rate for each rate cell is calculated in two parts. The first part
is equal to 95 percent of the estimated PTC that would have been paid
if a BHP enrollee in that rate cell had instead enrolled in a QHP in an
Exchange. The second part is equal to 95 percent of the estimated CSR
payment that would have been made if a BHP enrollee in that rate cell
had instead enrolled in a QHP in an Exchange. These two parts are added
together and the total rate for that rate cell would be equal to the
sum of the PTC and CSR rates. As noted in the November 2019 final
payment notice, we currently assign a value of zero to the CSR portion
of the BHP payment rate calculation, because there is presently no
available appropriation from which we can make the CSR portion of any
BHP Payment.
We propose that Equation (1) would be used to calculate the
estimated PTC for eligible individuals enrolled in the BHP in each rate
cell. We note that throughout this proposed notice, when we refer to
enrollees and enrollment data, we mean data regarding individuals who
are enrolled in the BHP who have been found eligible for the BHP using
the eligibility and verification requirements that are applicable in
the state's most recent certified Blueprint. By applying the equations
separately to rate cells based on age (if applicable), income and other
factors, we would effectively take those factors into account in the
calculation. In addition, the equations would reflect the estimated
experience of individuals in each rate cell if enrolled in coverage
through an Exchange, taking into account additional relevant variables.
Each of the variables in the equations is defined in this section, and
further detail is provided later in this section of this proposed
notice. In addition, we describe in Equation (2a) and Equation (2b)
(below) how we propose to calculate the adjusted reference premium
(ARP) that is used in Equation (1).
Equation 1: Estimated PTC by Rate Cell
We propose that the estimated PTC, on a per enrollee basis, would
continue to be calculated for each rate cell for each state based on
age range (if applicable), geographic area, coverage category,
household size, and income range. The PTC portion of the rate would be
calculated in a manner consistent with the methodology used to
calculate the PTC for persons enrolled in a QHP, with 5 adjustments.
First, the PTC portion of the rate for each rate cell would represent
the mean, or average, expected PTC that all persons in the rate cell
would receive, rather than being calculated for each individual
enrollee. Second, the reference premium (RP) (described in section
II.D.1 of this proposed notice) used to calculate the PTC would be
adjusted for the BHP population health status, and in the case of a
state that elects to use 2020 premiums for the basis of the BHP federal
payment, for the projected change in the premium from 2020 to 2021, to
which the rates announced in the final payment methodology would apply.
These adjustments are described in Equation (2a) and Equation (2b).
Third, the PTC would be adjusted prospectively to reflect the mean, or
average, net expected impact of income reconciliation on the
combination of all persons enrolled in the BHP; this adjustment, the
IRF, as described in section II.D.7. of this proposed notice, would
account for the impact on the PTC that would have occurred had such
reconciliation been performed. Fourth, the PTC would be adjusted to
account for the estimated impacts of plan selection; this adjustment,
the MTSF, would reflect the effect on the average PTC of individuals
choosing different metal tier levels of QHPs. Finally, the rate is
multiplied by 95 percent, consistent with section 1331(d)(3)(A)(i) of
the Affordable Care Act. We note that in the situation where the
average income contribution of an enrollee would exceed the ARP, we
would calculate the PTC to be equal to 0 and would not allow the value
of the PTC to be negative.
We propose using Equation (1) to calculate the PTC rate, consistent
with the methodology described above:
[GRAPHIC] [TIFF OMITTED] TP10FE20.008

PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
ARPa,g,c = Adjusted reference premium
Ih,i,j = Income (in dollars per month) at each 1 percentage-point
increment of FPL
j = jth percentage-point increment FPL
n = Number of income increments used to calculate the mean PTC
PTCFh,i,j = Premium tax credit formula percentage
IRF = Income reconciliation factor
MTSF = Metal tier selection factor
Equation (2a) and Equation (2b): Adjusted Reference Premium (ARP)
Variable (Used in Equation 1)
As part of the calculations for the PTC component, we propose to
continue to calculate the value of the ARP as described below.
Consistent with the existing approach, we are proposing to allow states
to choose between using the actual current year premiums or the prior
year's premiums multiplied by the premium trend factor (PTF) (as
described in section II.E. of this proposed notice). Below we describe
how we would continue to calculate the ARP under each option.
In the case of a state that elected to use the reference premium
(RP) based on the current program year (for example, 2021 premiums for
the 2021 program year), we propose to calculate the value of the ARP as
specified in Equation (2a). The ARP would be equal to the RP, which
would be based on the second lowest cost silver plan premium in the
applicable program year, multiplied by the BHP population health factor
(PHF) (described in section II.D. of this proposed notice), which would
reflect the projected impact that enrolling BHP-eligible individuals in
QHPs through an Exchange would have had on the average QHP premium, and
multiplied by the premium adjustment factor (PAF) (described in section
II.D of this proposed notice), which would account for the change in
silver-level premiums due to the discontinuance of CSR payments.

[[Page 7504]]

[GRAPHIC] [TIFF OMITTED] TP10FE20.009

In the case of a state that elected to use the RP based on the
prior program year (for example, 2020 premiums for the 2021 program
year, as described in more detail in section II.E. of this proposed
notice), we propose to calculate the value of the ARP as specified in
Equation (2b). The ARP would be equal to the RP, which would be based
on the second lowest cost silver plan premium in 2020, multiplied by
the BHP PHF (described in section II.D of this proposed notice), which
would reflect the projected impact that enrolling BHP-eligible
individuals in QHPs on an Exchange would have had on the average QHP
premium, multiplied by the PAF (described in section II.D. of this
proposed notice), which would account for the change in silver-level
premiums due to the discontinuance of CSR payments, and multiplied by
the premium trend factor (PTF) (described in section II.E. of this
proposed notice), which would reflect the projected change in the
premium level between 2020 and 2021.
[GRAPHIC] [TIFF OMITTED] TP10FE20.009

ARPa,g,c = Adjusted reference premium
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family
coverage) obtained through BHP
RPa,g,c = Reference premium
PHF = Population health factor
PAF = Premium adjustment factor
PTF = Premium trend factor
Equation 3: Determination of Total Monthly Payment for BHP Enrollees in
Each Rate Cell
In general, the rate for each rate cell would be multiplied by the
number of BHP enrollees in that cell (that is, the number of enrollees
that meet the criteria for each rate cell) to calculate the total
monthly BHP payment. This calculation is shown in Equation (3).
[GRAPHIC] [TIFF OMITTED] TP10FE20.011

PMT = Total monthly BHP payment
PTCa,g,c,h,i = Premium tax credit portion of BHP payment rate
CSRa,g,c,h,i = Cost sharing reduction portion of BHP payment rate
Ea,g,c,h,i = Number of BHP enrollees
a = Age range
g = Geographic area
c = Coverage status (self-only or applicable category of family
coverage) obtained through BHP
h = Household size
i = Income range (as percentage of FPL)
i = Income range (as percentage of FPL)
In this equation, we would assign a value of zero to the CSR part
of the BHP payment rate calculation (CSRa,g,c,h,i) because there is
presently no available appropriation from which we can make the CSR
portion of any BHP payment. In the event that an appropriation for CSRs
for 2021 is made, we would determine whether and how to modify the CSR
part of the BHP payment rate calculation (CSRa,g,c,h,i) or the PAF and
the MTSF in the payment methodology.

B. Federal BHP Payment Rate Cells

Consistent with the previous payment methodologies, we propose that
a state implementing a BHP provide us an estimate of the number of BHP
enrollees it projects will enroll in the upcoming BHP program quarter,
by applicable rate cell, prior to the first quarter and each subsequent
quarter of program operations until actual enrollment data is
available. Upon our approval of such estimates as reasonable, we will
use those estimates to calculate the prospective payment for the first
and subsequent quarters of program operation until the state provides
us with actual enrollment data for those periods. The actual enrollment
data is required to calculate the final BHP payment amount and make any
necessary reconciliation adjustments to the prior quarters' prospective
payment amounts due to differences between projected and actual
enrollment. Subsequent quarterly deposits to the state's trust fund
would be based on the most recent actual enrollment data submitted to
us. Actual enrollment data must be based on individuals enrolled for
the quarter who the state found eligible and whose eligibility was
verified using eligibility and verification requirements as agreed to
by the state in its applicable BHP Blueprint for the quarter that
enrollment data is submitted. Procedures will ensure that federal
payments to a state reflect actual BHP enrollment during a year, within
each applicable category, and prospectively determined federal payment
rates for each category of BHP enrollment, with such categories defined
in terms of age range (if applicable), geographic area, coverage
status, household size, and income range, as explained above.
We propose requiring the use of certain rate cells as part of the
proposed methodology. For each state, we propose using rate cells that
separate the BHP population into separate cells based on the five
factors described as follows:
Factor 1--Age: We propose to continue separating enrollees into
rate cells by age (if applicable), using the following age ranges that
capture the widest variations in premiums under HHS's Default Age
Curve: \3\
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\3\ This curve is used to implement the Affordable Care Act's
3:1 limit on age-rating in states that do not create an alternative
rate structure to comply with that limit. The curve applies to all
individual market plans, both within and outside the Exchange. The
age bands capture the principal allowed age-based variations in
premiums as permitted by this curve. The default age curve was
updated for plan or policy years beginning on or after January 1,
2018 to include different age rating factors between children 0-14
and for persons at each age between 15 and 20. More information is
available at https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/Downloads/StateSpecAgeCrv053117.pdf.
Both children and adults under age 21 are charged the same premium.
For adults age 21-64, the age bands in this notice divide the total
age-based premium variation into the three most equally-sized ranges
(defining size by the ratio between the highest and lowest premiums
within the band) that are consistent with the age-bands used for
risk-adjustment purposes in the HHS-Developed Risk Adjustment Model.
For such age bands, see HHS-Developed Risk Adjustment Model
Algorithm ``Do It Yourself (DIY)'' Software Instructions for the
2018 Benefit Year, April 4, 2019 Update, https://www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/Updated-CY2018-DIY-instructions.pdf.

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[[Page 7505]]

Ages 0-20.
Ages 21-34.
Ages 35-44.
Ages 45-54.
Ages 55-64.

This proposed provision is unchanged from the current
methodology.\4\
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\4\ In this document, references to the ``current methodology''
refer to the 2020 program year methodology as outlined in November
2019 final payment notice.
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Factor 2--Geographic area: For each state, we propose separating
enrollees into rate cells by geographic areas within which a single RP
is charged by QHPs offered through the state's Exchange. Multiple, non-
contiguous geographic areas would be incorporated within a single cell,
so long as those areas share a common RP.\5\ This proposed provision is
also unchanged from the current methodology.
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\5\ For example, a cell within a particular state might refer to
``County Group 1,'' ``County Group 2,'' etc., and a table for the
state would list all the counties included in each such group. These
geographic areas are consistent with the geographic areas
established under the 2014 Market Reform Rules. They also reflect
the service area requirements applicable to QHPs, as described in 45
CFR 155.1055, except that service areas smaller than counties are
addressed as explained in this notice.
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Factor 3--Coverage status: We propose to continue separating
enrollees into rate cells by coverage status, reflecting whether an
individual is enrolled in self-only coverage or persons are enrolled in
family coverage through the BHP, as provided in section
1331(d)(3)(A)(ii) of the Affordable Care Act. Among recipients of
family coverage through the BHP, separate rate cells, as explained
below, would apply based on whether such coverage involves two adults
alone or whether it involves children. This proposed provision is
unchanged from the current methodology.
Factor 4--Household size: We propose to continue the current
methods for separating enrollees into rate cells by household size that
states use to determine BHP enrollees' household income as a percentage
of the FPL under Sec. 600.320 (Determination of eligibility for and
enrollment in a standard health plan). We propose to require separate
rate cells for several specific household sizes. For each additional
member above the largest specified size, we propose to publish
instructions for how we would develop additional rate cells and
calculate an appropriate payment rate based on data for the rate cell
with the closest specified household size. We propose to publish
separate rate cells for household sizes of 1 through 10. This proposed
provision is unchanged from the current methodology.
Factor 5--Household Income: For households of each applicable size,
we propose to continue the current methods for creating separate rate
cells by income range, as a percentage of FPL. The PTC that a person
would receive if enrolled in a QHP through an Exchange varies by
household income, both in level and as a ratio to the FPL. Thus, we
propose that separate rate cells would be used to calculate federal BHP
payment rates to reflect different bands of income measured as a
percentage of FPL. We propose using the following income ranges,
measured as a percentage of the FPL:
0 to 50 percent of the FPL.
51 to 100 percent of the FPL.
101 to 138 percent of the FPL.\6\
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\6\ The three lowest income ranges would be limited to lawfully
present immigrants who are ineligible for Medicaid because of
immigration status.
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139 to 150 percent of the FPL.
151 to 175 percent of the FPL.
176 to 200 percent of the FPL.

This proposed provision is unchanged from the current methodology.
These rate cells would only be used to calculate the federal BHP
payment amount. A state implementing a BHP would not be required to use
these rate cells or any of the factors in these rate cells as part of
the state payment to the standard health plans participating in the BHP
or to help define BHP enrollees' covered benefits, premium costs, or
out-of-pocket cost-sharing levels.
Consistent with the current methodology, we propose using averages
to define federal payment rates, both for income ranges and age ranges
(if applicable), rather than varying such rates to correspond to each
individual BHP enrollee's age (if applicable) and income level. We
believe that the proposed approach will increase the administrative
feasibility of making federal BHP payments and reduce the likelihood of
inadvertently erroneous payments resulting from highly complex
methodologies. We also believe this approach should not significantly
change federal payment amounts, since within applicable ranges, the
BHP-eligible population is distributed relatively evenly.
The number of factors contributing to rate cells, when combined,
can result in over 350,000 rate cells which can increase the complexity
when generating quarterly payment amounts. In future years, and in the
interest of administrative simplification, we will consider whether to
combine or eliminate certain rate cells, once we are certain that the
effect on payment would be insignificant.

C. Sources and State Data Considerations

To the extent possible, unless otherwise provided, we intend to
continue to use data submitted to the federal government by QHP issuers
seeking to offer coverage through the Exchange in the relevant BHP
state to perform the calculations that determine federal BHP payment
cell rates.
States operating a State-based Exchange in the individual market,
however, must provide certain data, including premiums for second
lowest cost silver plans, by geographic area, for CMS to calculate the
federal BHP payment rates in those states. We propose that a State-
based Exchange interested in obtaining the applicable 2021 program year
federal BHP payment rates for its state must submit such data
accurately, completely, and as specified by CMS, by no later than
October 15, 2020. If additional state data (that is, in addition to the
second lowest cost silver plan premium data) are needed to determine
the federal BHP payment rate, such data must be submitted in a timely
manner, and in a format specified by us to support the development and
timely release of annual BHP payment notices. The specifications for
data collection to support the development of BHP payment rates are
published in CMS guidance and are available in the Federal Policy
Guidance section at https://www.medicaid.gov/federal-policy-Guidance/index.html.
States operating a BHP must submit enrollment data to us on a
quarterly basis and should be technologically prepared to begin
submitting data at the start of their BHP, starting with the beginning
of the first program year. This differs from the enrollment estimates
used to calculate the initial BHP payment, which states would generally
submit to CMS 60 days before the start of the first quarter of the
program start date. This requirement is necessary for us to implement
the payment methodology that is tied to a quarterly reconciliation
based on actual enrollment data.
We propose to continue the policy first adopted in the February
2016 payment notice that in states that have BHP enrollees who do not
file federal tax returns (non-filers), the state must

[[Page 7506]]

develop a methodology to determine the enrollees' household income and
household size consistently with Marketplace requirements.\7\ The state
must submit this methodology to us at the time of their Blueprint
submission. We reserve the right to approve or disapprove the state's
methodology to determine household income and household size for non-
filers if the household composition and/or household income resulting
from application of the methodology are different than what typically
would be expected to result if the individual or head of household in
the family were to file a tax return. States currently operating a BHP
that wish to change the methodology for non-filers must submit a
revised Blueprint outlining the revisions to its methodology,
consistent with Sec. 600.125.
---------------------------------------------------------------------------

\7\ See 81 FR at 10097.
---------------------------------------------------------------------------

In addition, as the federal payments are determined quarterly and
the enrollment data is required to be submitted by the states to us
quarterly, we propose that the quarterly payment would be based on the
characteristics of the enrollee at the beginning of the quarter (or
their first month of enrollment in the BHP in each quarter). Thus, if
an enrollee were to experience a change in county of residence,
household income, household size, or other factors related to the BHP
payment determination during the quarter, the payment for the quarter
would be based on the data as of the beginning of the quarter (or their
first month of enrollment in the BHP in the applicable quarter).
Payments would still be made only for months that the person is
enrolled in and eligible for the BHP. We do not anticipate that this
would have a significant effect on the federal BHP payment. The states
must maintain data that are consistent with CMS' verification
requirements, including auditable records for each individual enrolled,
indicating an eligibility determination and a determination of income
and other criteria relevant to the payment methodology as of the
beginning of each quarter.
Consistent with Sec. 600.610 (Secretarial determination of BHP
payment amount), the state is required to submit certain data in
accordance with this notice. We require that this data be collected and
validated by states operating a BHP, and that this data be submitted to
CMS.

D. Discussion of Specific Variables Used in Payment Equations

1. Reference Premium (RP)
To calculate the estimated PTC that would be paid if BHP-eligible
individuals enrolled in QHPs through an Exchange, we must calculate a
RP because the PTC is based, in part, on the premiums for the
applicable second lowest cost silver plan as explained in section
II.D.5. of this proposed notice, regarding the premium tax credit
formula (PTCF). The proposal is unchanged from the current methodology
except to update the reference years, and to provide additional
methodological details to simplify calculations and to deal with
potential ambiguities. Accordingly, for the purposes of calculating the
BHP payment rates, the RP, in accordance with 26 U.S.C. 36B(b)(3)(C),
is defined as the adjusted monthly premium for an applicable second
lowest cost silver plan. The applicable second lowest cost silver plan
is defined in 26 U.S.C. 36B(b)(3)(B) as the second lowest cost silver
plan of the individual market in the rating area in which the taxpayer
resides that is offered through the same Exchange. We propose to use
the adjusted monthly premium for an applicable second lowest cost
silver plan in the applicable program year (2021) as the RP (except in
the case of a state that elects to use the prior plan year's premium as
the basis for the federal BHP payment for 2021, as described in section
II.E. of this proposed notice).
The RP would be the premium applicable to non-tobacco users. This
is consistent with the provision in 26 U.S.C. 36B(b)(3)(C) that bases
the PTC on premiums that are adjusted for age alone, without regard to
tobacco use, even for states that allow insurers to vary premiums based
on tobacco use in accordance with 42 U.S.C. 300gg(a)(1)(A)(iv).
Consistent with the policy set forth in 26 CFR 1.36B-3(f)(6), to
calculate the PTC for those enrolled in a QHP through an Exchange, we
propose not to update the payment methodology, and subsequently the
federal BHP payment rates, in the event that the second lowest cost
silver plan used as the RP, or the lowest cost silver plan, changes
(that is, terminates or closes enrollment during the year).
The applicable second lowest cost silver plan premium will be
included in the BHP payment methodology by age range (if applicable),
geographic area, and self-only or applicable category of family
coverage obtained through the BHP.
We note that the choice of the second lowest cost silver plan for
calculating BHP payments would rely on several simplifying assumptions
in its selection. For the purposes of determining the second lowest
cost silver plan for calculating PTC for a person enrolled in a QHP
through an Exchange, the applicable plan may differ for various
reasons. For example, a different second lowest cost silver plan may
apply to a family consisting of 2 adults, their child, and their niece
than to a family with 2 adults and their children, because 1 or more
QHPs in the family's geographic area might not offer family coverage
that includes the niece. We believe that it would not be possible to
replicate such variations for calculating the BHP payment and believe
that in the aggregate, they would not result in a significant
difference in the payment. Thus, we propose to use the second lowest
cost silver plan available to any enrollee for a given age, geographic
area, and coverage category.
This choice of RP relies on an assumption about enrollment in the
Exchanges. In the payment methodologies for program years 2015 through
2019, we had assumed that all persons enrolled in the BHP would have
elected to enroll in a silver level plan if they had instead enrolled
in a QHP through an Exchange (and that the QHP premium would not be
lower than the value of the PTC). In the November 2019 final payment
notice, we continued to use the second-lowest cost silver plan premium
as the RP, but for the 2020 payments we changed the assumption about
which metal tier plans enrollees would choose (see section II.D.6 on
the MTSF in this proposed notice). Therefore, for the 2021 payment
methodology, we propose to continue to use the second-lowest cost
silver plan premium as the RP, but account for how enrollees may choose
other metal tier plans by applying the MTSF.
We do not believe it is appropriate to adjust the payment for an
assumption that some BHP enrollees would not have enrolled in QHPs for
purposes of calculating the BHP payment rates, since section
1331(d)(3)(A)(ii) of the Affordable Care Act requires the calculation
of such rates as if the enrollee had enrolled in a QHP through an
Exchange.
The applicable age bracket (if any) will be one dimension of each
rate cell. We propose to assume a uniform distribution of ages and
estimate the average premium amount within each rate cell. We believe
that assuming a uniform distribution of ages within these ranges is a
reasonable approach and would produce a reliable

[[Page 7507]]

determination of the total monthly payment for BHP enrollees. We also
believe this approach would avoid potential inaccuracies that could
otherwise occur in relatively small payment cells if age distribution
were measured by the number of persons eligible or enrolled.
We propose to use geographic areas based on the rating areas used
in the Exchanges. We propose to define each geographic area so that the
RP is the same throughout the geographic area. When the RP varies
within a rating area, we propose defining geographic areas as
aggregations of counties with the same RP. Although plans are allowed
to serve geographic areas smaller than counties after obtaining our
approval, we propose that no geographic area, for purposes of defining
BHP payment rate cells, will be smaller than a county. We do not
believe that this assumption will have a significant impact on federal
payment levels and it would simplify both the calculation of BHP
payment rates and the operation of the BHP.
Finally, in terms of the coverage category, we propose that federal
payment rates only recognize self-only and two-adult coverage, with
exceptions that account for children who are potentially eligible for
the BHP. First, in states that set the upper income threshold for
children's Medicaid and CHIP eligibility below 200 percent of FPL
(based on modified adjusted gross income (MAGI)), children in
households with incomes between that threshold and 200 percent of FPL
would be potentially eligible for the BHP. Currently, the only states
in this category are Idaho and North Dakota.\8\ Second, the BHP would
include lawfully present immigrant children with household incomes at
or below 200 percent of FPL in states that have not exercised the
option under sections 1903(v)(4)(A)(ii) and 2107(e)(1)(E) of the Act to
qualify all otherwise eligible, lawfully present immigrant children for
Medicaid and CHIP. States that fall within these exceptions would be
identified based on their Medicaid and CHIP State Plans, and the rate
cells would include appropriate categories of BHP family coverage for
children. For example, Idaho's Medicaid and CHIP eligibility is limited
to families with MAGI at or below 185 percent FPL. If Idaho implemented
a BHP, Idaho children with household incomes between 185 and 200
percent could qualify. In other states, BHP eligibility will generally
be restricted to adults, since children who are citizens or lawfully
present immigrants and live in households with incomes at or below 200
percent of FPL will qualify for Medicaid or CHIP, and thus be
ineligible for a BHP under section 1331(e)(1)(C) of the Affordable Care
Act, which limits a BHP to individuals who are ineligible for minimum
essential coverage (as defined in 26 U.S.C. 5000A(f)).
---------------------------------------------------------------------------

\8\ CMCS. ``State Medicaid, CHIP and BHP Income Eligibility
Standards Effective April 1, 2019.''
---------------------------------------------------------------------------

2. Premium Adjustment Factor (PAF)
The PAF considers the premium increases in other states that took
effect after we discontinued payments to issuers for CSRs provided to
enrollees in QHPs offered through Exchanges. Despite the discontinuance
of federal payments for CSRs, QHP issuers are required to provide CSRs
to eligible enrollees. As a result, many QHP issuers increased the
silver-level plan premiums to account for those additional costs;
adjustments and how those were applied (for example, to only silver-
level plans or to all metal tier plans) varied across states. For the
states operating BHPs in 2018, the increases in premiums were
relatively minor, because the majority of enrollees eligible for CSRs
(and all who were eligible for the largest CSRs) were enrolled in the
BHP and not in QHPs on the Exchanges, and therefore issuers in BHP
states did not significantly raise premiums to cover unpaid CSR costs.
In the Final Administrative Order and the November 2019 final
payment notice, we incorporated the PAF into the BHP payment
methodologies for 2018, 2019, and 2020 to capture the impact of how
other states responded to us ceasing to pay CSRs. We propose to include
the PAF in the 2021 payment methodology and to calculate it in the same
manner as in the Final Administrative Order.
Under the Final Administrative Order, we calculated the PAF by
using information sought from QHP issuers in each state and the
District of Columbia, and determined the premium adjustment that the
responding QHP issuers made to each silver level plan in 2018 to
account for the discontinuation of CSR payments to QHP issuers. Based
on the data collected, we estimated the median adjustment for silver
level QHPs nationwide (excluding those in the two BHP states). To the
extent that QHP issuers made no adjustment (or the adjustment was 0),
this would be counted as 0 in determining the median adjustment made to
all silver level QHPs nationwide. If the amount of the adjustment was
unknown--or we determined that it should be excluded for methodological
reasons (for example, the adjustment was negative, an outlier, or
unreasonable)--then we did not count the adjustment towards determining
the median adjustment.\9\ The median adjustment for silver level QHPs
is the nationwide median adjustment.
---------------------------------------------------------------------------

\9\ Some examples of outliers or unreasonable adjustments
include (but are not limited to) values over 100 percent (implying
the premiums doubled or more as a result of the adjustment), values
more than double the otherwise highest adjustment, or non-numerical
entries.
---------------------------------------------------------------------------

For each of the two BHP states, we determined the median premium
adjustment for all silver level QHPs in that state, which we refer to
as the state median adjustment. The PAF for each BHP state equaled 1
plus the nationwide median adjustment divided by 1 plus the state
median adjustment for the BHP state. In other words,

PAF = (1 + Nationwide Median Adjustment) / (1 + State Median
Adjustment).

To determine the PAF described above, we sought to collect QHP
information from QHP issuers in each state and the District of Columbia
to determine the premium adjustment those issuers made to each silver
level plan offered through the Exchange in 2018 to account for the end
of CSR payments. Specifically, we sought information showing the
percentage change that QHP issuers made to the premium for each of
their silver level plans to cover benefit expenditures associated with
the CSRs, given the lack of CSR payments in 2018. This percentage
change was a portion of the overall premium increase from 2017 to 2018.
According to our records, there were 1,233 silver-level QHPs
operating on Exchanges in 2018. Of these 1,233 QHPs, 318 QHPs (25.8
percent) responded to our request for the percentage adjustment applied
to silver-level QHP premiums in 2018 to account for the discontinuance
of the CSRs. These 318 QHPs operated in 26 different states, with 10 of
those states running State-based Exchanges (SBEs) (while we requested
information only from QHP issuers in states serviced by an FFE, many of
those issuers also had QHPs in states operating SBEs and submitted
information for those states as well). Thirteen of these 318 QHPs were
in New York (and none were in Minnesota). Excluding these 13 QHPs from
the analysis, the nationwide median adjustment was 20.0 percent. Of the
13 QHPs in New York that responded, the state median adjustment was 1.0
percent. We believe that this is an appropriate adjustment for QHPs in
Minnesota, as well, based on the

[[Page 7508]]

observed changes in New York's QHP premiums in response to the
discontinuance of CSR payments (and the operation of the BHP in that
state) and our analysis of expected QHP premium adjustments for states
with BHPs. We calculated the proposed PAF as (1 + 20%) / (1 + 1%) (or
1.20/1.01), which results in a value of 1.188.
We propose that the PAF continue to be set to 1.188 for program
year 2021. We believe that this value for the PAF continues to
reasonably account for the increase in silver-level premiums
experienced in non-BHP states that took effect after the discontinuance
of the CSR payments. We believe that the impact of the increase in
silver-level premiums in 2021 can reasonably be expected to be similar
to that in 2018, because the discontinuation of CSR payments has not
changed. Moreover, we believe that states and QHP issuers have not
significantly changed the manner and degree to which they are
increasing QHP silver-level premiums to account for the discontinuation
of CSR payments since 2018, and we expect the same for 2021.
In addition, the percentage difference between the average second
lowest-cost silver level QHP and the bronze-level QHP premiums has not
changed significantly since 2018, and we do not expect a significant
change for 2021. In 2018, the average second lowest-cost silver level
QHP premium was 41.1 percent higher than the average lowest-cost
bronze-level QHP premium ($481 and $341, respectively). By 2020, the
difference is similar; the average second lowest-cost silver-level QHP
premium is 39.6 percent higher than the average lowest-cost bronze-
level QHP premium ($462 and $331, respectively).\10\ In contrast, the
average second lowest-cost silver-level QHP premium was only 23.8
percent higher than the average lowest-cost bronze-level QHP premium in
2017 ($359 and $290, respectively).\11\ If there were a significant
difference in the amounts that QHP issuers were increasing premiums for
silver-level QHPs to account for the discontinuation of CSR payments
over time, then we would expect the difference between the bronze-level
and silver-level QHP premiums to change significantly over time, and
that this would be apparent in comparing the lowest-cost bronze-level
QHP premium to the second lowest-cost silver-level QHP premium.
---------------------------------------------------------------------------

\10\ See Kaiser Family Foundation, ``Average Marketplace
Premiums by Metal Tier, 2018-2020,'' https://www.kff.org/health-reform/state-indicator/average-marketplace-premiums-by-metal-tier/.
\11\ See Basic Health Program: Federal Funding Methodology for
Program Years 2019 and 2020; Final Methodology, 84 FR 59529 through
59532 (November 5, 2019).
---------------------------------------------------------------------------

We request comments on our proposal that the PAF continue to be set
to 1.188 for program year 2021. We request comments on whether sources
of data other than what we sought in 2018 are available to account for
the adjustment to the silver-level QHP premiums to account for the
discontinuation of CSRs beyond 2018. We are considering if we could
obtain these data from the rate filings that include QHPs that issuers
are required to submit to HHS \12\ or if we can obtain this data by
conducting another survey of the QHP issuers. We are also considering
whether we could request information on how much premiums are adjusted
to account for the discontinuance of CSR payments in the QHP
applications for 2021 or as supplemental information with the QHP
applications. We are also considering whether we could survey issuers
after the submission of QHP applications for 2021 (likely mid-year
2020) to request information on these adjustments, similar to the
approach we used in the 2018 Final Administrative Order.
---------------------------------------------------------------------------

\12\ See 45 CFR 154.215 and 156.210.
---------------------------------------------------------------------------

We are also considering if we should calculate the PAF value for
2021 by estimating the adjustment to the QHP premiums for the
discontinuance of CSR payments rather than relying on information from
QHP issuers. We are considering whether we should calculate this
adjustment by estimating the percentage of enrollees in silver-level
QHPs who would be eligible for CSRs, the relative amount of CSRs these
enrollees would receive, and those amounts as a percentage of the QHP
premium absent any adjustment. Finally, we are also considering whether
to make a retrospective adjustment to the PAF for 2021 using the
authority under Sec. 600.610(c)(2)(iii) to reflect actual 2021
experience from states not operating a BHP once the necessary data for
2021 are available, which would be after the end of the program year.
3. Population Health Factor (PHF)
We propose that the PHF be included in the methodology to account
for the potential differences in the average health status between BHP
enrollees and persons enrolled through the Exchanges. To the extent
that BHP enrollees would have been enrolled through an Exchange in the
absence of a BHP in a state, the exclusion of those BHP enrollees in
the Exchange may affect the average health status of the overall
population and the expected QHP premiums.
We currently do not believe that there is evidence that the BHP
population would have better or poorer health status than the Exchange
population. At this time, there continues to be a lack of data on the
experience in the Exchanges that limits the ability to analyze the
potential health differences between these groups of enrollees. More
specifically, Exchanges have been in operation since 2014, and 2 states
have operated BHPs since 2015, but data is not available to do the
analysis necessary to determine if there are differences in the average
health status between BHP and Exchange enrollees. In addition,
differences in population health may vary across states. We also do not
believe that sufficient data would be available to permit us to make a
prospective adjustment to the PHF under Sec. 600.610(c)(2) for the
2021 program year.
Given these analytic challenges and the limited data about Exchange
coverage and the characteristics of BHP-eligible consumers, we propose
that the PHF continue to be 1.00 for program year 2021.
In previous years BHP payment methodologies, we included an option
for states to include a retrospective population health status
adjustment. We propose that states be provided with the same option for
2021 to include a retrospective population health status adjustment in
the certified methodology, which is subject to our review and approval.
This option is described further in section II.F. of this proposed
notice. Regardless of whether a state elects to include a retrospective
population health status adjustment, we anticipate that, in future
years, when additional data becomes available about Exchange coverage
and the characteristics of BHP enrollees, we may propose a different
PHF.
While the statute requires consideration of risk adjustment
payments and reinsurance payments insofar as they would have affected
the PTC that would have been provided to BHP-eligible individuals had
they enrolled in QHPs, we are not proposing to require that a BHP's
standard health plans receive such payments. As explained in the BHP
final rule, BHP standard health plans are not included in the
federally-operated risk adjustment program.\13\ Further, standard
health plans did not qualify for payments under the transitional
reinsurance program established under section 1341 of the Affordable
Care Act for the years the program was

[[Page 7509]]

operational (2014 through 2016).\14\ To the extent that a state
operating a BHP determines that, because of the distinctive risk
profile of BHP-eligible consumers, BHP standard health plans should be
included in mechanisms that share risk with other plans in the state's
individual market, the state would need to use other methods for
achieving this goal.
---------------------------------------------------------------------------

\13\ See 79 FR at 14131.
\14\ See 45 CFR 153.400(a)(2)(iv) (BHP standard health plans are
not required to submit reinsurance contributions), 153.20
(definition of ``Reinsurance-eligible plan'' as not including
``health insurance coverage not required to submit reinsurance
contributions''), 153.230(a) (reinsurance payments under the
national reinsurance parameters are available only for
``Reinsurance-eligible plans'').
---------------------------------------------------------------------------

4. Household Income (I)
Household income is a significant determinant of the amount of the
PTC that is provided for persons enrolled in a QHP through an Exchange.
Accordingly, both the current and proposed BHP payment methodologies
incorporate household income into the calculations of the payment rates
through the use of income-based rate cells. We propose defining
household income in accordance with the definition of modified adjusted
gross income in 26 U.S.C. 36B(d)(2)(B) and consistent with the
definition in 45 CFR 155.300. Income would be measured relative to the
FPL, which is updated periodically in the Federal Register by the
Secretary under the authority of 42 U.S.C. 9902(2). In our proposed
methodology, household size and income as a percentage of FPL would be
used as factors in developing the rate cells. We propose using the
following income ranges measured as a percentage of FPL: \15\
---------------------------------------------------------------------------

\15\ These income ranges and this analysis of income apply to
the calculation of the PTC.
---------------------------------------------------------------------------

0-50 percent.
51-100 percent.
101-138 percent.
139-150 percent.
151-175 percent.
176-200 percent.
We further propose to assume a uniform income distribution for each
federal BHP payment cell. We believe that assuming a uniform income
distribution for the income ranges proposed would be reasonably
accurate for the purposes of calculating the BHP payment and would
avoid potential errors that could result if other sources of data were
used to estimate the specific income distribution of persons who are
eligible for or enrolled in the BHP within rate cells that may be
relatively small.
Thus, when calculating the mean, or average, PTC for a rate cell,
we propose to calculate the value of the PTC at each 1 percentage point
interval of the income range for each federal BHP payment cell and then
calculate the average of the PTC across all intervals. This calculation
would rely on the PTC formula described in section II.D.5. of this
proposed notice.
As the advance payment of PTC (APTC) for persons enrolled in QHPs
would be calculated based on their household income during the open
enrollment period, and that income would be measured against the FPL at
that time, we propose to adjust the FPL by multiplying the FPL by a
projected increase in the CPI-U between the time that the BHP payment
rates are calculated and the QHP open enrollment period, if the FPL is
expected to be updated during that time. We propose that the projected
increase in the CPI-U would be based on the intermediate inflation
forecasts from the most recent OASDI and Medicare Trustees Reports.\16\
---------------------------------------------------------------------------

\16\ See Table IV A1 from the 2019 Annual Report of the Boards
of Trustees of the Federal Hospital Insurance and Federal
Supplementary Medical Insurance Trust Funds, available at https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/TR2019.pdf.
---------------------------------------------------------------------------

5. Premium Tax Credit Formula (PTCF)
In Equation 1 described in section II.A.1. of this proposed notice,
we propose to use the formula described in 26 U.S.C. 36B(b) to
calculate the estimated PTC that would be paid on behalf of a person
enrolled in a QHP on an Exchange as part of the BHP payment
methodology. This formula is used to determine the contribution amount
(the amount of premium that an individual or household theoretically
would be required to pay for coverage in a QHP on an Exchange), which
is based on (A) the household income; (B) the household income as a
percentage of FPL for the family size; and (C) the schedule specified
in 26 U.S.C. 36B(b)(3)(A) and shown below.
The difference between the contribution amount and the adjusted
monthly premium (that is, the monthly premium adjusted for the age of
the enrollee) for the applicable second lowest cost silver plan is the
estimated amount of the PTC that would be provided for the enrollee.
The PTC amount provided for a person enrolled in a QHP through an
Exchange is calculated in accordance with the methodology described in
26 U.S.C. 36B(b)(2). The amount is equal to the lesser of the premium
for the plan in which the person or household enrolls, or the adjusted
premium for the applicable second lowest cost silver plan minus the
contribution amount.
The applicable percentage is defined in 26 U.S.C. 36B(b)(3)(A) and
26 CFR 1.36B-3(g) as the percentage that applies to a taxpayer's
household income that is within an income tier specified in Table 1,
increasing on a sliding scale in a linear manner from an initial
premium percentage to a final premium percentage specified in Table 1.
We propose to continue to use applicable percentages to calculate the
estimated PTC that would be paid on behalf of a person enrolled in a
QHP on an Exchange as part of the BHP payment methodology as part of
Equation 1. We propose that the applicable percentages in Table 1 for
calendar year (CY) 2020 would be effective for BHP program year 2021.
The applicable percentages will be updated in future years in
accordance with 26 U.S.C. 36B(b)(3)(A)(ii).

Table 1--Applicable Percentage Table for CY 2020 a
------------------------------------------------------------------------
The initial The final
In the case of household income premium premium
(expressed as a percent of poverty line) percentage percentage
within the following income tier: is-- is--
------------------------------------------------------------------------
Up to 133%.............................. 2.06% 2.06%
133% but less than 150%................. 3.09 4.12
150% but less than 200%................. 4.12 6.49
200% but less than 250%................. 6.49 8.29
250% but less than 300%................. 8.29 9.78
300% but not more than 400%............. 9.78 9.78
------------------------------------------------------------------------
\a\ IRS Revenue Procedure 2019-29. https//www.irs.gov/pub/irs-drop/rp-19-29.pdf.

[[Page 7510]]

6. Metal Tier Selection Factor (MTSF)
On the Exchange, if an enrollee chooses a QHP and the value of the
PTC to which the enrollee is entitled is greater than the premium of
the plan selected, then the PTC is reduced to be equal to the premium.
This usually occurs when enrollees eligible for larger PTCs choose
bronze-level QHPs, which typically have lower premiums on the Exchange
than silver-level QHPs. Prior to 2018, we believed that the impact of
these choices and plan selections on the amount of PTCs that the
federal government paid was relatively small. During this time, most
enrollees in income ranges up to 200 percent FPL chose silver-level
QHPs, and in most cases where enrollees chose bronze-level QHPs, the
premium was still more than the PTC. Based on our analysis of the
percentage of persons with incomes below 200 percent FPL choosing
bronze-level QHPs and the average reduction in the PTCs paid for those
enrollees, we believe that the total PTCs paid for persons with incomes
below 200 percent FPL were reduced by about 1 percent in 2017.
Therefore, we did not seek to make an adjustment based on the effect of
enrollees choosing non-silver-level QHPs in developing the BHP payment
methodology applicable to program years prior to 2018. However, after
the discontinuance of the CSR payments in October 2017, several changes
occurred that increased the expected impact of enrollees' plan
selection choices on the amount of PTC the government paid. These
changes led to a larger percentage of individuals choosing bronze-level
QHPs, and for those individuals who chose bronze-level QHPs, these
changes also generally led to larger reductions in PTCs paid by the
federal government per individual. The combination of more individuals
with incomes below 200 percent of FPL choosing bronze-level QHPs and
the reduction in PTCs had an impact on PTCs paid by the federal
government for enrollees with incomes below 200 percent FPL. Silver-
level QHP premiums for the 2018 benefit year increased substantially
relative to other metal tier plans in many states (on average, by about
20 percent). We believe this contributed to an increase in the
percentage of enrollees with lower incomes choosing bronze-level QHPs,
despite being eligible for CSRs in silver-level QHPs, because many were
able to purchase bronze-level QHPs and pay $0 in premium; according to
CMS data, the percentage of persons with incomes between 0 percent and
200 percent of FPL eligible for CSRs (those who would be eligible for
the BHP if the state operated a BHP) selecting bronze-level QHPs
increased from about 11 percent in 2017 to about 13 percent in 2018. In
addition, the likelihood that a person choosing a bronze-level QHP
would pay $0 premium increased, and the difference between the bronze-
level QHP premium and the available PTC widened. Between 2017 and 2018,
the ratio of the average silver-level QHP premium to the average
bronze-level QHP premium increased: The average silver-level QHP
premium was 17 percent higher than the average bronze-level QHP premium
in 2017, whereas the average silver-level QHP premium was 33 percent
higher than the average bronze-level QHP premium in 2018. Similarly,
the average estimated reduction in APTC for enrollees with incomes
between 0 percent and 200 percent FPL that chose bronze-level QHPs
increased from about 11 percent in 2017 to about 23 percent in 2018
(after adjusting for the average age of bronze-level QHP and silver-
level QHP enrollees); that is, in 2017, enrollees with incomes in this
range who chose bronze-level QHPs received 11 percent less than the
full value of the APTC, and in 2018, those enrollees who chose bronze-
level QHPs received 23 percent less than the full value of the APTC.
The discontinuance of the CSR payments led to increases in silver-
level QHP premiums (and thus in the total potential PTCs), but did not
generally increase the bronze-level QHP premiums in most states; we
believe this is the primary reason for the increase in the percentage
reduction in PTCs paid by the government for those who enrolled in
bronze-level QHPs between 2017 and 2018. Therefore, we now believe that
the impacts on the amount of PTC the government would pay due to
enrollees' plan selection choices are larger and thus more significant,
and we are proposing to include an adjustment (the MTSF) in the BHP
payment methodology to account for the effects of these choices.
Section 1331(d)(3) of the Affordable Care Act requires that the BHP
payments to states be based on what would have been provided if such
eligible individuals were allowed to enroll in QHPs, and we believe
that it is appropriate to consider how individuals would have chosen
different plans--including across different metal tiers--as part of the
BHP payment methodology.
We finalized the application of the MTSF for the first time in the
2020 payment methodology, and here we propose to calculate the MTSF
using the same approach as finalized there (84 FR 59543). First, we
would calculate the percentage of enrollees with incomes below 200
percent of the FPL (those who would be potentially eligible for the
BHP) in non-BHP states who enrolled in bronze-level QHPs in 2018.
Second, we would calculate the ratio of the average PTC paid for
enrollees in this income range who selected bronze-level QHPs compared
to the average PTC paid for enrollees in the same income range who
selected silver-level QHPs. Both of these calculations would be done
using CMS data on Exchange enrollment and payments.
The MTSF would then be set to the value of 1 minus the product of
the percentage of enrollees who chose bronze-level QHPs and 1 minus the
ratio of the average PTC paid for enrollees in bronze-level QHPs to the
average PTC paid for enrollees in silver-level QHPs:

MTSF = 1-(percentage of enrollees in bronze-level QHPs x (1-average PTC
paid for bronze-level QHP enrollees/average PTC paid for silver-level
QHP enrollees))

We have calculated that 12.68 percent of enrollees in households
with incomes below 200 percent of the FPL selected bronze-level QHPs in
2018. We also have calculated that the ratio of the average PTC paid
for those enrollees in bronze-level QHPs to the average PTCs paid for
enrollees in silver-level QHPs was 76.66 percent after adjusting for
the average age of bronze-level and silver-level QHP enrollees. The
MTSF is equal to 1 minus the product of the percentage of enrollees in
bronze-level QHPs (12.68 percent) and 1 minus the ratio of the average
PTC paid for bronze-level QHP enrollees to the average PTC paid for
silver-level QHP enrollees (76.66 percent). Thus, the MTSF would be
calculated as:

MTSF = 1-(12.68% x (1-76.66%))

Therefore, we propose that the value of the MTSF for 2021 would be
97.04 percent.
We believe it is reasonable to use the same value for the MTSF as
was used in the 2020 payment methodology. First, we currently do not
have more recent and complete data available than the 2018 data that
was used to calculate the value of the MTSF finalized in the 2020
payment methodology. At this time, we only have data for several months
of 2019. Second, the MTSF reflects the percentage of enrollees choosing
bronze-level QHPs and the accompanying reduction in the PTCs paid. We
recognize that there may be changes to these over time, but we do not
expect significant year-to-year differences absent other changes to the
operations of the Exchanges (for example, the discontinuance of CSR
payments). As detailed above, we believe that states

[[Page 7511]]

and QHP issuers have not significantly changed their approaches to add
adjustments to account for the discontinuation of CSR payments to QHP
premiums, and that most states and QHP issuers are using similar
approaches as were used in 2018. We further believe that consumers will
continue to react to these adjustments and increases in silver-level
QHP premiums in the same manner; meaning that consumers will continue
to select bronze-level QHPs and the impact on PTCs paid by the
government will generally remain the same. Therefore, we believe that
our proposal to maintain the value of the MTSF at 97.04 percent is
reasonable for program year 2021.
We request comments on this proposal. In particular, we welcome
comments on whether other sources of data beyond 2018 are available and
should be used to calculate the MTSF for 2021. For example, one
potential alternative would be to update the MTSF with partial 2019
data collected by CMS for Exchange plan selection and enrollment (by
income and by metal tier selection) and for APTC paid for 2021 (based
on the number of months available at the time the final payment
methodology is published). Another potential alternative would be to
leverage the ability to make retrospective adjustments under Sec.
600.610(c)(2)(iii) to update the value for the MTSF for program year
2021 to reflect actual 2021 experience once the necessary data for 2021
are available, which would be after the end of the program year.
7. Income Reconciliation Factor (IRF)
For persons enrolled in a QHP through an Exchange who receive APTC,
there will be an annual reconciliation following the end of the year to
compare the advance payments to the correct amount of PTC based on
household circumstances shown on the federal income tax return. Any
difference between the latter amounts and the advance payments made
during the year would either be paid to the taxpayer (if too little
APTC was paid) or charged to the taxpayer as additional tax (if too
much APTC was paid, subject to any limitations in statute or
regulation), as provided in 26 U.S.C. 36B(f).
Section 1331(e)(2) of the Affordable Care Act specifies that an
individual eligible for the BHP may not be treated as a ``qualified
individual'' under section 1312 of the Affordable Care Act who is
eligible for enrollment in a QHP offered through an Exchange. We are
defining ``eligible'' to mean anyone for whom the state agency or the
Exchange assesses or determines, based on the single streamlined
application or renewal form, as eligible for enrollment in the BHP.
Because enrollment in a QHP is a requirement for individuals to receive
PTC, individuals determined or assessed as eligible for a BHP are not
eligible to receive APTC assistance for coverage in the Exchange.
Because they do not receive APTC assistance, BHP enrollees, on whom the
BHP payment methodology is generally based, are not subject to the same
income reconciliation as Exchange consumers.
Nonetheless, there may still be differences between a BHP
enrollee's household income reported at the beginning of the year and
the actual household income over the year. These may include small
changes (reflecting changes in hourly wage rates, hours worked per
week, and other fluctuations in income during the year) and large
changes (reflecting significant changes in employment status, hourly
wage rates, or substantial fluctuations in income). There may also be
changes in household composition. Thus, we believe that using
unadjusted income as reported prior to the BHP program year may result
in calculations of estimated PTC that are inconsistent with the actual
household incomes of BHP enrollees during the year. Even if the BHP
adjusts household income determinations and corresponding claims of
federal payment amounts based on household reports during the year or
data from third-party sources, such adjustments may not fully capture
the effects of tax reconciliation that BHP enrollees would have
experienced had they been enrolled in a QHP through an Exchange and
received APTC assistance.
Therefore, in accordance with current practice, we propose
including in Equation 1 an adjustment, the IRF, that would account for
the difference between calculating estimated PTC using: (a) Household
income relative to FPL as determined at initial application and
potentially revised mid-year under Sec. 600.320, for purposes of
determining BHP eligibility and claiming federal BHP payments; and (b)
actual household income relative to FPL received during the plan year,
as it would be reflected on individual federal income tax returns. This
adjustment would seek prospectively to capture the average effect of
income reconciliation aggregated across the BHP population had those
BHP enrollees been subject to tax reconciliation after receiving APTC
assistance for coverage provided through QHPs offered on an Exchange.
Consistent with the methodology used in past years, we propose
estimating reconciliation effects based on tax data for 2 years,
reflecting income and tax unit composition changes over time among BHP-
eligible individuals.
The OTA maintains a model that combines detailed tax and other
data, including Exchange enrollment and PTC claimed, to project
Exchange premiums, enrollment, and tax credits. For each enrollee, this
model compares the APTC based on household income and family size
estimated at the point of enrollment with the PTC based on household
income and family size reported at the end of the tax year. The former
reflects the determination using enrollee information furnished by the
applicant and tax data furnished by the IRS. The latter would reflect
the PTC eligibility based on information on the tax return, which would
have been determined if the individual had not enrolled in the BHP.
Consistent with prior years, we propose to use the ratio of the
reconciled PTC to the initial estimation of PTC as the IRF in Equations
(1a) and (1b) for estimating the PTC portion of the BHP payment rate.
For 2021, OTA has estimated that the IRF for states that have
implemented the Medicaid eligibility expansion to cover adults up to
133 percent of the FPL will be 99.23 percent, and for states that have
not implemented the Medicaid eligibility expansion and do not cover
adults up to 133 percent of the FPL will be 98.41 percent.
In previous program years, we used the average of these two values
to set the value for the IRF. At the outset of the BHP, we did not know
which states would choose to operate a BHP and whether they would be
states that implemented the Medicaid eligibility expansion for adults
up to 133 of the FPL or states that have not. In addition, there was
not a meaningful difference between the two estimated values in the
initial program years.\17\ Therefore, at that time we believed that
using the average of the factors was the appropriate approach. However,
to date, the only states that have operated a BHP are states that
implemented the Medicaid eligibility expansion and the majority of
enrolles in these BHPs have incomes between 133 percent and 200 percent
FPL. In addition, no other states have chosen to operate a BHP, and in
recent years we have seen estimated IRF

[[Page 7512]]

values that suggests there is a meaningful difference in the expected
results of income reconciliation between states that have and have not
expanded Medicaid eligibility.\18\
---------------------------------------------------------------------------

\17\ For example, the estimated 2016 IRF value was 100.25
percent for states that had expanded Medicaid eligibility and 100.24
percent for states that had not expanded eligibility. See 80 FR 9636
at 9644. Similary, the estimated 2017 IRF value was 100.40 percent
for states that expanded Medicaid eligibility and 100.35 percent for
those that had not. See 81 FR 10091 at 10101. Additionally, the
estimated 2018 IRF values were 97.37 for Medicaid expansion states
and 97.45 for non-Medicaid expansion states. See 84 FR 12552 at
12562.
\18\ For example, the estimated 2019 IRF value was 98.37 percent
for states that expanded Medicaid eligibility and 97.70 for those
that had not. Similarly, the estimated 2020 IRF values were 98.91
for Medicaid expansion states and 98.09 for non-Medicaid expansion
states. See 84 FR 59529 at 59544.
---------------------------------------------------------------------------

For these reasons, we believe that it is appropriate to refine the
calculation of the IRF and only use data regarding Exchange enrollees
with incomes between 133 percent and 200 percent FPL, as in Medicaid
expansion states, instead of an average that also includes data
regarding Exchange enrollees with incomes between 100 percent and 200
percent FPL, as in non-Medicaid expansion states. For the IRF, given
that we have the values for this factor for individuals with incomes
between 100 percent and 200 percent FPL and between 133 percent and 200
percent FPL separately, and the estimated 2021 IRF values demonstrate
there is a meaningful difference in the expected results of income
reconciliation between states that have and have not expanded Medicaid
eligibility, we propose to set the value of the IRF for program year
2021 based on those with incomes between 133 percent and 200 percent
FPL only, as in Medicaid expansion states. For other factors used in
the BHP payment methodology, it may not always be possible to separate
the experiences between different types of states and there may not be
meaningful differences between the experiences of such states.
Therefore, we propose to set the value of the IRF equal to the value of
the IRF for states that have expanded Medicaid eligibility, which is
99.23 percent for program year 2021.

E. State Option To Use Prior Program Year QHP Premiums for BHP Payments

In the interest of allowing states greater certainty in the total
BHP federal payments for a given plan year, we have given states the
option to have their final federal BHP payment rates calculated using a
projected ARP (that is, using premium data from the prior program year
multiplied by the premium trend factor (PTF)), as described in Equation
(2b). We propose to continue to require states to make their election
to have their final federal BHP payment rates calculated using a
projected ARP by May 15 of the year preceding the applicable program
year. Therefore, we propose states inform CMS in writing of their
election for the 2021 program year by May 15, 2020.
For Equation (2b), we propose to continue to define the PTF, with
minor proposed changes in calculation sources and methods, as follows:
PTF: In the case of a state that would elect to use the 2020
premiums as the basis for determining the 2021 BHP payment, it would be
appropriate to apply a factor that would account for the change in
health care costs between the year of the premium data and the BHP
program year. This factor would approximate the change in health care
costs per enrollee, which would include, but not be limited to, changes
in the price of health care services and changes in the utilization of
health care services. This would provide an estimate of the adjusted
monthly premium for the applicable second lowest cost silver plan that
would be more accurate and reflective of health care costs in the BHP
program year.
For the PTF we propose to use the annual growth rate in private
health insurance expenditures per enrollee from the National Health
Expenditure (NHE) projections, developed by the Office of the Actuary
in CMS (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/NationalHealthAccountsProjected.html). Based on these projections, for
BHP program year 2021, we propose that the PTF would be 4.8 percent.
We note that the increase in premiums for QHPs from 1 year to the
next may differ from the PTF developed for the BHP funding methodology
for several reasons. In particular, we note that the second lowest cost
silver plan may be different from one year to the next. This may lead
to the PTF being greater than or less than the actual change in the
premium of the second lowest cost silver plan.

F. State Option To Include Retrospective State-Specific Health Risk
Adjustment in Certified Methodology

To determine whether the potential difference in health status
between BHP enrollees and consumers in an Exchange would affect the PTC
and risk adjustment payments that would have otherwise been made had
BHP enrollees been enrolled in coverage through an Exchange, we propose
to continue to provide states implementing the BHP the option to
propose and to implement, as part of the certified methodology, a
retrospective adjustment to the federal BHP payments to reflect the
actual value that would be assigned to the population health factor (or
risk adjustment) based on data accumulated during that program year for
each rate cell.
We acknowledge that there is uncertainty with respect to this
factor due to the lack of available data to analyze potential health
differences between the BHP and QHP populations, which is why, absent a
state election, we propose to use a value for the PHF (see section
II.D.3. of this proposed notice) to determine a prospective payment
rate which assumes no difference in the health status of BHP enrollees
and QHP enrollees. There is considerable uncertainty regarding whether
the BHP enrollees will pose a greater risk or a lesser risk compared to
the QHP enrollees, how to best measure such risk, the potential effect
such risk would have had on PTC, and risk adjustment that would have
otherwise been made had BHP enrollees been enrolled in coverage through
an Exchange. To the extent, however, that a state would develop an
approved protocol to collect data and effectively measure the relative
risk and the effect on federal payments of PTCs and CSRs, we propose to
continue to permit a retrospective adjustment that would measure the
actual difference in risk between the two populations to be
incorporated into the certified BHP payment methodology and used to
adjust payments in the previous year.
For a state electing the option to implement a retrospective
population health status adjustment as part of the BHP payment
methodology applicable to the state, we propose requiring the state to
submit a proposed protocol to CMS, which would be subject to approval
by us and would be required to be certified by the Chief Actuary of
CMS, in consultation with the OTA. We propose to apply the same
protocol for the population health status adjustment as what is set
forth in guidance in Considerations for Health Risk Adjustment in the
Basic Health Program in Program Year 2015 (http://www.medicaid.gov/Basic-Health-Program/Downloads/Risk-Adjustment-and-BHP-White-Paper.pdf). We propose requiring a state to submit its proposed
protocol for the 2021 program year by August 1, 2020. We propose that
this submission would also need to include descriptions of how the
state would collect the necessary data to determine the adjustment,
including any contracting contingences that may be in place with
participating standard health plan issuers. We would provide technical
assistance to states as they develop their protocols, as requested. To
implement the population health status adjustment, we propose that we
must approve the state's protocol by

[[Page 7513]]

December 31, 2020 for the 2021 program year. Finally, we propose that
the state be required to complete the population health status
adjustment at the end of the program year based on the approved
protocol. After the end of the program year, and once data is made
available, we propose to review the state's findings, consistent with
the approved protocol, and make any necessary adjustments to the
state's federal BHP payment amounts. If we determine that the federal
BHP payments were less than they would have been using the final
adjustment factor, we would apply the difference to the state's next
quarterly BHP trust fund deposit. If we determine that the federal BHP
payments were more than they would have been using the final reconciled
factor, we would subtract the difference from the next quarterly BHP
payment to the state.

III. Collection of Information Requirements

The proposed methodology for program year 2021 is similar to the
methodology finalized for program year 2020 in the November 2019 final
payment notice. While we are proposing changes, the proposed changes
would not revise or impose any additional reporting, recordkeeping, or
third-party disclosure requirements or burden on QHPs or on states
operating State-based Exchanges. Although the methodology's information
collection requirements and burden had at one time been approved by OMB
under control number 0938-1218 (CMS-10510), the approval was
discontinued on August 31, 2017, since we adjusted our estimated number
of respondents below the Paperwork Reduction Act of 1995 (PRA) (44
U.S.C. 3501 et seq.) threshold of ten or more respondents. Since we
continue to estimate fewer than ten respondents, the proposed 2021
methodology is not subject to the requirements of the PRA.
We are seeking comment on whether or not to solicit information
from QHP issuers on the amount of the adjustment to premiums to account
for the discontinuance of CSR payments. We believe that soliciting such
information would likely impose some additional reporting requirements
on QHP issuers, and we welcome comments on the amount of burden this
would create.

IV. 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 preamble,
and, when we proceed with a subsequent document, we will respond to the
comments in the preamble to that document.

V. Regulatory Impact Analysis

A. Statement of Need

Section 1331 of the Affordable Care Act (42 U.S.C. 18051) requires
the Secretary to establish a BHP, and section 1331(d)(1) specifically
provides that if the Secretary finds that a state meets the
requirements of the program established under section 1331(a) of the
Affordable Care Act, the Secretary shall transfer to the state federal
BHP payments described in section 1331(d)(3). This proposed methodology
provides for the funding methodology to determine the federal BHP
payment amounts required to implement these provisions for program year
2021.

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 1102(b) of the Act, section 202 of the
Unfunded Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4),
Executive Order 13132 on Federalism (August 4, 1999), the Congressional
Review Act (5 U.S.C. 804(2) and Executive Order 13771 on Reducing
Regulation and Controlling Regulatory Costs (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). Section
3(f) of Executive Order 12866 defines a ``significant regulatory
action'' as an action that is likely to result in a rule: (1) Having an
annual effect on the economy of $100 million or more in any 1 year, or
adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or state, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating a serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
A regulatory impact analysis (RIA) must be prepared for major rules
with economically significant effects ($100 million or more in any 1
year). As noted in the BHP final rule, the BHP provides states the
flexibility to establish an alternative coverage program for low-income
individuals who would otherwise be eligible to purchase coverage on an
Exchange. Because we make no changes in methodology that would have a
consequential effect on state participation incentives, or on the size
of either the BHP program or offsetting PTC and CSR expenditures, the
effects of the changes made in this payment notice would not approach
the $100 million threshold, and hence it is neither an economically
significant rule under E.O. 12866 nor a major rule under the
Congressional Review Act. Moreover, the proposed regulation is not
economically significant within the meaning of section 3(f)(1) of the
Executive Order.

C. Anticipated Effects

The provisions of this proposed notice are designed to determine
the amount of funds that will be transferred to states offering
coverage through a BHP rather than to individuals eligible for federal
financial assistance for coverage purchased on the Exchange. We are
uncertain what the total federal BHP payment amounts to states will be
as these amounts will vary from state to state due to the state-
specific factors and conditions. For example, total federal BHP payment
amounts may be greater in more populous states simply by virtue of the
fact that they have a larger BHP-eligible population and total payment
amounts are based on actual enrollment. Alternatively, total federal
BHP payment amounts may be lower in states with a younger BHP-eligible
population as the RP used to calculate the federal BHP payment will be
lower relative to older BHP enrollees. While state composition will
cause total federal BHP payment amounts to vary from state to state, we
believe that the methodology, like the methodology used in 2020,
accounts for these variations to ensure accurate BHP payment transfers
are made to each state.
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) (RFA)
requires agencies to prepare a final regulatory flexibility analysis to
describe the impact of the final rule on small

[[Page 7514]]

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. Individuals and states are not included
in the definition of a small entity. Few of the entities that meet the
definition of a small entity as that term is used in the RFA would be
impacted directly by this methodology.
Because this methodology is focused solely on federal BHP payment
rates to states, it does not contain provisions that would have a
direct impact on hospitals, physicians, and other health care providers
that are designated as small entities under the RFA. Accordingly, we
have determined that the methodology, like the previous methodology and
the final rule that established the BHP program, will not have a
significant economic impact on a substantial number of small entities.
Section 1102(b) of the Act requires us to prepare a regulatory
impact analysis if a methodology may have a significant economic impact
on the operations of a substantial number of small rural hospitals. 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. For the preceding
reasons, we have determined that the methodology will not have a
significant impact on a substantial number of small rural hospitals.
Section 202 of the Unfunded Mandates Reform Act (UMRA) of 2005
requires that agencies assess anticipated costs and benefits before
issuing any rule whose mandates require spending in any 1 year of $100
million in 1995 dollars, updated annually for inflation, by state,
local, or tribal governments, in the aggregate, or by the private
sector. In 2019, that threshold is approximately $154 million. States
have the option, but are not required, to establish a BHP. Further, the
methodology would establish federal payment rates without requiring
states to provide the Secretary with any data not already required by
other provisions of the Affordable Care Act or its implementing
regulations. Thus, neither the current nor the proposed payment
methodologies mandate expenditures by state governments, local
governments, or tribal governments.
Executive Order 13132 establishes certain requirements that an
agency must meet when it issues a final rule that imposes substantial
direct effects on states, preempts state law, or otherwise has
federalism implications. The BHP is entirely optional for states, and
if implemented in a state, provides access to a pool of funding that
would not otherwise be available to the state. Accordingly, the
requirements of Executive Order 13132 do not apply to this proposed
notice.

D. Alternative Approaches

We considered several alternatives in developing the proposed BHP
payment methodology for 2021, and we discuss some of these alternatives
below.
We considered alternatives as to how to calculate the PAF in the
proposed methodology for 2021. The proposed value for the PAF is 1.188,
which is the same as was used for 2018, 2019, and 2020. We believe it
would be difficult to get the updated information from QHP issuers
comparable to what was used to develop the 2018 factor, because QHP
issuers may not distinctly consider the impact of the discontinuance of
CSR payments on the QHP premiums any longer. We do not have reason to
believe that the value of the PAF would change significantly between
program years 2018 and 2021. We are continuing to consider whether or
not there are other methodologies or data sources we may be able to use
to develop the PAF. We are also considering whether or not to update
the value of the PAF for 2021 after the end of the 2021 BHP program
year.
We also considered alternatives as how to calculate the MTSF in the
proposed methodology for 2021. The proposed value for the MTSF is 97.04
percent, which is the same as was finalized for 2020. We believe that
we would use the latest data available each year; for example, we
anticipate data from 2019 being available next year in developing the
subsequent BHP payment methodology. We are considering whether or not
there are other methodologies or data sources we may be able to use to
develop the MTSF. We are also considering whether or not to update the
value of the MTSF for 2021 after the end of the 2021 BHP program year.
We considered alternatives as how to calculate the IRF in the
proposed methodology for 2021. We are proposing to calculate the value
of this factor based on modeling by OTA, as we have done for prior
years. For the 2021 BHP payment methodology, we are considering
calculating the IRF from the latest available year of Exchange data. We
do not anticipate this would lead to a significant change in the value
of the IRF. In addition, we also considered whether to set the IRF as
the average of the expected values for states that have expanded
Medicaid eligibility and for states that have not, or to set the IRF as
the value for only states that have expanded Medicaid eligibility,
because only states that have expanded eligibility have operated a BHP
to date.
We also considered whether or not to continue to provide states the
option to develop a protocol for a retrospective adjustment to the
population health factor (PHF) as we did in previous payment
methodologies. We believe that continuing to provide this option is
appropriate and likely to improve the accuracy of the final payments.
We also considered whether or not to require the use of the program
year premiums to develop the federal BHP payment rates, rather than
allow the choice between the program year premiums and the prior year
premiums trended forward. We believe that the payment rates can still
be developed accurately using either the prior year QHP premiums or the
current program year premiums and that it is appropriate to continue to
provide the states the option.
Many of the factors proposed in this proposed notice are specified
in statute; therefore, for these factors we are limited in the
alternative approaches we could consider. One area in which we
previously had and still have a choice is in selecting the data sources
used to determine the factors included in the proposed methodology.
Except for state-specific RPs and enrollment data, we propose using
national rather than state-specific data. This is due to the lack of
currently available state-specific data needed to develop the majority
of the factors included in the proposed methodology. We believe the
national data will produce sufficiently accurate determinations of
payment rates. In addition, we believe that this approach will be less
burdensome on states. In many cases, using state-specific data would
necessitate additional requirements on the states to collect, validate,
and report data to CMS. By using national data, we are able to collect
data from other sources and limit the burden placed on the states. For
RPs and enrollment data, we propose using state-specific data rather
than national data as we believe state-specific data will produce more
accurate determinations than national averages.
We request public comment on these alternative approaches.

[[Page 7515]]

E. Regulatory Reform Analysis Under E.O. 13771

Executive Order 13771, titled Reducing Regulation and Controlling
Regulatory Costs, was issued on January 30, 2017 and requires that the
costs associated with significant 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 neither an E.O. 13771
regulatory action nor an E.O. 13771 deregulatory action.

F. Conclusion

We believe that this proposed BHP payment methodology is
effectively the same methodology as finalized for 2020. BHP payment
rates may change as the values of the factors change, most notably the
QHP premiums for 2020 or 2021. We do not anticipate this proposed
methodology to have any significant effect on BHP enrollment in 2021.
In accordance with the provisions of Executive Order 12866, this
regulation was reviewed by the Office of Management and Budget.

Dated: November 4, 2019.
Seema Verma,
Administrator, Centers for Medicare & Medicaid Services.

Dated: November 4, 2019.
Alex M. Azar,
Secretary, Department of Health and Human Services.
[FR Doc. 2020-02472 Filed 2-6-20; 4:15 pm]
BILLING CODE 4120-01-P